STOCK-BASED COMPENSATION PLANS

9 Months Ended

Sep. 30, 2012

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

STOCK-BASED COMPENSATION PLANS

STOCK-BASED COMPENSATION PLANS:

Officers and other key employees of SJG participate in the Stock Option, Stock Appreciation Rights and Restricted Stock Award Plan ("Plan") of SJI. Restricted shares issued under this plan vest over a three-year period and are subject to SJI achieving certain market or earnings-based performance targets as compared to a peer group average, which can cause the actual amount of shares that ultimately vest to range from between 0% to 150% of the original share units granted. Grants containing market-based performance targets have been issued in each of the last three years and use SJI's total shareholder return (TSR) relative to a peer group to measure performance. Beginning with 2012, grants containing earnings-based targets have also been issued. These new grants are based on SJI's earnings per share (EPS) growth rate relative to a peer group to measure performance.

See Note 2 to the Consolidated Financial Statements in Item 8 of SJG Annual Report on Form 10-K as of December 31, 2011 for the related accounting policy.

The following table summarizes the SJI nonvested restricted stock awards pertaining to SJG outstanding at September 30, 2012, and the assumptions used to estimate the fair value of the awards:

Grant Date	Shares Outstanding	Fair Value Per Share		Expected Volatility		Risk-Free Interest Rate
Jan. 2010 - TSR	9,920	$	39.020	29.0	%	1.65	%
Jan. 2011 - TSR	7,372	$	50.940	27.5	%	1.01	%
Jan. 2012 - TSR	3,868	$	51.230	22.5	%	0.43	%
Jan. 2012 - EPS	3,868	$	56.930	n/a		n/a

Expected volatility is based on the actual volatility of SJI’s share price over the preceding three year period as of the valuation date. The risk-free interest rate is based on the zero-coupon U.S. Treasury Bond, with a term equal to the three year term of the restricted shares. As notional dividend equivalents are credited to the holders, which are reinvested during the three year service period, no reduction to the fair value of the award is required.

The cost for restricted stock awards during 2012 and 2011 is approximately $0.1 million per quarter.

As of September 30, 2012, there was $0.5 million of total unrecognized compensation cost related to nonvested share-based compensation awards granted under the restricted stock plans. That cost is expected to be recognized over a weighted average period of 1.8 years.

The following table summarizes information regarding restricted stock award activity during the nine months ended September 30, 2012, excluding accrued dividend equivalents:

	Shares		Weighted Average Grant Date Fair Value
Nonvested Shares Outstanding, January 1, 2012	17,568		$	44.139
Granted	7,913		$	54.080
Canceled / Forfeited	(453	)	$	49.430
Nonvested Shares Outstanding, September 30, 2012	25,028		$	47.186

During the nine months ended September 30, 2012, SJG awarded 7,098 shares that had vested at December 31, 2011, to its officers and other key employees at a market value of $0.4 million. During the nine month ended September 30, 2011, SJG awarded 15,186 shares at a market value of $0.8 million. SJG has a policy of making cash payments to SJI to satisfy its obligations under this plan. Cash payments to SJI during each of the nine months ended September 30, 2012 and 2011 were approximately $0.3 million relating to stock awards. Additionally, a change in control could result in the nonvested shares becoming nonforfeitable or immediately payable in cash.