REGULATION

6 Months Ended

Mar. 31, 2020

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 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)	March 31, 2020		September 30, 2019
Regulatory assets-current
New Jersey Clean Energy Program	$	5,868	$	15,468
Under-recovered gas costs	9,246		9,506
Conservation Incentive Program	23,481		3,371
Derivatives at fair value, net	16,231		4,526
Other	2,040		—
Total current regulatory assets	$	56,866	$	32,871
Regulatory assets-noncurrent
Environmental remediation costs
Expended, net of recoveries	$	35,856	$	38,351
Liability for future expenditures	128,868		131,080
Deferred income taxes	21,049		19,631
Derivatives at fair value, net	—		486
SAVEGREEN	12,101		10,201
Postemployment and other benefit costs	165,577		212,461
Deferred storm damage costs	7,601		8,687
Cost of removal	62,488		65,660
Other noncurrent regulatory assets	16,499		10,080
Total noncurrent regulatory assets	$	450,039	$	496,637
Regulatory liabilities-noncurrent
Tax Act impact ⁽¹⁾	$	197,928	$	200,417
New Jersey Clean Energy Program	1,318		197
Other noncurrent regulatory liabilities	491		1,821
Total noncurrent regulatory liabilities	$	199,737	$	202,435

(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 October 25, 2019, the BPU approved NJNG’s annual filing to increase its EE recovery rate, which resulted in an annual recovery of approximately $11.3 million, effective November 1, 2019.


•	On November 13, 2019, the BPU issued an order adopting a stipulation of settlement approving a $62.2 million increase to base rates, effective on November 15, 2019. The increase includes an overall rate of return on rate base of 6.95 percent, return on common equity of 9.6 percent, a common equity ratio of 54 percent and a depreciation rate of 2.78 percent.


•	On March 16, 2020, a stipulation was signed in NJNG's annual SBC application which included an increase in the RAC rate of $1.2 million annually and a decrease to the NJCEP factor of $600,000. The stipulation is pending BPU approval.

•

On March 30, 2020, NJNG filed a petition with the BPU requesting a base rate increase of approximately $7.4 million for the recovery associated with NJ RISE and SAFE II capital investments cost of approximately $68.7 million made through June 30, 2020. This filing will be updated for actual information through June 30, 2020. Changes to base rates are anticipated to be effective October 1, 2020.