10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2008 

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________to ______________.

Commission File Number 1-6364

SOUTH JERSEY INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

New Jersey	22-1901645
(State of incorporation)	(IRS employer identification no.)

1 South Jersey Plaza, Folsom, New Jersey 08037

(Address of principal executive offices, including zip code)

(609) 561-9000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Common Stock
($1.25 par value per share)	New York Stock Exchange
(Title of each class)	(Name of exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act: Yes [X] No [   ]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Act: Yes [   ] No [X]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [   ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer    [X]                                                             Accelerated filer  [   ]

  Non-accelerated filer       [  ] (Do not check if a smaller reporting company)  Smaller reporting company [   ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [   ] No [X]

The aggregate market value of voting stock held by non-affiliates of the registrant as of June 30, 2008 was $1,105,259,473. As of February 23, 2009, there were 29,738,256 shares of the registrant’s common stock outstanding.

Documents Incorporated by Reference:

In Part I of Form 10-K: None

In Part II of Form 10-K: None

In Part III of Form 10-K:  Portions of the registrant’s proxy statement filed within 120 days of the close of the registrant’s fiscal year in connection with the registrant’s 2009 annual meeting of shareholders are incorporated by reference into Part III of this Form 10-K.

Forward Looking Statements

Certain statements contained in this Annual Report on form 10-K may qualify as “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact included in this Report should be considered forward-looking statements made in good faith by the Company and are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. When used in this Report, or any other of the Company’s documents or oral presentations, words such as “anticipate”, “believe”, “expect”, “estimate”, “forecast”, “goal”, “intend”, “objective”, “plan”, “project”, “seek”, “strategy” and similar expressions are intended to identify forward-looking statements. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the statements. These risks and uncertainties include, but are not limited to the risks set forth under “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K and elsewhere throughout this Report. These cautionary statements should not be construed by you to be exhaustive and they are made only as of the date of this Report. While South Jersey Industries, Inc. (SJI or the Company) believes these forward-looking statements to be reasonable, there can be no assurance that they will approximate actual experience or that the expectations derived from them will be realized. Further, SJI undertakes no obligation to update or revise any of its forward-looking statements whether as a result of new information, future events or otherwise.

Available Information

The Company’s Internet address is www.sjindustries.com. We make available free of charge on or through our website SJI’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (SEC). The SEC maintains an Internet site that contains these reports at http://www.sec.gov. Also, copies of SJI’s annual report will be made available, free of charge, upon written request. The content on any web site referred to in this filing is not incorporated by reference into this filing unless expressly noted otherwise.

SJI - 2

Units of Measurement
For Natural Gas:
1 Mcf	= One thousand cubic feet
1 MMcf	= One million cubic feet
1 Bcf	= One billion cubic feet
1dt	= One decatherm
1 MMdts	= One million decatherms
dts/d	= Decatherms per day
MDWQ	= Maximum daily withdrawal quantity

PART I

Item 1. Business

Description of Business

The registrant, South Jersey Industries, Inc. a New Jersey corporation, was formed in 1969 for the purpose of owning and holding all of the outstanding common stock of South Jersey Gas Company, a public utility, and acquiring and developing non-utility lines of business.

SJI currently provides a variety of energy related products and services primarily through the following subsidiaries:

·   South Jersey Gas Company (SJG) is a regulated natural gas utility. SJG distributes natural gas in the seven southernmost counties of New Jersey.

·   South Jersey Resources Group, LLC (SJRG) markets wholesale natural gas storage, commodity and transportation in the mid-Atlantic and southern states.

·   Marina Energy, LLC (Marina) develops and operates on-site energy-related projects.

·   South Jersey Energy Company (SJE) acquires and markets natural gas and electricity to retail end users and provides total energy management services to commercial and industrial customers.

·   South Jersey Energy Service Plus, LLC (SJESP) provides residential and light commercial service and installation of HVAC systems, plumbing services and appliance repair and service/maintenance contracts.

Additional Information on the nature of our business can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under Item 7 of this report.

Financial Information About Reportable Segments

Information regarding Reportable Segments is incorporated by reference to Note 7 of the consolidated financial statements included under Item 8 of this report.

SJI - 3

Sources and Availability of Raw Materials

South Jersey Gas Company

Transportation and Storage Agreements

SJG has direct connections to two interstate pipeline companies, Transcontinental Gas Pipe Line Company, LLC (Transco) and Columbia Gas Transmission, LLC (Columbia). During 2008, SJG purchased and had delivered approximately 37.0 Million decatherms (MMdts) of natural gas for distribution to both on-system and off-system customers. Of this total, 25.3 MMdts was transported on the Transco pipeline system while 11.7 MMdts was transported on the Columbia pipeline system. SJG also secures firm transportation and other long term services from two additional pipelines upstream of the Transco and Columbia systems. They include Columbia Gulf Transmission Company, LLC (Columbia Gulf) and Dominion Transmission, Inc. (Dominion). Services provided by these upstream pipelines are utilized to deliver gas into either the Transco or Columbia systems for ultimate delivery to SJG. Services provided by all of the above-mentioned pipelines are subject to the jurisdiction of the Federal Energy Regulatory Commission (FERC).  Unless otherwise indicated, our intentions are to renew or extend these service agreements before they expire.

Transco:

Transco is SJG’s largest supplier of long-term gas transmission services which includes both year-round and seasonal firm transportation (FT) service arrangements. When combined, these services enable SJG to purchase gas from third parties and have delivered to its city gate stations by Transco a total of 280,525 dts per day (dts/d). Of this total, 133,917 dts/d is long-haul FT (where gas can be transported from the production areas of the Southwest to the market areas of the Northeast) while 146,608 dts/d is market area FT. The terms of the year-round agreements extend for various periods through 2025, while the term of the seasonal agreement extends to 2011.

Of the 280,525 dts/d of Transco services mentioned above, SJG has released a total of 89,800 dts/d of its long-haul FT and 25,565 dts/d of its market area FT service.  These releases were made in association with SJG’s Conservation Incentive Program (CIP) discussed further under Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

SJG also has seven long-term gas storage service agreements with Transco that, when combined, are capable of storing approximately 6.4 MMdts. Through these services, SJG can inject gas into market area storage during periods of low demand and withdraw gas at a rate of up to 124,840 dts/d during periods of high demand. The terms of the storage service agreements extend for various periods from 2008 to 2013.  During 2008, SJG released 17,433 dts/d of Transco SS-1 storage demand and 1,353,159 dts of its SS-1 storage capacity (both represent 100 percent of this service) thereby reducing its Transco maximum daily storage withdrawal quantity to 107,407 dts/d, and its storage capacity to approximately 5.0 MMdts.  Also released was 17,433 dts/d of winter season firm transportation service associated with SS-1 storage service.

It should also be noted that effective May 1, 2006 SJG permanently released its Transco WSS Storage Service having a storage capacity of 4.4 MMdts and a maximum daily withdrawal quantity (MDWQ) of 51,837 dts to SJRG resulting in significant savings in gas related costs.  The release of both WSS and SS-1 storages was taken in conjunction with SJG’s CIP.

Dominion:

Entering 2008, SJG had two firm transportation services with Dominion which delivered gas to Transco’s Leidy Line for ultimate delivery to SJG city gate stations. One of these services is associated with a storage service which SJG subscribes to with Transco (Transco SS-1).  Since SJG released its Transco SS-1 storage service in 2008, it also assigned 17,432 dts/d of this associated Dominion firm transportation service to SJRG.  SJG had previously had a third firm transportation service with Dominion which provided a link between SJG’s service on Texas Gas and Transco’s Leidy Line system in Pennsylvania.  However, as SJG opted to allow its Texas Gas service to expire in 2007, it also chose to allow its FT service on Dominion (unrelated to storage), with a maximum contract quantity of 24,874 dts/d, to expire under its terms effective October 31, 2007.  This decision resulted in significant cost savings.

SJI - 4

SJG also subscribes to a storage service with Dominion which provides a MDWQ of 10,000 dts during the period between November 16 and March 31 of winter season with 423,000 dts of storage capacity. Gas from this storage is delivered through both the Dominion and Transco pipeline systems.

Columbia:

SJG has two firm transportation agreements with Columbia which, when combined, provide for 45,022 dts/d of firm deliverability and extend through October 31, 2009.  In 2008, SJG released 14,714 dts/d of this amount to SJRG in conjunction with its CIP thereby reducing the availability of firm transportation on the Columbia system to 30,308 dts/d.

SJG also subscribes to a firm storage service (FSS) with Columbia under three separate agreements, the longest of which extends through March 31, 2014.  When combined, these three FSS storage agreements provide SJG with a winter season MDWQ of 52,891 dts with an associated 3,473,022 dts of storage capacity.  During 2008, SJG released to SJRG 17,500 dts of its FSS MDWQ along with 1,249,485 dts of its Columbia FSS storage capacity.  In addition, SJG also released to SJRG 17,500 dts of its Columbia SST MDWQ transportation service which is associated with FSS service.  Both of these releases were made by SJG in connection with its CIP.

Columbia Gulf:

SJG has one firm transportation agreement with Columbia Gulf which provides up to 45,985 dts/d of firm deliverability in the winter season and 43,137 dts/d during the summer season.  This service facilitates the movement of gas from the production area in southern Louisiana to an interconnect with the Columbia pipeline system at Leach, KY.

During 2008, SJG released 7,969 dts/d of its service on Columbia Gulf to a group of industrial end users on its system, with the remainder being released to SJRG.

Gas Supplies

SJG no longer has any long-term gas supply agreements with third party producer-suppliers.  In recent years, due to increased liquidity in the market place, SJG has replaced its long-term gas supply agreements with short-term agreements and uses financial contracts secured through SJRG to hedge against forward price risk.  Short-term agreements typically extend between one day and several months in duration.  As such, its long-term contracts were allowed to expire under their terms.

Supplemental Gas Supplies

During 2008, SJG entered into two seasonal Liquefied Natural Gas (LNG) sales agreements with two separate third party suppliers. The term of the first agreement which was used during the 2008 summer season to refill SJG’s storage tank, extended through November 30, 2008, and had an associated contract quantity of 400,000 dts. The second agreement was acquired to replenish LNG in storage during the 2008-2009 winter season.  This agreement extends through March 31, 2009 and provides SJG with up to 200,000 dts of LNG.

SJG operates peaking facilities which can store and vaporize LNG for injection into its distribution system. SJG’s LNG facility has a storage capacity equivalent to 434,300 dts of natural gas and has an installed capacity to vaporize up to 96,750 dts of LNG per day for injection into its distribution system.

SJG also operates a high-pressure pipe storage field at its New Jersey LNG facility which is capable of storing 12,420 dts of gas and injecting up to 10,350 dts/d into SJG’s distribution system.

Peak-Day Supply

SJG plans for a winter season peak-day demand on the basis of an average daily temperature of 2 degrees Fahrenheit (F). Gas demand on such a design day for the 2008-2009 winter season is estimated to be 451,418 dts. SJG projects that it has adequate supplies and interstate pipeline entitlements to meet its design requirements. SJG experienced its highest peak-day demand for calendar year 2008 of 374,902 dts on December 22nd while experiencing an average temperature of 21.85 degrees F that day.

SJI - 5

Natural Gas Prices

SJG’s average cost of natural gas purchased and delivered in 2008, 2007 and 2006, including demand charges, was $9.90 per dt, $9.07 per dt and $9.27 per dt, respectively.

South Jersey Energy Company

Transportation and Storage Agreements

Access to gas suppliers and cost of gas are significant to the operations of SJE. No material part of the business of SJE is dependent upon a single customer or a few customers. SJE purchases delivered gas only, primarily from SJRG. Consequently, SJE maintains no transportation or storage agreements.

South Jersey Resources Group

Transportation and Storage Agreements

National Fuel Gas Supply Corporation:

SJRG has a long term storage service agreement with National Fuel Gas Supply Corporation (National Fuel) which extends through March 31, 2010, under which up to 4,746,000 Mcf of gas may be stored. SJRG has an additional contract for 224,576 Mcf of capacity that expires March 31, 2023. Both agreements carry evergreen continuation clauses on a year by year basis after expiration. Total injection rights under the combined agreements total 29,623 Mcf/d and firm withdrawal rights total 50,042 Mcf/d.

SJRG holds long term firm transportation agreements with National Fuel associated with the above-mentioned agreements. Under these agreements, National Fuel will provide SJRG with a maximum daily injection transportation quantity of 29,623 Mcf/d with primary receipt points from Tennessee Gas Pipeline for delivery into storage, and 50,042 of maximum daily withdrawal transportation quantity with a primary receipt point of storage and a primary delivery point of Transcontinental Gas Pipeline.

Transcontinental Gas Pipeline:

SJRG has a storage agreement with Transco for storage service at Transco’s WSS facility which expires in October 2017. Under this evergreen contract, up to 24,500 Mcf/d may be injected and up to 51,837 Mcf/d may be withdrawn. Total storage capacity on the agreement is 4,406,000 Mcf.

SJRG has a storage agreement with Transco for storage service at Transco’s SS-1 facility which expires March 31, 2010. Under this evergreen contract, up to 17,433 Mcf/d may be withdrawn in the winter period and up to 7,617  Mcf/d may be injected during the summer period. Total storage capacity under the agreement is 1,353,159 Mcf. This service was released to SJRG by SJG as discussed above.

SJRG has a transportation agreement with Transco associated with the SS-1 storage agreement mentioned above. Under this evergreen agreement, Transco will provide SJRG with a maximum transportation quantity of 17,433 Mcf/d with receipts at Leidy, Pennsylvania and deliveries in Zone 6 New Jersey. This transportation agreement provides service only during the months of November to March each year.  This service was released to SJRG by SJG as discussed above.

SJRG also has a firm transportation agreement with Transco which expires September 30, 2010. Under this evergreen contract, Transco will provide SJRG with receipts at various production points in Texas and Louisiana and deliveries in New Jersey totaling 89,800 Mcf/d.  This service was released to SJRG by SJG as discussed above.

Dominion Gas Transmission:

SJRG has a firm transportation agreement with Dominion which expires October 31, 2022. Under this agreement, Dominion will provide SJRG with 5,000 Mcf/d of deliveries to Leidy, Pennsylvania and receipts at Lebanon, Ohio.

SJI - 6

SJRG also has a firm transportation agreement with Dominion related to SJRG’s Transco SS-1 storage. Under this contract, Dominion will provide receipts at Leidy, Pennsylvania and deliveries to storage in the amount of 17,432 Mcf/d. This evergreen contract expires March 31, 2011.  This service was released to SJRG by SJG as discussed above.

Columbia Gas Transmission:

SJRG holds a firm transportation agreement with Columbia which expires October 31, 2009. Under this evergreen agreement, Columbia provides receipts at Leach, Kentucky and deliveries of 14,714 Mcf/d to New Jersey.

SJRG holds a storage agreement with Columbia for service under Columbia’s FSS rate schedule. Under this evergreen agreement which expires October 31, 2010, Columbia will provide SJRG with storage capacity of 1,249,485 Mcf . Under this agreement, 17,500 Mcf/d may be withdrawn from storage and 9,996 Mcf/d may be injected.

 SJRG holds firm transportation related to the above mentioned storage agreement which provides for receipts at storage and deliveries to New Jersey of 17,500 Mcf/d. This evergreen contract expires October 31, 2010. These services with Columbia were released to SJRG by SJG as discussed above.

Columbia Gulf Transmission:

SJRG holds a firm transportation agreement with Columbia Gulf which expires October 31, 2009. Under this evergreen agreement, Columbia provides receipts in Louisiana with deliveries at Leach, Kentucky in the amount of 35,168 Mcf/d.  This service was released to SJRG by SJG as discussed above.

Patents and Franchises

South Jersey Gas Company

SJG holds nonexclusive franchises granted by municipalities in the seven-county area of southern New Jersey that it serves. No other natural gas public utility presently serves the territory covered by SJG’s franchises. Otherwise, patents, trademarks, licenses, franchises and concessions are not material to the business of SJG.

Seasonal Aspects

South Jersey Gas Company

SJG experiences seasonal fluctuations in sales when selling natural gas for heating purposes. SJG meets this seasonal fluctuation in demand from its firm customers by buying and storing gas during the summer months, and by drawing from storage and purchasing supplemental supplies during the heating season. As a result of this seasonality, SJG’s revenues and net income are significantly higher during the first and fourth quarters than during the second and third quarters of the year.

Non-Utility Companies

Among SJI’s non-utility activities, wholesale and retail gas marketing have seasonal patterns similar to SJG’s. Activities such as energy services and energy project development do not follow seasonal patterns. Other activities such as retail electric marketing and appliance service can have seasonal earnings patterns that are different from the utility. While growth in the earnings contributions from nonutility operations has improved SJI’s second and third quarter net income levels, the first and fourth quarters remain the periods where most of SJI’s revenue and net income is produced.

Working Capital Practices

Reference is made to “Liquidity and Capital Resources” included in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of this report.

SJI - 7

Customers

No material part of the Company’s business is dependent upon a single customer or a few customers, the loss of which would have a material adverse effect on SJI performance on a consolidated basis. One of SJI’s subsidiaries, Marina Energy, does currently receive the majority of its revenues and income from one customer. However, that customer is under a long-term contract through 2027.

Backlog

Backlog is not material to an understanding of SJI’s business or that of any of its subsidiaries.

Government Contracts

No material portion of the business of SJI or any of its subsidiaries is subject to renegotiation of profits or termination of contracts or subcontracts at the election of any government.

Competition

Information on competition for SJI and its subsidiaries can be found in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of this report.

Research

During the last three fiscal years, neither SJI nor any of its subsidiaries engaged in research activities to any material extent.

Environmental Matters

Information on environmental matters for SJI and its subsidiaries can be found in Note 14 of the consolidated financial statements included under Item 8 of this report.

Employees

SJI and its subsidiaries had a total of 602 employees as of December 31, 2008. Of that total, 335 employees are unionized. SJG employees represented by the International Brotherhood of Electrical Workers (“IBEW”) operate under a new collective bargaining agreement that runs through February 2013.  The remaining employees represented by the IBEW operate under a contract extension through March 2009. We expect to enter into a successor labor agreement with the IBEW before the contract extension expires. The remaining unionized employees are represented by the International Association of Machinists and Aerospace Workers (“IAM”).   The IAM is asserting that the labor agreement which the Company believes expired on January 14, 2009 is evergreen for one year from that expiration date.  The Company disagrees, and has filed a charge with the National Labor Relations Board for a determination on the matter. We await the Board’s decision and consider relations with employees to be good.

Financial Information About Foreign and Domestic Operations and Export Sales

SJI has no foreign operations and export sales have not been a significant part of SJI’s business.

SJI - 8

Item 1A. Risk Factors

SJI and its subsidiaries operate in an environment that involves risks, many of which are beyond our control. SJI has identified the following risk factors that could cause SJI’s operating results and financial condition to be materially adversely affected. Investors should carefully consider these risk factors and should also be aware that this list is not all inclusive of existing risks. In addition, new risks may emerge at any time, and SJI cannot predict those risks or the extent to which they may affect SJI’s businesses or financial performance.

•  SJI is a holding company and its assets consist primarily of investments in subsidiaries. Should SJI’s subsidiaries be unable to pay dividends or make other payments to SJI for financial, regulatory, legal or other reasons, SJI’s ability to pay dividends on its common stock could be limited. SJI’s stock price could be adversely affected as a result.

• SJI’s business activities are concentrated in southern New Jersey. Changes in the economies of southern New Jersey and surrounding regions could negatively impact the growth opportunities available to SJI and the financial condition of customers and prospects of SJI.

• Changes in the regulatory environment or unfavorable rate regulation at its utility may have an unfavorable impact on SJI’s financial performance or condition.  SJI’s utility business is regulated by the New Jersey Board of Public Utilities which has authority over many of the activities of the business including, but not limited to, the rates it charges to its customers, the amount and type of securities it can issue, the nature of investments it can make, the nature and quality of services it provides, safety standards and other matters. The extent to which the actions of regulatory commissions restrict or delay SJG’s ability to earn a reasonable rate of return on invested capital and/or fully recover operating costs may adversely affect its results of operations, financial condition and cash flows. 

•  SJI may not be able to respond effectively to competition, which may negatively impact SJI’s financial performance or condition. Regulatory initiatives may provide or enhance opportunities for competitors that could reduce utility income obtained from existing or prospective customers. Also, competitors in all of SJI’s business lines may be able to provide superior or less costly products or services based upon currently available or newly developed technologies.

• Warm weather, high commodity costs, or customer conservation initiatives could result in reduced demand for some of SJI’s energy products and services. While SJI’s utility currently has a conservation incentive program clause that protects its revenues and gross margin against usage per customer that is lower than a set level, the clause is currently approved as a three-year pilot program. Should this clause expire without replacement, lower customer energy utilization levels would likely reduce SJI’s net income.

• High natural gas prices could cause more of SJI’s receivables to be uncollectible. Higher levels of uncollectibles from either residential or commercial customers would negatively impact SJI’s income and could result in higher working capital requirements.

• SJI’s net income could decrease if it is required to incur additional costs to comply with new governmental safety, health or environmental legislation. SJI is subject to extensive and changing federal and state laws and regulations that impact many aspects of its business; including the storage, transportation and distribution of natural gas, as well as the remediation of environmental contamination at former manufactured gas plant facilities.

• SJI’s wholesale commodity marketing business is exposed to the risk that counterparties that owe money or energy to SJI will not be able to meet their obligations for operational or financial reasons. SJI could be forced to buy or sell commodity at a loss as a result of such failure. Such a failure, if large enough, could also impact SJI’s liquidity.

• Increasing interest rates will negatively impact the net income of SJI. Several of SJI’s subsidiaries are capital intensive, resulting in the incurrence of significant amounts of debt financing. SJI has issued almost all of its existing long-term debt at fixed rates or has utilized interest rate swaps to mitigate changes in variable rates.  However, new issues of long-term debt and all variable rate short-term debt are exposed to the impact of rising interest rates. 

• SJI has guaranteed certain obligations of unconsolidated affiliates and is exposed to the risk that these affiliates will not be able to meet performance and financial commitments.  SJI’s unconsolidated affiliates develop and operate on-site energy related projects.  SJI has guaranteed certain obligations of these affiliates in connection with the development and operation of the facilities.  In the event that these projects do not meet specified levels of operating performance or are unable to meet certain financial obligations as they become due, SJI could be required to make payments related to these obligations.

SJI - 9

  §   The inability to obtain capital, particularly short-term capital from commercial banks, could negatively impact the daily operations and financial performance of SJI. SJI uses short-term borrowings under committed and uncommitted credit facilities provided by commercial banks to supplement cash provided by operations, to support working capital needs, and to finance capital expenditures, as incurred.If the customary sources of short-term capital were no longer available due to market conditions, SJI may not be able to meet its working capital and capital expenditure requirements and borrowing costs could increase.  

• A downgrade in SJG’s credit rating could negatively affect its ability to access adequate and cost effective capital. SJG’s ability to obtain adequate and cost effective capital depends largely on its credit ratings, which are greatly influenced by financial condition and results of operations. If the rating agencies downgrade SJG’s credit ratings, particularly below investment grade, SJG’s borrowing costs would increase. In addition, SJG would likely be required to pay higher interest rates in future financings and potential funding sources would likely decrease. To the extent that a decline in SJG’s credit rating has a negative effect on SJI, SJI could be required to provide additional support to certain counterparties of the wholesale gas operations.

• Hedging activities of the company designed to protect against commodity price or interest rate risk may cause fluctuations in reported financial results and SJI’s stock price could be adversely affected as a result. Although SJI enters into various contracts to hedge the value of energy assets, liabilities, firm commitments or forecasted transactions, the timing of the recognition of gains or losses on these economic hedges in accordance with accounting principles generally accepted  in the United States of America does not always match up with the gains or losses on the items being hedged. The difference in accounting can result in volatility in reported results, even though the expected profit margin is essentially unchanged from the dates the transactions were consummated.

• The inability to obtain natural gas would negatively impact the financial performance of SJI. Several of SJI’s subsidiaries have businesses based upon the ability to deliver natural gas to customers. Disruption in the production of natural gas or transportation of that gas to SJI from its suppliers, could prevent SJI from completing sales to its customers.

•  Transporting and storing natural gas involves numerous risks that may result in accidents and other operating risks and costs. SJI’s gas distribution activities involve a variety of inherent hazards and operating risks, such as leaks, accidents, mechanical problems, natural disasters or terrorist activities which could cause substantial financial losses. In addition, these risks could result in loss of human life, significant damage to property, environmental pollution and impairment of operations, which in turn could lead to substantial losses. In accordance with customary industry practice, SJI maintains insurance against some, but not all, of these risks and losses. The occurrence of any of these events not fully covered by insurance could adversely affect SJI’s financial position and results of operations.

• Adverse results in legal proceedings could be detrimental to the financial condition of SJI. The outcomes of legalproceedings can be unpredictable and can result in adverse judgments.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The principal property of SJI consists of SJG’s gas transmission and distribution systems that include mains, service connections and meters. The transmission facilities carry the gas from the connections with Transco and Columbia to SJG’s distribution systems for delivery to customers. As of December 31, 2008, there were approximately 107.3 miles of mains in the transmission systems and 5,765 miles of mains in the distribution systems.

SJG owns approximately 154 acres of land in Folsom, New Jersey which is the site of SJI’s corporate headquarters. Approximately 140 acres of this property is deed restricted. SJG also has office and service buildings at six other locations in the territory. There is a liquefied natural gas storage and vaporization facility at one of these locations.

As of December 31, 2008, SJG’s utility plant had a gross book value of $1,172.0 million and a net book value, after accumulated depreciation, of $876.6 million. In 2008, $52.6 million was spent on additions to utility plant and there were retirements of property having an aggregate gross book cost of $5.7 million.

SJI - 10

Virtually all of SJG’s transmission pipeline, distribution mains and service connections are in streets or highways or on the property of others. The transmission and distribution systems are maintained under franchises or permits or rights-of-way, many of which are perpetual. SJG’s properties (other than property specifically excluded) are subject to a lien of mortgage under which its first mortgage bonds are outstanding. We believe these properties are well maintained and in good operating condition.

Nonutility property and equipment with a net book value of $106.0 million consists primarily of Marina’s energy projects, in particular the thermal energy plant in Atlantic City, N.J.

Energy and Minerals Inc. (EMI) owns 235 acres of land in Vineland, New Jersey.

South Jersey Fuel, Inc., an inactive subsidiary, owns land and a building in Deptford Township and owns real estate in Upper Township, New Jersey.

R&T Castellini, Inc., an inactive subsidiary, owns land and buildings in Vineland, New Jersey.

Item 3. Legal Proceedings

SJI is subject to claims arising in the ordinary course of business and other legal proceedings. We accrue liabilities related to these claims when we can determine the amount or range of amounts of probable settlement costs for these claims. Among other actions, SJI is named in certain product liability claims related to our former sand mining subsidiary. Management does not currently anticipate the disposition of any known claims to have a material adverse effect on SJI’s financial position, results of operations or liquidity.

Item 4. Submission Of Matters To A Vote of Security Holders

No matter was submitted to a vote of security holders during the fourth quarter of the 2008 fiscal year.

Item 4A. Executive Officers of the Registrant

Set forth below are the names, ages and positions of our executive officers along with their business experience during the past five years. All executive officers of SJI are elected annually and serve at the discretion of the Board of Directors. All information is as of the date of the filing of this report.

Name, age and position with the Company	Period Served
Edward J. Graham, Age 51
Chairman	April 2005 - Present
Chief Executive Officer	February 2004 - Present
President	January 2003 - Present
Chief Operating Officer	January 2002 - February 2004
David A. Kindlick, Age 54
Chief Financial Officer	January 2002 - Present
Vice President	June 1997 - Present
Treasurer	April 2001 - January 2004

SJI - 11

Jeffery E. DuBois, Age 50
Vice President	January 2004 - Present
Assistant Vice President (SJG)	January 2002 - January 2004
Michael J. Renna, Age 41
Vice President	January 2004 - Present
Assistant Vice President	January 2002 - January 2004
Richard H. Walker, Jr., Age 58
Vice President, General Counsel and Secretary	January 2006 - Present
Vice President, Corporate Counsel & Corporate Secretary	May 2003 - January 2006
Kevin D. Patrick,  Age 48
Vice President	June 2007 - Present
Albertsons/Super Valu
Division CFO – Eastern Region	September 2004 – June 2006
Brown-Forman Corporation
Assistant Vice President Corporate Development	June 2000 – September 2004
Sharon M. Pennington, Age 46
Vice President	January 2008 to Present
Vice President (SJI Services LLC)	January 2006 – December 2007
Assistant Vice President (SJG)	April 2004 – December 2005
Director, Human Resources (SJG)	July 2002 – March 2004

PART II

Item 5. Market for the Registrant’s Common Equity,

Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Price of Common Stock and Related Information
Quarter Ended	Market Price Per Share					Dividends		Quarter Ended	Market Price Per Share					Dividends
						Declared								Declared
2008		High		Low		Per Share		2007		High		Low		Per Share
March 31		$	38.41	$	31.90	$	0.2700	March 31		$	38.56	$	31.81	$	0.2450
June 30		$	39.36	$	35.31	$	0.2700	June 30		$	41.27	$	34.53	$	0.2450
September 30		$	38.99	$	33.10	$	0.2700	September 30		$	36.48	$	31.20	$	0.2450
December 31		$	40.58	$	25.19	$	0.2975	December 31		$	38.50	$	33.80	$	0.2700
These quotations are based on the list of composite transactions of the New York Stock Exchange. Our stock is traded on the New York Stock Exchange under the symbol SJI. We have declared and expect to continue to declare regular quarterly cash dividends. As of December 31, 2008, the latest available date, our records indicate that there were 7,458 shareholders of record.

Information required by this item is also found in Note 5 of the consolidated financial statements included under Item 8 of this report. 

 SJI has a stated goal of increasing its dividend by at least 6% to 7% annually.

In January 2008, non-employee members of SJI’s Board of Directors received an aggregate of 8,667 shares of unregistered stock, valued at that time at $315,089, as part of their compensation for serving on the Board.

SJI - 12

Issuer Purchases of Equity Securities

The following table presents information about purchases by SJI of its own common stock during the three months ended December 31, 2008:

Period	Total Number of Shares Purchased1		Average Price Paid Per Share1		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs2		Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs2
October 2008		26,407	$	34.51		-		-
November 2008		4,777	$	37.63		-		-
December 2008		20,974	$	37.84		-		-
Total		52,158				-		-

1The total number of shares purchased and the average price paid per share represent shares purchased in open market transactions under the South Jersey Industries Dividend Reinvestment Plan (the “DRP”) by the administrator of the DRP.

2On September 22, 2008, SJI publicly announced a share repurchase program under which the Company can purchase up to 5% of its currently outstanding common stock over the next four years.  As of December 31, 2008, no shares have been purchased under this program.

SJI - 13

Item 6. Selected Financial Data

2008 HIGHLIGHTS
Five-Year Summary of Selected Financial Data	South Jersey Industries, Inc. and Subsidiaries
(In Thousands Where Applicable)	Year Ended December 31,
	2008			2007			2006			2005			2004
Operating Results:
Operating Revenues	$	961,977		$	956,371		$	931,428		$	906,016		$	819,416
Operating Income	$	153,509		$	129,623		$	145,802		$	86,818		$	91,079
Income Applicable to Common Stock:
Continuing Operations	$	77,178		$	62,659		$	72,250		$	39,770		$	43,173
Discontinued Operations - Net (1)		(247	)		(391	)		(818	)		(669	)		(680	)
Net Income Applicable to Common Stock	$	76,931		$	62,268		$	71,432		$	39,101		$	42,493
Total Assets	$	1,793,427		$	1,529,441		$	1,573,032		$	1,441,712		$	1,243,666
Capitalization:
Common Equity	$	515,254		$	481,080		$	443,036		$	393,645		$	343,363
Preferred Stock (2)		-			-			-			-			1,690
Long-Term Debt		332,784			357,896			358,022			319,066			328,914
Total Capitalization	$	848,038		$	838,976		$	801,058		$	712,711		$	673,967
Ratio of Operating Income to Fixed Charges (3)		6.0	x		4.8	x		5.3	x		4.1	x		4.4	x
Diluted Earnings Per Common Share
(Based on Average Diluted Shares Outstanding):
Continuing Operations	$	2.59		$	2.12		$	2.47		$	1.40		$	1.56
Discontinued Operations - Net (1)		(0.01	)		(0.02	)		(0.03	)		(0.02	)		(0.03	)
Diluted Earnings Per Common Share	$	2.58		$	2.10		$	2.44		$	1.38		$	1.53
Return on Average Common Equity (4)		15.5	%		13.3	%		16.9	%		12.5	%		13.0	%
Share Data:
Number of Shareholders of Record		7.5			7.7			7.9			8.1			8.1
Average Common Shares		29,707			29,480			29,175			28,175			27,382
Common Shares Outstanding at Year End		29,729			29,607			29,326			28,982			27,760
Dividend Reinvestment Plan:
Number of Shareholders		5.1			5.3			5.3			5.3			5.2
Number of Participating Shares		2,102			2,179			2,194			2,722			2,764
Book Value at Year End	$	17.33		$	16.25		$	15.11		$	13.58		$	12.37
Dividends Declared per Common Share	$	1.11		$	1.01		$	0.92		$	0.86		$	0.82
Market Price at Year End	$	39.85		$	36.09		$	33.41		$	29.14		$	26.28
Dividend Payout:
From Continuing Operations		42.6	%		47.3	%		37.2	%		60.9	%		52.0	%
From Total Net Income		42.8	%		47.6	%		37.6	%		62.0	%		52.8	%
Market-to-Book Ratio		2.3	x		2.2	x		2.2	x		2.1	x		2.1	x
Price Earnings Ratio (4)		15.4	x		17.0	x		13.5	x		20.8	x		16.8	x
(1) Represents discontinued business segments: sand mining and distribution operations sold in 1996 and fuel oil operations with related environmental
liabilities in 1986 (See Note 2 to Consolidated Financial Statements).
(2) On May 2, 2005, South Jersey Gas (SJG) redeemed its 8% Redeemable Cumulative Preferred Stock at par.
(3) Calculated as Operating Income divided by Interest Charges.
(4) Calculated based on Income from Continuing Operations.

SJI - 14

Item 7. Management’s Discussion and Analysis of Financial Condition and

Results of Operations

 OVERVIEW — SJI is an energy services holding company that provides a variety of products and services through the following wholly owned subsidiaries:

South Jersey Gas Company (SJG)

SJG, a New Jersey corporation, is an operating public utility company engaged in the purchase, transmission and sale of natural gas for residential, commercial and industrial use. SJG also sells natural gas and pipeline transportation capacity (off-system sales) on a wholesale basis to various customers on the interstate pipeline system and transports natural gas purchased directly from producers or suppliers to their customers. SJG contributed approximately 51.3% of SJI’s net income on a consolidated basis in 2008.

SJG’s service territory covers approximately 2,500 square miles in the southern part of New Jersey. It includes 112 municipalities throughout Atlantic, Cape May, Cumberland and Salem Counties and portions of Burlington, Camden and Gloucester Counties, with an estimated permanent population of 1.2 million. SJG benefits from its proximity to Philadelphia, PA and Wilmington, DE on the western side of its service territory and Atlantic City, NJ and the popular shore communities on the eastern side. Economic development and housing growth have long been driven by the development of the Philadelphia metropolitan area. In recent years, housing growth in the eastern portion of the service territory increased substantially and currently accounts for approximately half of SJG’s annual customer growth. Economic growth in Atlantic City and the surrounding region has been primarily driven by new gaming and non-gaming investments that emphasize destination style attractions. While many of these new projects have been suspended or postponed due to the current economic environment, the casino industry is expected to remain a significant source of regional economic development going forward. The ripple effect from Atlantic City typically produces new housing, commercial and industrial construction. Combining with the gaming industry catalyst has been the ongoing conversion of southern New Jersey’s oceanfront communities from seasonal resorts to year round economies. New and expanded hospitals, schools, and large scale retail developments throughout the service territory have contributed to SJG’s growth. Presently, SJG serves approximately 65% of households within its territory with natural gas. SJG also serves southern New Jersey’s diversified industrial base that includes processors of petroleum and agricultural products; chemical, glass and consumer goods manufacturers; and high technology industrial parks.

As of December 31, 2008, SJG served a total of 340,136 residential, commercial and industrial customers in southern New Jersey, compared with 335,663 customers at December 31, 2007. No material part of SJG’s business is dependent upon a single customer or a few customers. Gas sales, transportation and capacity release for 2008 amounted to 144.3 MMdts (million decatherms), of which 51.2 MMdts were firm sales and transportation, 2.8 MMdts were interruptible sales and transportation and 90.3 MMdts were off-system sales and capacity release. The breakdown of firm sales and transportation includes 45.9% residential, 23.0% commercial, 25.1 % industrial, and 6.0% cogeneration and electric generation. At year-end 2008, SJG served 317,026 residential customers, 22,636 commercial customers and 474 industrial customers. This includes 2008 net additions of 4,057 residential customers and 416 commercial customers.

SJG makes wholesale gas sales to gas marketers for resale and ultimate delivery to end users. These “off-system” sales are made possible through the issuance of the Federal Energy Regulatory Commission (FERC) Orders No. 547 and 636. Order No. 547 issued a blanket certificate of public convenience and necessity authorizing all parties, which are not interstate pipelines, to make FERC jurisdictional gas sales for resale at negotiated rates, while Order No. 636 allowed SJG to deliver gas at delivery points on the interstate pipeline system other than its own city gate stations and release excess pipeline capacity to third parties. During 2008, off-system sales amounted to 9.6 MMdts and capacity release amounted to 80.7 MMdts.

Supplies of natural gas available to SJG that are in excess of the quantity required by those customers who use gas as their sole source of fuel (firm customers) make possible the sale and transportation of gas on an interruptible basis to commercial and industrial customers whose equipment is capable of using natural gas or other fuels, such as fuel oil and propane. The term “interruptible” is used in the sense that deliveries of natural gas may be terminated by SJG at any time if this action is necessary to meet the needs of higher priority customers as described in SJG’s tariffs. In 2008, usage by interruptible customers, excluding off-system customers amounted to approximately 2.8 MMdts, approximately 1.9% of the total throughput.

SJI - 15

South Jersey Energy Solutions, LLC

Effective January 1, 2006, SJI established South Jersey Energy Solutions, LLC, (SJES) as a direct subsidiary for the purpose of serving as a holding company for all of SJI’s non-utility businesses. The following businesses are wholly owned subsidiaries of SJES:

South Jersey Resources Group, LLC (SJRG)

SJRG markets natural gas storage, commodity and transportation assets on a wholesale basis. Customers include energy marketers, electric and gas utilities and natural gas producers. SJRG’s marketing activities occur mainly in the mid-Atlantic and southern regions of the country. SJRG also conducts price risk management activities by entering into a variety of physical and financial transactions including forward contracts, swap agreements, option contracts and futures contracts. In 2008, SJRG transacted 110.1 Bcf of natural gas. SJRG contributed approximately 38.7% of SJI’s net income on a consolidated basis.

Marina Energy, LLC (Marina)

Marina develops and operates energy-related projects. Marina's largest operating project provides cooling, heating and emergency power to the Borgata Hotel Casino & Spa in Atlantic City, NJ. Marina added service to Borgata’s expanded facilities in July 2006 and service to a new hotel tower in June of 2008.  Marina also has a 50% equity interest in LVE Energy Partners, LLC which has entered into a contract to design, build, own and operate a district energy system and central energy center for a planned resort in Las Vegas, Nevada.

Marina’s other recent projects include:

·   A 51% equity interest in AC Landfill Energy, LLC (ACLE) which began commercial operations in Egg Harbor Township, NJ of a 1,600 kilowatt landfill gas-fired electricity production facility in March 2005 and a 1,900 kilowatt facility in August 2006. An additional 1,900 kilowatt facility began commercial operations in the first quarter of 2008.

·   A 51% equity interest in WC Landfill Energy, LLC (WCLE) which began commercial operations in White Township, NJ of a 3,800 kilowatt landfill gas-fired electricity production facility in November 2006.

·   A 50% equity interest in a partnership that leases and operates a 7,200 kilowatt landfill gas-fired electricity production facility in Burlington County, NJ, which began commercial operations in October 2007.  

·   A 50% equity interest in a partnership that owns and operates a 1,900 kilowatt landfill gas-fired electricity production facility in Salem County, NJ, which began commercial operations in December 2008.

·   A solar energy project which began commercial operations in the first quarter of 2009.

Marina contributed approximately 4.2% of SJI’s net income on a consolidated basis.

South Jersey Energy Company (SJE)

SJE provides services for the acquisition and transportation of natural gas and electricity for retail end users, markets total energy management services, and prior to June 30, 2006, marketed an air quality monitoring system. As of December 31, 2008, SJE marketed natural gas and electricity to approximately 12,500 customers, which consist of approximately 85% residential customers and 15% commercial/industrial customers. Most customers served by SJE are located within southern New Jersey and northwestern Pennsylvania. In 2008, SJE contributed approximately 3.7% of SJI’s net income on a consolidated basis.

SJI - 16

South Jersey Energy Service Plus, LLC (SJESP)

SJESP installs and services residential and light commercial HVAC systems, provides plumbing services, and services appliances via the sale of appliance service programs as well as on a time and materials basis. SJESP serves southern New Jersey where it is the largest local HVAC service company with nearly 50 experienced, NATE certified technicians and installers. As of December 31, 2008, SJESP had approximately 70,000 service contract customers, representing approximately 180,000 service contracts for the repair and maintenance of major appliances, such as house heaters, water heaters, gas ranges, and electric central air conditioning units. SJESP contributed approximately 1.7% of SJI’s net income on a consolidated basis.

Other

SJI Services, LLC was established January 1, 2006, for the purpose of providing services such as information technology, human resources, government relations, corporate communications, materials purchasing, fleet management and insurance to SJI and its other subsidiaries.

Energy & Minerals, Inc. (EMI) principally manages liabilities associated with discontinued operations of nonutility subsidiaries.

SJI also has a 50% joint venture investment with Conectiv Solutions, LLC in Millennium Account Services, LLC (Millennium). Millennium provides meter reading services to SJG and Atlantic City Electric Company in southern New Jersey.

Primary Factors Affecting SJI’s Business

SJI’s stated long-term goals are to: 1) Grow earnings per share from continuing operations by an average of at least 6% to 7% per year; 2) Increase the dividend on common stock by at least 6% to 7% annually; and 3) Maintain a low-to-moderate risk platform. Management established those goals in conjunction with SJI’s Board of Directors based upon a number of different internal and external factors that characterize and influence SJI’s current and expected future activities.

The following is a summary of the primary factors we expect to have the greatest impact on SJI’s performance and ability to achieve long-term goals going forward:

Business Model — In developing SJI’s current business model, our focus has been on our core utility and natural extensions of that business. That focus enables us to concentrate on business activities that match our core competencies. Going forward we expect to pursue business opportunities that fit this model.

Customer Growth — Southern New Jersey, our primary area of operations, has not been immune to the issues impacting the new housing market nationally. However, net customers for SJG still grew 1.3% for 2008 as we increased our focus on customer conversions. Consumers converting from other heating fuels, such as electric, propane or oil have historically accounted for 20-25% of annual SJG customer growth. In 2008, we increased our efforts to attract conversions in light of the very favorable relationship between natural gas and alternative fuel prices, obtaining 2,700 conversion customers compared with an average of 1,700 per year over the previous five years. Customers in our service territory typically base their decisions to convert on comparisons of fuel costs and environmental considerations. While housing growth most significantly benefits utility performance, it also translates into additional opportunities to market retail products and services through our nonutility businesses.

Regulatory Environment — SJG is primarily regulated by the New Jersey Board of Public Utilities (BPU). The BPU sets the rates that SJG charges its rate-regulated customers for services provided and establishes the terms of service under which SJG operates. We expect the BPU to continue to set rates and establish terms of service that will enable SJG to obtain a fair and reasonable return on capital invested. The BPU approved a Conservation Incentive Program (CIP) effective October 1, 2006, discussed in greater detail under Results of Operations, that protects SJG’s net income from reductions in gas used by residential, commercial, and small industrial customers.

SJI - 17

Weather Conditions and Customer Usage Patterns — Usage patterns can be affected by a number of factors, such as wind, precipitation, temperature extremes and customer conservation. SJG’s earnings are largely protected from fluctuations in temperatures by the CIP, which superseded the Temperature Adjustment Clause (TAC), effective October 1, 2006. The CIP has a stabilizing effect on utility earnings as SJG adjusts revenues when actual usage per customer experienced during an annual period varies from an established baseline usage per customer. Our nonutility gas retail marketing business is directly affected by weather conditions, as it does not have regulatory mechanisms that address weather volatility. The impact of different weather conditions on the earnings of our nonutility businesses is dependent on a range of different factors. Consequently, weather may impact the earnings of SJI’s various subsidiaries in different, or even opposite, ways. Further, the profitability of individual subsidiaries may vary from year-to-year despite experiencing substantially similar weather conditions.

Changes in Natural Gas Prices — In recent years, prices for natural gas have become increasingly volatile. The utility’s gas costs are passed on directly to customers without any profit margin added by SJG. The price the utility charges its periodic customers is set annually, with a regulatory mechanism in place to make limited adjustments to that price during the course of a year. In the event that gas cost increases would justify customer price increases greater than those permitted under the regulatory mechanism, SJG can petition the BPU for an incremental rate increase. High prices can make it more difficult for our customers to pay their bills and may result in elevated levels of bad-debt expense. Among our nonutility activities, the one most likely to be impacted by changes in natural gas prices is our wholesale gas marketing business. Wholesale gas marketing typically benefits from volatility in gas prices during different points in time. The actual price of the commodity does not typically have an impact on the performance of this business line.  Our ability to add and retain customers at our retail gas marketing business is affected by the relationship between the price that the utility charges customers for gas and the cost of gas available in the market at specific points in time.  However, retail gas marketing accounts for a very small portion of SJI’s overall activities.

Energy Project Development — Marina Energy, LLC, SJI’s energy project development business, focuses on designing, building, owning and/or operating energy production facilities on, or adjacent to, customer sites. That business is currently involved with nine projects that are either operating, or are under development. Based upon our experience to date, market issues that impact the reliability and price of electricity supplied by utilities, and discussions that we are having regarding additional projects, we expect to continue to expand this business. However, the price of natural gas also has a direct effect on the economics of these projects.  Further, our largest project opportunities to date have been and are expected to continue to be in the casino gaming industry.  Consequently, the economic condition of that industry is important to the near term prospects for obtaining additional projects.

Changes in Interest Rates — SJI has operated in a relatively low interest rate environment over the past several years. Rising interest rates would raise the expense associated with existing variable-rate debt and all issuances of new debt. We have sought to mitigate the impact of a potential rising rate environment by directly issuing fixed-rate debt, or by entering into derivative transactions to hedge against rising interest rates.

Labor and Benefit Costs — Labor and benefit costs have a significant impact on SJI’s profitability. Benefit costs, especially those related to health care, have risen in recent years. We sought to manage these costs by revising health care plans offered to existing employees, capping postretirement health care benefits, and changing health care and pension packages offered to new hires. We expect savings from these changes to gradually increase as new hires replace retiring employees. Our workforce totaled 602 employees at the end of 2008, of which 56% of that total are under collective bargaining agreements.

Balance Sheet Strength — Our goal is to maintain a strong balance sheet with an average annual equity-to-capitalization ratio of 50%. Our equity-to-capitalization ratio, inclusive of short-term debt, was 47.4 % and 50.3% at the end of 2008 and 2007, respectively. A strong balance sheet permits us to maintain the financial flexibility necessary to take advantage of growth opportunities and to address volatile economic and commodity markets while maintaining a low-to-moderate risk platform.

CRITICAL ACCOUNTING POLICIES — ESTIMATES AND ASSUMPTIONS — As described in the notes to our consolidated financial statements, management must make estimates and assumptions that affect the amounts reported in the consolidated financial statements and related disclosures. Actual results could differ from those estimates. Five types of transactions presented in our consolidated financial statements require a significant amount of judgment and estimation. These relate to regulatory accounting, derivatives, environmental remediation costs, pension and other postretirement benefit costs, and revenue recognition.

SJI - 18

Regulatory Accounting — SJI’s largest subsidiary, SJG, maintains its accounts according to the Uniform System of Accounts as prescribed by the New Jersey Board of Public Utilities (BPU). As a result of the ratemaking process, SJG is required to follow Financial Accounting Standards Board (FASB) Statement No. 71, “Accounting for the Effects of Certain Types of Regulation.” SJG is required under Statement No. 71 to recognize the impact of regulatory decisions on its financial statements. SJG is required under its Basic Gas Supply Service clause (BGSS) to forecast its natural gas costs and customer consumption in setting its rates. Subject to BPU approval, SJG is able to recover or return the difference between gas cost recoveries and the actual costs of gas through a BGSS charge to customers. SJG records any over/under recoveries as a regulatory asset or liability on the consolidated balance sheets and reflects it in the BGSS charge to customers in subsequent years. SJG also enters into derivatives that are used to hedge natural gas purchases. The offset to the resulting derivative assets or liabilities is also recorded as a regulatory asset or liability on the consolidated balance sheets.

The Conservation Incentive Program (CIP) is a BPU approved three-year pilot program that began October 1, 2006, and is designed to eliminate the link between SJG’s profits and the quantity of natural gas sold, and foster conservation efforts.  With the CIP, SJG’s profits are tied to the number of customers served and how efficiently we serve them, thus allowing SJG to focus on encouraging conservation and energy efficiency among our customers without negatively impacting net income.  The CIP tracking mechanism adjusts earnings based on weather and also adjusts earnings where actual usage per customer experienced during an annual period varies from an established baseline usage per customer.  Utility earnings are recognized during current periods based upon the application of the CIP.  The cash impact of variations in customer usage will result in cash being collected from, or returned to, customers during the subsequent CIP year, which runs from October 1 to September 30.

In addition to the BGSS and the CIP, other regulatory assets consist primarily of remediation costs associated with manufactured gas plant sites (discussed below under Environmental Remediation Costs), deferred pension and other postretirement benefit cost, and several other assets as detailed in Note 10 to the consolidated financial statements. If there are changes in future regulatory positions that indicate the recovery of such regulatory assets is not probable, SJG would charge the related cost to earnings. Currently there are no such anticipated changes at the BPU.

Derivatives — SJI recognizes assets or liabilities for contracts that qualify as derivatives that are entered into by its subsidiaries when contracts are executed. We record contracts at their fair value in accordance with FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended. We record changes in the fair value of the effective portion of derivatives qualifying as cash flow hedges, net of tax, in Accumulated Other Comprehensive Loss and recognize such changes in the income statement when the hedged item affects earnings. Changes in the fair value of derivatives not designated as hedges are recorded in earnings in the current period. In 2007, we changed our policy to no longer designate energy-related derivative instruments as cash flow hedges. Certain derivatives that result in the physical delivery of the commodity may meet the criteria to be accounted for as normal purchases and normal sales if so designated, in which case the contract is not marked-to-market, but rather is accounted for when the commodity is delivered. Due to the application of regulatory accounting principles under FASB Statement No. 71, derivatives related to SJG’s gas purchases that are marked-to-market, are recorded through the BGSS.  SJG occasionally enters into financial derivatives to hedge against forward price risk. These derivatives are recorded at fair value with an offset to regulatory assets and liabilities through SJG’s BGSS, subject to BPU approval (See Notes 9 and 10 to the consolidated financial statements). We adjust the fair value of the contracts each reporting period for changes in the market.  As discussed in Note 15 of the consolidated financial statements, energy-related derivative instruments are traded in both exchange-based and non-exchange-based markets. Exchange-based contracts are valued using unadjusted quoted market sources in active markets and are categorized in Level 1 in the fair value hierarchy established by FAS 157, “Fair Value Measurements”. Certain non-exchange-based contracts are valued using indicative non-binding price quotations available through brokers or from over-the-counter, on-line exchanges and are categorized in Level 2. These price quotations reflect the average of the bid-ask mid-point prices and are obtained from sources that management believes provide the most liquid market.  Management reviews and corroborates the price quotations with at least one additional source to ensure the prices are observable market information, which includes consideration of actual transaction volumes, market delivery points, bid-ask spreads and contract duration. Derivative instruments that are used to limit our exposure to changes in interest rates on variable-rate, long-term debt are valued using quoted prices on commonly quoted intervals, which are interpolated for periods different than the quoted intervals, as inputs to a market valuation model. Market inputs can generally be verified and model selection does not involve significant management judgment, as a result, these instruments are categorized in Level 2. For non-exchange-based derivatives that trade in less liquid markets with limited pricing information, model inputs generally would include both observable and unobservable inputs.  In instances where observable data is unavailable, management considers the assumptions that market participants would use in

SJI - 19

valuing the asset or liability.  This includes assumptions about market risks such as liquidity, volatility and contract duration.  Such instruments are categorized in Level 3 as the model inputs generally are not observable. Counterparty credit risk, and the credit risk of SJI, is incorporated and considered in the valuation of all derivative instruments as appropriate. The effect of counterparty credit risk and the credit risk of SJI on the derivative valuations is not significant.

Environmental Remediation Costs —We estimate a range of future costs based on projected investigation and work plans using existing technologies. In preparing consolidated financial statements, SJI records liabilities for future costs using the lower end of the range of future costs because a single reliable estimation point is not feasible due to the amount of uncertainty involved in the nature of projected remediation efforts and the long period over which remediation efforts will continue. We update estimates each year to take into account past efforts, changes in work plans, remediation technologies, government regulations and site specific requirements (See Note 14 to the consolidated financial statements).

Pension and Other Postretirement Benefit Costs — The costs of providing pension and other postretirement employee benefits are impacted by actual plan experience as well as assumptions of future experience. Employee demographics, plan contributions, investment performance, and assumptions concerning mortality, return on plan assets, discount rates and health care cost trends all have a significant impact on determining our projected benefit obligations. We evaluate these assumptions annually and adjust them accordingly. These adjustments could result in significant changes to the net periodic benefit costs of providing such benefits and the related liabilities recognized by SJI.    In 2007, a 20 basis point increase in the discount rate and higher than expected returns on plan assets during 2006 resulted in a net decrease to benefit costs in 2007.  Further, an additional 32 basis point increase in the discount rate, higher than expected returns on plan assets during 2007, and a pension contribution in the first quarter of 2008 further reduced such benefit costs in 2008.  While the discount rate and expected return on plan assets are both decreasing slightly in the determination of the 2009 benefit costs, the primary cost driver in 2009 will be the erosion of plan assets during 2008.  As evidenced by the tables in Note 11, “Pension and Other Postretirement Benefits”, the declines in the equity markets during 2008 have resulted in significant unrealized losses in the assets of the plans.  Such losses are currently expected to increase the 2009 cost of providing such benefits two-to-three fold.

Revenue Recognition — Gas and electricity revenues are recognized in the period the commodity is delivered to customers. SJG, SJRG and SJE bill customers monthly. A majority of SJG and SJE customers have their meters read on a cycle basis throughout the month. For SJG and SJE retail customers that are not billed at the end of each month, we record an estimate to recognize unbilled revenues for gas/electricity delivered from the date of the last meter reading to the end of the month. SJG’s and SJE’s unbilled revenue for natural gas is estimated each month based on monthly deliveries into the system; unaccounted for natural gas based on historical results; customer-specific use factors, when available; actual temperatures during the period; and applicable customer rates. SJE’s unbilled revenue for retail electricity is based on customer-specific use factors and applicable customer rates. We bill SJG customers at rates approved by the BPU. SJE and SJRG customers are billed at rates negotiated between the parties.

 We recognize revenues related to SJESP’s appliance service contracts seasonally over the full 12-month term of the contract. Revenues related to services provided on a time and materials basis are recognized on a monthly basis as the services are provided.

Marina recognizes revenue on a monthly basis as services are provided and for on-site energy production that is delivered to its customers.

The BPU allows SJG to recover gas costs in rates through the Basic Gas Supply Service (BGSS) price structure. SJG defers over/under recoveries of gas costs and includes them in subsequent adjustments to the BGSS rate. These adjustments result in over/under recoveries of gas costs being included in rates during future periods. As a result of these deferrals, utility revenue recognition does not directly translate to profitability. While SJG realizes profits on gas sales during the month of providing the utility service, significant shifts in revenue recognition may result from the various recovery clauses approved by the BPU. This revenue recognition process does not shift earnings between periods, as these clauses only provide for cost recovery on a dollar-for-dollar basis (See Notes 9 and 10 to the consolidated financial statements).

SJI - 20

In October 2006, the BPU approved the Conservation Incentive Program (CIP) as a three-year pilot program.  Each CIP year begins October 1 and ends September 30 of the subsequent year.  On a monthly basis during the CIP year, SJG records adjustments to earnings based on weather and customer usage factors, as incurred.  Subsequent to each year, SJG makes filings with the BPU to review and approve amounts recorded under the CIP.  BPU approved cash inflows or outflows generally will not begin until the next CIP year and have no impact on earnings at that time.

NEW ACCOUNTING PRONOUNCEMENTS — See detailed discussions concerning New Accounting Pronouncements and their impact on SJI in Note 1 to the consolidated financial statements.

RATES AND REGULATIONS — As a public utility, SJG is subject to regulation by the New Jersey Board of Public Utilities (BPU). Additionally, the Natural Gas Policy Act, which was enacted in November 1978, contains provisions for Federal regulation of certain aspects of SJG’s business. SJG is affected by Federal regulation with respect to transportation and pricing policies applicable to pipeline capacity from Transcontinental Gas Pipeline Corporation (SJG’s major supplier), Columbia Gas Transmission Corporation, Columbia Gulf Transmission Company, and Dominion Transmission, Inc., since such services are provided under rates and terms established under the jurisdiction of the FERC. SJG’s retail sales are made under rate schedules within a tariff filed with and subject to the jurisdiction of the BPU. These rate schedules provide primarily for either block rates or demand/commodity rate structures. SJG’s primary rate mechanisms include base rates, the Basic Gas Supply Service Clause, Temperature Adjustment Clause and Conservation Incentive Program.

Basic Gas Supply Service Clause (BGSS) - In December 2002, the BPU approved the BGSS price structure which gave SJG customers the ability to make more informed decisions regarding their choices of an alternate supplier by having a utility price structure that is more consistent with market conditions. The cost of gas purchased from the utility by periodic consumers is set annually by the BPU through a BGSS clause within the tariff. When actual gas costs experienced are less than those charged to customers under the BGSS, customer bills in the subsequent BGSS period(s) are reduced by returning the overrecovery with interest. When actual gas costs are more than is recovered through rates, SJG is permitted to charge customers more for gas in future periods to recover the shortfall.

Temperature Adjustment Clause (TAC) - Through September 30, 2006, SJG’s tariff included a TAC to mitigate the effect of variations in heating season temperatures from historical norms. The TAC has been replaced with the Conservation Incentive Program (discussed below). Each TAC year ran from November 1 through May 31 of the following year. Once the TAC year ended, a petition demonstrating the net earnings impact was filed with the BPU for future recovery. As a result, the cash inflows or outflows generally would not begin until the next TAC year. Because of the timing delay between the earnings impact and the recovery, the net result could have been either a regulatory asset or liability.

Conservation Incentive Program (CIP) - The CIP is a BPU approved three-year pilot program that began October 1, 2006 and is designed to eliminate the link between SJG profits and the quantity of natural gas SJG sells, and foster conservation efforts. With the CIP, SJG’s profits are tied to the number of customers served and how efficiently SJG serves them, thus allowing SJG to focus on encouraging conservation and energy efficiency among its customers without negatively impacting net income.  The CIP tracking mechanism adjusts earnings based on weather, as did the TAC, and also adjusts SJG’s earnings when actual usage per customer experienced during an annual period varies from an established baseline usage per customer.  The CIP may be extended for a one year period in the absence of a Board order taking any affirmative action to the contrary with regard to the pilot program.

Similar to the TAC, utility earnings are recognized during current periods based upon the application of the CIP. The cash impact of variations in customer usage will result in cash being collected from, or returned to, customers during the subsequent CIP year, which runs from October 1 to September 30.

SJI - 21

The effects of the TAC and the CIP on SJG’s net income for the last three years and the associated weather comparisons were as follows ($’s in millions):

	2008		2007		2006
Net Income Benefit:
TAC	$	-	$	-	$	5.1
CIP – Weather Related		1.6		1.6		2.9
CIP – Usage Related		9.2		5.9		1.7
Total Net Income Benefit	$	10.8	$	7.5	$	9.7
Weather Compared to 20-Year TAC Average	4.7% warmer		3.2% warmer		15.0 % warmer
Weather Compared to Prior Year	1.6% warmer		13.8% colder		17.5 % warmer

As part of the CIP, SJG is required to implement additional conservation programs including customized customer communication and outreach efforts, targeted upgrade furnace efficiency packages, financing offers, and an outreach program to speak to local and state institutional constituents. SJG is also required to reduce gas supply and storage assets and their associated fees. Note that changes in fees associated with supply and storage assets have no effect on SJG’s net income as these costs are passed through directly to customers on a dollar-for-dollar basis.

Earnings accrued and payments received under the CIP are limited to a level that will not cause SJG’s return on equity to exceed 10% (excluding earnings from off-system gas sales and certain other tariff clauses) and the annualized savings attained from reducing gas supply and storage assets.

Other Rate Mechanisms - SJG’s tariff also contains provisions permitting the recovery of environmental remediation costs associated with former manufactured gas plant sites, energy efficiency and renewable energy program costs, consumer education program costs and low-income program costs. These costs are recovered from customers through the Societal Benefits Clause.

See additional detailed discussions on Rates and Regulatory Actions in Note 9 to the consolidated financial statements.

ENVIRONMENTAL REMEDIATION — See detailed discussion concerning Environmental Remediation in Note 14 to the consolidated financial statements.

COMPETITION — SJG’s franchises are non-exclusive. Currently, no other utility provides retail gas distribution services within SJG’s territory. SJG does not expect any other utilities to do so in the foreseeable future because of the extensive investment required for utility plant and related costs. SJG competes with oil, propane and electricity suppliers for residential, commercial and industrial users, with alternative fuel source providers (wind, solar and fuel cells) based upon price, convenience and environmental factors, and with other marketers/brokers in the selling of wholesale natural gas services. The market for natural gas commodity sales is subject to competition due to deregulation. We enhanced SJG’s competitive position while maintaining margins by using an unbundled tariff. This tariff allows full cost-of-service recovery when transporting gas for our customers. Under this tariff, SJG profits from transporting, rather than selling, the commodity. SJG’s residential, commercial and industrial customers can choose their supplier while we recover the cost of service through transportation service (See Customer Choice Legislation below).

SJRG competes in the wholesale natural gas market against a wide array of competitors on a cost competitive, term of service, and reliability basis. SJRG has been a reliable energy provider in this arena for 13 years. There has been significant consolidation of energy wholesale operations and large financial institutions have also entered the marketplace. We expect this trend to continue in the near term, which could result in downward pressure on the margins available.

Marina competes with other companies that develop and operate on-site energy production. Marina also faces competition from customers’ preferences for alternative technologies for energy production, as well as those customers that address their energy needs internally.

SJI - 22

SJE competes with utilities and other third-party marketers to sell the unregulated natural gas and electricity commodity to customers. Marketers compete largely on price, which is driven by the commodity market. While the utilities are typically indifferent as to where customers get their gas or electricity, the price they set for the commodity they sell creates competition for SJE. Based on its market share, SJE is the largest marketer of natural gas in southern New Jersey as of December 31, 2008. In addition, similar to SJG, SJE faces competition from other energy products.

SJESP competes primarily with smaller, local contractors in southern New Jersey that install residential and commercial HVAC systems and provide major appliance repair and plumbing services. These contractors typically only serve their local communities and do not serve the entire southern part of New Jersey.

CUSTOMER CHOICE LEGISLATION— All residential natural gas customers in New Jersey can choose their natural gas commodity supplier under the terms of the “Electric Discount and Energy Competition Act of 1999”. This bill created the framework and necessary time schedules for the restructuring of the state’s electric and natural gas utilities. The Act established unbundling, where redesigned utility rate structures allow natural gas and electric consumers to choose their energy supplier. It also established time frames for instituting competitive services for customer account functions and for determining whether basic gas supply services should become competitive. Customers purchasing natural gas from a provider other than the local utility (the “marketer”) are charged for the gas costs by the marketer and charged for the transportation costs by the utility. The total number of customers in SJG’s service territory purchasing natural gas from a marketer averaged 28,637, 25,309 and 16,392 during 2008, 2007 and 2006 respectively.

RESULTS OF OPERATIONS:

SJI operates in several different reportable operating segments. Gas Utility Operations (SJG) consists primarily of natural gas distribution to residential, commercial and industrial customers. Wholesale Gas Operations include SJRG’s activities. SJE is involved in both retail gas and retail electric activities. Retail Gas and Other Operations include natural gas acquisition and transportation service business lines. Retail Electric Operations consist of electricity acquisition and transportation to commercial and industrial customers. On-Site Energy Production consists of Marina’s thermal energy facility and other energy-related projects. Appliance Service Operations includes SJESP’s servicing of appliances via the sale of appliance service programs as well as on a time and materials basis, and the installation of residential and small commercial HVAC systems.

A significant portion of the volatility in operating results is due to the impact of the accounting methods associated with SJRG’s storage activities. SJRG purchases and holds natural gas in storage to earn a profit margin from its ultimate sale in the future. SJRG uses derivatives to mitigate commodity price risk in order to substantially lock-in the profit margin that will ultimately be realized. However, gas stored in inventory is accounted for at the lower of average cost or market; the derivatives used to reduce the risk associated with a change in the value of the inventory are accounted for at fair value, with changes in fair value recorded in operating results in the period of change. As a result, earnings are subject to volatility as the market price of derivatives change, even when the underlying hedged value of the inventory is unchanged. This volatility can be significant from period to period. Over time, gains or losses on sale of gas in storage will be offset by losses or gains on the derivatives, resulting in the realization of the profit margin expected when the transactions were initiated.

Net Income in 2008 increased $14.7 million, or 23.6% to $76.9 million compared to 2007. This increase was primarily due to:

·   a 52.4% increase in gross margin generated from SJRG related to the increase in storage and market area transportation assets under contract.

Net Income in 2007 decreased $9.2 million, or 12.9% to $62.3 million compared to 2006. This decrease was primarily due to:

·   a 34.1% decrease in gross margin generated by SJRG related to unrealized gains on energy related derivative contracts recognized in 2006 that did not recur in 2007;

·   offset by a 1.7% increase in SJG customers.

SJI - 23

These changes are discussed in more detail below.

Operating Revenues and Throughput— Utility — The following table summarizes the composition of select gas utility data for the three years ended December 31 (in thousands, except for customer and degree day data):

	2008				2007				2006
Utility Throughput – dth:
Firm Sales -
Residential		21,530	15	%		22,523	16	%		19,830	15	%
Commercial		6,127	4	%		6,339	4	%		6,958	5	%
Industrial		188	-			193	-			296	-
Cogeneration and electric generation		561	-			1,335	1	%		1,103	1	%
Firm Transportation -
Residential		1,988	1	%		1,870	1	%		956	1	%
Commercial		5,687	4	%		5,927	4	%		4,420	3	%
Industrial		12,661	9	%		12,107	9	%		11,970	9	%
Cogeneration and electric generation		2,536	2	%		3,088	2	%		2,625	2	%
Total Firm Throughput		51,278	35	%		53,382	37	%		48,158	36	%
Interruptible Sales		35	-			68	-			93	-
Interruptible Transportation		2,716	2	%		3,002	2	%		3,474	3	%
Off-System		9,632	7	%		17,686	13	%		18,221	13	%
Capacity Release		80,665	56	%		67,430	48	%		66,458	48	%
Total Throughput - Utility		144,326	100	%		141,568	100	%		136,404	100	%

Utility Operating Revenues:
Firm Sales-
Residential	$	320,401	57	%	$	342,809	54	%	$	334,201	52	%
Commercial		81,914	15	%		80,237	13	%		99,578	15	%
Industrial		5,434	1	%		8,381	1	%		6,590	1	%
Cogeneration and electric generation		7,940	1	%		11,722	2	%		10,746	2	%
Firm Transportation -
Residential		10,408	2	%		8,982	1	%		4,768	1	%
Commercial		18,286	3	%		17,299	3	%		12,510	2	%
Industrial		12,504	2	%		12,229	2	%		11,351	2	%
Cogeneration and electric generation		1,682	-			1,847	-			1,552	-
Total Firm Revenues		458,569	81	%		483,506	76	%		481,296	75	%
Interruptible Sales		403	-			785	-			1,109	-
Interruptible Transportation		1,786	-			1,970	-			1,868	-
Off-System		90,430	16	%		131,586	22	%		147,180	23	%
Capacity Release		15,549	3	%		11,208	2	%		9,656	2	%
Other		1,309	-			1,492	-			1,562	-
		568,046	100	%		630,547	100	%		642,671	100	%
Less: Intercompany Sales		7,855				19,540				40,672
Total Utility Operating Revenues		560,191				611,007				601,999

SJI - 24

Less:
Cost of sales		375,549				433,495				431,615
Conservation recoveries *		7,741				4,458				6,862
RAC recoveries *		3,079				2,056				1,806
Revenue taxes		8,655				8,850				7,890
Utility Margin	$	165,167			$	162,148			$	153,826
Margin:
Residential	$	99,862	61	%	$	102,077	63	%	$	90,442	59	%
Commercial and industrial		38,995	24	%		40,036	25	%		38,129	25	%
Cogeneration and electric generation		1,997	1	%		2,212	1	%		2,189	1	%
Interruptible		143	-			195	-			226	-
Off-system & capacity release		3,349	2	%		2,994	2	%		4,711	3	%
Other revenues		2,440	1	%		1,952	1	%		1,871	1	%
Margin before weather normalization & decoupling		146,786	89	%		149,466	92	%		137,568	89	%
TAC mechanism		-	-			-	-	%		8,511	6	%
CIP mechanism		18,381	11	%		12,682	8	%		7,747	5	%
Utility Margin	$	165,167	100	%	$	162,148	100	%	$	153,826	100	%
Number of Customers at Year End:
Residential		317,026	93	%		312,969	93	%		307,919	93	%
Commercial		22,636	7	%		22,220	7	%		21,652	7	%
Industrial		474	-			474	-			478	-
Total Customers		340,136	100	%		335,663	100	%		330,049	100	%
Annual Degree Days:		4,417				4,488				3,943
* Represents expenses for which there is a corresponding credit in operating revenues. Therefore, such recoveries have no impact on our financial results.

Throughput — Utility — Total gas throughput increased 2.8 MMdts, or 1.9%, from 2007 to 2008.  This increase is driven by greater capacity release activity. Firm throughput declined as a result of warmer weather, as reflected by the degree day data in the table above, and customer conservation. Off-System sales (OSS) volume decreased substantially as SJG’s portfolio of assets available for such activities has been reduced under the CIP, as discussed under “Rates and Regulation”. In 2007, total gas throughput increased 3.8% compared with 2006, to 141.6 MMdts.  While firm throughput accounted for the entire increase, the residential market reflected the greatest improvement by adding 3.6 MMdts over 2006 as a result of 23.3% colder weather and 5,050 additional residential customers in 2007.

Operating Revenues - Utility— Revenues for SJG decreased $50.8 million during 2008, compared with 2007, primarily due to lower OSS revenue after eliminating intercompany transactions.

OSS revenue decreased $41.2 million in relation to the decrease in sales volume noted above under “Throughput”.  As previously discussed, SJG’s portfolio of assets available for OSS has been reduced under the CIP.  Total firm revenues decreased during 2008 compared to the same period in the prior year primarily due to warmer weather and lower residential revenues resulting from a lower Basic Gas Supply Service (BGSS) rate in effect during most of 2008.  For nearly the entire year, the 2008 BGSS rate was 12.7% lower than the rate in effect during the same time last year.  SJG reduced its BGSS rate in October 2007 primarily due to a combination of actual and forecasted decreases in wholesale gas costs.  However, as the Company does not profit from the sale of the commodity the BGSS rate decrease did not have an impact on Company profitability.  Finally, the Company experienced lower sales to the region’s electric utility, as their demand to consume natural gas to generate electric during the summer months decreased substantially.  Since the majority of the Company’s profits from electric generation sales are contractually fixed, the decrease in volume and revenue had little impact on profitability.  Partially offsetting these decreases, SJG added 4,473 customers during the 12-month period ended December 31 2008, which represents a 1.3% increase in total customers.

SJI - 25

Revenues for SJG increased $9.0 million during 2007, compared with 2006, primarily due to higher OSS revenue after eliminating intercompany transactions.

While SJG added 5,614 customers during the 12-month period ended December 31, 2007, which represents a 1.7% increase in total customers, and weather was 23.3% colder than last year, firm sales revenue only experienced a modest increase of $2.2 million as a result of the decrease in the BGSS gas cost recovery rate and customer migration from firm sales to firm transportation service.  The BGSS rate in 2007 was 10.8% lower than the prior year rate. Last year’s rate was higher to address under recovery of gas costs stemming from substantial increases in wholesale gas prices across the country in 2005. In addition, the average number of transportation customers increased to 25,309 in 2007 as compared to 16,392 in 2006. Transportation customers generate less revenue for SJG because they purchase the gas commodity from a third party marketer. However, as SJG does not profit from the sale of the commodity, neither BGSS rate changes nor customer migration between sales and transportation have an impact on SJG profitability.  

Prior to eliminating intercompany transactions, revenues from off-system sales and capacity release, decreased $14.0 million in 2007 compared with 2006. This decrease is primarily due to a shift from sales, which include the cost of the commodity, to capacity release activity, which does not include the transfer of commodity.  The net contribution to the company’s earnings resulting from this shift in activities was not significant.   In addition, OSS recognized a $4.4 million gain on a financial derivative position in 2006 which did not re-occur in 2007 due to changing market conditions.  It should be noted that this $4.4 million gain only contributed $0.4 million to SJG’s bottom line after regulated sharing of 85% with ratepayers through the BGSS and taxes. The transactions with related parties, which are eliminated in consolidation, experienced a corresponding decrease from $40.7 million during 2006 to $19.5 million during 2007 also as a result of the shift in activity and the non-recurring gain discussed above. After eliminating these related party transactions, OSS, capacity release and storage revenues from unrelated parties increased approximately $7.1 million during 2007 compared with 2006 due to an increase in production area volumes sold.

Operating Revenues — Nonutility 2008 vs. 2007 — Combined revenues for SJI’s nonutility businesses, net of intercompany transactions, increased by $56.4 million in 2008, compared with 2007.

SJE’s revenues from retail gas, net of intercompany transactions, increased by $2.3 million in 2008, compared with 2007 due mainly to a 22% increase in volumes sold by our retail gas marketing division located in northwestern Pennsylvania. We contracted with several producers in the local production area to market their natural gas, the volumes of which increased due to the expansion of drilling activity in the area.  This increase was mostly offset by lower residential and commercial customer counts in New Jersey. As of December 31, 2008, we served 10,310 residential customers compared with 13,868 as of December 31, 2007. Market conditions have made it difficult to be competitive. SJE’s commercial customer count also declined from 1,608 as of December 31, 2007 compared with 1,089 as of December 31, 2008, driven by the expiration of a large municipal bid early in the fourth quarter of 2008. We continue to focus our marketing efforts on the pursuit of non-heat-sensitive commercial customers in an effort to mitigate price volatility and weather risk.

SJE’s revenues from retail electricity, net of intercompany transactions, increased $5.7 million in 2008, compared with 2007 due mainly to the acquisition of one large customer in New Jersey and several commercial customers in the New England area.

SJRG’s revenues, net of intercompany transactions, increased $39.9 million in 2008, compared with 2007. Excluding the impact of the net change in unrealized gains and losses recorded on forward financial contracts of $5.1 million due to price volatility, SJRG’s revenues increased $34.8 million. A summary of SJRG’s revenue is as follows (in millions):

	2008			2007			Change
SJRG Revenue	$	115.1		$	75.2		$	39.9
Less: Unrealized gains		(8.9	)		(3.8	)		(5.1	)
SJRG Revenue,  Excluding unrealized gains	$	106.2		$	71.4		$	34.8

SJI - 26

This increase in revenues is mainly attributable to a 28.9% increase in sales of storage volumes in 2008 compared with 2007. As discussed in Note 1 to the Consolidated Financial Statements, revenues and expenses related to the energy trading activities of SJRG are presented on a net basis in Operating Revenues – Nonutility.

Revenues for Marina increased $6.9 million in 2008, compared with 2007 due mainly to higher rates on chilled and hot water and increased chilled water production. Higher rates were driven by higher underlying commodity prices. The opening of Borgata’s new Water Club tower in June and record warm temperatures in June and July were the principal drivers of the increased chilled water production.   Our thermal plant produced a total of 27.8 million ton hours of chilled water in 2008 which represents a 4.9% increase when compared with the 26.5 million ton hours produced in 2007.

Revenues for SJESP increased $2.0 million in 2008, compared with 2007 due mainly to the increase in the number of plumbing, heating and cooling system installation jobs completed and a price increase to our warranty contracts that took effect April 1, 2008.

Operating Revenues — Nonutility 2007 vs. 2006 — Combined revenues for SJI’s nonutility businesses, net of intercompany transactions, increased by $15.9 million in 2007, compared with 2006.

SJE’s revenues from retail gas, net of intercompany transactions, increased by $11.6 million in 2007, compared with 2006 due mainly to the increase in sales from customers that were acquired from a retail gas marketer in northwestern Pennsylvania in November 2006. Revenues also increased in 2007 from sales to over 13,000 residential customers for a full 12 months in 2007. Due to cooperative market conditions, SJE resumed sales to the residential market in April of 2006. These increases were partially offset by lower gas prices for variable price customers throughout 2007 and the decline in SJE’s commercial customer count from 2,035 as of December 31, 2006 compared with 1,608 as of December 31, 2007. During 2007, we strategically reduced our exposure in the heat-sensitive market due to price volatility and weather risk. Prospectively, our marketing efforts are focused on the pursuit of non-heat-sensitive commercial customers.

SJE’s revenues from retail electricity, net of intercompany transactions, decreased $1.9 million in 2007, compared with 2006, due mainly to the loss of two municipal contracts and three larger customers and lower electricity commodity prices.

SJRG’s revenues, net of intercompany transactions, decreased $2.3 million in 2007, compared with 2006. Excluding the impact of the net change in unrealized gains and losses recorded on forward financial contracts of $(32.7) million due to price volatility, SJRG’s revenues increased $30.4 million. A summary of SJRG’s revenue is as follows (in millions):

	2007			2006			Change
SJRG Revenue	$	75.2		$	77.5		$	(2.3	)
Less: Unrealized gains		(3.8	)		(36.5	)		32.7
SJRG Revenue, Excluding unrealized gains	$	71.4		$	41.0		$	30.4

This increase in revenues is mainly attributable to an 80.1% increase in sales of storage volumes in 2007 compared with 2006. As discussed in Note 1 to the Consolidated Financial Statements, revenues and expenses related to the energy trading activities of SJRG are presented on a net basis in Operating Revenues – Nonutility.

Revenues for Marina increased $7.8 million in 2007, compared with 2006 due mainly to a full twelve months of sales in 2007 to Borgata’s expanded facility which began operations in July 2006 and two additional landfill gas-fired electricity production facilities which began commercial operations in the latter part of 2006.  Our thermal plant produced a total of 26.5 million ton hours of chilled water in 2007, which represents a 6.9% increase when compared with the 24.8 million ton hours produced in 2006. The plant also produced a total of 237,861 mmbtu’s of hot water in 2007 compared with 188,986 mmbtu’s produced in 2006, a 25.9 % increase.

Revenues for SJESP increased $1.5 million in 2007, compared with 2006 due mainly to the increase in the number of residential installation jobs completed.

SJI - 27

Margin — Utility — SJG’s margin is defined as natural gas revenues less natural gas costs; volumetric and revenue based energy taxes; and regulatory rider expenses. We believe that margin provides a more meaningful basis for evaluating utility operations than revenues since natural gas costs, energy taxes and regulatory rider expenses are passed through to customers, and therefore, have no effect on margin. Natural gas costs are charged to operating expenses on the basis of therm sales at the prices approved by the New Jersey Board of Public Utilities through the BGSS tariff.

Total margin in 2008 increased $3.0 million, or 1.9%, from 2007 primarily due to customer additions, as noted above, increased margins from OSS and capacity release, and increased profits earned through the Company’s Storage Incentive Mechanism (SIM).  The SIM allows the Company to retain 20% of storage-related gains and losses as measured against an established benchmark.  The balance of these gains and losses are passed through to customers as part of the BGSS.

The CIP protected $18.4 million of pre-tax margin in 2008 that would have been lost due to lower customer usage, compared to $12.7 million in 2007.  Of these amounts, $2.7 million and $2.6 million were related to weather variations and $15.7 million and $10.1 million were related to other customer usage variations in 2008 and 2007, respectively.

For SJG, total margin in 2007 increased $8.3 million from 2006 primarily due to customer additions and the positive impact from a full year of the usage related component of the CIP. As previously discussed, the CIP mechanism replaced the TAC effective October 1, 2006 and takes into account variations in customer usage factors due to weather as well as all other variations.  The usage related component of the CIP added $10.1 million to margin in 2007 as compared to $2.8 million for 2006, as the CIP was only in effect during the fourth quarter of 2006. Customer additions and temperatures that were much closer to normal in 2007 versus 2006 increased margins in both the Residential and Commercial classes. However, due to the colder weather in 2007, the weather related component of the CIP generated less of a contribution to margin, since SJG had already benefited from the higher sales volume as reflected in the margin table above. Partially offsetting the positive impacts noted above were lower margins from OSS and capacity release. Margin declined in these markets due to less favorable market conditions, primarily in the first quarter of 2007, and a decrease in the percentage of earnings from these sales retained by SJG in accordance with a July 2004 base rate case stipulation. Through July 1, 2006, SJG retained 20% of margins generated by OSS and related activities. Since then SJG is only permitted to retain 15% of such margins.

Gross Margin — Nonutility — Gross margin for the nonutility businesses is defined as revenue less all costs that are directly related to the production, selling and delivery of the company’s products and services. These costs primarily include natural gas and electric commodity costs as well as certain payroll and related benefits. On the statements of consolidated income, revenue is reflected in Operating Revenues - Nonutility and the costs are reflected in Cost of Sales - Nonutility. As discussed in Note 1 to the Consolidated Financial Statements, revenues and expenses related to the energy trading activities of SJRG are presented on a net basis in Operating Revenues - Nonutility.

For 2008, combined gross margins for the nonutility businesses, net of intercompany transactions, increased $25.7 million to $97.9 million compared with 2007. This increase is primarily due to the following:

· Gross Margin for SJRG increased $19.2 million in 2008, compared with 2007. Excluding the impact of the net change in unrealized gains and losses recorded on forward financial contracts as discussed above, gross margin for SJRG increased $14.1 million in 2008 compared with 2007. Operationally, margins increased significantly in 2008 due primarily to favorable time spreads on storage and transportation asset positions that were locked in and/or improved upon. Storage assets allow SJRG to lock in the differential between purchasing natural gas at low current prices and selling equivalent quantities at higher future prices. Gross margin is generated via seasonal pricing differentials. Similar to storage, transportation assets allow us to lock in the differential of transporting natural gas from one delivery point to another. Overall, SJRG’s contribution to margin has continued to increase as we have expanded our portfolio of storage and market area transportation assets under contract. Storage and transportation assets under contract as of December 31 is as follows:

	2008		2007		2006
Storage (Bcf)		12.2		10.0		9.6
Transportation (dts/day)		124,375		69,429		34,311

However, future margins could fluctuate significantly due to the volatile nature of wholesale gas prices.

SJI - 28

· Gross Margin for Marina increased $3.6 million in 2008 compared with 2007 due mainly to the increase in sales volumes from the thermal plant discussed in Operating Revenues – Nonutility. Gross margin as a percentage of Operating Revenues did not change significantly in 2008 compared with 2007.

· Gross margin from SJE’s retail gas sales increased $2.2 million in 2008, compared with 2007. Excluding the impact of a $0.6 million increase in unrealized gains recorded on forward financial contracts, gross margin increased $1.6 million in 2008 compared with 2007. Gross margin as a percentage of Operating Revenues increased 1.3 percentage points in 2008 compared to 2007. Excluding the impact of unrealized gains, this increase is due mainly to two main factors. First, SJE partially recovered losses from a full requirements customer in the commercial market that were recognized in 2006. Second, the 2008 margin reflects the impact of our initiatives to actively capitalize on market volatility which resulted in securing more attractive spreads, particularly in the first and fourth quarters.

· Gross margin from SJE’s retail electricity sales were relatively flat in 2008 compared with 2007. Gross margin as a percentage of Operating Revenues decreased 0.9 percentage points in 2008 compared with 2007 due mainly to increased competition.

· Gross Margin for SJESP increased $0.4 million in 2008, compared with 2007.  Gross margin as a percentage of Operating Revenues decreased 2.1 percentage points in 2008 compared with 2007 due mainly to increased competition and higher payroll-related, insurance and fleet costs.

For 2007, combined gross margins for the nonutility businesses, net of intercompany transactions, decreased $12.7 million to $72.2 million compared with 2006. This decrease is primarily due to the following:

·   Gross Margin for SJRG decreased $19.0 million in 2007, compared with 2006. Excluding the impact of the net change in unrealized gains and losses recorded on forward financial contracts as discussed above, gross margin for SJRG increased $13.7 million in 2007 compared with 2006. Operationally, margins increased significantly in 2007 due primarily to favorable time spreads on storage asset positions. These storage assets allow SJRG to lock in the differential between purchasing natural gas at low current prices and selling equivalent quantities at higher future prices. Gross margin is generated via seasonal pricing differentials. Overall, SJRG’s contribution to margin has continued to increase as we have expanded our portfolio of storage assets under contract, which totaled 10.0 Bcf, 9.6 Bcf and 4.8 Bcf as of December 31, 2007, 2006 and 2005, respectively. However, future margins could fluctuate significantly due to the volatile nature of wholesale gas prices.

·   Gross Margin for Marina increased $3.9 million in 2007 compared with 2006 due mainly to the increase in sales volumes from the thermal plant and the landfill gas-fired electricity production facilities discussed in Operating Revenues – Nonutility. Gross margin as a percentage of Operating Revenues did not change significantly in 2007 compared with 2006.

·   Gross margin from SJE’s retail gas sales increased $4.4 million in 2007, compared with 2006. Gross margin as a percentage of Operating Revenues increased 2.6 percentage points in 2007 compared to 2006. This increase is due mainly to losses from a full requirements customer in the commercial market that was recorded in 2006. Litigation of this matter is currently in advanced stages and a settlement is anticipated in early 2008. The 2007 margin also includes 12 months of sales to over 13,000 of our residential customers and those commercial customers being served in northwestern Pennsylvania as mentioned in Operating Revenues - Nonutility.

·   Gross margin from SJE’s retail electricity sales decreased $1.8 million in 2007, compared with 2006. Gross margin as a percentage of Operating Revenues has decreased 3.9 percentage points in 2007 compared to 2006. This decrease is due mainly to the recovery in 2006 of $1.8 million in electric commodity costs that were recognized in previous periods.

SJI - 29

·   Gross Margin for SJESP decreased $0.3 million in 2007, compared with 2006 due mainly to higher payroll-related and insurance costs which were partially offset by higher margins from strong installation and appliance maintenance contracts.

Operations Expense — A summary of net changes in operations expense follows (in thousands):

	2008 vs. 2007			2007 vs. 2006
Utility	$	4,375		$	1,745
Nonutility:
Wholesale Gas		1,384			978
Retail Gas and Other		115			667
Retail Electricity		(73	)		230
On-Site Energy Production		1,443			2,720
Appliance Service		(643	)		1,307
Total Nonutility		2,226			5,902
Intercompany Eliminations and Other		(409	)		(295	)
Total Operations	$	6,192		$	7,352

Utility Operations expense increased $4.4 million during 2008, as compared with 2007.  This increase is primarily the result of $3.3 million of increased spending under the New Jersey Clean Energy Program (NJCEP) during 2008 compared to last year.  Such costs are recovered on a dollar-for-dollar basis; therefore, SJG experienced an offsetting increase in revenues during the period.  The BPU-approved NJCEP allows for full recovery of costs, including carrying costs when applicable.  As a result, the increase in expense had no impact on net income. The Company also experienced moderate increases in insurance, governance, compliance and employee compensation costs which were partially offset by lower pension and other cost reductions during 2008.

Nonutility Wholesale Gas Operations expense increased in 2008, compared with 2007, due mainly to additional personnel costs and governance and compliance costs to support continued growth.

Nonutility On-Site Energy Production Operations expense increased in 2008, compared with 2007, due mainly to higher labor and operating costs at all active projects, costs related to landfill projects and the thermal plant expansion that began operations during 2008.

Nonutility Appliance Service Operations expense decreased in 2008, compared with 2007, due mainly to the benefit of several cost cutting initiatives that were implemented towards the end of 2007.

Other changes in Operations Expense during 2008 were not significant.

Utility Operations expense increased $1.7 million during 2007, compared with 2006, primarily as a result of several factors. First, expense associated with the Provision for Uncollectibles increased $1.2 million during 2007 due to higher levels of customer account receivables in 2007 than in 2006.  Additional reasons for the increase include an increase in billing and collection costs including a federal postage rate increase; employee severance costs incurred in 2007 that were not incurred during 2006; Conservation Incentive Program (CIP) expenses that did not begin until the approval of the CIP in October 2006; an increase in sales expense primarily related to the Customer Conversion Program aimed at converting residential consumers to natural gas heating systems; and higher employee compensation costs.

Partially offsetting the increase above was a $2.4 million decrease in 2007 in costs under the New Jersey Clean Energy Programs (NJCEP), which have decreased as SJG is no longer managing as many plans as it had in 2006.  Such costs are recovered on a dollar-for-dollar basis; therefore, SJG experienced an offsetting decrease in revenue during 2007. The BPU-approved NJCEP allows for full recovery of costs, including carrying costs when applicable.  As a result, the decrease in expense had no impact on SJG net income.

Nonutility Wholesale Gas Operations expense increased in 2007, compared with 2006, due mainly to additional personnel costs to support continued growth.

Nonutility Retail Gas and Other Operations expense increased in 2007, compared with 2006, mainly due to a full 12 months of costs related to our gas marketer acquisition that occurred in November 2006.

SJI - 30

Nonutility On-Site Energy Production Operations expense increased in 2007, compared with 2006, due mainly to higher labor and operating costs at all active projects, costs related to landfill projects and the thermal plant expansion that began operations during 2006.

Nonutility Appliance Service Operations expense increased in 2007, compared with 2006, due mainly to higher payroll and benefit costs, and a sizeable increase in the uncollectible reserve.

Other changes in Operations Expense during 2007 were not significant.

Other Operating Expenses — A summary of changes in other consolidated operating expenses (in thousands):

	2008 vs. 2007			2007 vs. 2006
Maintenance	$	1,554		$	807
Depreciation		1,295			1,693
Energy and Other Taxes		(62	)		706

Maintenance – Maintenance expense increased $1.6 million during 2008, compared with 2007; and $0.8 million during 2007, compared with 2006; primarily due to higher levels of Remediation Adjustment Clause (RAC) amortization. These costs are recovered from ratepayers; therefore, SJG experienced an offsetting increase in revenue during 2008.  The remaining increase in 2008 was the result of installing safety devices on certain residential meters aimed at preventing unauthorized usage and maintenance of company equipment.

Depreciation Expense - Depreciation increased during 2008 and 2007, compared with the prior year, due mainly to the increased investment in property, plant and equipment by SJG and Marina. 

Energy and Other Taxes — Energy and Other Taxes increased in 2007, compared with 2006, primarily due to higher energy-related taxes based on increased taxable firm throughput and revenues in 2007.    Other changes were not significant.

Other Income and Expense — The change in other income and expense in 2008 and 2007 compared with the prior year was not significant.

Interest Charges — Interest charges decreased by $1.5 million for 2008, compared with 2007.  The decrease was the result of lower average levels of short-term debt over the entire period, coupled with lower interest rates on short-term debt. Short-term debt declined primarily due to lower natural gas inventory levels at our commodity marketing business during much of the year.  Partially offsetting these factors were higher interest rates incurred on SJG’s auction-rate debt during the first half of 2008 and $2.2 million of ineffectiveness on interest rate swaps during the fourth quarter of 2008. Interest charges decreased by $0.5 million in 2007, compared with 2006, due primarily to lower levels of short-term debt at our utility business that offset higher interest rates.  Short-term debt declined in 2007 primarily due to lower gas cost and inventory levels.  

Discontinued Operations — The losses are primarily comprised of environmental remediation and product liability litigation associated with previously disposed of businesses.

LIQUIDITY AND CAPITAL RESOURCES:

Liquidity needs are driven by factors that include natural gas commodity prices; the impact of weather on customer bills; lags in fully collecting gas costs from customers under the Basic Gas Supply Service charge; working capital needs of our energy trading and marketing activities; the timing of construction and remediation expenditures and related permanent financings; the timing of equity contributions to unconsolidated affiliates; mandated tax payment dates; both discretionary and required repayments of long-term debt; and the amounts and timing of dividend payments.

SJI - 31

Cash Flows from Operating Activities — Liquidity needs are first met with net cash provided by operating activities. Net cash provided by operating activities totaled $26.4 million, $147.8 million and $28.7 million in 2008, 2007 and 2006, respectively. Net cash provided by operating activities varies from year-to-year primarily due to the impact of weather on customer demand and related gas purchases, customer usage factors related to conservation efforts and the price of the natural gas commodity, inventory utilization and gas cost recoveries. Net cash provided by operating activities in 2008 was negatively impacted by higher gas prices in the first half of 2008 which resulted in significantly higher costs to fill our natural gas inventories at both our utility and non-utility businesses than experienced in 2007.  The company also incurred higher environmental remediation costs in 2008 compared to 2007.  In addition, in anticipation of a large transmission pipeline project in 2009, SJG purchased and inventoried $9.3 million of pipe at the end of 2008. Finally, SJI made a $5.9 million pension contribution during 2008.  No such contribution was made in the prior year. The comparison of net cash provided by operating activities between 2007 and 2006 was significantly impacted by the combination of an increased income stream (excluding unrealized gains), and more favorable inventory and payable positions in 2007. A significant portion of the unrealized gains from 2006 were realized in 2007. Inventory levels declined by a greater amount in 2007 due to a weather induced increase in heating demand at our utility and greater storage withdrawals at our gas marketing business. Net cash provided by operating activities in 2006 was negatively impacted by a change in the terms under which SJI purchased natural gas, and the impact of extremely warm weather on inventory levels and collection under regulatory clauses at year end. Very warm weather conditions experienced during the fourth quarter of 2006 resulted in low levels of gas withdrawn from storage to meet customer demand, and decreased gas volumes consumed resulted in slower collections of expenses under several regulatory clauses. We typically anticipate that delays in withdrawing gas from storage during the fourth quarter of any fiscal year will result in increased withdrawals in the subsequent quarter, benefiting our cash flows for that quarter. SJI also ends each calendar year in a prepaid tax position due to mandatory prepayment requirements on all state taxes. Such prepayments are credited against amounts otherwise due during the first quarter of the subsequent year; further improving first quarter liquidity.

Cash Flows from Investing Activities — SJI has a continuing need for cash resources and capital, primarily to invest in new and replacement facilities and equipment. Net cash outflows for construction projects for 2008, 2007 and 2006 amounted to $62.0 million, $55.5 million and $73.7 million, respectively. We estimate the net cash outflows for construction projects for 2009, 2010 and 2011 to be approximately $140.3 million, $95.4 million and $58.5 million, respectively.

In support of its risk management activities, SJRG is required to maintain a margin account with a national investment firm as collateral for its forward contracts, swap agreements, options contracts and futures contracts. This margin account is included in Restricted Investments or Margin Account Liability, depending upon the value of the related financial contracts, (the change in the Margin Account Liability is reflected in cash flows from Operating Activities) on the consolidated balance sheets. The required amount of restricted investments changes on a daily basis due to fluctuations in the market value of the related outstanding contracts and are difficult to predict.

Cash Flows from Financing Activities — Short-term borrowings under lines of credit from commercial banks are used to supplement cash from operations, to support working capital needs and to finance capital expenditures as incurred. From time to time, short-term debt incurred to finance capital expenditures is refinanced with long-term debt.  In June 2008, SJG repurchased $25.0 million of its auction-rate securities at par by drawing under its lines of credit.  That action resulted in a $25.0 million reduction in long-term debt on SJG’s balance sheet.  SJG converted these auction-rate securities to variable rate demand bonds and remarketed them to the public during the third quarter of 2008. No other long-term debt was issued during 2008.

 Bank facilities available to SJI totaled $443.0 million at December 31, 2008, of which $279.2 million, inclusive of $66.6 million of letters of credit, was used. Those bank facilities consist of a $100.0 million revolving credit facility, a $10.0 million line of credit, a $40.0 million line of credit and $53.0 million of uncommitted bank lines available to SJG; and a $200.0 million revolving credit facility and $40.0 million of uncommitted bank lines available to SJI. The revolving credit facilities expire in August 2011 and both SJG lines expire in 2009.  All facilities contain one financial covenant regarding the ratio of total debt to total capitalization, measured on a quarterly basis. SJI and SJG were in compliance with this covenant as of December 31, 2008. Based upon the existing credit facilities and a regular dialogue with our banks, we believe there will continue to be sufficient credit available to meet our business’ future liquidity needs.

SJI - 32

SJI supplements its operating cash flow and credit lines with both debt and equity capital. Over the years, SJG has used long-term debt, primarily in the form of First Mortgage Bonds and Medium Term Notes (MTN), secured by the same pool of utility assets, to finance its long-term borrowing needs. These needs are primarily capital expenditures for property, plant and equipment.

SJI raised equity capital over the past three years through its Dividend Reinvestment Plan (DRP). Historically, participants in SJI's DRP received newly issued shares. Through the end of March 2008, we offered a 2% discount on DRP investments as it was the most cost-effective way to raise equity capital in the quantities we were seeking. Due to our continued strong equity position, beginning in April 2008, the 2% discount was not offered and DRP participants began receiving shares purchased in the market.  Through the DRP, SJI raised $2.1 million of equity capital by issuing 60,390 shares in 2008, and $7.5 million of equity capital by issuing 212,428 shares in 2007 and $6.6 million of equity capital by issuing 232,883 shares in 2006.  In September 2008, we announced our intent to establish a stock repurchase program for SJI that could result in the repurchase of up to 1.5 million shares of SJI common stock at any time prior to October 2012.  No purchases have been made to date.

SJI’s capital structure was as follows:

	As of December 31,
	2008			2007
Common Equity		47.4	%		50.3	%
Long-Term Debt		33.0			37.3
Short-Term Debt		19.6			12.4
Total		100.0	%		100.0	%

SJG’s long-term, senior secured debt was rated “A” and “Baa1” by Standard & Poor’s and Moody’s Investor Services, respectively. These ratings had not changed in at least the past five years until Moody’s Investor Services raised SJG’s senior secured debt rating to “A3” from “Baal” in February of 2009.

For 2008, 2007 and 2006, SJI paid quarterly dividends to its common shareholders. SJI has paid dividends on its common stock for 57 consecutive years and has increased that dividend each year for the last ten years. The Company currently looks to grow that dividend by at least 6% to 7% per year and has a targeted payout ratio of between 50% and 60%. In setting the dividend rate, the Board of Directors of SJI considers future earnings expectations, payout ratio, and dividend yield relative to those at peer companies as well as returns available on other income-oriented investments.

COMMITMENTS AND CONTINGENCIES — SJI has a continuing need for cash resources and capital, primarily to invest in new and replacement facilities and equipment and for environmental remediation costs. Net cash outflows for construction and remediation projects for 2008 amounted to $62.0 million and $26.2 million, respectively. We estimate net cash outflows for construction projects for 2009, 2010 and 2011, to be approximately $140.3 million, $95.4 million and $58.5 million, respectively.  We estimate net cash outflows for remediation projects for 2009, 2010 and 2011 to be approximately $13.7 million, $17.0 million and $12.9 million respectively.  As discussed in Notes 9 and 14 to the consolidated financial statements, certain environmental costs are subject to recovery from insurance carriers and ratepayers.

STANDBY LETTERS OF CREDIT — As of December 31, 2008, SJI provided $66.6 million of standby letters of credit through SJI’s revolving credit facility. Letters of credit in the amount of $62.3 million support variable-rate demand bonds issued through the New Jersey Economic Development Authority (NJEDA) to finance Marina’s initial thermal plant project. The additional outstanding letters of credit total $4.3 million, and were posted to enable SJE to market retail electricity and for various construction activities. The Company also provided two additional letters of credit under separate facilities outside of the revolving credit facility. Those letters of credit consist of a $25.3 million letter of credit provided by SJG to support variable-rate demand bonds issued through the NJEDA to finance the expansion of SJG’s natural gas distribution system; and a $30.7 million letter of credit provided by Marina to support a capital contribution obligation as discussed below. These letters of credit expire in August 2009 and November 2010, respectively.

SJI - 33

SJG and SJRG have certain commitments for both pipeline capacity and gas supply for which they pay fees regardless of usage. Those commitments as of December 31, 2008, average $46.4 million annually and total $170.4 million over the contracts’ lives. Approximately 45% of the financial commitments under these contracts expire during the next five years. We expect to renew each of these contracts under renewal provisions as provided in each contract. SJG recovers all prudently incurred fees through rates via the Basic Gas Supply Service clause.

The following table summarizes our contractual cash obligations and their applicable payment due dates as of December 31, 2008 (in thousands):

			Up to		Years		Years		More than
Contractual Cash Obligations	Total		1 Year		2 & 3		4 & 5		5 Years
Long-Term Debt	$	357,896	$	25,112	$	35,306	$	29,733	$	267,745
Interest on Long-Term Debt		236,008		20,003		37,655		33,350		145,000
Capital Contribution Obligation		31,805		31,805		-		-		-
Operating Leases		2,273		716		978		429		150
Commodity Supply Purchase Obligations		610,057		377,423		155,536		21,419		55,679
New Jersey Clean Energy Program (Note 9)		41,760		8,643		20,139		12,978		-
Other Purchase Obligations		1,787		1,391		396		-		-
Total Contractual Cash Obligations	$	1,281,586	$	465,093	$	250,010	$	97,909	$	468,574

SJG’s variable rate debt of $25.0 million has been included in the current portion of long-term debt above.  However, interest on long-term debt in the table above includes the related interest obligations through maturity as well as the impact of all interest rate swap agreements.  Expected environmental remediation costs and asset retirement obligations are not included in the table above as the total obligation cannot be calculated due to the subjective nature of these costs and the timing of anticipated payments. As discussed in Note 11 to the consolidated financial statements, while the Company has no obligation to make a contribution to its employees pension plans in 2009, we currently expect to make a contribution in order to improve the funded status of the plans and mitigate the expected increase in expense in 2009. Furthermore, future pension contributions beyond 2009 cannot be determined at this time. SJG’s regulatory obligation to contribute $3.6 million annually to its other postretirement benefit plans’ trusts, less costs incurred directly by the company, is not included as the duration is indefinite.

Capital Contribution Obligation - In December 2007, Marina and its joint venture partner agreed to each contribute approximately $30.0 million of equity to LVE as part of its construction period financing (See Note 2 to the consolidated financial statements). Marina’s obligation is secured by an irrevocable letter of credit from a bank. The equity contribution is expected to be made in 2009.

Off-Balance Sheet Arrangements — An off-balance sheet arrangement is any contractual arrangement involving an unconsolidated entity under which the company has either made guarantees or has certain other interests or obligations.

The Company has recorded a liability of $2.0 million in Other Noncurrent Liabilities with a corresponding increase in Investment in Affiliates on the consolidated balance sheets as of December 31, 2008 for the fair value of the following guarantees:

·   In April 2007, SJI guaranteed certain obligations of LVE Energy Partners, LLC (LVE), an unconsolidated joint venture in which Marina has a 50% equity interest.  LVE entered into a 25-year contract with a resort developer to design, build, own and operate a district energy system and central energy center for a planned resort in Las Vegas, Nevada.  LVE began construction of the facility in 2007 and expected to provide full energy services in 2010 when the resort was originally scheduled to be completed. LVE suspended construction of the district energy system and central energy center in January 2009 after the developer of the resort announced that it was delaying construction of the resort due to the difficult environment in the capital markets and weak economic conditions.  The developer has indicated that they are considering different strategies to move the project forward, including opening the project in phases and obtaining a partner, but that it was unlikely construction would resume during 2009.

SJI - 34

The district energy system and central energy center are being financed by LVE with debt that is non-recourse to SJI. LVE is currently in discussions with the banks that are financing the energy facilities to address the developer’s construction delay. Those discussions include a revised timetable and funding schedule for the completion of construction of the energy facilities, and the potential contribution of additional equity. SJI is obligated to invest at least $30.0 million of equity during the construction period as discussed above and may invest up to an additional $14.0 million to cover the incremental debt service and other related costs to be incurred during the suspension period resulting from the delay. However, we are unable to definitively quantify our incremental costs at this time, if any, as negotiations over the new terms are ongoing. The Energy Sales Agreement between LVE and the resort developer, which is currently being renegotiated to address the impact of the construction delay, includes a guaranty by the resort developer of certain fixed payments to be made to LVE until the project begins commercial operations. As of December 31, 2008, the Company had a net liability of approximately $10.8 million included in Other Current and Noncurrent Liabilities on the consolidated balance sheets related to this project and an unsecured Note Receivable – Affiliate of approximately $3.1 million due from LVE. SJI's risk of loss is limited to its equity contribution, contribution obligations and the unsecured Note Receivable totaling approximately $33.9 million. During 2008, SJI and the partner in this joint venture each provided cash advances to LVE of approximately $3.1 million to cover construction related costs. It is expected that these notes will be converted to equity in 2009, offsetting the additional equity contribution obligations.

SJI issued a performance guaranty for up to $180.0 million to the resort developer to ensure that certain construction milestones relating to the development of the thermal facility are met. As a result of achieving certain milestones, the guaranty has been reduced to $94.0 million as of December 31, 2008. Concurrently, SJI is the beneficiary of a surety bond purchased by the project’s general contractor that provides SJI with assurance that construction of the thermal facility will meet those same milestones. Those milestones are currently being revised due to delays announced by the project developer. In addition, SJI has guaranteed the obligations of LVE under certain insurance policies during the construction period.  The maximum amount that SJI could be obligated for, in the event that LVE does not have sufficient resources to make deductible payments on future claims under these insurance policies, is approximately $6.0 million.  SJI has also guaranteed certain performance obligations of LVE under the operating agreements between LVE and the resort, up to $20.0 million each year for the term of the agreement, commencing with the first year of operations.  SJI and the partner in this joint venture have entered into reimbursement agreements that secure reimbursement for SJI of a proportionate share of any payments made by SJI on these guarantees. 

·   SJI has also guaranteed certain obligations of BC Landfill Energy, LLC (BCLE), an unconsolidated joint venture in which Marina has a 50% equity interest.  BCLE has entered into a 20-year agreement with a county government to lease and operate a facility that will produce electricity from landfill methane gas.  The facility went online in the fourth quarter of 2007.  Although unlikely, the maximum amount that SJI could be obligated for, in the event that BCLE does not meet minimum specified levels of operating performance and no mitigating action is taken, or is unable to meet certain financial obligations as they become due, is approximately $4.0 million each year.  SJI and the partner in this joint venture have entered into reimbursement agreements that secure reimbursement for SJI of a proportionate share of any payments made by SJI on these guarantees.  SJI holds a variable interest in BCLE but is not the primary beneficiary.

Pending Litigation — SJI is subject to claims arising in the ordinary course of business and other legal proceedings. We accrue liabilities related to claims when we can determine the amount or range of amounts of probable settlement costs. SJI has been named in, among other actions, certain product liability claims related to our former sand mining subsidiary. Management does not currently anticipate the disposition of any known claims to have a material adverse effect on SJI’s financial position, results of operations or liquidity.

MARKET RISKS:

Commodity Market Risks — Certain regulated and nonregulated SJI subsidiaries are involved in buying, selling, transporting and storing natural gas and buying and selling retail electricity for their own accounts as well as managing these activities for other third parties. These subsidiaries are subject to market risk due to price fluctuations. To hedge against this risk, we enter into a variety of physical and financial transactions including forward contracts, swaps, futures and options agreements. To manage these transactions, SJI has a well-defined risk management policy approved by our Board of Directors that includes volumetric and monetary limits. Management reviews reports detailing activity daily. Generally, the derivative activities described above are entered into for risk management purposes.

SJI - 35

SJG and SJE transact commodities on a physical basis and typically do not enter into financial derivative positions directly. SJRG manages risk for these entities as well as for its own portfolio by entering into the types of transactions noted above. As part of its gas purchasing strategy, SJG uses financial contracts through SJRG to hedge against forward price risk. These contracts are recoverable through SJG’s BGSS, subject to BPU approval. It is management's policy, to the extent practical, within predetermined risk management policy guidelines, to have limited unmatched positions on a deal or portfolio basis while conducting these activities. As a result of holding open positions to a minimal level, the economic impact to SJRG of changes in value of a particular transaction is substantially offset by an opposite change in the related hedge transaction.

As of December 31, 2008, SJRG had $42.1 million of Accounts Receivable under sales contracts. Of that total, 96% were with companies rated investment-grade, were guaranteed by an investment-grade-rated parent or were with companies where we have a collateral arrangement. The remainder of the Accounts Receivable were within approved credit limits.

SJI entered into certain contracts to purchase, sell, and transport natural gas. For those derivatives not designated as hedges, we recorded the net unrealized pre-tax gain of $9.3 million, $3.6 million and $36.7 million  in earnings during the years 2008, 2007 and 2006, respectively, which are included with realized gains and losses in Operating Revenues — Nonutility. The fair value and maturity of these energy trading contracts determined under the mark-to-market method as of December 31, 2008 is as follows (in thousands):

Assets	Source of Fair Value	Maturity < 1 Year		Maturity 1 - 3 Years		Beyond 3 Years		Total
Prices Actively Quoted	NYMEX	$	42,502	$	11,277	$	305	$	54,084
Other External Sources	Basis		20,699		8,130		-		28,829
Total		$	63,201	$	19,407	$	305	$	82,913
Liabilities	Source of Fair Value	Maturity < 1 Year		Maturity 1 - 3 Years		Beyond 3 Years		Total
Prices Actively Quoted	NYMEX	$	37,743	$	8,683	$	61	$	46,487
Other External Sources	Basis		13,182		6,554		401		20,137
Total		$	50,925	$	15,237	$	462	$	66,624

NYMEX (New York Mercantile Exchange) is the primary national commodities exchange on which natural gas is traded. Basis represents the price of a NYMEX natural gas futures contract adjusted for the difference in price for delivering the gas at another location. Contracted volumes of our NYMEX contracts are 5.6 million decatherms (dts) with a weighted-average settlement price of $8.11 per dt.  Contracted volumes of our basis contracts are 3.2 million dts with a weighted average settlement price of $0.93 per dt.

A reconciliation of SJI's estimated net fair value of energy-related derivatives follows (in thousands):

Net Derivatives — Energy Related Assets,
January 1, 2008	$	16,286
Contracts Settled During 2008, Net		(9,535	)
Other Changes in Fair Value from Continuing and  New Contracts, Net		9,538
Net Derivatives — Energy Related Assets,
December 31, 2008	$	16,289

SJI - 36

Interest Rate Risk — Our exposure to interest-rate risk relates primarily to short-term, variable-rate borrowings. Short-term variable-rate debt outstanding at December 31, 2008, was $212.6 million and averaged $105.2 million during 2008. The months where average outstanding variable-rate debt was at its highest and lowest levels were December, at $206.4 million, and April, at $26.2 million. A hypothetical 100 basis point (1%) increase in interest rates on our average variable-rate debt outstanding would result in a $0.6 million increase in our annual interest expense, net of tax. The 100 basis point increase was chosen for illustrative purposes, as it provides a simple basis for calculating the impact of interest rate changes under a variety of interest rate scenarios. Over the past five years, the change in basis points (b.p.) of our average monthly interest rates from the beginning to end of each year was as follows: 2008 – 397 b.p. decrease; 2007 – 45 b.p. decrease; 2006 — 67 b.p. increase; 2005 — 194 b.p. increase and 2004 — 115 b.p. increase. For December 2008, our average interest rate on short-term variable-rate debt was 1.79%.

We issue long-term debt either at fixed rates or use interest rate derivatives to limit our exposure to changes in interest rates on variable-rate, long-term debt. As of December 31, 2008, the interest costs on all but $7.1 million of our long-term debt was either at a fixed-rate or hedged via an interest rate derivative. Consequently, interest expense on existing long-term debt is not significantly impacted by changes in market interest rates. However, due to market conditions during 2008, the demand for auction-rate securities was disrupted resulting in increased interest rate volatility for tax-exempt auction-rate debt.   As a result, the $25.0 million of tax-exempt auction-rate debt issued by the Company (and repurchased in June 2008) was exposed to changes in interest rates that were not completely mitigated by the related interest rate derivatives. The auction rate debt was converted to another form of variable rate debt and resold in the public market in August 2008. In addition, during the fourth quarter of 2008, as a result of unusual market conditions, the interest rate derivatives on Marina’s variable rate demand bonds were not completely effective in mitigating the risks resulting from changes in interest rates. Consequently, the Company incurred approximately $2.2 million of additional interest expense related to the ineffective portion of these interest rate derivatives. All of these interest rate derivatives remain in place and are expected to substantially offset future changes in interest rates on the respective securities.

As of December 31, 2008, SJI’s active interest rate swaps were as follows:

Notional Amount		Fixed Interest Rate			Start Date	Maturity	Type of Debt	Obligor
$	3,900,000		4.795	%	12/01/2004	12/01/2014	Taxable	Marina
$	8,000,000		4.775	%	11/12/2004	11/12/2014	Taxable	Marina
$	20,000,000		4.080	%	11/19/2001	12/01/2011	Tax-exempt	Marina
$	14,500,000		3.905	%	03/17/2006	01/15/2026	Tax-exempt	Marina
$	500,000		3.905	%	03/17/2006	01/15/2026	Tax-exempt	Marina
$	330,000		3.905	%	03/17/2006	01/15/2026	Tax-exempt	Marina
$	7,100,000		4.895	%	02/01/2006	02/01/2016	Taxable	Marina
$	12,500,000		3.430	%	12/01/2006	02/01/2036	Tax-exempt	SJG
$	12,500,000		3.430	%	12/01/2006	02/01/2036	Tax-exempt	SJG

Concentration of Credit Risk - As of December 31, 2008, approximately 38.4% of the current and noncurrent Derivatives – Energy Related Assets or $31.8 million are with a single retail counterparty. This counterparty has contracts with a large number of diverse customers which minimizes the concentration of this risk. A portion of these contracts may be assignable to SJI in the event of a default by the counterparty.

Item 7A. Quantitative and Qualitative Disclosures about Market Risks

Information required by this item can be found in the section entitled “Market Risks” on page 35 of this report.

SJI - 37

Item 8. Financial Statements and Supplementary Data

Statements of Consolidated Income	South Jersey Industries, Inc. and Subsidiaries
(In Thousands Except for Per Share Data)	Year Ended December 31,
	2008			2007			2006
Operating Revenues:
Utility	$	560,191		$	611,007		$	601,999
Nonutility		401,786			345,364			329,429
Total Operating Revenues		961,977			956,371			931,428
Operating Expenses:
Cost of Sales - (Excluding depreciation)
- Utility		375,549			433,495			431,615
- Nonutility		303,893			273,206			244,522
Operations		79,769			73,577			66,225
Maintenance		7,899			6,345			5,538
Depreciation		29,237			27,942			26,249
Energy and Other Taxes		12,121			12,183			11,477
Total Operating Expenses		808,468			826,748			785,626
Operating Income		153,509			129,623			145,802
Other Income and Expense		1,117			2,422			2,672
Interest Charges		(25,676	)		(27,215	)		(27,671	)
Income Before Income Taxes		128,950			104,830			120,803
Income Taxes		(51,948	)		(43,056	)		(49,683	)
Equity in Earnings of Affiliated Companies		176			885			1,130
Income from Continuing Operations		77,178			62,659			72,250
Loss from Discontinued Operations - (Net of tax benefit)		(247	)		(391	)		(818	)
Net Income	$	76,931		$	62,268		$	71,432
Basic Earnings per Common Share:
Continuing Operations	$	2.60		$	2.13		$	2.48
Discontinued Operations		(0.01	)		(0.02	)		(0.03	)
Basic Earnings per Common Share	$	2.59		$	2.11		$	2.45
Average Shares of Common Stock Outstanding - Basic		29,707			29,480			29,175
Diluted Earnings per Common Share:
Continuing Operations	$	2.59		$	2.12		$	2.47
Discontinued Operations		(0.01	)		(0.02	)		(0.03	)
Diluted Earnings per Common Share	$	2.58		$	2.10		$	2.44
Average Shares of Common Stock Outstanding - Diluted		29,843			29,593			29,261
Dividends Declared per Common Share	$	1.11		$	1.01		$	0.92
The accompanying notes are an integral part of the consolidated financial statements.

SJI - 38

Statements of Consolidated Cash Flows	South Jersey Industries, Inc. and Subsidiaries
(In Thousands)	Year Ended December 31,
	2008			2007			2006
Cash Flows from Operating Activities:
Net Income	$	76,931		$	62,268		$	71,432
Loss from Discontinued Operations		247			391			818
Income from Continuing Operations		77,178			62,659			72,250
Adjustments to Reconcile Income from Continuing Operations to Cash Flows Provided by
Operating Activities:
Depreciation and Amortization		35,665			32,865			30,834
Net Unrealized Gain on Derivatives - Energy Related		(9,317	)		(3,635	)		(36,688	)
Unrealized Loss on Derivatives - Other		2,174			-			-
Provision for Losses on Accounts Receivable		2,332			2,603			1,466
TAC/CIP Receivable		2,641			(7,946	)		(15,740	)
Deferred Gas Costs - Net of Recoveries		5,885			7,755			18,694
Deferred SBC Costs - Net of Recoveries		1,199			3,960			(4,221	)
Stock-Based Compensation Expense		1,263			1,090			1,059
Deferred and Noncurrent Income Taxes - Net		23,014			12,030			21,829
Environmental Remediation Costs - Net		(26,175	)		(10,926	)		(10,840	)
Gas Plant Cost of Removal		(1,463	)		(1,275	)		(1,369	)
Changes in:
Accounts Receivable		(14,293	)		(5,232	)		38,020
Inventories		(48,599	)		21,459			(25,726	)
Prepaid and Accrued Taxes - Net		(7,022	)		8,916			(5,243	)
Accounts Payable and Other Accrued Liabilities		14,018			(5,036	)		(57,892	)
Margin Account Liability		(4,112	)		4,112			-
Derivatives - Energy Related		(17,564	)		21,050			3,046
Other Assets and Liabilities		(9,158	)		3,453			(948	)
Cash Flows from Discontinued Operations		(1,277	)		(56	)		178
Net Cash Provided by Operating Activities		26,389			147,846			28,709
Cash Flows from Investing Activities:
Capital Expenditures		(61,972	)		(55,539	)		(73,677	)
Net (Purchase of) Proceeds from Sale of Restricted Investments in Margin Account		(29,731	)		10,404			(2,170	)
Proceeds from Sale of Restricted Investments from Escrowed Loan Proceeds		5,170			6,710			6,075
Purchase of Restricted Investments with Escrowed Loan Proceeds		(77	)		(523	)		(18,722	)
Investment in Long-Term Receivables		(5,558	)		(4,123	)		(3,342	)
Proceeds from Long-Term Receivables		3,399			3,877			3,707
Purchase of Company Owned Life Insurance		(4,287	)		(3,917	)		-
Investment in Affiliate		(2,969	)		(7,463	)		-
Return of Investment in Affiliate		7,470			7,208			-
Proceeds from Sale of Investment in Affiliate		58			-			1,450
Advances on Notes Receivable - Affilate		(7,457	)		-			-
Purchase of Gas Marketing and Production Assets		-			-			(3,277	)
Other		-			-			(650	)
Net Cash Used in Investing Activities		(95,954	)		(43,366	)		(90,606	)
Cash Flows from Financing Activities:
Net Borrowings from (Repayments of) Lines of Credit		94,260			(76,310	)		47,300
Proceeds from Issuance of Long-Term Debt		25,000			-			41,400
Principal Repayments of Long-Term Debt		(25,106	)		(2,389	)		(2,437	)
Dividends on Common Stock		(32,914	)		(29,656	)		(26,874	)
Proceeds from Sale of Common Stock		2,076			7,484			6,606
Payments for Issuance of Long-Term Debt		(320	)		-			(1,350	)
Other		666			137			300
Net Cash Provided by (Used in) Financing Activities		63,662			(100,734	)		64,945
Net (Decrease) Increase in Cash and Cash Equivalents		(5,903	)		3,746			3,048
Cash and Cash Equivalents at Beginning of Year		11,678			7,932			4,884
Cash and Cash Equivalents at End of Year	$	5,775		$	11,678		$	7,932
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest (Net of Amounts Capitalized)	$	24,253		$	27,025		$	27,341
Income Taxes (Net of Refunds)	$	35,363		$	22,461		$	28,171
Supplemental Disclosures of Non-Cash Investing Activities
Capital Expenditures acquired on account but unpaid as of year-end	$	7,877		$	4,797		$	3,776
Guarantee of certain obligations of unconsolidated affiliates	$	-		$	1,985		$	-
The accompanying notes are an integral part of the consolidated financial statements.

SJI - 39

Consolidated Balance Sheets
(In Thousands)	South Jersey Industries, Inc. and Subsidiaries
	December 31,
	2008			2007
Assets
Property, Plant and Equipment:
Utility Plant, at original cost	$	1,172,014		$	1,123,992
Accumulated Depreciation		(295,432	)		(276,301	)
Nonutility Property and Equipment, at cost		121,658			112,971
Accumulated Depreciation		(15,632	)		(11,793	)
Property, Plant and Equipment - Net		982,608			948,869
Investments:
Available-for-Sale Securities		4,859			6,734
Restricted		31,098			6,460
Investment in Affiliates		1,966			1,694
Total Investments		37,923			14,888
Current Assets:
Cash and Cash Equivalents		5,775			11,678
Accounts Receivable		121,683			111,899
Unbilled Revenues		52,907			48,304
Provision for Uncollectibles		(5,757	)		(5,491	)
Natural Gas in Storage, average cost		162,387			123,790
Materials and Supplies, average cost		12,778			2,777
Prepaid Taxes		14,604			6,878
Derivatives - Energy Related Assets		63,201			23,270
Other Prepayments and Current Assets		7,506			5,225
Total Current Assets		435,084			328,330
Regulatory and Other Noncurrent Assets:
Regulatory Assets		270,434			188,688
Prepaid Pension		-			1,970
Derivatives - Energy Related Assets		19,712			10,941
Unamortized Debt Issuance Costs		7,166			7,386
Notes Receivable - Affiliate		7,457			-
Contract Receivables		13,565			13,220
Other		19,478			15,149
Total Regulatory and Other Noncurrent Assets		337,812			237,354
Total Assets	$	1,793,427		$	1,529,441
Capitalization and Liabilities
Capitalization:
Common Equity	$	515,254		$	481,080
Long-Term Debt		332,784			357,896
Total Capitalization		848,038			838,976
Minority Interest		1,194			440
Current Liabilities:
Notes Payable		212,550			118,290
Current Portion of Long-Term Debt		25,112			106
Accounts Payable		120,162			101,154
Customer Deposits and Credit Balances		14,449			18,475
Margin Account Liability		-			4,112
Environmental Remediation Costs		13,670			25,827
Taxes Accrued		5,510			5,310
Derivatives - Energy Related Liabilities		50,925			13,735
Deferred Income Taxes - Net		25,009			20,251
Deferred Contract Revenues		5,840			5,231
Interest Accrued		6,519			6,657
Pension and Other Postretirement Benefits		1,031			805
Other Current Liabilities		19,130			8,358
Total Current Liabilities		499,907			328,311
Deferred Credits and Other Noncurrent Liabilities:
Deferred Income Taxes - Net		184,294			175,686
Investment Tax Credits		1,832			2,150
Pension and Other Postretirement Benefits		80,835			29,036
Environmental Remediation Costs		54,495			52,078
Asset Retirement Obligations		22,553			24,604
Derivatives - Energy Related Liabilities		15,699			4,190
Derivatives - Other		14,088			2,484
Regulatory Liabilities		50,447			55,779
Other		20,045			15,707
Total Deferred Credits and Other Noncurrent Liabilities		444,288			361,714
Commitments and Contingencies (Note 14)
Total Capitalization and Liabilities	$	1,793,427		$	1,529,441
The accompanying notes are an integral part of the consolidated financial statements.

SJI - 40

Statements of Consolidated Capitalization						South Jersey Industries, Inc. and Subsidiaries
(In Thousands Except for Share Data)						December 31,
						2008			2007
Common Equity:
Common Stock: Par Value $1.25 per share; Authorized 60,000,000 shares;
	Outstanding Shares: 29,728,697 (2008) and 29,607,802 (2007)
	Balance at Beginning of Year					$	37,010		$	36,657
	Common Stock Issued or Granted Under Stock Plans						151			353
	Balance at End of Year						37,161			37,010
Premium on Common Stock							252,495			248,449
Treasury Stock (at par)							(176	)		(187	)
Accumulated Other Comprehensive Loss							(24,199	)		(10,315	)
Retained Earnings							249,973			206,123
		Total Common Equity					515,254			481,080
Long-Term Debt: (A)
South Jersey Gas Company:
	First Mortgage Bonds: (B)
			6.12	%	Series due 2010		10,000			10,000
			6.74	%	Series due 2011		10,000			10,000
			6.57	%	Series due 2011		15,000			15,000
			4.46	%	Series due 2013		10,500			10,500
			5.027	%	Series due 2013		14,500			14,500
			4.52	%	Series due 2014		11,000			11,000
			5.115	%	Series due 2014		10,000			10,000
			5.387	%	Series due 2015		10,000			10,000
			5.437	%	Series due 2016		10,000			10,000
			6.50	%	Series due 2016		9,873			9,873
			4.60	%	Series due 2016		17,000			17,000
			4.657	%	Series due 2017		15,000			15,000
			7.97	%	Series due 2018		10,000			10,000
			7.125	%	Series due 2018		20,000			20,000
			5.587	%	Series due 2019		10,000			10,000
			7.7	%	Series due 2027		35,000			35,000
			5.55	%	Series due 2033		32,000			32,000
			6.213	%	Series due 2034		10,000			10,000
			5.45	%	Series due 2035		10,000			10,000
	Series A 2006 Bonds at variable rates due 2036 (C)						25,000			25,000
Marina Energy LLC: (D)
	Series A 2001 Bonds at variable rates due 2031						20,000			20,000
	Series B 2001 Bonds at variable rates due 2021						25,000			25,000
	Series A 2006 Bonds at variable rates due 2036						16,400			16,400
AC Landfill Energy, LLC: (E)
	Bank Term Loan, 6% due 2014						442			548
	Mortgage Bond, 4.19% due 2019						1,181			1,181
		Total Long-Term Debt Outstanding					357,896			358,002
		Less Current Maturities					(25,112	)		(106	)
		Total Long-Term Debt					332,784			357,896
Total Capitalization						$	848,038		$	838,976
(A)	The long-term debt maturities and sinking fund requirements for the succeeding five years are as follows:
	2009, $112 (see C below); 2010, $10,119; 2011, $25,126; 2012, $2,258 and 2013, $27,328.
(B)	SJG's First Mortgage dated October 1, 1947, as supplemented, securing the First Mortgage Bonds constitutes a direct first mortgage lien on substantially all utility plant.
(C)	On April 20, 2006, SJG issued $25.0 million of tax exempt, auction rate debt through the New Jersey Economic Development Authority (NJEDA) under its $150.0 million MTN Program. These bonds were repurchased by the Company in June 2008 and remarketed to the public in August 2008 as variable rate demand bonds with liquidity support provided by a letter of credit from a commercial bank. The letter of credit expires in August 2009, and as such, these bonds have been included in the current portion of long-term debt. Material terms of the original bonds, such as the 2036 maturity date, floating rate interest that resets weekly, and a first mortgage collateral position, remain unchanged.
(D)	Marina has issued $61.4 million of unsecured variable-rate revenue bonds through the NJEDA. The variable rates at December 31, 2008 for the Series A 2001, Series B 2001, and Series A 2006 bonds were 1.68%, 2.57% and 0.98% respectively.
(E)	The debt of AC Landfill Energy is secured by a first mortgage interest in plant and equipment, and an assignment of rents and leases of the facility.
The accompanying notes are an integral part of the consolidated financial statements.

SJI - 41

Consolidated Statements of Changes In Common Equity
and Comprehensive Income	South Jersey Industries, Inc. and Subsidiaries
(In Thousands)	Years Ended December 31, 2006, 2007 & 2008
	Common Stock			Premium on Common Stock			Treasury Stock			Accumulated Other Comprehensive Loss			Retained Earnings			Total
Balance at January 1, 2006	$	36,228		$	231,861		$	-		$	(4,445	)	$	130,001		$	393,645
Net Income														71,432			71,432
Other Comprehensive Income (Loss), Net of Tax:(a)
Minimum Pension Liability Adjustment											(439	)					(439	)
Unrealized Gain on Available-for-Sale Securities											53						53
Unrealized Gain on Derivatives - Other											260						260
Other Comprehensive Loss, Net of Tax (a)																	(126	)
Comprehensive Income																	71,306
FAS 158 Transition Amount (b)											(3,220	)					(3,220	)
Common Stock Issued or Granted Under Stock Plans		429			7,902									(152	)		8,179
Cash Dividends Declared - Common Stock														(26,874	)		(26,874	)
Balance at December 31, 2006		36,657			239,763			-			(7,791	)		174,407			443,036
Cumulative Effect Adjustment (c)		-			-			-			-			(771	)		(771	)
Balance at January 1, 2007, as adjusted		36,657			239,763			-			(7,791	)		173,636			442,265
Net Income														62,268			62,268
Other Comprehensive Income (Loss), Net of Tax:(a)
Postretirement Liability Adjustment											199						199
Unrealized Loss on Available-for-Sale Securities											(195	)					(195	)
Unrealized Loss on Derivatives - Other											(1,385	)					(1,385	)
Other Comprehensive Loss of Affiliated Companies											(1,143	)					(1,143	)
Other Comprehensive Loss, Net of Tax (a)																	(2,524	)
Comprehensive Income																	59,744
Common Stock Issued or Granted Under Stock Plans		353			8,686			(187	)					(125	)		8,727
Cash Dividends Declared - Common Stock														(29,656	)		(29,656	)
Balance at December 31, 2007		37,010			248,449			(187	)		(10,315	)		206,123			481,080
Net Income														76,931			76,931
Other Comprehensive Income (Loss), Net of Tax:(a)
Postretirement Liability Adjustment											(6,877	)					(6,877	)
Unrealized Loss on Available-for-Sale Securities											(730	)					(730	)
Unrealized Loss on Derivatives - Other											(1,062	)					(1,062	)
Other Comprehensive Loss of Affiliated Companies											(5,215	)					(5,215	)
Other Comprehensive Loss, Net of Tax (a)																	(13,884	)
Comprehensive Income																	63,047
Common Stock Issued or Granted Under Stock Plans		151			4,046			11						(167	)		4,041
Cash Dividends Declared - Common Stock														(32,914	)		(32,914	)
Balance at December 31, 2008	$	37,161		$	252,495		$	(176	)	$	(24,199	)	$	249,973		$	515,254
Disclosure of Changes In Accumulated Other Comprehensive Loss Balances (a)
(In Thousands)	Postretirement Liability Adjustment			Unrealized (Loss) Gain on Derivatives-Other			Unrealized (Loss) Gain on Equity Investments			Other Comprehensive Loss of Affiliated Companies			Accumulated Other Comprehensive Loss
Balance at January 1, 2006	$	(3,497	)	$	(1,102	)	$	154		$	-		$	(4,445	)
Changes During Year		(3,659	)		260			53			-			(3,346	)
Balance at December 31, 2006		(7,156	)		(842	)		207			-			(7,791	)
Changes During Year		199			(1,385	)		(195	)		(1,143	)		(2,524	)
Balance at December 31, 2007		(6,957	)		(2,227	)		12			(1,143	)		(10,315	)
Changes During Year		(6,877	)		(1,062	)		(730	)		(5,215	)		(13,884	)
Balance at December 31, 2008	$	(13,834	)	$	(3,289	)	$	(718	)	$	(6,358	)	$	(24,199	)
(a) Determined using a combined statutory tax rate of 41.08%.
(b) See Note 11, Pension and Other Postretirement Benefits.
(c)  Due to the implementation of FIN 48. See Note 3.
The accompanying notes are an integral part of the consolidated financial statements.

SJI - 42

Notes to Consolidated Financial Statements

1.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BASIS OF PRESENTATION — The consolidated financial statements include the accounts of South Jersey Industries, Inc. (SJI or the Company), its wholly owned subsidiaries and subsidiaries in which we have a controlling interest. We eliminate all significant intercompany accounts and transactions. In management’s opinion, the consolidated financial statements reflect all normal and recurring adjustments needed to fairly present SJI’s financial position and operating results at the dates and for the periods presented.

EQUITY INVESTMENTS — Marketable equity securities that are purchased as long-term investments are classified as Available-for-Sale Securities and carried at their fair value on our consolidated balance sheets. Any unrealized gains or losses are included in Accumulated Other Comprehensive Loss. SJI, through wholly owned subsidiaries, holds significant variable interests in several companies but is not the primary beneficiary.  Consequently, these investments are accounted for under the equity method. In the event that losses and/or distributions from these equity method investments exceed the carrying value, and the Company is obligated to provide additional financial support, the excess will be recorded as either a current or non-current liability on the consolidated balance sheets. We include the operations of these affiliated companies on a pre-tax basis in the statements of consolidated income under Equity in Affiliated Companies (See Note 2).

ESTIMATES AND ASSUMPTIONS — We prepare our consolidated financial statements to conform with accounting principles generally accepted in the United States of America (GAAP). Management makes estimates and assumptions that affect the amounts reported in the consolidated financial statements and related disclosures. Therefore, actual results could differ from those estimates. Significant estimates include amounts related to regulatory accounting, energy derivatives, environmental remediation costs, pension and other postretirement benefit costs, and revenue recognition.

REGULATION — South Jersey Gas Company (SJG) is subject to the rules and regulations of the New Jersey Board of Public Utilities (BPU). See Note 9 for a detailed discussion of SJG’s rate structure and regulatory actions. SJG maintains its accounts according to the BPU's prescribed Uniform System of Accounts. SJG follows the accounting for regulated enterprises prescribed by the Financial Accounting Standards Board (FASB) Statement No. 71, “Accounting for the Effects of Certain Types of Regulation.” In general, Statement No. 71 allows for the deferral of certain costs (regulatory assets) and creation of certain obligations (regulatory liabilities) when it is probable that such items will be recovered from or refunded to customers in future periods. See Note 10 for a detailed discussion of regulatory assets and liabilities.

OPERATING REVENUES — Gas and electric revenues are recognized in the period the commodity is delivered to customers. For SJG and South Jersey Energy (SJE) retail customers that are not billed at the end of the month, we record an estimate to recognize unbilled revenues for gas and electricity delivered from the date of the last meter reading to the end of the month. South Jersey Resources Group, LLC’s (SJRG) gas revenues are recognized in the period the commodity is delivered. Unrealized gains and losses on energy related derivative instruments are also recognized in operating revenues for SJRG. See further discussion under Derivative Instruments. We recognize revenues related to South Jersey Energy Service Plus, LLC (SJESP) appliance service contracts seasonally over the full 12-month terms of the contracts. Revenue related to services provided on a time and materials basis is recognized on a monthly basis as the jobs are completed. Marina Energy, LLC (Marina) recognizes revenue on a monthly basis as services are provided, as lease income is earned, and for on-site energy production that is delivered to its customers.

REVENUE BASED TAXES — SJI collects certain revenue-based energy taxes from customers. Such taxes include New Jersey State Sales Tax, Transitional Energy Facility Assessment (TEFA) and Public Utilities Assessment (PUA). State sales tax is recorded as a liability when billed to customers and is not included in revenue or operating expenses. TEFA and PUA are included in both utility revenue and cost of sales utility and totaled $8.7 million, $8.8 million, and $7.9 million in 2008, 2007 and 2006, respectively.

ACCOUNTS RECEIVABLE AND PROVISION FOR UNCOLLECTIBLE ACCOUNTS — Accounts receivable are carried at the amount owed by customers. A provision for uncollectible accounts is established based on our collection experience and an assessment of the collectibility of specific accounts.

SJI - 43

PROPERTY, PLANT AND EQUIPMENT — For regulatory purposes, utility plant is stated at original cost, which may be different than SJG’s cost if the assets were acquired from another regulated entity. Nonutility plant is stated at cost. The cost of adding, replacing and renewing property is charged to the appropriate plant account.

ASSET RETIREMENT OBLIGATIONS — The amounts included under Asset Retirement Obligations (ARO) are primarily related to the legal obligations the Company has to cut and cap gas distribution pipelines when taking those pipelines out of service in future years. These liabilities are generally recognized upon the acquisition or construction of the asset. The related asset retirement cost is capitalized concurrently by increasing the carrying amount of the related asset by the same amount as the liability. Changes in the liability are recorded for the passage of time (accretion) or for revisions to cash flows originally estimated to settle the ARO.

 ARO activity was as follows (in thousands):

	2008			2007
AROs as of January 1,	$	24,604		$	23,970
Accretion		441			511
Additions		136			174
Settlements		(37	)		(51	)
Revisions in Estimated Cash Flows*		(2,591	)		-
ARO’s as of December 31,	$	22,553		$	24,604
*A corresponding reduction was made to Regulatory Assets, thus having no impact on earnings.

DEPRECIATION — We depreciate utility plant on a straight-line basis over the estimated remaining lives of the various property classes. These estimates are periodically reviewed and adjusted as required after BPU approval. The composite annual rate for all depreciable utility property was approximately 2.3% in 2008, 2007,  and  2006. The actual composite rate may differ from the approved rate as the asset mix changes over time. Except for retirements outside of the normal course of business, accumulated depreciation is charged with the cost of depreciable utility property retired, less salvage. Nonutility property depreciation is computed on a straight-line basis over the estimated useful lives of the property, ranging up to 50 years. Gain or loss on the disposition of nonutility property is recognized in operating income.

CAPITALIZED INTEREST — SJG capitalizes interest on construction at the rate of return on the rate base utilized by the BPU to set rates in its last base rate proceeding (See Note 9). Marina capitalizes interest on construction projects in progress based on the actual cost of borrowed funds. SJG’s amounts are included in Utility Plant and Marina’s amounts are included in Nonutility Property and Equipment on the consolidated balance sheets. Interest Charges are presented net of capitalized interest on the consolidated statements of income.   The amount of interest capitalized by SJI for the years ended December 31, 2008, 2007 and 2006 was not significant.

IMPAIRMENT OF LONG-LIVED ASSETS — We review the carrying amount of long-lived assets for possible impairment whenever events or changes in circumstances indicate that such amounts may not be recoverable. For the years ended 2008, 2007 and 2006, no significant impairments were identified.

DERIVATIVE INSTRUMENTS — SJI accounts for derivative instruments in accordance with FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended. We record all derivatives, whether designated in hedging relationships or not, on the consolidated balance sheets at fair value unless the derivative contracts qualify for the normal purchase and sale exemption. In general, if the derivative is designated as a fair value hedge, we recognize the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk in earnings. We currently have no fair value hedges. If the derivative is designated as a cash flow hedge, we record the effective portion of the hedge in Accumulated Other Comprehensive Loss and recognize it in the income statement when the hedged item affects earnings. We recognize ineffective portions of the cash flow hedges immediately in earnings. In 2007, we changed our policy to no longer designate energy-related derivative instruments as cash flow hedges. We formally document all relationships between hedging instruments and hedged items, as well as our risk management objectives, strategies for undertaking various hedge transactions and our methods for assessing and testing correlation and hedge ineffectiveness. All hedging instruments are linked to the hedged asset, liability, firm commitment or forecasted transaction. Due to the application of regulatory accounting principles under FASB Statement No. 71, gains and losses on derivatives related to SJG’s gas purchases are recorded through the BGSS clause.

SJI - 44

Initially and on an ongoing basis we assess whether derivatives designated as hedges are highly effective in offsetting changes in cash flows or fair values of the hedged items. We discontinue hedge accounting prospectively if we decide to discontinue the hedging relationship; determine that the anticipated transaction is no longer likely to occur; or determine that a derivative is no longer highly effective as a hedge. In the event that hedge accounting is discontinued, we will continue to carry the derivative on the balance sheet at its current fair value and recognize subsequent changes in fair value in current period earnings. Unrealized gains and losses on the discontinued hedges that were previously included in Accumulated Other Comprehensive Loss will be reclassified into earnings when the forecasted transaction occurs, or when it is probable that it will not occur.

Certain SJI subsidiaries are involved in buying, selling, transporting and storing natural gas and buying and selling retail electricity for their own accounts as well as managing these activities for other third parties. These subsidiaries are subject to market risk due to commodity price fluctuations. To manage this risk, our companies enter into a variety of physical and financial transactions including forward contracts, swap agreements, options contracts and futures contracts.

SJI structured its subsidiaries so that SJG and SJE transact commodities on a physical basis and typically do not directly enter into positions that financially settle. SJRG performs this risk management function for these entities and enters into the types of financial transactions noted above. As part of its gas purchasing strategy, SJG uses financial contracts through SJRG to hedge against forward price risk. The costs or benefits of these short-term contracts are recoverable through SJG’s Basic Gas Supply Service (BGSS) clause, subject to BPU approval. As of December 31, 2008 and 2007, SJG had $29.0 million and $2.1 million of costs, respectively, included in its BGSS related to open financial contracts.

Management takes an active role in the risk management process and has developed policies and procedures that require specific administrative and business functions to assist in identifying, assessing and controlling various risks. Management reviews any open positions in accordance with strict policies to limit exposure to market risk.

The Company manages its portfolio of purchases and sales, as well as natural gas in storage, using a variety of instruments that include forward contracts, swap agreements, options contracts and futures contracts. These contracts are measured at fair value and recorded in Derivatives — Energy Related Assets or Derivatives — Energy Related Liabilities on the consolidated balance sheets. The consolidated net pre-tax unrealized gain  of $9.3 million, $3.6 million and $36.7 million was recorded in earnings during the years 2008, 2007 and 2006, respectively, which are included with realized gains and losses in Operating Revenues — Nonutility.

SJI presents revenues and expenses related to its energy trading activities on a net basis in Operating Revenues — Nonutility in the consolidated statements of income consistent with Emerging Issues Task Force (EITF) Issue No. 02-03, “Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities.” The above presentation has no effect on operating income or net income.

The Company has entered into interest rate derivatives and similar agreements to hedge exposure to increasing interest rates, and the impact of those rates on cash flows of variable-rate debt. These interest rate derivatives have been designated as cash flow hedges and are included in Derivatives - Other on the consolidated balance sheets. As of December 31, 2008, SJI’s active interest rate swaps were as follows:

Notional Amount		Fixed Interest Rate		Start Date	Maturity	Type of Debt	Obligor
$	3,900,000	4.795	%	12/01/2004	12/01/2014	Taxable	Marina
$	8,000,000	4.775	%	11/12/2004	11/12/2014	Taxable	Marina
$	20,000,000	4.080	%	11/19/2001	12/01/2011	Tax-exempt	Marina
$	14,500,000	3.905	%	03/17/2006	01/15/2026	Tax-exempt	Marina
$	500,000	3.905	%	03/17/2006	01/15/2026	Tax-exempt	Marina
$	330,000	3.905	%	03/17/2006	01/15/2026	Tax-exempt	Marina
$	7,100,000	4.895	%	02/01/2006	02/01/2016	Taxable	Marina
$	12,500,000	3.430	%	12/01/2006	02/01/2036	Tax-exempt	SJG
$	12,500,000	3.430	%	12/01/2006	02/01/2036	Tax-exempt	SJG

SJI - 45

The differential to be paid or received as a result of these swap agreements is accrued as interest rates change and is recognized as an adjustment to interest expense. As of December 31, 2008 and 2007, the fair value of these swaps was $14.1 million and $2.5 million respectively.  The fair value represents the amount SJI would have to pay the counterparty  to terminate these contracts as of those dates. For selected interest rate derivatives, the fair value upon termination can be recovered in rates, and therefore, the unrealized gain or loss has been included in Other Regulatory Assets in the consolidated balance sheets in accordance with FAS 71, “Accounting for the Effects of Certain Types of Regulation.”  The remaining interest rate derivatives have been designated as cash flow hedges and have been determined to be highly effective.  Therefore, the changes in fair value of the effective portion of these swaps along with the cumulative unamortized costs, net of taxes, have been recorded in Accumulated Other Comprehensive Loss.  The ineffective portion of these swaps of approximately $2.2 million, resulting primarily from the unusual market conditions experienced during the fourth quarter of 2008, have been recognized as a charge to earnings during 2008.

 STOCK-BASED COMPENSATION PLAN— Under the Amended and Restated 1997 Stock-Based Compensation Plan, no more than 2,000,000 shares in the aggregate may be issued to SJI's officers (Officers), non-employee directors (Directors) and other key employees. The plan will terminate on January 26, 2015, unless terminated earlier by the Board of Directors. No options were granted or outstanding during the years ended December 31, 2008, 2007 and 2006 and no stock appreciation rights have been issued under the plan. During the years ended December 31, 2008, 2007 and 2006, SJI granted 45,241, 44,106, and 42,983  restricted shares to Officers and other key employees, respectively. These restricted shares vest over a three-year period and are subject to SJI achieving certain market based performance targets as compared to a peer group average, which can cause the actual amount of shares that ultimately vest to range from between 0% to 150% of the original share units granted. SJI granted 9,261 restricted shares to Directors in December 2006 and 8,667 restricted shares in January 2008.  No shares were granted to Directors in 2007. These shares vest over a three-year service period and contain no performance conditions. As a result, 100% of the shares granted generally vest.

On January 1, 2006, SJI adopted FASB Statement No. 123(R), “Share-Based Payment,” which revised FASB Statement No. 123, “Accounting for Stock-Based Compensation” and superseded Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees.” As the vesting requirements under the plan are contingent upon market and service conditions, Statement No. 123(R) requires SJI to measure and recognize stock-based compensation expense in its consolidated financial statements based on the fair value at the date of grant for its share-based awards. In accordance with Statement No. 123(R), SJI is recognizing compensation expense on a straight-line basis over the requisite service period of each award. In addition, SJI identifies specific forfeitures of share-based awards and compensation expense is adjusted accordingly over the requisite service period. Compensation expense is not adjusted based on the actual achievement of performance goals. The Company estimated the fair value of Officers’ restricted stock awards on the date of grant using a Monte Carlo simulation model.

The following table summarizes the nonvested restricted stock awards outstanding at December 31, 2008 and the assumptions used to estimate the fair value of the awards:

	Grant	Shares	Fair Value		Expected	Risk-Free
	Date	Outstanding	Per Share		Volatility	Interest Rate
Officers &	Jan. 2007	38,624	$	29.210	18.5%	4.9%
Key Employees	Jan. 2008	44,479	$	34.030	21.7%	2.9%
Directors -	Dec. 2006	9,261	$	34.020	-	-
	Jan. 2008	8,667	$	36.355	-	-

Expected volatility is based on the actual daily volatility of SJI’s share price over the preceding three-year period as of the valuation date. The risk-free interest rate is based on the zero-coupon U.S. Treasury Bond, with a term equal to the three-year term of the Officers’ and other key employees’ restricted shares. As notional dividend equivalents are credited to the holders, which are reinvested during the three-year service period, no reduction to the fair value of the award is required. As the Directors’ restricted stock awards contain no performance conditions and notional dividend equivalents are credited to the holder, which are reinvested during the three-year service period, the fair value of these awards are equal to the market value of shares on the date of grant.

SJI - 46

The following table summarizes the total stock based compensation cost for the years ended December 31, 2008, 2007 and 2006 (in thousands):

	2008			2007			2006
Officers & Key Employees	$	1,144		$	996		$	919
Directors		268			209			140
Total Cost		1,412			1,205			1,059
Capitalized		(149	)		(115	)		(114	)
Net Expense	$	1,263		$	1,090		$	945

As of December 31, 2008, there was $1.7 million of total unrecognized compensation cost related to nonvested share-based compensation awards granted under the restricted stock plans. That cost is expected to be recognized over a weighted average period of 1.7 years.

The following table summarizes information regarding restricted stock award activity during 2008 excluding accrued dividend equivalents:

							Weighted Average
	Officers &						Grant Date
	Key Employees			Directors			Fair Value
Nonvested Shares Outstanding, January 1, 2008		76,657			15,601		$	29.245
Granted		45,241			8,667			34.404
Vested*		(35,310	)		(6,340	)		28.257
Cancelled/Forfeited		(3,485	)		-			29.801
Nonvested Shares Outstanding, December 31, 2008		83,103			17,928		$	32.386
*Actual shares expected to be awarded to officers during the first quarter of 2009, including dividend equivalents and adjustments for performance measures, total 57,976 shares.

During the years ended December 31, 2008 and 2007, SJI awarded 51,838 shares at a market value of $1.9 million and 69,781 shares at a market value of $2.3 million, respectively. The Company has a policy of issuing new shares to satisfy its obligations under these plans; therefore, there are no cash payment requirements resulting from the normal operation of this plan. However, a change in control could result in such shares becoming nonforefeitable or immediately payable in cash. At the discretion of the officers and other key employees, the receipt of vested shares can be deferred until future periods.  These deferred shares are included in Treasury Stock on the Statements of Consolidated Capitalization.

TREASURY STOCK — SJI uses the par value method of accounting for treasury stock.  As of December 31, 2008 and 2007, SJI held 140,999 and 149,829 shares of treasury stock respectively.  These shares are related to deferred compensation arrangements where the amounts earned are held in the stock of SJI.

INCOME TAXES — Deferred income taxes are provided for all significant temporary differences between the book and taxable basis of assets and liabilities in accordance with FASB Statement No. 109, “Accounting for Income Taxes” (See Note 3). A valuation allowance will be established when it is determined that it is more likely than not that a deferred tax asset will not be realized.

CASH AND CASH EQUIVALENTS — For purposes of reporting cash flows, highly liquid investments with original maturities of three months or less are considered cash equivalents.

SJI - 47

NEW ACCOUNTING PRONOUNCEMENTS — In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements”, which defines fair value, establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America, and expands disclosures about fair value measurements. In October 2008, the FASB issued FSP 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active,” to provide clarification of the application of FAS 157 in a market that is not active and to provide an example to illustrate key considerations in determining the fair value of a financial asset in such a non-active market. This statement was effective in fiscal years beginning after November 15, 2007. However, for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis, FAS 157 is effective in fiscal years beginning after November 15, 2008.  The adoption of the initial phase of this statement did not have a material effect on the Company’s consolidated financial statements. Management does not anticipate that the adoption of the remainder of this statement will have a material effect on the Company’s consolidated financial statements.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.”  The statement permits entities to choose to measure certain financial instruments and certain other items at fair value that are not currently required to be measured at fair value.  The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions.  This statement is effective for the first fiscal year beginning after November 15, 2007.  The Company has not elected this fair value option and, as a result, the adoption of this statement did not have a material effect on the Company’s consolidated financial statements.

In April 2007, the FASB posted FASB Staff Position (FSP) FIN 39-1, “Amendment of FASB Interpretation No. 39”, which addresses questions received by the FASB staff regarding Interpretation 39 relating to the offsetting of amounts recognized for forward, interest rate swap, currency swap, option, and other conditional or exchange contracts.  The guidance in this FSP is effective for fiscal years beginning after November 15, 2007.  The adoption of this position did not have a material effect on the Company’s consolidated financial statements.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141(R), “Business Combinations.” The statement requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. This statement is effective for the first fiscal year beginning after December 15, 2008. Management does not anticipate that the adoption of this statement will have a material effect on the Company’s consolidated financial statements.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements.” The statement requires all entities to report noncontrolling (minority) interests in subsidiaries in the same way—as equity in the consolidated financial statements. Moreover, Statement No. 160 eliminates the diversity that currently exists in accounting for transactions between an entity and noncontrolling interests by requiring they be treated as equity transactions. This statement is effective for the first fiscal year beginning after December 15, 2008. Management does not anticipate that the adoption of this statement will have a material effect on the Company’s consolidated financial statements.

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161 (FAS 161), “Disclosures about Derivative Instruments and Hedging Activities - an amendment of SFAS No. 133”. This statement requires disclosures of how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. FAS 161 is effective for fiscal years beginning after November 15, 2008. Management is currently evaluating the impact that the adoption of this statement will have on the Company’s consolidated financial statements.

SJI - 48

In September 2008, the FASB issued FASB Staff Position (FSP) No. 133-1 and FIN 45-4, “Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161.”  The FSP is intended to improve disclosures about credit derivatives by requiring more information about the potential adverse effects of changes in credit risk on the financial position, financial performance, and cash flows of the sellers of credit derivatives. The provisions of the FSP that amend Statement 133 and Interpretation 45 are effective for reporting periods (annual or interim) ending after November 15, 2008. The adoption of this position did not have a material effect on the Company’s consolidated financial statements.

In December 2008, the FASB issued FASB Staff Position (FSP) No. 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets,” which amends Statement 132(R) to require more detailed disclosures about employers’ plan assets, including employers’ investment strategies, major categories of plan assets, concentrations of risk within plan assets, and valuation techniques used to measure the fair value of plan assets. The provisions of this FSP are effective for reporting periods ending after December 15, 2009. Management is currently evaluating the impact that the adoption of this position will have on the Company’s consolidated financial statements.

In December 2008, the Emerging Issue Task Force issued EITF Issue No. 08-5, “Issuer’s Accounting for Liabilities Measured at Fair Value With a Third-Party Credit Enhancement”.  The Task Force reached a consensus that an issuer of a liability with a third-party credit enhancement that is inseparable from the liability must treat the liability and the credit enhancement as two units of accounting. Under the consensus, the fair value measurement of the liability does not include the effect of the third-party credit enhancement; therefore, changes in the issuer’s credit standing without the support of the credit enhancement affect the fair value measurement of the issuer’s liability. Entities will need to disclose the existence of any third-party credit enhancements related to their liabilities that are within the scope of this Issue (i.e., that are measured at fair value). The consensus is effective in the first reporting period beginning on or after December 15, 2008. Management is currently evaluating the impact that the adoption of this consensus will have on the Company’s consolidated financial statements.

In December, 2008, the FASB issued FSP FAS 140-4 and FIN 46(R)-8, “Disclosures Related to Asset Transfers, VIEs, and QSPEs”, which requires public companies to provide disclosures similar to those proposed in the pending amendments to Statement 140 and Interpretation 46(R). The FSP requires additional disclosures about transfers of financial assets and an enterprise’s involvement with VIEs, including QSPEs. These disclosures should help improve transparency in the current market environment. The FSP is effective for the first reporting period (interim or annual) that ends after December 15, 2008. The adoption of this position did not have a material effect on the Company’s consolidated financial statements.

In December, 2008, the Emerging Issue Task Force issued EITF Issue No. 08-6, “Equity Method Investment Accounting Considerations”. In this Issue, the Task Force considered the effects of the issuances of Statements 141(R) and 160 on an entity’s application of the equity method under Opinion 18. Statements 141(R) and 160, which are effective for fiscal years beginning on or after December 15, 2008, amend the accounting for consolidated subsidiaries. Questions have arisen regarding the application of equity method accounting guidance because of the significant changes to the guidance on business combinations and subsidiary equity transactions and the increased use of fair value measurements as a result of these Statements.The Task Force reached a consensus clarifying the application of equity method accounting. The consensus is effective for transactions occurring in fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Management is currently evaluating the impact that the adoption of this consensus will have on the Company’s consolidated financial statements.

2.           DISCONTINUED OPERATIONS, AFFILIATIONS AND CONTROLLING INTERESTS:

DISCONTINUED OPERATIONS — Discontinued Operations consist of the environmental remediation activities related to the properties of South Jersey Fuel, Inc. (SJF) and the product liability litigation and environmental remediation activities related to the prior business of The Morie Company, Inc. (Morie). SJF is a subsidiary of Energy & Minerals, Inc. (EMI), an SJI subsidiary, which previously operated a fuel oil business. Morie is the former sand mining and processing subsidiary of EMI. EMI sold the common stock of Morie in 1996. 

SJI conducts tests annually to estimate the environmental remediation costs for these properties.

SJI - 49

Summarized operating results of the discontinued operations for the years ended December 31, were (in thousands, except per share amounts):

	2008			2007			2006
Loss before Income Taxes:
Sand Mining	$	(227	)	$	(411	)	$	(1,021	)
Fuel Oil		(149	)		(95	)		(266	)
Income Tax Benefits		129			115			469
Loss from Discontinued Operations	$	(247	)	$	(391	)	$	(818	)
Earnings Per Common Share from
Discontinued Operations
Basic and Diluted	$	(0.01	)	$	(0.02	)	$	(0.03	)

AFFILIATIONS — The following affiliated entities are accounted for under the equity method:

SJI and Conectiv Solutions, LLC formed Millennium Account Services, LLC in which SJI has a 50% equity interest, to provide meter reading services in southern New Jersey.

Marina and a joint venture partner formed the following entities of which Marina has a 50% equity interest:

BC Landfill Energy, LLC (BCLE) and SC Landfill Energy, LLC (SCLE) which will lease and operate facilities to produce electricity from landfill methane gas through 2027 and 2028 respectively.

LVE Energy Partners, LLC (LVE), which has entered into a contract to design, build, own and operate a district energy system and central energy center for a planned resort in Las Vegas, Nevada.

SJI holds significant variable interests in these entities but is not the primary beneficiary. Consequently, these entities are accounted for under the equity method because the variable interests held by SJI will not absorb a majority of the respective entity’s expected losses or receive a majority of the entity’s expected residual returns. The net carrying amount of these variable interests held by SJI is approximately $(9.1) million and is included in Investment in Affiliates and Other Current Liabilities on the consolidated balance sheets as of December 31, 2008. SJI’s maximum exposure to loss from these variable interests is limited to its combined equity contributions and capital contribution obligations of approximately $32.4 million and the unsecured Notes Receivable-Affiliate in the amount of $7.5 million.

During the year ended December 31, 2008, the Company and its partner have provided financial support to LVE as discussed under Guarantees in Note 14.

SJRG and a joint venture partner formed Potato Creek, LLC (Potato Creek) in which SJRG has a 30% equity interest.  Potato Creek will own and manage the oil, gas and mineral rights of certain real estate in Pennsylvania.

SJE and GZA GeoEnvironmental, Inc. formed AirLogics, LLC to market a jointly developed air monitoring system designed to assist companies involved in environmental cleanup activities.  SJE sold its entire interest in AirLogics in June 2006 for $1.5 million, resulting in an after-tax gain of $0.2 million.

CONTROLLING INTERESTS IN JOINTLY OWNED PROJECTS — Marina and a joint venture partner formed AC Landfill Energy, LLC (ACLE) and WC Landfill Energy, LLC (WCLE) to develop and install methane-to-electric power generation systems at certain county-owned landfills. Marina owns a 51% interest in ACLE and WCLE and accounts for these entities as consolidated subsidiaries.

SJI - 50

3.           INCOME TAXES:

SJI files a consolidated federal income tax return. State income tax returns are filed on a separate company basis in states where SJI has operations and/or a requirement to file. Total income taxes applicable to operations differ from the tax that would have resulted by applying the statutory Federal Income Tax rate to pre-tax income for the following reasons (in thousands):

	2008				2007				2006
Tax at Statutory Rate		$	45,194			$	37,000			$	42,677
Increase (Decrease) Resulting from:
State Income Taxes			8,291				6,767				7,593
ESOP			(818	)			(749	)			(749	)
Amortization of Investment
Tax Credits			(318	)			(320	)			(325	)
Amortization of Flowthrough
Depreciation			664				664				664
Renewable Energy Credits			(391	)			(215	)			(71	)
Other - Net			(674	)			(91	)			(106	)
Income Taxes:
Continuing Operations			51,948				43,056				49,683
Discontinued Operations			(129	)			(115	)			(469	)
Net Income Taxes		$	51,819			$	42,941			$	49,214
The provision for Income Taxes is comprised of the following (in thousands):
		2008				2007			2006
Current:
Federal		$	19,684			$	23,620			$	23,027
State			9,568				7,726				5,152
Total Current			29,252				31,346				28,179
Deferred:
Federal			19,839				9,344				15,301
State			3,175				2,686				6,528
Total Deferred			23,014				12,030				21,829
Investment Tax Credits			(318	)			(320	)			(325	)
Income Taxes:
Continuing Operations			51,948				43,056				49,683
Discontinued Operations			(129)				(115	)			(469	)
Net Income Taxes		$	51,819			$	42,941			$	49,214

Investment Tax Credits attributable to SJG were deferred and continue to be amortized at the annual rate of 3%, which approximates the life of related assets.

SJI - 51

The net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes resulted in the following net deferred tax liabilities (assets) at December 31 (in thousands):

	2008			2007
Current:
Deferred Gas Costs - Net	$	4,122		$	4,122
Derivatives / Unrealized Gain		12,849			8,681
Conservation Incentive Program		9,056			8,061
Other		(1,018	)		(613	)
Current Deferred Tax Liability  - Net	$	25,009		$	20,251
Noncurrent:
Book versus Tax Basis of Property	$	182,139		$	163,366
Deferred Gas Costs - Net		5,470			5,141
Environmental		19,302			9,711
Deferred Regulatory Costs		1,246			1,239
Deferred State Tax		(7,692	)		(6,708	)
Investment Tax Credit Basis Gross-Up		(944	)		(1,107	)
Deferred Pension & Other Post Retirement Benefits		32,311			15,239
Pension & Other Post Retirement Benefits		(32,550	)		(10,862	)
Deferred Revenues		(11,761	)		(3,726	)
Derivatives/Unrealized  Gain		(3,060	)		2,428
Other		(167	)		965
Noncurrent Deferred Tax Liability - Net	$	184,294		$	175,686

On January 1, 2007 SJI adopted the provisions of FASB Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes.” As a result of the implementation of FIN 48, SJI recognized a $0.8 million reduction to beginning retained earnings as a cumulative effect adjustment and a noncurrent deferred tax asset of $1.8 million. The total unrecognized tax benefits as of December 31, 2008 and 2007 were $1.7 million and $1.9 million respectively, which excludes $1.0 million and $0.9 million of accrued interest and penalties respectively.

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, is as follows (in thousands):

	2008			2007
Balance at January 1,	$	1,926		$	2,125
Increase as a result of tax positions taken in prior years		253			154
Decrease due to a lapse in the statute of limitations		(457	)		(353	)
Balance at December 31,	$	1,722		$	1,926

The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is not significant.  The Company’s policy is to record interest and penalties related to unrecognized tax benefits as interest expense and other expense respectively. These amounts were not significant in 2008 or 2007. There have been no significant changes to the unrecognized tax benefits during 2008 or 2007 and the Company does not anticipate any significant changes in the total unrecognized tax benefits within the next 12 months.

The unrecognized tax benefits are primarily related to an uncertainty of state income tax issues and the timing of certain deductions taken on the Company’s income tax returns.  Federal income tax returns from 2005 forward and state income tax returns primarily from 2004 forward are open and subject to examination.

4.           PREFERRED STOCK:

REDEEMABLE CUMULATIVE PREFERRED STOCK — SJI has 2,500,000 authorized shares of Preference Stock, no par value, which has not been issued.

SJI - 52

 5.           COMMON STOCK:

The following shares were issued and outstanding at December 31:

	2008	2007	2006
Beginning of Year	29,607,802	29,325,593	28,982,440
New Issues During Year:
Dividend Reinvestment Plan	60,390	212,428	232,883
Stock-Based Compensation Plan	60,505	69,781	110,270
End of Year	29,728,697	29,607,802	29,325,593

The par value ($1.25 per share) of stock issued was recorded in Common Stock and the net excess over par value of approximately $4.0 million, $8.7 million and $7.9 million, respectively, was recorded in Premium on Common Stock.

EARNINGS PER COMMON SHARE — We present basic EPS based on the weighted-average number of common shares outstanding. EPS is presented in accordance with FASB Statement No. 128, “Earnings Per Share,” which establishes standards for computing and presenting basic and diluted EPS. The incremental shares required for inclusion in the denominator for the diluted EPS calculation were 136,123, 112,750, and 85,120  shares for the years ended December 31, 2008, 2007 and 2006, respectively. These shares relate to SJI’s restricted stock as discussed in Note 1.

DIVIDEND REINVESTMENT PLAN (DRP) — Through April 2008, shares of common stock offered through the DRP have been new shares issued directly by SJI. Beginning in April 2008, shares of common stock offered by the DRP have been purchased in open market transactions. 

6.           FINANCIAL INSTRUMENTS:

RESTRICTED INVESTMENTS — In accordance with the terms of the Marina and certain SJG loan agreements, unused proceeds are required to be escrowed pending approved construction expenditures. As of December 31, 2008 and 2007, the escrowed proceeds, including interest earned, totaled $1.4 and $6.5 million respectively.

SJRG maintains a margin account with a national investment firm to support its risk management activities. The balance required to be held in this margin account increases as the net value of the outstanding energy related financial contracts with this investment firm decreases. As of December 31, 2008, the balance of this account was $29.7 million. As of December 31, 2007, there was no balance in this account. As of December 31, 2007, the Company was holding $4.1 million in a margin account received from this investment firm as the value of the related financial contracts had increased. This balance is reflected in Margin Account Liability on the consolidated balance sheet as of December 31, 2007.  The carrying amounts of the Restricted Investments and the Margin Account Liability approximate their fair values at December 31, 2008 and 2007.

LONG-TERM RECEIVABLES — SJG provides financing to customers for the purpose of attracting conversions to natural gas heating systems from competing fuel sources.  The terms of these loans call for customers to make monthly payments over a period of up to five years with no interest.  The carrying amounts of such loans were $10.1 million and $8.4 million as of December 31, 2008 and 2007, respectively. The current portion of these receivables is reflected in Accounts Receivable and the non-current portion is reflected in Contract Receivables on the consolidated balance sheets. The carrying amounts noted above are net of unamortized discounts resulting from imputed interest in the amounts of $1.2 million and $0.7 million as of December 31, 2008 and 2007, respectively.  The annual amortization to interest is not material to the Company’s consolidated financial statements. 

LONG-TERM DEBT — In March 2006, Marina issued $16.4 million of tax-exempt, variable-rate bonds through the New Jersey Economic Development Authority (NJEDA), which mature in March 2036. Proceeds of the bonds were used to finance the expansion of Marina’s Atlantic City thermal energy plant. The interest rate on all but $1.1 million of the bonds has been effectively fixed via interest rate swaps at 3.91% until January 2026. However, during the fourth quarter of 2008, these interest rate swaps were not completely effective in mitigating the risks resulting from changes in interest rates. Consequently, the Company incurred approximately $2.2 million of additional interest expense related to the ineffective portion of these interest rate swaps. These swaps remain in place and are expected to substantially offset future changes in interest rates.  The variable interest rate on the $1.1 million portion of the bonds that remain unhedged was 1.5% as of December 31, 2008.  These bonds contain no financial covenants.

SJI - 53

In April 2006, SJG issued $25.0 million of secured tax-exempt, auction-rate debt through the NJEDA to finance infrastructure costs that qualify for tax-exempt financing. SJG entered into forward-starting interest rate swap agreements commencing December 1, 2006 through January 2036, under which SJG pays a fixed rate of 3.43% and receives variable rate payments from the swap counterparty at 67% of the LIBOR rate.  The debt was issued under SJG’s medium-term note program. In June 2008, SJG used $25.0 million of its revolving credit facility to repurchase these outstanding auction-rate Series A 2006 Bonds at par. Those bonds were remarketed to the public in August 2008 as variable rate demand bonds with liquidity support provided by a letter of credit from a commercial bank as discussed in Note 14. The related borrowings under the revolver were repaid at that time.  Material terms of the original bonds, such as the 2036 maturity date, floating rate interest that resets weekly, and a first mortgage collateral position, remain unchanged.  These notes contain no financial covenants.

We estimated the fair values of SJI's long-term debt, including current maturities, as of December 31, 2008 and 2007, to be $436.6 million and $391.0 million, respectively. Carrying amounts as of December 31, 2008 and 2007, were $357.9 million and $358.0 million, respectively. We based the estimates on interest rates available to SJI at the end of each year for debt with similar terms and maturities. SJI retires debt when it is cost effective as permitted by the debt agreements.

CONCENTRATION OF CREDIT RISK - As of December 31, 2008, approximately 38.4% of the current and noncurrent Derivatives – Energy Related Assets or $31.8 million are with a single retail counterparty. This counterparty has contracts with a large number of diverse customers which minimizes the concentration of this risk. A portion of these contracts may be assigned to SJI in the event of a default by the counterparty.

OTHER FINANCIAL INSTRUMENTS — The carrying amounts of SJI's other financial instruments approximate their fair values at December 31, 2008 and 2007.

7.           SEGMENTS OF BUSINESS:

SJI operates in several different reportable operating segments. Gas Utility Operations (SJG) consists primarily of natural gas distribution to residential, commercial and industrial customers. Wholesale Gas Operations include SJRG’s activities. SJE is involved in both retail gas and retail electric activities. Retail Gas and Other Operations include natural gas acquisition and transportation service business lines. Retail Electric Operations consist of electricity acquisition and transportation to commercial and industrial customers. On-Site Energy Production consists of Marina’s thermal energy facility and other energy-related projects. Appliance Service Operations includes SJESP’s servicing of appliances via the sale of appliance service programs as well as on a time and materials basis, and the installation of residential and small commercial HVAC systems.  The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Intersegment sales and transfers are treated as if the sales or transfers were to third parties, that is, at current market prices.

 Information about SJI's operations in different reportable operating segments is presented below (in thousands):

	2008		2007			2006
Operating Revenues:
Gas Utility Operations	$	568,046	$	630,547		$	642,671
Wholesale Gas Operations		115,550		75,747			78,060
Retail Gas and Other Operations		177,342		174,043			163,064
Retail Electric Operations		60,046		51,098			50,732
On-Site Energy Production		46,980		40,084			32,264
Appliance Service Operations		19,184		17,224			15,730
Corporate & Services		18,221		14,778			12,886
Subtotal		1,005,369		1,003,521			995,407
Intersegment Sales		(43,392)		(47,150	)		(63,979	)
Total Operating Revenues	$	961,977	$	956,371		$	931,428

SJI - 54

Operating Income:
Gas Utility Operations	$	84,417		$	83,989		$	81,208
Wholesale Gas Operations		50,985			33,156			53,014
Retail Gas and Other Operations		2,718			192			(3,685	)
Retail Electric Operations		2,096			2,201			4,231
On-Site Energy Production		10,435			8,406			7,901
Appliance Service Operations		2,040			1,003			2,554
Corporate and Services		818			676			579
Total Operating Income	$	153,509		$	129,623		$	145,802
Depreciation and Amortization:
Gas Utility Operations	$	31,506		$	29,317		$	28,140
Wholesale Gas Operations		311			6			11
Retail Gas and Other Operations		18			13			9
On-Site Energy Production		3,097			2,955			2,262
Appliance Service Operations		301			280			237
Corporate and Services		432			294			175
Total Depreciation and Amortization	$	35,665		$	32,865		$	30,834
Interest Charges:
Gas Utility Operations	$	18,938		$	20,985		$	22,099
Wholesale Gas Operations		956			2,204			2,244
Retail Gas and Other Operations		111			190			186
On-Site Energy Production		5,541			3,698			3,081
Corporate and Services		1,704			3,772			3,723
Subtotal		27,250			30,849			31,333
Intersegment Borrowings		(1,574	)		(3,634	)		(3,662	)
Total Interest Expense	$	25,676		$	27,215		$	27,671

Income Taxes:
Gas Utility Operations	$	26,508	$	26,652	$	24,811
Wholesale Gas Operations		20,738		12.786		20,842
Retail Gas and Other Operations		1,087		55		(1,149	)
Retail Electric		853		883		1,733
On-Site Energy Production		1,486		1,851		1,940
Appliance Service Operations		890		489		1,091
Corporate and Services		386		340		415
Total Income Tax	$	51,948	$	43,056	$	49,683

Property Additions:
Gas Utility Operations	$	56,198			$	49,061		$	55,510
Wholesale Gas Operations		2,707				330			557
Retail Gas and Other Operations		11				74			8
On-Site Energy Production		5,911				5,495			10,731
Appliance Service Operations		86				219			313
Corporate and Services		140				1,381			491
Total Property Additions	$	65,053			$	56,560		$	67,610
Identifiable Assets:
Gas Utility Operations	$	1,354,015			$	1,227,162
Wholesale Gas Operations		196,487				142,848
Retail Gas and Other Operations		42,939				42,735
Retail Electric Operations		5,594				7,082
On-Site Energy Production		123,913				124,982
Appliance Service Operations		17,704				16,060
Discontinued Operations		1,409				2,604
Subtotal		1,742,061				1,563,473
Corporate and Services		91,641				58,274
Intersegment Assets		(40,275	)			(92,306	)
Total Identifiable Assets	$	1,793,427		$		1,529,441

SJI - 55

8.           LEASES:

The Company is considered to be the lessor of certain thermal energy generating property and equipment under an operating lease which expires in May 2027. As of December 31, 2008 and 2007 the carrying costs of this property and equipment under operating lease was $77.4 million and $79.1 million, respectively, (net of accumulated depreciation of $10.3 million and $7.9 million, respectively) and is included in Nonutility Property and Equipment in the consolidated balance sheets.

Minimum future rentals to be received on non-cancelable leases as of December 31, 2008 for each of the next five years and in the aggregate are (in thousands):

Year ended December 31,
2009	$	5,396
2010		5,396
2011		5,396
2012		5,396
2013		5,396
Thereafter		72,398
Total minimum future rentals	$	99,378

Minimum future rentals do not include additional amounts to be received based on actual use of the leased property.

9.           RATES AND REGULATORY ACTIONS:

BASE RATES — In July 2004 the BPU approved SJG’s current rate structure based on a 7.97% rate of return on rate base that included a 10.0% return on common equity.  SJG was also permitted to recover regulatory assets contained in the petition and to reduce the composite depreciation rate from 2.9% to 2.4%.  Included in the base rate increase was also a change to the sharing of pre-tax margins on interruptible, off system sales, and transportation.  The sharing of pre-tax margins begins from dollar one, with SJG retaining 20% through June 30, 2006.  Effective July 1, 2006, the 20% retained by SJG decreased to 15% of such margins.

RATE MECHANISMS — SJG’s tariff, a schedule detailing the terms, conditions and rate information applicable to the various types of natural gas service, as approved by the BPU, has several primary rate mechanisms as discussed in detail below:

Basic Gas Supply Service (BGSS) Clause — The BGSS price structure was approved by the BPU in January 2003, and allows SJG to recover all prudently incurred gas costs. BGSS charges to customers can be either monthly or periodic (annual). Monthly BGSS charges are applicable to large use customers and are referred to as monthly because the rate changes on a monthly basis pursuant to a BPU-approved formula based on commodity market prices. Periodic BGSS charges are applicable to lower usage customers, which include all of SJG’s residential customers, and are evaluated at least annually by the BPU. However, to some extent, more frequent rate changes to the periodic BGSS are allowed. SJG collects gas costs from customers on a forecasted basis and defers periodic over/underrecoveries to the following BGSS year, which runs from October 1 though September 30. If SJG is in a net cumulative undercollected position, gas costs deferrals are reflected on the balance sheet as a regulatory asset. If SJG is in a net cumulative overcollected position, amounts due back to customers are reflected on the balance sheet as a regulatory liability. SJG pays interest on net overcollected BGSS balances at the rate of return on rate base of 7.97% utilized by the BPU to set rates in the last base rate proceeding.

SJI - 56

Regulatory actions regarding the BGSS were as follows:

· March 2006 - The BPU approved a global settlement, effective April 1, 2006, which among other items, fully resolved SJG’s 2004-2005 BGSS filing and certain issues in the 2005-2006 BGSS filing. The net impact of the global settlement was a $4.4 million reduction to annual revenues; however, this reduction had no impact on net income as there was a corresponding reduction in expense. In addition, a pilot storage incentive program was approved. This program began during the second quarter of 2006 and continued through the 2008 summer injection period. Any party to this settlement may request that the BPU terminate this program after October 31, 2008.  It is designed to provide SJG with the opportunity to achieve BGSS price reductions and additional price stability. It will also provide SJG with an opportunity to share in storage-related gains and losses, with 20% being retained by SJG, and 80% being credited to customers. Total storage-related gains for 2008, 2007 and 2006 were $5.7 million, $2.3 million and $1.6 million, respectively, under this storage incentive program.

· June 2006 - SJG made its periodic BGSS filing with the BPU requesting a $19.7 million, or 4.4% decrease in gas cost recoveries in response to decreasing wholesale gas costs, an $11.5 million benefit derived from the release of a storage facility, and the liquidation of some low-cost base gas made available during the second quarter.

· September 2006 - The BPU approved on a provisional basis, a $38.7 million, or 8.6%, annual decrease in gas cost recoveries due to the continuing decrease in wholesale gas costs subsequent to SJG’s June 2006 filing, an agreement to utilize gas from a released storage facility for the upcoming winter, and a credit to gas costs for previously overcollected state taxes.

· June 2007 – SJG made the annual periodic BGSS filing with the BPU requesting a $16.9 million, or 5.0%, decrease in gas cost recoveries in response to decreasing wholesale gas costs and a $5.4 million benefit derived from the Company electing not to extend the terms of two firm transportation contracts beyond their primary terms.

· October 2007 – The BPU approved on a provisional basis, a $36.7 million, or 11%, annual decrease in gas cost recoveries due to the continuing decrease in wholesale gas costs subsequent to SJG’s June 2007 filing.

· May 2008 – SJG made its annual periodic BGSS filing with the BPU requesting a $73.7 million, or 23%, increase in gas cost recoveries in response to increasing wholesale gas costs.

· November 2008 – The BPU approved on a provisional basis, a $38.0 million, or 12%, increase in gas costs recoveries reflecting a lower increase in gas costs then originally projected in our May 2008 filing.

· December 2008 – As part of a global settlement, the BPU approved on a provisional basis, a decrease in gas cost recoveries of $9.0 million, or 3%, due to the continued decline in projections in the wholesale gas market.

Temperature Adjustment Clause (TAC) - The TAC provided stability to SJG’s earnings by normalizing the impact of colder-than-normal and warmer-than-normal weather through September 30, 2006, when it was replaced by the Conservation Incentive Program. Each TAC year began October 1 and ended May 31 of the subsequent year. SJG recorded the earnings impact of TAC adjustments as incurred on a monthly basis during the TAC year. Subsequent to each TAC year, SJG made a filing with the BPU requesting the return or recovery of amounts recorded under the TAC. BPU approved cash inflows or outflows generally did not begin until the next TAC year. TAC adjustments affected revenue, earnings and cash flows since colder than normal weather generated credits to customers, while warmer-than-normal weather resulted in additional charges to customers. As of December 31, 2007, our consolidated balance sheet included a TAC receivable of $6.5 million under the caption Regulatory Assets.

Regulatory actions regarding the TAC were as follows:

· March 2006 - The BPU approved a global settlement, effective April 1, 2006, fully resolving SJG’s 2003-2004 TAC filing.

· October  2006 - The TAC was replaced by the Conservation Incentive Program (CIP).

· October 2006 - SJG made its annual TAC filing, requesting recovery of an $8.3 million net deficiency associated with weather being 12.5% warmer than normal for the TAC year ended May 31, 2006.

· October 2007 – The BPU approved on a provisional basis, SJG’s 2005-2006 TAC filing, which superseded the 2004-2005 TAC filing.  The effect of this action resulted in an $8.0 million increase in annual revenues.

· December 2008 – The regulatory asset related to the TAC was completely recovered and as part of a global settlement, the BPU approved the suspension of the TAC rate which resulted in a decrease of $9.3 million in annual revenues.

SJI - 57

Conservation Incentive Program (CIP) - In December 2005, SJG made a filing to implement a Conservation and Usage Adjustment (CUA) Clause. The primary purpose of the CUA is to promote conservation efforts, without negatively impacting financial stability and to base SJG’s profit margin on the number of customers rather than the amount of natural gas distributed to customers. In October 2006, the BPU approved the CUA as a three year pilot program and renamed it the Conservation Incentive Program. Each CIP year begins October 1 and ends September 30 of the subsequent year. On a monthly basis during the CIP year, SJG records adjustments to earnings based on weather and customer usage factors, as incurred. Subsequent to each year, SJG will make filings with the BPU to review and approve amounts recorded under the CIP. BPU approved cash inflows or outflows generally will not begin until the next CIP year.

· June 2007 – SJG made the first annual CIP filing, requesting recovery of $14.3 million in deficiency, of which $9.6 million was non-weather related.

· October 2007 – The BPU approved on a provisional basis, recovery of $15.5 million in deficiency, of which $9.1 million was non-weather related.

· May 2008 – SJG made its annual CIP filing, requesting recovery of $19.1 million, of which $14.1 million was non-weather related.

· December 2008 – As part of a global settlement, the BPU approved, on a provisional basis, the recovery of CIP revenue of $20.4 million, of which $16.4 million was non-weather related.

Societal Benefits Clause (SBC) - The SBC allows SJG to recover costs related to several BPU-mandated programs. Within the SBC are a Remediation Adjustment Clause (RAC), a New Jersey Clean Energy Program (NJCEP), a Universal Service Fund (USF) program and a Consumer Education Program (CEP).

Regulatory actions regarding the SBC, with the exception of USF which requires separate regulatory filings, were as follows:

· March 2006 - As part of the global settlement discussed under BGSS above, the September 2004 SBC filing was fully resolved effective April 1, 2006.

· October 2006 - SJG made the annual SBC filing, superseding the 2005 SBC filing, requesting a $0.4 million reduction in annual SBC recoveries.

· December 2007 – SJG made the annual SBC filing, superseding the 2005 and 2006 SBC filings, requesting a $7.4 million increase in annual SBC recoveries.

 · December 2008 – As part of the global settlement, the BPU approved an increase in the RAC portion of the SBC, resulting in an increase in revenue of $8.5 million.  In addition, the BPU approved a reduction in the interest rate utilized to calculate deferred tax on the RAC.

Remediation Adjustment Clause (RAC) - The RAC recovers environmental remediation costs of 12 former gas manufacturing plants (See Note 14). The BPU allows SJG to recover such costs over seven year amortization periods. The net between the amounts actually spent and amounts recovered from customers is recorded as a regulatory asset, Environmental Remediation Cost Expended - Net. Note that RAC activity affects revenue and cash flows but does not directly affect earnings because of the cost recovery over seven year amortization periods. As of December 31, 2008 and 2007, SJG reflected the unamortized remediation costs of $48.1 million and $26.0 million respectively, on the consolidated balance sheets under Regulatory Assets (See Note 10). Since implementing the RAC in 1992, SJG has recovered $40.7 million through rates as of December 31, 2008.

New Jersey Clean Energy Program (NJCEP) - This mechanism recovers costs associated with SJG’s energy efficiency and renewable energy programs. In December 2004, the BPU approved the statewide funding of the NJCEP of $745.0 million for the years 2005 through 2008. Of this amount, SJG was responsible for approximately $25.4 million over the four-year period.  In August 2008, the BPU approved the statewide funding of the NJCEP of $1.2 billion for the years 2009 through 2012.  Of this amount SJG will be responsible for approximately $41.5 million over the four-year period.  NJCEP adjustments affect revenue and cash flows but do not directly affect earnings as related costs are deferred and recovered through rates on an on-going basis.

Universal Service Fund (USF) - The USF is a statewide program through which funds for the USF and Lifeline Credit and Tenants Assistance Programs are collected from customers of all New Jersey electric and gas utilities. USF adjustments affect revenue and cash flows but do not directly affect earnings as related costs are deferred and recovered through rates on an on-going basis.

SJI - 58

Separate regulatory actions regarding the USF were as follows:

· July 2006 - SJG made the annual USF filing, along with the state’s other electric and gas utilities, proposing to increase annual statewide gas revenues to $115.3 million, an increase of $68.5 million. This rate proposal was approved by the BPU in October 2006, on an interim basis and was designed to increase annual revenues by $7.7 million. The revised rates were effective from November, 1, 2006 through September 30, 2007.

· July 2007 – SJG made its annual USF filing, along with the state’s other electric and gas utilities, proposing to decrease annual statewide gas revenues to $78.1 million.  This rate proposal was approved by the BPU in October 2007, on an interim basis, and was designed to decrease the annual USF revenues by $3.4 million.  The revised rates were effective from October 5, 2007 through September 30, 2008.

· June 2008 – SJG made its annual USF filing, along with the state’s other electric and gas utilities, proposing to increase annual statewide gas revenues to $97.3 million.  This proposal is designed to increase the annual USF revenue by $2.6 million.

· October 2008 – The BPU approved the statewide budget of $96.7 million for all of the State’s gas utilities.  Our portion of this total is approximately $8.8 million and increased rates were implemented effective October 27, 2008 resulting in a $2.5 million increase to our annual USF recoveries.

Consumer Education Program (CEP) - The CEP recovers costs associated with providing education to the public concerning customer choice. CEP adjustments affect revenue and cash flows but do not directly affect earnings as related costs were deferred and recovered on an on-going basis. SJG’s CEP recovery rate was reduced to zero in April 2006, and as a result of a previous BPU order, has been removed from SJG’s tariff as of December 2008.

Other Regulatory Matters-

Unbundling - - Effective January 10, 2000, the BPU approved full unbundling of SJG’s system. This allows all natural gas consumers to select their natural gas commodity supplier. As of December 31, 2008, 24,968 of SJG’s residential customers were purchasing their gas commodity from someone other than SJG. Customers choosing to purchase natural gas from providers other than the utility are charged for the cost of gas by the marketer. The resulting decrease in utility revenues is offset by a corresponding decrease in gas costs. While customer choice can reduce utility revenues, it does not negatively affect SJG’s net income or financial condition. The BPU continues to allow for full recovery of prudently incurred natural gas costs through the BGSS. Unbundling did not change the fact that SJG still recovers cost of service, including certain deferred costs, through base rates.

Pipeline Integrity - In October 2005, SJG filed a petition with the BPU to implement a Pipeline Integrity Management Tracker (Tracker). The purpose of the Tracker is to recover incremental costs to be incurred by SJG as a result of new federal regulations, which are aimed at enhancing public safety and reliability. The regulations require that utilities use a comprehensive analysis to assess, evaluate, repair and validate the integrity of certain transmission lines in the event of a leak or failure. As of December 31, 2008 and 2007, costs incurred under this program totaled $1.1 million and $0.8 million, respectively, and are included in Other Regulatory Assets (see Note 10).   SJG continues to engage in settlement negotiations in which we are proposing to modify the original request and provide for deferred accounting treatment of  Pipeline Integrity related operating expenses, with the ultimate recovery of these costs to be sought in the next base rate case.

Filings and petitions described above are still pending unless otherwise indicated.

SJI - 59

10.           REGULATORY ASSETS & REGULATORY LIABILITIES:

The discussion under Note 9, Rates and Regulatory Actions, is integral to the following explanations of specific regulatory assets and liabilities.

Regulatory Assets at December 31 consisted of the following items (in thousands):

	2008		2007
Environmental Remediation Costs:
Expended - Net	$	48,143	$	25,960
Liability for Future Expenditures		64,093		73,880
Income Taxes-Flowthrough Depreciation		2,729		3,707
Deferred Asset Retirement Obligation Costs		21,901		21,572
Deferred Gas Costs - Net		18,406		-
Deferred Pension and Other Postretirement Benefit Costs		80,162		32,686
Temperature Adjustment Clause Receivable		-		6,516
Conservation Incentive Program Receivable		22,048		18,173
Societal Benefit Costs Receivable		1,753		2,952
Premium for Early Retirement of Debt		1,208		1,370
Other Regulatory Assets		9,991		1,872
	$	270,434	$	188,688

All regulatory assets are or will be recovered through utility rate charges as detailed in the following discussion. SJG is currently permitted to recover interest on Environmental Remediation Costs and Societal Benefit Costs while the other assets are being recovered without a return on investment.

Environmental Remediation Costs - SJG has two regulatory assets associated with environmental costs related to the cleanup of 12 sites where SJG or their predecessors previously operated gas manufacturing plants. The first asset, Environmental Remediation Cost: Expended - Net, represents what was actually spent to clean up the sites, less recoveries through the RAC and insurance carriers. These costs meet the deferral requirements of FASB Statement No. 71 as the BPU allows SJG to recover such expenditures through the RAC. The other asset, Environmental Remediation Cost: Liability for Future Expenditures, relates to estimated future expenditures required to complete the remediation of these sites as determined under the guidance of FASB Statement No. 5, "Accounting for Contingencies." SJG recorded this estimated amount as a regulatory asset under Statement No. 71, with the corresponding current and noncurrent liabilities reflected on the consolidated balance sheets under the captions Current Liabilities and Deferred Credits and Other Noncurrent Liabilities. The BPU allows SJG to recover the deferred costs over seven-year periods after they are spent.

 Income Taxes - Flowthrough Depreciation - This regulatory asset was created upon the adoption of FASB Statement No. 109, "Accounting for Income Taxes,” in 1993. The amount represents unamortized excess tax depreciation over book depreciation on utility plant because of temporary differences for which, prior to Statement No. 109, deferred taxes previously were not provided. SJG previously passed these tax benefits through to ratepayers and are recovering the amortization of the regulatory asset through rates until 2011.

Deferred Asset Retirement Obligation Costs - This regulatory asset was created with the adoption of FASB Interpretation No. 47 (FIN 47), “Accounting for Conditional Asset Retirements Obligations,” in 2005. FIN 47 resulted in the recording of asset retirement obligations (ARO’s) and additional utility plant, primarily related to a legal obligation SJG has for certain safety requirements upon the retirement of its gas distribution and transmission system. SJG recovers asset retirement costs through rates charged to customers. All related accumulated accretion and depreciation amounts for these ARO’s represent timing differences in the recognition of retirement costs that SJG is currently recovering in rates and, as such, SJG is deferring such differences as regulatory assets under FASB Statement No. 71.

Deferred Gas Costs - Net- Over/under collections of gas costs are monitored through the BGSS mechanism. Net undercollected gas costs are classified as a regulatory asset and net overcollected gas costs are classified as a regulatory liability. Derivative contracts used to hedge SJG’s natural gas purchases are also included in the BGSS, subject to BPU approval. See detailed discussion under Derivative Instruments in Note 1.

SJI - 60

Deferred Pension and Other Postretirement Benefit Costs- The BPU authorized SJG to recover costs related to postretirement benefits under the accrual method of accounting consistent with FASB Statement No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." SJG deferred amounts accrued prior to that authorization and are amortizing them as allowed by the BPU over 15 years through 2012. The unamortized balance was $1.5 million at December 31, 2008. Upon the adoption of FASB Statement No. 158 in 2006, SJG’s regulatory asset was increased by $37.1 million representing the recognition of underfunded positions of SJG’s pension and other postretirement benefit plans.  Subsequent adjustments to this balance occur annually to reflect changes in the funded positions of these benefit plans caused by changes in actual plan experience as well as assumptions of future experience (See Note 11).

Temperature Adjustment Clause Receivable - As discussed in Note 9, the net income impact of the TAC was recorded as an adjustment to earnings as incurred. The recovery (or credit) generally did not begin until the next TAC year. As a result, there was a timing difference that resulted in a regulatory asset or liability.  As a result of a global settlement in December 2008, the BPU approved combining the over-recovered TAC position with the weather portion of the CIP, and the suspension of the TAC rate.

Conservation Incentive Program Receivable - Similar to the TAC, the impact of the CIP is recorded as an adjustment to earnings as incurred. The first year of cash recovery under the CIP began October 2007.

Societal Benefit Costs Receivable - At both December 31, 2008 and 2007, this regulatory asset primarily represents cumulative costs less recoveries under the USF program.

Premium for Early Retirement of Debt - This regulatory asset represents unamortized debt issuance costs related to long-term debt refinancings and a call premium associated with the retirement of debt, all occurring in 2005 and 2004. Unamortized debt issuance costs are being amortized over the term of the new debt issue pursuant to regulatory approval by the BPU. The call premium is expected to be approved for recovery through future rate proceedings.

Other Regulatory Assets - Some of the assets included in Other Regulatory Assets are currently being recovered from ratepayers as approved by the BPU. Management believes the remaining deferred costs are probable of recovery from ratepayers through future utility rates.

Regulatory Liabilities at December 31 consisted of the following items (in thousands):

	2008		2007
Excess Plant Removal Costs	$	48,820	$	48,705
Liability for NJCEP		-		2,797
Deferred Revenues - Net		-		2,586
Other		1,627		1,691
Total Regulatory Liabilities	$	50,447	$	55,779

Excess Plant Removal Costs – Represents amounts accrued in excess of actual utility plant removal costs incurred to date, which SJG has an obligation to either expend or return to ratepayers in future periods.

Liability for NJCEP – This represents revenues received in excess of actual expenditures, which SJG has an obligation to either expend or return to ratepayers in future periods.

Deferred Revenue – Net – See previous discussion under “Deferred Gas Costs – Net”.

Other Regulatory Liabilities – All other regulatory liabilities are subject to being returned to ratepayers in future rate proceedings.

SJI - 61

11.           PENSION AND OTHER POSTRETIREMENT BENEFITS:

SJI has several defined benefit pension plans and other postretirement benefit plans. The pension plans provide annuity payments to the majority of full-time, regular employees upon retirement. Participation in the Company’s qualified defined benefit pension plans was closed to new employees beginning in 2003; however, employees who are not eligible for these pension plans are eligible to receive an enhanced version of SJI’s defined contribution plan. Certain SJI officers also participate in a non-funded supplemental executive retirement plan (SERP), a non-qualified defined benefit pension plan. The other postretirement benefit plans provide health care and life insurance benefits to some retirees.

Net periodic benefit cost related to the employee and officer pension and other postretirement benefit plans consisted of the following components (in thousands):

	Pension Benefits									Other Postretirement Benefits
	2008			2007			2006			2008			2007			2006
Service Cost	$	3,198		$	3,324		$	3,169		$	968		$	976		$	931
Interest Cost		8,320			7,765			7,214			2,957			2,681			2,622
Expected Return on Plan Assets		(10,417	)		(9,998	)		(9,237	)		(2,195	)		(2,091	)		(1,791	)
Amortizations:
Prior Service Cost (Credits)		292			292			457			(355	)		(355	)		(355	)
Actuarial Loss		1,608			1,923			2,385			744			606			822
Net Periodic Benefit Cost		3,001			3,306			3,988			2,119			1,817			2,229
Capitalized Benefit Costs		(1,073	)		(1,131	)		(1,574	)		(765	)		(648	)		(903	)
Total Net Periodic Benefit Expense	$	1,928		$	2,175		$	2,414		$	1,354		$	1,169		$	1,326

Capitalized benefit costs reflected in the table above relate to SJG’s construction program.

In 2006, the FASB issued Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.” This statement requires companies with publicly traded equity securities that sponsor a postretirement benefit plan to fully recognize, as an asset or liability, the overfunded or underfunded status of its benefit plans and recognize changes in the funded status in the year in which the changes occur. Changes in funded status are generally reported in Other Comprehensive Loss; however, since SJG recovers all prudently incurred pension and postretirement benefit costs from its ratepayers, a significant portion of the charges resulting from the recording of additional liabilities under this statement are reported as regulatory assets (See Note 10).

Details of the activity within the Regulatory Asset and Accumulated Other Comprehensive Loss associated with Pension and Other Postretirement Benefits are as follows (in thousands):

							Accumulated Other
	Regulatory Assets						Comprehensive Loss (pre-tax)
				Other						Other
	Pension			Postretirement			Pension			Postretirement
	Benefits			Benefits			Benefits			Benefits
Balance at January 1, 2007	$	25,235		$	11,856		$	11,623		$	476
Amounts Arising during the Period:
Net Actuarial (Gain) Loss		(3,495	)		(1,287	)		422			226
Amounts Amortized to Net Periodic Costs:
Net Actuarial Loss		(968	)		(560	)		(942	)		(40	)
Prior Service (Cost) Credit		(239	)		254			(51	)		94
Balance at December 31, 2007		20,533			10,263			11,052			756

SJI - 62

Amounts Arising during the Period:
Net Actuarial Loss		36,171			13,036			11,015			1,585
Amounts Amortized to Net Periodic Costs:
Net Actuarial Loss		(691	)		(677	)		(907	)		(61	)
Prior Service (Cost) Credit		(239	)		254			(52	)		94
Balance at December 31, 2008	$	55,774		$	22,876		$	21,108		$	2,374

The estimated costs that will be amortized from Regulatory Assets into net periodic benefit costs in 2009 are as follows (in thousands):

	Pension Benefits		Other Postretirement Benefits
Prior Service Costs (Credits)	$	232	$	(254	)
Net Actuarial Loss	$	3,754	$	1,616

The estimated costs that will be amortized from Accumulated Other Comprehensive Loss into net periodic benefit costs in 2009 are as follows (in thousands):

	Pension Benefits		Other Postretirement Benefits
Prior Service Costs (Credits)	$	46	$	(101	)
Net Actuarial Loss	$	1,712	$	198

SJI - 63

A reconciliation of the plans' benefit obligations, fair value of plan assets, funded status and amounts recognized in SJI's consolidated balance sheets follows (in thousands):

							Other Postretirement
	Pension Benefits						Benefits
	2008			2007			2008			2007
Change in Benefit Obligations:
Benefit Obligation at Beginning of Year	$	133,015		$	132,619		$	46,651		$	47,727
Service Cost		3,198			3,324			968			976
Interest Cost		8,320			7,765			2,957			2,681
Actuarial (Gain) / Loss		5,408			(3,799	)		3,552			(1,718	)
Retiree Contributions		-			-			164			147
Benefits Paid		(7,269	)		(6,894	)		(3,450	)		(3,162	)
Benefit Obligation at End of Year	$	142,672		$	133,015		$	50,842		$	46,651
Change in Plan Assets:
Fair Value of Plan Assets at Beginning of Year	$	120,414		$	117,066		$	31,251		$	29,054
Actual Return on Plan Assets		(31,745	)		9,299			(8,910	)		1,459
Employer Contributions		6,876			943			3,760			3,753
Retiree Contributions		-			-			164			147
Benefits Paid		(7,269	)		(6,894	)		(3,450	)		(3,162	)
Fair Value of Plan Assets at End of Year	$	88,276		$	120,414		$	22,815		$	31,251
Funded Status at End of Year:	$	(54,396	)	$	(12,601	)	$	(28,027	)	$	(15,400	)
Amounts Related to Unconsolidated Affiliate		261			(125	)		296			255
Accrued Net Benefit Cost at End of Year	$	(54,135	)	$	(12,726	)	$	(27,731	)	$	(15,145	)
Amounts Recognized in the Statement of Financial Position Consist of:
Noncurrent Assets	$	-		$	1,970		$	-		$	-
Current Liabilities		(1,031	)		(805	)		-			-
Noncurrent Liabilities		(53,104	)		(13,891	)		(27,731	)		(15,145	)
Net Amount Recognized at End of Year	$	(54,135	)	$	(12,726	)	$	(27,731	)	$	(15,145	)
Amounts Recognized in Regulatory Assets
Consist of:
Prior Service Costs (Credit)	$	1,381		$	1,620		$	(723	)	$	(977	)
Net Actuarial Loss		54,393			18,913			23,599			11,240
	$	55,774		$	20,533		$	22,876		$	10,263
Amounts Recognized in Accumulated Other
Comprehensive Loss Consist of (pre-tax):
Prior Service Costs (Credit)	$	236		$	288		$	(400	)	$	(494	)
Net Actuarial Loss		20,872			10,764			2,774			1,250
	$	21,108		$	11,052		$	2,374		$	756

The projected benefit obligation (PBO) and accumulated benefit obligation (ABO) of SJI’s qualified employee pension plans were $125.1 million and $112.1 million, respectively, as of December 31, 2008, and $118.3 million and $105.4 million, respectively, as of December 31, 2007.  The ABO of these plans exceeded the value of the plan assets as of December 31, 2008.  The value of these assets can be seen in the table above. The PBO and ABO for SJI’s non-funded SERP, which had an ABO in excess of plan assets, were $17.5 million and $17.0 million, respectively, as of December 31, 2008, and $14.7 million and $14.0 million, respectively, as of December 31, 2007. The SERP is reflected in the tables above and has no assets.

SJI - 64

The weighted-average assumptions used to determine benefit obligations at December 31 were:

								Other
								Postretirement
	Pension Benefits							Benefits
		2008			2007			2008			2007
Discount Rate			6.24	%		6.36	%		6.24	%		6.36	%
Rate of Compensation Increase			3.60	%		3.60	%		-			-

The weighted-average assumptions used to determine net periodic benefit cost for years ended December 31 were:

										Other Postretirement
	Pension Benefits									Benefits
	2008			2007			2006			2008			2007			2006
Discount Rate		6.36	%		6.04	%		5.84	%		6.36	%		6.04	%		5.84	%
Expected Long-Term Return on Plan Assets		8.50	%		8.75	%		8.75	%		7.00	%		7.25	%		7.25	%
Rate of Compensation Increase		3.60	%		3.60	%		3.60	%		-			-			-

The discount rates used to determine the benefit obligations at December 31, 2008 and 2007, which are used to determine the net periodic benefit cost for the subsequent year, were based on a portfolio model of high-quality instruments with maturities that match the expected benefit payments under our pension and other postretirement benefit plans.

The expected long-term return on plan assets was based on SJI’s current investment mix as described under Plan Assets below.  All obligations disclosed herein reflect the use of the RP 2000 mortality tables. 

The assumed health care cost trend rates at December 31 were:

	2008			2007
Medical Care and Drug Cost Trend Rate Assumed for Next Year		9.00	%		10.00	%
Dental Care Cost Trend Rate Assumed for Next Year		6.33	%		6.33	%
Rate to which Cost Trend Rates are Assumed to Decline (the Ultimate Trend Rate)		5.00	%		5.00	%
Year that the Rate Reaches the Ultimate Trend Rate	2012			2012

Assumed health care cost trend rates have a significant effect on the amounts reported for SJI’s postretirement health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects (in thousands):

	1-Percentage-		1-Percentage-
	Point Increase		Point Decrease
Effect on the Total of Service and Interest Cost	$	84	$	(75	)
Effect on Postretirement Benefit Obligation	$	1,304	$	(1,164	)

PLAN ASSETS — SJI’s weighted-average asset allocations at December 31, 2008 and 2007, by asset category are as follows:

	Pension Benefits						Other Postretirement Benefits
	2008			2007			2008			2007
Asset Category:
U.S. Equity Securities		47	%		50	%		39	%		47	%
International Equity Securities		12			15			12			15
Fixed Income		41			35			49			38
Total		100	%		100	%		100	%		100	%

SJI - 65

Based on the investment objectives and risk tolerances stated in SJI’s current pension and other postretirement benefit plans’ investment policy and guidelines, the long-term asset mix target considered appropriate for SJI is within the range of 58% to 68% equity and 32% to 42% fixed-income investments. However, due to the dramatic declines in the equity markets in the latter part of 2008, this allocation policy was suspended to prevent further transfer of fixed income assets into equities.  Upon indication that the equity markets are in recovery, this policy will be revisited. Historical performance results and future expectations suggest that equities will provide higher total investment returns than fixed-income securities over a long-term investment horizon.

The policy recognizes that risk and volatility are present to some degree with all types of investments. We seek to avoid high levels of risk at the total fund level through diversification by asset class, style of manager, and sector and industry limits. Specifically prohibited investments include, but are not limited to, venture capital, margin trading, commodities and securities of companies with less than $250.0 million capitalization (except in the small-cap portion of the fund where capitalization levels as low as $50.0 million are permissible). These restrictions are only applicable to individual investment managers with separately managed portfolios and do not apply to mutual funds or commingled trusts.

FUTURE BENEFIT PAYMENTS — The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid during the following years (in thousands):

	Pension Benefits		Other Postretirement Benefits
2009	$	7,431	$	4,121
2010	$	7,506	$	4,236
2011	$	7,762	$	4,172
2012	$	8,100	$	4,238
2013	$	8,556	$	4,185
2014 - 2018	$	51,545	$	21,810

CONTRIBUTIONS — SJI made a contribution of approximately $5.9 million to its employee pension plan in 2008.  While SJI has no obligation to make a contribution in 2009, we currently expect to make a contribution in order to improve the funded status of the plans and mitigate the expected increase in expense in 2009. Payments related to the unfunded SERP plan are expected to approximate $1.0 million in 2009. SJG has a regulatory obligation to contribute approximately $3.6 million annually to its other postretirement benefit plans’ trusts, less costs incurred directly by the Company.

DEFINED CONTRIBUTION PLAN — SJI offers an Employees’ Retirement Savings Plan (Savings Plan) to eligible employees. SJI matches 50% of participants’ contributions up to 6% of base compensation. For employees who are not eligible for participation in SJI’s defined benefit pension plan, we match 50% of participants’ contributions up to 8% of base compensation. Employees not eligible for the pension plans also receive a year-end contribution of $500 if fewer than 10 years of service or $1,000 if 10 or more years of service. The amount expensed and contributed for the matching provision of the Savings Plan approximated $1.0 million, $1.1 million , and $1.0 million for the years 2008, 2007 and 2006, respectively.

12.            RETAINED EARNINGS:

SJG is restricted as to the amount of cash dividends or other distributions that may be paid on its common stock by an order issued by the BPU in July 2004 that granted SJG an increase in base rates. Per the order, SJG is required to maintain total common equity of no less than $289.2 million. SJG’s total common equity balance was $401.7 million at December 31, 2008.

Various loan agreements also contain potential restrictions regarding the amount of cash dividends or other distributions that SJG may pay on its common stock. As of December 31, 2008, these loan restrictions did not affect the amount that may be distributed from either SJG’s or SJI’s retained earnings.

SJI - 66

13.            UNUSED LINES OF CREDIT:

Bank facilities available to SJI totaled $443.0 million at December 31, 2008, of which $279.2 million, inclusive of $66.6 million of letters of credit, was used. Those bank facilities consist of a $100.0 million revolving credit facility, a $10.0 million line of credit, a $40.0 million line of credit and $53.0 million of uncommitted bank lines available to SJG; and a $200.0 million revolving credit facility and $40.0 million of uncommitted bank lines available to SJI. The revolving credit facilities expire in August 2011 and both SJG lines of credit expire in 2009.  All facilities contain one financial covenant regarding the ratio of total debt to total capitalization, measured on a quarterly basis. SJI and SJG were in compliance with this covenant as of December 31, 2008. Borrowings under these credit facilities are at market rates. The weighted average borrowing cost, which changes daily, was 1.16%, 5.27% and 5.76% at December 31, 2008, 2007 and 2006, respectively.

14.            COMMITMENTS AND CONTINGENCIES:

GAS SUPPLY CONTRACTS — In the normal course of business, SJG and SJRG have entered into long-term contracts for natural gas supplies, firm transportation and gas storage service. The earliest that any of these contracts expire is March 2009. The transportation and storage service agreements with interstate pipeline suppliers were made under FERC approved tariffs. SJRG’s cumulative obligation for demand charges and reservation fees paid to suppliers for these services is approximately $165,000 per month. SJG's cumulative obligation for demand charges and reservation fees paid to suppliers for these services is approximately $4.0 million per month and is recovered on a current basis through the BGSS.

CAPITAL CONTRIBUTION OBLIGATION - In December 2007, Marina and its joint venture partner agreed to each contribute approximately $30.0 million of equity to LVE as part of its construction period financing (See Note 2). The equity contribution is expected to be made in 2009. 

PENDING LITIGATION — SJI is subject to claims arising in the ordinary course of business and other legal proceedings. We accrue liabilities related to these claims when we can reasonably estimate the amount or range of amounts of probable settlement costs or other charges. SJI has been named in, among other actions, certain product liability claims related to our former sand mining subsidiary. Management does not currently anticipate the disposition of any known claims to have a material adverse effect on SJI’s financial position, results of operations or liquidity.

COLLECTIVE BARGAINING AGREEMENTS— Unionized personnel represent 56% of our workforce at December 31, 2008.   The Company has collective bargaining agreements with two unions that represent these employees: the International Brotherhood of Electrical Workers (“IBEW”) and the International Association of Machinists and Aerospace Workers (“IAM”).  SJG employees represented by the IBEW operate under a new collective bargaining agreement that runs through February 2013.  The remaining employees represented by the IBEW operate under a contract extension through March 2009. We expect to enter into a successor labor agreement with the IBEW before the contract extension expires.   The IAM is asserting that the labor agreement which the Company believes expired on January 14, 2009 is evergreen for one year from that expiration date.  The Company disagrees and has filed a charge with the National Labor Relations Board for a determination on the matter.

GUARANTEES — As of December 31, 2008, SJI had issued $375.8 million of parental guarantees on behalf of its subsidiaries. Of this total, $310.6 million expire within one year, and $65.2 million expire after one year or have no expiration date. These guarantees were issued to guarantee payment to third parties with whom our subsidiaries have commodity supply contracts and for Marina’s construction and operating activities. As of December 31, 2008, these guarantees support future firm commitments and $63.5 million of the Accounts Payable recorded on our consolidated balance sheet.

SJI - 67

The Company has recorded a liability of $2.0 million in Other Noncurrent Liabilities with a corresponding increase in Investment in Affiliates on the consolidated balance sheets as of December 31, 2008 for the fair value of the following guarantees:

· In April 2007, SJI guaranteed certain obligations of LVE Energy Partners, LLC (LVE), an unconsolidated joint venture in which Marina has a 50% equity interest.  LVE entered into a 25-year contract with a resort developer to design, build, own and operate a district energy system and central energy center for a planned resort in Las Vegas, Nevada.  LVE began construction of the facility in 2007 and expected to provide full energy services in 2010 when the resort was originally scheduled to be completed. LVE suspended construction of the district energy system and central energy center in January 2009 after the developer of the resort announced that it was delaying construction of the resort due to the difficult environment in the capital markets and weak economic conditions.  The developer has indicated that they are considering different strategies to move the project forward, including opening the project in phases and obtaining a partner, but that it was unlikely construction would resume during 2009.

The district energy system and central energy center are being financed by LVE with debt that is non-recourse to SJI. LVE is currently in discussions with the banks that are financing the energy facilities to address the developer’s construction delay. Those discussions include a revised timetable and funding schedule for the completion of construction of the energy facilities, and the potential contribution of additional equity. SJI is obligated to invest at least $30.0 million of equity during the construction period as discussed above and may invest up to an additional $14.0 million to cover the incremental debt service and other related costs to be incurred during the suspension period resulting from the delay. However, we are unable to definitively quantify our incremental costs at this time, if any, as negotiations over the new terms are ongoing. The Energy Sales Agreement between LVE and the resort developer, which is currently being renegotiated to address the impact of the construction delay, includes a guaranty by the resort developer of certain fixed payments to be made to LVE until the project begins commercial operations. As of December 31, 2008, the Company had a net liability of approximately $10.8 million included in Other Current and Noncurrent Liabilities on the consolidated balance sheets related to this project and an unsecured Note Receivable – Affiliate of approximately $3.1 million due from LVE. SJI's risk of loss is limited to its equity contribution, contribution obligations and the unsecured Note Receivable totaling approximately $33.9 million. During 2008, SJI and the partner in this joint venture each provided cash advances to LVE of approximately $3.1 million to cover construction related costs. It is expected that these notes will be converted to equity in 2009, offsetting the additional equity contribution obligations.

SJI issued a performance guaranty for up to $180.0 million to the resort developer to ensure that certain construction milestones relating to the development of the thermal facility are met. As a result of achieving certain milestones, the guaranty has been reduced to $94.0 million as of December 31, 2008. Concurrently, SJI is the beneficiary of a surety bond purchased by the project’s general contractor that provides SJI with assurance that construction of the thermal facility will meet those same milestones. Those milestones are currently being revised due to delays announced by the project developer. In addition, SJI has guaranteed the obligations of LVE under certain insurance policies during the construction period.  The maximum amount that SJI could be obligated for, in the event that LVE does not have sufficient resources to make deductible payments on future claims under these insurance policies, is approximately $6.0 million.  SJI has also guaranteed certain performance obligations of LVE under the operating agreements between LVE and the resort, up to $20.0 million each year for the term of the agreement, commencing with the first year of operations.  SJI and the partner in this joint venture have entered into reimbursement agreements that secure reimbursement for SJI of a proportionate share of any payments made by SJI on these guarantees.  

· In August 2007, SJI guaranteed certain obligations of BC Landfill Energy, LLC (BCLE), an unconsolidated joint venture in which Marina has a 50% equity interest. BCLE has entered into a 20-year agreement with a county government to lease and operate a facility that will produce electricity from landfill methane gas. The facility went online in the fourth quarter of 2007. Although unlikely, the maximum amount that SJI could be obligated for, in the event that BCLE does not meet minimum specified levels of operating performance and no mitigating action is taken, or is unable to meet certain financial obligations as they become due, is approximately $4.0 million each year.  SJI and the partner in this joint venture have entered into reimbursement agreements that secure reimbursement for SJI of a proportionate share of any payments made by SJI on these guarantees.  

SJI - 68

STANDBY LETTERS OF CREDIT — As of December 31, 2008, SJI provided $66.6 million of standby letters of credit through SJI’s revolving credit facility. Letters of credit in the amount of $62.3 million support variable-rate demand bonds issued through the New Jersey Economic Development Authority (NJEDA) to finance Marina’s initial thermal plant project. The additional outstanding letters of credit total $4.3 million, and were posted to enable SJE to market retail electricity and for various construction activities. The Company also provided two additional letters of credit under separate facilities outside of the revolving credit facility. Those letters of credit consist of a $25.3 million letter of credit provided by SJG to support variable-rate demand bonds issued through the NJEDA to finance the expansion of SJG’s natural gas distribution system as discussed in Note 6; and a $30.7 million letter of credit provided by Marina to support a capital contribution obligation as discussed above. These letters of credit expire in August 2009 and November 2010, respectively.

ENVIRONMENTAL REMEDIATION COSTS — SJI incurred and recorded costs for environmental cleanup of 12 sites where SJG or its predecessors operated gas manufacturing plants. SJG stopped manufacturing gas in the 1950s. SJI and some of its nonutility subsidiaries also recorded costs for environmental cleanup of sites where SJF previously operated a fuel oil business and Morie maintained equipment, fueling stations and storage.

SJI successfully entered into settlements with all of its historic comprehensive general liability carriers regarding the environmental remediation expenditures at the SJG sites. Also, SJG purchased a Cleanup Cost Cap Insurance Policy limiting the amount of remediation expenditures that SJG will be required to make at 11 of its sites. This policy will be in force until 2024 at 10 sites and until 2029 at one site. The future cost estimates discussed hereafter are not reduced by projected insurance recoveries from the Cleanup Cost Cap Insurance Policy. The policy is limited to an aggregate amount of $50.0 million, of which SJG has recovered $23.7 million through December 31, 2008.

Since the early 1980s, SJI accrued environmental remediation costs of $223.4 million, of which $155.2 million was spent as of December 31, 2008.

The following table details the amounts expended and accrued for SJI’s environmental remediation during the last two years (in thousands):

	2008			2007
Beginning of Year	$	77,905		$	71,830
Accruals		18,649			18,704
Expenditures		(28,389	)		(12,629	)
End of Year	$	68,165		$	77,905

The balances are segregated between current and noncurrent on the consolidated balance sheets under the captions Current Liabilities and Deferred Credits and Other Noncurrent Liabilities.

Management estimates that undiscounted future costs to clean up SJG's sites will range from $64.1 million to $235.1 million. Six of SJG’s sites comprise the majority of these estimates, ranging from a low of $49.0 million to a high of $172.4 million. SJG recorded the lower end of this range, $64.1 million, as a liability because a single reliable estimation point is not feasible due to the amount of uncertainty involved in the nature of projected remediation efforts and the long period over which remediation efforts will continue. Recorded amounts include estimated costs based on projected investigation and remediation work plans using existing technologies. Actual costs could differ from the estimates due to the long-term nature of the projects, changing technology, government regulations and site-specific requirements. Significant risks surrounding these estimates include unforeseen market price increases for remedial services, property owner acceptance of remedy selection, regulatory approval of selected remedy and remedial investigative findings.

The remediation efforts at SJG’s six most significant sites include the following:

Site 1 - A remedial action work plan  has been approved by the New Jersey Department of Environmental Protection (NJDEP) for approval. Remaining steps to remediate include regulatory permitting, approval and remedy implementation for impacted soil, groundwater, and river sediments as well as acceptance of the selected remedy by affected property owners.

SJI - 69

Site 2 - Various remedial investigation and action activities, such as completed and approved interim remedial measures and conceptual remedy selection, are ongoing at this site. Remaining steps to remediate include remedy selection, regulatory approval, and implementation for the remaining impacted soil, groundwater, and ongoing implementation of the approved remedy for stream sediments as well as acceptance of the selected remedy by affected property owners.

Site 3 - Remedial investigative activities are ongoing at this site. Remaining steps to remediate include completing the remedial investigation of impacted soil and groundwater in preparation for selecting the appropriate action and implementation and gaining regulatory and property owner approval of the selected remedy.

Site 4 - Remedial action activities are planned at this site. Remaining steps to remediate include continuing implementation of the NJDEP approved Remedial Action Work Plan of impacted soil and groundwater.

Site 5 – Various remedial investigation and action activities are ongoing at this site.  An interim remedial measure has been implemented and a remedial action work plan has been prepared and submitted to the NJDEP for an off site interim remedial measure.  Remaining steps to implement the off site interim remedial measure include regulatory approval, remedial investigation of bay sediments, as well as acceptance of the selected remedy by affected property owners.  Remaining steps to remediate soil and groundwater include completing the remedial investigation of impacted soil and groundwater in preparation for selecting the appropriate action and implementation and gaining regulatory and property owner approval of the selected remedy.

Site 6 – Remedial investigative activities are ongoing at this site.  Remaining steps to remediate include completing the remedial investigation of impacted soil and groundwater in preparation for selecting the appropriate action and implementation and gaining regulatory and property owner approval of the selected remedy.

With Morie's sale, EMI assumed responsibility for environmental liabilities estimated between $2.7 million and $8.8 million. The information available on these sites is sufficient only to establish a range of probable liability and no point within the range is more likely than any other. Therefore, EMI has accrued the lower end of the range. Changes in the accrual are included in the statements of consolidated income under Loss from Discontinued Operations.

SJI and SJF estimated their potential exposure for the future remediation of four sites where fuel oil operations existed years ago. Estimates for these sites range from $1.3 million to $5.1 million. The lower end of this range has been recorded under Current Liabilities and Deferred Credits and Other Noncurrent Liabilities as of December 31, 2008.

15.            FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES:

Effective January 1, 2008, SJI adopted the provisions of FAS 157 that relate to financial assets and financial liabilities as discussed in Note 1.  FAS 157 establishes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques.  The levels of the hierarchy are described below:

Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities.

Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.

Assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of financial assets and financial liabilities and their placement within the fair value hierarchy.

SJI - 70

For financial assets and financial liabilities measured at fair value on a recurring basis, information about the fair value measurements for each major category as of December 31, 2008 is as follows (in thousands):

	Total		Level 1		Level 2		Level 3
Assets
Available-for-Sale Securities (A)	$	4,859	$	4,859	$	-	$	-
Derivatives – Energy Related Assets (B)		82,913		54,083		27,724		1,106
	$	87,772	$	58,942	$	27,724	$	1,106
Liabilities
Derivatives – Energy Related Liabilities (B)	$	66,624	$	46,487	$	19,132	$	1,005
Derivatives – Other (C)		14,088		-		14,088		-
	$	80,712	$	46,487	$	33,220	$	1,005

(A) Available-for-Sale Securities are valued using the quoted principal market close prices that are provided by the trustees of these securities.

(B) Derivatives – Energy Related Assets and Liabilities are traded in both exchange-based and non-exchange-based markets. Exchange-based contracts are valued using unadjusted quoted market sources in active markets and are categorized in Level 1 in the fair value hierarchy. Certain non-exchange-based contracts are valued using indicative price quotations available through brokers or over-the-counter, on-line exchanges and are categorized in Level 2. These price quotations reflect the average of the bid-ask mid-point prices and are obtained from sources that management believes provide the most liquid market. For non-exchange-based derivatives that trade in less liquid markets with limited pricing information, model inputs generally would include both observable and unobservable inputs. In instances where observable data is unavailable, management considers the assumptions that market participants would use in valuing the asset or liability. This includes assumptions about market risks such as liquidity, volatility and contract duration. Such instruments are categorized in Level 3 as the model inputs generally are not observable. Management reviews and corroborates the price quotations to ensure the prices are observable which includes consideration of actual transaction volumes, market delivery points, bid-ask spreads and contract duration.

(C) Derivatives – Other are valued using quoted prices on commonly quoted intervals, which are interpolated for periods different than the quoted intervals, as inputs to a market valuation model. Market inputs can generally be verified and model selection does not involve significant management judgment.

 The changes in fair value measurements of Derivatives – Energy Related Assets and Liabilities at December 31, 2008 using significant unobservable inputs (Level 3) are as follows (in thousands):

Balance at January 1, 2008	$	-
Total gains (realized/unrealized) included in earnings		101
Balance at December 31, 2008	$	101

 Total gains for 2008 included in earnings, that are attributable to the change in unrealized gains relating to those assets and liabilities still held as of December 31, 2008, is $0.1 million.  These gains are included in Operating Revenues-Nonutility on the statement of consolidated income.

16. AVAILABLE–FOR–SALE SECURITIES:

The Company's portfolio of investments consists of five highly diversified funds which are not used for working capital purposes. These funds are in an unrealized loss position as of December 31, 2008. Due to the nature of the underlying securities, these funds as a whole are susceptible to changes in the economy and have been adversely affected by the economic slowdown, particularly during the fourth quarter of 2008 when the Company's investments became impaired. The Company has evaluated the near-term prospects of the overall funds in relation to the severity and duration of the impairment. Based on that evaluation, the Company recorded an insignificant impairment loss during the fourth quarter of 2008. Due to the Company's ability and intent to hold the remaining funds for a reasonable period of time sufficient for a forecasted recovery of fair value, the Company does not consider these remaining investments to be other-than-temporarily impaired at December 31, 2008.

SJI - 71

The following table shows the gross unrealized losses and fair value of the Company's Available-for-Sale Securities with unrealized losses that are not deemed to be other-than-temporarily impaired (in thousands), aggregated by length of time that the individual funds have been in a continuous unrealized loss position at December 31, 2008.

	Less than 12 Months				Greater Than 12 Months				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Marketable Equity Securities	$	3,609	$	1,218	$	-	$	-	$	3,609	$	1,218

SJI - 72

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

South Jersey Industries, Inc.

Folsom, New Jersey

We have audited the accompanying consolidated balance sheets and statements of consolidated capitalization of South Jersey Industries, Inc. and subsidiaries (the "Company") as of December 31, 2008 and 2007, and the related consolidated statements of income, changes in common equity and comprehensive income, and cash flows for each of the three years in the period ended December 31, 2008.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on the financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of South Jersey Industries, Inc. and subsidiaries as of December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America. 

As discussed in Note 3 to the consolidated financial statements, in 2007 the Company changed its method of accounting for income taxes to conform to FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109. As discussed in Note 11 to the consolidated financial statements, in 2006 the Company changed its method of accounting for postretirement benefits to conform to FASB Statement No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R).  

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2008, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 2, 2009 expressed an unqualified opinion on the Company's internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

Philadelphia, Pennsylvania

March 2, 2009

SJI - 73

Supplementary Financial Information
Quarterly Financial Data (Unaudited)
(Summarized quarterly results of SJI's operations, in thousands except for per share amounts)
	2008 Quarter Ended												2007 Quarter Ended
	March 31			June 30			Sept. 30			Dec. 31			March 31			June 30			Sept. 30			Dec. 31
Operating Revenues	$	348,047		$	135,840		$	210,413		$	267,677		$	368,427		$	171,660		$	156,228		$	260,056
Expenses:
Cost of Sales		266,756			123,730			102,259			186,697			283,470			120,604			109,164			193,463
Operations and Maintenance
Including Fixed Charges		35,047			33,248			32,926			41,360			34,361			31,137			31,576			38,005
Income Taxes		17,164			(9,286	)		30,367			13,703			18,910			7,622			5,818			10,706
Energy and Other Taxes		4,866			2,116			1,646			3,493			5,084			2,220			1,587			3,292
Total Expenses		323,833			149,808			167,198			245,253			341,825			161,583			148,145			245,466
Other Income and Expense		498			687			643			(535	)		569			733			481			1,524
Income (Loss) from
Continuing Operations		24,712			(13,281	)		43,858			21,889			27,171			10,810			8,564			16,114
Discontinued Operations		(24	)		(1	)		(76	)		(146	)		(148	)		(55	)		(33	)		(155	)
Net Income (Loss)	$	24,688		$	(13,282	)	$	43,782		$	21,743		$	27,023		$	10,755		$	8,531		$	15,959
Basic Earnings Per Common Share*
(Based on Average Basic
Shares Outstanding):
Continuing Operations	$	0.83		$	(0.45	)	$	1.48		$	0.74		$	0.93		$	0.37		$	0.29		$	0.54
Discontinued Operations		(0.00	)		(0.00	)		(0.01	)		(0.01	)		(0.01	)		(0.00	)		(0.00	)		(0.01	)
Basic Earnings Per Common Share	$	0.83		$	(0.45	)	$	1.47		$	0.73		$	0.92		$	0.37		$	0.29		$	0.53
Average Shares Outstanding - Basic		29,640			29,728			29,729			29,729			29,361			29,465			29,518			29,574
Diluted Earnings Per Common Share*
(Based on Average Diluted
Shares Outstanding):
Continuing Operations	$	0.83		$	(0.45	)	$	1.47		$	0.73		$	0.92		$	0.37		$	0.29		$	0.54
Discontinued Operations		(0.00	)		(0.00	)		(0.00	)		(0.01	)		(0.01	)		(0.00	)		(0.00	)		(0.01	)
Diluted Earnings Per Common Share	$	0.83		$	(0.45	)	$	1.47		$	0.73		$	0.91		$	0.37		$	0.29		$	0.53
Average Shares Outstanding - Diluted		29,764			29,728			29,865			29,886			29,483			29,571			29,627			29,688
*The sum of the quarters for 2008 and 2007 do not equal the year's total due to rounding.
NOTE: Because of the seasonal nature of the business and the volatility from energy related derivatives, statements for the 3-month periods
are not indicative of the results for a full year.

SJI - 74

Item 9. Changes in and Disagreements with Accountants on

Accounting and Financial Disclosure

None

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of its chief executive officer and chief financial officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2008. Based on that evaluation, the Company’s chief executive officer and chief financial officer concluded that the disclosure controls and procedures employed at the Company are effective.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined under Exchange Act Rules 13a-15(f). The Company’s internal control system is designed to provide reasonable assurance to its management and board of directors regarding the preparation and fair presentation of published financial statements.Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based on our evaluation under that framework, management concluded that our internal control over financial reporting was effective as of December 31, 2008.

The effectiveness of our internal control over financial reporting as of December 31, 2008 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which is included under this Item 9A.

Changes in Internal Control over Financial Reporting

There has not been any change in the Company's internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the fiscal quarter ended December 31, 2008 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. 

SJI - 75

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

South Jersey Industries, Inc.

Folsom, New Jersey

We have audited the internal control over financial reporting of South Jersey Industries, Inc, and subsidiaries (the "Company") as of December 31, 2008, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting.  Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.  Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.  We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis.  Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2008 of the Company and our report dated March 2, 2009 expressed an unqualified opinion on those financial statements and included an explanatory paragraph as to changes in accounting principles related to the adoption of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109, and FASB Statement No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R).

/s/ DELOITTE & TOUCHE LLP

Philadelphia, Pennsylvania

March 2, 2009

SJI - 76

Item 9B. Other Information

None

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Information concerning Directors may be found under the captions “Director Elections,” “Nominees,” “Directors Continuing in Office,” and “Security Ownership” in our definitive proxy statement for our 2009 Annual Meeting of Shareholders (the “2009 Proxy Statement”), which will be filed within the Commission within 120 days after the close of our fiscal year. Such information is incorporated herein by reference. Information required by this item relating to the executive officers of SJI is set forth in Item 4-A of this report.

Code of Ethics

The Company has adopted a Code of Ethics for its Principal Executive, Financial and Accounting Officers. It is available on SJI’s website, www.sjindustries.com by clicking “Investors” and then “Corporate Governance.” We will post any amendment to or waiver of the Code to our website.

Item 11. Executive Compensation

Information concerning executive compensation may be found under the captions “Compensation Discussion and Analysis” of our 2009 Proxy Statement. Such information is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

and Related Stockholder Matters

The information in our 2009 Proxy Statement set forth under the caption “Security Ownership” is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information in our 2009 Proxy Statement set forth under the caption “The Board of Directors” and the subcaption “Certain Relationships” is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services

The information in our 2009 Proxy Statement set forth under the caption “Audit Committee Report” is incorporated herein by reference.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)           Listed below are all financial statements and schedules filed as part of this report:

1 - The consolidated financial statements and notes to consolidated financial statements together with the report thereon of Deloitte & Touche LLP, dated March 2, 2009, are filed as part of this report under Item 8- Financial Statements and Supplementary Data.

 2 - Supplementary Financial Information

Information regarding selected quarterly financial data can be found on page 74 of this report.

Schedule I - Supplemental Schedules as of December 31, 2008 and 2007 and for the three years ended December 31, 2008, 2007, and 2006.

Report of Independent Registered Public Accounting Firm of Deloitte & Touche LLP (page 83).

Schedule II - Valuation and Qualifying Accounts (page 87).

All schedules, other than that listed above, are omitted because the information called for is included in the financial statements filed or because they are not applicable or are not required.

SJI - 77

 (b)           List of Exhibits (Exhibit Number is in Accordance with the Exhibit Table in Item 601 of Regulation S-K).

Exhibit Number	Description	Reference
(3)(a)(i)	Certificate of Incorporation of South Jersey Industries, Inc., as amended through April 19, 1984.	Incorporated by reference from Exhibit (4)(a) of Form S-2 (2-91515).
(3)(a)(ii)	Amendment to Certificate of Incorporation relating to two-for-one stock split effective as of April 28, 1987.	Incorporated by reference from Exhibit (4)(e)(1) of Form S-3 (33-1320).
(3)(a)(iii)	Amendment to Certificate of Incorporation relating to director and officer liability.	Incorporated by reference from Exhibit (4)(e)(2) of Form S-3 (33-1320).
(3)(a)(iv)	Amendment to Certificate of Incorporation relating to two-for-one stock split effective as of June 30, 2005.	Incorporated by reference from Exhibit 3 of Form 10-Q of SJI filed on May 10, 2005.

(3)(b)	Bylaws of South Jersey Industries, Inc. as amended and restated through April 18, 2008. (filed herewith)
(4)(a)	Form of Stock Certificate for common stock.	Incorporated by reference from Exhibit (4)(a) of Form 10-K for 1985 (1-6364).
(4)(b)(i)	First Mortgage Indenture dated October 1, 1947.	Incorporated by reference from Exhibit (4)(b)(i) of Form 10-K for 1987 (1-6364).
(4)(b)(ii)	Nineteenth Supplemental Indenture dated as of April 1, 1992.	Incorporated by reference from Exhibit (4)(b)(xvii) of Form 10-K for 1992 (1-6364).
(4)(b)(iii)	Twenty-First Supplemental Indenture dated as of March 1, 1997.	Incorporated by reference from Exhibit (4)(b)(xviv) of Form 10-K for 1997(1-6364).
(4)(b)(iv)	Twenty-Second Supplemental Indenture dated as of October 1, 1998.	Incorporated by reference from Exhibit (4)(b)(ix) of Form S-3 (333-62019).
(4)(b)(v)	Twenty-Third Supplemental Indenture dated as of September 1, 2002.	Incorporated by reference from Exhibit (4)(b)(x) of Form S-3 (333-98411).
(4)(b)(vi)	Twenty-Fourth Supplemental Indenture dated as of September 1, 2005.	Incorporated by reference from Exhibit (4)(b)(vi) of Form S-3 (333-126822).
(4)(b)(vii)	Amendment to Twenty-Fourth Supplemental Indenture dated as of March 31, 2006	Incorporated by reference from Exhibit 4 of Form 8-K of SJG as filed April 26, 2006.
(4)(b)(viii)	Loan Agreement by and between New Jersey Economic Development Authority and SJG dated April 1, 2006.	Incorporated by reference from Exhibit 10 of Form 8-K of SJG as filed April 26, 2006.
(4)(c)(i)	Medium Term Note Indenture of Trust dated October 1, 1998.	Incorporated by reference from Exhibit 4(e) of Form S-3 (333-62019).
(4)(c)(ii)	First Supplement to Indenture of Trust dated as of June 29, 2000.	Incorporated by reference from Exhibit 4.1 of Form 8-K of SJG dated July 12, 2001.
(4)(c)(iii)	Second Supplement to Indenture of Trust dated as of July 5, 2000.	Incorporated by reference from Exhibit 4.2 of Form 8-K of SJG dated July 12, 2001.
(4)(c)(iv)	Third Supplement to Indenture of Trust dated as of July 9, 2001.	Incorporated by reference from Exhibit 4.3 of Form 8-K of SJG dated July 12, 2001.
(10)(a)(i)	Gas storage agreement (GSS) between South Jersey Gas Company and Transco dated October 1, 1993.	Incorporated by reference from Exhibit (10)(d) of Form 10-K for 1993 (1-6364).

SJI - 78

Exhibit Number	Description	Reference
(10)(a)(ii)	Gas storage agreement (LG-A) between South Jersey Gas Company and Transco dated June 3, 1974.	Incorporated by reference from Exhibit (5)(f) of Form S-7 (2-56223).
(10)(a)(iii)	Gas storage agreement (WSS) between South Jersey Resources Group LLC and Transco dated May 1, 2006. (filed herewith)
(10)(a)(iv)	Gas storage agreement (LSS) between South Jersey Gas Company and Transco dated October 1, 1993.	Incorporated by reference from Exhibit (10)(i) of Form 10-K for 1993 (1-6364).
(10)(a)(v)	Gas storage agreement (SS-1) between South Jersey Gas Company and Transco dated May 10, 1987 (effective April 1, 1988).	Incorporated by reference from Exhibit (10)(i)(a) of Form 10-K for 1988 (1-6364).
(10)(b)(i)	Gas storage agreement (SS-2) between South Jersey Gas Company and Transco dated July 25, 1990.	Incorporated by reference from Exhibit (10)(i)(i) of Form 10-K for 1991 (1-6364).
(10)(b)(ii)	Amendment to gas transportation agreement dated December 20, 1991 between South Jersey Gas Company and Transco dated October 5, 1993.	Incorporated by reference from Exhibit (10)(i)(k) of Form 10-K for 1993 (1-6364).
(10)(b)(iii)	CNJEP Service agreement between South Jersey Gas Company and Transco dated June 27, 2005.	Incorporated by reference frm Exhibit (10)(i)(l) of Form 10-K for 2005  (1-6364).
(10)(c)(i)	Gas transportation service agreement (FTS-1) between South Jersey Gas Company and Columbia Gulf Transmission Company dated November 1, 1993.	Incorporated by reference from Exhibit (10)(k)(k) of Form 10-K for 1993 (1-6364).

(10)(c)(ii)	FTS Service Agreement No. 38099 between South Jersey Gas Company and Columbia Gas Transmission Corporation dated November 1, 1993.	Incorporated by reference from Exhibit (10)(k)(n) of Form 10-K for 1993 (1-6364).
(10)(c)(iii)	NTS Service Agreement No. 39305 between South Jersey Gas Company and Columbia Gas Transmission Corporation dated November 1, 1993.	Incorporated by reference from Exhibit (10)(k)(o) of Form 10-K for 1993 (1-6364).
(10)(c)(iv)	FSS Service Agreement No. 38130 between South Jersey Gas Company and Columbia Gas Transmission Corporation dated November 1, 1993.	Incorporated by reference from Exhibit (10)(k)(p) of Form 10-K for 1993 (1-6364).

SJI - 79

Exhibit Number	Description	Reference
(10)(d)(i)	SST Service Agreement No. 38086 between South Jersey Gas Company and Columbia Gas Transmission Corporation dated November 1, 1993.	Incorporated by reference from Exhibit (10)(k)(q) of Form 10-K for 1993 (1-6364).
(10)(e)(i)*	Deferred Payment Plan for Directors of South Jersey Industries, Inc., South Jersey Gas Company, Energy & Minerals, Inc., R&T Group, Inc. and South Jersey Energy Company as amended and restated October 21, 1994.	Incorporated by reference from Exhibit (10)(l) of Form 10-K for 1994 (1-6364).
(10)(e)(ii)*	Schedule of Deferred Compensation Agreements.	Incorporated by reference from Exhibit (10)(l)(b) of Form 10-K for 1997 (1-6364).
(10)(e)(iii)*	Form of Officer Employment Agreement between certain officers and either South Jersey Industries, Inc. or its subsidiaries.  (filed herewith)
(10)(e)(iv)*	Schedule of Officer Employment Agreements. (filed herewith)
(10)(f)(i)*	Officer Severance Benefit Program for all Officers.	Incorporated by reference from Exhibit (10)(l)(g) of Form 10-K for 1985 (1-6364).
(10)(f)(ii)*	Supplemental Executive Retirement Program, as amended and restated effective July 1, 1997, and Form of Agreement between certain SJI or subsidiary officers.	Incorporated by reference from Exhibit (10)(l)(i) of Form 10-K for 1997 (1-6364).

(10)(f)(iii)*	South Jersey Industries, Inc. 1997 Stock-Based Compensation Plan (As Amended and Restated Effective January 26, 2005).	Incorporated by reference from Exhibit 10 of Form 10-Q of SJI as filed May 10, 2005.
(10)(g)(i)	Five-year Revolving Credit Agreement for SJI.	Incorporated by reference from Exhibit 10 of Form 8-K of SJI as filed August 25, 2006.
(10)(g)(ii)	Five-year Revolving Credit Agreement for SJG.	Incorporated by reference from Exhibit 10 of Form 8-K of SJG as filed on August 8, 2006.
(10)(g)(iii)	Letter of Credit Reimbursement Agreement dated December 20, 2007.	Incorporated by reference from Exhibit 10 (g) (iii) of Form 10-K for 2007.
(10)(g)(iv)	Loan Agreement between Toronto Dominion (New York) LLC and SJG dated December 15, 2008 (filed herewith)
(12)	Calculation of Ratio of Earnings to Fixed Charges (Before Federal Income Taxes) (filed herewith).
(14)	Code of Ethics.	Incorporated by reference from Exhibit 14 of Form 10-K for 2007.
(21)	Subsidiaries of the Registrant (filed herewith).
(23)	Independent Registered Public Accounting Firm’s Consent (filed herewith).
(31.1)	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
(31.2)	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
(32.1)	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
(32.2)	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

* Constitutes a management contract or a compensatory plan or arrangement.

SJI - 80

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SOUTH JERSEY INDUSTRIES, INC.

BY:  /s/ David A. Kindlick                                 

David A. Kindlick

Vice President & Chief Financial Officer

Date: March 2, 2009

SJI - 81

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Edward J. Graham	President, Chairman of the Board & Chief Executive Officer	March 2, 2009
(Edward J. Graham)	(Principal Executive Officer)
/s/ David A. Kindlick	Vice President & Chief Financial Officer	March 2, 2009
(David A. Kindlick)	(Principal Financial and Accounting Officer)
/s/ Richard H. Walker, Jr.	Vice President, General  Counsel &	March 2, 2009
(Richard H. Walker, Jr.)	Secretary
/s/ Shirli M. Billings	Director	March 2, 2009
(Shirli M. Billings)
/s/ Helen R. Bosley	Director	March 2, 2009
(Helen R. Bosley)
/s/ Thomas A. Bracken	Director	March 2, 2009
(Thomas A. Bracken)
/s/ Keith S. Campbell	Director	March 2, 2009
(Keith S. Campbell)
/s/ W. Cary Edwards	Director	March 2, 2009
(W. Cary Edwards)
/s/ Sheila Hartnett-Devlin	Director	March 2, 2009
(Sheila Hartnett-Develin)
/s/ Walter M. Higgins, III	Director	March 2, 2009
(Walter M. Higgins, III)
/s/ William J. Hughes	Director	March 2, 2009
(William J. Hughes)
/s/ Herman D. James	Director	March 2, 2009
(Herman D. James)
/s/ Joseph H. Petrowski	Director	March 2, 2009
(Joseph H. Petrowski)
/s/ Frederick R. Raring	Director	March 2, 2009
(Frederick R. Raring)

SJI - 82

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

South Jersey Industries, Inc.

Folsom, New Jersey

We have audited the consolidated financial statements of South Jersey Industries, Inc. and subsidiaries (the "Company") as of December 31, 2008 and 2007, and for each of the three years in the period ended December 31, 2008, and the Company's internal control over financial reporting as of December 31, 2008, and have issued our reports thereon dated March 2, 2009 (which report on the consolidated financial statements expressed an unqualified opinion and included an explanatory paragraph as to changes in accounting principles related to the adoption of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109,and FASB Statement No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)); such consolidated financial statements and reports are included elsewhere in this Form 10-K.  Our audits also included the financial statement schedules of the Company listed in Item 15(a)2.  These financial statement schedules are the responsibility of the Company's management.  Our responsibility is to express an opinion based on our audits.  In our opinion, such financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

/s/ DELOITTE & TOUCHE LLP

Philadelphia, Pennsylvania

March 2, 2009

SJI - 83

SCHEDULE I - SOUTH JERSEY INDUSTRIES, INC.
STATEMENTS OF INCOME
(In Thousands)
	2008			2007			2006
Operating Revenues	$	9,176		$	7,045		$	5,083
Operating Expenses:
Operations		7,945			6,120			4,352
Depreciation		139			106			78
Energy and Other Taxes		243			175			147
Total Operating Expenses		8,327			6,401			4,577
Operating Income		849			644			506
Other Income:
Equity in Earnings of Subsidiaries		77,178			62,659			72,250
Other		835			3,076			3,196
Total Other Income		78,013			65,735			75,446
Interest Charges		1,698			3,762			3,689
Income Taxes		(14	)		(42	)		13
Income from Continuing Operations		77,178			62,659			72,250
Equity in Undistributed Earnings of Discontinued Subsidiaries		(247	)		(391	)		(818	)
Net Income	$	76,931		$	62,268		$	71,432
See South Jersey Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements under Item 8.
SCHEDULE I - SOUTH JERSEY INDUSTRIES, INC.
STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
	2008			2007			2006
Net Income	$	76,931		$	62,268		$	71,432
Other Comprehensive Loss:
Postretirement Liability Adjustment		(6,877	)		199			(439	)
Unrealized (Loss) Gain on Available-for-Sale Securities		(730	)		(195	)		53
Unrealized (Loss) Gain on Derivatives		(6,277	)		(2,528	)		260
Total Other Comprehensive Loss		(13,884	)		(2,524	)		(126	)
Comprehensive Income	$	63,047		$	59,744		$	71,306
See South Jersey Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements under Item 8.

SCHEDULE I - SOUTH JERSEY INDUSTRIES, INC.
STATEMENTS OF RETAINED EARNINGS
(In Thousands)
	2008		2007			2006
Retained Earnings - Beginning	$	206,123	$	174,407		$	130,001
Cumulative Effect Adjustment		-		(771	)		-
Retained Earnings – Beginning, as adjusted		206,123		173,636			130,001
Net Income		76,931		62,268			71,432
		283,054		235,904			201,433
Dividends Declared - Common Stock		33,081		(29,781	)		(27,026	)
Retained Earnings - Ending	$	249,973	$	206,123		$	174,407
See South Jersey Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements under Item 8.

SJI - 84

SCHEDULE I - SOUTH JERSEY INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE TWELVE MONTHS ENDED DECEMBER 31,
(In Thousands)
	2008			2007			2006
CASH PROVIDED BY OPERATING ACTIVITIES	$	15,454		$	20,617		$	23,568
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment  in Affiliate		-			-			(1,726	)
Net (Advances to) Repayment from Associated Companies		(40,695	)		57,107			(33,630	)
Capital Expenditures		(23	)		(50	)		(63	)
Purchase of Company Owned Life Insurance		(4,287	)		(3,917	)		-
Other		365			-			18
Net Cash (Used In) Provided by Investing Activities		(44,640	)		53,140			(35,401	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Borrowings from Associated Companies		-			1,419			1,600
Net Borrowings (Repayments from) Lines of Credits		58,050			(51,150	)		30,800
Dividends on Common Stock		(32,914	)		(29,656	)		(26,874	)
Proceeds from Sale of Common Stock		2,076			7,484			6,606
Other		329			-			-
Net Cash Provided by (Used in) Financing Activities		27,541			(71,903	)		12,132
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(1,645	)		1,854			299
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		2,307			453			154
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	662		$	2,307		$	453
Dividends received from subsidiaries amounted to $14.9 million, $18.7 million, and $19.9 million in 2008, 2007, and 2006 respectively.
See South Jersey Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements under Item 8.

SJI - 85

SCHEDULE I - SOUTH JERSEY INDUSTRIES, INC.
BALANCE SHEETS
(In Thousands)
	2008			2007
Assets
Property Plant and Equipment:
Nonutility Property, Plant and Equipment, at cost	$	825		$	1,126
Accumulated Depreciation		(486	)		(363	)
Property, Plant and Equipment - Net		339			763
Investments:
Investments in Subsidiaries		539,551			488,559
Available-for-Sale Securities		18			21
Investment in Affiliates		-			40
Total Investments		539,569			488,620
Current Assets:
Cash and Cash Equivalents		662			2,307
Receivable from Associated Companies		70,177			38,494
Accounts Receivable		21			11
Other		908			445
Total Current Assets		71,768			41,257
Other Noncurrent Assets		10,778			5,803
Total Assets	$	622,454		$	536,443
Capitalization and Liabilities
Common Equity:
Common Stock SJI
Par Value $1.25 a share
Authorized - 60,000,000 shares
Outstanding – 29,728,697 shares and 29,607,802	$	37,161		$	37,010
Premium on Common Stock		252,495			248,449
Treasury Stock (at par)		(176	)		(187	)
Accumulated Other Comprehensive Loss		(24,199	)		(10,315	)
Retained Earnings		249,973			206,123
Total Common Equity		515,254			481,080
Current Liabilities:
Notes Payable - Banks		98,000			39,950
Payable to Associated Companies		1,118			10,130
Accounts Payable		239			711
Other Current Liabilities		1,444			1,212
Total Current Liabilities		100,801			52,003
Other Noncurrent Liabilities		6,399			3,360
Total Capitalization and Liabilities	$	622,454		$	536,443
See South Jersey Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements under Item 8.

SJI - 86

SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
Col. A	Col. B		Col. C					Col. D		Col. E
			Additions
Classification	Balance at Beginning of Period			Charged to Costs and Expenses		Charged to Other Accounts - Describe (a)		Deductions - Describe (b)		Balance at End of Period
Provision for Uncollectible
Accounts for the Year Ended
December 31, 2008	$	5,491		$	2,332	$	279	$	2,345	$	5,757
Provision for Uncollectible
Accounts for the Year Ended
December 31, 2007	$	5,224		$	2,603	$	725	$	3,061	$	5,491
Provision for Uncollectible
Accounts for the Year Ended
December 31, 2006	$	5,871		$	1,466	$	428	$	2,541	$	5,224
(a) Recoveries of accounts previously written off and minor adjustments.
(b) Uncollectible accounts written off.

SJI - 87

EX-3

Exhibit 3(b)

 BYLAWS

(AMENDED AND RESTATED THROUGH APRIL 18, 2008)

SOUTH JERSEY INDUSTRIES, INC.

ARTICLE I

SHAREHOLDERS

1.1  Place of Meetings.  Meetings of the shareholders shall be held at such place as may be designated by the Board of Directors in the notice of meeting.

1.2  Annual Meeting.  An annual meeting of the shareholders for the election of Directors and for other business shall be held on the next to the last Thursday in April of each year, if not a legal holiday, and if a legal holiday, then on the first day following which is not a legal holiday, or on such other day as may be designated by the Board of Directors.

1.3  Special Meetings.  Special meetings of the shareholders may be called at any time by the President or by action of a majority of the Board of Directors.  Upon the application of the holder or holders of not less than 10% of all shares entitled to vote at a meeting, the Superior Court, in an action in which the court may proceed in a summary manner, for good cause shown, may order a special meeting of the shareholder to be called and held at such time and place, upon such notice and for the transaction of such business as may be designated in such order.

1.4 Notice.  Written notice of the time, place and purpose of every meeting of shareholders shall be given not less than ten nor more than 60 days before such meeting, either personally or by mail, by or at the direction of the Chairman of the Board and Chief Executive Officer, the Secretary, or the officer or persons calling the meeting, to each shareholder of record entitled to vote at the meeting.

1.5 Quorum.  At all meetings of shareholders, a majority of the outstanding shares of capital stock entitled to vote, represented by shareholders in person or by proxy, shall constitute a quorum for the transaction of business.  In the absence of a quorum, the shareholders present in person or by proxy by majority vote may adjourn the meeting from time to time without notice other than by oral announcement at the meeting, until a quorum shall be present.  At any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the original meeting.

1.6  Business at Meetings of Shareholders.  Except as otherwise provided by law, or in these Bylaws, the business which shall be conducted at any meeting of the shareholders shall (a) have been specified in the written notice of the meeting (or any supplement thereto) given by the Company, or (b) be brought before the meeting at the direction of the Board of Directors or the President, or (c) be brought before the meeting by the presiding officer of the meeting unless either a majority of the Directors then in office or the President object to such business being conducted at the meeting, or (d) have been specified in a written notice given to the Secretary of the Company, by or on behalf of any shareholder entitled to vote at the meeting (the "Shareholder Notice"), in accordance with all of the following requirements:

(1)  Each Shareholder Notice must be delivered to, or mailed and received at, the principal executive offices of the Company (i) in the case of an annual meeting that is called for a date that is within 30 days before or after the anniversary date of the immediately preceding annual meeting of shareholders, not less than 60 days nor more than 90 days prior to such anniversary date, (ii) in the case of an annual meeting that is called for a date that is not within 30 days before or after the anniversary date of the immediately preceding annual meeting, not later than the close of business on the tenth day following the day on which notice of the date of the meeting was mailed or public disclosure of the date of the meeting was made, whichever comes first, and (iii) in the case of any special meeting of the shareholders, not less than 60 days nor more than 90 days prior to the date of such meeting; and

(2)  Each such Shareholder Notice must set forth with particularity (i) the names and business addresses of the shareholder submitting the proposal (the "Proponent") and all persons acting in concert with the Proponent; (ii) the name and address of the Proponent and the persons identified in clause (i), as they appear on the Company's books (if they so appear); (iii) the class and number of shares of the Company beneficially owned by the Proponent and the persons identified in clause (i); (iv) a description of the Shareholder Proposal containing all material information relating thereto; (v) a representation that the Proponent is a holder of record of the stock of the Company entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to bring the business specified in the notice before the meeting; and (vi) such other information as the Board of Directors reasonably determines is necessary or appropriate to enable the Board of Directors and the shareholders of the Company to consider the shareholder proposal.  The presiding officer at any shareholders meeting may determine, in his or her sole discretion, that any shareholder proposal was not made in accordance with the procedures prescribed in these Bylaws or is otherwise not in accordance with law, and if such officer should so determine, such officer shall so declare at the meeting and the shareholder proposal shall be disregarded.

ARTICLE II

DIRECTORS

2.1  Powers, Number, Classification and Election.  The business and affairs of the Company shall be conducted and managed by its Board of Directors, which shall have all the powers of the Company except such as are by statute, by the Certificate of Incorporation, or by these Bylaws conferred upon or reserved to the shareholders.  The number of Directors constituting the entire Board of Directors shall be (12) twelve.  The members of the Board of Directors shall be divided into classes in the manner provided by Article SEVENTH of the Company's Certificate of Incorporation and shall be elected and serve for such terms of office as are provided therein.

2

2.2  Meetings.

(a)  Place of Meetings.  Meetings of the Board of Directors shall be held at such place as may be designated by the Board or in the notice of the meeting.

(b)  Regular Meetings.  Regular meetings of the Board of Directors shall be held on such dates as may be fixed, from time to time, by a majority of the Directors at a meeting or in writing without a meeting.

(c)  Special Meetings.  Special meetings of the Board of Directors shall be held whenever called by the Chairman of the Board and Chief Executive Officer or by a majority of the Board of Directors at a meeting or in writing without a meeting.

(d)  Notice.  Notice of the time and place of every meeting, which need not be in writing, shall be given to each Director at least two days before the meeting.

(e)  Quorum.  At all meetings of the Board of Directors, or any committee thereof, a majority of the total number of the members shall constitute a quorum for the transaction of business, provided that a quorum shall never be less than two persons.  Except in cases in which it is by law, by the Certificate of Incorporation, or by these Bylaws otherwise provided, a majority of members present at a meeting of the full Board or of a committee at which a quorum is present shall decide any questions that may come before the meeting. In the absence of a quorum, the members present by majority vote may adjourn the meeting from time to time without notice other than by oral announcement at the meeting, until a quorum shall be present.  At any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified.

2.3  Newly Created Directorships and Vacancies.  Newly created Directorships resulting from an increase in the number of Directors and vacancies occurring in the Board of Directors for any reason may be filled by vote of a majority of the Directors then in office, although less than a quorum, or by a sole remaining director, at any meeting of the Board of Directors.  Newly created Directorships shall be assigned by the Board of Directors to one of the classes described in Article SEVENTH of the Company's Certificate of Incorporation in the manner provided in such Article.  The person so elected by the Board of Directors to fill a newly created Directorship or a vacancy shall be elected to hold office until the next succeeding annual meeting of shareholders and until his successor shall be duly elected and qualified or until his earlier death, resignation or removal.

2.4  Committees.  The Board of Directors may by resolution adopted by a majority of the whole Board designate one or more committees, each committee to consist of three or more Directors, one of whom shall be designated by the Board as Chairman, and such alternate members (also Directors) as may be designated by the Board.  The Chairman of the Board and  Chief Executive Officer of the Company shall be ex officio a member of each such committee unless the Board shall otherwise direct.  The Board may provide by resolution for compensation and payment of expenses to committee members and alternate members.  Any such committee, to the extent permitted by law and provided in such resolution, shall have and exercise the authority of the Board of Directors in the management of the business and affairs of the Company, and shall have power to fix its own rules of procedure.  In the absence or disqualification of any member of a committee or other person authorized to act as such, the member or members thereof present and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another Director to act at the meeting in the place of any such absent or disqualified member.

3

2.5  Removal.  No member of the Board of Directors may be removed except for cause.

2.6 Nominations by Shareholders. Notwithstanding the provisions of Section 2.1, nominations for the election of the Directors may be made at any annual meeting or any special meeting of shareholders at which Directors are to be elected by any shareholder of record entitled to vote at such meeting; provided, however, that such shareholder must provide timely written notice (the "Nomination Notice") to the Secretary of the Company in accordance with the following requirements:

(1)  Each Nomination Notice must be delivered to, or mailed or received at, the principal executive offices of the Company (i) in the case of an annual meeting that is called for a date that is within 30 days before or after the anniversary date of the immediately preceding annual meeting of shareholders, not less than 60 days nor more than 90 days prior to such anniversary date, and (ii) in the case of an annual meeting that is called for a date that is not within 30 days before or after the anniversary date of the immediately preceding annual meeting, not later than the close of business on the tenth day following the day on which notice of the date of the meeting was mailed or public disclosure of the date of the meeting was made, whichever comes first; and (iii) in the case of any special meeting of the shareholders, not less than 60 days nor more than 90 days prior to the date of such meeting; and

(2)  Each Nomination Notice must set forth: (i) as to each individual nominated, (A) the name, date of birth, business address and residence address of such individual; (B) the business experience during the past five years of such nominee, including his or her principal occupations and employment during such period, the name and principal business of any corporation or other organization in which such occupations and employment were carried on, and such other information as to the nature of his or her responsibilities and level of professional competence as may be sufficient to permit assessment of his or her prior business experience; (C) whether the nominee is or has ever been at any time a director, officer or owner of 5% or more of any class of capital stock, partnership interests or other equity interest of any corporation, partnership or other entity; (D) any directorships held by such nominee in any company with a class of securities registered pursuant to section 12 of the Securities Exchange Act of 1934, as amended, or subject to the requirements of section 15(d) of such Act or any company registered as an investment company under the Investment Company Act of 1940, as amended; (E) whether, in the last five years, such nominee has been convicted in a criminal proceeding or has been subject to a judgment, order, finding, decree of any federal, state or other governmental entity, concerning any violation of federal, state or other law, or any proceeding in bankruptcy, which conviction, order, finding, decree or proceeding may be material to an evaluation of the ability or integrity of the nominee; (F) a description of all arrangements or understandings between the nominating shareholder (the "Nominating Shareholder") and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the Nominating Shareholder; (G) such other information regarding each nominee as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had the nominee been nominated, or intended to be nominated, by the Board of Directors; and (H) the consent of each nominee to serve as a Director of the Company if so elected; and (ii) as to the Nominating Shareholder and any person acting in concert with the Nominating Shareholder, (x) the names and business addresses of such Nominating Shareholder and the persons identified in clause (ii); (ii) the name and address of such Nominating Shareholder and the persons identified in clause (ii), as they appear on the Company's books (if they so appear); (iii) the class and number of shares of the Company beneficially owned by such Nominating Shareholder and the persons identified in clause (ii).  The presiding officer at any shareholders meeting may determine, in his or her sole discretion, that any nomination of any person was not made in accordance with the procedures prescribed in these Bylaws or is otherwise not in accordance with law, and if such officer should so determine, such officer shall so declare at the meeting and the nomination shall be disregarded.

4

ARTICLE III

OFFICERS

3.1  Executive Officers.  The Executive officers of the Company shall be a President (who may be designated by resolution of the Board as the Chief Executive Officer), one or more Vice Presidents (one or more of whom may be designated as Executive Vice President or Senior Vice President), a Secretary and a Treasurer.  The Chairman of the Board may also be elected as an Executive Officer and if so elected by the Board of Directors, may be designated the Chief Executive Officer, in which case the President shall then be the Chief Operating Officer. If the Chairman of the Board is elected as an Executive Officer and is not designated by resolution of the Board as the Chief Executive Officer, the President shall then be the Chief Executive Officer.  The Executive officers shall be elected annually by the Board of Directors following the annual meeting of shareholders and each such officer shall hold office until the corresponding meeting next year and until his successor shall have been duly chosen and qualified, or until he shall resign or shall have been removed. Any vacancy in any of the above-mentioned offices may be filled for the unexpired term by the Board of Directors at any regular or special meeting.

3.2  Authority, Duties and Compensation.  The Executive officers shall have such authority, perform such duties and serve for such compensation as shall be provided in these Bylaws or as may be determined by resolution of the Board of Directors.  The Chairman of the Board and Chief Executive Officer shall preside at all meetings of the Board of Directors and the shareholders at which he is present,shall carry out policies adopted or approved by the Board of Directors, shall have general charge and supervision of the business of the Company, subject to the control of the Board of Directors, and may perform any act and execute any instrument in the conduct of the business of the Company.  The other Executive Officers shall have the duties and powers usually related to their offices, except as the Board of Directors or the Chairman of the Board and Chief Executive Officer shall otherwise determine from time to time.

3.3  Assistant and Subordinate Officers.  The Board of Directors may choose one or more Assistant Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and such subordinate Officers as it may deem desirable.  Each Assistant and subordinate Officer, if any, shall hold office for such period, shall have such authority and

perform such duties, and shall receive such compensation as the Board of Directors or the Chairman of the Board and Chief Executive Officer, or such other Officer as the Board shall so authorize, may prescribe.

 

5

3.4  Officers Holding Two or More Offices. Any two of the above-mentioned offices may be held by the same person, but no officers shall execute, acknowledge, or verify any instrument in more than one capacity, if such instrument be required by statute, by the Certificate of Incorporation, or by these Bylaws, to be executed, acknowledged, or verified by any two or more officers.

ARTICLE IV

INDEMNIFICATION

4.1 Right to Indemnification.  The Company shall indemnify any corporate agent against his expenses and liabilities in connection with any proceedings involving the corporate agent by reason of his being or having been such a corporate agent to the extent that (a) such corporate agent is not otherwise indemnified; and (b) the power to do so has been or may be granted by statute; and for this purpose the Board of Directors may, and on request of any such corporate agent shall be required to, determine in each case whether or not the applicable standards in any such statute have been met, or such determination shall be made by independent legal counsel if the Board so directs or if the Board is not empowered by statute to make such determination.

4.2  Prepayment of Expenses.  To the extent that the power to do so has been or may be granted by statute, the Company shall pay expenses incurred by a corporate agent in connection with a proceeding in advance of the final disposition of the proceeding upon receipt of an undertaking by or on behalf of such corporate agent to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified as provided by statute.

4.3 Indemnification Not Exclusive.  This indemnification shall not be exclusive of any other rights to which a corporate agent may be entitled, both as to any action in his official capacity or as to any action in another capacity while holding such office, and shall inure to the benefits of the heirs, executors or administrators of any such corporate agent.

4.4  Insurance and Other Indemnification.  The Board of Directors shall have the power to (a) purchase and maintain, at the Company's expense, insurance on behalf of the Company and on behalf of others to the extent that power to do so has been or may be granted by statute and (b) give other indemnification to the extent permitted by law.

4.5 Definitions.  As used in this Article,

(a)  "corporate agent" means any person who is or was a Director, officer, employee or agent of the Company and any person who is or was a Director, officer, trustee, employee or agent of any other enterprise, serving as such at the request of the Company, or the legal representative of any such Director, officer, trustee, employee or agent;

6

(b)  "other enterprise" means any domestic or foreign corporation, other than the Company, and any partnership, joint venture, sole proprietorship, trust or other enterprise whether or not for profit, served by a corporate agent;

(c)  "expenses" means reasonable costs, disbursements and counsel fees;

(d)  "liabilities" means amounts paid or incurred in satisfaction of settlements, judgments, fines and penalties;

(e)  "proceedings" means any pending, threatened or completed civil, criminal, administrative or arbitrative action, suit or proceeding, and any appeal therein and any inquiry or investigation which could lead to such action, suit or proceeding.

ARTICLE V

SHARE CERTIFICATES AND

UNCERTIFICATED SHARES

5.1  Share Certificates.  Except as provided in Section 5.4, every shareholder of record shall be entitled to a share certificate representing the shares held by him and such certificates shall conform to all applicable provisions of law.

5.2  Transfer of Shares. The Board of Directors shall have power and authority to make all such rules and regulations as it may deem expedient and in accordance with law concerning the issue, transfer, and registration of share certificates.

5.3  Mutilated, Lost or Destroyed Certificates.  The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Company alleged to have been mutilated, lost or destroyed.  When authorizing such issue of a new certificate, the Board of Directors, in its discretion and as a condition precedent to the issuance thereof, may prescribe such terms and conditions as it deems expedient, and may require such indemnities as it deems adequate, to protect the Company from any claim that may be made against it with respect to any such certificate alleged to have been lost or destroyed.

5.4  Uncertificated Shares.  The Board of Directors may provide that some or all of the shares of any class or series of stock of the Company shall be represented by uncertificated shares.  Within 20 days after the issuance or transfer of uncertificated shares, the Company shall send to the registered owner thereof a written notice stating that the Company is organized under the laws of New Jersey, the name of the person to whom the shares were issued, the number and class, and the designation of the series, if any, of such shares, and containing any other information required by law or deemed advisable by the Company to be included in such notice.  Except as otherwise expressly provided by law, the rights and obligations of the holders of uncertificated shares and the rights and obligations of the holders of certificates representing shares of the same class and series shall be identical.

7

ARTICLE VI

MISCELLANEOUS

6.1  Fiscal Year.  The fiscal year of the Company shall be the calendar year, unless otherwise provided by the Board of Directors.

6.2  Amendments.  These Bylaws may be amended or repealed (i) by action of a majority of the Board of Directors at any regular or special meeting of the Board of Directors, provided notice of any such alteration, amendment, or repeal shall be given in the notice of any such meeting, (ii) or except as otherwise provided in Article TENTH of the Certificate of Incorporation of the Company, as amended, by action of the holders of a majority of the outstanding shares of capital stock of the Company entitled to vote generally in the election of Directors, considered for this purpose as one class.

		AMENDMENTS
Article I	Section 1.2	Amended March 19, 1970
Article I	Section 1.2	Amended April 16, 1970
Article II	Section 2.1	Amended February l8, 1971
Article II	Section 2.1	Amended June 22, 1972
Article II	Section 2.1	Amended August 23, 1973
Article II	Section 2.1	Amended February 20, 1975
Article II	Section 2.1	Amended February 19, 1976
Article II	Section 2.1	Amended February 17, 1977
Article II	Section 2.1	Amended February 16, 1978
Article II	Section 2.1	Amended February 15, 1979
Article II	Section 2.1	Amended August 23, 1979
Article I	Section 1.3	Amended November 16, 1979
Article I	Section 1.4	Amended November 16, 1979
Article II	Section 2.2 (c)	Amended November 16, 1979
Article II	Section 2.4	Amended November 16, 1979
Article III	Section 3.1	Amended November 16, 1979
Article III	Section 3.2	Amended November 16, 1979
Article III	Section 3.3	Amended November 16, 1979
Article III	Section 3.4	Amended November 16, 1979
Article V	Section 5.1	Amended November 16, 1979
Article II	Section 2.4	Amended October 24, 1980
Article II	Section 2.1	Amended April 22, 1981 (Special Mtg.)
Article II	Section 2.1	Amended October 23, 1981
Article III	Section 3.1, 3.2, and 3.3	Amended October 23, 1981
Article II	Section 2.1, 2.3	Amended January 21, 1983
Article II	Section 2.5	Amended by including new section Jan. 21, 1983
Article IV	Section 6.2	Amended January 21, 1983
Article II	Section 2.1	Amended January 24, 1986
Article I	Section 1.3	Amended April 18, 1989, eff. April 19, 1989 (Spl.Mtg.)
Article I	Section 1.4	Amended April 18, 1989, eff. April 19, 1989 (Spl.Mtg.)
Article II	Section 2.1	Amended April 18, 1989, eff. April 19, 1989 (Spl.Mtg.)
Article II	Section 2.2	Amended April 18, 1989, eff. April 19, 1989 (Spl.Mtg.)
Article III	Section 3.1	Amended April 18, 1989, eff. April 19, 1989 (Spl.Mtg.)
Article III	Section 3.2	Amended April 18, 1989, eff. April 19, 1989 (Spl.Mtg.)
Article V	Section 5.1	Amended April 18, 1989, eff. April 19, 1989 (Spl.Mtg.)

8

Article V	Section 5.1	Amended November 17, 1989
Article V	Section 5.4	Amended by including new section November 17, 1989
Article II	Section 2.1	Amended October 1, 1990.
Article II	Section 2.1	Amended April 23, 1992.
Article II	Section 2.1	Amended April 22, 1993.
Article II	Section 2.1	Amended September 1, 1993
Article II	Section 2.1	Amended April 21, 1994.
Article II	Section 2.1	Amended February 17, 1995.
Article I	Section 1.3 and 1.4	Amended April 20, 1995.
Article II	Section 2.2 (c) and 2.4	Amended April 20, 1995.
Article III	Section 3.1, 3.2, and 3.3	Amended April 20, 1995.
Article II	Section 2.1	Amended August 23, 1996.
Article II	Section 2.1	Amended April 17, 1997.
Article I	Section 1.3	Amended October 24, 1997.
Article I	Section 1.6	Amended by adding new section October 24, 1997.
Article II	Section 2.6	Amended by adding new section October 24, 1997.
Article II	Section 2.1	Amended December 30, 1997.
Article III	Section 3.1	Amended December 30, 1997.
Article II	Section 2.1	Amended April 23, 1998.
Article II	Section 2.1	Amended October 23, 1998.
Article III	Section 3.1	Amended October 23, 1998.
Article II	Section 2.1	Amended May 21, 1999.
Article II	Section 2.1	Amended November 19, 1999.
Article II	Section 2.1	Amended November 17, 2000.
Article II	Section 2.1	Amended January 24, 2003.
Article II	Section 2.1	Amended January 28, 2004.
Article II	Section 2.1	Amended April 29, 2004.
Article II	Section 2.1	Amended May 25, 2006.
Article II	Section 2.1	Amended April 18, 2008.

9

EX-10.A(III)

Exhibit 10(a)(iii)

SERVICE AGREEMENT

between

TRANSCONTINENTAL GAS PIPE LINE CORPORATION

and

SOUTH JERSEY RESOURCES GROUP, LLC

Effective:

May 1, 2006

SERVICE AGREEMENT UNDER RATE SCHEDULE WSS-OPEN ACCESS

THIS AGREEMENT entered into this FIRST day of MAY, 2006, by and between TRANSCONTINENTAL GAS PIPE LINE CORPORATION, a Delaware corporation, hereinafter referred to as "Seller", first party, and SOUTH JERSEY RESOURCES GROUP, LLC, a Delaware corporation, hereinafter referred to as "Buyer", second party,

WITNESSETH:

WHEREAS, Seller has made available to Buyer storage capacity from its Washington Storage Field under Part 284 of the Commission's Regulations; and Buyer desires to purchase and Seller desires to sell natural gas storage service under Seller's Rate Schedule WSS-Open Access as set forth herein;

NOW, THEREFORE, Seller and Buyer agree as follows:

ARTICLE I

SERVICE TO BE RENDERED

Subject to the terms and provisions of this agreement and of Seller's Rate Schedule WSS-Open Access, Seller agrees to inject into storage for Buyer's account, store and withdraw from storage, quantities of natural gas as follows:

To withdraw from storage up to a maximum quantity on any day of 51,837 dt, which quantity shall be Buyer's Storage Demand Quantity, or such greater daily quantity, as applicable from time to time, pursuant to the terms and conditions of Seller's Rate Schedule WSS-Open Access.

To receive and store up to a total quantity at any one time of 4,406,135 dt, which quantity shall be Buyer's Storage Capacity Quantity.

ARTICLE II

POINT(S) OF RECEIPT AND DELIVERY

The Point of Receipt for injection of natural gas delivered to Seller by Buyer and the Point of Delivery for withdrawal of natural gas delivered by Seller to Buyer under this agreement shall be Seller's Washington Storage Field located at Seller's Station 54 in St. Landry Parish, Louisiana.  Gas delivered or received in Seller's pipeline system shall be at the prevailing pressure not to exceed the maximum allowable operating pressure.

SERVICE AGREEMENT UNDER RATE SCHEDULE WSS-OPEN ACCESS

(Continued)

ARTICLE III

TERM OF AGREEMENT

This agreement shall be effective May 1, 2006 and shall remain in force and effect until October 31, 2017, and year to year thereafter, subject to termination by either party upon six (6) months written notice to the other party.

ARTICLE IV

RATE OF SCHEDULE AND PRICE

Buyer shall pay Seller for natural gas service rendered hereunder in accordance with Seller's Rate Schedule WSS-Open Access, and the applicable provisions of the General Terms and Conditions of Seller's FERC Gas Tariff as filed with the Federal Energy Regulatory Commission, and as the same may be amended or superseded from time to time. Such Rate Schedule and General Terms and Conditions are by this reference made a part hereof. In the event Buyer and Seller mutually agree to a negotiated rate pursuant to the provisions of Section 53 of the General Terms and Conditions and specified term for service hereunder, provisions governing such negotiated rate (including surcharges) and term shall be set forth on Exhibit A to the service agreement.

ARTICLE V

MISCELI.ANEOUS

1. The subject headings of the Articles of this agreement are inserted for the purpose of convenient reference and are not intended to be a part of this agreement nor to be considered in any interpretation of the same.

2. This agreement supersedes and cancels as of the effective date hereof the following contracts between the parties hereto:  None.

SERVICE AGREEMENT UNDER RATE SCHEDULE WSS-OPEN ACCESS

(Continued)

3. No waiver by either party of any one or more defaults by the other in the performance of any provisions of this agreement shall operate or be construed as a waiver of any future default or defaults, whether of a like or different character.

4. This agreement shall be interpreted, performed and enforced in accordance with the laws of the State of Texas.

5. This agreement shall be binding upon, and inure to the benefit of the parties hereto and their respective successors and assigns.

IN WITNESS WHEREOF, the parties hereto have caused this agreement to be signed by their respective officers or representatives thereunto duly authorized.

 TRANSCONTINENTAL GAS PIPE LINE CORPORATION

           BY /s/ Paul F. Egner, III

(Seller)

      Paul F. Egner, III

      Director, Customer Services

           SOUTH JERSEY RESO URCES GROUP, LLC

           B Y /s/ Ken DePriest

      (Buyer)

      Ken DePriest

      Vice President

SERVICE AGREEMENT UNDER RATE SCHEDULE WSS-OPEN ACCESS

(Continued)

EXHIBIT A

Specification of Negotiated Rate and Term

None

EX-10.E(III)

Exhibit 10(e)(iii)

SOUTH JERSEY INDUSTRIES

SOUTH JERSEY GAS COMPANY

SOUTH JERSEY ENERGY COMPANY

Officer Employment Agreement

THIS AGREEMENT made as of the first day of January, 2009, by and between South Jersey Industries, Inc. (“SJI”) and/or one or more of its subsidiaries South Jersey Gas Company, South Jersey Energy Solutions, LLC and SJI Services, LLC, all corporations or limited liability companies, having their principal offices at Number One South Jersey Plaza, Route 54, Folsom, New Jersey (the “Companies”), and _____________(the “Officer”).

WITNESSETH:

WHEREAS, the Companies desire to assure themselves of the continued employment of the Officer by the Companies and to encourage his or her continued attention and dedication to the Companies in the best interests of the Companies and SJI shareholders; and

WHEREAS, the Officer is presently employed by the Companies as follows:___________________, South Jersey Industries, Inc.

WHEREAS, the Officer desires to remain and continue in the employ of the Companies on the terms hereinafter provided;

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto agree as follows:

Section 1. Employment.

The Companies hereby agree to continue to employ the Officer in the positions in which he or she presently serves, and the Officer hereby agrees to continue to serve in those positions, on the terms and conditions set forth herein.

Section 2. Term.

The term of this Agreement shall be for a period of three (3) years beginning January 1, 2009 and ending on December 31, 2011 subject to earlier termination under sections 7 and 8.

Section 3. Duties and Responsibilities.

The Officer shall serve in the positions in which he or she presently serves and shall report_________________. The Officer shall perform such duties and services as are customarily performed by him or her and as are assigned to him or her by the appropriate officer to whom he or she reports.

Page 1 of 15

Section 4. Outside Services.

The Officer agrees to devote substantially all of his or her working time and efforts to the business and affairs of the Companies and shall not, directly or indirectly, without the written consent of the Chief Executive Officer of SJI, render any services to any other person, firm or entity, or own, manage, operate, control or participate in the management of any other person, firm or entity during the term of this Agreement.  However, the Officer is not prohibited or prevented from acquiring or holding investments and securities listed on a national or regional securities exchange or sold in an over-the-counter public market, provided that the Officer is not part of any control group of such corporation or entity.  So long as it does not interfere with his or her duties under this Agreement, the Officer shall have the right to serve as a director of any other corporation upon the approval of the Chief Executive Officer of SJI.

Section 5. Place of Performance.

The Officer’s services during the term of this Agreement shall be performed primarily in the corporate headquarters building of the Companies at Number One South Jersey Plaza, Route 54, Folsom, New Jersey or at a designated location approved by the Chief Executive Officer of SJI.  Without his or her prior consent, the Officer shall not be required to move his or her place of permanent employment from this corporate headquarters building, although the Officer may be required to undertake reasonable domestic and international travel from time to time consistent with his or her business travel obligations.

Section 6. Compensation and Expenses.

6.1 Total Direct Compensation.

During the period of the Officer’s employment under this Agreement, the Companies shall pay to the Officer a base salary of not less than $________per annum; a performance based annual cash award targeted at not less than __ % of base salary; and a long-term incentive plan award targeted at not less than __ % of base salary; provided that the performance based annual cash award and long-term incentive plan award actually paid to the Officer shall be based on the level of attainment of the applicable performance criteria for such awards.  The actual amount paid to the Officer pursuant to the foregoing three components is referred to in this Agreement as “Total Direct Compensation.”  Base Salary shall be paid in either twenty-four (24) or twenty-six (26) equal installments.  The amount of Total Direct Compensation shall be reviewed annually in accordance with the normal business practices of the Companies.  On or after a Change of Control, any reduction in the targeted amount of the Officer’s performance based annual cash award or targeted long-term incentive plan award shall constitute a material breach of this Agreement by the Companies.

6.2           Additional Benefits.

In addition to Total Direct Compensation, the Companies shall pay for and the Officer shall be entitled without limitation to participate in employee benefit plans presently in effect or hereafter adopted by the Companies which are applicable to employees generally.  To the extent said benefits have been modified or additional benefits provided, they are detailed in Exhibit A, which is attached hereto and made a part hereof.  If employer contributions to any such plan (other than a defined benefit plan) for the benefit of the Officer or his

Page 2 of 15

or her dependents or beneficiaries are reduced in amount by any statute or regulation from the payments that would otherwise be so made but for such statute or regulation, the amount that is prohibited from being paid to such plan because of such statute or regulation, increased if necessary as provided in the next sentence, shall be paid, at the time it would have been paid to such plan except for such prohibition to the Officer in a lump sum cash payment.  Such amount shall be increased if necessary so that, after federal and state income taxes on the amount as so increased are taken into account, the net amount after such taxes, shall be paid to the Officer.  In no event shall such amount, together with any additional tax gross-up amount, be paid later than March 15 of the fiscal year following the fiscal year for which such amount would have been paid to the applicable plan.

6.3           Expenses.

In addition to Total Direct Compensation and Additional Benefits, the Companies shall pay for and the Officer shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Officer in performing services under this Agreement, including all expenses of travel and living expenses while away from home on business or at the request of and in the service of the Companies, provided that such expenses are incurred and accounted for in accordance with the policies and procedures presently or hereafter established by the Companies.

6.4           Services Furnished.

The Companies shall furnish the Officer with office space, administrative/clerical assistance and such other facilities and services as shall be suitable to the Officer’s position and adequate for the performance of his or her duties.

Section 7. Reasons for Termination.

7.1           Death.

This Agreement shall terminate upon the Officer’s death, and he or she shall be entitled to such death benefits to which he or she is otherwise entitled presently or which may be hereafter established by the Companies.

7.2           Disability.

If the Officer shall be determined to be disabled in accordance with the disability policy or plan of the Companies, the Company may remove the Officer from positions within the Companies in which he or she then may be serving, subject to the requirements of applicable law.  However, the Officer shall not be terminated as an employee of the Companies.  The Officer shall be retained in such positions and given such duties and responsibilities as are commensurate with his or her abilities at the time.  The Officer shall be entitled to such disability benefits, including short term and long term, to which he or she is otherwise entitled presently or which may be hereafter established by the Companies.  Until the Officer becomes entitled to such disability benefits, he or she shall continue to be paid his or her Total Direct Compensation earned in accordance with this Agreement or other applicable plan or program pursuant to which such Total Direct Compensation is paid.  The determination of the disability of the Officer shall be made by the Chief Executive Officer of the Companies in the exercise of his discretion in accordance with procedures set forth in the disability policies or plan.

Page 3 of 15

7.3           Retirement.

If the Officer shall retire, he or she shall be entitled to such pension and other benefits applicable to executive employees generally and him or her specifically including, without limitation, those presently existing or hereafter established by the Companies.

7.4           For Cause by the Companies.

The Companies may terminate the Officer’s employment for Cause.  For purposes of this Agreement, the Companies shall have “Cause” to terminate the Officer’s employment hereunder only for the following reasons: (1) the willful and continued failure by the Officer to substantially perform his or her duties hereunder other than any such failure resulting from the Officer’s incapacity due to physical or mental illness or injury; (2) the conviction of the Officer of a crime under state or federal law and the Companies’ Board of Directors or one of its committees is unable to conclude in good faith (and in its sole discretion) that the Officer had no reasonable cause to believe that the activities of which he or she was convicted were unlawful and that such conviction will not materially impair his or her ability to discharge his or her duties; (3) the willful engaging by the Officer in misconduct which is materially injurious to the Companies, monetarily or otherwise; or (4) the continued inability of the Officer to perform his or her duties by reason of alcoholism or drug abuse even after appropriate rehabilitation services have been made available to him or her.

7.5           For Good Reason by the Officer.

The Officer may terminate the Officer’s employment for Good Reason following a Change of Control at any time during the term of this Agreement. For purposes of this Agreement, “Good Reason” shall mean any of the following: (1) the assignment to the Officer by the Companies, without the Officer’s express written approval, of duties inconsistent with the Officer’s position, duties, responsibilities, titles, offices or status with the Companies immediately prior to a Change of Control of the Companies, or any removal of the Officer from or any failure to re-elect the Officer to any such positions; (2) a material reduction in the Officer’s base salary as in effect on the date hereof or as the same is increased from time to time during the term of this Agreement; (3) the failure to continue in effect any benefit plan or arrangement in which the Officer is participating immediately prior to a Change of Control, or the taking of any action by the Companies which would adversely affect the Officer’s participation in and/or materially reduce the Officer’s benefits under any such benefit plan or arrangement or which would deprive the Officer of any material fringe benefit enjoyed by the Officer immediately prior to a Change of Control; (4) a relocation of the Companies’ corporate headquarters to a location more than 50 milesoutside of Folsom, New Jersey, or the Officer’s relocation to any place more than 50 milesfrom the location at which the Officer performed the Officer’s duties except for required travel by the Officer on the Companies’ business to an extent substantially consistent with the Officer’s business travel obligations immediately prior to a Change of Control; (5) a material breach of this Agreement by the Companies, or (6) any purported termination of the Officer’s employment which is not effected pursuant to a Notice of Termination.

Page 4 of 15

Notwithstanding the foregoing,for any of the foregoing acts (or failure to act) to constitute “Good Reason,” the Officer must object in writing to theCompanies within 90 days following initial notification of the occurrence or proposed occurrence of the act (or failure to act), and which act (or failure to act) is not then rescinded or otherwise remedied by the Board within 30 days after delivery of such notice and the Executive actually resigns from employment within 30 days after the expiration of the foregoing 30-day cure period.  If the Executive’s resignation occurs after such time, the resignation shall be treated as a voluntary resignation other than for Good Reason and the Executive will not be entitled to severance benefits under this Agreement.

For purposes of this Agreement a “Change of Control” of the Companies shall mean any of the following: (1) consummation of any pay or proposal for the merger, liquidation, dissolution or acquisition of SJI or all or substantially all of its assets; (2) election to the Board of Directors of SJI a new majority different from the individuals who at the beginning of the term of this Agreement constituted the entire Board of Directors of SJI, unless each such new director stands for election as a management nominee and is elected by shareholders immediately prior to the election of any such new majority; or (3) the acquisition by any person of 20% or more of the stock of SJI having general voting rights in the election of directors (for purposes of this clause (3), the term “person” shall include two or more persons acting as a group for the purpose of acquiring, holding or disposing of stock of SJI).

Section 8. Benefits upon Termination.

8.1 Termination by the Companies for Cause.

If the Officer’s employment by the Companies shall be terminated for Cause (as defined in Section 7.4), the Companies shall pay the Officer his or her Total Base Salary earned through the Date of Termination at the rate in effect at the time Notice of Termination is given and the Companies shall have no further salary obligations to the Officer under this Agreement.  The Officer shall be entitled to such retirement benefits as he or she may otherwise be entitled to on the Date of Termination.  Effective as of the Date of Termination, the Officer shall no longer be an employee of the Companies and shall no longer be entitled to the privileges and benefits thereof.

8.2 Termination by the Officer for Good Reason.

If the Officer’s employment shall be terminated by the Officer for Good Reason following a Change of Control (as defined in Section 7.5), the Companies shall pay the Officer as severance pay an amount equal to 300% of a base amount determined to be the average of the aggregate annual compensation paid to the Officer during the five (5) calendar years preceding the Date of Termination and subject to federal income taxes; provided that, if any severance payment under this Agreement, either alone or together with any other payment which the Officer has received or the right to receive from the Companies, would constitute a “parachute payment” as defined in section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), such severance payment shall be reduced to the largest amount as will result in no portion of the severance payment being subject to the excise tax imposed by section 4999 of the Code.  The Companies shall pay this severance payment, in cash, on the Date of Termination, provided that the Officer has executed a general release and waiver of claims in a form of agreement prepared by the Companies.

Page 5 of 15

Notwithstanding any provision of this Section 8.2 to the contrary, the Companies shall pay the Officer the severance pay described above in a lump sum only if the transaction constituting a Change of Control meets the definition of a “change in control event” within the meaning of such term under section 409A of the Code and the Officer’s employment is terminated under this Section 8.2 or Section 8.3, as applicable, within two (2) years following such Change of Control.  If, however, the transaction constituting the Change of Control does not meet the definition of a “change in control event” within the meaning of such term under section 409A of the Code, or the Officer’s employment is terminated under this Section 8.2 or Section 8.3, as applicable, after the two (2)–year period following such Change of Control, then the severance pay shall be paid in installments as described in Section 8.3 below.

8.3 Termination by the Companies for Other than Cause.

If the Companies terminate the Officer’s employment for other than Cause following a Change of Control, the Officer shall be entitled to those benefits set forth in Section 8.2 above.  If the Companies terminate the Officer’s employment for other than Cause prior to the occurrence of a Change of Control, which the Companies may do at any time in its sole discretion, the Companies shall pay the Officer as severance pay an amount equal to 150% of the Officer’s then current base salary, to be paid out in eighteen (18) equal monthly installments, beginning on the first payroll date after the expiration of the thirty (30)-day period following the date of the Officer’s termination of employment and each payroll date thereafter until fully paid, in accordance with the Companies’ regular payroll practices.  However, for purposes of the Supplemental Executive Retirement Plan (“SERP”) formula, the eighteen (18)-month severance period shall be included as service credit and the severance amount considered in the Final Average Compensation (“FAC”) calculation.  In no case will the inclusion of this severance period produce a SERP benefit in excess of the maximum percentage of FAC provided for in the SERP plan in effect on the Date of Termination.  The continuation of such payments and benefits shall be the Officer’s sole and exclusive remedy and the Companies shall have no further obligations or liability to the Officer or his survivors (except as otherwise provided by this Section) under this Agreement, and shall only be provided in exchange for a fully executed general release and waiver of claims by the Officer in a form of agreement prepared by the Companies.

Section 9.  Procedure for Termination.

9.1 Notice of Termination.

For the purposes of this Agreement, a “Notice of Termination” shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Officer’s employment.

Page 6 of 15

9.2 Date of Termination.

For the purposes of this Agreement, the “Date of Termination” shall mean the date of the Officer’s death; or thirty (30) days after Notice of Termination is given; provided that if within ten (10) days after any Notice of Termination is given the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the date of termination shall be extended for an additional period not to exceed ten (10) days.  During the period between Notice of Termination and the Date of Termination the Officer may request and shall be granted a hearing before the Board of Directors of the Companies or such committee thereof as it may designate, at which time the Board of Directors shall decide whether in its reasonable good faith opinion the Officer was either disabled or discharged for Cause and specifying the particulars thereof in detail.

Section 10.  No Obligation to Mitigate Damages; No Effect on Other Contractual Rights.

10.1           The Officer shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise.

10.2           The amount of any payment provided to the Officer under this Agreement shall not be reduced by any compensation earned by the Officer as the result of employment by another employer after the Date of Termination.

10.3           The provisions of this Agreement, and any payment provided for hereunder, shall not reduce any amounts otherwise payable, or in any way diminish the Officer’s existing rights, or rights which would accrue solely as a result of the passage of time under any plan of benefits provided to officers and managers of the Companies.

Section 11.  Confidential Information.

The Officer will not, during or after the term of this Agreement, use for himself or herself or others, or disclose to others, any formulae, trade secrets, customer lists, know-how or other confidential information of or about the Companies or any of its affiliates unless authorized in writing to do so by the Companies.  The Officer understands that this undertaking applies to information of a technical or commercial or other nature and that any information not made available to the general public is to be considered confidential.

Section 12.  Papers.

All correspondence, memoranda, notes, records, reports, plans and other papers and items received or made by the Officer in connection with his or her duties hereunder shall be the property of the Companies, and the Officer shall not have any property rights to such items when he or she is no longer an employee of the Companies.

Page 7 of 15

Section 13.  Noncompetition.

13.1           The Officer acknowledges that, during the course of his employment hereunder, he will have access to the Companies’ customer and business prospects, knowledge of and experience in the techniques and methods the Companies used to do business in its industries and other information and know-how which, even if not directly disclosed to a competitor of the Companies, would give a competitor significant and unfair advantages over the Companies if made available to it through the Officer’s employment.

13.2           Accordingly, unless the Officer requests in writing and is thereafter authorized in writing to do so by the Companies, the Officer will not, during the term of this Agreement, or for a period of one (1) year thereafter, directly or indirectly own, manage, operate, join, control or participate in the ownership, management, operation or control of, or be employed by, any business corporation, proprietorship, partnership or other entity which competes with or is engaged in any alliance or joint venture with either of the Companies.

13.3           The undertakings in this Section 13: shall apply only to those areas where the Companies engage or propose to engage in business or which the Companies, at the termination of the Officer’s employment hereunder have defined as their market territory, but shall not apply if the Company is or the Companies are, and after thirty days’ written notice to the Companies thereof continue to be, in default of its or their obligation to make any of the payments they are then required to make to the Officer and the Officer is not in default in the performance of his obligations.

13.4           If the provisions of this Section 13 should ever be adjudicated to exceed the time, geographic or other limitations permitted by applicable law in any jurisdiction, then such provisions shall be deemed reformed in such jurisdiction to the maximum time, geographic or other limitations permitted by the law applicable in that jurisdiction.  In addition, the Officer hereby authorizes the Company to bring the Officer’s obligations hereunder to the attention of, and to provide a copy or description of pertinent Sections of this Agreement to, any entity which the Company believes may offer or has offered employment to the Officer.

Section 14.  Renewal and Extension of Agreement.

The term of this Agreement shall be automatically renewed and extended for a period of three (3) years from the date of any Change of Control in order that the Officer obtains the full benefit of all severance benefits in the event of termination of employment after any Change of Control. This Agreement, either under its normal three (3) year term or under the term resulting from a Change of Control, shall be considered for renewal and extension by the Board of Directors of the Companies or such committee thereof as it may designate at least six (6) months prior to the end of its term.  Action by the Board of Directors shall be required to renew and extend this Agreement.

Section 15.  Enforcement.

The Officer acknowledges that in the event of his or her breach or threat of breach of Sections 11, 12 or 13 of this Agreement, the Companies’ remedies at law will be inadequate and, in such event, the Companies will be entitled to appropriate injunctive and other equitable relief in addition to its legal remedies.

Page 8 of 15

Section 16.  Notices.

All notices and other communications provided for herein that one party intends to give to the other party shall be in writing and shall be considered given when mailed by certified mail, return receipt requested, or personally delivered, either to the party or at the address set forth below (or to such other address as a party shall designate by notice hereunder):

South Jersey Industries, Inc.

Attn: Lead Director of the Board of Directors

Number One South Jersey Plaza

Folsom, New Jersey 08037

Section 17.  Amendments.

This Agreement may be amended, modified, superseded, canceled, renewed or extended only by a written instrument executed by both parties hereto.

Section 18. Binding Effect and Non-Assignability.

This Agreement shall inure to the benefit of the Officer’s heirs and personal representatives and shall be binding upon the successor of the Companies, including any entity with which the Companies may be merged or consolidated or which may acquire all or substantially all of the assets of the Companies.  This Agreement shall not be assignable, in whole or in part, by either party, without the written consent of the other party.

Section 19.  Legal Expenses.

In the event of a dispute in connection with this Agreement, the parties shall each pay their own costs, except that in the event of such a dispute after a Change of Control involving termination of employment, or involving entitlement to compensation or benefits in the event of termination of employment, the Companies shall pay the legal expenses of the Officer.

Section 20.  Arbitration.

Any controversy or claim arising out of or relating to this Agreement or the breach thereof shall be settled by arbitration in the County of Atlantic, State of New Jersey, in accordance with the rules then in effect of the American Arbitration Association, and judgment upon the award rendered may be entered in any court having jurisdiction thereof.  In any such arbitration each party will choose one arbitrator and those two arbitrators will choose a third.  Each party will pay the costs associated with its arbitrator and will divide equally the cost associated with the third arbitrator.  Notwithstanding anything to the contrary in this Section 20, either party may commence in any court having jurisdiction over the parties hereto any action to obtain injunctive relief.

Page 9 of 15

Section 21.  Equitable Relief.

The Companies and the Officer confirm that the restrictions contained in Section 11, 12 and 13 are, in view of the nature of the business of the Companies, reasonable and necessary to protect the legitimate interests of the Companies, and that any violation of any provision of those Sections will result in irreparable injury to the Companies.  The Officer hereby agrees that, in the event of any breach or threatened breach of the terms or conditions of the Agreement by the Officer, the Companies’ remedies at law will be inadequate and, in any such event, any of them shall be entitled to commence an action for preliminary and permanent injunctive relief and other equitable relief in any court of competent jurisdiction, notwithstanding any provision hereof relating to arbitration.  The Officer further irrevocably consents to the jurisdiction of any state or federal court located in the State of New Jersey over any suit, action or proceeding arising out of or relating to this Section and hereby waives, to the fullest extent permitted by law, any objection that he may now or hereafter have to such jurisdiction or to the laying of venue of any such suit, action or proceeding brought in such a court and any claim that such suit, action or proceeding has been brought in an inconvenient forum.  The Officer agrees that effective service of process may be made upon him by mail under the notice provisions contained in Section 16.  No party hereto shall be required to post a bond prior to the commencement of any suit, action or proceeding relating to this Section.

Section 22.  Governing Law.

This Agreement shall be governed by the laws of the State of New Jersey.

Section 23.  Entire Agreement.

This Agreement contains the entire agreement between the parties relative to its subject matter, superseding all prior agreements or understandings of the parties relating thereto.

Section 24.  Waiver.

Any term or provision of this Agreement may be waived in writing at any time by the party entitled to the benefit thereof.  The failure of either party at any time to require performance of any provision of this Agreement which has not been waived in writing shall not affect such party’s rights at a later time to enforce such provision.  No consent or wavier by either party to any default or to any breach of a condition or term of this Agreement shall be deemed or construed to be a consent or waiver to any other breach or default.

Section 25.  Invalidity of Portion of Agreement.

If any provision of this Agreement or the application thereof to either party shall be valid or unenforceable to any extent, the remainder of this Agreement shall not be affected thereby an shall be enforceable to the fullest extent of the law.

Page 10 of 15

Section 26.  Benefits of the Agreement

This Agreement is for the benefit of each of the Companies, and each of them as well as the Companies shall have standing to enforce it as though it is a party hereto.  Each reference in this Agreement to an obligation by either of the Companies shall be a reference to the obligation of the Company to cause the Companies to perform such obligation.  Each undertaking by either of the Companies in this Agreement shall be the undertaking of the Company to cause the Companies to perform such undertaking.

Section 27.  Compliance with Section 409A of the Internal Revenue Code.

This Agreement shall be interpreted to avoid any penalty sanctions under section 409A of the Code.  If any payment or benefit cannot be provided or made at the time specified herein without incurring sanctions under section 409A, then such benefit or payment shall be provided in full at the earliest time thereafter when such sanctions will not be imposed.  For purposes of section 409A of the Code, all payments to be made upon the Officer’s termination of employment under this Agreement may only be made upon the Officer’s “separation from service” within the meaning of such term under section 409A of the Code, each payment made under this Agreement shall be treated as a separate payment and the right to a series of installment payments under this Agreement shall be treated as a right to a series of separate payments.

All reimbursements and in kind benefits provided under this Agreement shall be made or provided in accordance with the requirements of section 409A, including, where applicable, the requirement that (i) any reimbursement is for expenses incurred during the Officer’s lifetime (or during a shorter period of time specified in this Agreement), (ii) the amount of expenses eligible for reimbursement, or in kind benefits provided, during a calendar year may not affect the expenses eligible for reimbursement, or in kind benefits to be provided, in any other calendar year, (iii) the reimbursement of an eligible expense will be made on or before the last day of the calendar year following the year in which the expense is incurred, and (iv) the right to reimbursement or in kind benefits is not subject to liquidation or exchange for another benefit.  If expenses are incurred in connection with litigation, any reimbursements under the Agreement shall be paid not later than the end of the calendar year following the year in which the litigation is resolved.

Page 11 of 15

Notwithstanding any provision in this Agreement to the contrary, if at the time of the Officer’s termination of employment with the Companies, SJI has securities which are publicly-traded on an established securities market and the Officer is a “specified employee” (as such terms is defined in section 409A of the Code) and it is necessary to postpone the commencement of any payments upon the Officer’s termination of employment to prevent any accelerated or additional tax under section 409A of the Code, then the Companies shall postpone the commencement of the payment of any such payments or benefits hereunder (without any reduction in such payments or benefits ultimately paid or provided to the Officer) that are not otherwise paid within the short-term deferral and separation pay plan exceptions under Treas. Reg. section 1.409A-1(b)(4) and (7), respectively, until the first payroll date that occurs after the date that is six (6) months following the Officer’s “separation from service” with the Companies.  If any payments are postponed due to such requirements, such amounts shall be paid in a lump sum to the Officer, and any installment payments due to the Officer shall recommence, on the first payroll date that occurs after the date that is six (6) months following the Officer’s “separation from service” with the Companies.  If the Officer dies during the postponement period prior to the payment of the postponed amount, the amounts withheld on account of section 409A of the Code shall be paid to the personal representative of the Officer’s estate within sixty (60) days after the date of the Officer’s death.

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement effective as of the date first above written.

FOR THE COMPANIES:

By:       

South Jersey Industries, Inc.

By:      

Officer, South Jersey Industries, Inc.

Page 12 of 15

EXHIBIT A

ADDITIONAL OR MODIFIED OFFICER BENEFITS

The following benefits are provided to the Officer who is party to this Officer Employment Agreement.

1. Disability Plan

(a)           temporary disability (sick pay), commences on the eighth (8th) consecutive day of absence.  Temporary disability shall be paid at a rate of one hundred percent (100%) of the Officer’s Base Salary, and extends at full pay for up to 120 days for Officers with less than five (5) years of service, and up to 365 days for Officers with service of five (5) or more years.

(b)           long term disability (LTD), begins upon the expiration of the temporary disability benefit as described above.  LTD is paid at a rate of fifty percent (50%) of the Officer’s Base Salary, reduced by Social Security Disability payments, if any.  LTD continues until the Officer’s status changes as a result of retirement, rehabilitation, death, voluntary resignation or reassignment as provided for in Section 7.2.  For the first two years of LTD, medical certification of the ongoing disability against the Officer’s “own position(s)” is required.  Thereafter, medical certification shall consider “any position”.  At the discretion of the CEO, the Officer’s position may be replaced following one year of his/her LTD.

2.           Group Life Insurance – at a principle equivalent to two times (2x) the Officer’s Base Salary, rounded to the next highest $5,000 increment.  The insurance premium shall be paid by the Companies; the Officer shall be responsible for resultant federal, state or local income taxes.

3.           24-Hour Accident Protection Coverage – while in the employ of the Company in an amount of $250,000.  The insurance premium shall be paid by the Companies; the Officer shall be responsible for resultant federal, state or local income taxes.

4.           Supplemental Survivor’s Benefit – upon the death of the Officer while he/she is in the employ of the Company, his/her surviving beneficiary shall receive a lump sum payment of $1,000 to be paid within ninety (90) days following the Officer’s death.  The surviving beneficiary shall also receive a lump sum death benefit based upon years of service with the Company in the amounts of six (6) months base salary (10-15 service years); nine (9) months base salary (15-25 service years); twelve (12) months base salary (25+ service years). such amount to be paid in a lump sum within ninety (90) days following the Officer’s death.  Subject to the requirements of section 409A of the Code, such payment shall be offset by proceeds from the Officer’s qualified pension plan and SERP in the year of death.

Page 13 of 15

5.           Supplemental Executive Retirement Plan (SERP) – the Officer achieving eligibility under the SERP plan, shall be entitled to the pension benefits of that plan in place on the effective date of the Officer Employment Agreement or, in effect on the earlier of his/her termination or retirement date, whichever provides the greater benefit in the opinion of the Officer.

6.           Company Automobile – the Officer shall be provided a company automobile to be used for business and at the Officer’s discretion, for commuting and other non-business purposes.  The Companies shall provide for vehicle registration, insurance coverage, repair, preventative maintenance and fuel.  The Officer shall be responsible for any federal and/or state income taxes which result from non-business usage.

7.           Time Off – the Officer shall take such time off for vacation or personal needs as may be accommodated while ensuring the duties and responsibilities of his/her position are accommodated to the satisfaction of SJI’s CEO.  It is anticipated that such time off would not normally exceed twenty (20) days per calendar year, exclusive of scheduled corporate holidays.  Time off shall not accrue, nor shall it be carried from one year to the next, resultantly, there shall be no payment for “unused time off” at the time of the Officer’s death, retirement or other such termination.

8.           Annual Physical Examination – the Companies shall provide the Officer with an annual physical examination at its expense.  The Officer shall be responsible to schedule and undergo a reasonably comprehensive annual physical examination by a physician of his/her choosing, between the months of June and October.  The attending physician shall provide to the Officer a reasonably detailed oral or written report of his/her findings and recommendations.  Said report and recommendations shall neither be requested nor provided to the Company, its other officer, employees or agents.  However, should the Officer be diagnosed with a condition which in his or her judgment will (a) substantially effect his/her performance, or (b) render him or her unable to continue as an Officer, or (c) likely result in his or her death within a twelve month period of such diagnosis, the Companies request that the Officer advise the CEO accordingly, so that proper succession planning can be initiated.

9.           Severance Benefits – in the event the Officer terminates subject to Section 8.2 or 8.3, the Companies shall provide reasonable outplacement services to the Officer in an amount not to exceed $15,000 or at the discretion of the CEO, up to $20,000.  The Officer shall provide the Companies with a proposal from the consultant of the Officer’s choosing.  Consultant invoices shall be rendered directly to the Companies and payment shall be made up to the approved amount, directly to the outplacement firm.  In the event the Officer terminates by virtue of retirement, disability, for Good Reason by the Officer or, by the Companies for other than Cause, the CEO of SJI may at his/her discretion, transfer title to the companies car to the Officer (if the SJI CEO, at the discretion of the SJI Board of Director’s Compensation & Pension Committee).  Subject to governing law and/or regulation, the Officer may elect COBRA healthcare continuation coverage under section 4980B of the Code, at the Officer’s sole expense and at the applicable COBRA premium/rates.  All payments for outplacement services under this Section 9 shall be made in accordance with the requirements of section 409A of the Code, including the requirement that the expenses for such services must be incurred by the end of the second year following the year in which the Officer’s Date of Termination occurs and that all payments with respect thereto must be made by the end of the third year following the year in which the Officer’s Date of Termination occurs.

Page 14 of 15

10.           Retiree Health Care – in the event the Officer retires from the Companies pursuant to Section 7.3 during the Agreement’s term as defined in Section 2, he/she shall continue to receive the same or substantially similar medical, hospitalization, prescription, dental and major medical coverage as is provided, from time to time to the senior officers of the Companies.  The COBRA health care continuation coverage period under section 4980B of the Code shall run concurrently with the foregoing period of continued coverage.  Upon reaching age 65, the Officer shall continue to receive such coverage as is provided to Medicare-eligible retirees.  However, during retirement, the Officer shall continue to pay the same monthly/annual contribution toward medical/hospitalization coverage as was in effect on the effective date of his/her retirement.  He/she will be subject to any and all future changes to plan deductibles, co-payments, etc.

Page 15 of 15

EX-10.E(IV)

Exhibit (10)(e)(iv)

SOUTH JERSEY INDUSTRIES, INC.

SCHEDULE OF OFFICER AGREEMENTS

Pursuant to Rule 12b-31, the following sets forth the material details which differ in the Executive Employment Agreements, the form of which is filed herewith as

Exhibit (10)(e)(iii).

Name	Capacities in Which Served	Date  of Agreement	Minimum Base Salary
Edward J. Graham	Chairman, President and Chief Executive Officer, South  Jersey Industries, Inc.; President and Chief Executive Officer, South Jersey Gas	1/1/09	575,000
David A. Kindlick	Vice President and Chief Financial  Officer,South Jersey Industries, Inc.; Senior Vice President and Chief Financial Officer, South  Jersey Gas Company	1/1/09	258,440
Richard H. Walker, Jr.	Vice President, General Counsel and Secretary, South Jersey Industries, Inc.; Senior Vice President, General Counsel and Secretary, South Jersey Gas Company	1/1/09	215,220
Michael Renna	Vice President, South Jersey Industries, Inc.;    President, South Jersey Energy	1/1/09	221,420
Jeffrey E. DuBois	Vice President, South Jersey Industries, Inc.; Senior Vice President, Operations & Sales, South Jersey Gas Company	1/1/09	215,490

EX-10.G(IV)

Exhibit 10 (g)(iv)

LOAN AGREEMENT

SOUTH JERSEY GAS COMPANY

and

TORONTO DOMINION (NEW YORK) LLC

Dated as of December 15, 2008

TABLE OF CONTENTS
			Page
SECTION I. DEFINITIONS AND INTERPRETATION			1
	1.1	Terms Defined	1
	1.2	Accounting Principles	12
	1.3	Construction	13
SECTION II. THE LOANS			13
	2.1	Revolving Credit – Description:	13
	2.2	[Intentionally Omitted]	13
	2.3	[Intentionally Omitted]	13
	2.4	Loans and Payments:	13
	2.5	Interest:	14
	2.6	Additional Interest Provisions:	15
	2.7	Fees and Charges:	16
	2.8	Prepayments	16
	2.9	[Intentionally Omitted]	16
	2.10	Capital Adequacy	16
	2.11	Funding Indemnity	17
	2.12	Inability to Determine Interest Rate	17
	2.13	Illegality	17
	2.14	Requirements of Law:	18
SECTION III. [INTENTIONALLY OMITTED]			18
SECTION IV. CLOSING AND CONDITIONS PRECEDENT TO LOANS			19
	4.1	Resolutions, Opinions, and Other Documents	19
	4.2	Absence of Certain Events	19
	4.3	Warranties and Representations at Closing	20
	4.4	Compliance with this Agreement	20
	4.5	Authorized Officers’ Certificate	20
	4.6	Closing	20
	4.7	Waiver of Rights	20
	4.8	Conditions for Future Loans	20

i

SECTION V. REPRESENTATIONS AND WARRANTIES			21
	5.1	Organization and Validity	21
	5.2	Pending Litigation	22
	5.3	Financial Statements	22
	5.4	Investment Company Status	22
	5.5	No Default or Event of Default	22
	5.6	Liens	22
	5.7	Documentation	22
	5.8	Government Regulations, Etc.	23
	5.9	Taxes	23
	5.10	Solvency	23
	5.11	Capital Stock	24
	5.12	Title to Properties	24
	5.13	Anti-Terrorism Laws	24
SECTION VI. BORROWER’S AFFIRMATIVE COVENANTS			24
	6.1	Preservation of Existence, Etc.	24
	6.2	Maintenance of Properties, Etc.	24
	6.3	Ownership	24
	6.4	Compliance with Material Contractual Obligations, Laws, Etc.	24
	6.5	Insurance	25
	6.6	Visitation Rights; Keeping of Books	25
	6.7	Transactions with Affiliates	25
	6.8	Use of Proceeds	25
	6.9	Loan Documents	25
	6.10	Risk Management	25
	6.11	OFAC Compliance	25
	6.12	Further Assurances	25
	6.13	Reporting Requirements	26
	6.14	Financial Covenants	27
	6.15	Replacement Financing	27
SECTION VII. BORROWER’S NEGATIVE COVENANTS:			28
	7.1	Liens, Etc	28
	7.2	Indebtedness	28
	7.3	Obligation to Ratably Secure	28
	7.4	Mergers, Etc	28
	7.5	Sale of Assets, Etc	28

ii

	7.6	Restricted Investments	28
	7.7	New Business	28
	7.8	Distributions	28
	7.9	Compliance with ERISA	29
	7.10	Constituent Documents, Etc	29
	7.11	Fiscal Year	29
SECTION VIII. DEFAULT			29
	8.1	Events of Default	29
	8.2	Upon an Event of Default	31
	8.3	Nature of Remedies	31
	8.4	Set-Off:	31
SECTION IX. MISCELLANEOUS			32
	9.1	Governing Law	32
	9.2	Integrated Agreement	32
	9.3	Waiver	32
	9.4	Indemnity:	32
	9.5	Time	33
	9.6	Expenses of Lender	33
	9.7	Brokerage	33
	9.8	Notices:	34
	9.9	Headings	35
	9.10	Survival	35
	9.11	Successors and Assigns	35
	9.12	Duplicate Originals	35
	9.13	Modification	35
	9.14	Signatories	35
	9.15	Third Parties	35
	9.16	Discharge of Taxes, Borrower’s Obligations, Etc.	36
	9.17	Withholding and Other Tax Liabilities	36
	9.18	Consent to Jurisdiction	36
	9.19	Waiver of Jury Trial	36
	9.20	Consequential Damages	37
	9.21	Nonliability of Lender	37
		SCHEDULES
Schedule I		Ownership
Schedule II		First Mortgage Notes

iii

LOAN AGREEMENT

This Loan Agreement (“Agreement”) is dated this 15th day of December, 2008, by and betweenSouth Jersey Gas Company (“Borrower”), a New Jersey corporation and Toronto Dominion (New York) LLC (“Lender”).

BACKGROUND

A.           Borrower desires to establish financing arrangements with Lender and Lender is willing to make loans and extensions of credit to Borrower under the terms and provisions hereinafter set forth.

B.           The parties desire to define the terms and conditions of their relationship in writing.

NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows:

SECTION I.  DEFINITIONS AND INTERPRETATION

1.1           Terms Defined: As used in this Agreement, the following terms have the following respective meanings:

Adjusted LIBOR Rate – For the LIBOR Interest Period for each LIBOR Rate Loan comprising part of the same borrowing (including conversions, extensions and renewals), a per annum interest rate determined pursuant to the following formula:

Adjusted LIBOR Rate   =   London Interbank Offered Rate

 1 – LIBOR Reserve Percentage

Affiliate – With respect to any Person, (a) any Person which, directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such Person, or (b) any Person who is a director or officer (i) of such Person, (ii) of any Subsidiary of such Person, or (iii) of any person described in clause (a) above.  For purposes of this definition, control of a Person shall mean the power, direct or indirect, to direct or cause the direction of the management and policies of such Person whether by contract or otherwise.  Control may be by ownership, contract, or otherwise.

Applicable Margin – For any Loan made to Borrower on any date, the rate per annum as set forth below, determined by reference to the Corporate Credit Ratings:

Level	Corporate Credit Rating	Applicable Base Rate Margin	Applicable LIBOR Margin
I	Greater than BBB-/Baa3	0.000%	1.00%
II	Less than or equal to BBB-/Baa3 or no rating	0.000%	1.25%

Any change in the Applicable Margin will be effective as of the date on which the applicable Selected Rating Agency, as the case may be, announces the applicable change in the Corporate Credit Ratings.  Borrower shall notify Lender in writing promptly after becoming aware of any change in the Corporate Credit Ratings.

For purposes of the foregoing, (i) if the Corporate Credit Ratings established or deemed to have been established by the Selected Rating Agencies shall fall within different “Levels”, the lower rating will apply; (ii) if only one of the Selected Rating Agencies maintains Corporate Credit Ratings, then the rating of such single rating agency will apply; and (iii) if the rating system of Moody’s, S&P or Fitch shall change, or if Moody’s, S&P or Fitch shall cease to be in the business of providing Corporate Credit Ratings, Borrower and Lender shall negotiate in good faith to amend this definition to reflect such changed rating system or the unavailability of ratings from Moody’s, S&P or Fitch, and, pending the effectiveness of any such amendment, the Corporate Credit Ratings shall be determined by reference to the Corporate Credit Ratings most recently in effect prior to such change or cessation.

Applicable Rate :

a.           in the case of each Base Rate Loan, a rate per annum equal at all times to the sum of the Base Rate plus the Applicable Base Rate Margin in effect from time to time;

b.           in the case of each LIBOR Rate Loan comprising part of the same Loan, a rate per annum during each LIBOR Interest Period equal at all times to the sum of the Adjusted LIBOR Rate for such LIBOR Interest Period plus the Applicable LIBOR Margin in effect from time to time during such LIBOR Interest Period.

Authorized Officer – Any officer (or comparable equivalent) of Borrower authorized by specific resolution of Borrower to request Loans or execute Quarterly Compliance Certificates as set forth in the authorization certificate delivered to Lender substantially in the form of Exhibit “A” attached hereto.

Bank Affiliate – With respect to Lender, any Person which, directly or indirectly, is in control of, is controlled by, or is under common control with Lender.  For purposes of this definition, control of a Person shall mean the power, direct or indirect, (x) to vote 25% or more of any class of Capital Stock having ordinary voting power for the election of directors of such Person or other Persons performing similar functions for any such Person, or (y) to direct or cause the direction of the management and policies of such Person whether by ownership of Capital Stock, contract or otherwise.

2

Bankruptcy Code – Title 11 of the United States Code entitled “Bankruptcy”, as now or hereinafter in effect, or any successor statute.

Base Rate – The highest of (a) the “Prime Rate” of interest as published in the “Money Rates” section of The Wall Street Journal on the applicable date (or the highest “Prime Rate” if more than one is published) as such rate may change from time to time; (b) the Federal Funds Rate plus fifty (50) basis points; or (c) the Daily LIBOR Rate plus one hundred (100) basis points.  If The Wall Street Journal ceases to be published or goes on strike or is otherwise not published, Lender may use a similar published prime or base rate.  The Base Rate is not necessarily the lowest or best rate of interest offered by Lender to any borrower or class of borrowers.

Base Rate Loans – That portion of the Loans accruing interest based on a rate determined by reference to the Base Rate.

Business Day – (i) A day other than Saturday or Sunday when Lender is open for business in New York, New York; or (ii) with respect to any LIBOR Rate Loan, any day which is a Business Day as described in clause (i) and which is also a day for trading by and between banks in dollar deposits in the London interbank market.

Capital Expenditures – For any period, the aggregate of all expenditures made in respect of the purchase, construction or other acquisition of fixed or capital assets, determined in accordance with GAAP.

Capital Stock – With respect to any Person, any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, including any preferred interest, any limited or general partnership interest and any limited liability company membership interest.

Change in Control – (a) Parent ceasing at any time to own at least 100% of the Capital Stock having voting rights of Borrower, or (b) the occurrence of either of the following: (i) any entity, person (within the meaning of Section 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) which theretofore was beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of less than 20% of Parent’s then outstanding common stock either (x) acquires shares of common stock of Parent in a transaction or series of transactions that results in such entity, person or group directly or indirectly owning beneficially 20% or more of the outstanding common stock of Parent, or (y) acquires, by proxy or otherwise, the right to vote for the election of directors, for any merger, combination or consolidation of Parent or any of its direct or indirect Subsidiaries, or, for any other matter or question, more than 20% of the then outstanding voting securities of Parent; or (ii) 20% or more of the directors of the board of directors of Parent fail to consist of Continuing Directors.

Closing – Section 4.6.

3

Closing Date – Section 4.6.

Consolidated – When used with reference to any accounting term, the amount described by such accounting term, determined on a consolidated basis in accordance with GAAP, after elimination of intercompany items.

Consolidated Total Capitalization – The sum of (i) Indebtedness of Borrower and its Consolidated Subsidiaries, plus (ii) the sum of the Capital Stock (excluding treasury stock and capital stock subscribed for and unissued) and surplus (including earned surplus, capital surplus, translation adjustment, the balance of the current profit and loss account not transferred to surplus and accumulated comprehensive other income) accounts of Borrower and its Consolidated Subsidiaries appearing on a consolidated balance sheet of Borrower and its Consolidated Subsidiaries, in each case prepared as of the date of determination in accordance with GAAP, after eliminating all intercompany transactions and all amounts properly attributable to minority interests, if any, in the stock and surplus of Subsidiaries.

Continuing Director – With respect to any Person as of any date of determination, any member of the board of directors of such Person who (a) was a member of such board of directors on the Closing Date, or (b) was nominated for election or elected to such board of directors with the approval of a majority of the Continuing Directors who were members of such board at the time of such nomination or election.

Corporate Credit Ratings – The ratings assigned to the corporate credit of Borrower by the Selected Rating Agencies.

Daily LIBOR Rate - For any day, the rate per annum determined by Lender by dividing (x) the Published Rate by (y) a number equal to 1.00 minus the percentage prescribed by the Federal Reserve for determining the maximum reserve requirements with respect to any eurocurrency funding by banks on such day.

Default – Any event, act, condition or occurrence which with notice, or lapse of time or both, would constitute an Event of Default hereunder.

Disclosure Documents – Collectively, Borrower’s Annual Report on Form 10-K for the year ended December 31, 2007, its Quarterly Reports on Form 10-Q for the quarters ended March 31, 2006, June 30, 2008 and September 30, 2008, and any Current Report on Form 8-K delivered to Lender at least three (3) Business Days prior to the date of this Agreement.

Environmental Laws – Any and all Federal, foreign, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees and any and all common law requirements, rules and bases of liability regulating, relating to or imposing liability or standards of conduct concerning pollution, protection of the environment, or the impact of pollutants, contaminants or toxic or hazardous substances on human health or the environment, as now or may at any time hereafter be in effect.

ERISA – The Employee Retirement Income Security Act of 1974, as the same may be amended, from time to time.

4

ERISA Affiliate – Any Person which for purposes of Title IV of ERISA is a member of Borrower’s controlled group, or under common control with Borrower, within the meaning of Section 414 of the Code, and the regulations promulgated and rulings issued thereunder.

ERISA Event – (i) The occurrence of a reportable event, within the meaning of Section 4043 of ERISA, unless the 30-day notice requirement with respect thereto has been waived by the PBGC; (ii) the provision by the administrator of any Plan of a notice of intent to terminate such Plan, pursuant to Section 4041(a)(2) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA); (iii) the cessation of operations at a facility in the circumstances described in Section 4062(e) of ERISA; (iv) the withdrawal by Borrower or an ERISA Affiliate from a Multiemployer Plan during a plan year for which it was a “substantial employer” as defined in Section 4001(a)(2) of ERISA; (v) the failure by Borrower or any ERISA Affiliate to make a payment to a Plan required under Section 302 of ERISA, which results in a lien pursuant to Section 302(f) of ERISA; (vi) the adoption of an amendment to a Plan requiring the provision of security to such Plan, pursuant to Section 307 of ERISA; or (vii) the institution by the PBGC of proceedings to terminate a Plan, pursuant to Section 4042 of ERISA, or the occurrence of any event or condition which might reasonably constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, a Plan by the PBGC.

Event of Default – Section 8.1.

Expenses – Section 9.6.

Federal Funds Rate – For any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Lender of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by Lender from three Federal funds brokers of recognized standing selected by it.

First Mortgage Notes – Those First Mortgage Notes identified on Schedule IIattached hereto, and subsequent promissory notes or other evidences of indebtedness of Borrower in each case secured by first mortgages on real property owned by Borrower or its Subsidiaries.

Fiscal Year – The fiscal year of Borrower, January 1 to December 31.

Fitch – Fitch Ratings, Inc.

GAAP – Generally accepted accounting principles as in effect on the Closing Date applied in a manner consistent with the most recent audited financial statements of Borrower furnished to Lender and described in Section 5.3 herein.

5

Governmental Action – All authorizations, consents, approvals, waivers, exceptions, variances, orders, licenses, exemptions, publications, filings, notices to and declarations of or with any Governmental Authority, other than routine reporting requirements the failure to comply with which will not affect the validity or enforceability of this Agreement or any other Loan Document or have a material adverse effect on the transactions contemplated by this Agreement or any other Loan Document.

Governmental Authority – Any federal, state or local government or political subdivision, or any agency, authority, bureau, central bank, commission, department or instrumentality of either, or any court, tribunal, grand jury, or arbitration.

Hazardous Materials – Any petrochemical or petroleum products, any flammable materials, explosives, radioactive materials, hazardous materials, hazardous wastes, hazardous or toxic substances, or related or similar materials, asbestos or any material containing asbestos, or any other substance or material as so defined and regulated by any Federal, state or local environmental law, ordinance, rule, or regulation including, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C.  Sections 9601, et seq.), the Hazardous Materials Transportation Act, as amended (49 U.S.C.  Sections 1801, et seq.), and the Resource Conservation and Recovery Act, as amended (42 U.S.C.  Sections 6901, et seq.), and the regulations adopted and publications promulgated pursuant thereto.

Hedging Obligations – With respect to any Person, the obligations of such Person under any interest rate or currency swap agreement, interest rate or currency future agreement, interest rate collar agreement, swap agreement (as defined in 11 U.S.C.  § 101), interest rate or currency hedge agreement, and any put, call or other agreement or arrangement designed to protect such Person against fluctuations in interest rates or currency exchange rates.

Indebtedness – For any Person, all obligations of such Person which in accordance with GAAP should be classified on a balance sheet of such Person as liabilities of such Person, and in any event shall include, without duplication, all (i) indebtedness for borrowed money, (ii) obligations evidenced by bonds, debentures, notes or other similar instruments, (iii) obligations to pay the deferred purchase price of property or services, (iv) obligations as lessee under leases which shall have been or should be, in accordance with GAAP, recorded as capital leases, (v) obligations as lessee under operating leases which have been recorded as off-balance sheet liabilities, (vi) obligations under Hedging Obligations, (vii) reimbursement obligations (contingent or otherwise) in respect of outstanding letters of credit, (viii) indebtedness of the type referred to in clauses (i) through (vi) above secured by (or for which the holder of such indebtedness has an existing right, contingent or otherwise, to be secured by) any lien or encumbrance on, or security interest in, property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such indebtedness, and (ix) obligations under direct or indirect guaranties in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clauses (i) through (vii) above.  Notwithstanding anything to the contrary set forth above, Capital Stock, including Capital Stock having a preferred interest, shall not constitute Indebtedness for purposes of this Agreement.

6

Interest Hedging Instrument – Any documentation evidencing any interest rate swap, interest “cap” or “collar” or any other interest rate hedging device or swap agreement (as defined in 11 U.S.C.  § 101 et.  seq.) between Borrower and Lender (or any Affiliate of Lender).

IRS – Internal Revenue Service.

LIBOR Interest Period – As to LIBOR Rate Loans, a period of fourteen days, one month, two months, three months or six months, as selected by Borrower pursuant to the terms of this Agreement (including continuations and conversions thereof); provided however, (i) if any LIBOR Interest Period would end on a day which is not a Business Day, such LIBOR Interest Period shall be extended to the next succeeding Business Day (except that where the next succeeding Business Day falls in the next succeeding calendar month, then on the next preceding Business Day), (ii) no LIBOR Interest Period shall extend beyond the Revolving Credit Maturity Date, and (iii) any LIBOR Interest Period with respect to a LIBOR Rate Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such LIBOR Interest Period) shall end on the last Business Day of the relevant calendar month at the end of such LIBOR Interest Period.

LIBOR Rate Loans – That portion(s) of the Loans accruing interest based on a rate determined by reference to the Adjusted LIBOR Rate.

LIBOR Reserve Percentage – For any day, that percentage (expressed as a decimal) which is in effect from time to time under Regulation D, as such regulation may be amended from time to time or any successor regulation, as the maximum reserve requirement (including, without limitation, any basic, supplemental, emergency, special, or marginal reserves) applicable with respect to Eurocurrency liabilities as that term is defined in Regulation D (or against any other category of liabilities that includes deposits by reference to which the interest rate of LIBOR Rate Loans is determined), whether or not Lender has any Eurocurrency liabilities subject to such reserve requirement at that time.  LIBOR Rate Loans shall be deemed to constitute Eurocurrency liabilities and as such shall be deemed subject to reserve requirements without benefits of credits for proration, exceptions or offsets that may be available from time to time to Lender.  The Adjusted LIBOR Rate shall be adjusted automatically on and as of the effective date of any change in the LIBOR Reserve Percentage.

Lien - Any interest of any kind or nature in property securing an obligation owed to, or a claim of any kind or nature in property by, a Person other than the owner of the Property, whether such interest is based on the common law, statute, regulation or contract, and including, but not limited to, a security interest or lien arising from a mortgage, encumbrance, pledge, conditional sale or trust receipt, a lease, consignment or bailment for security purposes, a trust, or an assignment.  For the purposes of this Agreement, Borrower shall be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale agreement or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person for security purposes.

Loan Request – Section 2.4(b)(ii).

7

Loans – The unpaid balance of cash advances by Lender to Borrower under the Revolving Credit which may be Base Rate Loans or LIBOR Rate Loans.

Loan Documents – Collectively, this Agreement, the Note, and all agreements, instruments and documents executed and/or delivered in connection therewith, all as may be supplemented, restated, superseded, amended or replaced from time to time.

London Interbank Offered Rate – With respect to any LIBOR Rate Loan for the LIBOR Interest Period applicable thereto, the rate of interest per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the British Bankers Association LIBOR Rate (“BBA LIBOR”) as published by Bloomberg (or such other commercially available source providing quotations of BBA LIBOR as designated by Lender from time to time) at approximately 11:00 A.M. (London time) 2 Business Days prior to the first day of such LIBOR Interest Period for a term comparable to such LIBOR Interest Period; provided however, if more than one BBA LIBOR Rate is specified, the applicable rate shall be the arithmetic mean of all such rates.  If, for any reason, such rate is not available, the term London Interbank Offered Rate shall mean, with respect to any LIBOR Rate Loan for the LIBOR Interest Period applicable thereto, the rate of interest per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by Lender to be the average rates per annum at which deposits in dollars are offered for such LIBOR Interest Period to major banks in the London Interbank market in London, England at approximately 11:00 A.M. (London time) 2 Business Days prior to the first day of such LIBOR Interest Period for a term comparable to such LIBOR Interest Period.

Material Adverse Effect – A material adverse effect with respect to (a) the business, assets, condition (financial or otherwise), liabilities (actual or contingent), or prospects of (i) Borrower or (ii) Borrower and its Subsidiaries (taken as a whole), or (b) Borrower’s ability to pay the Obligations in accordance with the terms hereof, or (c) the validity or enforceability of this Agreement or any of the other Loan Documents or the rights and remedies of Lender hereunder or thereunder.

Maximum Revolving Credit Amount – The sum of Forty Million Dollars ($40,000,000), as such amount may be reduced from time to time pursuant to Section 2.9.

Moody’s – Moody’s Investors Service, Inc., or any successor thereto.

Multiemployer Plan – A multiemployer plan, as defined in Section 4001(a)(3) of ERISA, which is subject to Title IV of ERISA and to which Borrower or any ERISA Affiliate is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions, such plan being maintained pursuant to one or more collective bargaining agreements.

Note – The Revolving Credit Note.

Notice of Conversion/Extension — A written notice of conversion of a LIBOR Rate Loan to a Base Rate Loan, or of a Base Rate Loan to a LIBOR Rate Loan or extension of a LIBOR Rate Loan, in each case substantially in the form of Exhibit “C” attached hereto.

8

Obligations – All debts, liabilities and obligations of every kind or nature at any time owing by Borrower to Lender or any other subsidiary of Lender or Bank Affiliate, under this Agreement, or any other existing or future instrument, document or agreement, between Borrower or Lender or any other subsidiary of Lender or Bank Affiliate which is related to or permitted under this Agreement, and whether principal, interest, fees, indemnification obligations hereunder or Expenses (specifically including interest accruing after the commencement of any bankruptcy, insolvency or similar proceeding with respect to Borrower, whether or not a claim for such post-commencement interest is allowed), including, without limitation, debts, liabilities and obligations in respect of the Revolving Credit, and any extensions, modifications, substitutions, increases and renewals thereof; any amount payable by Borrower or any Subsidiary of Borrower pursuant to an Interest Hedging Instrument; the payment of all amounts advanced by Lender or any other subsidiary of Lender or Bank Affiliate to preserve, protect and enforce rights hereunder; and all Expenses incurred by Lender or any other subsidiary of Lender or Bank Affiliate.  Without limiting the generality of the foregoing, Obligations shall include any other debts, liabilities or obligations owing to Lender or any other subsidiary of Lender or Bank Affiliate in connection with any lockbox, cash management, or other services (including electronic funds transfers or automated clearing house transactions) provided by Lender or any other subsidiary of Lender or Bank Affiliate to Borrower.

OFAC – Section 5.13.

Parent – South Jersey Industries, Inc.

PBGC – The Pension Benefit Guaranty Corporation.

Permitted Indebtedness – Any of the following:

(1)           Indebtedness under this Agreement;

(2)           Indebtedness of Borrower under the First Mortgage Notes existing as of the Closing Date and as identified on Schedule II attached hereto, and subsequent First Mortgage Notes, so long as before and immediately after the incurrence of such Indebtedness, Borrower is in compliance with Section 6.14;

(3)           Any Indebtedness of Borrower so long as before and immediately after the incurrence of such Indebtedness, Borrower is in compliance with Section 6.14;

(4)           Indebtedness of Borrower under Hedging Obligations covering a notional amount not to exceed the face amount of outstanding Indebtedness.

Permitted Investments – (1) Noncallable, direct general obligations of, or obligations the payment of the principal of and interest on which are unconditionally guaranteed by, the United States of America; (2) bonds, participation certificates or other obligations of Federal National Mortgage Association, Government National Mortgage Association and Federal Home Loan Mortgage Corporation which are owned as of the Closing Date; (3) certificates of deposit, bankers’ acceptances or other obligations issued by commercial banks which are fully insured by the Federal Deposit Insurance Corporation or certificates of deposit, bankers’ acceptances or other deposit obligations issued by commercial banks whose unsecured obligations are rated in one of the two highest rating categories by Moody’s or S&P; (4) obligations issued or guaranteed by a state or political subdivision of a state rated in one of the two highest rating categories by Moody’s or S&P; or (5) any other investments permitted under this Agreement and which Lender has approved in writing.

9

Permitted Lien – With respect to any Person, any of the following:

(1)           Liens for taxes, assessments or governmental charges not delinquent or being contested in good faith and by appropriate proceedings and for which adequate reserves in accordance with GAAP are maintained on such Person’s books;

(2)           Liens arising out of deposits in connection with workers’ compensation, unemployment insurance, old age pensions or other social security or retirement benefits legislation;

(3)           Deposits or pledges to secure bids, tenders, contracts (other than contracts for the payment of money), leases, statutory obligations, surety and appeal bonds, and other obligations of like nature arising in the ordinary course of such Person’s business;

(4)           Liens imposed by law, such as mechanics’, workers’, materialmen’s, carriers’ or other like liens arising in the ordinary course of such Person’s business which secure the payment of obligations which are not past due or which are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP are maintained on such Person’s books;

(5)           Rights of way, zoning restrictions, easements and similar encumbrances affecting such Person’s real property which do not materially interfere with the use of such property;

(6)           Liens securing Permitted Indebtedness of the type described in clause (2) of “Permitted Indebtedness”;

(7)           Liens securing Permitted Indebtedness, described in clause (3) of the definition of “Permitted Indebtedness,” not in excess of $12,500,000 in the aggregate; and

(8)           Purchase money security interests for the purchase of equipment to be used in Borrower’s business, encumbering only the equipment so purchased, and which secures only the purchase-money Indebtedness incurred to acquire the equipment so purchased, which Indebtedness qualifies as Permitted Indebtedness.

Person – An individual, partnership, corporation, trust, limited liability company, limited liability partnership, unincorporated association or organization, joint venture or any other entity.

Plan – A Single Employer Plan or a Multiple Employer Plan.

Property – Any interest of Borrower in any kind of property or asset, whether real, personal or mixed, or tangible or intangible.

10

Published Rate - The rate of interest published each Business Day in The Wall Street Journal “Money Rates” listing under the caption “London Interbank Offered Rates” for a one month period (or, if no such rate is published therein for any reason, the Published Rate shall be the eurodollar rate for a one month period as published in another publication determined by Lender).

Quarterly Compliance Certificate – Section 6.13.

Regulation D – Regulation D of the Board of Governors of the Federal Reserve System comprising Part 204 of Title 12, Code of Federal Regulations, as amended, and any successor thereto.

Requirement of Law – As to any Person, each law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

Revolving Credit – Section 2.1(a).

Revolving Credit Closing Fee – Section 2.7(a).

Revolving Credit Exposure – At any time, the aggregate amount of all Revolving Credit Loans made by Lender then outstanding.

Revolving Credit Maturity Date – December 14, 2009.

Revolving Credit Note – Section 2.1(b).

S&P – Standard & Poor’s Ratings Services, a division of the McGraw-Hill Companies, Inc., or any successor thereto.

Selected Rating Agencies – Any two of Moody’s, S&P, Fitch or any other nationally recognized rating agency selected by Borrower from time to time; provided that for any such selection to be valid, Borrower shall have notified Lender of such selection prior to such selection taking effect and if Borrower has not notified Lender of any such selection, then Borrower shall be deemed to have selected Moody’s and S&P.

Significant Subsidiary – With respect to any Person, a Subsidiary which meets any of the following conditions:

(a)           such Person’s and its other Subsidiaries’ investments in and advances to the Subsidiary exceed 10% of the total assets of such Person and its Consolidated Subsidiaries as of the end of the most recently completed fiscal quarter;

(b)           such Person’s and its other Subsidiaries’ proportionate share (as determined by ownership interests) of the total assets (after intercompany eliminations) of the Subsidiary exceeds 10% of the total assets of such Person and its Consolidated Subsidiaries as of the end of the most recently completed fiscal quarter; or

11

(c)           such Person’s and its other Subsidiaries’ proportionate share (as determined by ownership interests) in the income from continuing operations before income taxes, extraordinary items and cumulative effect of changes in accounting principles of the Subsidiary exceeds 10% of such income of such Person and its Consolidated Subsidiaries for the most recently completed fiscal quarter.

Single Employer Plan – A single employer plan, as defined in Section 4001(a)(15) of ERISA, which is subject to Title IV of ERISA and which (i) is maintained for employees of Borrower or an ERISA Affiliate and no Person other than Borrower and its ERISA Affiliates or (ii) was so maintained and in respect of which Borrower or an ERISA Affiliate could have liability under Section 4069 of ERISA in the event such plan has been or were to be terminated.

Solvent – With respect to any Person, that such Person (a) has capital sufficient to carry on its business and transactions and all business and transactions in which it is about to engage and is able to pay its debts as they mature, (b) owns property having a value, both at fair valuation and at present fair saleable value, greater than the amount required to pay its probable liabilities (including contingencies), and (c) does not believe that it will incur debts or liabilities beyond its ability to pay such debts or liabilities as they mature.

Subsidiary – With respect to any Person, any corporation or unincorporated entity of which more than 50% of the outstanding capital stock (or comparable interest) having ordinary voting power (irrespective of whether at the time capital stock (or comparable interest) of any other class or classes of such corporation or entity shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned by said Person (whether directly or through one of more other Subsidiaries).  In the case of an unincorporated entity, a Person shall be deemed to have more than 50% of interests having ordinary voting power only if such Person’s vote in respect of such interests comprises more than 50% of the total voting power of all such interests in the unincorporated entity.

Total Common Equity – The sum of the Capital Stock (excluding treasury stock and capital stock subscribed for and unissued) and surplus (including earned surplus, capital surplus, translation adjustment, the balance of the current profit and loss account not transferred to surplus and accumulated comprehensive other income) accounts of Borrower and its Consolidated Subsidiaries appearing on a consolidated balance sheet of Borrower and its Consolidated Subsidiaries, in each case prepared as of the date of determination in accordance with GAAP, after eliminating all intercompany transactions and all amounts properly attributable to minority interests, if any, in the stock and surplus of Subsidiaries.

Unused Revolving Credit Commitment – At any particular time, an amount equal to the excess, if any, of the Maximum Revolving Credit Amount at such time over the Revolving Credit Exposure at such time.

12

1.2           Accounting Principles: Where the character or amount of any asset or liability or item of income or expense is required to be determined or any consolidation or other accounting computation is required to be made for the purposes of this Agreement, this shall be done in accordance with GAAP as in effect on the Closing Date, to the extent applicable, except as otherwise expressly provided in this Agreement.  If there are any changes in GAAP after the Closing Date that would affect the computation of the financial covenants in Section 6.14, such changes shall only be followed, with respect to such financial covenants, from and after the date this Agreement shall have been amended to take into account any such changes.

1.3           Construction: No doctrine of construction of ambiguities in agreements or instruments against the interests of the party controlling the drafting shall apply to any Loan Documents.

SECTION II.  THE LOANS

2.1           Revolving Credit – Description:

a.           Subject to the terms and conditions of this Agreement, Lender hereby establishes for the benefit of Borrower a revolving credit facility (collectively, the “Revolving Credit”) which shall include cash Loans extended by Lender to Borrower from time to time hereunder.  The aggregate principal amount of Loans shall not at any time exceed the Maximum Revolving Credit Amount.  Subject to such limitation, the outstanding balance of Loans under the Revolving Credit may fluctuate from time to time, to be reduced by repayments made by Borrower, to be increased by future Loans which may be made by Lender, to Borrower, and, subject to the provisions of Section 8 below, shall be due and payable on the Revolving Credit Maturity Date.  The aggregate principal amount of Loans outstanding at any time cannot exceed the Maximum Revolving Credit Amount.

b.           At Closing, Borrower shall execute and deliver a promissory note to Lender for the Maximum Revolving Credit Amount (“Revolving Credit Note”).  The Revolving Credit Note shall evidence Borrower’s unconditional obligation to repay Lender for all Loans made under the Revolving Credit, with interest as herein provided.  Each Loan under the Revolving Credit shall be deemed evidenced by the Revolving Credit Note, which is deemed incorporated herein by reference and made part hereof.  The Revolving Credit Note shall be in form and substance satisfactory to Lender.

c.           The term of the Revolving Credit shall expire on the Revolving Credit Maturity Date.  On such date, unless having been sooner accelerated by Lender pursuant to the terms hereof (i) all principal, interest and other fees, Expenses and other Obligations owing under the Revolving Credit shall be due and payable in full, and (ii) Lender’s commitment to make Loans under the Revolving Credit shall terminate.  As of and after such date Borrower shall not request and Lender shall not make any further Loan under the Revolving Credit.

2.2           [Intentionally Omitted]

2.3           [Intentionally Omitted]

13

2.4           Loans and Payments:

a.           Except to the extent otherwise set forth in this Agreement (or in the case of an Interest Hedging Instrument under the applicable agreements), all payments of principal and of interest on the Revolving Credit, and all Expenses, fees, indemnification obligations and all other charges and any other Obligations of Borrower, shall be made to Lender at such office or account as Lender may direct from time to time, in United States dollars, in immediately available funds.  Lender shall have the unconditional right and discretion and Borrower hereby authorizes Lender) to charge Borrower’s operating and/or deposit account(s) for all of Borrower’s Obligations as they become due from time to time under this Agreement including, without limitation, interest, principal, fees, indemnification obligations and reimbursement of Expenses.  Alternatively, Lender may in its sole and absolute discretion (and Borrower hereby authorizes Lender to) make a Loan under the Revolving Credit in a sum sufficient to pay all interest accrued and payable on the Obligations and to pay all costs, fees and Expenses owing hereunder.  Any payments received prior to 2:00 p.m.  Eastern time on any Business Day shall be deemed received on such Business Day.  Any payments (including any payment in full of the Obligations), received after 2:00 p.m.  Eastern time on any Business Day shall be deemed received on the immediately following Business Day.

b.           Loans which may be made by Lender from time to time under the Revolving Credit shall be made available by crediting such proceeds to Borrower’s operating account with Lender or such other account designated by Borrower to Lender in writing.

i.           All Loans requested by Borrower under the Revolving Credit that are (a) LIBOR Rate Loans must be in the minimum amount of One Million Dollars ($1,000,000) and integral multiples of Five Hundred Thousand Dollars ($500,000) in excess thereof and (b) Base Rate Loans must be in the minimum amount of Five Hundred Thousand Dollars ($500,000) and integrated multiples of One Hundred Thousand Dollars ($100,000) in excess thereof.

ii.           All Loans requested by Borrower under the Revolving Credit are to be in writing pursuant to a written request (“Loan Request”) executed by an Authorized Officer in the form of Exhibit ”B” attached hereto.  Requests for Base Rate Loans must be requested by 11:00 A.M., Eastern time, on the date such Loan is to be made.  Requests for LIBOR Rate Loans must be requested three (3) Business Days in advance and must specify the amount of the LIBOR Rate Loan and the LIBOR Interest Period.  If no LIBOR Interest Period is specified, the LIBOR Interest Period shall be deemed to be a one month period.

iii.           Upon receiving a request for a Loan in accordance with subparagraph (ii) above, and subject to the conditions set forth in this Agreement, Lender shall make the requested Loan available to Borrower as soon as is reasonably practicable thereafter on the day the requested Loan is to be made.

2.5           Interest:

a.           The unpaid principal balance of Loans under the Revolving Credit shall bear interest, subject to the terms hereof, at a per annum rate equal to the Applicable Rate.

b.           Interest on Base Rate Loans shall be payable quarterly, in arrears, on January 1, April 1, July 1 and October 1, and on the Revolving Credit Maturity Date.  Interest on LIBOR Rate Loans shall be payable on the last day of the applicable LIBOR Interest Period or, in the case of a LIBOR Interest Period which is six months, at the end of the three month period, and on the Revolving Credit Maturity Date.

14

c.           Borrower may, in the case of Revolving Credit Loans, elect from time to time to convert Base Rate Loans to LIBOR Rate Loans, by delivering a Notice of Conversion/Extension to Lender at least three (3) Business Days prior to the proposed date of conversion.  In addition, Borrower may elect from time to time to convert all or any portion of a LIBOR Rate Loan to a Base Rate Loan by giving Lender irrevocable written notice thereof by 12:00 noon one (1) Business Day prior to the proposed date of conversion.  LIBOR Rate Loans may only be converted to Base Rate Loans on the last day of the applicable LIBOR Interest Period.  If the date upon which a LIBOR Rate Loan is to be converted to a Base Rate Loan is not a Business Day, then such conversion shall be made on the next succeeding Business Day and during the period from such last day of a LIBOR Interest Period to such succeeding Business Day such Loan shall bear interest as if it were a Base Rate Loan.  All or any part of outstanding Base Rate Loans may be converted as provided herein; provided that no Loan may be converted into a LIBOR Rate Loan when any Default or Event of Default has occurred and is continuing.

d.           Borrower may continue any LIBOR Rate Loans upon the expiration of a LIBOR Interest Period with respect thereto by delivering a Notice of Conversion/Extension to Lender at least three (3) Business Days prior to the proposed date of extension; provided that no LIBOR Rate Loan may be continued as such when any Default or Event of Default has occurred and is continuing, in which case such Loan shall be automatically converted to a Base Rate Loan at the end of the applicable LIBOR Interest Period with respect thereto.  If Borrower shall fail to give timely notice of an election to continue a LIBOR Rate Loan, or the continuation of LIBOR Rate Loans is not permitted hereunder, each such LIBOR Rate Loan shall be automatically converted to a Base Rate Loan at the end of the applicable LIBOR Interest Period with respect thereto.

e.           Borrower may not have more than four (4) LIBOR Rate Loans outstanding at any time.

2.6           Additional Interest Provisions:

a.           Interest on the LIBOR Rate Loans shall be calculated on the basis of a year of three hundred sixty (360) days but charged for the actual number of days elapsed.  Interest on the Base Rate Loans shall be calculated on the basis of a year of three hundred sixty five (365) or three hundred sixty six (366) days, as the case may be, but charged for the actual number of days elapsed.

b.           After the occurrence and during the continuance of an Event of Default hereunder, the per annum effective rate of interest on all outstanding principal under the Loans, shall be increased by two hundred (200) basis points.  All such increases may be applied retroactively to the date of the occurrence of the Event of Default.  Borrower agrees that the default rate payable to Lender is a reasonable estimate of Lender’s damages and is not a penalty.

c.           All contractual rates of interest chargeable on outstanding principal under the Loans shall continue to accrue and be paid even after Default, an Event of Default, maturity, acceleration, judgment, bankruptcy, insolvency proceedings of any kind or the happening of any event or occurrence similar or dissimilar.

15

d.           In no contingency or event whatsoever shall the aggregate of all amounts deemed interest hereunder and charged or collected pursuant to the terms of this Agreement exceed the highest rate permissible under any law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto.  In the event that such court determines Lender has charged or received interest hereunder in excess of the highest applicable rate, Lender shall apply, in its sole discretion, and set off such excess interest received by Lender against other Obligations due or to become due and such rate shall automatically be reduced to the maximum rate permitted by such law.

e.           Borrower shall not request and Lender shall not make or continue, or convert any Loan to a LIBOR Rate Loan while a Default or an Event of Default exists.

   2.7           Fees and Charges:

a.           At Closing, Lender shall have fully earned and Borrower shall unconditionally pay to Lender, a non-refundable fee with respect to the Revolving Credit (“Revolving Credit Closing Fee”) of Forty Thousand Dollars ($40,000), less amounts previously paid thereon.

b.           Borrower hereby agrees to pay to Lender a facility fee (the “Facility Fee”), equal to the average daily amount of the Unused Revolving Credit Commitment during the preceding calendar quarter (or such shorter period commencing with the Closing Date or ending on the Revolving Credit Maturity Date) multiplied by a rate per annum equal to one eighth of one percent (0.125%), payable quarterly in arrears on January 1, April 1, July 1 and October 1, and on the Revolving Credit Maturity Date.  The Facility Fee due to Lender shall commence to accrue on the Closing Date and shall cease to accrue on the Revolving Credit Maturity Date.

2.8           Prepayments: Borrower may prepay the Revolving Credit in whole or in part at any time or from time to time, without penalty or premium except as provided in Section 2.11.  Any prepayment shall be accompanied by all accrued and unpaid interest, fees and Expenses, and shall first be applied to any Base Rate Loans and then to LIBOR Rate Loans.

2.9           Reduction of Revolving Credit: Upon at least five Business Days’ prior irrevocable written notice to Lender, Borrower may at any time in whole permanently terminate, or from time to time in part permanently reduce, the Maximum Revolving Credit Amount; provided, however, that (i) each partial reduction of the Maximum Revolving Credit Amount shall be in a minimum principal amount of $1,000,000 or in integral multiples of $1,000,000 in excess thereof, and (ii) the Maximum Revolving Credit Amount may not be reduced or terminated if, after giving effect thereto and to any prepayments on the Loans made on the effective date thereof, the aggregate amount of all Loans at such time would exceed the Maximum Revolving Credit Amount at such time.

16

2.10           Capital Adequacy: If any present or future law, governmental rule, regulation, policy, guideline, directive or similar requirement (whether or not having the force of law) imposes, modifies, or deems applicable any capital adequacy, capital maintenance or similar requirement which affects the manner in which Lender allocates capital resources to its commitments (including any commitments hereunder), and as a result thereof, in the opinion of Lender, the rate of return on Lender’s capital with regard to the Loans is reduced to a level below that which Lender could have achieved but for such circumstances, then in such case and upon notice from Lender to Borrower, from time to time, Borrower shall pay Lender such additional amount or amounts as shall compensate Lender for such reduction in Lender’s rate of return.  Such notice shall contain the statement of Lender with regard to any such amount or amounts which shall, in the absence of manifest error, be binding upon Borrower.  In determining such amount, Lender may use any reasonable method of averaging and attribution that it deems applicable.

   2.11           Funding Indemnity: Borrower shall indemnify Lender, and hold Lender harmless from any loss, damages, liability, or expense which Lender may sustain or incur as a consequence of the making of a prepayment of Loans on a day which is not the last day of a LIBOR Interest Period with respect thereto.  With respect to such Loans, such indemnification shall equal the excess, if any, of (i) the amount of interest which would have accrued on the amount so prepaid for the period from the date of such prepayment at the applicable rate of interest for such Loans provided for herein over (ii) the amount of interest (as reasonably determined by Lender) which would have accrued to Lender on such amount by placing such amount on deposit for a comparable period with leading banks in the London interbank Eurodollar market.  This covenant shall survive the termination of this Agreement, and the payment of the Obligations.

2.12           Inability to Determine Interest Rate: Notwithstanding any other provision of this Agreement, if Lender shall reasonably determine (which determination shall be conclusive and binding absent manifest error) that, (i) by reason of circumstances affecting the relevant market, reasonable and adequate means do not exist for ascertaining the Adjusted LIBOR Rate for a LIBOR Interest Period, or (ii) the Adjusted LIBOR Rate does not adequately and fairly reflect the cost to Lender of funding LIBOR Rate Loans that Borrower has requested be outstanding as a LIBOR Rate Loan during a LIBOR Interest Period, Lender shall forthwith give telephone notice of such determination, confirmed in writing, to Borrower at least two (2) Business Days prior to the first day of such LIBOR Interest Period.  Unless Borrower shall have notified Lender upon receipt of such telephone notice that it wishes to rescind or modify its request regarding such LIBOR Rate Loans, any Loans that were requested to be made as LIBOR Rate Loans shall be made as Base Rate Loans and any Loans that were requested to be converted into or continued as LIBOR Rate Loans shall remain as or be converted into Base Rate Loans.  Until any such notice has been withdrawn by Lender, no further Loans shall be made as, continued as, or converted into, LIBOR Rate Loans for the LIBOR Interest Periods so affected.

2.13           Illegality: Notwithstanding any other provision of this Agreement, if the adoption of or any change in any Requirement of Law or in the interpretation or application thereof to Lender by the relevant Governmental Authority shall make it unlawful for Lender to make or maintain LIBOR Rate Loans as contemplated by this Agreement, or to obtain in the interbank Eurodollar market, the funds with which to make such Loans, (a) Lender shall promptly notify Borrower thereof, (b) the commitment of Lender hereunder to make LIBOR Rate Loans or continue LIBOR Rate Loans as such shall forthwith be suspended until Lender shall give notice that the condition or situation which gave rise to the suspension shall no longer exist, and (c) Lender’s Loans then outstanding as LIBOR Rate Loans, if any, shall be converted on the last day of the LIBOR Interest Period for such Loans, or within such earlier period as required by law, to Base Rate Loans.  Borrower hereby agrees promptly to pay Lender, upon its demand, any additional amounts necessary to compensate Lender for actual and direct costs (but not including anticipated profits) reasonably incurred by Lender in connection with any repayment in accordance with this Section 2.13, including but not limited to, any interest or fees payable by Lender to lenders of funds obtained by it in order to make or maintain its LIBOR Rate Loans hereunder.  A certificate as to any additional amounts payable pursuant to this Section 2.13 submitted by Lender, to Borrower shall be presumptive evidence of such amounts owing.  Lender agrees to use reasonable efforts to avoid or to minimize any amounts which may otherwise be payable pursuant to this Section 2.13; provided however, that such efforts shall not cause the imposition on Lender of any additional costs or legal or regulatory burdens deemed by Lender in its reasonable discretion to be material.

17

2.14           Requirements of Law:

a.           If the adoption of or any change in any Requirement of Law or in the interpretation or application thereof or compliance by Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof:

i.           shall subject Lender to any tax of any kind whatsoever with respect to any LIBOR Rate Loan made by it, or change the basis of taxation of payments to Lender in respect thereof (except for changes in the rate of tax on the overall net income of Lender);

ii.           shall impose, modify, or hold applicable, any reserve, special deposit, compulsory loan, or similar requirement against assets held by, deposits or other liabilities in, or for the account of, advances, loans, or other extension of credit (including participations therein) by, or any other acquisition of funds by, any office of Lender which is not otherwise included in the determination of the LIBOR Rate hereunder; or

iii.           shall impose on such Lender any other condition;

iv.           and the result of any of the foregoing is to materially increase the cost to Lender of making or maintaining LIBOR Rate Loans, or to reduce any amount receivable hereunder, or under any Note, then, in any such case, Borrower shall promptly pay Lender, upon its demand, any additional amounts necessary to compensate Lender for such additional costs or reduced amount receivable which Lender reasonably deems to be material as determined by Lender, with respect to its LIBOR Rate Loans.  A certificate as to any additional amounts payable pursuant to this Section 2.14 submitted by Lender to Borrower shall be presumptive evidence of such amounts owing.  Lender agrees to use reasonable efforts to avoid, or to minimize, any amounts which might otherwise be payable pursuant to this Section 2.14; provided however, that such efforts shall not cause the imposition on Lender of any additional costs or legal regulatory burdens deemed by Lender in good faith to be material.

b.           The agreements in this Section 2.14 shall survive the termination of this Agreement and payment of the Obligations.

SECTION III.  [INTENTIONALLY OMITTED]

18

SECTION IV.  CLOSING AND CONDITIONS PRECEDENT TO LOANS

Closing under this Agreement is subject to the following conditions precedent (all instruments, documents and agreements to be in form and substance satisfactory to Lender and Lender’s counsel):

4.1           Resolutions, Opinions, and Other Documents: Borrower shall have delivered, or caused to be delivered to Lender the following:

a.           this Agreement, the Note and each of the other Loan Documents all properly executed;

b.           each of the other documents to be executed and/or delivered by Borrower or any other Person pursuant to this Agreement;

c.           certified copies of (i) resolutions of Borrower’s board of directors or managing members (as applicable) authorizing the execution, delivery and performance of this Agreement, the Notes to be issued hereunder and each of the other Loan Documents required to be delivered by any Section hereof and (ii) Borrower’s articles or certificate of incorporation and by-laws;

d.           an incumbency certificate for Borrower identifying all Authorized Officers, with specimen signatures;

e.           a certificate of good standing for Borrower, dated on or immediately prior to the Closing Date, from the Secretary of State of the state of organization of Borrower and from all states in which Borrower is required to obtain a certificate of good standing or like certificate due to the nature of its operations in such state;

f.           a written opinion of Borrower’s independent counsel addressed to Lender and opinions of such other counsel as Lender deems reasonably necessary;

g.           such financial statements (including all Disclosure Documents), reports, certifications and other operational information as Lender may reasonably require, satisfactory in all respects to Lender;

h.           payment by Borrower of all fees including, without limitation, Revolving Credit Closing Fee, and Expenses associated with the Loans;

i.           Insurance certificates and policies as required under Section 6.5; and

j.           such other documents reasonably required by Lender.

4.2           Absence of Certain Events: At the Closing Date, no Default or Event of Default hereunder shall have occurred and be continuing, and no default or event of default shall have occurred and be continuing under any existing Indebtedness of Borrower.

19

4.3           Warranties and Representations at Closing: The warranties and representations contained in Section 5 as well as any other Section of this Agreement shall be true and correct in all respects on the Closing Date with the same effect as though made on and as of that date.  Borrower shall not have taken any action or permitted any condition to exist which would have been prohibited by any Section hereof.

4.4           Compliance with this Agreement: Borrower shall have performed and complied with all agreements, covenants and conditions contained herein including, without limitation, the provisions of Sections 6 and 7 hereof, which are required to be performed or complied with by Borrower before or at the Closing Date.

4.5           Authorized Officers’ Certificate: Lender shall have received a certificate dated the Closing Date and signed by an Authorized Officer certifying that (i) all of the conditions specified in this Section have been fulfilled, (ii) no Material Adverse Effect has occurred since September 30, 2008, (iii) no action, proceeding, investigation, regulation or legislation has been instituted, or, to Borrower’s knowledge, threatened or proposed before any court, government agency or legislative body to enjoin, restrain or prohibit, or to obtain damages in respect of, or which is related to or arises out of this Agreement or any other Loan Documents or the consummation of the transactions contemplated hereby or thereby or which could reasonably be expected to have a Material Adverse Effect, and (iv) all governmental, shareholder, member, partner and third party consents and approvals necessary in connection with the transactions contemplated hereby have been received and are in full force and effect, and no condition or requirement of law exists which could reasonably be likely to restrain, prevent or impose any material adverse condition on the transactions contemplated hereby.

4.6           Closing: Subject to the conditions of this Section 4, the Loans shall be made available on such date (the “Closing Date”) and at such time as may be mutually agreeable to the parties contemporaneously with the execution hereof (“Closing”) at the Philadelphia, Pennsylvania offices of Ballard Spahr Andrews & Ingersoll, LLP.

4.7           Waiver of Rights: By completing the Closing hereunder, or by making Loans hereunder, Lender does not thereby waive a breach of any warranty or representation made by Borrower or any other requirement of Borrower hereunder or under any agreement, document, or instrument delivered to Lender or otherwise referred to herein, and any claims and rights of Lender resulting from any breach or misrepresentation by Borrower are specifically reserved by Lender.

4.8           Conditions for Future Loans: The making of Loans under the Revolving Credit in any form following the Closing Date and the conversion of any Base Rate Loan to a LIBOR Rate Loan or continuation of any LIBOR Rate Loan is subject to the following conditions precedent (all instruments, documents and agreements to be in form and substance satisfactory to Lender and its counsel) following the Closing Date:

        a.           This Agreement and each of the other Loan Documents shall be effective;

  

20

  b.           No event or condition shall have occurred or become known to Borrower, or would result from the making of any requested Loan, which could have a Material Adverse Effect; provided, however, that such condition precedent shall apply only to new Loans and shall not apply to the conversion of any existing Base Rate Loan to a LIBOR Rate Loan or the continuation of any existing LIBOR Rate Loan;

c.           No Default or Event of Default then exists or after giving effect to the making of the Loan would exist;

d.           Each Loan is within and complies with the terms and conditions of this Agreement including, without limitation, the notice provisions contained in Section 2.4 hereof;

e.           No Lien (other than a Permitted Lien) has been imposed on Borrower; and

f.           Each representation and warranty set forth in Section 5 and any other Loan Document in effect at such time (as amended or modified from time to time) is then true and correct in all material respects as if made on and as of such date except to the extent such representations and warranties are made only as of a specific earlier date.

SECTION V.  REPRESENTATIONS AND WARRANTIES

To induce Lender to complete the Closing and make the Loans to Borrower under the Revolving Credit, Borrower warrants and represents to Lender that:

5.1           Organization and Validity:

a.           Each of Borrower and its Subsidiaries is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, as applicable and is duly qualified to do business in, and is in good standing in, all other jurisdictions where the nature of its business or the nature of property owned or used by it makes such qualification necessary, except where such failure would not have a Material Adverse Effect.  Each of Borrower and its Subsidiaries has all requisite corporate (or other applicable) powers and authority to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted.

b.           The execution, delivery and performance by Borrower of this Agreement and each Loan Document to which it is a party are within Borrower’s corporate (or other applicable) powers, have been duly authorized by all necessary corporate (or other applicable) action, do not contravene (i) Borrower’s certificate of incorporation, (ii) any law, rule or regulation applicable to Borrower or (iii) any contractual or legal restriction binding on or affecting Borrower, and will not result in or require the imposition of any Lien on any property (including, without limitation, accounts or contract rights) of Borrower, except as provided in this Agreement and any other the Loan Document.

c.           No Governmental Action is required for the execution or delivery by Borrower of this Agreement or any other Loan Document to which it is a party or for the performance by Borrower of its obligations under this Agreement or any other Loan Document other than those which have previously been duly obtained, are in full force and effect, are not subject to any pending or, to the knowledge of Borrower, threatened appeal or other proceeding seeking reconsideration and as to which all applicable periods of time for review, rehearing or appeal with respect thereto have expired.

21

d.           This Agreement and each Loan Document to which Borrower is a party is a legal, valid and binding obligation of Borrower party thereto, enforceable against Borrower in accordance with its terms subject to the effect of bankruptcy, insolvency, reorganization,  fraudulent conveyance,  moratorium  and  other  similar  laws  of general application affecting rights and remedies of creditors generally.

5.2           Pending Litigation:  Except as disclosed in the Disclosure Documents, there is no pending or, to Borrower’s knowledge, threatened action or proceeding (including, without limitation, any proceeding relating to or arising out of Environmental Laws) affecting Borrower or any of its Subsidiaries before any court, governmental agency or arbitrator that has a reasonable possibility of having a Material Adverse Effect.

5.3           Financial Statements:  The audited consolidated balance sheet of Borrower and its Consolidated Subsidiaries, as at December 31, 2007, and the related consolidated statements of income, retained earnings and cash flows of Borrower and its Consolidated Subsidiaries for the fiscal year then ended, and the unaudited consolidated balance sheet of Borrower and its Consolidated Subsidiaries as at September 30, 2008, and the related consolidated statements of income, retained earnings and cash flows of Borrower and its Consolidated Subsidiaries for the nine (9) months then ended, copies of which have been furnished to Lender, fairly present in all material respects the financial condition of Borrower and its Consolidated Subsidiaries as at such dates and the results of the operations of Borrower and its Consolidated Subsidiaries for the periods ended on such dates, all in accordance with GAAP consistently applied,  subject, solely in the case of unaudited consolidated balance sheets, to normal year end adjustments.  Since December 31, 2007, there has been no Material Adverse Effect, or material adverse change in the facts and information regarding such entities as represented to the Closing Date.

5.4           Investment Company Status:  Neither Borrower nor any Subsidiary of Borrower is an “investment company” or a company “controlled” by an “investment company”, within the meaning of the Investment Company Act of 1940, as amended.

5.5           No Default or Event of Default:  No event has occurred or is continuing which constitutes a Default or an Event of Default, or which constitutes, or which with the passage of time or giving of notice or both would constitute, a default or event of default by Borrower or Subsidiary thereof under any material agreement or contract, judgment, decree or order by which Borrower or any of its respective properties may be bound or which would require Borrower or Subsidiary thereof to make any payment thereunder prior to the scheduled maturity date therefore, where such default could reasonably be expected to have a Material Adverse Effect.

5.6           Liens:  None of the properties or assets of Borrower is subject to any Lien, except Permitted Liens.

5.7           Documentation:  All written information, reports and other papers and data produced by or on behalf of Borrower and furnished to Lender were, at the time the same were so furnished, complete and correct in all material respects.  No document furnished or written statement made to Lender by Borrower in connection with the negotiation, preparation or execution of this Agreement or any other Loan Documents contains or will contain any untrue statement of a fact material to the creditworthiness of Borrower or its Subsidiaries or omits or will omit to state a fact necessary in order to make the statements contained therein not misleading.

22

5.8           Government Regulations, Etc.:

a.           Neither Borrower nor its Subsidiaries is engaged in the business of extending credit for the purpose of buying or carrying margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System), and no proceeds of any Loan will be used to buy or carry any margin stock or to extend credit to others for the purpose of buying or carrying any margin stock.

b.           No ERISA Event has occurred or is reasonably expected to occur with respect to any Plan which reasonably could be expected to have a Material Adverse Effect.  Since the actuarial valuation date specified in the most recent Schedule B (Actuarial Information) to the annual report of Plans maintained by Borrower (Form 5500 Series), if any, (i) there has been no Material Adverse Effect to the funding status of the Plans referred to therein and (ii) no “prohibited transaction” has occurred with respect thereto.  Neither Borrower nor any of its respective ERISA Affiliates has incurred nor reasonably expects to incur any material withdrawal liability under ERISA to any Multiemployer Plan.

c.           Except as set forth in the Disclosure Documents, Borrower and its Subsidiaries are in compliance in all material respects with all applicable Federal, state and local statutes, rules, regulations, orders and other provisions of law relating to Hazardous Materials, air emissions, water discharge, noise emission and liquid disposal, and other environmental, health and safety matters, other than those the non-compliance with which would not have a Material Adverse Effect (taking into consideration all fines, penalties and sanctions that may be imposed because of such non-compliance) or on the ability of Borrower to perform its obligations under this Agreement or any other Loan Document to which Borrower is a party.  Except as set forth in the Disclosure Documents, neither Borrower nor any of its respective Subsidiaries has received from any Governmental Authority any notice of any material violation of any such statute, rule, regulation, order or provision.

d.           The issuance of, and the existence of, the Loans and the use of the proceeds thereof will comply with all provisions of applicable law and regulation in all material respects.

5.9           Taxes:  Borrower and its Subsidiaries have filed all tax returns (Federal, state and local) required to be filed and paid all taxes shown thereon to be due, including interest and penalties, except to the extent that Borrower or any such Subsidiary is diligently contesting any such taxes in good faith and by appropriate proceedings, and for which adequate reserves for payment thereof have been established.

5.10           Solvency:  As of the Closing Date, Borrower and each of its Subsidiaries will be Solvent.

23

5.11           Capital Stock:  The capitalization of Borrower and each Subsidiary of Borrower consists of the Capital Stock, authorized, issued and outstanding, of such classes and series, with or without par value, described on Schedule I hereto.  All such outstanding Capital Stock has been duly authorized and validly issued and are fully paid and nonassessable.  Except as set forth in the Disclosure Documents, there are no outstanding warrants, subscriptions, options, securities, instruments or other rights of any type or nature whatsoever, which are convertible into, exchangeable for or otherwise provide for or permit the issuance of, Capital Stock of Borrower or any Subsidiary of Borrower or are otherwise exercisable by any Person.

5.12           Title to Properties:  Borrower and each Subsidiary of Borrower has good and marketable title to all assets and other property purported to be owned by it.

5.13           Anti-Terrorism Laws:  Borrower is not listed on the specially Designated Nationals and Blocked Persons List maintained by the Office of Foreign Asset Control, Department of the Treasury (“OFAC” pursuant to Executive Order No. 13224, 66 Fed. Reg. 49079 (Sept. 25, 2001)), and/or any other list maintained pursuant to any of the rules and regulations of OFAC or pursuant to any other applicable Executive Orders or otherwise subject to sanction under an OFAC implemented regulation.

SECTION VI.  BORROWER’S AFFIRMATIVE COVENANTS

Until the Obligations have been finally and indefeasibly paid and satisfied in full, and the Revolving Credit has been terminated, Borrower will, and will cause each of its Subsidiaries, to:

6.1           Preservation of Existence, Etc.:  Preserve and maintain, and cause each of its Subsidiaries to preserve and maintain, its corporate or company, as applicable, existence, material rights (statutory and otherwise) and franchises, and take such other action as may be necessary or advisable to preserve and maintain its right to conduct its business in the states where it shall be conducting its business, except where failure to do so does not result in, or could not reasonably be expected to have, a Material Adverse Effect.

6.2           Maintenance of Properties, Etc.:  Maintain, and cause each of its Subsidiaries to maintain, good and marketable title to all of its properties which are used or useful in the conduct of its business, and preserve, maintain, develop and operate, and cause each of its Subsidiaries to preserve, maintain, develop and operate, in substantial conformity with all laws and material contractual obligations, all such properties in good working order and condition, ordinary wear and tear excepted, except where such failure would not have a Material Adverse Effect.

6.3           Ownership:  Cause Parent to own, at all times, 100% of the Capital Stock having voting rights of Borrower.

6.4           Compliance with Material Contractual Obligations, Laws, Etc.:  Comply, and cause each of its Subsidiaries to comply, with the requirements of all material contractual obligations and all applicable laws, rules, regulations and orders, the failure to comply with which could reasonably be expected to have a Material Adverse Effect, such compliance to include, without limitation, paying before the same become delinquent all taxes, assessments and governmental charges imposed upon it or upon its property except to the extent diligently contested in good faith and by appropriate proceedings and for which adequate reserves for the payment thereof have been established, and complying with the requirements of all applicable Federal, state and local statutes, rules, regulations, orders and other provisions of law relating to Hazardous Materials, air emissions, water discharge, noise emission and liquid disposal, and other environmental, health and safety matters.

24

6.5           Insurance:  Maintain, and cause each of its Subsidiaries to maintain, insurance with financially sound and reputable insurance companies or associations in such amounts and covering such risks as are usually carried by companies engaged in the same or similar businesses and similarly situated.

6.6           Visitation Rights; Keeping of Books:  At any reasonable time and from time to time, upon reasonable advance notice, permit Lender or any agents or representatives thereof, to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, Borrower and any of its Subsidiaries, and to discuss the affairs, finances and accounts of Borrower and any of its Subsidiaries with any of their respective officers or directors and with their respective independent certified public accountants and keep proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and liabilities of Borrower in accordance with GAAP.

6.7           Transactions with Affiliates:  Conduct, and cause each of its Subsidiaries to conduct, all transactions otherwise permitted under this Agreement with any of its Affiliates on terms that are fair and reasonable and no less favorable to Borrower or such Subsidiary than it would obtain in a comparable arm’s-length transaction with a Person not an Affiliate.

6.8           Use of Proceeds:  Use the proceeds of any Loan solely for funding Capital Expenditures and/or general corporate purposes.

6.9           Loan Documents:  Perform and comply in all material respects with each of the provisions of each Loan Document to which it is a party.

6.10           Risk Management:  Perform and comply in all material respects, and require its Subsidiaries to perform and comply in all material respects, with any risk management policies developed by Borrower, including such policies, if applicable, related to (i) the retail and wholesale inventory distribution and trading procedures and (ii) dollar and volume limits.

6.11           OFAC Compliance:  Comply with any obligations that it may have under the USA Patriot Act, all laws and executive orders administered by OFAC and all regulations promulgated and executive orders having the force of law issued pursuant thereto, as amended or supplemented from time to time (collectively, “AML and Anti-Terrorist Acts”).  In the event that Borrower becomes aware that it is not in compliance with any applicable AML and Anti-Terrorist Acts, Borrower shall notify Lender and diligently take all actions required thereunder to become compliant.

6.12           Further Assurances:  At the expense of Borrower, promptly execute and deliver, or cause to be promptly executed and delivered, all further instruments and documents, and take and cause to be taken all further actions, that may be reasonably necessary or that Lender may reasonably request, to enable Lender to enforce the terms and provisions of this Agreement and the Loan Documents and to exercise their rights and remedies hereunder.  In addition, Borrower will use all reasonable efforts to duly obtain Governmental Actions required from time to time on or prior to such date as the same may become legally required, and thereafter to maintain all such Governmental Actions in full force and effect, except where such failure would not have a Material Adverse Effect.

25

6.13           Reporting Requirements: Provide to Lender:

a.           as soon as available and in any event within sixty (60) days after the end of each of the first three quarters of each fiscal year of Borrower, a consolidated and consolidating balance sheet of Borrower and its Consolidated Subsidiaries as at the end of such quarter and consolidated and consolidating statements of income, retained earnings and cash flows of Borrower and its Consolidated Subsidiaries for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, all in reasonable detail and duly certified by the chief financial officer or the treasurer of Borrower as fairly presenting in all material respects the financial condition of Borrower and its Consolidated Subsidiaries as at such date and the results of operations of Borrower and its Consolidated Subsidiaries for the periods ended on such date, except for normal year end adjustments, all in accordance with GAAP consistently applied (for purposes hereof delivery of Borrower’s appropriately completed Form 10-Q will be sufficient in lieu of delivery of such consolidated balance sheet and consolidated statements of income, retained earnings and cash flows), together with a quarterly compliance certificate in the form of Exhibit “D” (each, a “Quarterly Compliance Certificate”), of the chief financial officer or the treasurer of Borrower (A) demonstrating and certifying compliance by Borrower with the covenants set forth in Section 6.14 and (B) stating that no Event of Default or Default has occurred and is continuing or, if an Event of Default or Default has occurred and is continuing, a statement as to the nature thereof and the action which Borrower has taken and proposes to take with respect thereto;

b.           as soon as available and in any event within one hundred five (105) days after the end of each fiscal year of Borrower, a copy of the annual report for such year for Borrower and its Consolidated Subsidiaries, containing consolidated and consolidating financial statements for such year certified by, and accompanied by an unqualified opinion of, independent public accountants reasonably acceptable to Lender (for purposes hereof, delivery of Borrower’s appropriately completed Form 10-K will be sufficient in lieu of delivery of such financial statements), together with a Quarterly Compliance Certificate, in the form of Exhibit “D”, of the chief financial officer or the treasurer of Borrower (A) demonstrating and certifying compliance by Borrower with the covenants set forth in Section 6.14 and (B) stating that no Event of Default or Default has occurred and is continuing or, if an Event of Default or Default has occurred and is continuing, a statement as to the nature thereof and the action which Borrower has taken and proposes to take with respect thereto;

c.           as soon as possible and in any event within five (5) days after the occurrence of each Event of Default and each Default known to Borrower, a statement of the chief financial officer of Borrower setting forth details of such Event of Default or Default and the action which Borrower has taken and proposes to take with respect thereto;

d.           as soon as possible and in any event within five (5) days after receipt thereof by Borrower or any of its ERISA Affiliates from the PBGC copies of each notice received by Borrower or such ERISA Affiliate of the PBGC’s intention to terminate any Plan of Borrower or such ERISA Affiliate or to have a trustee appointed to administer any such Plan;

26

e.           as soon as possible and in any event within five (5) days after receipt thereof by Borrower or any ERISA Affiliate from a Multiemployer Plan sponsor, a copy of each notice received by Borrower or such ERISA Affiliate concerning the imposition of withdrawal liability in the amount of at least $1,000,000 pursuant to Section 4202 of ERISA in respect of which Borrower or such ERISA Affiliate is reasonably expected to be liable;

f.           as soon as possible and in any event within five (5) days after Borrower becomes aware of the occurrence thereof, notice of all actions, suits, proceedings or other events (A) of the type described in Section 5.2 or (B) for which Lender will be entitled to indemnity under Section 9.4;

g.           as soon as possible and in any event within five (5) days after the sending or filing thereof, copies of all material reports that Borrower sends to any of its security holders, and copies of all reports and registration statements which Borrower or any of its Subsidiaries files with the Securities and Exchange Commission or any national securities exchange;

h.           as soon as possible and in any event within five (5) days after requested, such other information respecting the business, properties, assets, liabilities (actual or contingent), results of operations, prospects, condition or operations, financial or otherwise, of Borrower or any Subsidiary thereof as Lender may from time to time reasonably request; and

i.           as soon as possible and in any event within fifteen (15) days after the occurrence of each ERISA Event, a statement of the chief financial officer of Borrower setting forth details of such ERISA Event and the action which Borrower has taken and proposes to take with respect thereto.

Information required to be delivered pursuant to this Section 6.13 shall be deemed to have been delivered if such information shall be available on the website of the Securities and Exchange Commission at http://www.sec.gov and Borrower shall have notified Lender of the availability of all Form 10-Q and Form 10-K reports; provided that, if requested by Lender, Borrower shall deliver a paper copy of such information to Lender.  Information required to be delivered pursuant to this Section 6.13 may also be delivered by electronic communications pursuant to procedures reasonably approved by Lender.

6.14           Financial Covenants:

a.           Borrower will maintain at the end of each fiscal quarter a ratio of Indebtedness to Consolidated Total Capitalization of Borrower and its Consolidated Subsidiaries of not more than 0.65 to 1.0.

b.           Borrower will maintain at the end of each fiscal quarter, a minimum Total Common Equity of at least $289,200,000.

27

6.15           Replacement Financing:  At least sixty (60) days prior to the Revolving Credit Maturity Date, Borrower shall have received the written approval of the New Jersey Board of Public Utilities regarding Borrower’s entry into long-term debt financing to refinance, in whole, this Revolving Credit.

SECTION VII.  BORROWER’S NEGATIVE COVENANTS:

Borrower covenants that until all of the Obligations are paid and satisfied in full and the Revolving Credit has been terminated, that Borrower shall not:

7.1           Liens, Etc:  Except as permitted in Section 7.3, create, incur, assume, or suffer to exist, or permit any of its Subsidiaries to create, incur, assume, or suffer to exist, any Lien other than Permitted Liens.

7.2           Indebtedness:  Create or suffer, or permit any Subsidiary to create or suffer, to exist any Indebtedness except for Permitted Indebtedness.

7.3           Obligation to Ratably Secure:  Except as permitted by Section 7.1, create or suffer to exist, or permit any of its Subsidiaries to create or suffer to exist, any Lien other than a Permitted Lien, in each case to secure or provide for the payment of Indebtedness, unless, on or prior to the date thereof, Borrower shall have (i) pursuant to documentation reasonably satisfactory to Lender, equally and ratably secured the Obligations of Borrower under this Agreement by a Lien acceptable to Lender, and (ii) caused the creditor or creditors, as the case may be, in respect of such Indebtedness to have entered into an intercreditor agreement in form, scope and substance reasonably satisfactory to Lender.

7.4           Mergers, Etc:  Merge or consolidate with or into any Person, or permit any of its Subsidiaries to do so, except that (i) any Subsidiary of Borrower may merge or consolidate with or into, any other Subsidiary of Borrower and (ii) any Subsidiary of Borrower may merge or consolidate with and into Borrower; provided, that Borrower is the surviving corporation; provided, further, that in each case, immediately after giving effect to such proposed transaction, no Event of Default or Default would exist.

7.5           Sale of Assets, Etc:  Sell, transfer, lease, assign or otherwise convey or dispose, or permit any Subsidiary to sell, transfer, lease, assign or otherwise convey or dispose, of assets (whether now owned or hereafter acquired), in any single transaction or series of transactions, whether or not related having an aggregate book value in excess of 10% of the Consolidated assets of Borrower and its Consolidated Subsidiaries, except for dispositions of capital assets in the ordinary course of business as presently conducted.

7.6           Restricted Investments:  Other than in the ordinary course of business (i) make or permit to exist any loans or advances to, or any other investment in, any Person except for investments in Permitted Investments, or (ii) acquire any assets or property of any other Person.

7.7           New Business:  Permit Borrower or any of its Subsidiaries to enter into any business which is not substantially similar to that existing on the Closing Date.

28

7.8           Distributions:  Pay any dividends on or make any other distributions in respect of any Capital Stock or redeem or otherwise acquire any such Capital Stock without in each instance obtaining the prior written consent of Lender; provided, that (i) any Subsidiary of Borrower may pay regularly scheduled dividends or make other distributions to Borrower; (ii) if no Default or Event of Default exists or would result therefrom, Borrower may pay distributions or dividends in either cash or Capital Stock or may redeem or otherwise acquire Capital Stock, and (iii) Borrower may cause the redemption or acquisition of Capital Stock having a preferred interest only if (a) such redemption or acquisition is effected by the proceeds of Capital Stock issued by Parent, or (b) such redemption or acquisition is effected with proceeds from Permitted Indebtedness; provided, that before and after such redemption or acquisition as described in (a) and (b) above, no Default or Event of Default has occurred and is continuing.

7.9           Compliance with ERISA:  (i) Permit to exist any “accumulated funding deficiency” (as defined in Section 412(a) of the Code), unless such deficiency exists with respect to a Multiple Employer Plan or Multiemployer Plan and Borrower has no control over the reduction or elimination of such deficiency, (ii) terminate, or permit any ERISA Affiliate to terminate, any Plan of Borrower or such ERISA Affiliate so as to result in any material liability of Borrower or ERISA Affiliate to the PBGC, or (iii) permit to exist any occurrence of any reportable event (within the meaning of Section 4043 of ERISA), or any other event or condition, which presents a material risk of a termination by the PBGC of any Plan of Borrower or such ERISA Affiliate and such a material liability of Borrower or ERISA Affiliate to the PBGC.

    7.10           Constituent Documents, Etc:  Change in any material respect the nature of its certificate of incorporation, by-laws, or other similar documents, or accounting policies or accounting practices (except as required or permitted by the Financial Accounting Standards Board or GAAP).

7.11           Fiscal Year:  Change its Fiscal Year.

SECTION VIII.  DEFAULT

8.1           Events of Default: Each of the following events shall constitute an event of default (“Event of Default”):

a.           Borrower shall fail to pay (i) any amount of principal when the same becomes due and payable or (ii) any interest, fees, Expenses or any other amount payable hereunder within five (5) Business Days of when the same becomes due and payable; or

b.           Any representation or warranty made by or on behalf of Borrower in this Agreement or any Loan Document or by or on behalf of Borrower (or any of its officers) in connection with this Agreement or any Loan Document shall prove to have been incorrect in any material respect when made or deemed made; or

c.           (i) Borrower shall fail to perform or observe any term, covenant or agreement contained in Sections 6.1, 6.3, 6.5, 6.7, 6.8, 6.9, 6.10, 6.13, 6.14, 6.15, 7.1, 7.2, 7.3, 7.4, 7.5, 7.6, 7.7, or 7.8, or (ii) Borrower shall fail to perform or observe any other term, covenant or agreement contained in this Agreement (other than obligations specifically set forth elsewhere in this Section 8.1) on its part to be performed or observed if the failure to perform or observe such other term, covenant or agreement, shall remain unremedied for thirty (30) days after written notice thereof shall have been given to Borrower by Lender; or

29

d.           Borrower or any Significant Subsidiary thereof shall fail to pay any principal of or premium or interest on any Indebtedness (other than Indebtedness incurred under this Agreement) thereof in the aggregate (for all such Persons) in excess of $15,000,000, when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Indebtedness; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Indebtedness and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Indebtedness; or any such Indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof; or

e.           Borrower or any Significant Subsidiary thereof shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors, or any proceeding shall be instituted by or against Borrower or a Significant Subsidiary thereof seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), such proceeding shall remain undismissed or unstayed for a period of forty-five (45) days, any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur or Borrower or a Significant Subsidiary thereof shall consent to or acquiesce in any such proceeding; or Borrower or a Significant Subsidiary thereof shall take any corporate action to authorize any of the actions set forth above in this subsection (e); or

f.           Any judgment or order for the payment of money in excess of $15,000,000 (in the aggregate) shall be rendered against Borrower or any Significant Subsidiary thereof and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of ten (10) consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or

g.           The obligations of Borrower under this Agreement or any other Loan Document shall become unenforceable, or Borrower, or any court or governmental or regulatory body having jurisdiction over Borrower, shall so assert in writing or Borrower or any of its Affiliates shall contest in any manner the validity or enforceability thereof; or

h.           Any ERISA Event shall have occurred with respect to a Plan and, thirty (30) days after notice thereof shall have been given to Borrower by Lender, (i) such ERISA Event shall still exist and (ii) such ERISA Event is reasonably likely to result in a liability or lien in excess of $15,000,000 against Borrower or any ERISA Affiliate; or

30

i.           Borrower or any Affiliate thereof as employer under a Multiemployer Plan shall have made a complete or partial withdrawal from such Multiemployer Plan and the plan sponsor of such Multiemployer Plan shall have notified such withdrawing employer that such employer has incurred a withdrawal liability in an annual amount exceeding $5,000,000; or

j.           Any Governmental Action shall be rescinded, revoked, otherwise terminated, or amended or modified in any manner which is materially adverse to the interests of Lender; or

k.           A Change in Control shall occur.

8.2           Upon an Event of Default.  Upon the occurrence of an Event of Default, Lender may, by notice to Borrower:

a.           Acceleration; Termination of Credit Facility.  Declare the principal of and interest on the Revolving Credit, the Note and the Obligations (except for Hedging Obligations, which shall be governed by the terms and conditions of the documents controlling such obligations) at the time outstanding, and all other amounts owed to Lender under this Agreement, to be forthwith due and payable, whereupon the same shall immediately become due and payable without presentment, demand, protest or other notice of any kind, all of which are expressly waived, anything in this Agreement to the contrary notwithstanding, and terminate the Revolving Credit and any right of Borrower to request Loans thereunder; provided, that upon the occurrence of an Event of Default specified in Section 8.1(e), the Revolving Credit shall be automatically terminated and all Obligations (except for Hedging Obligations, which shall be governed by the terms and conditions of the documents controlling such obligations) shall automatically become due and payable without presentment, demand, protest or other notice of any kind, all of which are expressly waived, anything in this Agreement or in any other Loan Document to the contrary notwithstanding.

8.3           Nature of Remedies: All rights and remedies granted Lender hereunder and under the Loan Documents, or otherwise available at law or in equity, shall be deemed concurrent and cumulative, and not alternative remedies, and Lender may proceed with any number of remedies at the same time until all Obligations are satisfied in full.  The exercise of any one right or remedy shall not be deemed a waiver or release of any other right or remedy, and Lender, upon or at any time after the occurrence of an Event of Default, may proceed against Borrower, at any time, under any agreement, with any available remedy and in any order.

8.4           Set-Off:  In addition to all other rights, options and remedies granted or available to Lender under this Agreement or the Loan Documents (each of which is also then exercisable by Lender), upon or at any time after the occurrence and during the continuance of an Event of Default, Lender (and any participant) shall have and be deemed to have, without notice to Borrower, the immediate right of set-off against any bank account of Borrower with Lender, or of Borrower with any other subsidiary of Lender or Bank Affiliate or any participant and may apply the funds or amount thus set-off against any of Borrower’s Obligations hereunder.

If any bank account of Borrower with Lender, any other subsidiary of Lender or Bank Affiliate or any participant is attached or otherwise liened or levied upon by any third party, Lender (and such participant) shall have and be deemed to have, without notice to Borrower, the immediate right of set-off and may apply the funds or amount thus set-off against any of Borrower’s Obligations hereunder.

31

SECTION IX.  MISCELLANEOUS

9.1           Governing Law: THIS AGREEMENT, AND ALL MATERS ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND ALL RELATED AGREEMENTS AND DOCUMENTS, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK.  THE PROVISIONS OF THIS AGREEMENT AND ALL OTHER AGREEMENTS AND DOCUMENTS REFERRED TO HEREIN ARE TO BE DEEMED SEVERABLE, AND THE INVALIDITY OR UNENFORCEABILITY OF ANY PROVISION SHALL NOT AFFECT OR IMPAIR THE REMAINING PROVISIONS WHICH SHALL CONTINUE IN FULL FORCE AND EFFECT.

9.2           Integrated Agreement: The Note, the other Loan Documents, all related agreements, and this Agreement shall be construed as integrated and complementary of each other, and as augmenting and not restricting Lender’s rights and remedies.  If, after applying the foregoing, an inconsistency still exists, the provisions of this Agreement shall constitute an amendment thereto and shall control.

9.3           Waiver: No omission or delay by Lender in exercising any right or power under this Agreement or any related agreements and documents will impair such right or power or be construed to be a waiver of any Default, or Event of Default or an acquiescence therein, and any single or partial exercise of any such right or power will not preclude other or further exercise thereof or the exercise of any other right, and as to Borrower no waiver will be valid unless in writing and signed by Lender and then only to the extent specified.

9.4           Indemnity:

a.           Borrower releases and shall indemnify, defend and hold harmless Lender and its respective officers, employees and agents, of and from any claims, demands, liabilities, obligations, judgments, injuries, losses, damages and costs and expenses (including, without limitation, reasonable legal fees) resulting from (i) acts or conduct of Borrower under, pursuant or related to this Agreement and the other Loan Documents, (ii) Borrower’s breach or violation of any representation, warranty, covenant or undertaking contained in this Agreement or the other Loan Documents, (iii) Borrower’s failure to comply with any or all laws, statutes, ordinances, governmental rules, regulations or standards, whether federal, state or local, or court or administrative orders or decrees, (including without limitation Environmental Laws, etc.), and (iv) any claim by any other creditor of Borrower against Lender arising out of any transaction whether hereunder or in any way related to the Loan Documents and all costs, expenses, fines, penalties or other damages resulting therefrom, unless resulting solely from acts or conduct of Lender constituting willful misconduct or gross negligence.

32

b.           Promptly after receipt by an indemnified party under subsection (a) above of notice of the commencement of any action by a third party, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof.  The omission to so notify the indemnifying party shall relieve the indemnifying party from any liability which it may have to any indemnified party under such subsection only if the indemnifying party is unable to defend such actions as a result of such failure to so notify.  In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnified party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation.

9.5           Time: Whenever Borrower shall be required to make any payment, or perform any act, on a day which is not a Business Day, such payment may be made, or such act may be performed, on the next succeeding Business Day.  Time is of the essence in Borrower’s performance under all provisions of this Agreement and all related agreements and documents.

9.6           Expenses of Lender: At Closing and from time to time thereafter, Borrower will pay upon demand of Lender all reasonable costs, fees and expenses of Lender in connection with (i) the analysis, negotiation, preparation, execution, administration, delivery and termination of this Agreement, and other Loan Documents and the documents and instruments referred to herein and therein, and any amendment, amendment and restatement, supplement, waiver or consent relating hereto or thereto, whether or not any such amendment, amendment and restatement, supplement, waiver or consent is executed or becomes effective, search costs, the reasonable fees, expenses and disbursements of counsel for Lender, any fees or expenses incurred by Lender under Section 6.6 for which Borrower is obligated thereunder, and reasonable charges of any expert consultant to Lender, (ii) the enforcement of Lender’s rights hereunder, or the collection of any payments owing from, Borrower under this Agreement and/or the other Loan Documents or the protection, preservation or defense of the rights of Lender hereunder and under the other Loan Documents, and (iii) any refinancing or restructuring of the credit arrangements provided under this Agreement and other Loan Documents in the nature of a “work-out” or of any insolvency or bankruptcy proceedings, or otherwise (including the reasonable fees and disbursements of counsel for Lender and, with respect to clauses (ii) and (iii), reasonable allocated costs of internal counsel) (collectively, the “Expenses”);

9.7           Brokerage: This transaction was brought about and entered into by Lender and Borrower acting as principals and without any brokers, agents or finders being the effective procuring cause hereof.  Borrower represents that it has not committed Lender to the payment of any brokerage fee, commission or charge in connection with this transaction.  If any such claim is made on Lender by any broker, finder or agent or other person, Borrower hereby indemnifies, defends and saves such party harmless against such claim and further will defend, with counsel satisfactory to Lender, any action or actions to recover on such claim, at Borrower’s own cost and expense, including such party’s reasonable counsel fees.  Borrower further agrees that until any such claim or demand is adjudicated in such party’s favor, the amount demanded shall be deemed an Obligation of Borrower under this Agreement.

33

    9.8           Notices:

a.           Any notices or consents required or permitted by this Agreement shall be in writing and shall be deemed given if delivered in person to the person listed below or if sent by telecopy or by nationally recognized overnight courier, as follows, unless such address is changed by written notice hereunder:

If to Lender to:                                                             Toronto Dominion (New York) LLC

77 King Street West

Toronto, ON M5K 1A2

Attention: Ruth Bengo

Telecopy No.:  (416) 590-4335

With copies to :                                                           TD Securities

31 West 52nd Street

New York, NY 10019

Attention:  Director, Credit Management

Telecopy No.:  (212) 827-7232

TD Bank, NA

2005 Market Street

Philadelphia, PA 19103

Attention: Credit Management

Telecopy No.:  (215) 282-4032

Ballard Spahr Andrews & Ingersoll, LLP

1735 Market Street, 51st Floor

Philadelphia, PA 19103

Attention: Steven M. Miller, Esq.

        Telecopy No.:  (215) 993-3970

If to Borrower to:                                                        South Jersey Gas Company

1 South Jersey Plaza

Folsom, NJ 08037

Attention: Stephen H. Clark

Telecopy No.:  (609) 561-8225

      With copies to Borrower’s Counsel:       Cozen O'Connor

                                             457 Haddonfield Road, Suite 300

                Cherry Hill, NJ 08002

Attention: Liza L. Wolf, Esq.

Telecopy No.:  (877) 526-3072

b.           Any notice sent by Lender or Borrower by any of the above methods shall be deemed to be given when so received.

34

c.           Lender shall be fully entitled to rely upon any telecopy transmission or other writing purported to be sent by any Authorized Officer (whether requesting a Loan or otherwise) as being genuine and authorized.

9.9           Headings: The headings of any paragraph or Section of this Agreement are for convenience only and shall not be used to interpret any provision of this Agreement.

9.10           Survival: All warranties, representations, and covenants made by Borrower herein, or in any agreement referred to herein or on any certificate, document or other instrument delivered by it or on its behalf under this Agreement, shall be considered to have been relied upon by Lender, and shall survive the delivery to Lender of the Notes, regardless of any investigation made by Lender or on its behalf.  All statements in any such certificate or other instrument prepared and/or delivered for the benefit of Lender shall constitute warranties and representations by Borrower hereunder.  Except as otherwise expressly provided herein, all covenants made by Borrower hereunder or under any other agreement or instrument shall be deemed continuing until all Obligations are satisfied in full.  All indemnification obligations under this Agreement, including under Section 9.4 and 9.7, shall survive the termination of this Agreement and payment of the Obligations for a period of two (2) years.

9.11           Successors and Assigns: This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties.  Borrower may not transfer, assign or delegate any of its duties or obligations hereunder.  Borrower acknowledges and agrees that Lender may at any time, and from time to time, (a) sell participating interests in the Loans, and Lender’s rights hereunder to other financial institutions, (b) sell, transfer, or assign the Loans and Lender’s rights hereunder to any Bank Affiliate, and (c) sell, transfer, or assign the Loans and Lender’s rights hereunder, to any one or more additional banks or financial institutions, subject (as to Lender’s rights under this clause (c)) to Borrower’s written consent, which consent shall not be unreasonably withheld; provided that, no consent under this clause (c) shall be required if an Event of Default exists at the time of such sale, transfer or assignment.

9.12           Duplicate Originals: Two or more duplicate originals of this Agreement may be signed by the parties, each of which shall be an original but all of which together shall constitute one and the same instrument.

9.13           Modification: No modification hereof or any agreement referred to herein shall be binding or enforceable unless in writing and signed by Borrower and Lender.

9.14           Signatories: Each individual signatory hereto represents and warrants that he is duly authorized to execute this Agreement on behalf of his principal and that he executes the Agreement in such capacity and not as a party.

9.15           Third Parties: No rights are intended to be created hereunder, or under any related agreements or documents for the benefit of any third party donee, creditor or incidental beneficiary of Borrower.  Nothing contained in this Agreement shall be construed as a delegation to Lender of Borrower’s duty of performance, including, without limitation, Borrower’s duties under any account or contract with any other Person.

35

9.16           Discharge of Taxes, Borrower’s Obligations, Etc.: Lender, in its sole discretion, shall have the right at any time, and from time to time, with at least ten (10) days prior notice to Borrower if Borrower fail to do so, to: (a) pay for the performance of any of Borrower’s obligations hereunder, and (b) discharge taxes or Liens, at any time levied or placed on Borrower’s Property in violation of this Agreement unless Borrower is in good faith with due diligence by appropriate proceedings contesting such taxes or Liens and maintaining proper reserves therefor in accordance with GAAP.  Expenses and advances shall be added to the Revolving Credit Loans, and bear interest at the rate applicable to the Revolving Credit Loans, until reimbursed to Lender.  Such payments and advances made by Lender shall not be construed as a waiver by Lender of a Default or Event of Default under this Agreement.

9.17           Withholding and Other Tax Liabilities: Lender shall have the right to refuse to make any Loan from time to time unless Borrower shall, at Lender’s request, have given to Lender evidence, reasonably satisfactory to Lender, that Borrower has properly deposited or paid, as required by law, all withholding taxes and all federal, state, city, county or other taxes due up to and including the date of the requested Loan.  Copies of deposit slips showing payment shall constitute satisfactory evidence for such purpose.  In the event that any Lien, assessment or tax liability against Borrower shall arise in favor of any taxing authority, whether or not notice thereof shall be filed or recorded as may be required by law, Lender shall have the right (but shall not be obligated, nor shall Lender hereby assume the duty) to pay any such Lien, assessment or tax liability by virtue of which such charge shall have arisen; provided, however, that Lender shall not pay any such tax, assessment or Lien if the amount, applicability or validity thereof is being contested in good faith and by appropriate proceedings by Borrower.  In order to pay any such Lien, assessment or tax liability, Lender shall not be obliged to wait until such lien, assessment or tax liability is filed before taking such action as hereinabove set forth.  Any sum or sums which Lender shall have paid for the discharge of any such Lien shall be added to the Revolving Credit and shall be paid by Borrower to Lender with interest thereon at the rate applicable to the Revolving Credit, upon demand, and Lender shall be subrogated to all rights of such taxing authority against Borrower.

9.18           Consent to Jurisdiction: Borrower and Lender each hereby irrevocably consent to the non-exclusive jurisdiction of the Courts of the State of New York or the United States District Court for the Southern District of New York in any and all actions and proceedings whether arising hereunder or under any other agreement or undertaking.  Borrower waives any objection which Borrower may have based upon lack of personal jurisdiction, improper venue or forum non conveniens.  Borrower irrevocably agrees to service of process by certified mail, return receipt requested to the address of the appropriate party set forth herein.

9.19           Waiver of Jury Trial: BORROWER AND LENDER EACH HEREBY WAIVE ANY AND ALL RIGHTS IT MAY HAVE TO A JURY TRIAL IN CONNECTION WITH ANY LITIGATION, PROCEEDING OR COUNTERCLAIM ARISING WITH RESPECT TO RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO OR UNDER THE LOAN DOCUMENTS OR WITH RESPECT TO ANY CLAIMS ARISING OUT OF ANY DISCUSSIONS, NEGOTIATIONS OR COMMUNICATIONS INVOLVING OR RELATED TO ANY PROPOSED RENEWAL, EXTENSION, AMENDMENT, MODIFICATION, RESTRUCTURE, FORBEARANCE, WORKOUT, OR ENFORCEMENT OF THE TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS.

36

9.20           Consequential Damages: Neither Lender nor agent or attorney of Lender, shall be liable for any consequential damages arising from any breach of contract, tort or other wrong relating to the establishment, administration or collection of the Obligations.

9.21           Nonliability of Lender: The relationship between Borrower and Lender shall be solely that of borrower and lender.  Lender shall not have any fiduciary responsibility to Borrower.

[SIGNATURES TO FOLLOW ON SEPARATE PAGE]

37

WITNESS the due execution of this Agreement as a document under seal as of the date first written above.

SOUTH JERSEY GAS COMPANY

By:    

Name:

Title:

TORONTO DOMINION (NEW YORK) LLC

By:     

Name:

Title:

(Signature Page to Loan Agreement)

EXHIBIT “A”

FORM OF AUTHORIZATION CERTIFICATE

(Borrower Letterhead)

Date: _______________

Toronto Dominion (New York) LLC                                           TD Securities

77 King Street West                                                                     31 West 52nd Street

Toronto, ON M5K 1A2                                                                 New York, NY 10019

Attention: Ruth Bengo                                                                 Attention:  Director, Credit Management

Dear _____________:

The following individuals are authorized to request loan advances against South Jersey Gas Company (“Borrower”) revolving credit facility and transfer funds from any of Borrower’s accounts per written instructions received via fax:

Authorized Person	Title	Signature
1. ____________________	_____________________	_______________________
2. ____________________	_____________________	_______________________
3. ____________________	_____________________	_______________________

Acknowledged and approved:

By:    

Name:       

Title:        

A-1

EXHIBIT “B”

FORM OF REVOLVING CREDIT LOAN REQUEST

South Jersey Gas Company

1 South Jersey Plaza

Folsom, NJ 08037

Attention: Stephen H. Clark

Telecopy No.:  (609) 561-8225

(“Borrower”)

To: Toronto Dominion (New York) LLC                                   TD Securities

77 King Street West                                                                     31 West 52nd Street

Toronto, ON M5K 1A2                                                                New York, NY 10019

Attention: Ruth Bengo                                                                Attention:  Director, Credit Management

(“Lender”)

Borrower hereby requests a Loan in the amount of $___________ pursuant to Section 2.4 of that certain Loan Agreement by and between Borrower and Lender dated December 15_, 2008 (as amended, restated or otherwise modified from time to time, the “Loan Agreement”).  Borrower hereby requests that such Loan be a (select one) Base Rate Loan or LIBOR Rate Loan.  If a LIBOR Rate Loan, the LIBOR Interest Period for such Loan is ____.  The proposed date of the Loan is _______________.

Borrower hereby represents and warrants to Lender as follows:

a.           All conditions in Section 4.8 have been satisfied as of the date hereof.

b.           The aggregate principal amount of all Loans outstanding under the Revolving Credit are $_____________.

c.           The number of LIBOR Rate Loans after giving effect to this Loan are ____ (cannot exceed 4).

SOUTH JERSEY GAS COMPANY

By:   

Name:          

Date: ____________, 200__                                             Title:          

B-1

EXHIBIT “C”

FORM OF NOTICE OF EXTENSION/CONVERSION

Dated as of: ______________

Toronto Dominion (New York) LLC                                           TD Securities

77 King Street West                                                                     31 West 52nd Street

Toronto, ON M5K 1A2                                                                New York, NY 10019

Attention: Ruth Bengo                                                                Attention:  Director, Credit Management

Ladies and Gentlemen:

This irrevocable Notice of Conversion/Continuation (the “Notice”) is delivered to you under Section 2.5 of the Loan Agreement dated as of December 15, 2008 (as amended, restated or otherwise modified from time to time, the “Loan Agreement”), by and among South Jersey Gas Company (“Borrower”) and Toronto Dominion (New York) LLC, as lender (“Lender”).

1.           This Notice is submitted for the purpose of:

(Check one and complete applicable information in accordance with the Loan Agreement.)

o           Converting all or a portion of a Base Rate Loan into a LIBOR Rate Loan

(a) The aggregate outstanding principal balance of such Loan is $__________.

(b) The principal amount of such Loan to be converted is $___________.

(c) The requested effective date of the conversion of such Loan is _________.

(d) The requested LIBOR Interest Period applicable to the converted Loan is ______.

o Converting a portion of LIBOR Rate Loan into a Base Rate Loan

(a) The aggregate outstanding principal balance of such Loan is $__________.

(b) The last day of the current LIBOR Interest Period for such Loan is ___________.

(c) The principal amount of such Loan to be converted is $____________.

(d) The requested effective date of the conversion of such Loan is _________.

C-1

o  Continuing all or a portion of a LIBOR Rate Loan as a LIBOR Rate Loan

(a) The aggregate outstanding principal balance of such LIBOR Rate Loan is $__________.

(b) The last day of the current LIBOR Interest Period for such Loan is ____________.

(c) The principal amount of such LIBOR Rate Loan to be continued is $_____________.

(d) The requested effective date of the continuation of such LIBOR Rate Loan is ________.

(e) The requested LIBOR Interest Period applicable to the continued LIBOR Rate Loan is ______.

2.           All of the conditions applicable to the conversion or continuation of the Loan requested herein as set forth in the Loan Agreement have been satisfied or waived as of the date hereof and will remain satisfied or waived to the date of such Loan.

3.           No Default or Event of Default Exists

4.           Capitalized terms used herein and not defined herein shall have the meanings assigned thereto in the Loan Agreement.

IN WITNESS WHEREOF, the undersigned, on behalf of Borrower, has executed this Notice of Conversion/Continuation this ____ day of __________, 200__.

SOUTH JERSEY GAS COMPANY

By:    

Name:        

Title:        

C-2

EXHIBIT “D”

QUARTERLY COMPLIANCE CERTIFICATE

_____________, 200_

Toronto Dominion (New York) LLC                                          TD Securities

77 King Street West                                                                     31 West 52nd Street

Toronto, ON M5K 1A2                                                                New York, NY 10019

Attention: Ruth Bengo                                                                Attention:  Director, Credit Management

The undersigned Authorized Officer of South Jersey Gas Company (“Borrower”), gives this certificate to Toronto Dominion (New York) LLC (“Lender”), in accordance with the requirements of Section 6.13 of that certain Loan Agreement dated December 15, 2008, by and between Borrower and Lender (“Loan Agreement”).  Capitalized terms used in this Certificate, unless otherwise defined herein, shall have the meanings ascribed to them in the Loan Agreement.

1.           Based upon my review of the consolidated balance sheets and statements of income of Borrower for the fiscal period ending __________________, 200_, copies of which are attached hereto, I hereby certify that:

(a) The ratio of Indebtedness to Consolidated Total Capitalization of Borrower and its Consolidated Subsidiaries is _________________; and

(b) The Total Common Equity of Borrower is ___________________.

Attached as Schedule “A” are the details underlying such financial covenant calculations.

2.           No Default exists on the date hereof, other than: ____________________ [if none, so state]; and

3.           No Event of Default exists on the date hereof, other than: __________________ [if none, so state].

4.           Borrower is currently in compliance with all of its obligations under the Loan Agreement and all documents related thereto.

Very truly yours,

By:     

Name:      

Title:      

D-1

EX-12

													Exhibit 12
SOUTH JERSEY INDUSTRIES, INC. Calculation of Ratio of Earnings from Continuing Operations to Fixed Charges (Before Income Taxes) (IN THOUSANDS)
		Fiscal Year Ended December 31,
		2008		2007			2006			2005			2004
Net Income*	$	77,178		$	62,659		$	72,250		$	39,770		$	43,173
Income Taxes		51,948			43,056			49,683			27,619			29,218
Fixed Charges**		25,828			27,719			28,640			22,521			21,273
Capitalized Interest		(152	)		(504	)		(969	)		(1,571	)		(700	)
Total Available	$	154,802		$	132,930		$	149,604		$	88,339		$	92,964
Total Available		6.0	x		4.8	x		5.2	x		3.9	x		4.4	x
Fixed Charges
* Income from Continuing Operations.
** Includes interest and preferred dividend requirement of a subsidiary. Preferred dividend requirements
totaled $45,100 in 2005 and $135,200 in 2004 (rentals are not material).

EX-21

			Exhibit 21
SOUTH JERSEY INDUSTRIES, INC.
SUBSIDIARIES OF REGISTRANT
AS OF DECEMBER 31, 2008
The following is a list of the significant subsidiaries of South Jersey Industries, Inc.
	Percentage of
	Voting Securities
	Directly or Indirectly		State of
	Owned by Immediate Parent	Relationship	Incorporation
South Jersey Industries, Inc.	Registrant	Parent	New Jersey
South Jersey Gas Company	100	(1)	New Jersey
Marina Energy LLC	100	(5)	New Jersey
South Jersey Energy Company	100	(5)	New Jersey
South Jersey Resources Group, LLC	100	(5)	Delaware
South Jersey Energy Service Plus, LLC	100	(5)	New Jersey
SJ EnerTrade, Inc.	100	(2)	New Jersey
Energy & Minerals, Inc.	100	(1)	New Jersey
R&T Group, Inc.	100	(1)	New Jersey
South Jersey Fuel, Inc.	100	(3)	New Jersey
South Jersey Energy Solutions, LLC	100	(1)	New Jersey
SJI Services, LLC	100	(1)	New Jersey
AC Landfill Energy, LLC	51	(4)	New Jersey
WC Landfill Energy, LLC	51	(4)	New Jersey
(1)  Subsidiary of South Jersey Industries, Inc.
(2)  Subsidiary of South Jersey Energy Company
(3)  Subsidiary of Energy & Minerals, Inc.
(4)  Subsidiary of Marina Energy LLC
(5)  Subsidiary of South Jersey Energy Solutions, LLC

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 33-27132 and 333-110731 on Form S-8 and Registration Statement No. 333-128343 on Form S-3 of our reports dated March 2, 2009, relating to the consolidated financial statements and financial statement schedules of South Jersey Industries, Inc. and subsidiaries (the “Company”), (which report expressed an unqualified opinion and included an explanatory paragraph as to changes in accounting principles related to the adoption of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109, and FASB Statement No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)), and the effectiveness of the Company’s, internal control over financial reporting, appearing in this Annual Report on Form 10-K of the Company for the year ended December 31, 2008.

/s/ DELOITTE & TOUCHE LLP

Philadelphia, Pennsylvania

March 2, 2009

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Edward J. Graham, certify that:

1.  I have reviewed this report on Form 10-K for the period ended December 31, 2008, of South Jersey Industries, Inc.;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15 d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5.  The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	South Jersey Industries, Inc.
Date:  March 2, 2009	By:	/s/ Edward J. Graham
		Edward J. Graham
		President & Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, David A. Kindlick, certify that:

1.  I have reviewed this report on Form 10-K for the period ended December 31, 2008, of South Jersey Industries, Inc.;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15 d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5.  The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	South Jersey Industries, Inc.
Date:  March 2, 2009	By:	/s/ David A. Kindlick
		David A. Kindlick
		Vice President & Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF

THE SARBANES-OXLEY ACT OF 2002

In connection with the filing of the Annual Report on Form 10-K of South Jersey Industries, Inc. (the “Company”) for the period ended December 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Edward J. Graham, Chief Executive Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1)            The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and

(2)            The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	South Jersey Industries, Inc.
Date:  March 2, 2009	By:	/s/ Edward J. Graham
		Edward J. Graham
		Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF

THE SARBANES-OXLEY ACT OF 2002

In connection with the filing of the Annual Report on Form 10-K of South Jersey Industries, Inc. (the “Company”) for the period ended December 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David A. Kindlick, Chief Financial Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1)            The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and

(2)            The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	South Jersey Industries, Inc.
Date:  March 2, 2009	By:	/s/ David A. Kindlick
		David A. Kindlick
		Chief Financial Officer