form10q.htm

0001140361-11-026007.txt : 20110509 0001140361-11-026007.hdr.sgml : 20110509 20110509165124 ACCESSION NUMBER: 0001140361-11-026007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20110331 FILED AS OF DATE: 20110509 DATE AS OF CHANGE: 20110509 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTH JERSEY GAS CO/NEW CENTRAL INDEX KEY: 0001035216 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION & DISTRIBUTION [4923] IRS NUMBER: 210398330 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22211 FILM NUMBER: 11824101 BUSINESS ADDRESS: STREET 1: NUMBER ONE SOUTH JERSEY PLAZA STREET 2: ROUTE 54 CITY: FOLSOM STATE: NJ ZIP: 08037 BUSINESS PHONE: 6095619000 MAIL ADDRESS: STREET 1: NUMBER ONE SOUTH JERSEY PLAZA STREET 2: ROUTE 54 CITY: FOLSOM STATE: NJ ZIP: 08037 10-Q 1 form10q.htm SOUTH JERSEY GAS COMPANY 10-Q 3-31-2011 form10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark one)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________ to ________________

Commission File Number 000-22211

SOUTH JERSEY GAS COMPANY

(Exact name of registrant as specified in its charter)

New Jersey		21-0398330
(State of incorporation)		IRS employer identification no.)

1 South Jersey Plaza, Folsom, NJ 08037

(Address of principal executive offices, including zip code)

(609) 561-9000

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o
Non-accelerated filer x (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of May 2, 2011 there were 2,339,139 shares of the registrant’s common stock outstanding. All common shares are owned by South Jersey Industries, Inc., the parent company of South Jersey Gas Company.

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		Page No.

PART I	FINANCIAL INFORMATION	3

Item 1.	Financial Statements	3

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	16

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23

Item 4.	Controls and Procedures	24

PART II	OTHER INFORMATION	25

Item 1.	Legal Proceedings	25

Item 1A.	Risk Factors	25

Item 6.	Exhibits	25

Signatures		25

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SOUTH JERSEY GAS COMPANY

CONDENSED STATEMENTS OF INCOME (UNAUDITED)

(In Thousands)

	Three Months Ended
	March 31,
	2011			2010

Operating Revenues	$	180,323		$	196,716

Operating Expenses:
Cost of Sales (Excluding depreciation)		88,574			116,875
Operations		18,273			17,807
Maintenance		3,009			2,816
Depreciation		7,460			7,079
Energy and Other Taxes		4,514			4,348

Total Operating Expenses		121,830			148,925

Operating Income		58,493			47,791

Other Income and Expense		878			233

Interest Charges		(5,029	)		(4,015	)

Income Before Income Taxes		54,342			44,009

Income Taxes		(22,046	)		(18,139	)

Net Income	$	32,296		$	25,870

The accompanying notes are an integral part of the unaudited condensed financial statements.

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SOUTH JERSEY GAS COMPANY

CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(In Thousands)

	Three Months Ended
	March 31,
	2011			2010

Net Income	$	32,296		$	25,870

Other Comprehensive (Loss) Gain - Net of Tax:

Unrealized (Loss) Gain on Available-for-Sale Securities		(154	)		144
Unrealized Gain on Derivatives - Other		7			7

Other Comprehensive (Loss) Gain - Net of Tax *		(147	)		151

Comprehensive Income	$	32,149		$	26,021

* Determined using a combined statutory tax rate of 41% .

The accompanying notes are an integral part of the unaudited condensed financial statements.

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SOUTH JERSEY GAS COMPANY

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In Thousands)

	Three Months Ended
	March 31,
	2011			2010

Net Cash Provided by Operating Activities	$	64,707		$	72,204

Cash Flows from Investing Activities:
Capital Expenditures		(25,605	)		(37,414	)
Purchase of Restricted Investments in Margin Accounts		(211	)		-
Investment in Long-Term Receivables		(1,492	)		(910	)
Proceeds from Long-Term Receivables		1,691			609

Net Cash Used in Investing Activities		(25,617	)		(37,715	)

Cash Flows from Financing Activities:
Net Repayments of Lines of Credit		(38,650	)		(47,400	)
Proceeds from Issuance of Long-Term Debt		-			15,000
Payments for Issuance of Long-Term Debt		(10	)		(559	)

Net Cash Used in Financing Activities		(38,660	)		(32,959	)

Net Increase in Cash and Cash Equivalents		430			1,530
Cash and Cash Equivalents at Beginning of Period		2,030			1,993

Cash and Cash Equivalents at End of Period	$	2,460		$	3,523

The accompanying notes are an integral part of the unaudited condensed financial statements.

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SOUTH JERSEY GAS COMPANY

CONDENSED BALANCE SHEETS (UNAUDITED)

(In Thousands)

	March 31,			December 31,
	2011			2010
Assets

Property, Plant and Equipment:
Utility Plant, at original cost	$	1,403,985		$	1,384,797
Accumulated Depreciation		(344,365	)		(337,993	)

Property, Plant and Equipment - Net		1,059,620			1,046,804

Investments:
Available-for-Sale Securities		7,015			6,700
Restricted Investments		4,512			4,301

Total Investments		11,527			11,001

Current Assets:
Cash and Cash Equivalents		2,460			2,030
Accounts Receivable		74,112			37,619
Accounts Receivable - Related Parties		3,700			4,885
Unbilled Revenues		35,167			58,197
Provision for Uncollectibles		(3,823	)		(4,577	)
Natural Gas in Storage, average cost		6,010			20,109
Materials and Supplies, average cost		2,764			2,511
Prepaid Taxes		-			15,907
Derivatives - Energy Related Assets		2,488			5,864
Other Prepayments and Current Assets		2,470			2,353

Total Current Assets		125,348			144,898

Regulatory and Other Noncurrent Assets:
Regulatory Assets		239,436			248,413
Unamortized Debt Issuance Costs		6,539			6,718
Long-Term Receivables		7,402			7,285
Derivatives - Energy Related Assets		195			1,005
Other		2,415			2,511

Total Regulatory and Other Noncurrent Assets		255,987			265,932

Total Assets	$	1,452,482		$	1,468,635

The accompanying notes are an integral part of the unaudited condensed financial statements.

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SOUTH JERSEY GAS COMPANY

CONDENSED BALANCE SHEETS (UNAUDITED)

(In Thousands, except per share amounts)

	March 31,			December 31,
	2011			2010

Capitalization and Liabilities

Common Equity:
Common Stock, Par Value $2.50 per share:
Authorized - 4,000,000 shares
Outstanding - 2,339,139 shares	$	5,848		$	5,848
Other Paid-In Capital and Premium on Common Stock		200,841			200,841
Accumulated Other Comprehensive Loss		(9,267	)		(9,120	)
Retained Earnings		261,612			229,316

Total Common Equity		459,034			426,885

Long-Term Debt		340,000			340,000

Total Capitalization		799,034			766,885

Current Liabilities:
Notes Payable		20,250			58,900
Current Portion of Long-Term Debt		50,000			50,000
Accounts Payable - Commodity		17,655			26,915
Accounts Payable - Other		20,613			19,628
Accounts Payable - Related Parties		9,476			10,830
Derivatives - Energy Related Liabilities		5,796			11,406
Deferred Income Taxes - Net		3,721			4,982
Customer Deposits and Credit Balances		10,150			10,525
Environmental Remediation Costs		19,697			25,662
Taxes Accrued		13,191			1,915
Pension Benefits		1,182			1,182
Interest Accrued		5,110			7,011
Other Current Liabilities		3,962			5,156

Total Current Liabilities		180,803			234,112

Regulatory and Other Noncurrent Liabilities:
Regulatory Liabilities		61,146			69,248
Deferred Income Taxes - Net		250,809			239,648
Environmental Remediation Costs		63,248			61,731
Asset Retirement Obligations		28,214			27,925
Pension and Other Postretirement Benefits		61,178			59,754
Investment Tax Credits		1,132			1,207
Derivatives - Energy Related Liabilities		134			430
Derivatives - Other		2,630			3,150
Other		4,154			4,545

Total Regulatory and Other Noncurrent Liabilities		472,645			467,638

Commitments and Contingencies (Note 9)

Total Capitalization and Liabilities	$	1,452,482		$	1,468,635

The accompanying notes are an integral part of the unaudited condensed financial statements.

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NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

THE ENTITY - South Jersey Industries, Inc. (SJI) owns all of the outstanding common stock of South Jersey Gas Company (SJG), a regulated natural gas utility. SJG distributes natural gas in the seven southern most counties of New Jersey. In our opinion, the condensed financial statements reflect all normal and recurring adjustments needed to fairly present our financial position and operating results at the dates and for the periods presented. SJG’s business is subject to seasonal fluctuations and accordingly, this interim financial information should not be the basis for estimating the full year’s operating results. As permitted by the rules and regulations of the Securities and Exchange Commission, the accompanying condensed financial statements contain certain condensed financial information and exclude certain note disclosures normally included in annual audited financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). These condensed financial statements should be read in conjunction with SJG’s 2010 Form 10-K for a more complete discussion of our accounting policies and certain other information.

REVENUE BASED TAXES - SJG collects certain revenue-based energy taxes from its customers. Such taxes include New Jersey State Sales Tax, Transitional Energy Facility Assessment (TEFA) and Public Utilities Assessment (PUA). State sales tax is recorded as a liability when billed to customers and is not included in revenue or operating expenses. TEFA and PUA are included in both revenues and cost of sales, and totaled $3.9 million and $3.8 million for the three months ended March 31, 2011 and 2010, respectively.

NEW ACCOUNTING PRONOUNCEMENTS — No new accounting pronouncement issued or effective during 2011 and 2010 had, or is expected to have, a material impact on the condensed financial statements.

2.	STOCK-BASED COMPENSATION PLANS:

The following table summarizes the SJI nonvested restricted stock awards pertaining to SJG outstanding at March 31, 2011, 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. 2009		8,318	$	39.350		28.6	%		1.20	%
Jan. 2010		10,024	$	39.020		29.0	%		1.65	%
Jan. 2011		7,544	$	50.940		27.5	%		1.01	%

Expected volatility is based on the actual volatility of SJI’s share price over the preceding 3-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 3-year term of the restricted shares. As notional dividend equivalents are credited to the holders, which are reinvested during the 3-year service period, no reduction to the fair value of the award is required.

The cost for restricted stock awards during 2011 and 2010 is approximately $0.1 million per quarter.

As of March 31, 2011, there was $0.7 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 2.2 years.

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The following table summarizes information regarding restricted stock award activity during the three months ended March 31, 2011, excluding accrued dividend equivalents:

	Shares		Weighted Average Grant Date Fair Value
Nonvested Shares Outstanding, January 1, 2011		18,342	$	39.170

Granted		7,544	$	50.940

Nonvested Shares Outstanding, March 31, 2011		25,886	$	42.600

During March 2011, SJG awarded 15,186 shares that had vested at December 31, 2010, to its officers at a market value of $0.8 million. During March 2010, SJG awarded 14,400 shares at a market value of $0.5 million. SJG has a policy of making cash payments to SJI to satisfy its obligations under this plan. Cash payments to SJI during both the three months ended March 31, 2011 and 2010 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.

3.	RATES AND REGULATORY ACTIONS:

SJG is subject to the rules and regulations of the New Jersey Board of Public Utilities (BPU). The Company made a filing with the BPU in October 2010 requesting an extension of the Capital Investment Recovery Tracker (CIRT). The BPU approved the extension on March 29, 2011, allowing the Company to accelerate an additional $60.3 million of capital spending into 2011 and 2012. Under the CIRT, the Company will earn a return of, and return on, investment as the capital is spent.

On March 29, 2011, SJG credited the accounts of our Basic Gas Supply Service (BGSS) customers with refunds totaling $21.1 million due to gas costs that were lower than projected during the winter season. There have been no other significant regulatory actions or changes to SJG’s rate structure since December 31, 2010. See Note 3 to the Financial Statements in Item 8 of SJG’s Form 10-K as of December 31, 2010.

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4.	REGULATORY ASSETS AND LIABILITIES:

There have been no significant changes to the nature of SJG’s regulatory assets and liabilities since December 31, 2010, 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, 2010.

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

	March 31,		December 31,
	2011		2010
Environmental Remediation Costs:
Expended - Net	$	40,818	$	39,056
Liability for Future Expenditures		82,945		87,393
Income Taxes - Flowthrough Depreciation		529		774
Deferred Asset Retirement Obligation Costs		24,485		24,247
Deferred Pension and Other Postretirement Benefit Costs		68,922		69,017
Conservation Incentive Program Receivable		4,416		12,291
Societal Benefit Costs Receivable		5,199		4,216
Premium for Early Retirement of Debt		659		699
Other Regulatory Assets		11,463		10,720

Total Regulatory Assets	$	239,436	$	248,413

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

	March 31,		December 31,
	2011		2010
Excess Plant Removal Costs	$	48,170	$	48,409
Deferred Revenues - Net		9,591		20,179
Other Regulatory Liabilities		3,385		660

Total Regulatory Liabilities	$	61,146	$	69,248

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. The BGSS decreased from a $20.2 million regulatory liability at December 31, 2010 to a $9.6 million regulatory liability at March 31, 2011 primarily due to the BGSS refund to customers discussed above in Note 3, partially offset by gas costs recovered from customers exceeding the actual cost of the commodity incurred during the first three months of 2011 as a result of natural gas prices remaining at very low levels.

5.	RELATED PARTY TRANSACTIONS:

There have been no significant changes in the nature of SJG’s related party transactions since December 31, 2010. See Note 5 to the Financial Statements in Item 8 of SJG’s Form 10-K as of December 31, 2010 for a detailed description of such transactions.

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A summary of related party transactions, excluding pass-through items, included in Operating Revenues were as follows, (in thousands):

	Three Months Ended March 31,
	2011		2010
Operating Revenues/Affiliates:
SJRG	$	5,875	$	563
Other		317		127
Total Operating Revenues/Affiliates	$	6,192	$	690

Related party transactions, excluding pass-through items, included in Operating Expenses were as follows, (in thousands):

	Three Months Ended March 31,
	2011		2010
Costs of Sales/Affiliates (Excluding depreciation):
SJRG	$	5,244	$	14,582
Energy-Related Derivative Losses *
SJRG	$	4,601	$	4,047

* Contracts used to hedge natural gas purchases. Included in Cost of Sales on the Condensed Statement of Income.

Operations Expense/Affiliates
SJI	$	2,496		$	1,928
SJIS		1,142			1,503
Millennium		731			688
Other		(97	)		(54	)
Total Operations Expense/Affiliates	$	4,272		$	4,065

6.	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 both March 31, 2011 and December 31, 2010, the escrowed proceeds, including interest earned, totaled $0.1 million. The carrying amounts of the Restricted Investments approximate their fair value at March 31, 2011 and December 31, 2010. Beginning in the third quarter of 2010, SJG established a margin account with SJRG in conjunction with SJG's risk management activities as detailed in Note 11. The funds provided by SJG will increase or decrease as the number and value of outstanding energy-related contracts held with SJRG changes. As of March 31, 2011 and December 31, 2010, the balance held with SJRG totaled $4.4 million and $4.2 million, respectively.

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 up to five years with no interest. The carrying amounts of such loans were $10.6 million and $10.4 million as of March 31, 2011 and December 31, 2010, 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 sheet. The carrying amounts noted above are net of unamortized discounts resulting from imputed interest in the amount of $1.2 million as of both March 31, 2011 and December 31, 2010. The annual amortization to interest is not material to SJG’s financial statements. The carrying amounts of these receivables approximate their fair value at March 31, 2011 and December 31, 2010.

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Long-Term Debt – SJG did not issue any long-term debt during the first three months of 2011. During the first three months of 2010, SJG issued $15.0 million aggregate principal amount of its Medium Term Notes in a private placement due 2026. As of both March 31, 2011 and December 31, 2010, $35.0 million remained available under this $150.0 million Medium Term Note program that was approved by the BPU in September 2009.

The estimated fair values of SJG’s long-term debt, including current maturities, as of March 31, 2011 and December 31, 2010, were $449.0 million and $455.5 million, respectively. We based the estimates on interest rates available to SJG at the end of each period for debt with similar terms and maturities. Carrying amounts as of both March 31, 2011 and December 31, 2010, were $390.0 million. We retire debt when it is cost effective as permitted by the debt agreements. Our long-term debt agreements contain no financial covenants.

7.	UNUSED LINES OF CREDIT:

Credit facilities and available liquidity as of March 31, 2011 were as follows (in thousands):

	Total Facility		Usage		Available Liquidity		Expiration Date

Revolving Credit Facility	$	100,000	$	14,550	$	85,450	August 2011 (A)
Line of Credit		40,000		—		40,000	August 2011 (A)
Uncommitted Bank Lines		40,000		5,700		34,300	Various

Total	$	180,000	$	20,250	$	159,750

(A) See Note 12

Average borrowings outstanding under these credit facilities during the three months ended March 31, 2011 and 2010 was $38.6 million and $87.8 million, respectively. The maximum amount outstanding under these credit facilities during the three months ended March 31, 2011 and 2010 was $61.8 million and $112.5 million, respectively.

All committed facilities contain one financial covenant regarding the ratio of total debt to total capitalization, measured on a quarterly basis. SJG was in compliance with these covenants as of March 31, 2011. Based upon the existing credit facilities and a regular dialogue with our banks, we believe that there will continue to be sufficient credit available to meet our business’ future liquidity needs. Borrowings under these credit facilities are at market rates. The weighted average borrowing cost, which changes daily, was 0.76% and 0.87% at March 31, 2011 and 2010, respectively.

8.	PENSION AND OTHER POSTRETIREMENT BENEFITS:

For the three months ended March 31, 2011 and 2010, net periodic benefit cost related to the employee and officer pension and other postretirement benefit plans consisted of the following components (in thousands):

	Pension Benefits							Other Postretirement Benefits
		Three Months Ended March 31,							Three Months Ended March 31,
		2011			2010				2011			2010
Service Cost		$	785		$	662			$	215		$	199
Interest Cost			1,826			1,744				619			686
Expected Return on Plan Assets			(1,815	)		(1,498	)			(446	)		(338	)
Amortizations:
Prior Service Cost (Credits)			52			47				(71	)		(74	)
Actuarial Loss			1,009			1,062				312			382
Net Periodic Benefit Cost			1,857			2,017				629			855
Capitalized Benefit Costs			(910	)		(988	)			(308	)		(419	)
Total Net Periodic Benefit Expense		$	947		$	1,029			$	321		$	436

Capitalized benefit costs reflected in the table above relate to our construction program.

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No contributions were made to the pension plans during the three-month periods ending March 31, 2011 and 2010. We expect to make no contributions to our pension plans in 2011; however, changes in future investment performance and discount rates may ultimately result in a contribution. We also have a regulatory obligation to contribute approximately $3.6 million annually to our other postretirement benefit plans’ trusts, less costs incurred directly by us.

See Note 11 to the Financial Statements in Item 8 of SJG’s Form 10-K as of December 31, 2010 for additional information related to SJG’s pension and other postretirement benefits.

9.	COMMITMENTS AND CONTINGENCIES:

STANDBY LETTER OF CREDIT - SJG provided a $25.2 million letter of credit, under a separate credit facility from those it borrows under to provide liquidity support for the remarketing of variable-rate demand bonds issued through the NJEDA. The bonds were used to finance the expansion of SJG’s natural gas distribution system. This letter of credit expires in August 2011.

ENVIRONMENTAL REMEDIATION COSTS - SJG incurred and recorded costs for environmental cleanup of 12 sites where SJG or its predecessors operated gas manufacturing plants. SJG stopped manufacturing gas in the 1950s. There have been no changes to the status of SJG’s environmental remediation efforts since December 31, 2010, as described in Note 12 to the Financial Statements in Item 8 of SJG’s Form 10-K as of December 31, 2010.

GAS SUPPLY RELATED CONTRACTS - In the normal course of conducting business, we have entered into long-term contracts for natural gas supplies, firm transportation and gas storage service. The earliest that any of these contracts expire is October 2012. The transportation and storage service agreements between us and our interstate pipeline suppliers were made under FERC approved tariffs. Our cumulative obligation for demand charges and reservation fees paid to suppliers for these services is approximately $3.6 million per month and is recovered on a current basis through the BGSS.

PENDING LITIGATION - We are subject to claims arising in the ordinary course of business and other legal proceedings. We accrue liabilities related to these claims when we can reasonably estimate the amount or range of amounts of probable settlement costs or other charges for these claims. Management does not currently anticipate the disposition of any known claims to have a material adverse effect on our financial position, results of operations or liquidity.

COLLECTIVE BARGAINING AGREEMENTS - Unionized personnel represent approximately 65% of our workforce at March 31, 2011. The Company has collective bargaining agreements with two unions who represent these employees: the International Brotherhood of Electrical Workers (IBEW) that operates under a collective bargaining agreement that runs through February 2013, with the option to extend until February 2014 at the union’s election, and the International Association of Machinists and Aerospace Workers (IAM) that operates under a collective bargaining agreement that runs through August 2014.

10.	FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES:

GAAP establishes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques. The levels of the hierarchy are described below:

●

Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities.

●

Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

●

Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.

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Assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of financial assets and financial liabilities and their placement within the fair value hierarchy.

For financial assets and financial liabilities measured at fair value on a recurring basis, information about the fair value measurements for each major category is as follows (in thousands):

As of March 31, 2011
	Total		Level 1		Level 2		Level 3

Assets -

Available-for-Sale Securities (A)	$	7,015	$	-	$	7,015	$	-
Derivatives – Energy Related Assets (B)		2,683		1,333		1,350		-
	$	9,698	$	1,333	$	8,365	$	-

Liabilities -

Derivatives – Energy Related Liabilities (B)	$	5,930	$	5,625	$	305	$	-
Derivatives – Other (C)		2,630		-		2,630		-
	$	8,560	$	5,625	$	2,935	$	-

As of December 31, 2010	Total		Level 1		Level 2		Level 3
Assets
Available-for-Sale Securities (A)	$	6,700	$	6,700	$	-	$	-
Derivatives – Energy Related Assets (B)		6,869		784		6,085		-
	$	13,569	$	7,484	$	6,085	$	-

Liabilities
Derivatives – Energy Related Liabilities (B)	$	11,836	$	10,614	$	1,222	$	-
Derivatives – Other (C)		3,150		-		3,150		-
	$	14,986	$	10,614	$	4,372	$	-

(A) Available-for-Sale Securities include securities that are traded in active markets and securities that are not traded publicly. The securities traded in active markets are valued using the quoted principal market close prices that are provided by the trustees and are categorized in Level 1 in the fair value hierarchy. The remaining securities consist of funds that are not publicly traded. These funds, which consist of stocks and bonds that are traded individually in active markets, are valued using quoted prices for similar assets and are categorized in Level 2 in the fair value hierarchy.

(B) Derivatives – Energy Related Assets and Liabilities are traded in both exchange-based and non-exchange-based markets. Exchange-based contracts are valued using unadjusted quoted market sources in active markets and are categorized in Level 1 in the fair value hierarchy. Certain non-exchange-based contracts are valued using indicative price quotations available through brokers or over-the-counter, on-line exchanges and are categorized in Level 2. These price quotations reflect the average of the bid-ask mid-point prices and are obtained from sources that management believes provide the most liquid market. Management reviews and corroborates the price quotations to ensure the prices are observable which includes consideration of actual transaction volumes, market delivery points, bid-ask spreads and contract duration.

(C) Derivatives – Other, include interest rate swaps that are valued using quoted prices on commonly quoted intervals, which are interpolated for periods different than the quoted intervals, as inputs to a market valuation model. Market inputs can generally be verified and model selection does not involve significant management judgment.

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11.	DERIVATIVE INSTRUMENTS:

SJG is involved in buying, selling, transporting and storing natural gas and is subject to market risk on expected future purchases and sales due to commodity price fluctuations. The Company, through its affiliate South Jersey Resources Group (SJRG), uses a variety of derivative instruments to limit this exposure to market risk in accordance with strict corporate guidelines. These derivative instruments include forward contracts, futures contracts, swap agreements and options contracts. As of March 31, 2011, SJG had outstanding derivative contracts intended to limit the exposure to market risk on 18.1 MMdts of expected future purchases of natural gas. These contracts, which do not qualify for the normal purchase and sale exemption and have not been designated as hedging instruments under GAAP, are measured at fair value and recorded in Derivatives —Energy Related Assets or Derivatives — Energy Related Liabilities on the condensed balance sheets. The costs or benefits of these short-term contracts are recoverable through SJG’s Basic Gas Supply Service (BGSS) clause, subject to BPU approval. As a result, the net unrealized pre-tax gains and losses for these energy related commodity contracts are included with realized gains and losses in Regulatory Assets or Regulatory Liabilities on the condensed balance sheets. As of March 31, 2011 and December 31, 2010, SJG had $3.2 million and $5.0 million of unrealized losses, respectively, included in its BGSS related to open financial contracts.

The Company has also entered into interest rate derivatives to hedge exposure to increasing interest rates and the impact of those rates on cash flows of variable-rate debt. These interest rate derivatives, which have not been designated as hedging instruments under GAAP, are measured at fair value and recorded in Derivatives-Other on the condensed balance sheets. The fair value represents the amount SJG would have to pay the counterparty to terminate these contracts as of those dates. There have been no significant changes to the Company’s active interest rate swaps since December 31, 2010 which are described in Note 1 to the Financial Statements in Item 8 of SJG’s Annual Report on Form 10-K as of December 31, 2010. Subject to BPU approval, the market value upon termination of these interest rate derivatives can be recovered in rates and therefore these unrealized losses have been included in Regulatory Assets on the condensed balance sheets.

We previously used derivative transactions known as “Treasury Locks” to hedge against the impact on our cash flows of possible interest rate increases on debt issued in September 2005. The initial $1.4 million cost of the Treasury Locks has been included in Accumulated Other Comprehensive Loss and is being amortized over the 30 year life of the associated debt issue. As of March 31, 2011 and December 31, 2010, the unamortized balance was approximately $1.1 million.

The fair values of all derivative instruments, as reflected in the condensed balance sheets as of March 31, 2011 and December 31, 2010, are as follows (in thousands):

Derivatives not designated as hedging instruments under GAAP	March 31, 2011				December 31, 2010
	Assets		Liabilities		Assets		Liabilities
Energy related commodity contracts:

Derivatives – Energy Related – Current	$	2,488	$	5,796	$	5,864	$	11,406

Derivatives – Energy Related – Non-Current		195		134		1,005		430

Interest rate contracts:

Derivatives – Other		-		2,630		-		3,150

Total derivatives not designated as hedging instruments under GAAP	$	2,683	$	8,560	$	6,869	$	14,986

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The effect of derivative instruments on the condensed statements of income for the three months ended March 31, 2011 and 2010 are as follows (in thousands):

	Three months ended March 31,
Derivatives in Cash Flow Hedging Relationships Interest Rate Contracts:	2011			2010

Losses reclassified from accumulated OCI into income (a)	$	(12	)	$	(12	)

(a) Included in Interest Charges

Net realized losses associated with SJG’s energy-related financial commodity contracts of $4.6 million and $4.0 million for the three months ended March 31, 2011 and 2010 are not included in the above table. These contracts are part of SJG’s regulated risk management activities that serve to mitigate BGSS costs passed on to its customers. As these transactions are entered into pursuant to, and recoverable through, regulatory riders, any changes in the value of SJG’s energy related financial commodity contracts are deferred in Regulatory Assets or Liabilities and there is no impact to earnings.

12.	SUBSEQUENT EVENT:

A new revolving credit facility was established by SJG in May 2011. The facility is a $200.0 million, four-year facility, provided by a syndicate of banks and contains one financial covenant limiting the ratio of indebtedness to total capitalization to not more than 0.65 to 1. This facility replaces SJG’s $100.0 million revolving credit facility and $40.0 million committed line of credit, both expiring in August of 2011.

Item 2. Management’s Discussion and Analysis

of Financial Condition and Results of Operations

OVERVIEW:

Organization - We are an operating public utility company engaged in the purchase, transmission and sale of natural gas for residential, commercial and industrial use. We also sell natural gas and pipeline transportation capacity (off-system sales) on a wholesale basis to various customers on the interstate pipeline system and transport natural gas purchased directly from producers or suppliers to their customers. We served 349,096 customers at March 31, 2011 compared with 345,350 customers at March 31, 2010.

Forward-Looking Statements and Risk Factors - Certain statements contained in this Quarterly Report may qualify as “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact included in this Report should be considered forward-looking statements made in good faith by the Company and are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Words such as “anticipate”, “believe”, “expect”, “estimate”, “forecast”, “goal”, “intend”, “objective”, “plan”, “project”, “seek”, “strategy” and similar expressions are intended to identify forward-looking statements. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the statements. These risks and uncertainties include, but are not limited to, the following: general economic conditions on an international, national, state and local level; weather conditions in our marketing areas; changes in commodity costs; changes in the availability of natural gas; “non-routine” or “extraordinary” disruptions in our distribution system; regulatory, legislative and court decisions; competition; the availability and cost of capital; costs and effects of legal proceedings and environmental liabilities; the failure of customers or suppliers to fulfill their contractual obligations; and changes in business strategies.

A discussion of these and other risks and uncertainties may be found in SJG’s Form 10-K for the year ended December 31, 2010 and in other filings made by us with the Securities and Exchange Commission. These cautionary statements should not be construed by you to be exhaustive and they are made only as of the date of this Quarterly Report on Form 10-Q, or in any document incorporated by reference, at the date of such document. While SJG believes these forward-looking statements to be reasonable, there can be no assurance that they will approximate actual experience or that the expectations derived from them will be realized. Further, SJG undertakes no obligation to update or revise any of its forward-looking statements, whether as a result of new information, future events or otherwise.

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Critical Accounting Policies - Estimates and Assumptions - Management must make estimates and assumptions that affect the amounts reported in the condensed financial statements and related disclosures. Actual results could differ from those estimates. Five types of transactions presented in our condensed financial statements require a significant amount of judgment and estimation. These relate to regulatory accounting, derivatives, environmental remediation costs, pension and other postretirement benefit costs, and revenue recognition. A discussion of these estimates and assumptions may be found in SJG’s Form 10-K for the year ended December 31, 2010.

New Accounting Pronouncements - No new accounting pronouncement issued or effective during 2011 and 2010 had, or is expected to have, a material impact on the condensed financial statements.

Regulatory Actions – Other than the changes discussed in Note 3 to the condensed financial statements, there have been no significant regulatory actions since December 31, 2010. See detailed discussions concerning Regulatory Actions in Note 3 to the Financial Statements in item 8 of SJG’s Form 10-K for the year ended December 31, 2010.

Environmental Remediation –There have been no significant changes to the status of SJG’s environmental remediation efforts since December 31, 2010. See detailed discussion concerning Environmental Remediation in Note 12 to the Financial Statements in Item 8 of SJG’s Form 10-K for the year ended December 31, 2010.

Competition - See detailed discussion concerning competition in SJG’s Form 10-K for the year ended December 31, 2010.

Customer Choice Legislation - All residential natural gas customers in New Jersey can choose their natural gas commodity supplier under the terms of the “Electric Discount and Energy Competition Act of 1999.” This bill created the framework and necessary time schedules for the restructuring of the state’s electric and natural gas utilities. The Act established unbundling, under which redesigned utility rate structures allow natural gas and electric consumers to choose their energy supplier. Customers purchasing natural gas from a provider other than the local utility (marketer) are charged for the gas costs by the marketer and charged for the transportation costs by the utility. The number of customers purchasing their natural gas from marketers was 36,789 and 28,398 at March 31, 2011 and 2010, respectively.

RESULTS OF OPERATIONS:

The following table summarizes the composition of selected gas utility data for the three months ended March 31, (in thousands, except for degree day data):

	Three Months Ended
	March 31,
	2011		2010
Throughput – dth:
Firm Sales -
Residential		11,241		11,431
Commercial		2,795		2,694
Industrial		155		148
Cogeneration & Electric Generation		120		44
Firm Transportation -
Residential		1,253		982
Commercial		2,759		2,641
Industrial		3,445		3,089
Cogeneration & Electric Generation		2,401		2,193
Total Firm Throughput		24,169		23,222

Interruptible Sales		3		3
Interruptible Transportation		692		586
Off-System		1,904		1,116
Capacity Release		10,155		10,189
Total Throughput		36,923		35,116

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	Three Months Ended
	March 31,
	2011		2010
Utility Operating Revenues:
Firm Sales -
Residential	$	114,852	$	137,515
Commercial		26,800		29,623
Industrial		1,720		1,795
Cogeneration & Electric Generation		809		411
Firm Transportation -
Residential		6,550		4,454
Commercial		9,705		8,599
Industrial		4,395		3,976
Cogeneration & Electric Generation		1,742		2,009
Total Firm Revenues		166,573		188,382

Interruptible Sales		54		48
Interruptible Transportation		634		607
Off-System		10,134		6,924
Capacity Release		2,671		518
Other		257		237
Total Utility Operating Revenues		180,323		196,716

Less:
Cost of Sales		88,574		116,875
Conservation Recoveries*		3,255		3,119
RAC Recoveries*		1,591		1,741
EET Recoveries*		509		179
Revenue Taxes		3,873		3,752
Utility Margin	$	82,521	$	71,050

Margin:
Residential	$	58,799		$	45,300
Commercial and Industrial		21,327			14,958
Cogeneration and Electric Generation		775			709
Interruptible		48			38
Off-system & Capacity Release		695			309
Other Revenues		256			236
Margin Before Weather Normalization & Decoupling		81,900			61,550
CIRT Mechanism		566			2,024
CIP Mechanism		(26	)		7,442
EET Mechanism		81			34
Utility Margin	$	82,521		$	71,050

Degree Days:		2,495			2,433

*Represents expenses for which there is a corresponding credit in operating revenues. Therefore, such recoveries have no impact on our financial results.

Throughput – Total gas throughput increased 1.8 MMdts, or 5.1%, for the three months ended March 31, 2011, compared with the same period in 2010. This increase was realized in the firm and Off-System Sales (OSS) markets. Firm throughput increased 0.9 MMdts, or 4.1%, primarily as a result of 2.6% colder weather during the first quarter of 2011, compared with the first quarter of 2010. In addition, the Company added 3,746 customers over the twelve month period ended March 31, 2011, which represents a growth rate of 1.1%. OSS increased 0.8 MMdts, or 70.6%, as a result of increased capacity for such sales. Additional capacity became available during the latter part of 2010 as capacity previously transferred out of SJG under the provisions of the Conservation Incentive Program (CIP) was returned to the utility.

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Conservation Incentive Program (CIP) - The effects of the CIP on our net income and the associated weather comparisons were as follows ($’s in millions):

	Three Months Ended March 31,
	2011			2010
Net Income Benefit:
CIP – Weather Related	$	(0.6	)	$	0.4
CIP – Usage Related		0.6			4.0
Total Net Income Benefit	$	0.0		$	4.4

Weather Compared to 20-Year Average	1.6% colder			0.2% colder
Weather Compared to Prior Year	2.6% colder			3.4% warmer

Operating Revenues – Revenues decreased $16.4 million, or 8.3%, during the three months ended March 31, 2011 compared with the same period in the prior year. Firm sales revenue decreased $21.8 million, or 11.6%, during the first quarter of 2011 versus the first quarter of 2010, as the result of lower natural gas costs experienced during the first quarter of 2011. The average cost of natural gas purchased during the first quarter of 2011 was $6.45 per dt, representing an 11.1% decrease relative to the average cost of $7.26 per dt during the same period in 2010.

While changes in gas costs and BGSS recoveries may fluctuate from period to period, SJG does not profit from the sale of the commodity. Therefore, corresponding fluctuations in Operating Revenue or Cost of Sales have no impact on Company profitability, as further discussed under “Margin.”

OSS revenue and capacity release revenue increased $3.2 million and $2.2 million, respectively, during the first quarter of 2011 versus the first quarter of 2010, as both sales volume and capacity release unit prices increased. As previously stated under “Throughput,” this was made possible when additional capacity became available during the latter part of 2010, as capacity previously transferred out of SJG under the CIP was returned to SJG. As reflected in the Margin table above, the impact of the higher OSS did not have a material impact on the earnings of the Company, as SJG is required to share 85% of the profits of such activity with the ratepayers.

Margin (pre-tax) - SJG’s margin is defined as natural gas revenues less natural gas costs, regulatory rider expenses and related volumetric and revenue based energy taxes. SJG believes that margin provides a more meaningful basis for evaluating utility operations than revenues since natural gas costs, regulatory rider expenses and related energy expenses are passed through to customers, and therefore, they have no effect on margin. Natural gas costs are charged to operating expenses on the basis of therm sales at the prices approved by the New Jersey Board of Public Utilities through SJG’s BGSS tariff.

Total margin increased $11.5 million, or 16.1%, for the three months ended March 31, 2011, compared with the same period in 2010 primarily due to the base rate increase granted in September 2010 and customer additions. Certain revenues previously recovered through the CIRT and the CIP were rolled into base rates resulting in decreased recoveries under these programs in 2011.

Under the CIP, higher customer usage resulting from weather that was 2.6% colder than last year generated pre-tax margin of approximately $1.0 million that offset the margin that would have been lost due to lower non-weather related customer usage. In the first quarter of 2010, the CIP protected $7.4 million of pre-tax margin that would have been lost due to lower customer usage. Of this amount, $0.7 million was related to weather variations and $6.7 million was related to other customer usage variations.

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Operating Expenses - A summary of changes in operating expenses (in thousands):

	Three Months Ended March 31,
	2011 vs. 2010

Operations	$	466
Maintenance		193
Depreciation		381
Energy and Other Taxes		166

Operations – Operations expense increased $0.5 million for the three months ended March 31, 2011, as compared with the same period in 2010. The increase is primarily due to increased spending under the New Jersey Clean Energy Program and Energy Efficiency Programs, which experienced a net increase of $0.5 million for the first quarter of 2011 as compared to 2010. Such costs are recovered on a dollar-for-dollar basis; therefore, SJG experienced an offsetting increase in revenues during the period. SJG also recognized $0.3 million in amortization of previously deferred regulatory expenses, the recovery of which was approved in the Company’s September 2010 rate case settlement. As a result of this settlement, such cost recognition is offset by a corresponding increase in revenue. Finally, the Company experienced increases in various other areas including general compensation increases and corporate support, governance and compliance costs, primarily attributable to our parent, SJI. Partially offsetting the expense increases noted above were lower expenses associated with the reserve for uncollectible customer accounts, which decreased $(0.7) million for the three months ended March 31, 2011 compared with the same period last year. Changes in the uncollectible reserve are the result of fluctuations in levels of customer account receivable balances, which were lower than one year ago due to a lower BGSS rate in effect, as discussed previously under “Operating Revenues,” and a March 2011 customer refund of $21.1 million.

Maintenance - Maintenance expense increased during the three months ended March 31, 2011, compared with the same period in 2010, primarily due to the BPU-approved amortization and recovery of previously deferred maintenance costs, primarily those associated with a federally mandated pipeline integrity management program. Such amortizations, which are being recovered through an offsetting amount in revenues beginning in September 2010, totaled $0.3 million during the first quarter of 2011. Partially offsetting these increases are lower levels of Remediation Adjustment Clause (RAC) amortization. RAC-related expenses do not affect earnings either, as we recognize an offsetting amount in revenues.

Depreciation - Depreciation expense increased during the three months ended March 31, 2011, as compared with the same period in 2010, due mainly to SJG’s continuing investment in utility plant.

Energy and Other Taxes - Energy and Other Taxes increased during the three months ended March 31, 2011, compared with the same period in 2010, primarily due to higher taxable firm throughput in 2011 resulting from 2.6% colder weather and a 1.1% increase in the number of customers served over the twelve month period ended March 31, 2011.

Other Income and Expense - Other Income and Expense reflects an increase during the three months ended March 31, 2011, compared with the same period in 2010, primarily due to the sale of certain available-for-sale securities at a gain of $0.6 million.

Interest Charges – Interest Charges increased $1.0 million during the three months ended March 31, 2011, compared with the same period in 2010, due to the issuance of $115.0 million aggregate principal long-term debt issued during 2010 at higher interest rates than the short-term debt previously used to finance our capital program.

LIQUIDITY AND CAPITAL RESOURCES:

Liquidity needs are driven by factors that include natural gas commodity prices; the impact of weather on customer bills; lags in fully collecting gas costs from customers under the Basic Gas Supply Service charge; the timing of construction and remediation expenditures and related permanent financings; mandated tax payment dates; both discretionary and required repayments of long-term debt; and the amounts and timing of dividend payments.

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Cash Flows from Operating Activities - Liquidity needs are first met with net cash provided by operating activities. Net cash provided by operating activities totaled $64.7 million and $72.2 million in the first three months of 2011 and 2010, respectively. Net cash provided by operating activities varies from year-to-year primarily due to the impact of weather on customer demand and related gas purchases, customer usage factors related to conversion efforts and the price of the natural gas commodity, inventory utilization, and gas cost recoveries. Higher cash collections of both customer receivable balances and regulatory clauses positively impacted net cash provided by operating activities in the first three months of 2011. This benefit was offset by higher spending on environmental remediation during the first quarter.

Cash Flows from Investing Activities - SJG has a continuing need for cash resources for capital purchases, primarily to invest in new and replacement facilities and equipment. Cash used for capital purchases was $25.6 million and $37.4 million during the first three months of 2011 and 2010, respectively. We estimate the net cash outflows for construction projects for fiscal years 2011, 2012 and 2013 to be approximately $121.1 million, $73.8 million and $56.0 million, respectively. For capital expenditures, including those under the CIRT, SJG will use short-term borrowings under lines of credit from commercial banks to finance capital expenditures as incurred. From time to time, the Company will refinance the short-term debt incurred to support capital expenditures with long-term debt.

Cash Flows from Financing Activities - SJG uses short-term borrowings under lines of credit from commercial banks to supplement cash from operations, to support working capital needs and to finance capital expenditures as incurred. From time to time, the Company refinances short-term debt incurred to finance capital expenditures with long-term debt. Debt is incurred primarily to expand and upgrade our gas transmission and distribution system and to support seasonal working capital needs related to inventories and customer receivables.

Credit facilities and available liquidity as of March 31, 2011 were as follows (in thousands):

	Total Facility		Usage		Available Liquidity		Expiration Date

Revolving Credit Facility	$	100,000	$	14,550	$	85,450	August 2011 (A)
Line of Credit		40,000		—		40,000	August 2011 (A)
Uncommitted Bank Lines		40,000		5,700		34,300	Various

Total	$	180,000	$	20,250	$	159,750

(A) See Note 12 to the condensed financial statements.

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Based upon the existing credit facilities and a regular dialogue with our banks, we believe there will continue to be sufficient credit available to meet our future liquidity needs.

SJG supplements its operating cash flow and credit lines with both debt and equity capital. Over the years, SJG has used long-term debt, primarily in the form of First Mortgage Bonds and Medium Term Notes (MTN), secured by the same pool of utility assets, to finance our long-term borrowing needs. These needs are primarily capital expenditures for property, plant and equipment. In March 2010, SJG issued $15.0 million aggregate principal amount of its MTNs under private placements. No other long-term debt was issued during the first three months of 2011 or 2010.

SJG’s capital structure was as follows:

	As of March 31, 2011			As of December 31, 2010

Common Equity		52.8	%		48.8	%
Long-Term Debt		44.9			44.5
Short-Term Debt		2.3			6.7

Total		100.0	%		100.0	%

COMMITMENTS AND CONTINGENCIES:

SJG has a continuing need for cash resources and capital, primarily to invest in new and replacement facilities and equipment, working capital, and for environmental remediation costs. Cash outflows for capital expenditures for the first three months of 2011 amounted to $25.6 million. Management estimates net cash outflows for construction projects for 2011, 2012 and 2013, to be approximately $121.1 million, $73.8 million and $56.0 million, respectively. Costs for remediation projects, net of insurance reimbursements, for the first three months of 2011 amounted to net cash outflows of $3.4 million. Total cash outflows for remediation projects are expected to be $18.2 million, $11.4 million and $8.9 million for 2011, 2012, and 2013, respectively. As discussed in Notes 4 and 12 to the Financial Statements in Item 8 of SJG’s 10-K as of December 31, 2010, environmental remediation costs are subject to recovery from insurance carriers and ratepayers.

SJG provided a $25.2 million letter of credit, outside of the revolving credit facility, to support variable-rate demand bonds issued through the NJEDA to finance the expansion of SJG's natural gas distribution system. This letter of credit expires in August 2011.

SJG has certain commitments for both pipeline capacity and gas supply for which it pays fees regardless of usage. Those commitments as of March 31, 2011, average $43.3 million annually and total $175.2 million over the contracts’ lives. Approximately 20% of the financial commitments under these contracts expire during the next five years. SJG expects to renew each of these contracts under renewal provisions as provided in each contract. SJG recovers all prudently incurred fees through rates via the Basic Gas Supply Service clause.

Contractual Cash Obligations – Details concerning contractual cash obligations may be found in SJG’s Form 10-K for the year ended December 31, 2010. There were no significant changes to SJG’s contractual cash obligation in 2011.

Off-Balance Sheet Arrangements - We have no off-balance sheet arrangements.

Pending Litigation - We are subject to claims arising in the ordinary course of business and other legal proceedings. We accrue liabilities related to claims when we can determine the amount or range of amounts of probable settlement costs. Management does not currently anticipate the disposition of any known claims to have a material adverse effect on our financial position, results of operations or liquidity.

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Ratio of Earnings to Fixed Charges - Our ratio of earnings to fixed charges for each of the periods indicated is as follows:

Twelve Months Ended Mar. 31,	Year Ended December 31,
2011	2010		2009		2008		2007		2006

5.4x		5.1x		4.9x		4.4x		4.1x		3.7x

The ratio of earnings to fixed charges represents, on a pre-tax basis, the number of times earnings covers fixed charges. Earnings consist of net income, to which has been added fixed charges and taxes. Fixed charges consist of interest charges (rentals are not material).

Item 3. Quantitative and Qualitative Disclosures about Market Risks

MARKET RISKS:

Commodity Market Risks - We are involved in buying, selling, transporting and storing natural gas and are subject to market risk due to price fluctuations. To hedge against this risk, we enter into a variety of physical and financial transactions including forward contracts, futures and options agreements. To manage these transactions, we have a well-defined risk management policy approved by our Board of Directors that includes volumetric and monetary limits. Management reviews reports detailing activity daily. Generally, the derivative activities described above are entered into for risk management purposes.

We transact commodities on a physical basis and typically do not enter into financial derivative positions directly. South Jersey Resources Group, LLC (SJRG), an affiliate by common ownership, manages our risk by entering into the types of transactions noted above. As part of our gas purchasing strategy, we use financial contracts through SJRG to hedge against forward price risk. These contracts are recoverable through our BGSS, subject to BPU approval. It is management’s policy, to the extent practical, within predetermined risk management policy guidelines, to have limited unmatched positions on a deal or portfolio basis while conducting these activities. As a result of holding open positions to a minimal level, the economic impact of changes in value of a particular transaction is substantially offset by an opposite change in the related hedge transaction. The majority of our contracts are typically less than 12-months long. The fair value and maturity of all these energy trading and hedging contracts determined using mark-to-market accounting as of March 31, 2011 is as follows (in thousands):

Assets
Source of Fair Value	Maturity < 1 Year		Maturity 1 - 3 Years		Total

Prices Actively Quoted (NYMEX)	$	1,138	$	195	$	1,333

Prices Provided by Other		1,350		-		1,350

Total	$	2,488	$	195	$	2,683

Liabilities
	Maturity		Maturity
Source of Fair Value	< 1 Year		1 - 3 Years		Total

Prices Actively Quoted (NYMEX)	$	5,491	$	134	$	5,625

Prices Provided by Other External Sources (Basis)		305		-		305

Total	$	5,796	$	134	$	5,930

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NYMEX (New York Mercantile Exchange) is the primary national commodities exchange on which natural gas is traded. Basis represents the price of a NYMEX natural gas futures contract adjusted for the difference in price for delivering the gas at another location. Contracted volumes of our NYMEX contracts are 11.8 MMDth with a weighted-average settlement price of $4.99 per dth. Contracted volumes of our Basis contracts are 6.3 MMDth with a weighted average settlement price of $0.36 per dth.

A reconciliation of our estimated net fair value of energy-related derivatives follows (in thousands):

Net Derivatives — Energy Related Liability, January 1, 2011	$	(4,967	)
Contracts Settled During the Three Months ended March 31, 2011, Net		1,349
Other Changes in Fair Value from Continuing and New Contracts, Net		371
Net Derivatives — Energy Related Liability, March 31, 2011	$	(3,247	)

Interest Rate Risk - Our exposure to interest rate risk relates primarily to short-term, variable-rate borrowings. Short-term, variable-rate debt outstanding at March 31, 2011, was $20.3 million and averaged $38.6 million during the first three months of 2011. A hypothetical 100 basis point (1%) increase in interest rates on our average variable-rate debt outstanding would result in a $0.2 million increase in our annual interest expense, net of tax. The 100 basis point increase was chosen for illustrative purposes, as it provides a simple basis for calculating the impact of interest rate changes under a variety of interest rate scenarios. Over the past five years, the change in basis points (b.p.) of our average monthly interest rates from the beginning to end of each year was as follows: 2010 – 5 b.p. increase; 2009 – 29 b.p. decrease; 2008 - 317 b.p. decrease; 2007 - 36 b.p. decrease; and 2006 - 72 b.p. increase. As of March 31, 2011, our average borrowing cost, which changes daily, was 0.76%.

We issue long-term debt either at fixed rates or use interest rate derivatives to limit our exposure to changes in interest rates on variable-rate, long-term debt. As of March 31, 2011, the interest costs on all of our long-term debt was either at a fixed-rate or hedged via an interest rate derivative. Consequently, interest expense on existing long-term debt is not significantly impacted by changes in market interest rates.

As of March 31, 2011, SJG’s active interest rate swaps were as follows:

Amount		Fixed Interest Rate			Start Date	Maturity	Type
$	12,500,000		3.430	%	12/01/2006	02/01/2036	Tax-exempt
$	12,500,000		3.430	%	12/01/2006	02/01/2036	Tax-exempt

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

SJG’s management, with the participation of its chief executive officer and chief financial officer, evaluated the effectiveness of the design and operation of SJG’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2011. Based on that evaluation, SJG’s chief executive officer and chief financial officer concluded that the disclosure controls and procedures employed at SJG are effective.

Changes in Internal Control Over Financial Reporting

There has not been any change in SJG’s internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the fiscal quarter ended March 31, 2011 that has materially affected, or is reasonably likely to materially affect, SJG’s internal control over financial reporting.

Table of Contents

PART II — OTHER INFORMATION

Item l. Legal Proceedings

Information required by this Item is incorporated by reference to Part I, Item 2, Pending Litigation, beginning on page 22.

Item 1A. Risk Factors

There have been no material changes to our risk factors from those disclosed in Part I, Item 1A of SJG’s Annual Report on Form 10-K for the year ended December 31, 2010:

Item 6. Exhibits

(a) Exhibits

Exhibit No.		Description

3(b)		Bylaws of South Jersey Gas Company, as amended and restated through April 28, 2011 (filed herewith)

31.1		Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Exchange Act.

31.2		Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Exchange Act.

32.1		Certification of Chief Executive Officer Pursuant to Rule 13a-14(b) of the Exchange Act as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code).

32.2		Certification of Chief Financial Officer Pursuant to Rule 13a-14(b) of the Exchange Act as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

SOUTH JERSEY GAS COMPANY

(Registrant)

Dated: May 9, 2011	By:	/s/ Edward J. Graham
		Edward J. Graham
		President & Chief Executive Officer


Dated: May 9, 2011	By:	/s/ David A. Kindlick
		David A. Kindlick
		Senior Vice President & Chief Financial Officer

EX-3.B 2 ex3.htm EXHIBIT 3(B) ex3.htm

BYLAWS

(AMENDED AND RESTATED THROUGH APRIL 28, 2011)

SOUTH JERSEY GAS COMPANY

ARTICLE I

SHAREHOLDERS

Section 1. Annual Meeting. An annual meeting of the shareholders for the election of Directors and for other business shall be held on the next to the last Thursday in April of each year, if not a legal holiday, and if a legal holiday, then on the first day following which is not a legal holiday, or on such other day as may be designated by the Board of Directors.

Section 2. Special Meetings. At any time in the interval between annual meetings, special meetings of the shareholders may be called by the Chairman of the Board, the President or by a majority of the Board of Directors by vote at a meeting or in writing with or without a meeting, or may be called by three or more shareholders having voting powers as provided for under the Corporation Law of the State of New Jersey.

Section 3. Notice of Meetings. Written or printed notice of every meeting of the shareholders shall be given to each shareholder entitled to vote at such meeting, not less than ten days before such meeting, by the Chairman of the Board, the President or any Vice President, or by the Secretary or any Assistant Secretary, by leaving the same with him or at his residence or usual place of business, or by mailing it, postage prepaid and addressed to him at his address as it appears upon the books of the Company on the record date for such meeting, as provided in Section 3 of Article V of these Bylaws. In the event of the transfer of stock after the giving of such notice and prior to the holding of the meeting, it shall not be necessary to give notice of the meeting to the transferee. Notice of every special meeting shall state the place, day, and hour of such meeting and the general nature of the business proposed to be transacted thereat. Failure to give notice of any annual meeting or any irregularity in such notice shall not affect the validity of such annual meeting or of any proceedings at such meeting (other than proceedings of which special notice is required by law, by the Charter, or by the Bylaws). It shall not be requisite to the validity of any meeting of shareholders that notice thereof, whether prescribed by law, by the Charter or by the Bylaws, shall have been given to any shareholder who attends in person or by proxy, or to any shareholder who in writing, executed and filed with the records of the meeting either before or after the holding thereof, waives such notice. No notice other than by oral announcement need be given of any adjourned meetings of shareholders.

Section 4. Quorum. At all meetings of shareholders, a majority of the outstanding shares of capital stock entitled to vote, represented by shareholders in person or by proxy, shall constitute a quorum for the transaction of business; but in the absence of a quorum the shareholders present in person or by proxy at the time and place fixed by Section 1 of this Article I for an annual meeting, or designated in the notice of a special meeting, or at the time and place of any adjournment thereof, by majority vote may adjourn the meeting from time to time without notice other than by oral announcement at the meeting, until a quorum shall attend. At any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the original meeting.

Section 5. Judges of Election. Judges of election, who need not be shareholders, shall be appointed by the Board of Directors for any meeting of shareholders for the election of directors and may be so appointed for any other meeting of shareholders. In case any of the judges of election shall be absent or unable or unwilling to serve, all such vacancies may be filled by appointment made by the Board of Directors in advance of the convening of the meeting, or at the meeting by the person acting as chairman. Every election of directors shall be conducted by ballot by two judges and, after the election, they shall file with the Secretary a certificate of the results thereof, with the names of the directors elected. The judges of election, at the request of the chairman of the meeting, shall act as tellers of any other vote by ballot taken at the meeting and shall certify the result thereof.

Section 6. Voting and Proxies. Any shareholder having the right to vote at any meeting shall be entitled to one vote for each share of stock held by him, provided that, at all meetings for the election of directors, each shareholder entitled to vote thereat shall be entitled to as many votes as shall equal the number of shares held by him, multiplied by the number of directors to be elected, and each such shareholder may cast all of such votes for a single director or may distribute them among the total number of directors to be voted for, or among any two or more of such directors as such shareholder may see fit. Any shareholder entitled to vote at any meeting of shareholders may vote either in person or by proxy, but no proxy which is dated more than two months prior to the meeting at which it is offered shall confer the right to vote thereat. Every proxy shall be in writing, subscribed by a shareholder or his duly authorized attorney in fact, and dated, but need not be sealed, witnessed, or acknowledged.

Section 7. List of Shareholders. A complete list of the shareholders entitled to vote at the annual meeting of the shareholders or at any special meeting of shareholders, arranged in alphabetical order, with the mailing address of each according to the records of the Company and the number of voting shares held by each, shall be prepared by the Secretary or any Assistant Secretary and filed in the office where the meeting is to be held, at least ten days before each meeting of shareholders, shall be subject to inspection by any shareholder during usual business hours, shall be produced and kept open at the time and place of meeting, and shall be subject to the inspection of any shareholder during the whole time of the meeting.

ARTICLE II

BOARD OF DIRECTORS

Section 1. Election and Powers. The business and property of the Company shall be conducted and managed by its Board of Directors, consisting of (4) four directors, which Board may exercise all the powers of the Company except such as are by statute, by the Charter, or by these Bylaws conferred upon or reserved to the shareholders. The members of the Board of Directors shall be elected by the shareholders at their annual meeting or at any meeting held in lieu thereof, except as provided in Section 8 of this Article II. Each director shall hold office until the annual meeting held next after his or her election and until his or her successor shall have been duly chosen and qualified, or until he or she shall have resigned, or shall have been removed in the manner provided in Section 10 of this Article II. The Board of Directors shall keep full and fair account of its transactions.

Section 2. First Regular Meeting. After each meeting of shareholders at which a Board of Directors shall have been elected, the Board of Directors so elected shall meet at the same place immediately following adjournment of the shareholders' meeting for the purpose of organization and the transaction of other business, unless some other time and place shall be designated by the shareholders at their meeting.

Section 3. Additional Regular Meetings. In addition to the first regular meeting, regular meetings of the Board of Directors shall be held on such dates as may be fixed, from time to time, by the Board of Directors, or by a majority of the directors in writing without a meeting.

Section 4. Special Meetings. Special meetings of the Board of Directors shall be held whenever called by the Chairman of the Board, the President or by the Board of Directors or by a majority of the Board of Directors in writing, with or without a meeting.

Section 5. Place of Meetings. Subject to the provisions of Section 2 of this Article II, the Board of Directors may hold its regular and special meetings at such place or places within or without the State of New Jersey as it may, from time to time, determine. In the absence of any such determination, such regular and special meetings of the Board of Directors shall be held at such places as may be designated in the calls therefor.

Section 6. Notice of Meetings. Notice of the place, day and hour of every meeting shall be given to each director at least two days before the meeting, by delivering the same to him personally, or by sending the same to him by telegraph, or by leaving the same at his residence or usual place of business, or, in the alternative, upon three days' notice, by mailing it, postage prepaid, and addressed to him at his last known mailing address, according to the records of the Company. It shall not be requisite to the validity of any meetings of the Board of Directors, that notice thereof shall have been given to any director who attends, or to any director who, in writing executed and filed with the records of the meeting either before or after the holding thereof, waives such notice. No notice other than by oral announcement need be given of any adjourned meetings of the Board of Directors. All regular meetings of the Board of Directors shall be general meetings, that is to say, open for the transaction of any business within the powers of the Company without special notice of such business, except in cases in which special notice is required by law, by the Charter, by these Bylaws, or by the call of such meeting.

Section 7. Quorum. At all meetings of the Board of Directors, a majority of the total number of the directors shall constitute a quorum for the transaction of business. Except in cases in which it is by law, by the Charter, or by these Bylaws otherwise provided, a majority of such quorum shall decide any questions that may come before the meeting. In the absence of a quorum, the directors present by majority vote may adjourn the meeting from time to time without notice other than by oral announcement at the meeting until a quorum shall attend. At any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified.

Section 8. Vacancies. Vacancies occurring in the Board of Directors, through any cause other than removal by the shareholders, including vacancies created by an increase in the number of directors, may be filled by the vote of a majority of the remaining directors.

Section 9. Compensation. The directors may be compensated for their services on an annual basis and/or they may receive a fixed sum for attendance at each regular or special meeting and every adjournment thereof; such compensation or fixed sum to be fixed from time to time by resolution by the Board of Directors. The directors shall be reimbursed for all reasonable traveling expenses incurred in attending meetings. Directors who are employees of the Company shall not receive compensation for their services as directors; but nothing in this Section shall preclude any director from serving the Company in any other capacity and receiving compensation therefor.

Section 10. Removal. At any meeting of the shareholders called for the purpose, any director may, by vote of the shareholders entitled to cast a majority in number of all the votes, be removed from office, with or without cause, and another be elected in the place of the person so removed, to serve for the remainder of his term.

ARTICLE III

COMMITTEES

Section 1. Executive Committee. The Board of Directors, by resolution adopted by a majority of the whole Board of Directors, may designate an Executive Committee of three or more directors and shall appoint one of the directors so designated to be Chairman of the Executive Committee. The Chief Executive Officer of the Company shall be ex officio a member of the Executive Committee. The Executive Committee shall formulate policies to be followed in planning and conducting the business and affairs of the Company. During the intervals between the meetings of the Board of Directors, the Executive Committee shall have and may exercise all the powers of the Board of Directors in the management of the business and affairs of the Company conferred by these Bylaws or otherwise. The Executive Committee shall keep full and fair account of its transactions. All action by the Executive Committee shall be reported to the Board of Directors at its meeting next succeeding such action, and shall be subject to revision and alteration by the Board of Directors; provided that no rights of third persons shall be affected by any such revision or alteration. Vacancies in the Executive Committee shall be

filled by the Board of Directors.

Section 2. Compensation. Members of the Executive Committee may be compensated for their services on an annual basis and/or they may receive a fixed sum for attendance at each meeting of the Executive Committee and every adjournment thereof; such compensation or fixed sum to be fixed from time to time by resolution of the Board of Directors. The members of the Executive Committee shall be reimbursed for all reasonable traveling expenses incurred in attending meetings. Members of the Executive Committee who are employees of the Company shall not receive compensation for their services as members of such Committee; but nothing in this Section shall preclude a member of the Executive Committee from serving the Company in any other capacity and receiving compensation therefor or shall preclude the Chairman of the Executive Committee from receiving compensation for his services as such Chairman.

Section 3. Meetings of the Executive Committee. The Executive Committee shall fix its own rules of procedure and shall meet as provided by such rules or by resolution of the Board of Directors, and it shall also meet at the call of the Chairman of the Executive Committee or any two members of the Committee. Unless otherwise provided by such rules or by such resolutions, the provisions of Section 5 and Section 6 of Article II relating to the place of holding and notice required of meetings of the Board of Directors shall govern the Executive Committee. A majority of the Executive Committee shall be necessary to constitute a quorum.

Section 4. Other Committees. The Board of Directors may by resolution designate such other standing or special committees as it deems desirable and discontinue the same at pleasure. Each such committee shall have such powers and perform such duties, not inconsistent with law, as may be assigned to it by the Board of Directors.

ARTICLE IV

OFFICERS

Section 1. Executive Officers. The Executive Officers of the Company shall be a President, one or more Vice Presidents (one or more of whom may be designated as Executive Vice President or Senior Vice President), a Secretary, a Treasurer, and a Controller. The Board of Directors may also designate the Chairman of the Board as an Executive Officer, which designation may be cancelled by the Board at any time. The Executive Officers shall be elected annually by the Board of Directors at its first meeting following the annual meeting of the shareholders and each such Officer shall hold office until the corresponding meeting in the next year and until his successor shall have been duly chosen and qualified, or until he shall have resigned or shall have been removed, in the manner provided in Section 12 of this Article IV. Whether or nor the Chairman of the Board has been designated as an Executive Officer, he shall be elected and hold office as set forth in the preceding sentence. Any vacancy in any of the above-mentioned offices may be filled for the unexpired portion of the term by the Board of Directors at any regular or special meeting.

Section 2. Chairman of the Board. The Chairman of the Board shall have such powers and duties as from time to time may be conferred upon or assigned to him by the Board of

Directors. He may, from time to time, delegate to any other Officer such powers and such duties as he deems advisable. The Chairman of the Board shall preside at all meetings of the Board of Directors and shareholders at which he is present (except as he may request the President to so preside). If the Chairman of the Board is designated as the Chief Executive Officer, he shall have the powers and duties of the Chief Executive Officer referred to in the next section of these Bylaws.

Section 3. President. The President shall be the Chief Executive Officer, unless the Board of Directors designates the Chairman of the Board as the Chief Executive Officer. As Chief Executive Officer, the President shall carry out policies adopted or approved by the Board of Directors and shall have general charge and supervision of the business of the Company, subject to the control of the Board of Directors. The President, if not designated the Chief Executive Officer, shall have such powers and duties as from time to time may be conferred upon or assigned to him by the Board of Directors or by the Chief Executive Officer.

Section 4. Vice Presidents. At the request of the President, or in his absence or disability, any Vice President shall perform all the duties of the President, and when so acting shall have the powers of the President, unless otherwise determined by the Board of Directors. Each Vice President shall also have and exercise such powers and duties as from time to time may be conferred upon or assigned to him by the Board of Directors or the Chief Executive Officer.

Section 5. Secretary. The Secretary shall record the proceedings of the meetings of the Board of Directors and, if so directed, of the Executive Committee, in books provided for that purpose; he shall see that all notices of meetings of the Directors are duly given in accordance with the provisions of these Bylaws, or as required by law; he shall be custodian of the Directors' minutes and of the corporate seal or seals of the Company; he shall see that the corporate seal is affixed to all documents, the execution of which, on behalf of the Company, under its seal, is duly authorized, and when so affixed may attest the same; and, in general, he shall perform all duties incident to the office of a Secretary of a corporation, and such other duties as from time to time may be assigned to him by the Board of Directors or the Chief Executive Officer.

Section 6. Treasurer. The Treasurer shall serve as the chief financial officer and shall have charge of and be responsible for procuring capital and maintaining financial arrangements as shall from time to time, be selected by the Board of Directors; he shall manage the level of funds deposited in banks, trust companies, or other depositories so as to minimize the cost of borrowing such funds as shall be periodically required and to maximize the return on the investment of Company funds as shall from time to time, be available; and, in general, he shall perform all the duties incident to the office of a Treasurer of a corporation, and such other duties as from time to time may be assigned to him by the Board of Directors or the Chief Executive Officer.

Section 7. Controller. The Controller shall serve as the chief accounting officer and shall have charge of the accounting books and records of the Company; he shall render to the Chief Executive Officer and to the Board of Directors, whenever requested, an account of the financial condition of the Company; he shall have charge of and be responsible for the receipt and disbursement of all funds of the Company and shall deposit or cause to be deposited, in the name of the Company, all moneys or valuable effects in such banks, trust companies, or other depositories as shall from time to time be selected by the Board of Directors; and, in general, he shall perform all the duties incident to the duties of a Chief Accounting Officer of a corporation, and such other duties as from time to time may be assigned to him by the Board of Directors or the Chief Executive Officer.

Section 8. Assistant Officers. The Board of Directors may elect one or more Assistant Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers and one or more Assistant Controllers. Each Assistant Vice President, if any, each Assistant Secretary, if any, each Assistant Treasurer, if any, and each Assistant Controller, if any, shall hold office for such period and shall have such authority and perform such duties as the Board of Directors or the Chief Executive Officer may prescribe.

Section 9. Subordinate Officers. The Board of Directors may select such subordinate Officers as it may deem desirable. Each such Officer shall hold office for such period, have such authority, and perform such duties as the Board of Directors or the Chief Executive Officer may prescribe. The Board of Directors may, from time to time, authorize any Officer to appoint and remove subordinate Officers and prescribe the powers and duties thereof.

Section 10. Certain Powers of Officers. Certificates of Stock of the Company shall be signed by the President or any Vice President and by the Treasurer or any Assistant Treasurer or the Secretary or any Assistant Secretary or the Controller or any Assistant Controller of the Company. The President may sign and execute in the name of the Company all authorized deeds, mortgages, bonds, contracts, or other instruments, except in cases in which the signing and execution thereof shall have been expressly delegated to some other Officer or Agent of the Company.

Section 11. Officers Holding Two or More Offices. Any two of the above-mentioned offices, except those of President and Secretary or Assistant Secretary, may be held by the same person, but no officer shall execute, acknowledge, or verify any instrument in more than one capacity, if such instrument be required by Statute, by the Charter, or by these Bylaws, to be executed, acknowledged, or verified by any two or more Officers.

Section 12. Compensation. The Board of Directors shall have power to fix the compensation of all Officers of the Company. It may authorize any Officer, upon whom the power of appointing subordinate Officers may have been conferred, to fix the compensation of such subordinate Officers.

Section 13. Removal. Any Officer of the Company may be removed, with or without cause, by vote of a majority of the entire Board of Directors at a meeting called for that purpose, or (except in case of an Officer elected by the Board of Directors) by an Officer upon whom such power of removal may have been conferred.

ARTICLE V

STOCK

Section 1. Certificates. Every shareholder shall be entitled to a certificate or certificates of stock of the Company in form prescribed by the Board of Directors, duly numbered and sealed with the corporate seal of the Company, and setting forth the number and kind of shares represented thereby to which each shareholder is entitled. Such certificates shall be signed by the Chairman of the Board or the President or any Vice President and by the Treasurer or any Assistant Treasurer or the Secretary or any Assistant Secretary or the Controller or any Assistant Controller of the Company. The Board of Directors may also appoint one or more Transfer Agents and/or Registrars for its stock of any class or classes and may require stock certificates to be countersigned and/or registered by one or more of such Transfer Agents and/or Registrars. If certificates of capital stock of the Company are signed by a Transfer Agent and by a Registrar, the signature of the officers of the Company and the seal of the Company thereon may be facsimiles, engraved or printed. Any provisions of these Bylaws with reference to the signing and sealing of stock certificates shall include, in cases above permitted, such facsimiles. In case any officer or officers who shall have signed, or whose facsimile signature or signatures shall have been used on any such certificate or certificates shall cease to be such officer or officers of the Company, whether because of death, resignation, or otherwise, before such certificate or certificates shall have been delivered by the Company, such certificate or certificates may nevertheless be adopted by the Board of Directors of the Company and be issued and delivered as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures shall have been used thereon had not ceased to be such officer or officers of the Company.

Section 2. Transfer of Shares. The Board of Directors shall have power and authority to make all such rules and regulations as it may deem expedient concerning the issue, transfer, and registration of certificates of stock.

Section 3. Record Dates. The Board of Directors is hereby authorized to fix the time, not exceeding fifty (50) days preceding the date of any meeting of shareholders, or the date for payment of any dividend, or the date for the allotment of rights, or the date when any change, or conversion, or exchange of capital stock shall go into effect, during which the books of the Company shall be closed against transfers of stock; provided, however, that in case of any such closing of the stock transfer books, notice thereof shall be mailed to the shareholders at their last known address as the same appears upon the books of the Company, at least ten (10) days before the closing thereof. In lieu of providing for the closing of the books against transfers of stock as aforesaid, the Board of Directors shall have the authority to fix in advance a date, not exceeding fifty (50) days preceding (1) the date of any meeting of shareholders, (2) the date for the payment of any dividend, (3) the date for the allotment of rights, or (4) the date when any change or conversion or exchange of capital stock shall go into effect, as a record date for the determination of the shareholders entitled to notice of, or to vote at, any such meeting, or entitled to receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion, or exchange of capital stock, and in such case such shareholders and only such shareholders as shall be shareholders of record on the date so fixed, shall be entitled to such notice of, and to vote at such meeting, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any stock on the books of the Company after any such record date fixed as aforesaid. In any case in which the Board of Directors does not provide for the closing of the Books against transfer of stock as aforesaid, or fix a record date as aforesaid, the twentieth day preceding the date of the meeting of shareholders, the dividend payment date or the date for the allotment of rights, shall be the record date for the determination of the shareholders entitled to notice of and to vote at such meeting, or to receive such dividends or rights, as the case may be.

Section 4. Mutilated, Lost or Destroyed Certificates. The holder of any certificate representing shares of stock of the Company shall immediately notify the Company of any mutilation, loss, or destruction thereof, and the Board of Directors may, in its discretion, cause one or more new certificates, for the same number of shares in the aggregate, to be issued to such holder upon the surrender of the mutilated certificate, or in case of loss or destruction of the certificate, upon satisfactory proof of such loss or destruction, and the deposit of indemnity by way of bond or otherwise, in such form and amount and with such sureties or securities as the Board of Directors may require to indemnify the Company against loss or liability by reason of the issuance of such new certificate or certificates, and the failure of such holder to comply with the requirements of this Section 4 shall constitute a waiver by such holder of any right to receive such new certificate or certificates, provided however that no deposit of indemnity, other than personal bond, shall be required for the issuance of one or more new certificates where the value of the number of shares in the aggregate does not exceed $200.00. The Board of Directors may, in its discretion, refuse to issue such new certificates, save upon the order of some Court having

jurisdiction in such matters.

ARTICLE VI

DIVIDENDS AND FINANCE

Section 1. Dividends. Subject to the provisions of the Charter, the Board of Directors may, in its discretion, declare what, if any, dividends shall be paid upon the stock of the Company, or upon any class of such stock. Except as otherwise provided by the Charter, dividends shall be payable upon such dates as the Board of Directors may designate. Before payment of any dividend there may be set aside out of any funds of the Company available for dividends such sum or sums as the directors, from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Company, or for such other purposes as the directors shall think conducive to the interest of the Company, and the directors may abolish any such reserve in the manner in which it was created.

Section 2. Checks, Drafts, Etc. All checks, drafts, or orders for the payment of money, notes, and other evidences of indebtedness, issued in the name of the Company, shall unless otherwise provided by the Board of Directors, be signed by the Treasurer or an Assistant Treasurer, or the Controller or an Assistant Controller and countersigned by the Chairman of the Board or the President or a Vice President or the Secretary.

Section 3. Annual Reports. A report on the affairs of the Company shall be submitted at the annual meeting of the shareholders. Such statement shall be prepared by such executive officer of the Company as may be designated by the Board of Directors. If no other executive officer is so designated, it shall be the duty of the Chairman of the Board to prepare such statement.

Section 4. Fiscal Year. The fiscal year of the Company shall be the calendar year, unless otherwise provided by the Board of Directors.

ARTICLE VII

INDEMNIFICATION

Section 1. Right to Indemnification. The Company shall indemnify any corporate agent against his expenses and liabilities in connection with any proceedings involving the corporate agent by reason of his being or having been such a corporate agent to the extent that (a) such corporate agent is not otherwise indemnified; and (b) the power to do so has been or may be granted by statute; and for this purpose the Board of Directors may, and on request of any such corporate agent shall be required to, determine in each case whether or not the applicable standards in any such statute have been met, or such determination shall be made by independent legal counsel if the Board so directs or if the Board is not empowered by statute to make such determination.

Section 2. Prepayment of Expenses. To the extent that the power to do so has been or may be granted by statute, the Company shall pay expenses incurred by a corporate agent in connection with a proceeding in advance of the final disposition of the proceeding upon receipt of an undertaking by or on behalf of such corporate agent to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified as provided by statute.

Section 3. Indemnification Not Exclusive. This indemnification shall not be exclusive of any other rights to which a corporate agent may be entitled, both as to any action in his official capacity or as to any action in another capacity while holding such office, and shall inure to the benefits of the heirs, executors, or administrators of any such corporate agent.

Section 4. Insurance and Other Indemnification. The Board of Directors shall have the power to (a) purchase and maintain, at the Company's expense, insurance on behalf of the Company and on behalf of others to the extent that power to do so has been or may be granted by statute and (b) give other indemnification to the extent permitted by law.

Section 5. Definitions. As used in this Article,

(a) "corporate agent" means any person who is or was a Director, officer, employee or agent of the Company and any person who is or was a Director, officer, trustee, employee or agent of any other enterprise, serving as such at the request of the Company, or the legal representative of any such Director, officer, trustee, employee or agent;

(b) "other enterprises" means any domestic or foreign corporation, other than the Company, and any partnership, joint venture, sole proprietorship, trust or other enterprise

whether or not for profit, served by a corporate agent;

(d) "liabilities" means amounts paid or incurred in satisfaction of settlements, judgments, fines, and penalties;

(e) "proceedings" means any pending, threatened or completed civil, criminal, administrative or arbitrative action, suit or proceeding, and any appeal therein and any inquiry or investigation which could lead to such action, suit or proceeding.

ARTICLE VIII

SUNDRY PROVISIONS

Section 1. Seal. The Corporate Seal of the Company shall contain within a circle the words "South Jersey Gas Company," and in an inner circle the word "SEAL." If deemed advisable by the Board of Directors, a duplicate seal or duplicate seals may be provided and kept for the necessary purposes of the Company.

Section 2. Books and Records. The Board of Directors may determine from time to time whether and, if allowed, when and under what conditions and regulations, the books and records of the Company, or any of them, shall be open to the inspection of shareholders and the rights of shareholders in this respect are and shall be limited accordingly, except as otherwise provided by Statute. Under no circumstances shall any shareholder have the right to inspect any book or record or receive any statement for an illegal or improper purpose.

Section 3. Bonds. The Board of Directors may require any officer, agent, or employee of the Company to give a bond to the Company, conditioned upon the faithful discharge of his duties, with one or more sureties and in such amount as may be satisfactory to the Board of Directors.

Section 4. Voting upon Stock in Other Corporations. Any Stock in other corporations, which may from time to time be held by the Company, may be represented and voted at any meeting of shareholders of such other corporations by the Chairman of the Board, the President or a Vice President of the Company or by proxy executed in the name of the Company by the Chairman of the Board, the President or a Vice President with the corporate seal affixed and attested by the Secretary or an Assistant Secretary.

Section 5. Amendments. These Bylaws may be altered or amended at any annual meeting of the shareholders or at any special meeting called for that purpose, by a majority vote of all the shareholders entitled to vote at such meeting, or at any meeting of the Board of Directors, by a majority vote of the directors, provided notice of any such proposed alteration or amendment shall be given in the notice of any such meeting.

		AMENDMENTS
Article II	Section 1	Amended February 19, 1959.
Article I	Section 1	Amended February 19, 1960.
Article I	Section 1	Amended February 21, 1963.
Article IV	Section 8	Amended August 19, 1965.
Article V	Section 1	Amended August 19, 1965.
Article I	Section 1	Amended June 20, 1968.
Article I	Section 1	Amended April 16, 1970.
Article II	Section 1	Amended August 19, 1971.
Article II	Section 1	Amended June 22, 1972.
Article II	Section 1	Amended August 23, 1973.
Article II	Section 1	Amended February 20, 1975.
Article II	Section 11	Repealed August 21, 1975.
Article VII	Renum. Article VIII	August 21, 1975.
Article VII	Newly added	August 21, 1975.
Article I	Section 1	Amended December 18, 1975.
Article II	Section 1	Amended February 19, 1976.
Article II	Section 1	Amended February 17, 1977.
Article IV	Section 3-11 renum.	April 21, 1977.
Article IV	Section 3	Newly added April 21, 1977.
Article VI	Section 1	Amended April 21, 1977.
Bylaws restated in their entirety.
Article II	Section 1	Amended February 16, 1978.
Article II	Section 1	Amended February 15, 1979.
Article II	Section 1	Amended August 23, 1979.
Article III	Section 1	Amended October 24, 1980.
Article IV	Section 1, 2 & 3	Amended October 24, 1980.
Article II	Section 1	Amended April 22, 1981.
Article II	Section 1	Amended October 23, 1981.
Article IV	Section 1-12	Amended October 23, 1981.
Article II	Section 1	Amended January 21, 1983.
Article II	Section 1	Amended May 22, 1985.
Article II	Section 1	Amended April 17, 1986.
Article IV	Section 1 & 6-13	Amended March 18, 1988, effective April 1, 1988.
Article V	Section 1	Amended March 18, 1988, effective April 1, 1988.
Article VI	Section 2	Amended March 18, 1988, effective April 1, 1988.
Article II	Section 1	Amended April 18, 1989, effective April 19, 1989 (Spl. Mtg.)
Article II	Section 1	Amended October 20, 1989.
Article II	Section 1	Amended April 19, 1990.
Article II	Section 1	Amended October 1, 1990.
Article II	Section 1	Amended April 23, 1992.
Article II	Section 1	Amended April 22, 1993.
Article II	Section 1	Amended October 21, 1994.
Article II	Section 1	Amended April 20, 1995.
Article II	Section 1	Amended June 21, 1996.
Article II	Section 1	Amended April 17, 1997.
Article II	Section 1	Amended April 23, 1998.
Article II	Section 1	Amended June 19, 1998.
Article II	Section 1	Amended April 19, 2000.
Article II	Section 1	Amended November 16, 2001.

Article II	Section 1	Amended November 22, 2002, effective January 1, 2003.
Article I	Section 1	Amended November 21, 2003
Article II	Section 1	Amended April 29, 2004.
Article II	Section 1	Amended May 25, 2006.
Article II	Section 1	Amended April 18, 2008.
Article II	Section 1	Amended April 23, 2009.
Article II	Section 1	Amended November 19, 2010.
Article II	Section 1	Amended April 28, 2011.

EX-31.1 3 ex31_1.htm EXHIBIT 31.1 ex31_1.htm

EXHIBIT 31.1

CERTIFICATION

I, Edward J. Graham, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the period ended March 31, 2011 of South Jersey Gas Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15 d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	South Jersey Gas Company

Date: May 9, 2011	By:	/s/ Edward J. Graham
		Edward J. Graham
		President & Chief Executive Officer

EX-31.2 4 ex31_2.htm EXHIBIT 31.2 ex31_2.htm

EXHIBIT 31.2

CERTIFICATION

I, David A. Kindlick, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the period ended March 31, 2011, of South Jersey Gas Company;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	South Jersey Gas Company

Date: May 9, 2011	By:	/s/ David A. Kindlick
		David A. Kindlick
		Senior Vice President & Chief Financial Officer

EX-32.1 5 ex32_1.htm EXHIBIT 32.1 ex32_1.htm

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF

THE SARBANES-OXLEY ACT OF 2002

In connection with the filing of the Quarterly Report on Form 10-Q of South Jersey Gas Company (the “Company”) for the period ended March 31, 2011, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Edward J. Graham, Chief Executive Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Edward J. Graham

Name: Edward J. Graham

Title: Chief Executive Officer

May 9, 2011

EX-32.2 6 ex32_2.htm EXHIBIT 32.2 ex32_2.htm

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF

THE SARBANES-OXLEY ACT OF 2002

In connection with the filing of the Quarterly Report on Form 10-Q of South Jersey Gas Company (the “Company”) for the period ended March 31, 2011, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David A. Kindlick, Chief Financial Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ David A. Kindlick

Name: David A. Kindlick

Title: Chief Financial Officer

May 9, 2011