REGULATION

9 Months Ended

Jun. 30, 2019

4. 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 a provisional 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, 2019		September 30, 2018
Regulatory assets-current
New Jersey Clean Energy Program	$	15,252	$	14,052
Underrecovered gas costs	9,949		4,137
Conservation Incentive Program	2,065		—
Derivatives at fair value, net	5,654		108
Total current regulatory assets	$	32,920	$	18,297
Regulatory assets-noncurrent
Environmental remediation costs
Expended, net of recoveries	$	34,340	$	33,017
Liability for future expenditures	125,566		130,800
Deferred income taxes	19,419		17,225
Derivatives at fair value, net	750		—
SAVEGREEN	7,684		8,636
Postemployment and other benefit costs	132,605		136,716
Deferred storm damage costs	9,229		10,858
Cost of removal	49,929		22,339
Other noncurrent regulatory assets	9,247		9,001
Total noncurrent regulatory assets	$	388,769	$	368,592
Regulatory liabilities-current
Conservation Incentive Program	$	—	$	6,994
Derivatives at fair value, net	—		1,191
Total current regulatory liabilities	$	—	$	8,185
Regulatory liabilities-noncurrent
Tax Act impact ⁽¹⁾	$	201,664	$	205,410
Derivatives at fair value, net	—		123
New Jersey Clean Energy Program	207		1,902
Other noncurrent regulatory liabilities	1,789		1,704
Total noncurrent regulatory liabilities	$	203,660	$	209,139

(1)

Reflects the re-measurement and subsequent amortization of NJNG's net deferred tax liabilities as a result of the change in federal tax rates enacted in the Tax Act.

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


•	On December 18, 2018, the BPU approved a decrease in NJNG's EE recovery rate reflecting actual costs incurred through September 30, 2018, which will result in an annual decrease of $8.8 million, effective January 1, 2019.


•	On December 28, 2018, NJNG notified the BPU that it will increase the BGSS rate, effective February 1, 2019, resulting in an estimated $10.9 million increase to the revenues credited to BGSS from February through September 30, 2019.


•	On February 28, 2019, NJNG filed a petition with the BPU seeking authority to implement a five-year IIP. The IIP consists of two components, transmission and distribution investments and information technology replacement and enhancements. The total investment for the IIP is approximately $507 million. All approved investments will be recovered through annual filings to adjust base rates.


•	On March 29, 2019, the BPU approved NJNG’s annual SBC application requesting recovery of remediation expenses incurred through June 30, 2018, an increase in the RAC rate of $1.4 million and an increase in the NJCEP factor of $1.9 million, effective April 1, 2019.

•

On March 29, 2019, NJNG filed a petition with the BPU requesting a base rate increase of approximately $8.7 million for the recovery associated with NJ RISE and SAFE II capital investment costs of approximately $75 million made through June 30, 2019. On July 17, 2019, this filing was updated to reflect the actual results through June 30, 2019, which resulted in a revised base rate increase of $7.8 million, with changes effective October 1, 2019.

•

On March 29, 2019, NJNG filed a base rate case with the BPU requesting a natural gas revenue increase of $128.2 million, including a change in the Company’s overall rate of return on rate base to 7.87 percent. NJNG is also seeking permission to request recovery for SRL in a future filing, upon completion of the project. On July 2, 2019, the Company filed an update with actual information through May 31, 2019. The requested increase was revised from $128.2 million to $129.8 million.

•

On May 31, 2019, NJNG filed its annual petition with the BPU to decrease its BGSS rate for residential and small commercial customers. The rate changes will result in a $6.8 million decrease to the annual revenues credited to BGSS, a $15.6 million annual increase related to its balancing charge, as well as increases to CIP rates, which will result in a $12.8 million annual recovery increase, effective October 1, 2019.


•	On May 31, 2019, NJNG filed a petition with the BPU to increase its EE recovery rate, which will result in an annual increase of $3.5 million, anticipated to be effective October 1, 2019.

•

On June 24, 2019, NJNG filed its annual USF compliance filing proposing an increase to the statewide USF rate, which will result in the annual recovery increasing by $1.2 million, effective October 1, 2019.