REGULATORY ASSETS & REGULATORY LIABILITIES:

The discussion under Note 10 is integral to the following explanations of specific regulatory assets and liabilities.

The Utilities Regulatory Assets consisted of the following items (in thousands):



	December 31, 2018								December 31, 2017
	SJG		ETG		ELK		Total SJI		Total SJI and SJG
Environmental Remediation Costs:
Expended - Net	$	136,227	$	10,875	$	—	$	147,102	$	100,327
Liability for Future Expenditures	148,071		104,594		—		252,665		171,696
Deferred Asset Retirement Obligation Costs	31,096		—		—		31,096		42,368
Deferred Pension Costs - Unrecognized Prior Service Cost	—		40,612		14		40,626		—
Deferred Pension and Other Postretirement Benefit Costs	80,121		2,607		30		82,758		78,211
Deferred Gas Costs - Net	57,889		—		289		58,178		16,838
CIP Receivable	—		—		—		—		26,652
Societal Benefit Costs Receivable	2,173		—		—		2,173		2,484
Deferred Interest Rate Contracts	5,867		—		—		5,867		7,028
Energy Efficiency Tracker	2,319		—		—		2,319		2,094
Pipeline Supplier Service Charges	617		—		—		617		708
Pipeline Integrity Cost	5,140		—		—		5,140		5,280
AFUDC - Equity Related Deferrals	13,914		—		—		13,914		12,785
Weather Normalization	—		3,210		139		3,349		—
Other Regulatory Assets	8,931		8,023		211		17,165		2,753

Total Regulatory Assets	$	492,365	$	169,921	$	683	$	662,969	$	469,224

Except where noted below, all regulatory assets are or will be recovered through utility rate charges, as detailed in the following discussion. The Utilities are currently permitted to recover interest on Environmental Remediation Costs, Societal Benefit Costs Receivable, Energy Efficiency Tracker and Pipeline Integrity Costs, while the other assets are being recovered without a return on investment.

Environmental Remediation Costs - SJG and ETG have two regulatory assets associated with environmental costs related to the cleanup of environmental sites. SJG has 12 sites where SJG or its predecessors previously operated gas manufacturing plants, while ETG is subject to environmental remediation liabilities associated with six former manufactured gas plant sites in New Jersey. The first asset, "Environmental Remediation Cost: Expended - Net," represents what was actually spent to clean up the sites, less recoveries through the RAC and insurance carriers. These costs meet the deferral requirements of GAAP, as the BPU allows SJG and ETG to recover such expenditures through the RAC. The other asset, "Environmental Remediation Cost: Liability for Future Expenditures," relates to estimated future expenditures required to complete the remediation of these sites. SJG and ETG recorded this estimated amount as a regulatory asset with the corresponding current and noncurrent liabilities on the consolidated balance sheets under the captions "Current Liabilities" (SJI and SJG) and "Deferred Credits and Other Noncurrent Liabilities" (SJI) and "Regulatory and Other Noncurrent Liabilities" (SJG). The BPU allows SJG to recover the deferred costs over seven-year periods after they are incurred. Accrued environmental remediation costs at ETG are recoverable from customers through rate mechanisms approved by the BPU.

Deferred ARO Costs - SJG records AROs primarily related to the legal obligation to cut and cap gas distribution pipelines when taking those pipelines out of service. Deferred ARO costs represent the period to period passage of time (accretion) and the revision to cash flows originally estimated to settle the retirement obligation (see Note 1). The Deferred ARO Costs regulatory asset decreased $11.3 million from December 31, 2017 to December 31, 2018, due to revisions to the settlement timing, retirement costs, and changes to inflation and discount rates used to measure the expected retirement costs. A corresponding decrease was made to the ARO liability (see Note 1), thus having no impact on earnings.

Deferred Pension Costs - Unrecognized Prior Service Cost - The BPU approved ETG to recover costs related to ETG's unrecognized prior service cost and actuarial gains/losses for pension and postretirement benefits. This ETG deferred asset of $40.6 million is being amortized over 13.5 years for pension and over 7.7 years for postretirement benefits.

Deferred Pension and Other Postretirement Benefit Costs - The BPU authorized SJG and ETG and the MPSC authorized ELK to recover costs related to postretirement benefits under the accrual method of accounting consistent with GAAP. SJI's regulatory asset represents the recognition of the underfunded positions of SJIU's pension and other postretirement benefit plans. Subsequent adjustments to this balance occur annually to reflect changes in the funded positions of these benefit plans caused by changes in actual plan experience as well as assumptions of future experience (see Note 12).

Deferred Gas Costs - Net - Over/under collections of gas costs are monitored through SJG's and ETG's BGSS bill credit . Net undercollected gas costs are classified as a regulatory asset and net overcollected gas costs are classified as a regulatory liability (see Note 10). Derivative contracts used to hedge natural gas purchases are also included in the BGSS, subject to BPU approval (see Note 16). The BGSS regulatory assets of SJI and SJG increased $41.3 million and $41.0 million, respectively, from December 31, 2017 to December 31, 2018, primarily due to the actual gas commodity costs exceeding recoveries from customers.

SBC Receivable - This regulatory asset primarily represents the deferred expenses incurred under the NJCEP, which is a mechanism designed to recover costs associated with energy efficiency and renewable energy programs(see Note 10).

Deferred Interest Rate Contracts - These amounts represent the market value of interest rate derivatives as discussed further in Note 16.

Energy Efficiency Tracker - This regulatory asset represents cumulative investments less recoveries under the EEP

Pipeline Supplier Service Charges - This regulatory asset represents costs necessary to maintain adequate supply and system pressures, which are being recovered on a monthly basis through the BGSS over the term of the underlying supplier contracts (see Note 10).

Pipeline Integrity Cost - As part of SJG's October 2017 base rate increase, SJG was permitted to recover previously deferred pipeline integrity costs incurred through October 2017. In addition, SJG is authorized to defer future program costs, including related carrying costs, for recovery in SJG's next base rate proceeding, subject to review by the BPU (see Note 10).

AFUDC Equity Related Deferrals - This regulatory asset represents the future revenue to recover the future income taxes related to the deferred tax liability for the equity component of AFUDC. The deferred amount is being amortized over the life of the associated utility plant.

Weather Normalization - The tariffs for ETG include a weather normalization clause that reduces customer bills when winter weather is colder than normal and increases customer bills when winter weather is warmer than normal.

Other Regulatory Assets - Some of the assets included in Other Regulatory Assets are currently being recovered from ratepayers as approved by the BPU. Management believes the remaining deferred costs are probable of recovery from ratepayers through future utility rates. Included in this number for SJG is the impact of the ERIP on SJG employees, see Note 1.

The Utilities Regulatory Liabilities consisted of the following items (in thousands):



	December 31, 2018								December 31, 2017
	SJG		ETG		ELK		Total SJI		Total SJI and SJG
Excess Plant Removal Costs	20,805		47,909		1,393		$	70,107	$	23,295
Excess Deferred Taxes	259,863		118,757		1,231		379,851		263,810
Deferred Revenues - Net	—		3,188		—		3,188		—
CIP Payable	5,871		—		—		5,871		—
Amounts to be Refunded to Customers	—		17,039		—		17,039		—
Other Regulatory Liabilities	—		2,443		—		2,443		—

Total Regulatory Liabilities	$	286,539	$	189,336	$	2,624	$	478,499	$	287,105

Excess Plant Removal Costs - The Utilities accrue and collect for cost of removal of utility property. This regulatory liability represents customer collections in excess of actual expenditures, which will be returned to customers as a reduction to depreciation expense. The Excess Plant Removal Costs Liability increased from December 31, 2017 due to the addition of ETG/ELK.

Excess Deferred Taxes - This liability is recognized as a result of Tax Reform enacted into law on December 22, 2017 (See Notes 1 and 4). The increase in this regulatory liability at SJI of $116.0 million for the year ended December 31, 2018 includes those excess deferred income tax liabilities of ETG and ELK resulting from Tax Reform. The decrease in this regulatory liability at SJG of $3.9 million for the year ended December 31, 2018 is related to excess tax amounts returned to customers through customer billings. The Unprotected amount of excess deferred taxes of $26.1 million will be returned to customers over a five year period. The remaining balance will be deferred until SJG's next base rate case as approved by the BPU. (See Note 10).

Deferred Revenues - Net - Over/under collections of gas costs are monitored through the ETG's BGSS mechanism. Net under collected gas costs are classified as a regulatory asset and net over collected gas costs are classified as a regulatory liability. Derivative contracts used to hedge natural gas purchases are also included in the BGSS, subject to BPU approval.

CIP Payable - The CIP tracking mechanism at SJG adjusts earnings when actual usage per customer experienced during the period varies from an established baseline usage per customer. Actual usage per customer was more than the established baseline during 2018, resulting in a regulatory liability. This is primarily the result of cold weather experienced in the region.

Amounts to be Refunded to Customers - See "AMA" section in Note 1.