REGULATION

9 Months Ended

Jun. 30, 2018

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)	June 30, 2018		September 30, 2017
Regulatory assets-current
New Jersey Clean Energy Program	$	15,533	$	14,202
Underrecovered gas costs	5,693		9,910
Derivatives at fair value, net	230		9,010
Conservation Incentive Program	—		17,669
Total current regulatory assets	$	21,456	$	50,791
Regulatory assets-noncurrent
Environmental remediation costs
Expended, net of recoveries	$	29,647	$	28,547
Liability for future expenditures	140,821		149,000
Deferred income taxes	16,796		21,795
SAVEGREEN	7,410		16,302
Postemployment and other benefit costs	133,179		141,433
Deferred storm damage costs	11,401		13,030
Other noncurrent regulatory assets	8,825		5,812
Total noncurrent regulatory assets	$	348,079	$	375,919
Regulatory liabilities-current
Conservation Incentive Program	$	6,637	$	—
Derivatives at fair value, net	845		78
Total current regulatory liabilities	$	7,482	$	78
Regulatory liabilities-noncurrent
Tax Act impact ⁽¹⁾	$	206,832	$	—
Cost of removal obligation	—		7,902
Derivatives at fair value, net	466		146
New Jersey Clean Energy Program	2,484		5,795
Other noncurrent regulatory liabilities	1,649		664
Total noncurrent regulatory liabilities	$	211,431	$	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, which is net of sales tax collected from customers. For a more detailed discussion, see Note 11. Income Taxes.

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

The Tax Act

•

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, which included the revaluation of its deferred income taxes and the accounting of the income tax effects on the revaluation. The revaluation was 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 which directed New Jersey utilities to submit filings to the BPU by March 2, 2018, to propose the prospective change in base rates as a result of the Tax Act to be effective April 1, 2018, the method to return to customers the overcollection of taxes in base rates 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.

On March 1, 2018, NJNG submitted its required filing to the BPU proposing a $19.7 million base rate reduction and customer refunds of approximately $31 million, which is inclusive of state sales tax. On March 26, 2018, the BPU approved, on an interim basis, the $19.7 million rate reduction, effective April 1, 2018. On May 22, 2018, the BPU also approved the refund of the $31 million, which included interest at the Company’s short-term debt rate as specified in the Company’s last base rate case. These credits were returned to customer accounts in June 2018.

BGSS and CIP


•	On March 26, 2018, the BPU approved NJNG's petition on a final basis to maintain NJNG's BGSS rate for residential and small commercial customers, increase to its balancing charge rate, which resulted in a $3.7 million increase to the annual revenues credited to BGSS and a decrease to its CIP rates, which resulted in a $16.2 million annual recovery decrease that was effective October 1, 2017.


•	On May 29, 2018, NJNG filed its annual petition with the BPU to maintain its BGSS rate for residential and small commercial customers and increase its balancing charge rate, resulting in a $10.8 million increase to the annual revenues credited to BGSS, as well as a decrease in CIP rate, which will result in a $30.9 million annual recovery decrease, effective October 1, 2018.

Energy Efficiency Programs


•	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 March 28, 2018, NJNG filed a petition with the BPU requesting continuation of existing SAVEGREEN programs and the addition of new programs through December 2024, with investments of approximately $341 million.


•	On May 25, 2018, NJNG filed a petition with the BPU to decrease its EE recovery rate, which will result in an annual decrease of $7 million, anticipated to be effective January 1, 2019.

Societal Benefits Clause


•	On June 22, 2018, NJNG filed its annual USF compliance filing to increase rates, which will result in a $7.3 million annual increase, anticipated to be effective October 1, 2018.


•	On July 25, 2018, the BPU approved NJNG's annual SBC filing 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 September 1, 2018.

Infrastructure Programs

•

On July 24, 2018, NJNG updated its annual petition with the BPU that was filed on March 29, 2018, which requested a base rate increase for the recovery of SAFE II and NJ RISE capital investment costs related to the 12-months ending June 30, 2018, and was based on estimates. The filing was updated to reflect actual results, with changes to base rates in the amount of $6.8 million annually, anticipated to be effective October 1, 2018.