REGULATION

3 Months Ended

Dec. 31, 2022

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 filings to the BPU for review of its BGSS, CIP and other programs and related rates. Annual rate changes are typically requested to be effective at the beginning of the following fiscal year. The current base rates include a weighted average cost of capital of 6.84 percent and a return on common equity of 9.6 percent. 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 for NJNG are comprised of the following:


(Thousands)	December 31, 2022		September 30, 2022
Regulatory assets-current
New Jersey Clean Energy Program	$	14,090	$	15,697
Conservation Incentive Program	19,633		23,099

Derivatives at fair value, net	26,314		—
Other current regulatory assets	1,318		1,290
Total current regulatory assets	$	61,355	$	40,086
Regulatory assets-noncurrent
Environmental remediation costs:
Expended, net of recoveries	$	65,671	$	66,149
Liability for future expenditures	125,727		127,070
Deferred income taxes	40,732		40,520

SAVEGREEN	54,909		52,690
Postemployment and other benefit costs	55,972		56,021
Deferred storm damage costs	1,629		2,172
Cost of removal	106,645		104,850

Other noncurrent regulatory assets	39,249		45,828
Total noncurrent regulatory assets	$	490,534	$	495,300
Regulatory liability-current
Overrecovered natural gas costs	$	42,245	$	17,807


Derivatives at fair value, net	681		7,972
Total current regulatory liabilities	$	42,926	$	25,779
Regulatory liabilities-noncurrent
Tax Act impact (1)	$	184,112	$	185,367
Derivatives at fair value, net	—		116

Other noncurrent regulatory liabilities	628		151
Total noncurrent regulatory liabilities	$	184,740	$	185,634

(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.

Other noncurrent regulatory assets include deferred pandemic costs of approximately $3.9 million and $6.9 million as of December 31, 2022 and September 30, 2022, respectively, primarily related to a portion of bad debt associated with customer accounts receivable resulting from the impacts of the ongoing COVID-19 pandemic. These costs are eligible for future regulatory recovery. On January 5, 2023, NJNG advised the BPU that it will cease deferring COVID-19 costs as of December 31, 2022, and will seek recovery of its regulatory asset balance in its next base rate proceeding.

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


(Thousands)	December 31, 2022		September 30, 2022

Total noncurrent regulatory assets	$	5,316	$	5,366
Total current regulatory liabilities	6,456		5,311

The assets are comprised primarily of the tax benefit associated with the equity component of AFUDC and the liability consists primarily of scheduling penalties. Recovery of regulatory assets is subject to FERC approval.