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, 2013		September 30, 2012
Regulatory assets-current
Conservation Incentive Program	$	18,383	$	25,681
Underrecovered gas costs	7,595		7,053
Total current	$	25,978	$	32,734
Regulatory assets-noncurrent
Environmental remediation costs
Expended, net of recoveries	$	48,830	$	59,745
Liability for future expenditures	182,000		182,000
Deferred income taxes	11,405		11,405
Energy Efficiency Program	31,712		26,025
New Jersey Clean Energy Program (NJCEP)	7,464		5,619
Postemployment and other benefit costs	137,700		142,495
Deferred Superstorm Sandy costs	14,666		—
Other	8,431		13,974
Total noncurrent	$	442,208	$	441,263
Regulatory liability-current
Derivatives, net	$	—	$	1,169
Total current	$	—	$	1,169
Regulatory liabilities-noncurrent
Cost of removal obligation	$	64,346	$	65,994
Derivatives, net	13,189		1,000
Other	1,490		83
Total noncurrent	$	79,025	$	67,077

NJNG's recovery of costs is facilitated through its base tariff 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:

•

In November 2012, the BPU approved the utilities' funding obligations for NJCEP for the period from January 1, 2013 to June 30, 2013. Those programs will now be on a July 1 through June 30 fiscal year basis. NJNG's share of the total funding requirement will be approximately $9.8 million. Accordingly, NJNG recorded the obligation and a corresponding regulatory asset on the Unaudited Condensed Consolidated Balance Sheets.

•

On October 23, 2012, the BPU approved the Safety Acceleration and Facility Enhancement (SAFE) program, allowing a four-year incremental capital investment program of $130 million, exclusive of allowance for funds used during construction (AFUDC) accruals. The approval includes an agreement that these infrastructure costs will be subject to review in NJNG's next base rate case to be filed no later than November 2015, the deferral of depreciation expense on SAFE investments and an overall rate of return on infrastructure investments of 6.9 percent. The deferred cost recovery will include accruals for both debt and equity components of AFUDC while construction is in progress. When construction is completed and plant is placed in service, NJNG will accrue an AFUDC rate at 6.9 percent per year until such time that NJNG receives approval for recovery of all costs through base rates.

•

On November 19, 2012, NJNG filed a petition with the BPU requesting deferral accounting for uninsured incremental operating and maintenance costs associated with Superstorm Sandy. In addition, NJNG requested the review of and the appropriate recovery period for such deferred expenses be addressed in the Company's next base rate case. As of March 31, 2013, NJNG has recorded a regulatory asset in the amount of $14.7 million related to these costs.

In addition, on March 20, 2013, the BPU issued an order establishing a generic proceeding to review the prudency of costs incurred by New Jersey utility companies in response to major storm events in 2011 and 2012. The BPU order requires NJNG to file a detailed report by July 1, 2013, including unreimbursed, uninsured incremental storm restoration costs.

•

On November 20, 2012, NJNG submitted a filing requesting a base rate increase of $6.9 million for Accelerated Infrastructure Programs (AIP), related to the initial phase of AIP projects (AIP I) and the second phase of AIP projects (AIP II) infrastructure investments installed in NJNG's distribution and transmission systems through October 31, 2012. The existing weighted average cost of capital remained the same for both AIP I and AIP II investments.


•	On January 23, 2013, the BPU approved a stipulation to extend NJNG's current SAVEGREEN Project^® (SAVEGREEN) through June 30, 2013. NJNG's July 9, 2012 petition, for an extension and expansion of the SAVEGREEN programs over a four-year period, remains open.


•	On March 1, 2013, NJNG and South Jersey Gas Company (SJG) filed a joint petition with the BPU requesting the continuation of the Conservation Incentive Program (CIP) with certain modifications.


•	On March 20, 2013, the BPU approved a February 2012 filing that requested approval of NJNG's manufactured gas plant (MGP) expenditures incurred through June 30, 2011, maintaining the existing overall social benefit clause (SBC) rate and recovery.