FAIR VALUE

Fair Value of Assets and Liabilities

The fair value of cash and temporary investments, accounts receivable, current loan receivables, accounts payable, commercial paper and borrowings under revolving credit facilities are estimated to equal their carrying amounts due to the short maturity of those instruments. Non-current loan receivables are recorded based on what the company expects to receive, which approximates fair value. The Company regularly evaluates the credit quality and collection profile of its customers to approximate fair value.

As of September 30, the estimated fair value of long-term debt at NJNG and NJR, including current maturities and excluding capital leases, as applicable, is as follows:



(Thousands)	2013		2012
NJNG
Carrying value	$	379,845	$	329,845
Fair market value	$	397,175	$	364,394
NJR
Carrying value	$	150,000	$	150,000
Fair market value	$	159,343	$	165,662

NJR utilizes a discounted cash flow method to determine the fair value of its debt. Inputs include observable municipal and corporate yields, as appropriate, for the maturity of the specific issue and the Company's credit rating. As of September 30, 2013 and 2012, NJR discloses its debt within Level 2 of the fair value hierarchy.

Fair Value Hierarchy

NJR applies fair value measurement guidance to its financial assets and liabilities, as appropriate, which include financial derivatives and physical commodity contracts qualifying as derivatives, available for sale securities and other financial assets and liabilities. In addition, authoritative accounting literature prescribes the use of a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based on the source of the data used to develop the price inputs. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to inputs that are based on unobservable market data and include the following:

Level 1

Unadjusted quoted prices for identical assets or liabilities in active markets. NJR's Level 1 assets and liabilities include exchange traded futures and options contracts, listed equities, and money market funds. Exchange traded futures and options contracts include all energy contracts traded on the NYMEX/CME and ICE that NJR refers internally to as basis swaps, fixed swaps, futures and options that are cleared through a FCM.

Level 2

Other significant observable inputs such as interest rates or price data, including both commodity and basis pricing that is observed either directly or indirectly from publications or pricing services. NJR's Level 2 assets and liabilities include over-the-counter physical forward commodity contracts and swap contracts or derivatives that are initially valued using observable quotes and are subsequently adjusted to include time value, credit risk or estimated transport pricing components for which no basis price is available. Level 2 financial derivatives consist of transactions with non-FCM counterparties (basis swaps, fixed swaps and/or options). For some physical commodity contracts the Company utilizes transportation tariff rates that are publicly available and that it considers to be observable inputs that are equivalent to market data received from an independent source. There are no significant judgments or adjustments applied to the transportation tariff inputs and no market perspective is required. Even if the transportation tariff input was considered to be a “model”, it would still be considered to be a Level 2 input as:

1) The data is widely accepted and public

2) The data is non-proprietary and sourced from an independent third party

3) The data is observable and published

These additional adjustments are generally not considered significant to the ultimate recognized values.


Level 3	Inputs derived from a significant amount of unobservable market data; these include NJR's best estimate of fair value and are derived primarily through the use of internal valuation methodologies.

NJNG's and NJRES' financial derivatives portfolios consist mainly of futures, options and swaps. NJR primarily uses the market approach and its policy is to use actively quoted market prices when available. The principal market for its derivative transactions is the natural gas wholesale market, therefore, the primary source for its price inputs is the NYMEX exchange. NJRES also uses NGX for Canadian delivery points and Platts and NYMEX ClearPort for certain over-the-counter physical forward commodity contracts. However, NJRES also engages in transactions that result in transporting natural gas to delivery points for which there is no actively quoted market price. In most instances, the cost to transport to the final delivery location is not significant to the overall valuation. If required, NJRES' policy is to use the best information available to determine fair value based on internal pricing models, which would include estimates extrapolated from broker quotes or pricing services.

NJR also has available for sale securities and other financial assets that include listed equities, mutual funds and money market funds for which there are active exchange quotes available.

When NJR determines fair values, measurements are adjusted, as needed, for credit risk associated with its counterparties, as well as its own credit risk. NJR determines these adjustments by using historical default probabilities that correspond to the applicable S&P issuer ratings, while also taking into consideration collateral and netting arrangements that serve to mitigate risk.

Assets and liabilities measured at fair value on a recurring basis are summarized as follows:



	Quoted Prices in Active Markets for Identical Assets			Significant Other Observable Inputs			Significant Unobservable Inputs
(Thousands)	(Level 1)			(Level 2)			(Level 3)			Total
As of September 30, 2013:
Assets
Physical forward commodity contracts		$	—		$	11,823		$	—	$	11,823
Financial derivative contracts - natural gas		44,249			—			—		44,249
Financial commodity contracts - foreign exchange		—			16			—		16
Available for sale equity securities - energy industry⁽¹⁾		11,716			—			—		11,716
Other ⁽²⁾		1,129			—			—		1,129
Total assets at fair value		$	57,094		$	11,839		$	—	$	68,933
Liabilities
Physical forward commodity contracts		$	—		$	14,595		$	—	$	14,595
Financial commodity contracts - natural gas		28,248			—			—		28,248
Financial commodity contracts - foreign exchange		—			5			—		5
Other		—			—			—		—
Total liabilities at fair value		$	28,248		$	14,600		$	—	$	42,848

As of September 30, 2012:
Assets
Physical forward commodity contracts		$	—		$	20,248		$	—	$	20,248
Financial derivative contracts - natural gas		14,270			15,645			—		29,915
Financial commodity contracts - foreign exchange		—			186			—		186
Available for sale equity securities - energy industry⁽¹⁾		11,009			—			—		11,009
Other ⁽²⁾		30			—			—		30
Total assets at fair value		$	25,309		$	36,079		$	—	$	61,388
Liabilities
Physical forward commodity contracts		$	—		$	9,746		$	—	$	9,746
Financial derivative contracts - natural gas		16,922			18,793			—		35,715
Financial commodity contracts - foreign exchange		—			112			—		112
Other		—			—			—		—
Total liabilities at fair value		$	16,922		$	28,651		$	—	$	45,573


(1)	Included in other noncurrent assets on the Consolidated Balance Sheets.


(2)	Includes various money market funds in Level 1.