SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying Unaudited Condensed Consolidated Financial Statements have been prepared by NJR in accordance with the rules and regulations of the Securities and Exchange Commission (SEC). The September 30, 2011, Balance Sheet data is derived from the audited financial statements of the Company. These Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the financial statements and the notes thereto included in NJR's 2011 Annual Report on Form 10-K.

The Unaudited Condensed Consolidated Financial Statements include the accounts of NJR and its subsidiaries. In the opinion of management, the accompanying Unaudited Condensed Consolidated Financial Statements reflect all adjustments necessary, for a fair presentation of the results of the interim periods presented. These adjustments are of a normal and recurring nature. Because of the seasonal nature of NJR's utility and wholesale energy services operations, in addition to other factors, the financial results for the interim periods presented are not indicative of the results that are to be expected for the fiscal year ended September 30, 2012.

Intercompany transactions and accounts have been eliminated.

Gas in Storage

The following table summarizes gas in storage by company as of:



	December 31, 2011				September 30, 2011
($ in thousands)	Gas in Storage			Bcf	Gas in Storage			Bcf
NJNG		$	134,994	21.6		$	159,328	23.1
NJRES		157,133		46.3		135,147		36.8
Total		$	292,127	67.9		$	294,475	59.9

Capitalized and Deferred Interest

Included in the Unaudited Condensed Consolidated Balance Sheets are capitalized amounts associated with the debt and equity components of NJNG's allowance for funds used during construction (AFUDC), which are recorded in utility plant. NJNG's base rates include the ability for NJNG to recover the cost of debt associated with AFUDC and construction work in progress (CWIP). An incremental cost of equity is also recoverable during periods when NJNG's short-term debt balances are lower than its CWIP. Corresponding amounts recognized in interest expense and other income, as appropriate, are included in the Unaudited Condensed Consolidated Statements of Operations are as follows:



	Three Months Ended
	December 31,
($ in thousands)	2011			2010
AFUDC:
Debt	$	44		$	35
Equity	42			18
Total	$	86		$	53
Weighted average rate %	0.39		%	0.27		%

Pursuant to a BPU order, NJNG is permitted to recover carrying costs on uncollected balances related to Societal Benefits Clause (SBC) program costs, which include New Jersey Clean Energy Program (NJCEP), Remediation Adjustment (RA) and Universal Service Fund (USF) expenditures. See Note 3. Regulation. Accordingly, other income included $246,000 and $251,000 for the three months ended December 31, 2011 and 2010, respectively.

Sales Tax Accounting

Sales tax and Transitional Energy Facilities Assessment (TEFA) are collected from customers and presented in both operating revenues and operating expenses on the Unaudited Condensed Consolidated Statements of Operations as follows:



	Three Months Ended
	December 31,
(Millions)	2011		2010
Sales tax	$	9.8	$	15.8
TEFA ⁽¹⁾	2.2		2.9
Total	$	12.0	$	18.7


(1)	TEFA will be phased out over a three-year period commencing January 1, 2012.

Available for Sale Securities

Included in other noncurrent assets on the Unaudited Condensed Consolidated Balance Sheets are certain investments in equity securities of a publicly traded energy company that have a fair value of $11.8 million and $10.3 million as of December 31, 2011 and September 30, 2011, respectively. Total unrealized gains associated with these equity securities, which are included as a part of accumulated other comprehensive income, a component of common stock equity, were $9.1 million ($5.4 million, after tax) and $7.7 million ($4.5 million, after tax) as of December 31, 2011 and September 30, 2011, respectively.

Customer Accounts Receivable

The following table summarizes customer accounts receivable by company as of:



(Thousands)	December 31, 2011				September 30, 2011
NJNG⁽¹⁾	$	66,098	26	%	$	45,092	22	%
NJRES	180,464		70		155,594		74
NJRCEV	49		—		69		—
NJRHS and other	9,850		4		8,511		4
Total	$	256,461	100	%	$	209,266	100	%


(1)	Does not include unbilled revenues of $33.3 million and $7.3 million as of December 31, 2011 and September 30, 2011, respectively.

Asset Retirement Obligations (ARO)

NJR recognizes AROs related to the costs associated with cutting and capping its main and service gas distribution pipelines of NJNG, which are required by New Jersey law when taking such gas distribution pipeline out of service.

The following is an analysis of the change in the ARO liability for the three months ended December 31, 2011 and the twelve months ended September 30, 2011:



(Thousands)	December 31, 2011			September 30, 2011
Balance at October 1	$	27,026		$	26,009
Accretion	440			1,663
Additions	—			180
Retirements	(341		)	(826		)
Balance at period end	$	27,125		$	27,026

Accretion amounts are not reflected as an expense on NJR's Unaudited Condensed Consolidated Statements of Operations, but rather are deferred as a regulatory asset and netted against NJNG's regulatory liabilities, for presentation purposes, on the Unaudited Condensed Consolidated Balance Sheets.

Recent Updates to the Accounting Standards Codification (ASC)

Fair Value

In May 2011, the FASB issued an amendment to ASC Topic 820, Fair Value Measurements and Disclosures, clarifying certain guidance to ensure that U.S. generally accepted accounting principles (U.S. GAAP) and International Financial Reporting Standards (IFRS) have the same fair value meaning, measurements and disclosure requirements. The amended guidance will become effective for interim and annual periods beginning after December 15, 2011 and will be applied prospectively. The Company has determined that the new guidance will not impact its financial position, results of operations or cash flows upon adoption.

Presentation of Comprehensive Income

In June 2011, the FASB issued an update to ASC Topic 220, Comprehensive Income, allowing two alternatives for the presentation of comprehensive income, eliminating the option to present the components of comprehensive income (OCI) as a part of the statement of changes in stockholder's equity and requiring that reclassification adjustments from OCI to income be presented on the face of the financial statements. The amended guidance requires that comprehensive income, including the components of net income and OCI, be presented in either one statement or in two separate but consecutive statements. In December 2011, the FASB issued a subsequent amendment indefinitely deferring the provisions requiring reclassification adjustments out of OCI to be presented on the face of the financial statements. The other portions of the original update remain unchanged and became effective for interim and annual periods beginning after December 15, 2011, with early adoption permitted. Effective September 30, 2011, NJR adopted the two-statement approach retrospectively. There was no impact to the Company's financial position, results of operations or cash flows upon adoption.

Balance Sheet Offsetting

In December 2011, the FASB issued an amendment to ASC Topic 210, Balance Sheet, requiring additional disclosures about the nature of an entity's rights of setoff and related master netting arrangements associated with its financial and derivative instruments. The objective of the disclosures is to facilitate comparison between financial statements prepared on the basis of U.S. generally accepted accounting principles (U.S. GAAP) and those prepared on the basis of International Financial Reporting Standards (IFRS). The amended guidance will become effective for interim and annual periods beginning on or after January 1, 2013 and will be applied retrospectively. The Company has determined that the new guidance will not impact its financial position, results of operations or cash flows upon adoption.