FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (Tables)

6 Months Ended

Jun. 30, 2020

For financial assets and financial liabilities measured at fair value on a recurring basis, information about the fair value measurements for each major category is as follows (in thousands):


As of June 30, 2020	Total		Level 1		Level 2		Level 3
SJI (includes SJG and all other consolidated subsidiaries):
Assets
Available-for-Sale Securities (A)	$	40	$	40	$	—	$	—
Derivatives – Energy Related Assets (B)	43,411		10,868		15,591		16,952
	$	43,451	$	10,908	$	15,591	$	16,952
SJG:
Assets
Derivatives – Energy Related Assets (B)	$	4,842	$	369	$	107	$	4,366
	$	4,842	$	369	$	107	$	4,366
SJI (includes SJG and all other consolidated subsidiaries):
Liabilities
Derivatives – Energy Related Liabilities (B)	$	31,268	$	15,004	$	11,563	$	4,701
Derivatives – Other (C)	20,592		—		20,592		—
	$	51,860	$	15,004	$	32,155	$	4,701
SJG:
Liabilities
Derivatives – Energy Related Liabilities (B)	$	2,651	$	2,454	$	196	$	1
Derivatives – Other (C)	11,407		—		11,407		—
	$	14,058	$	2,454	$	11,603	$	1


As of December 31, 2019	Total		Level 1		Level 2		Level 3
SJI (includes SJG and all other consolidated subsidiaries):
Assets
Available-for-Sale Securities (A)	$	40	$	40	$	—	$	—
Derivatives – Energy Related Assets (B)	60,135		16,931		17,841		25,363
	$	60,175	$	16,971	$	17,841	$	25,363
SJG:
Assets
Derivatives – Energy Related Assets (B)	$	16,909	$	11,860	$	—	$	5,049
	$	16,909	$	11,860	$	—	$	5,049

SJI (includes SJG and all other consolidated subsidiaries):
Liabilities
Derivatives – Energy Related Liabilities (B)	$	50,171	$	34,446	$	7,936	$	7,789
Derivatives – Other (C)	12,660		—		12,660		—
	$	62,831	$	34,446	$	20,596	$	7,789
SJG:
Liabilities
Derivatives – Energy Related Liabilities (B)	$	14,766	$	14,565	$	187	$	14
Derivatives – Other (C)	7,856		—		7,856		—
	$	22,622	$	14,565	$	8,043	$	14

(A) Available-for-Sale Securities include securities that are traded in active markets and securities that are not traded publicly. The securities traded in active markets are valued using the quoted principal market close prices that are provided by the trustees and are categorized in Level 1 in the fair value hierarchy.

(B) Derivatives – Energy Related Assets and Liabilities are traded in both exchange-based and non-exchange-based markets. Exchange-based contracts are valued using unadjusted quoted market sources in active markets and are categorized in Level 1 in the fair value hierarchy - established by FASB ASC Topic 820 - “Fair Value Measurements and Disclosures.” Certain non-exchange-based contracts are valued using indicative price quotations available through brokers or over-the-counter, on-line exchanges and are categorized in Level 2. These price quotations reflect the average of the bid-ask mid-point prices and are obtained from sources that management believes provide the most liquid market. Management reviews and corroborates the price quotations with at least one additional source to ensure the prices are observable market information, which includes consideration of actual transaction volumes, market delivery points, bid-ask spreads and contract duration. Derivative instruments that are used to limit our exposure to changes in interest rates on variable-rate, long-term debt are valued using quoted prices on commonly quoted intervals, which are interpolated for periods different than the quoted intervals, as inputs to a market valuation model. Market inputs can generally be verified and model selection does not involve significant management judgment, as a result, these instruments are categorized in Level 2 in the fair value hierarchy. For non-exchange-based derivatives that trade in less liquid markets with limited pricing information, model inputs generally would include both observable and unobservable inputs. In instances where observable data is unavailable, management considers the assumptions that market participants would use in valuing the asset or liability. This includes assumptions about market risks such as liquidity, volatility and contract duration. Such instruments are categorized in Level 3 in the fair value hierarchy as the model inputs generally are not observable. Counterparty credit risk and the credit risk of SJI are incorporated and considered in the valuation of all derivative instruments as appropriate. The effect of counterparty credit risk and the credit risk of SJI on the derivative valuations is not significant.

Significant Unobservable Inputs - Management uses the discounted cash flow model to value Level 3 physical and financial forward contracts, which calculates mark-to-market valuations based on forward market prices, original transaction prices, volumes, risk-free rate of return and credit spreads. Inputs to the valuation model are reviewed and revised as needed, based on historical information, updated market data, market liquidity and relationships, and changes in third party pricing sources. The validity of the mark-to-market valuations and changes in these values from period to period are examined and qualified against historical expectations by the risk management function. If any discrepancies are identified during this process, the mark-to-market valuations or the market pricing information is evaluated further and adjusted, if necessary.

(C) Derivatives – Other are valued using quoted prices on commonly quoted intervals, which are interpolated for periods different than the quoted intervals, as inputs to a market valuation model. Market inputs can generally be verified and model selection does not involve significant management judgment.

Quantitative information regarding significant unobservable inputs

The following table provides quantitative information regarding significant unobservable inputs in Level 3 fair value measurements (in thousands, except for ranges):

SJI (includes SJG and all other consolidated subsidiaries):

Type

Fair Value at June 30, 2020

Valuation Technique

Significant Unobservable Input

Range
[Weighted Average]

Assets

Liabilities

Forward Contract - Natural Gas

$15,279

$2,953

Discounted Cash Flow

Forward price (per dt)

$1.27 - $6.47 [$2.74]

(A)

Forward Contract - Electric

$1,673

$1,748

Discounted Cash Flow

Fixed electric load profile (on-peak)

40.34% - 100.00% [58.15%]

(B)

Fixed electric load profile (off-peak)

0.00% - 59.66% [41.85%]

(B)

Type

Fair Value at December 31, 2019

Valuation Technique

Significant Unobservable Input

Range
[Weighted Average]

Assets

Liabilities

Forward Contract - Natural Gas

$21,645

$4,333

Discounted Cash Flow

Forward price (per dt)

$1.57 - $7.28 [$2.38]

(A)

Forward Contract - Electric

$3,718

$3,456

Discounted Cash Flow

Fixed electric load profile (on-peak)

0.00% - 100.00% [55.46%]

(B)

Fixed electric load profile (off-peak)

0.00% - 100.00% [44.54%]

(B)

SJG:

Type

Fair Value at June 30, 2020

Valuation Technique

Significant Unobservable Input

Range
[Weighted Average]

Assets

Liabilities

Forward Contract - Natural Gas

4,366

Discounted Cash Flow

Forward price (per dt)

$1.34 - $4.98 [$3.72]

(A)

Type

Fair Value at December 31, 2019

Valuation Technique

Significant Unobservable Input

Range
[Weighted Average]

Assets

Liabilities

Forward Contract - Natural Gas

5,049

Discounted Cash Flow

Forward price (per dt)

$1.85 - $3.61 [$3.02]

(A)

(A) Represents the range, along with the weighted average, of forward prices for the sale and purchase of natural gas.

(B) Represents the range, along with the weighted average, of the percentage of contracted usage that is loaded during on-peak hours versus off-peak.

Changes in fair value using significant unobservable inputs

The changes in fair value measurements of Derivatives – Energy Related Assets and Liabilities, using significant unobservable inputs (Level 3), are as follows (in thousands):


	Three Months Ended June 30, 2020		Six Months Ended June 30, 2020
SJI (includes SJG and all other consolidated subsidiaries):
Balance at beginning of period	$	18,979	$	17,574
Other Changes in Fair Value from Continuing and New Contracts, Net	(2,386)		7,017
Settlements	(4,342)		(12,340)

Balance at end of period	$	12,251	$	12,251

SJG:
Balance at beginning of period	$	4,806	$	5,035
Other Changes in Fair Value from Continuing and New Contracts, Net	(441)		4,365
Settlements	—		(5,035)

Balance at end of period	$	4,365	$	4,365


	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
SJI (includes SJG and all other consolidated subsidiaries):
Balance at beginning of period	$	8,277	$	16,061
Other Changes in Fair Value from Continuing and New Contracts, Net	6,553		4,285
Settlements	(4,870)		(10,386)

Balance at end of period	$	9,960	$	9,960

SJG:
Balance at beginning of period	$	1,706	$	4,928
Other Changes in Fair Value from Continuing and New Contracts, Net	2		1,708
Settlements	—		(4,928)

Balance at end of period	$	1,708	$	1,708