REGULATORY ASSETS AND LIABILITIES:

There have been no significant changes to the nature of SJG’s regulatory assets and liabilities since December 31, 2011, which are described in Notes 3 and 4 to the Financial Statements in Item 8 of SJG’s Form 10-K as of December 31, 2011.

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



	June 30, 2012		December 31, 2011
Environmental Remediation Costs:
Expended - Net	$	39,747	$	45,815
Liability for Future Expenditures	88,853		89,984
Deferred Asset Retirement Obligation Costs	25,319		25,162
Deferred Pension and Other Postretirement Benefit Costs	88,435		88,624
Deferred Gas Costs - Net	5,197		22,441
Conservation Incentive Program Receivable	31,498		13,580
Societal Benefit Costs Receivable	11,215		8,618
Premium for Early Retirement of Debt	456		537
Deferred Interest Rate Contracts (Note 11)	8,680		8,146
Energy Efficiency Tracker	11,650		8,464
Other Regulatory Assets	5,206		3,850

Total Regulatory Assets	$	316,256	$	315,221

CONSERVATION INCENTIVE PROGRAM RECEIVABLE (CIP)– The increase in this receivable is primarily the result of unusually warm weather experienced in the region during the first half of 2012. The CIP tracking mechanism adjusts earnings when actual usage per customer experienced during the period varies from an established baseline usage per customer.

DEFERRED GAS COSTS – NET – Over/under collections of gas costs are monitored through SJG’s BGSS clause. Net undercollected gas costs are classified as a regulatory asset and net overcollected 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. The BGSS decreased from a $22.4 million regulatory asset at December 31, 2011 to a $5.2 million regulatory asset at June 30, 2012 primarily due to gas costs recovered from customers exceeding the actual cost of the commodity incurred during the first half of 2012, as a result of natural gas prices remaining at very low levels.

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



	June 30, 2012		December 31, 2011
Excess Plant Removal Costs	$	46,668	$	47,230
Other Regulatory Liabilities	1,278		1,081

Total Regulatory Liabilities	$	47,946	$	48,311