REGULATORY ASSETS AND LIABILITIES:

There have been no significant changes to the nature of SJG’s regulatory assets and liabilities since December 31, 2012, 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, 2012.

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



	March 31, 2013		December 31, 2012
Environmental Remediation Costs:
Expended - Net	$	32,784	$	37,892
Liability for Future Expenditures	108,013		107,410
Deferred Asset Retirement Obligation Costs	30,390		30,199
Deferred Pension and Other Postretirement Benefit Costs	95,897		95,897
Conservation Incentive Program Receivable	18,629		31,686
Societal Benefit Costs Receivable	12,900		12,801
Premium for Early Retirement of Debt	1,035		1,075
Deferred Interest Rate Contracts (Note 11)	6,885		7,761
Energy Efficiency Tracker	12,556		12,306
Pipeline Supplier Service Charges	8,355		8,771
Other Regulatory Assets	7,645		6,858

Total Regulatory Assets	$	335,089	$	352,656

CONSERVATION INCENTIVE PROGRAM (CIP) RECEIVABLE – The decrease in this receivable is primarily the result of colder weather experienced in the region during the 2012- 2013 winter season compared with the prior winter season. The CIP tracking mechanism adjusts earnings when actual usage per customer experienced during the period varies from an established baseline usage per customer.

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



	March 31, 2013		December 31, 2012
Excess Plant Removal Costs	$	43,567	$	45,593
Deferred Revenues-Net	27,533		10,924
Other Regulatory Liabilities	2,498		—

Total Regulatory Liabilities	$	73,598	$	56,517

DEFERED REVENUES - NET - Over/under collections of gas costs are monitored through SJG's BGSS mechanism. 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 increased from a $10.9 million regulatory liability at December 31, 2012 to a $27.5 million regulatory liability at March 31, 2013 primarily due to the gas costs recovered from customers exceeding the actual cost of the commodity. SJG typically over collects during the winter season when throughput is high and under collects during the summer season when throughput is low.