10-Q

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 June 30, 2011

OR

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 x     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 August 1, 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.

TABLE OF CONTENTS

		Page No.
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements	3
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	28
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 6.	Exhibits	29
Signatures		29

2

SOUTH JERSEY GAS COMPANY

CONDENSED STATEMENTS OF INCOME (UNAUDITED)

(In Thousands)

	Three Months Ended June 30,
	2011			2010
Operating Revenues	$	65,187		$	61,344
Operating Expenses:
Cost of Sales (Excluding depreciation)		28,259			23,941
Operations		17,403			16,485
Maintenance		3,215			2,785
Depreciation		7,523			7,319
Energy and Other Taxes		1,722			1,590
Total Operating Expenses		58,122			52,120
Operating Income		7,065			9,224
Other Income and Expense		515			240
Interest Charges		(4,895	)		(4,163	)
Income Before Income Taxes		2,685			5,301
Income Taxes		(1,065	)		(2,125	)
Net Income	$	1,620		$	3,176

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

3

CONDENSED STATEMENTS OF INCOME (UNAUDITED)

(In Thousands)

	Six Months Ended June 30,
	2011			2010
Operating Revenues	$	245,510		$	258,060
Operating Expenses:
Cost of Sales (Excluding depreciation)		116,833			140,816
Operations		35,676			34,292
Maintenance		6,224			5,601
Depreciation		14,983			14,398
Energy and Other Taxes		6,236			5,938
Total Operating Expenses		179,952			201,045
Operating Income		65,558			57,015
Other Income and Expense		1,393			473
Interest Charges		(9,924	)		(8,178	)
Income Before Income Taxes		57,027			49,310
Income Taxes		(23,111	)		(20,264	)
Net Income	$	33,916		$	29,046

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

4

SOUTH JERSEY GAS COMPANY

CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(In Thousands)

	Three Months Ended June 30,
	2011			2010
Net Income	$	1,620		$	3,176
Other Comprehensive  Gain (Loss)   - Net of Tax:
Unrealized Gain (Loss) on Available-for-Sale Securities		50			(265	)
Unrealized Gain on Derivatives - Other		7			7
Other Comprehensive Gain (Loss)  - Net of Tax *		57			(258	)
Comprehensive Income	$	1,677		$	2,918
	Six Months Ended June 30,
		2011			2010
Net Income	$	33,916		$	29,046
Other Comprehensive Loss  - Net of Tax:
Unrealized Loss on Available-for-Sale Securities		(103	)		(121	)
Unrealized Gain on Derivatives - Other		14			14
Other Comprehensive Loss - Net of Tax *		(89	)		(107	)
Comprehensive Income	$	33,827		$	28,939

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

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

5

SOUTH JERSEY GAS COMPANY

 CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In Thousands)

	Six Months Ended June 30,
	2011			2010
Net Cash Provided by Operating Activities	$	51,301		$	63,574
Cash Flows from Investing Activities:
Capital Expenditures		(55,611	)		(66,206	)
Net Proceeds from Sale of Restricted Investments in Margin Accounts		994			-
Investment in Long-Term Receivables		(2,390	)		(1,529	)
Proceeds from Long-Term Receivables		2,418			1,047
Net Cash Used in Investing Activities		(54,589	)		(66,688	)
Cash Flows from Financing Activities:
Net Borrowing from (Repayment of) Lines of Credit		1,600			(53,900	)
Proceeds from Issuance of Long-Term Debt		-			60,000
Payments for Issuance of Long-Term Debt		(28	)		(623	)
Dividend on Common Stock		-			(2,500	)
Net Cash Provided in Financing Activities		1,572			2,977
Net Decrease in Cash and Cash Equivalents		(1,716	)		(137	)
Cash and Cash Equivalents at Beginning of Period		2,030			1,993
Cash and Cash Equivalents at End of Period	$	314		$	1,856

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

6

SOUTH JERSEY GAS COMPANY

CONDENSED BALANCE SHEETS (UNAUDITED)

(In Thousands)

	June 30, 2011			December 31, 2010
Assets
Property, Plant and Equipment:
Utility Plant, at original cost	$	1,437,113		$	1,384,797
Accumulated Depreciation		(346,603	)		(337,993	)
Property, Plant and Equipment - Net		1,090,510			1,046,804
Investments:
Available-for-Sale Securities		7,096			6,700
Restricted Investments		3,308			4,301
Total Investments		10,404			11,001
Current Assets:
Cash and Cash Equivalents		314			2,030
Accounts Receivable		71,132			37,619
Accounts Receivable - Related Parties		1,399			4,885
Unbilled Revenues		10,620			58,197
Provision for Uncollectibles		(4,545	)		(4,577	)
Natural Gas in Storage, average cost		20,533			20,109
Materials and Supplies, average cost		2,644			2,511
Prepaid Taxes		24,860			15,907
Derivatives - Energy Related Assets		1,858			5,864
Other Prepayments and Current Assets		4,284			2,353
Total Current Assets		133,099			144,898
Regulatory and Other Noncurrent Assets:
Regulatory Assets		241,754			248,413
Unamortized Debt Issuance Costs		6,426			6,718
Long-Term Receivables		7,250			7,285
Derivatives - Energy Related Assets		119			1,005
Other		2,643			2,511
Total Regulatory and Other Noncurrent Assets		258,192			265,932
Total Assets	$	1,492,205		$	1,468,635

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

7

SOUTH JERSEY GAS COMPANY

CONDENSED BALANCE SHEETS (UNAUDITED)

(In Thousands, except per share amounts)

	June 30, 2011			December 31, 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		(9,209	)		(9,120	)
Retained Earnings		263,232			229,316
Total Common Equity		460,712			426,885
Long-Term Debt		365,000			340,000
Total Capitalization		825,712			766,885
Current Liabilities:
Notes Payable		60,500			58,900
Current Portion of Long-Term Debt		25,000			50,000
Accounts Payable - Commodity		9,599			26,915
Accounts Payable - Other		24,616			19,628
Accounts Payable - Related Parties		9,315			10,830
Derivatives - Energy Related Liabilities		4,526			11,406
Deferred Income Taxes - Net		1,378			4,982
Customer Deposits and Credit Balances		18,469			10,525
Environmental Remediation Costs		19,384			25,662
Taxes Accrued		1,870			1,915
Pension Benefits		1,182			1,182
Interest Accrued		6,943			7,011
Other Current Liabilities		3,502			5,156
Total Current Liabilities		186,284			234,112
Regulatory and Other Noncurrent Liabilities:
Regulatory Liabilities		56,069			69,248
Deferred Income Taxes - Net		261,743			239,648
Environmental Remediation Costs		62,865			61,731
Asset Retirement Obligations		28,285			27,925
Pension and Other Postretirement Benefits		62,593			59,754
Investment Tax Credits		1,056			1,207
Derivatives - Energy Related Liabilities		185			430
Derivatives - Other		3,261			3,150
Other		4,152			4,545
Total Regulatory and Other Noncurrent Liabilities		480,209			467,638
Commitments and Contingencies (Note 9)
Total Capitalization and Liabilities	$	1,492,205		$	1,468,635

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

8

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 $1.2 million and $1.1 million for the three months ended June 30, 2011 and 2010, and $5.0 million and $4.8 million for the six months ended June 30, 2011 and 2010, respectively.

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

The FASB has issued Accounting Standards Update (ASU) No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income.  This ASU allows an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  In both choices, an entity is required to present each component of net income along with a total for other comprehensive income, and a total amount for comprehensive income.  ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity.  The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.  Management is currently evaluating the impact that the adoption of this guidance will have on the Company’s financial statements.

2. STOCK-BASED COMPENSATION PLANS:

The following table summarizes the SJI nonvested restricted stock awards pertaining to SJG outstanding at June 30, 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.

9

As of June 30, 2011, there was $0.6 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 2.0 years.

The following table summarizes information regarding restricted stock award activity during the six months ended June 30, 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, June 30, 2011		25,886	$	42.600

During the six months ended June 30, 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 the six months ended June 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 six months ended June 30, 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 II).  The BPU approved a CIRT II program in March 2011, allowing the Company to accelerate an additional $60.3 million of capital spending into 2011 and 2012.  Under CIRT II, the Company capitalizes our return on CIRT II investments until they are recovered in rate base as utility plant in service.  On June 1, 2011 the Company filed a petition with the BPU requesting recovery of CIRT II investments through a 0.5% increase in base rates effective on October 1, 2011.  This petition is currently pending.

On March 29, 2011, SJG credited the accounts of our Basic Gas Supply Service (BGSS) customers with refunds totaling $21.1 million due to actual gas costs being lower than projected.

On June 1, 2011, the Company filed its annual BGSS clause and Conservation Incentive Program (CIP) filings with the BPU.  These petitions request a 2.9% reduction in rates for the BGSS and a 2.5% reduction in rates for the CIP, both commencing on October 1, 2011.  Also on June 1, 2011, the Company filed its annual Energy Efficiency Tracker (EET) petition, requesting a 0.5% increase.  These petitions are currently pending.

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.

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.

10

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

	June 30, 2011		December 31, 2010
Environmental Remediation Costs:
Expended - Net	$	43,817	$	39,056
Liability for Future Expenditures		82,249		87,393
Income Taxes - Flowthrough Depreciation		285		774
Deferred Asset Retirement Obligation Costs		24,550		24,247
Deferred Pension and Other Postretirement Benefit Costs		68,828		69,017
Conservation Incentive Program Receivable		2,846		12,291
Societal Benefit Costs Receivable		5,987		4,216
Premium for Early Retirement of Debt		618		699
Other Regulatory Assets		12,574		10,720
Total Regulatory Assets	$	241,754	$	248,413

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

	June 30, 2011		December 31, 2010
Excess Plant Removal Costs	$	47,843	$	48,409
Deferred Revenues - Net		4,605		20,179
Other Regulatory Liabilities		3,621		660
Total Regulatory Liabilities	$	56,069	$	69,248

DEFERRED REVENUES – NET – Over/under collections of gas costs are monitored through SJG’s BGSS clause.  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 $4.6 million regulatory liability at June 30, 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 six 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.

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Operating Revenues/Affiliates:
SJRG	$	184	$	82	$	6,059	$	645
Other		167		109		484		235
Total Operating Revenue/Affiliates	$	351	$	191	$	6,543	$	880

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Costs of Sales/Affiliates (Excluding depreciation):
SJRG	$	14,263	$	-	$	19,507	$	14,582
Energy-Related Derivative Losses *
SJRG	$	2,453	$	8,249	$	7,054	$	12,296

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

Operations Expense/Affiliates
SJI	$	2,712		$	2,453		$	5,208		$	4,381
SJIS		1,131			959			2,273			2,462
Millennium		771			764			1,502			1,452
Other		(104	)		(64	)		(201	)		(118	)
Total Operations Expense/Affiliates	$	4,510		$	4,112		$	8,782		$	8,177

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 June 30, 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 June 30, 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 June 30, 2011 and December 31, 2010, the balance held with SJRG totaled $3.2 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 $10.4 million as of both June 30, 2011 and December 31, 2010.  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 June 30, 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 June 30, 2011 and December 31, 2010.

Long-Term Debt– SJG did not issue any long-term debt during the first six months of 2011.  During the first six months of 2010, SJG issued $60.0 million aggregate principal amount of its Medium Term Notes in private placements due 2026.  As of both June 30, 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 June 30, 2011 and December 31, 2010, were $456.4 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 June 30, 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.

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7. UNUSED LINES OF CREDIT:

Credit facilities and available liquidity as of June 30, 2011 were as follows (in thousands):

	Total Facility		Usage		Available Liquidity		Expiration Date
Revolving Credit Facility	$	200,000	$	40,500	$	159,500	May 2015 (A) (B)
Uncommitted Bank Lines		20,000		20,000		-	Various
Total	$	220,000	$	60,500	$	159,500

(A)  See Note 12 – Subsequent Event

(B) A new revolving credit facility was established by SJG in May 2011.  The SJG facility is a $200.0 million, four-year facility, provided by a syndicate of banks.  The facility contains one financial covenant limiting the ratio of indebtedness to total capitalization (as defined in the credit agreement) to not more than 0.65 to 1 measured at the end of each fiscal quarter.  SJG was in compliance with this covenant as of June 30, 2011. This facility replaces SJG’s $100.0 million revolving credit facility and $40.0 million committed line of credit, both of which would otherwise have expired in August of 2011.  See Note 12.

Average borrowings outstanding under these credit facilities during the six months ended June 30, 2011 and 2010 were $37.6 million and $84.5 million, respectively.  The maximum amount outstanding under these credit facilities during the six months ended June 30, 2011 and 2010 were $61.8 million and $112.5 million, respectively.

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 1.27% and 0.70% at June 30, 2011 and 2010, respectively.

8. PENSION AND OTHER POSTRETIREMENT BENEFITS:

For the three and six months ended  June 30, 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
		Three Months Ended June 30,						Six Months Ended June 30,
		2011			2010			2011			2010
Service Cost		$	696		$	664		$	1,481		$	1,326
Interest Cost			1,775			1,815			3,601			3,559
Expected Return on Plan Assets			(1,726	)		(1,753	)		(3,541	)		(3,251	)
Amortizations:
Prior Service Cost			48			61			100			108
Actuarial Loss			1,048			776			2,057			1,838
Net Periodic Benefit Cost			1,841			1,563			3,698			3,580
Capitalized Benefit Costs			(902	)		(766	)		(1,812	)		(1,754	)
Total Net Periodic Benefit Expense		$	939		$	797		$	1,886		$	1,826

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	Other Postretirement Benefits
		Three Months Ended June 30,						Six Months Ended June 30,
		2011			2010			2011			2010
Service Cost		$	164		$	166		$	379		$	365
Interest Cost			597			611			1,216			1,297
Expected Return on Plan Assets			(408	)		(431	)		(854	)		(769	)
Amortizations:
Prior Service Credits			(64	)		(67	)		(135	)		(141	)
Actuarial Loss			316			211			628			593
Net Periodic Benefit Cost			605			490			1,234			1,345
Capitalized Benefit Costs			(297	)		(240	)		(605	)		(659	)
Total Net Periodic Benefit Expense		$	308		$	250		$	629		$	686

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

No contributions were made to the pension plans during the six-month periods ending June 30, 2011. During May 2010, we contributed $6.4 million to our pension plans. 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 facility 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.  As of December 31, 2010, these bonds were included in the current portion of long-term debt because this letter of credit expired in 2011.  The replacement letter of credit expires in August 2015, and as a result, the related bonds are now included in long-term debt as of June 30, 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.

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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 64% of our workforce at June 30, 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.

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 June 30, 2011
	Total		Level 1		Level 2		Level 3
Assets -
Available-for-Sale Securities (A)	$	7,096	$	-	$	7,096	$	-
Derivatives – Energy Related Assets (B)		1,977		619		1,358		-
	$	9,073	$	619	$	8,454	$	-
Liabilities -
Derivatives – Energy Related Liabilities (B)	$	4,711	$	4,432	$	279	$	-
Derivatives – Other (C)		3,261		-		3,261		-
	$	7,972	$	4,432	$	3,540	$	-

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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.

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 June 30, 2011, SJG had outstanding derivative contracts intended to limit the exposure to market risk on 14.2 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 June 30, 2011 and December 31, 2010, SJG had $2.7 million and $5.0 million of unrealized losses, respectively, included in its BGSS related to open financial contracts.

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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 June 30, 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 June 30, 2011 and December 31, 2010, are as follows (in thousands):

Derivatives not designated as hedging instruments under GAAP	June 30, 2011				December 31, 2010
	Assets		Liabilities		Assets		Liabilities
Energy related commodity contracts:
Derivatives – Energy Related – Current	$	1,858	$	4,526	$	5,864	$	11,406
Derivatives – Energy Related – Non-Current		119		185		1,005		430
Interest rate contracts:
Derivatives – Other		-		3,261		-		3,150
Total derivatives not designated as hedging instruments under GAAP	$	1,977	$	7,972	$	6,869	$	14,986

The effect of derivative instruments on the condensed statements of income for the three and six months ended June 30, 2011 and 2010 are as follows (in thousands):

	Three months ended June 30,						Six months ended June 30,
Derivatives in Cash Flow Hedging Relationships Interest Rate Contracts:	2011			2010			2011				2010
Losses reclassified from accumulated OCI into income (a)	$	(12	)	$	(12	)		$	(24	)		$	(24	)

(a) Included in Interest Charges

Net realized losses associated with SJG’s energy-related financial commodity contracts of $2.5 million and $8.2 million for the three months ended June 30, 2011 and 2010 and $7.1 million and $12.3 million for the six months ended June 30, 2011 and 2010, respectively, 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.

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12. SUBSEQUENT EVENT:

In July 2011, SJG began a commercial paper program under which SJG may issue short-term, unsecured promissory notes to qualified investors up to a maximum aggregate amount outstanding at any time of $200.0 million.  The notes will have fixed maturities which will vary by note, but may not exceed 270 days from the date of issue. Proceeds from the notes will be used for general corporate purposes. SJG intends to use the commercial paper program in tandem with its new $200.0 million revolving credit facility and does not expect the principal amount of borrowings outstanding under the commercial paper program and the credit facility at any time to exceed an aggregate of $200.0 million.

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 348,346 customers at June 30, 2011 compared with 344,752 customers at June 30, 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.

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.

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New Accounting Pronouncements -    See detailed discussions concerning New Accounting Pronouncements and their impact on SJG in Note 1 to 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 39,243 and 28,830 at June 30, 2011 and 2010, respectively.

RESULTS OF OPERATIONS:

The following table summarizes the composition of selected gas utility data for the three and six months ended June 30, (in thousands, except for degree day data):

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Utility Throughput – dth:
Firm Sales -
Residential		2,514		2,309		13,755		13,740
Commercial		639		634		3,434		3,328
Industrial		27		24		182		172
Cogeneration & Electric Generation		434		356		554		400
Firm Transportation -
Residential		317		207		1,570		1,189
Commercial		877		809		3,636		3,450
Industrial		3,191		3,254		6,636		6,343
Cogeneration & Electric Generation		1,125		803		3,526		2,996
Total Firm Throughput		9,124		8,396		33,293		31,618
Interruptible Sales		9		40		12		43
Interruptible Transportation		372		268		1,064		854
Off-System		1,551		1,921		3,455		3,037
Capacity Release		17,504		9,203		27,659		19,392
Total Throughput - Utility		28,560		19,828		65,483		54,944

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	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Utility Operating Revenues:
Firm Sales -
Residential		$	34,036		$	31,845		$	148,888		$	169,360
Commercial			7,741			6,862			34,541			36,485
Industrial			574			206			2,294			2,001
Cogeneration & Electric Generation			2,692			2,273			3,501			2,684
Firm Transportation -
Residential			2,313			1,502			8,863			5,956
Commercial			3,482			3,244			13,187			11,843
Industrial			4,270			4,675			8,665			8,651
Cogeneration & Electric Generation			745			709			2,487			2,718
Total Firm Revenues			55,853			51,316			222,426			239,698
Interruptible Sales			161			590			215			638
Interruptible Transportation			328			291			962			898
Off-System			7,314			8,622			17,448			15,546
Capacity Release			1,228			212			3,899			730
Other			303			313			560			550
Total Utility Operating Revenues			65,187			61,344			245,510			258,060
Less:
Cost of Sales			28,259			23,941			116,833			140,816
Conservation Recoveries*			1,447			1,254			4,702			4,373
RAC Recoveries*			1,592			1,740			3,183			3,481
EET Recoveries*			635			359			1,144			538
Revenue Taxes			1,156			1,094			5,029			4,846
Utility Margin		$	32,098		$	32,956		$	114,619		$	104,006
Margin:
Residential		$	19,676		$	14,783		$	78,475		$	60,083
Commercial and Industrial			9,239			6,764			30,566			21,722
Cogeneration and Electric Generation			765			679			1,540			1,388
Interruptible			39			76			87			114
Off-system & Capacity Release			233			68			928			377
Other Revenues			386			755			642			991
Margin Before Weather Normalization & Decoupling			30,338			23,125			112,238			84,675
CIRT Mechanism			626			2,538			1,192			4,562
CIP Mechanism			1,040			7,250			1,014			14,692
EET Mechanism			94			43			175			77
Utility Margin		$	32,098		$	32,956		$	114,619		$	104,006
Degree Days:			376			346			2,871			2,779

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

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Throughput – Total gas throughput increased  8.7 MMdts, or 44.0%, and 10.5 MMdts, or 19.2%, for the three and six months ended June 30, 2011, compared with the same periods in 2010, respectively.  These increases were realized primarily in the Capacity Release markets.   Capacity Release increased 8.3 MMdts in both the three and six months ended June 30, 2011, as compared with the same periods in 2010, respectively, as a result of increased opportunity 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. Firm throughput increased  0.7 MMdts, or 8.7%, and 1.7 MMdts, or 5.3%, during the three and six months ended June 30, 2011, compared to the same periods in 2010, respectively.  This was primarily the result of weather that was 8.7% colder during the second quarter and 3.3% colder for the six months ended June 30, 2011, as compared with the same periods last year.  In addition, the Company added 3,594 customers over the twelve month period ended June 30, 2011, which represents a growth rate of 1.0%.

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 June 30,					Six Months Ended June 30,
	2011			2010		2011			2010
Net Income Benefit:
CIP – Weather Related	$	1.9		$	1.9	$	1.3		$	2.3
CIP – Usage Related		(1.3	)		2.4		(0.7	)		6.4
Total Net Income Benefit	$	0.6		$	4.3	$	0.6		$	8.7
Weather Compared to 20-Year Average	29.5% warmer			37.0% warmer		3.9% warmer			6.7% warmer
Weather Compared to Prior Year	8.7% colder			28.1% warmer		3.3% colder			7.3% warmer

Operating Revenues –

Revenues increased $3.8 million, or 6.3%, during the three months ended June 30, 2011 compared with the same period in the prior year.  Firm sales revenue increased $4.5 million, or 8.8%, during the second quarter of 2011 versus the second quarter of 2010, as the result higher firm throughput. As discussed previously under the caption “Throughput,” this increase was primarily the result of weather that was 8.7% colder during the second quarter of 2011 versus the same period in 2010, and the addition of approximately 3,600 customers over the twelve month period ended June 30, 2011.

A significant increase in Capacity Release throughput during the quarter, coupled with slightly higher pricing, contributed an incremental $1.0 million to revenue during the second quarter of 2011, as compared to the same period in 2010.  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. Off-System Sales revenue decreased $1.3 million during the second quarter of 2011 versus the second quarter of 2010, as more of the newly available capacity was directed toward capacity release than OSS. As reflected in the Margin table above, the impact of the fluctuations in both Capacity Release and 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.

Revenues decreased $12.6 million, or 4.9%, during the six months ended June 30, 2011 compared with the same period in the prior year.  Firm sales revenue decreased $17.3 million, or 7.2%, during the first six months of 2011 versus the same period in 2010, as the result of lower natural gas costs experienced during 2011 which precipitated the return of $21.1 million in the form of a customer refund in March 2011.  The average cost of natural gas purchased during the first six months of 2011 was $6.26 per dt, representing a 9.3% decrease relative to the average cost of $6.90 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.”

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Partially offsetting the negative impact of the refund on revenues was the impact of adding approximately 3,600 customers over the last twelve months, and weather that was 3.3% colder during the first six months of 2011, as compared with the same period in 2010.

OSS revenue and capacity release revenue increased $1.9 million and $3.2 million, respectively, during the first six months of 2011 versus the same period in 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 clause.

Total margin decreased $0.9 million, or 2.6%, for the three months ended June 30, 2011, compared with the same period in 2010 primarily due to a change in the timing of profits earned through the Company’s Capital Investment Recovery Tracker (CIRT).   The CIRT was approved by the BPU in April 2009 and allows the Company to accelerate certain capital spending and also earn a return of, and a return on, investment at the time the investment is made. A significant portion of revenues previously recovered through the CIRT were rolled into base rates in September 2010 resulting in decreased recoveries under the CIRT program in 2011. The impact of the base rate case effectively shifted more recoveries into the first and fourth quarters, with no impact on annual net income. The CIRT added $0.6 million of pre-tax margin in the second quarter of 2011, compared with $2.5 million in the same period of 2010.

As discussed in Note 3 to the condensed financial statements, the BPU approved a CIRT II program in March 2011.  Under this program, recoveries of our investments are not included in margin.  However, they are reflected in both Other Income and as a reduction to interest expense until the BPU approves recovery in base rates.

The CIP protected $1.0 million of pre-tax margin in the second quarter of 2011 that would have been lost due to lower customer usage, compared with $7.3 million in the same period last year.  Of these amounts, $3.2 million were related to weather variations in both periods and $(2.2) million and $4.1 million were related to other customer usage variations in 2011 and 2010, respectively. A significant portion of revenues previously recovered through the CIP were rolled into base rates resulting in decreased recoveries under this program in the second quarter of 2011.  As noted above, the impact of the base rate case effectively shifted more recoveries into the first and fourth quarters, with no impact on annual net income.

Total margin increased $10.6 million, or 10.2% for the six months ended June 30, 2011 compared with the same period in 2010 primarily due to the base rate increase granted in September 2010, higher margins from OSS and capacity release and customer additions.  The CIRT added $1.2 million of pre-tax margin in the first half of 2011, compared with $4.6 million in the same period last year. As noted above, certain revenues previously recovered through the CIRT were rolled into base rates in September 2010 resulting in decreased recoveries under this program in 2011.

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The CIP protected $1.0 million of pre-tax margin in the first half of 2011 that would have been lost due to lower customer usage, compared with $14.7 million in the same period last year.  Of these amounts, $2.2 and $3.9 million were related to weather variations and $(1.2) and $10.8 million were related to other customer usage variations in 2011 and 2010, respectively. As noted above, certain revenues previously recovered through the CIP were rolled into base rates resulting in decreased recoveries under this program in 2011.

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

	Three Months Ended June 30,		Six Months Ended June 30,
	2011 vs. 2010		2011 vs. 2010
Operations	$	918	$	1,384
Maintenance		430		623
Depreciation		204		585
Energy and Other Taxes		132		298

Operations – Operations expense increased $0.9 million and $1.4 million for the three and six months ended June 30, 2011, respectively, as compared with the same periods in 2010.  The increases are primarily due to several factors as follows:

· Spending under the New Jersey Clean Energy Program and Energy Efficiency Programs increased $0.5 million and $0.9 million for the three and six months ended June 30, 2011, respectively, 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.  

· Amortization of previously deferred regulatory expenses increased $0.3 million and $0.6 million during the three and six three and six months ended June 30, 2011, respectively, as compared to 2010. Recovery of these costs was approved in the Company’s September 2010 rate case settlement; therefore, such cost recognition is offset by a corresponding increase in revenue.  

· The Company also experienced increases in various other areas including general compensation increases and corporate support, governance and compliance costs, primarily attributable to our parent, SJI. 

· Finally, the reserve for uncollectible customer accounts had decreased $0.7 million during the first quarter of 2011, as compared to the first quarter of 2010, due to a $21.1 million customer refund in March 2011. However, as customer account receivable balances returned to more typical levels during the second quarter of 2011, the benefit of the first quarter reserve adjustment had to be reversed.  Changes in the uncollectible reserve are the direct result of fluctuations in levels of customer account receivable balances.

Partially offsetting the expense increases noted above were lower expense associated with the write-off of uncollectible customer accounts receivable.  These expenses were $0.7 million and $0.5 million less for the three and six months ended June 30, 2011, respectively, as a result of significant write-offs during the second quarter of 2010, which stemmed from a post-winter season evaluation of delinquent accounts. Following the March 2011 customer refund of $21.1 million and lower natural gas costs, as discussed under “Operating Revenues,” a similar action was not required in 2011.

23

Maintenance - Maintenance expense increased $0.4 million and $0.6 million during the three and six months ended June 30, 2011, compared with the same periods in 2010, respectively, 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 and $0.6 million during the three and six months ended June 30, 2011, respectively.  The Company also incurred increased maintenance costs in other areas of operations; however, these increases were partially offset by 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 $0.2 million and $0.6 million during the three and six months ended June 30, 2011, as compared with the same periods in 2010, respectively, due mainly to SJG’s continuing investment in utility plant.

Energy and Other Taxes - Energy and Other Taxes increased $0.1 million and $0.3 million during the three and six months ended June 30, 2011, compared with the same periods in 2010, respectively, primarily due to higher taxable firm throughput in 2011.  This resulted from colder weather and a 1.0% increase in the number of customers served over the twelve month period ended June 30, 2011.  Additional weather information can be found above under the caption “Conservation Incentive Program (CIP).”

Other Income and Expense - Other Income and Expense increased $0.3 million and $0.9 million during the three and six months ended June 30, 2011, compared with the same periods in 2010, respectively.  With the approval of the Company’s CIRT II in March, 2011, the company was permitted to recognize interest on construction on its qualified incremental spending.  While the debt-related component of the interest charge is credited against interest charges, the equity-related component of the interest charge is recognized as Other Income.  This incremental income totaled $0.2 million, most of which occurred during the second quarter.  In addition, SJG recognized a gain of $0.6 million on the sale of certain available-for-sale securities during the first quarter of 2011.

Interest Charges–  Interest Charges increased $0.7 million and $1.7 million during the three and six months ended June 30, 2011, compared with the same periods in 2010, respectively, primarily 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.

Cash Flows from Operating Activities - Liquidity needs are first met with net cash provided by operating activities.  Net cash provided by operating activities totaled $51.3 million and $63.6 million in the first halves 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.  Net cash provided by operations was negatively impacted by the $21.1 million BGSS bill credit posted to customer accounts at the end of the first quarter and higher-than-normal gas commodity purchases late in 2010, due to colder weather, that were paid in 2011.  These negative impacts were offset by tax benefits which resulted in lower cash tax payments during the period.

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 $55.6 million and $66.2 million during the first six 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 $138.8 million, $73.8 million and $56.0 million, respectively.  For capital expenditures, including those under the CIRT, SJG will use short-term borrowings 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.

24

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 June 30, 2011 were as follows (in thousands):

	Total Facility		Usage		Available  Liquidity		Expiration Date
Revolving Credit Facility	$	200,000	$	40,500	$	159,500	May 2015 (A) (B)
Uncommitted Bank Lines		20,000		20,000		—	Various
Total	$	220,000	$	60,500	$	159,500

(A)   See Note 12 - Subsequent Event to the Condensed Financial Statements.

(B)   A new revolving credit facility was established by SJG in May 2011.  The SJG facility is a $200.0 million, four-year facility, provided by a syndicate of banks.  The facility contains one financial covenant limiting the ratio of indebtedness to total capitalization (as defined in the credit agreement) to not more than 0.65 to 1, measured at the end of each fiscal quarter.  SJG was in compliance with this covenant as of June 30, 2011. This facility replaces SJG’s $100.0 million revolving credit facility and $40.0 million committed line of credit, both of which would otherwise have expired in August of 2011.

Average borrowings outstanding under these credit facilities during the six months ended June 30, 2011 and 2010 were $37.6 million and $84.5 million, respectively.  The maximum amount outstanding under these credit facilities during the six months ended June 30, 2011 and 2010 were $61.8 million and $112.5 million, respectively.

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 and June 2010, SJG issued $15.0 million and $45.0 million aggregate principal amount of its MTNs under private placements.  No other long-term debt was issued during the first six months of 2011 or 2010.

SJG’s capital structure was as follows:

	As of June 30, 2011			As of December 31, 2010
Common Equity		50.6	%		48.8	%
Long-Term Debt		42.8			44.5
Short-Term Debt		6.6			6.7
Total		100.0	%		100.0	%

25

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 six months of 2011 amounted to $55.6 million. Management estimates net cash outflows for construction projects for 2011, 2012 and 2013, to be approximately $138.8 million, $73.8 million and $56.0 million, respectively.  Costs for remediation projects, net of insurance reimbursements, for the first six months of 2011 amounted to net cash outflows of $8.1 million.  Total cash outflows for remediation projects are expected to be $18.6 million, $11.7 million and $9.8 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 under a separate facility, 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.  As of December 31, 2010, these bonds were included in the current portion of long-term debt because this letter of credit expired in 2011.  The replacement letter of credit expires in August 2015, and as a result, the related bonds are now included in long-term debt as of June 30, 2011.

In the normal course of business, SJG entered into a long-term contract for natural gas supplies.  SJG has committed to purchase a minimum of 6,250 dts/d and up to 25,000 dts/d of natural gas, from one supplier, for a term of eight years at index-based prices.

SJG has certain commitments for both pipeline capacity and storage demand charges for which it pays fees regardless of usage. Those commitments as of June 30, 2011, average $43.3 million annually and total $170.8 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 obligations in 2011 except for commodity supply purchase obligations which increased by approximately $38.6 million since December 31, 2010. Obligations for natural gas commodity can fluctuate from period to period primarily due to the seasonal demand and the timing of entering into such supply commitments.

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.

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 June 30,	Year Ended December 31,
2011	2010		2009		2008		2007		2006
5.0x		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).

26

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 June 30, 2011 is as follows (in thousands):

Assets
Source of Fair Value	Maturity < 1 Year		Maturity 1 - 3 Years		Total
Prices Actively Quoted (NYMEX)	$	500	$	119	$	619
Prices Provided by Other		1,358		-		1,358
Total	$	1,858	$	119	$	1,977

Liabilities
	Maturity		Maturity
Source of Fair Value	< 1 Year		1 - 3 Years		Total
Prices Actively Quoted (NYMEX)	$	4,247	$	185	$	4,432
Prices Provided by Other External Sources (Basis)		279		-		279
Total	$	4,526	$	185	$	4,711

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 9.3 MMDth with a weighted-average settlement price of $4.98 per dth.  Contracted volumes of our Basis contracts are 4.4 MMDth with a weighted average settlement price of $0.46 per dth.

27

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 Six Months ended June 30, 2011, Net		3,477
Other Changes in Fair Value from Continuing and New Contracts, Net		(1,244	)
Net Derivatives — Energy Related Liability, June 30, 2011	$	(2,734	)

Interest Rate Risk - Our exposure to interest rate risk relates primarily to short-term, variable-rate borrowings. Short-term, variable-rate debt outstanding at June 30, 2011, was $60.5 million and averaged $37.6 million during the first  half 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 June 30, 2011, our average borrowing cost, which changes daily, was 1.27%.

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 June 30, 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 June 30, 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 June 30, 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 June 30, 2011 that has materially affected, or is reasonably likely to materially affect, SJG’s internal control over financial reporting.

28

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 26.

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
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).
101	The following financial statements from South Jersey Gas’ Quarterly Report on Form 10-Q for the three and six months ended June 30, 2011, filed with the Securities and Exchange Commission on August 8, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Statements of Income; (ii) the Condensed Statements of Comprehensive Income; (iii) the Condensed Statements of Cash Flows; (iv) the Condensed Balance Sheets and (v) the Notes to Condensed Financial Statements.

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: August 8, 2011	By:	/s/ Edward J. Graham
		Edward J. Graham
		President & Chief Executive Officer
Dated: August 8, 2011	By:	/s/ David A. Kindlick
		David A. Kindlick
		Senior Vice President & Chief Financial Officer

29

EX-31.1

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 June 30, 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: August 8, 2011	By:	/s/ Edward J. Graham
		Edward J. Graham
		President & Chief Executive Officer

EX-31.2

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 June 30, 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: August 8, 2011	By:	/s/ David A. Kindlick
		David A. Kindlick
		Senior Vice President & Chief Financial Officer

EX-32.1

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 June 30, 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

August 8, 2011

EX-32.2

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 June 30, 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

August 8, 2011

XML



CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (USD $) In Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) [Abstract]
Net Income	$ 1,620	$ 3,176	$ 33,916	$ 29,046
Other Comprehensive Gain (Loss) - Net of Tax:
Unrealized Gain (Loss) on Available-for-Sale Securities	50	(265)	(103)	(121)
Unrealized Gain on Derivatives - Other	7	7	14	14
Other Comprehensive Gain (Loss) - Net of Tax	57	(258)	(89)	(107)
Comprehensive Income	$ 1,677	$ 2,918	$ 33,827	$ 28,939

XML



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (USD $) In Thousands	6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Net Cash Provided by Operating Activities	$ 51,301	$ 63,574
Cash Flows from Investing Activities:
Capital Expenditures	(55,611)	(66,206)
Net Proceeds from Sale of Restricted Investments in Margin Accounts	994	0
Investment in Long-Term Receivables	(2,390)	(1,529)
Proceeds from Long-Term Receivables	2,418	1,047
Net Cash Used in Investing Activities	(54,589)	(66,688)
Cash Flows from Financing Activities:
Net Borrowing from (Repayment of) Lines of Credit	1,600	(53,900)
Proceeds from Issuance of Long-Term Debt	0	60,000
Payments for Issuance of Long-Term Debt	(28)	(623)
Dividend on Common Stock	0	(2,500)
Net Cash Provided in Financing Activities	1,572	2,977
Net Decrease in Cash and Cash Equivalents	(1,716)	(137)
Cash and Cash Equivalents at Beginning of Period	2,030	1,993
Cash and Cash Equivalents at End of Period	$ 314	$ 1,856

XML



Document And Entity Information	6 Months Ended
	Jun. 30, 2011	Aug. 01, 2011
Entity Registrant Name	SOUTH JERSEY GAS CO
Entity Central Index Key	0001035216
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		2,339,139
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q2
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2011

XML



FINANCIAL INSTRUMENTS

6 Months Ended

Jun. 30, 2011

FINANCIAL INSTRUMENTS [Abstract]

FINANCIAL INSTRUMENTS

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 June 30, 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 June 30, 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 June 30, 2011 and December 31, 2010, the balance held with SJRG totaled $3.2 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 $10.4 million as of both June 30, 2011 and December 31, 2010.  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 June 30, 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 June 30, 2011 and December 31, 2010.

Long-Term Debt– SJG did not issue any long-term debt during the first six months of 2011.  During the first six months of 2010, SJG issued $60.0 million aggregate principal amount of its Medium Term Notes in private placements due 2026.  As of both June 30, 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 June 30, 2011 and December 31, 2010, were $456.4 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 June 30, 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.

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DERIVATIVE INSTRUMENTS

6 Months Ended

Jun. 30, 2011

DERIVATIVE INSTRUMENTS [Abstract]

DERIVATIVE INSTRUMENTS

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 June 30, 2011, SJG had outstanding derivative contracts intended to limit the exposure to market risk on 14.2 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 June 30, 2011 and December 31, 2010, SJG had $2.7 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 June 30, 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 June 30, 2011 and December 31, 2010, are as follows (in thousands):

Derivatives not designated as hedging instruments under GAAP	June 30, 2011				December 31, 2010
	Assets		Liabilities		Assets		Liabilities
Energy related commodity contracts:
Derivatives – Energy Related – Current	$	1,858	$	4,526	$	5,864	$	11,406
Derivatives – Energy Related – Non-Current		119		185		1,005		430
Interest rate contracts:
Derivatives – Other		-		3,261		-		3,150
Total derivatives not designated as hedging instruments under GAAP	$	1,977	$	7,972	$	6,869	$	14,986

The effect of derivative instruments on the condensed statements of income for the three and six months ended June 30, 2011 and 2010 are as follows (in thousands):

	Three months ended June 30,						Six months ended June 30,
Derivatives in Cash Flow Hedging Relationships Interest Rate Contracts:	2011			2010			2011				2010
Losses reclassified from accumulated OCI into income (a)	$	(12	)	$	(12	)		$	(24	)		$	(24	)

(a) Included in Interest Charges

Net realized losses associated with SJG's energy-related financial commodity contracts of $2.5 million and $8.2 million for the three months ended June 30, 2011 and 2010 and $7.1 million and $12.3 million for the six months ended June 30, 2011 and 2010, respectively, 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.

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STOCK

6 Months Ended

Jun. 30, 2011

STOCK-BASED COMPENSATION [Abstract]

STOCK

2. STOCK-BASED COMPENSATION PLANS:

The following table summarizes the sjg nonvested restricted stock awards pertaining to SJG outstanding at June 30, 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 sjg'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 June 30, 2011, there was $0.6 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 2.0 years.

The following table summarizes information regarding restricted stock award activity during the six months ended June 30, 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, June 30, 2011		25,886	$	42.600

During the six months ended June 30, 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 the six months ended June 2010, SJG awarded 14,400 shares at a market value of $0.5 million. SJG has a policy of making cash payments to sjg to satisfy its obligations under this plan. Cash payments to sjg during both the six months ended June 30, 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.

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PENSION AND OTHER POSTRETIREMENT BENEFITS

6 Months Ended

Jun. 30, 2011

PENSION AND OTHER POSTRETIREMENT BENEFITS [Abstract]

PENSION AND OTHER POSTRETIREMENT BENEFITS

8. PENSION AND OTHER POSTRETIREMENT BENEFITS:

For the three and six months ended  June 30, 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
		Three Months Ended June 30,						Six Months Ended June 30,
		2011			2010			2011			2010
Service Cost		$	696		$	664		$	1,481		$	1,326
Interest Cost			1,775			1,815			3,601			3,559
Expected Return on Plan Assets			(1,726	)		(1,753	)		(3,541	)		(3,251	)
Amortizations:
Prior Service Cost			48			61			100			108
Actuarial Loss			1,048			776			2,057			1,838
Net Periodic Benefit Cost			1,841			1,563			3,698			3,580
Capitalized Benefit Costs			(902	)		(766	)		(1,812	)		(1,754	)
Total Net Periodic Benefit Expense		$	939		$	797		$	1,886		$	1,826

	Other Postretirement Benefits
		Three Months Ended June 30,						Six Months Ended June 30,
		2011			2010			2011			2010
Service Cost		$	164		$	166		$	379		$	365
Interest Cost			597			611			1,216			1,297
Expected Return on Plan Assets			(408	)		(431	)		(854	)		(769	)
Amortizations:
Prior Service Credits			(64	)		(67	)		(135	)		(141	)
Actuarial Loss			316			211			628			593
Net Periodic Benefit Cost			605			490			1,234			1,345
Capitalized Benefit Costs			(297	)		(240	)		(605	)		(659	)
Total Net Periodic Benefit Expense		$	308		$	250		$	629		$	686

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

No contributions were made to the pension plans during the six-month periods ending June 30, 2011. During May 2010, we contributed $6.4 million to our pension plans. 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.

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COMMITMENTS AND CONTINGENCIES

6 Months Ended

Jun. 30, 2011

COMMITMENTS AND CONTINGENCIES [Abstract]

COMMITMENTS AND CONTINGENCIES

9. COMMITMENTS AND CONTINGENCIES:

STANDBY LETTER OF CREDIT -    SJG provided a $25.2 million letter of credit under a separate facility 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.  As of December 31, 2010, these bonds were included in the current portion of long-term debt because this letter of credit expired in 2011.  The replacement letter of credit expires in August 2015, and as a result, the related bonds are now included in long-term debt as of June 30, 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 64% of our workforce at June 30, 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.

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UNUSED LINES OF CREDIT

6 Months Ended

Jun. 30, 2011

UNUSED LINES OF CREDIT

7. UNUSED LINES OF CREDIT:

Credit facilities and available liquidity as of June 30, 2011 were as follows (in thousands):

	Total Facility		Usage		Available Liquidity		Expiration Date
Revolving Credit Facility	$	200,000	$	40,500	$	159,500	May 2015 (A) (B)
Uncommitted Bank Lines		20,000		20,000		-	Various
Total	$	220,000	$	60,500	$	159,500

(A)  See Note 12 – Subsequent Event

(B) A new revolving credit facility was established by SJG in May 2011.  The SJG facility is a $200.0 million, four-year facility, provided by a syndicate of banks.  The facility contains one financial covenant limiting the ratio of indebtedness to total capitalization (as defined in the credit agreement) to not more than 0.65 to 1 measured at the end of each fiscal quarter.  SJG was in compliance with this covenant as of June 30, 2011. This facility replaces SJG's $100.0 million revolving credit facility and $40.0 million committed line of credit, both of which would otherwise have expired in August of 2011.  See Note 12.

Average borrowings outstanding under these credit facilities during the six months ended June 30, 2011 and 2010 were $37.6 million and $84.5 million, respectively.  The maximum amount outstanding under these credit facilities during the six months ended June 30, 2011 and 2010 were $61.8 million and $112.5 million, respectively.

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 1.27% and 0.70% at June 30, 2011 and 2010, respectively.

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CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Parenthetical) (USD $)	Jun. 30, 2011	Dec. 31, 2010
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) [Abstract]
Common Stock, Par Value (in dollars per share)	$ 2.50	$ 2.50
Authorized (in shares)	4,000,000	4,000,000
Outstanding (in shares)	2,339,139	2,339,139

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RATES AND REGULATORY ACTIONS

6 Months Ended

Jun. 30, 2011

RATES AND REGULATORY ACTIONS [Abstract]

RATES AND REGULATORY ACTIONS

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 II).  The BPU approved a CIRT II program in March 2011, allowing the Company to accelerate an additional $60.3 million of capital spending into 2011 and 2012.  Under CIRT II, the Company capitalizes our return on CIRT II investments until they are recovered in rate base as utility plant in service.  On June 1, 2011 the Company filed a petition with the BPU requesting recovery of CIRT II investments through a 0.5% increase in base rates effective on October 1, 2011.  This petition is currently pending.

On March 29, 2011, SJG credited the accounts of our Basic Gas Supply Service (BGSS) customers with refunds totaling $21.1 million due to actual gas costs being lower than projected.

On June 1, 2011, the Company filed its annual BGSS clause and Conservation Incentive Program (CIP) filings with the BPU.  These petitions request a 2.9% reduction in rates for the BGSS and a 2.5% reduction in rates for the CIP, both commencing on October 1, 2011.  Also on June 1, 2011, the Company filed its annual Energy Efficiency Tracker (EET) petition, requesting a 0.5% increase.  These petitions are currently pending.

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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REGULATORY ASSETS & REGULATORY LIABILITIES

6 Months Ended

Jun. 30, 2011

REGULATORY ASSETS & REGULATORY LIABILITIES [Abstract]

REGULATORY ASSETS & REGULATORY LIABILITIES

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):

	June 30, 2011		December 31, 2010
Environmental Remediation Costs:
Expended - Net	$	43,817	$	39,056
Liability for Future Expenditures		82,249		87,393
Income Taxes - Flowthrough Depreciation		285		774
Deferred Asset Retirement Obligation Costs		24,550		24,247
Deferred Pension and Other Postretirement Benefit Costs		68,828		69,017
Conservation Incentive Program Receivable		2,846		12,291
Societal Benefit Costs Receivable		5,987		4,216
Premium for Early Retirement of Debt		618		699
Other Regulatory Assets		12,574		10,720
Total Regulatory Assets	$	241,754	$	248,413

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

	June 30, 2011		December 31, 2010
Excess Plant Removal Costs	$	47,843	$	48,409
Deferred Revenues - Net		4,605		20,179
Other Regulatory Liabilities		3,621		660
Total Regulatory Liabilities	$	56,069	$	69,248

DEFERRED REVENUES – NET – Over/under collections of gas costs are monitored through SJG's BGSS clause.  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 $4.6 million regulatory liability at June 30, 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 six months of 2011 as a result of natural gas prices remaining at very low levels.

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SUBSEQUENT EVENT

6 Months Ended

Jun. 30, 2011

SUBSEQUENT EVENT [Abstract]

SUBSEQUENT EVENT

12. SUBSEQUENT EVENT:

In July 2011, SJG began a commercial paper program under which SJG may issue short-term, unsecured promissory notes to qualified investors up to a maximum aggregate amount outstanding at any time of $200.0 million.  The notes will have fixed maturities which will vary by note, but may not exceed 270 days from the date of issue. Proceeds from the notes will be used for general corporate purposes. SJG intends to use the commercial paper program in tandem with its new $200.0 million revolving credit facility and does not expect the principal amount of borrowings outstanding under the commercial paper program and the credit facility at any time to exceed an aggregate of $200.0 million.

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RELATED PARTY TRANSACTIONS

6 Months Ended

Jun. 30, 2011

RELATED PARTY TRANSACTIONS [Abstract]

RELATED PARTY TRANSACTIONS

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.

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Operating Revenues/Affiliates:
SJRG	$	184	$	82	$	6,059	$	645
Other		167		109		484		235
Total Operating Revenue/Affiliates	$	351	$	191	$	6,543	$	880

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Costs of Sales/Affiliates (Excluding depreciation):
SJRG	$	14,263	$	-	$	19,507	$	14,582
Energy-Related Derivative Losses *
SJRG	$	2,453	$	8,249	$	7,054	$	12,296

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

Operations Expense/Affiliates
sjg	$	2,712		$	2,453		$	5,208		$	4,381
sjgS		1,131			959			2,273			2,462
Millennium		771			764			1,502			1,452
Other		(104	)		(64	)		(201	)		(118	)
Total Operations Expense/Affiliates	$	4,510		$	4,112		$	8,782		$	8,177

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CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (USD $) In Thousands	Jun. 30, 2011	Dec. 31, 2010
Property, Plant and Equipment:
Utility Plant, at original cost	$ 1,437,113	$ 1,384,797
Accumulated Depreciation	(346,603)	(337,993)
Property, Plant and Equipment - Net	1,090,510	1,046,804
Investments:
Available-for-Sale Securities	7,096	6,700
Restricted Investments	3,308	4,301
Total Investments	10,404	11,001
Current Assets:
Cash and Cash Equivalents	314	2,030
Accounts Receivable	71,132	37,619
Accounts Receivable - Related Parties	1,399	4,885
Unbilled Revenues	10,620	58,197
Provision for Uncollectibles	(4,545)	(4,577)
Natural Gas in Storage, average cost	20,533	20,109
Materials and Supplies, average cost	2,644	2,511
Prepaid Taxes	24,860	15,907
Derivatives - Energy Related Assets	1,858	5,864
Other Prepayments and Current Assets	4,284	2,353
Total Current Assets	133,099	144,898
Regulatory and Other Noncurrent Assets:
Regulatory Assets	241,754	248,413
Unamortized Debt Issuance Costs	6,426	6,718
Long-Term Receivables	7,250	7,285
Derivatives - Energy Related Assets	119	1,005
Other	2,643	2,511
Total Regulatory and Other Noncurrent Assets	258,192	265,932
Total Assets	1,492,205	1,468,635
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	(9,209)	(9,120)
Retained Earnings	263,232	229,316
Total Common Equity	460,712	426,885
Long-Term Debt	365,000	340,000
Total Capitalization	825,712	766,885
Current Liabilities:
Notes Payable	60,500	58,900
Current Portion of Long-Term Debt	25,000	50,000
Accounts Payable - Commodity	9,599	26,915
Accounts Payable - Other	24,616	19,628
Accounts Payable - Related Parties	9,315	10,830
Derivatives - Energy Related Liabilities	4,526	11,406
Deferred Income Taxes - Net	1,378	4,982
Customer Deposits and Credit Balances	18,469	10,525
Environmental Remediation Costs	19,384	25,662
Taxes Accrued	1,870	1,915
Pension Benefits	1,182	1,182
Interest Accrued	6,943	7,011
Other Current Liabilities	3,502	5,156
Total Current Liabilities	186,284	234,112
Regulatory and Other Noncurrent Liabilities:
Regulatory Liabilities	56,069	69,248
Deferred Income Taxes - Net	261,743	239,648
Environmental Remediation Costs	62,865	61,731
Asset Retirement Obligations	28,285	27,925
Pension and Other Postretirement Benefits	62,593	59,754
Investment Tax Credits	1,056	1,207
Derivatives - Energy Related Liabilities	185	430
Derivatives - Other	3,261	3,150
Other	4,152	4,545
Total Regulatory and Other Noncurrent Liabilities	480,209	467,638
Total Capitalization and Liabilities	$ 1,492,205	$ 1,468,635

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2011

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

THE ENTITY - South Jersey Industries, Inc. (sjg) 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 $1.2 million and $1.1 million for the three months ended June 30, 2011 and 2010, and $5.0 million and $4.8 million for the six months ended June 30, 2011 and 2010, respectively.

NEW ACCOUNTING PRONOUNCEMENTS - Other than as described below, no new accounting pronouncement issued or effective during 2010 and 2011 had, or is expected to have, a material impact on the condensed financial statements.

The FASB has issued Accounting Standards Update (ASU) No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income.  This ASU allows an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  In both choices, an entity is required to present each component of net income along with a total for other comprehensive income, and a total amount for comprehensive income.  ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity.  The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.  Management is currently evaluating the impact that the adoption of this guidance will have on the Company's financial statements.

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FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES

6 Months Ended

Jun. 30, 2011

FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES [Abstract]

FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES

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.

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 June 30, 2011
	Total		Level 1		Level 2		Level 3
Assets -
Available-for-Sale Securities (A)	$	7,096	$	-	$	7,096	$	-
Derivatives – Energy Related Assets (B)		1,977		619		1,358		-
	$	9,073	$	619	$	8,454	$	-
Liabilities -
Derivatives – Energy Related Liabilities (B)	$	4,711	$	4,432	$	279	$	-
Derivatives – Other (C)		3,261		-		3,261		-
	$	7,972	$	4,432	$	3,540	$	-

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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CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (USD $) In Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) [Abstract]
Operating Revenues	$ 65,187	$ 61,344	$ 245,510	$ 258,060
Operating Expenses:
Cost of Sales (Excluding depreciation)	28,259	23,941	116,833	140,816
Operations	17,403	16,485	35,676	34,292
Maintenance	3,215	2,785	6,224	5,601
Depreciation	7,523	7,319	14,983	14,398
Energy and Other Taxes	1,722	1,590	6,236	5,938
Total Operating Expenses	58,122	52,120	179,952	201,045
Operating Income	7,065	9,224	65,558	57,015
Other Income and Expense	515	240	1,393	473
Interest Charges	(4,895)	(4,163)	(9,924)	(8,178)
Income Before Income Taxes	2,685	5,301	57,027	49,310
Income Taxes	(1,065)	(2,125)	(23,111)	(20,264)
Net Income	$ 1,620	$ 3,176	$ 33,916	$ 29,046