REGULATION

3 Months Ended

Dec. 31, 2017

3. 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 annual filings to the BPU for review of its BGSS, CIP and various other programs and related rates. Annual rate changes are typically requested to be effective at the beginning of the following fiscal year. All rate and program changes are subject to proper notification and BPU review and approval. In addition, NJNG is also permitted to implement certain BGSS rate changes on an interim basis with proper notification to the BPU.

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



(Thousands)	December 31, 2017		September 30, 2017
Regulatory assets-current
New Jersey Clean Energy Program	$	12,626	$	14,202
Underrecovered gas costs	490		9,910
Derivatives at fair value, net	18,471		9,010
Conservation Incentive Program	9,987		17,669
Total current regulatory assets	$	41,574	$	50,791
Regulatory assets-noncurrent
Environmental remediation costs
Expended, net of recoveries	$	31,236	$	28,547
Liability for future expenditures	144,046		149,000
Deferred income taxes	16,356		21,795
SAVEGREEN	13,419		16,302
Postemployment and other benefit costs	138,681		141,433
Deferred Post-Tropical Cyclone Sandy costs	12,487		13,030
Other noncurrent regulatory assets	5,925		5,812
Total noncurrent regulatory assets	$	362,150	$	375,919
Regulatory liability-current
Derivatives at fair value, net	$	434	$	78
Total current regulatory liabilities	$	434	$	78
Regulatory liabilities-noncurrent
Deferred income taxes ⁽¹⁾	$	229,315	$	—
Cost of removal obligation	—		7,902
Derivatives at fair value, net	—		146
New Jersey Clean Energy Program	7,527		5,795
Other noncurrent regulatory liabilities	996		664
Total noncurrent regulatory liabilities	$	237,838	$	14,507


(1)	Includes an adjustment related to the re-measurement of NJNG's net deferred tax liabilities to reflect the change in federal tax rates enacted in the Tax Act. For a more detailed discussion of the Tax Act, see Note 11. Income Taxes.

Regulatory filings and/or actions that occurred during the current fiscal year include the following:


•	On October 20, 2017, the BPU approved NJNG's filing to decrease its EE recovery rate, which will result in an annual decrease of $3.9 million, effective November 1, 2017.


•	On November 17, 2017, NJNG filed its annual SBC application requesting to recover remediation expenses incurred through June 30, 2017, a reduction in the RAC, which will result in an annual decrease of $2.4 million and to increase the NJCEP factor, which will result in an annual increase of $1.8 million, effective April 1, 2018.

•

On December 22, 2017, the Tax Act was signed into law, which resulted in a reduction in the federal corporate tax rate. As a result, NJNG recorded a regulatory liability of $228 million, which includes $164.3 million for the revaluation of its deferred income taxes and $63.7 million for the accounting of the income tax effects on the revaluation. The revaluation is based on certain assumptions and estimations NJNG made with respect to its deferred taxes, as well as the effects from the Tax Act, and as such are subject to change if and when assumptions are updated. See Note 11. Income Taxes for a more detailed discussion on the Tax Act. On January 31, 2018, the BPU issued an Order directing the New Jersey utilities to submit filings by March 2, 2018, proposing the prospective change in rates as a result of the Tax Act to be effective April 1, 2018, the method to return to customers the rate difference from January 1, 2018, through March 31, 2018, and an outline of the method by which the excess deferred taxes would be returned to customers. The excess deferred taxes are primarily related to timing differences associated with utility plant depreciation and are subject to IRS normalization rules, which require amortization over the remaining life of the utility plant. The return to customers of the plant-related excess deferred taxes, as well as any non-plant related excess deferred taxes will be addressed in NJNG’s filing to the BPU.