REGULATORY ASSETS AND REGULATORY LIABILITIES

9 Months Ended

Sep. 30, 2022

Regulatory Assets and Liabilities Disclosure [Abstract]

REGULATORY ASSETS AND REGULATORY LIABILITIES

REGULATORY ASSETS AND REGULATORY LIABILITIES:

Except as described below, there have been no significant changes to the nature or balances of the Utilities' regulatory assets and liabilities since December 31, 2021, which are described in Note 11 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.

The Utilities' Regulatory Assets as of September 30, 2022 and December 31, 2021 consisted of the following items (in thousands):

	September 30, 2022
	SJG		ETG		Total SJI
Environmental Remediation Costs:
Expended - Net	$	150,189	$	24,268	$	174,457
Liability for Future Expenditures	97,492		75,443		172,935
Deferred ARO Costs	52,395		37,910		90,305
Deferred Pension and Other Postretirement Benefit Costs - Unrecognized Prior Service Cost	—		28,438		28,438
Deferred Pension and Other Postretirement Benefit Costs	47,504		611		48,115
Deferred Gas Costs - Net	16,217		—		16,217
CIP Receivable	11,053		3,884		14,937
SBC Receivable (excluding RAC)	7,308		551		7,859
Deferred Interest Rate Contracts	2,861		—		2,861
EET/EEP	24,464		7,657		32,121
AFUDC - Equity Related Deferrals	12,675		—		12,675
Deferred COVID-19 Costs	7,791		11,625		19,416
Other Regulatory Assets	23,319		2,694		26,013
Total Regulatory Assets	$	453,268	$	193,081	$	646,349

	December 31, 2021
	SJG		ETG		Total SJI
Environmental Remediation Costs:
Expended - Net	$	151,630	$	13,972	$	165,602
Liability for Future Expenditures	97,964		77,830		175,794
Deferred ARO Costs	47,784		33,872		81,656
Deferred Pension and Other Postretirement Benefit Costs - Unrecognized Prior Service Cost	—		30,881		30,881
Deferred Pension and Other Postretirement Benefit Costs	47,504		813		48,317
Deferred Gas Costs - Net	38,234		—		38,234
CIP Receivable	17,776		2,955		20,731
SBC Receivable (excluding RAC)	7,519		—		7,519
Deferred Interest Rate Contracts	8,002		—		8,002
EET/EEP	20,632		5,199		25,831
AFUDC - Equity Related Deferrals	12,199		—		12,199
WNC	—		4,269		4,269
Deferred COVID-19 Costs	7,687		10,225		17,912
Other Regulatory Assets	25,814		9,655		35,469
Total Regulatory Assets	$	482,745	$	189,671	$	672,416

Except where noted below, all regulatory assets are or are expected to be recovered through utility rate charges, as detailed in the following discussion. The Utilities are currently permitted to recover interest on Environmental Remediation Costs, SBC Receivable, and EET/EEP, while the other assets are being recovered without a return on investment.

ENVIRONMENTAL REMEDIATION COSTS - SJG and ETG have regulatory assets associated with environmental costs related to the cleanup of environmental sites as discussed in Note 15 of SJI's and SJG's Annual Report on Form 10-K for the year ended December 31, 2021. The BPU allows SJG and ETG to recover the deferred costs not recovered from insurance carriers through their RAC mechanisms over seven-year periods after the costs are incurred.

DEFERRED ARO COSTS - The Utilities record 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 depreciation of the underlying ARO asset. The Deferred ARO Costs regulatory asset increased due to both accretion and depreciation. There is no impact on earnings as a result of these changes.

DEFERRED GAS COSTS - NET - Over/under collections of gas costs are monitored through SJG's and ETG's BGSS clause. Included in SJG's balance as of September 30, 2022 and December 31, 2021 is $15.1 million and $21.3 million, respectively, of costs related to a previous pricing dispute on a long-term gas supply contract. As of June 1, 2021, SJG has begun to recover these costs from its customers through the BGSS clause. SJG’s "Deferred Gas Costs - Net" are in an under-recovered position, resulting in a regulatory asset as of both September 30, 2022 and December 31, 2021. The decrease in this asset is primarily due to the recoveries from customers exceeding the actual gas commodity costs and changes in valuations of hedged natural gas positions. ETG's Deferred Gas Costs-Net are in an over-recovered position, resulting in a regulatory liability as of September 30, 2022 and December 31, 2021, see the Regulatory Liabilities table below.

CIP RECEIVABLE - The CIP tracking mechanism at SJG and ETG adjusts earnings when the actual usage per customer experienced during the period varies from an established baseline usage per customer. For SJG, actual usage per customer was more than the established baseline during the first nine months of 2022, resulting in a reduction of the regulatory asset at September 30, 2022 as compared to December 31, 2021. For ETG, actual usage per customer was less than the established baseline during the first nine months of 2022, resulting in an increase of the regulatory asset at September 30, 2022. As noted in Note 7, ETG began recovering against the CIP deferred regulatory asset on October 1, 2022.

DEFERRED INTEREST RATE CONTRACTS - These amounts represent the net unrealized gains or losses of interest rate derivatives as discussed further in Note 12.

EET/EEP - The EET/EEP Regulatory Assets of SJG and ETG increased from December 31, 2021 to September 30, 2022 primarily due to expenditures in excess of recoveries as well as investments in the new EEP.

WNC - The tariffs for ETG included a weather normalization clause that reduced customer bills when weather was colder than normal and increased customer bills when weather was warmer than normal. The WNC deferral ended May 31, 2021 and was replaced by the CIP effective July 1, 2021. As such, the WNC program is no longer active. The remaining under-recovered WNC deferral balance is inconsequential and is presented with the CIP.

DEFERRED COVID-19 COSTS - On July 2, 2020, the BPU issued an Order authorizing New Jersey's regulated utilities to create a COVID-19-related regulatory asset by deferring on their books and records the prudently incurred incremental costs related to COVID-19 beginning on March 9, 2020 and continuing through September 30, 2021, or 60 days after the termination of the public health emergency, whichever is later. On September 14, 2021, the BPU extended this period to December 31, 2022. The Company is required to file quarterly reports with the BPU, along with a petition of recovery of such incremental costs with the BPU by December 31, 2022 or within 60 days of the close of the tracking period, whichever is later. The deferred balance is principally related to expected credit losses from uncollectibles as a result of the COVID-19 pandemic, specifically related to changes in payment patterns observed to date and consideration of macroeconomic factors. We have deemed these costs to be probable of recovery. As of September 30, 2022 and December 31, 2021, ETG deferred $11.6 million and $10.2 million, respectively, and SJG deferred $7.8 million and $7.7 million, respectively, principally related to changes in payment patterns observed to date and consideration of macroeconomic factors. The Utilities continued the suspension of disconnects for nonpayment by our customers, based on an executive order issued by the Governor of New Jersey in 2020, in which water, gas and electricity providers were barred from cutting services to New Jersey residents. On June 14, 2021, the Governor ended the shutoff moratorium effective July 1, 2021, but established a grace period that ran through the end of 2021. In December 2021, the Governor extended this grace period to March 15, 2022. During the grace period, disconnections for residential customers for nonpayment were prohibited, and low and moderate income households had until March 15, 2022 to work out how to pay back any outstanding bills. On March 25, 2022, the BPU approved an order which amended the existing customer bill of rights. These amendments require the Company to continue service for customers who submitted an application for State-administered utility assistance programs prior to June 15, 2022. The Company is required to continue service through the date that the application is either approved or rejected by the respective State agency.

OTHER REGULATORY ASSETS - The Other Regulatory Asset balance decreased from December 31, 2021 to September 30, 2022 primarily due to the write-off of an ETG regulatory asset which consisted of certain non-functioning property, plant, and equipment costs which was determined to no longer be probable of recovery (see Note 1).

The Utilities' Regulatory Liabilities as of September 30, 2022 and December 31, 2021 consisted of the following items (in thousands):

	September 30, 2022
	SJG		ETG		Total SJI
Excess Plant Removal Costs	$	12,947	$	35,221	$	48,168
Excess Deferred Taxes	193,830		108,790		302,620
Deferred Gas Costs - Net	—		52,535		52,535
Other Regulatory Liabilities	3,549		1,727		5,276
Total Regulatory Liabilities	$	210,326	$	198,273	$	408,599

	December 31, 2021
	SJG		ETG		Total SJI
Excess Plant Removal Costs	$	12,125	$	33,988	$	46,113
Excess Deferred Taxes	206,902		111,003		317,905
Deferred Gas Costs - Net	—		28,842		28,842
Other Regulatory Liabilities	3,384		2,707		6,091
Total Regulatory Liabilities	$	222,411	$	176,540	$	398,951

EXCESS DEFERRED TAXES - This liability is recognized as a result of Tax Reform enacted into law on December 22, 2017. The decrease in this regulatory liability from December 31, 2021 to September 30, 2022 is related to excess tax amounts returned to customers through customer billings. See Note 10 of SJI's and SJG's Annual Report on Form 10-K for the year ended December 31, 2021.

DEFERRED GAS COSTS - NET - Over/under collections of gas costs are monitored through 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 purchase are also included in the BGSS, subject to BPU approval. The increase from December 31, 2021 to September 30, 2022 is primarily due to the change in the value of the energy related derivative contracts along with the recoveries from customers exceeding the actual gas commodity costs.