AFFILIATIONS, DISCONTINUED OPERATIONS AND RELATED-PARTY TRANSACTIONS

3 Months Ended

Mar. 31, 2022

AFFILIATIONS, DISCONTINUED OPERATIONS AND RELATED-PARTY TRANSACTIONS

AFFILIATIONS, DISCONTINUED OPERATIONS AND RELATED-PARTY TRANSACTIONS:

AFFILIATIONS — The following affiliated entities are accounted for under the equity method:

PennEast - Midstream has a 20% investment in PennEast. See Note 3 to the Consolidated Financial Statements in Item 8 of SJI's and SJG’s Annual Report on Form 10-K for the year ended December 31, 2021 for a timeline of events related to PennEast, including the determination by the PennEast partners that further development of the project is no longer supported, and thus all further development of the project has ceased.

Energenic - Marina and a joint venture partner formed Energenic, in which Marina has a 50% equity interest. Energenic developed and operated on-site, self-contained, energy-related projects. Energenic currently does not have any projects that are operational; however, it owns cogeneration, long-lived assets for which Energenic has been pursuing project development opportunities. Marina has notes related to Energenic; such notes are secured by the cogeneration assets. See Note 3 to the Consolidated Financial Statements in Item 8 of SJI's and SJG’s Annual Report on Form 10-K for the year ended December 31, 2021 for more information regarding these assets and notes, including the impairment charge recorded in the fourth quarter of 2021 due to a determination that future development of a project is no longer probable.

Millennium - SJI and a joint venture partner formed Millennium, in which SJI has a 50% equity interest. Millennium reads utility customers’ meters on a monthly basis for a fee.

Potato Creek - SJI and a joint venture partner formed Potato Creek, in which SJEX has a 30% equity interest. Potato Creek owns and manages the oil, gas and mineral rights of certain real estate in Pennsylvania.

EnergyMark - SJE has a 33% investment in EnergyMark, an entity that acquires and markets natural gas to retail end users.

SJRG had net sales to EnergyMark of $11.6 million and $7.4 million for the three months ended March 31, 2022 and 2021, respectively.

REV - SJI Renewable Energy Ventures, LLC has a 35% equity interest in REV, an LNG distributor and developer of LNG and RNG assets and projects.

Red River - SJI RNG Devco, LLC has an 80% equity interest in Red River, an entity that processes raw biogas derived from agricultural feedstock into renewable biomethane for pipeline injection.

AFFILIATE TRANSACTIONS - SJI made net investments in and net advances to unconsolidated affiliates of $28.9 million for the three months ended March 31, 2022; net investments in and net advances to unconsolidated affiliates for the three months ended March 31, 2021 were not material.

As of March 31, 2022 and December 31, 2021, the outstanding balance of Notes Receivable – Affiliates was $82.1 million and $69.9 million, respectively. These Notes Receivable-Affiliates balances are comprised of:

•As of March 31, 2022 and December 31, 2021, $77.4 million and $62.6 million, respectively, of the notes are related to REV, which accrue interest at variable rates.

•As of both March 31, 2022 and December 31, 2021, $2.0 million of the notes are related to Energenic. Such notes are secured by Energenic's cogeneration assets for energy service projects and are to be repaid through 2025, although the Company does not expect to realize amounts above its share of the remaining fair value of Energenic's cogeneration assets, and thus the Company does not accrue interest. Current losses at Energenic have been offset against the Notes Receivable – Affiliates balance in recent years as our investment in the Energenic affiliate has been reduced to zero as a result of previous losses.

•As of March 31, 2022 and December 31, 2021, $2.7 million and $5.3 million, respectively, of unsecured notes which accrue interest at variable rates.

SJI holds significant variable interests in these entities but is not the primary beneficiary. Consequently, these entities are accounted for under the equity method because SJI does not have both (a) the power to direct the activities of the entity that most significantly impact the entity’s economic performance and (b) the obligation to absorb losses of the entity that could potentially be significant to the entity or the right to receive benefits from the entity that could potentially be significant to the entity. As of March 31, 2022 and December 31, 2021, SJI had a net asset of approximately $53.9 million and $38.5 million, respectively, included in Investment in Affiliates on the condensed consolidated balance sheets related to equity method investees. SJI’s maximum exposure to loss from these entities as of March 31, 2022 and December 31, 2021 is limited to its combined investments in these entities, which includes related Notes Receivable-Affiliates, in the aggregate amount of $136.0 million and $108.5 million, respectively.

DISCONTINUED OPERATIONS - There have been no significant changes to the nature or balances of SJI's discontinued operations since December 31, 2021, which are defined and described in Note 3 to the Consolidated Financial Statements in Item 8 of SJI’s and SJG's Annual Report on Form 10-K for the year ended December 31, 2021.

GUARANTEES - SJI has issued guarantees to third parties on behalf of its consolidated subsidiaries. See Note 11.

SJI RELATED-PARTY TRANSACTIONS - On April 1, 2022, SJRG and ETG entered into an AMA whereby SJRG manages the pipeline capacity of ETG. This AMA expires on March 31, 2024. Under the AMA, SJRG pays ETG an annual fee of $3.6 million, plus additional profit sharing as defined in the AMA. The amounts received by ETG will be credited to its BGSS clause and returned to its ratepayers.

SJG RELATED-PARTY TRANSACTIONS - There have been no significant changes in the nature of SJG’s related-party transactions since December 31, 2021. See Note 3 to the Consolidated Financial Statements in Item 8 of SJI's and SJG’s Annual Report on Form 10-K for the year ended December 31, 2021 for a description of related parties and associated transactions.

A summary of related-party transactions involving SJG, excluding pass-through items, included in SJG's Operating Revenues were as follows (in thousands):


	Three Months Ended March 31,
		2022		2021
Operating Revenues/Affiliates:
SJRG		$	8,280	6,329
Other		21		21
Total Operating Revenues/Affiliates		$	8,301	$	6,350

Related-party transactions involving SJG, excluding pass-through items, included in SJG's Cost of Sales and Operating Expenses were as follows (in thousands):


	Three Months Ended March 31,
		2022		2021
Costs of Sales/Affiliates (Excluding depreciation and amortization)
SJRG		$	80	$	1,367

Operations Expense/Affiliates:
SJI (parent company only)		$	6,372	$	5,564
SJIU		1,006		960
Millennium		930		866
Other		18		73
Total Operations Expense/Affiliates		$	8,326	$	7,463