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 capital investments based on the BPU's approval. The impact of the ratemaking process and decisions authorized by the BPU allows NJNG to capitalize or defer certain costs that are expected to be recovered from its customers as regulatory assets and to recognize certain obligations representing amounts that are probable future expenditures as regulatory liabilities in accordance with accounting guidance applicable to regulated operations.

NJNG's recovery of costs is facilitated through its base rates, BGSS and other regulatory tariff riders. NJNG is required to make an annual filing to the BPU by June 1 of each year for review of its BGSS, CIP and various other programs and related rates. Annual rate changes are requested to be effective at the beginning of the following fiscal year. In addition, NJNG is also permitted to request approval of certain rate or program changes on an interim basis. All rate and program changes are subject to proper notification and BPU review and approval.

In September 2016, the BPU approved NJNG's base rate case, effective October 1, 2016, which included an increase in base rates in the amount of $45 million. The base rate increase includes a return on common equity of 9.75 percent, a common equity ratio of 52.5 percent and a depreciation rate of 2.4 percent. The approval also included the five-year extension of SAFE II, rate recovery of NJ RISE capital investment costs through June 30, 2016, recovery of NJNG’s SAFE I, NGV and LNG capital investments and recovery of other costs previously deferred in regulatory assets.

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



(Thousands)	December 31, 2016		September 30, 2016
Regulatory assets-current
Conservation Incentive Program	$	28,662	$	36,957
New Jersey Clean Energy Program	13,180		14,232
Underrecovered gas costs	1,298		—
Derivatives at fair value, net	—		3,097
Total current regulatory assets	$	43,140	$	54,286
Regulatory assets-noncurrent
Environmental remediation costs
Expended, net of recoveries	$	20,025	$	19,595
Liability for future expenditures	168,506		172,000
Deferred income taxes	20,599		20,273
Derivatives at fair value, net	2,702		23,384
SAVEGREEN	22,060		25,208
Postemployment and other benefit costs	154,221		157,027
Deferred Superstorm Sandy costs	14,659		15,201
Other noncurrent regulatory assets	5,709		8,606
Total noncurrent regulatory assets	$	408,481	$	441,294
Regulatory liability-current
Overrecovered gas costs	$	—	$	9,469
Derivatives at fair value, net	12,120		—
Total current regulatory liabilities	$	12,120	$	9,469
Regulatory liabilities-noncurrent
Cost of removal obligation	$	25,318	$	30,549
New Jersey Clean Energy Program	12,659		10,657
Other noncurrent regulatory liabilities	749		205
Total noncurrent regulatory liabilities	$	38,726	$	41,411