REGULATORY ASSETS AND LIABILITIES:

There have been no significant changes to the nature of SJG’s regulatory assets and liabilities since December 31, 2013, 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, 2013.

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



	March 31, 2014		December 31, 2013
Environmental Remediation Costs:
Expended - Net	$	26,590	$	29,945
Liability for Future Expenditures	119,604		119,492
Deferred Asset Retirement Obligation Costs	31,347		31,142
Deferred Pension and Other Postretirement Benefit Costs	59,284		59,284
Deferred Gas Costs - Net	34,008		—
Conservation Incentive Program Receivable	—		10,526
Societal Benefit Costs Receivable	5,528		10,408
Premium for Early Retirement of Debt	—		955
Deferred Interest Rate Contracts (Note 11)	4,735		3,735
Energy Efficiency Tracker	7,470		10,420
Pipeline Supplier Service Charges	6,690		7,106
Pipeline Integrity Cost	2,962		2,902
AFUDC - Equity Related Deferrals	8,631		7,810
Other Regulatory Assets	2,441		2,356

Total Regulatory Assets	$	309,290	$	296,081

DEFERRED GAS COSTS - 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 change from a $19.1 million regulatory liability at December 31, 2013 to a $34.0 million regulatory asset at March 31, 2014 was due to the actual cost of the commodity incurred during the first quarter exceeding the gas costs recovered from the customers as a result of higher prices.

CONSERVATION INCENTIVE PROGRAM (CIP) RECEIVABLE – The CIP tracking mechanism adjusts earnings when actual usage per customer experienced during the period varies from an established baseline usage per customer. Actual usage per customer was greater than the established baseline during the first three months of 2014 resulting in a payable that is recorded in the table below as a regulatory liability.The change from a receivable to a related payable is primarily the result of colder weather experienced in the region during the first quarter of 2014.

SOCIETAL BENEFIT COSTS RECEIVABLE - This regulatory asset primarily represents the deferred expenses under the New Jersey Clean Energy Program which is a mechanism designed to recover costs associated with energy efficiency and renewable energy programs. The decrease in the asset is due to colder weather experienced in the region during the first quarter of 2014 resulting in increased recoveries of the deferred expense.

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



	March 31, 2014		December 31, 2013
Excess Plant Removal Costs	$	39,647	$	40,029
Deferred Revenues-Net	—		19,067
Conservation Incentive Program Payable	6,193		—
Other Regulatory Liabilities	2,318		1,853

Total Regulatory Liabilities	$	48,158	$	60,949

DEFERRED 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. See "Deferred Gas -Costs - Net" above.

CONSERVATION INCENTIVE PROGRAM PAYABLE – The CIP tracking mechanism adjusts earnings when actual usage per customer experienced during the period varies from an established baseline usage per customer. See "Conservation Incentive Program (CIP) Receivable" above.