COMMITMENTS AND CONTINGENT LIABILITIES

Cash Commitments

NJNG has entered into long-term contracts, expiring at various dates through October 2023, for the supply, storage and delivery of natural gas. These contracts include current annual fixed charges of approximately $105 million at current contract rates and volumes, which are recoverable through BGSS.

For the purpose of securing adequate storage and pipeline capacity, NJRES enters into storage and pipeline capacity contracts, which require the payment of certain demand charges by NJRES in order to maintain the ability to access such natural gas storage or pipeline capacity, during a fixed time period, which generally ranges from one to five years. Demand charges are based on established rates as regulated by the FERC. These demand charges represent commitments to pay storage providers or pipeline companies for the right to store and transport natural gas utilizing their respective assets.

Commitments as of June 30, 2011, for natural gas purchases and future demand fees for the next five fiscal year periods are as follows:



(Thousands)	2011		2012		2013		2014		2015		Thereafter
NJRES:
Natural gas purchases	$	268,965	$	347,341	$	69,619	$	—	$	—	$	—
Storage demand fees	10,046		31,140		17,399		11,494		7,207		11,924
Pipeline demand fees	12,842		42,859		21,550		8,680		7,195		21,432
Sub-total NJRES	$	291,853	$	421,340	$	108,568	$	20,174	$	14,402	$	33,356
NJNG:
Natural gas purchases	$	40,809	$	6,928	$	—	$	—	$	—	$	—
Storage demand fees	7,804		31,208		29,920		24,153		14,999		44,340
Pipeline demand fees	16,309		76,809		76,966		71,821		35,182		228,661
Sub-total NJNG	$	64,922	$	114,945	$	106,886	$	95,974	$	50,181	$	273,001
Total⁽¹⁾	$	356,775	$	536,285	$	215,454	$	116,148	$	64,583	$	306,357

(1) Does not include amounts related to intercompany asset management agreements between NJRES and NJNG.

Costs for storage and pipeline demand fees, included as a component of gas purchases on the Unaudited Condensed Consolidated Statements of Operations, are as follows:



	Three Months Ended				Nine Months Ended
	June 30,				June 30,
(Millions)	2011		2010		2011		2010
NJRES	$	25.8	$	22.6	$	84.9	$	82.4
NJNG	24.1		25.3		75.0		73.6
Total	$	49.9	$	47.9	$	159.9	$	156.0

NJNG's capital expenditures consist primarily of its construction program to support customer growth, maintenance of its distribution system and replacement needed under pipeline safety regulations. Expenditures are estimated at $108.2 million and $116.1 million for fiscal 2011 and 2012, respectively. As of June 30, 2011, approximately $76.1 million has been incurred on capital expenditures in fiscal 2011 including accruals. The expected expenditures for fiscal 2011 include an estimate of $26 million related to AIP I construction costs and $11 million related to AIP II. As of June 30, 2011, NJNG has incurred $24.9 million related to the AIP I programs and $789,000 related to AIP II programs during fiscal 2011.

The Company has entered into various agreements to install solar equipment involving both residential and commercial projects. Total solar-related capital expenditures during the nine months ended June 30, 2011 were $19.5 million, including $2 million for land. The Company currently estimates solar-related capital expenditures of between $70 and $80 million in fiscal 2011, of which $77.6 million has been either committed or spent. Capital expenditures in fiscal 2012 are expected to be $65.6 million. These investments are subject to a variety of factors, such as timing of construction schedules, the permitting and regulatory process, and any delays related to electric grid interconnection, which may affect our ability to commence operations at these projects on a timely basis or, at all.

As of June 30, 2011, the Company's future minimum lease payments under various operating leases will not be more than $2.1 million annually for the next five years and $1.3 million in the aggregate for all years thereafter.

Guarantees

As of June 30, 2011, there were NJR guarantees covering approximately $408.4 million of natural gas purchases and demand fee commitments of NJRES and NJNG not yet reflected in accounts payable on the Unaudited Condensed Consolidated Balance Sheet.

The Company enters into agreements to lease vehicles, generally over a five-year term, which qualify as operating leases. These agreements contain provisions that could require the Company to make additional cash payments at the end of the term for a portion of the residual value of the vehicles. As of June 30, 2011, the present value of the liability recognized on the Unaudited Condensed Consolidated Balance Sheets is $615,000. In the event performance under the guarantee is required, the Company's maximum future payment would be $911,000.

Legal Proceedings

Manufactured Gas Plant Remediation

NJNG is responsible for the remedial cleanup of five manufactured gas plant (MGP) sites, dating back to gas operations in the late 1800s and early 1900s, which contain contaminated residues from former gas manufacturing operations. NJNG is currently involved in administrative proceedings with the New Jersey Department of Environmental Protection (NJDEP), as well as participating in various studies and investigations by outside consultants to determine the nature and extent of any such contaminated residues and to develop appropriate programs of remedial action, where warranted, under Administrative Consent Orders or Memoranda of Agreement with the NJDEP.

NJNG may, subject to BPU approval, recover its remediation expenditures, including carrying costs, over rolling seven-year periods pursuant to a RA approved by the BPU. In April 2010, the BPU approved the recovery of the remediation expenditures incurred through September 30, 2008, increasing the expected annual recovery from $17.7 million to approximately $20 million. As of June 30, 2011, $73.5 million of previously incurred remediation costs, net of recoveries from customers and insurance proceeds, are included in regulatory assets on the Unaudited Condensed Consolidated Balance Sheet.

In September 2010, NJNG updated an environmental review of the MGP sites, including a review of potential liability for investigation and remedial action. NJNG estimated at the time of the review that total future expenditures to remediate and monitor the five MGP sites for which it is responsible, including potential liabilities for Natural Resource Damages that might be brought by the NJDEP for alleged injury to groundwater or other natural resources concerning these sites, will be $201.6 million. NJNG's estimate of these liabilities is based upon known facts, existing technology and enacted laws and regulations in place when the review was completed. However, NJNG expects actual costs to differ from these estimates. Where it is probable that costs will be incurred, and the information is sufficient to establish a range of possible liability, NJNG accrues the best estimated amount in the range. If no point within the range is more likely than the other, it is NJNG's policy to accrue the lower end of the range. Accordingly, NJNG has recorded an MGP remediation liability and a corresponding regulatory asset of $201.6 million on the Unaudited Condensed Consolidated Balance Sheet, based on the best estimate. The actual costs to be incurred by NJNG are dependent upon several factors, including final determination of remedial action, changing technologies and governmental regulations, the ultimate ability of other responsible parties to pay and any insurance recoveries.

NJNG will continue to seek recovery of MGP-related costs through the RA. If any future regulatory position indicates that the recovery of such costs is not probable, the related non-recoverable costs would be charged to income in the period of such determination. However, because recovery of such costs is subject to BPU approval, there can be no assurance as to the ultimate recovery through the RA or the impact on the Company's results of operations, financial position or cash flows, which could be material.

General

The Company is party to various other claims, legal actions and complaints arising in the ordinary course of business. In the Company's opinion, the ultimate disposition of these matters will not have a material adverse effect on its financial condition, results of operations or cash