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FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES
9 Months Ended
Sep. 30, 2020
Fair Value Disclosures [Abstract]  
FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES:
GAAP establishes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques. The levels of the hierarchy are described below:

Level 1:  Observable inputs, such as quoted prices in active markets for identical assets or liabilities.

Level 2:  Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3:  Unobservable inputs that reflect the reporting entity’s own assumptions.

Assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of financial assets and financial liabilities and their placement within the fair value hierarchy.
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 September 30, 2020TotalLevel 1Level 2Level 3
SJI (includes SJG and all other consolidated subsidiaries):
Assets    
Available-for-Sale Securities (A)$40 $40 $— $— 
Derivatives – Energy Related Assets (B)46,948 18,953 16,876 11,119 
 $46,988 $18,993 $16,876 $11,119 
SJG:
Assets    
Derivatives – Energy Related Assets (B)$6,485 $2,181 $— $4,304 
$6,485 $2,181 $— $4,304 
SJI (includes SJG and all other consolidated subsidiaries):
Liabilities    
Derivatives – Energy Related Liabilities (B)$29,457 $8,393 $16,354 $4,710 
Derivatives – Other (C)19,715 — 19,715 — 
 $49,172 $8,393 $36,069 $4,710 
SJG:
Liabilities
Derivatives – Energy Related Liabilities (B)$817 $338 $479 $— 
Derivatives – Other (C)10,872 — 10,872 — 
$11,689 $338 $11,351 $— 

As of December 31, 2019TotalLevel 1Level 2Level 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.

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):

TypeFair Value at September 30, 2020Valuation TechniqueSignificant Unobservable InputRange
[Weighted Average]
AssetsLiabilities
Forward Contract - Natural Gas$10,403$4,050Discounted Cash FlowForward price (per dt)
$0.72 - $7.09 [$3.18]
(A)
Forward Contract - Electric

$716$660Discounted Cash FlowFixed electric load profile (on-peak)
40.34% - 100.00% [60.14%]
(B)
Fixed electric load profile (off-peak)
0.00% - 59.66% [39.86%]
(B)
TypeFair Value at December 31, 2019Valuation TechniqueSignificant Unobservable InputRange
[Weighted Average]
AssetsLiabilities
Forward Contract - Natural Gas$21,645$4,333Discounted Cash FlowForward price (per dt)
$1.57 - $7.28 [$2.38]
(A)
Forward Contract - Electric$3,718$3,456Discounted Cash FlowFixed 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:
TypeFair Value at September 30, 2020Valuation TechniqueSignificant Unobservable InputRange
[Weighted Average]
AssetsLiabilities
Forward Contract - Natural Gas$4,304 $— Discounted Cash FlowForward price (per dt)
$1.05 - $5.47 [$4.03]
(A)


TypeFair Value at December 31, 2019Valuation TechniqueSignificant Unobservable InputRange
[Weighted Average]
AssetsLiabilities
Forward Contract - Natural Gas$5,049 $14 Discounted Cash FlowForward 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.
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
September 30, 2020
Nine Months Ended
September 30, 2020
SJI (includes SJG and all other consolidated subsidiaries):
Balance at beginning of period$12,251 $17,574 
Other Changes in Fair Value from Continuing and New Contracts, Net (3,198)3,819 
Settlements(2,644)(14,984)
Balance at end of period$6,409 $6,409 
SJG:
Balance at beginning of period$4,365 $5,035 
Other Changes in Fair Value from Continuing and New Contracts, Net (61)4,304 
Settlements— (5,035)
Balance at end of period$4,304 $4,304 

Three Months Ended
September 30, 2019
Nine Months Ended
September 30, 2019
SJI (includes SJG and all other consolidated subsidiaries):
Balance at beginning of period$9,959 $16,061 
Other Changes in Fair Value from Continuing and New Contracts, Net 6,046 10,331 
Settlements(4,144)(14,531)
Balance at end of period$11,861 $11,861 
SJG:
Balance at beginning of period$1,708 $4,928 
Other Changes in Fair Value from Continuing and New Contracts, Net 6,533 8,241 
Settlements— (4,928)
Balance at end of period$8,241 $8,241