REGULATORY ASSETS AND LIABILITIES:

The discussion under Note 3, Rates and Regulatory Actions, is integral to the following explanations of specific regulatory assets and liabilities.

Regulatory Assets at December 31 consisted of the following items (in thousands):



	2011		2010
Environmental Remediation Costs:
Expended - Net	$	45,815	$	39,056
Liability for Future Expenditures	89,984		87,393
Income Taxes - Flowthrough Depreciation	—		774
Deferred Asset Retirement Obligation Costs	25,162		24,247
Deferred Pension and Other Postretirement Benefit Costs	88,624		69,017
Deferred Gas Costs - Net	22,441		—
Conservation Incentive Program Receivable	13,580		12,291
Societal Benefit Costs Receivable	8,618		4,216
Premium for Early Retirement of Debt	537		699
Deferred Interest Rate Contracts (Note 14)	8,146		3,150
Other Regulatory Assets	12,314		7,570
Total Regulatory Assets	$	315,221	$	248,413

Except where noted below, all regulatory assets are or will be recovered through utility rate charges, as detailed in the following discussion. We are currently permitted to recover interest on our Environmental Remediation Costs and Societal Benefit Costs Receivable, while the other assets are being recovered without a return on investment.

Environmental Remediation Costs - We have two regulatory assets associated with environmental costs related to the cleanup of 12 sites where we or our predecessors previously operated gas manufacturing plants. The first asset, Environmental Remediation Cost: Expended - Net, represents what was actually spent to clean up the sites, less recoveries through the RAC and insurance carriers. These costs meet the deferral requirements of GAAP, as the BPU allows us to recover such expenditures through the RAC. The other asset, Environmental Remediation Cost: Liability for Future Expenditures, relates to estimated future expenditures required to complete the remediation of these sites. We recorded this estimated amount as a regulatory asset with the corresponding current and noncurrent liabilities on the balance sheets under the captions Current Liabilities and Regulatory and Other Noncurrent Liabilities. The BPU allows us to recover the deferred costs over seven-year periods after they are spent.

Income Taxes - Flowthrough Depreciation - This regulatory asset represents unamortized excess tax depreciation over book depreciation on utility plant because of temporary differences for which, prior to 1993, deferred taxes previously were not provided. We previously passed these tax benefits through to ratepayers and recovered the amortization of the regulatory asset through rates until 2011.

Deferred Asset Retirement Obligation Costs - This regulatory asset resulted from the recording of asset retirement obligations (ARO) and additional utility plant, primarily related to a legal obligation we have for certain safety requirements upon the retirement of our gas distribution and transmission system. We recover asset retirement costs through rates charged to customers. All related accumulated accretion and depreciation amounts for these ARO represent timing differences in the recognition of retirement costs that we are currently recovering in rates and, as such, we are deferring such differences as regulatory assets.

Deferred Pension and Other Postretirement Benefit Costs - The BPU authorized us to recover costs related to postretirement benefits under the accrual method of accounting consistent with GAAP. We deferred amounts accrued prior to that authorization and are amortizing them as allowed by the BPU over 15 years through 2012. The unamortized balance was $0.4 million at December 31, 2011. In 2006, our regulatory asset was increased by $37.1 million representing the recognition of the underfunded positions of our pension and other postretirement benefit plans. Subsequent adjustments to this balance occur annually to reflect changes in the funded positions of these benefit plans caused by changes in actual plan experience as well as assumptions of future experience (See Note 11).

Deferred Gas Costs - Net - Over/under collections of gas costs are monitored through our BGSS mechanism. Net undercollected gas costs are classified as a regulatory asset and net overcollected gas costs are classified as a regulatory liability. Derivative contracts used to hedge our natural gas purchases are also included in the BGSS, subject to BPU approval. See detailed discussion under Derivative Instruments in Notes 1 and 14.

Conservation Incentive Program Receivable - The impact of the CIP is recorded as an adjustment to earnings as incurred. The first year of cash recovery under the CIP began October 2007.

Societal Benefit Costs Receivable - At both December 31, 2011 and 2010, this regulatory asset primarily represents cumulative costs less recoveries under the USF program.

Premium for Early Retirement of Debt - At December 31, 2011, this regulatory asset represents unamortized debt issuance costs related to long-term debt refinancings and at December 31, 2010 it also included a call premium of $0.2 million associated with the retirement of debt, all occurring in 2005 and 2004. Unamortized debt issuance costs are being amortized over the term of the new debt issue pursuant to regulatory approval by the BPU. As part of our September 2010 base rate increase, the call premium was transferred to unamortized debt issuance costs and is being amortized over the term of the new debt issue.

Deferred Interest Rate Contracts - These amounts represent the market value of interest rate derivatives as discussed further in Note 14.

Other Regulatory Assets - Some of the assets included in Other Regulatory Assets are currently being recovered from ratepayers as approved by the BPU. Management believes the remaining deferred costs are probable of recovery from ratepayers through future utility rates.

Regulatory Liabilities at December 31 consisted of the following items (in thousands):



	2011		2010
Excess Plant Removal Costs	$	47,230	$	48,409
Deferred Revenues - Net	—		20,179
Other Regulatory Liabilities	1,081		660
Total Regulatory Liabilities	$	48,311	$	69,248

Excess Plant Removal Costs – Represents amounts accrued in excess of actual utility plant removal costs incurred to date. As part of our September 2010 base rate increase, we are required to start amortizing approximately $1.2 million of this balance to depreciation expense each year.

Deferred Revenues – Net - See previous discussion under “Deferred Gas Costs – Net”.

Other Regulatory Liabilities – All other regulatory liabilities are subject to being returned to ratepayers in future rate proceedings.