REGULATORY ASSETS & REGULATORY LIABILITIES:

There have been no significant changes to the nature of the Company’s regulatory assets and liabilities since December 31, 2012 which are described in Note 11 to the Consolidated Financial Statements in Item 8 of SJI’s Annual Report on Form 10-K as of December 31, 2012.

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



	June 30, 2013		December 31, 2012
Environmental Remediation Costs:
Expended - Net	$	30,387	$	37,892
Liability for Future Expenditures	110,148		107,410
Deferred Asset Retirement Obligation Costs	30,594		30,199
Deferred Pension and Other Postretirement Benefit Costs	95,897		95,897
Conservation Incentive Program Receivable	11,824		31,686
Societal Benefit Costs Receivable	12,502		12,801
Premium for Early Retirement of Debt	997		1,075
Deferred Interest Rate Contracts	5,164		7,761
Energy Efficiency Tracker	11,949		12,306
Pipeline Supplier Service Charges	7,938		8,771
Other Regulatory Assets	9,006		6,858

Total Regulatory Assets	$	326,406	$	352,656

CONSERVATION INCENTIVE PROGRAM (CIP) RECEIVABLE – The decrease in this receivable is primarily the result of colder weather experienced in the region during the 2012-2013 winter season compared with the prior winter season. The CIP tracking mechanism adjusts earnings when actual usage per customer experienced during the period varies from an established baseline usage per customer.

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



	June 30, 2013		December 31, 2012
Excess Plant Removal Costs	$	42,673	$	45,593
Deferred Revenues - Net	14,693		10,924
Other Regulatory Liabilities	3,249		—

Total Regulatory Liabilities	$	60,615	$	56,517

DEFERRED REVENUES – NET – Over/under collections of gas costs are monitored through SJG’s 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 natural gas purchases are also included in the BGSS, subject to BPU approval. The BGSS increased from a $10.9 million regulatory liability at December 31, 2012 to a $14.7 million regulatory liability at June 30, 2013, primarily due to gas costs recovered from customers exceeding the actual cost of the commodity. SJG typically overcollects during the winter season when throughput is high and undercollects during the summer season when throughput is low.