REGULATION

NJNG is subject to cost-based regulation, therefore, it is permitted to recover authorized operating expenses and earn a reasonable return on its utility investment based on the BPU's approval, in accordance with accounting guidance applicable to regulated operations. Accordingly, NJNG capitalizes or defers certain costs that are expected to be recovered from its customers as regulatory assets and recognizes certain obligations representing amounts that are probable future expenditures as regulatory liabilities.

Regulatory assets and liabilities included on the Unaudited Condensed Consolidated Balance Sheets are comprised of the following:



(Thousands)	March 31, 2012		September 30, 2011
Regulatory assets-current
Conservation Incentive Program	$	20,871	$	9,178
Underrecovered gas costs	16,544		—
Derivatives, net	43,505		8,452
Total current	$	80,920	$	17,630
Regulatory assets-noncurrent
Environmental remediation costs
Expended, net of recoveries	$	61,259	$	75,646
Liability for future expenditures	182,900		182,900
Deferred income taxes	10,879		10,879
Energy Efficiency Program	17,913		11,906
New Jersey Clean Energy Program	13,522		20,144
Postemployment and other benefit costs	120,247		123,827
Other	4,181		8,883
Total noncurrent	$	410,901	$	434,185
Regulatory liability-current
Overrecovered gas costs	$	—	$	4,633
Total current	$	—	$	4,633
Regulatory liabilities-noncurrent
Cost of removal obligation	$	63,133	$	59,752
Other	258		85
Total noncurrent	$	63,391	$	59,837

NJNG's recovery of costs is facilitated through its base rates, Basic Gas Supply Service (BGSS) and other regulatory riders. As recovery of regulatory assets is subject to BPU approval, if there are any changes in regulatory positions that indicate recovery is not probable, the related cost would be charged to income in the period of such determination.

Recent regulatory filings and/or actions include the following:

•

On November 17, 2011, NJNG notified the BPU that it will provide bill credits to NJNG's residential and small commercial customers during December 2011 and January 2012, as a result of the decline in the wholesale prices of natural gas and a change in the methodology used to develop estimates of unaccounted-for gas. On January 25, 2012 and March 9, 2012, NJNG notified the BPU that it would extend bill credits through February 2012 and March 2012, respectively. In total, customers received approximately $90.7 million in credits based on usage during the four-month period.


•	On January 18, 2012, the BPU approved an extension of NJNG's Energy Efficiency program (EE) for one year with an additional $18.4 million of investments in customer incentives and financing earning a weighted average cost of capital of 7.1 percent, including a cost of equity of 10.3 percent.

•

On January 18, 2012, the BPU issued an Order approving NJNG's 2010 Societal Benefits Clause (SBC) filing, in which NJNG requested approval of its manufactured gas plant remediation expenditures incurred through September 30, 2009, as well as continuation of its existing overall SBC rate. In February 2012, NJNG filed its 2011 SBC filing, which requested approval of its MGP expenditures incurred through September 30, 2011, with no additional rate impact on customers.


•	On March 9, 2012, NJNG notified the BPU that it will implement a 3.6 percent decrease to its BGSS rate, effective April 1, 2012, with an annual impact of approximately $19 million.

•

On March 20, 2012, NJNG filed a petition with the BPU seeking to implement a Safety Acceleration and Facility Enhancement (SAFE) program, whereby NJNG would invest up to $204 million over a five-year period to replace portions of NJNG's gas distribution infrastructure. If approved, commencing in 2013, NJNG would file a petition with the BPU annually in June to recover costs over the life of the program, including an overall weighted average cost of capital of 7.76 percent, including a cost of equity of 10.3 percent.