FINANCIAL INSTRUMENTS:

RESTRICTED INVESTMENTS - In accordance with the terms of our tax-exempt first mortgage bonds, unused proceeds are required to be escrowed pending approved construction expenditures. As of December 31, 2015 and December 31, 2014, the escrowed proceeds, including interest earned, totaled $32,200 and $132,300, respectively. SJG maintains a margin account with a counterparty in conjunction with SJG's risk management activities as detailed in Note 14. The funds provided by SJG will increase or decrease as the number and value of outstanding energy-related contracts held with this counterparty changes. As of December 31, 2015 and 2014, the balance held by the counterparty was $6.7 million and $7.8 million, respectively. The carrying amounts of the Restricted Investments approximate their fair value at December 31, 2015 and December 31, 2014, which would be included in Level 1 of the fair value hierarchy. (See Note 13 - Fair Value of Financial Assets and Financial Liabilities).

NOTE RECEIVABLE - In June 2015, SJG advanced $10.0 million to a not-for profit organization formed to spur economic development in Atlantic City, New Jersey, of which $0.1 million was repaid. The note bears interest at 1% for an initial term of six months, with the borrower's option to extend the term for two additional terms of three months each. In December 2015, the borrower exercised its first option to extend the term of the note for an additional three months. SJG holds a first lien security interest on land in Atlantic City as collateral against this note. The carrying amount of this receivable approximates its fair value at December 31, 2015, which would be included in Level 2 of the fair value hierarchy (See Note 13 - Fair Value of Financial Assets and Financial Liabilities).

LONG-TERM RECEIVABLES – SJG provides financing to customers for the purpose of attracting conversions to natural gas heating systems from competing fuel sources. The terms of these loans call for customers to make monthly payments over a period of five to ten years with no interest. The carrying amounts of such loans were $12.9 million and $15.0 million as of December 31, 2015 and December 31, 2014, respectively. The current portion of these receivables is reflected in Accounts Receivable and the non-current portion is reflected in Long-Term Receivables on the balance sheets. The carrying amounts noted above are net of unamortized discounts resulting from imputed interest in the amount of $1.3 million as of both December 31, 2015 and December 31, 2014. The annual amortization to interest is not material to SJG’s financial statements. The carrying amounts of these receivables approximate their fair value at December 31, 2015 and December 31, 2014, which would be included in Level 2 of the fair value hierarchy. (See Note 13 - Fair Value of Financial Assets and Financial Liabilities).

FINANCIAL INSTRUMENTS NOT CARRIED AT FAIR VALUE - The fair value of a financial instrument is the market price to sell an asset or transfer a liability at the measurement date. The carrying amounts of SJG's financial instruments that are not carried at fair value, including those financial instruments disclosed in this footnote, approximate their fair values at December 31, 2015 and December 31, 2014, except as noted below.

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For Long-Term Debt, in estimating the fair value, we use the present value of remaining cash flows at the balance sheet date. We based the estimates on interest rates available to SJG at the end of each period for debt with similar terms and maturities (Level 2 in the fair value hierarchy. See Note 13 - Fair Value of Financial Assets and Financial Liabilities). The estimated fair values of SJG's long-term debt, including current maturities, as of December 31, 2015 and December 31, 2014, were $657.4 million and $587.3 million, respectively. The carrying amounts of SJG's long-term debt, including current maturities, as of December 31, 2015 and December 31, 2014, were $612.0 million and $543.0 million, respectively.