STOCK-BASED COMPENSATION PLANS

12 Months Ended

Dec. 31, 2011

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

STOCK-BASED COMPENSATION PLAN

STOCK-BASED COMPENSATION PLAN:

Officers and other key employees of SJG participate in the Stock Option, Stock Appreciation Rights and Restricted Stock Award Plan (“Plan”) of SJI. As the vesting requirements under the plan are contingent upon market and service conditions, SJI is required to measure and recognize stock-based compensation expense based on the fair value at the date of grant for share-based awards on a straight-line basis over the requisite service period of each award. In addition, SJI identifies specific forfeitures of share-based awards and compensation expense is adjusted accordingly over the requisite service period.  Compensation expense is not adjusted based on the actual achievement of performance goals. The fair value of Officers’ restricted stock awards on the date of grant is estimated using a Monte Carlo simulation model.

We are allocated a portion of SJI's compensation cost during the vesting period.  We accrue a liability and record compensation cost on a straight-line basis over the requisite three-year service period based on the grant date fair value. Upon vesting, we make a cash payment to SJI equal to the amounts accrued as compensation cost during the vesting period. Since the inception of the Plan, our expense recognition policy has been consistent with the expense recognition policy at SJI.

The following table summarizes the SJI nonvested restricted stock awards pertaining to SJG outstanding at December 31, 2011, and the assumptions used to estimate the fair value of the awards:

Grant Date	Shares Outstanding	Fair Value Per Share		Expected Volatility		Risk-Free Interest Rate
Jan. 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 of restricted stock awards was $0.4 million in the year ended December 31, 2011, and $0.3 million in each of the years ended December 31, 2010 and 2009. Of these costs, $0.2 million was capitalized to Utility Plant in each of those years.

As of December 31, 2011, there was $0.4 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 1.7 years.

The following table summarizes information regarding restricted stock award activity during 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
Vested*	(8,318	)	$	39.350
Nonvested Shares Outstanding, December 31, 2011	17,568		$	44.139

* Actual shares expected to be awarded to SJG officers and other key employees during the first quarter of 2012, including dividend equivalents and adjustments for performance measures, total 7,098 shares.

During 2011, SJG awarded 15,186 shares that had vested at December 31, 2010, to officers and other key employees at a market value of $0.8 million. During 2010, 14,400 shares were awarded to officers and other key employees at a market value of $0.5 million. As discussed earlier, we have a policy of making cash payments to SJI to satisfy our allocated obligations under this plan. Cash payments to SJI during 2011 and 2010, were approximately $0.3 million relative to stock awards. Additionally, a change in control could result in the nonvested shares becoming nonforfeitable or immediately payable in cash.