REGULATORY ASSETS AND LIABILITIES:

There have been no significant changes to the nature of SJG’s regulatory assets and liabilities since December 31, 2015, which are described in Notes 3 and 4 to the Financial Statements in Item 8 of SJG’s Form 10-K for the year ended December 31, 2015.

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



	September 30, 2016		December 31, 2015
Environmental Remediation Costs:
Expended - Net	$	57,100	$	42,032
Liability for Future Expenditures	160,587		123,194
Deferred Asset Retirement Obligation Costs	42,768		42,430
Deferred Pension and Other Postretirement Benefit Costs	79,779		79,779
Deferred Gas Costs - Net	—		2,701
Conservation Incentive Program Receivable	23,485		2,624
Deferred Interest Rate Contracts (Note 11)	10,346		7,631
Energy Efficiency Tracker	—		496
Pipeline Supplier Service Charges	2,527		3,776
Pipeline Integrity Cost	4,595		4,596
AFUDC - Equity Related Deferrals	12,357		11,423
Other Regulatory Assets	3,527		2,752

Total Regulatory Assets	$	397,071	$	323,434

ENVIRONMENTAL REMEDIATION COSTS - We have two regulatory assets associated with environmental costs related to the cleanup of 12 sites where we or our predecessors previously operated gas manufacturing plants. The first asset, "Environmental Remediation Cost: Expended - Net," represents what was actually spent to clean up the sites, less recoveries through the Remediation Adjustment Clause (RAC) and insurance carriers. These costs meet the deferral requirements of GAAP, as the BPU allows us to recover such expenditures through the RAC. The other asset, "Environmental Remediation Cost: Liability for Future Expenditures," relates to estimated future expenditures required to complete the remediation of these sites. We recorded this estimated amount as a regulatory asset with the corresponding current and noncurrent liabilities on the balance sheets under the captions "Current Liabilities" and "Regulatory and Other Noncurrent Liabilities." The BPU allows us to recover the deferred costs over seven-year periods after they are spent. The increase from December 31, 2015 is a result of expenditures made during the first nine months of 2016 and an increase in the expected future expenditures for remediation activities primarily due to an increase in the scope of the remediation at a site related to additional contamination being discovered.

DEFERRED GAS COSTS - NET - See discussion under "Deferred Revenues - Net" below.

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 less than the established baseline during the 2015 - 2016 winter season and during the first nine months of 2016, resulting in an increase in the receivable. This is primarily the result of warm weather experienced in the region.

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



	September 30, 2016		December 31, 2015
Excess Plant Removal Costs	$	30,324	$	32,644
Deferred Revenues-Net	14,418		—
Societal Benefit Costs	5,907		10,197
Energy Efficiency Tracker	401		—

Total Regulatory Liabilities	$	51,050	$	42,841

DEFERED REVENUES - NET - Over/under collections of gas costs are monitored through SJG's BGSS mechanism. Net under collected gas costs are classified as a regulatory asset and net over collected 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 changed from a $2.7 million regulatory asset at December 31, 2015 to a $14.4 million regulatory liability at September 30, 2016, primarily due to the gas costs recovered from customers exceeding the actual cost of the commodity.

ENERGY EFFICIENCY TRACKER (EET) - This regulatory liability primarily represents energy efficiency measures installed in customer homes and businesses. The change from a $0.5 million regulatory asset at December 31, 2015 to a $0.4 million regulatory liability at September 30, 2016 is due to recoveries being greater than the cost of, and allowed return on, investments in the EEP's. In February 2016, the BPU approved a $7.9 million revenue decrease to SJG’s EET (see Note 3).