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):



	2014			2013			2012

Tax at Statutory Rate	$	35,727		$	22,181		$	36,490
Increase (Decrease) Resulting from:
State Income Taxes	1,960			971			5,857
ESOP	(1,232		)	(1,176		)	(1,141		)
Amortization of Investment Tax Credits - Utility	(211		)	(258		)	(287		)
AFUDC	(1,481		)	(916		)	(1,048		)
Investment and Other Tax Credits	(30,661		)	(38,179		)	(26,574		)
Other - Net	347			(1,637		)	(1,818		)
Income Taxes:
Continuing Operations	4,449			(19,014		)	11,479
Discontinued Operations	(312		)	(426		)	(629		)
Net Income Taxes	$	4,137		$	(19,440	)	$	10,850

The provision for Income Taxes is comprised of the following (in thousands):

	2014			2013			2012
Current:
Federal	$	(62	)	$	(273	)	$	(8,761	)
State	3,052			3,066			221
Total Current	2,990			2,793			(8,540		)
Deferred:
Federal	1,707			(19,978		)	11,515
State	(37		)	(1,571		)	8,791
Total Deferred	1,670			(21,549		)	20,306
Investment Tax Credit - Utility	(211		)	(258		)	(287		)
Income Taxes:
Continuing Operations	4,449			(19,014		)	11,479
Discontinued Operations	(312		)	(426		)	(629		)
Net Income Taxes	$	4,137		$	(19,440	)	$	10,850

Investment Tax Credits attributable to SJG are deferred and amortized at the annual rate of 3.0%, which approximates the life of related assets.

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):



	2014			2013
Current:
Net Operating Loss Carryforward	$	(42,839	)	$	(26,800	)
Derivatives / Unrealized Gain	(7,965		)	(8,608		)
Conservation Incentive Program	(2,027		)	4,631
Budget Billing - Customer Accounts	1,138			1,152
Provision for Uncollectibles	(6,296		)	(1,994		)
Other	241			1,010
Current Deferred Tax (Asset) Liability - Net	$	(57,748	)	$	(30,609	)
Noncurrent:
Book versus Tax Basis of Property	$	558,960		$	476,039
Deferred Gas Costs - Net	22,959			1,330
Environmental	12,147			13,017
Deferred Regulatory Costs	6,333			13,665
Deferred State Tax	(21,548		)	(17,949		)
Investment Tax Credit Basis Gross-Up	(77		)	(185		)
Deferred Pension & Other Post Retirement Benefits	39,891			24,218
Pension & Other Post Retirement Benefits	(34,892		)	(17,777		)
Deferred Revenues	(11,647		)	(9,593		)
Derivatives / Unrealized Gain	(4,589		)	2,149
Net Operating Loss Carryforward	(114,335		)	(90,818		)
Investment and Other Tax Credits	(154,805		)	(117,726		)
Equity In Loss Of Affiliated Companies	39,230			37,764
Other	6,893			5,234
Noncurrent Deferred Tax Liability - Net	$	344,520		$	319,368

As of December 31, 2014, SJI has the following federal and state net operating loss carryforwards (in thousands):



	Net Operating Loss Carryforwards
Expire in:	Federal		State
2031	163,880		45,866
2032	43,724		19,356
2033	73,725		40,134
2034	146,123		19,629
	$	427,452	$	124,985

As of December 31, 2014, SJI has the following investment tax credit carryforwards (in thousands):



Expire in:	Investment Tax Credit Carryforward
2030	$	11,628
2031	26,613
2032	32,071
2033	46,179
2034	37,079
	$	153,570

SJI has $1.2 million of federal alternative minimum tax credits which have no expiration date. A valuation allowance is recorded when it is more likely than not that any of SJI's deferred tax assets will not be realized. SJI believes that it will generate sufficient future taxable income to realize the income tax benefits related to SJI's net deferred tax assets.

The total unrecognized tax benefits as of December 31, 2014, 2013, and 2012 were $0.6 million, $0.5 million, and $0.5 million, respectively, which excludes$0.7 million, $0.6 million, and$0.6 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):



	2014		2013		2012
Balance at January 1,	$	547	$	503	$	736
Increase as a result of tax positions taken in prior years	5		44		108
Decrease due to a lapse in the statute of limitations	—		—		(341		)
Settlements	—		—		—
Balance at December 31,	$	552	$	547	$	503

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 2014, 2013 or 2012. There have been no significant changes to the unrecognized tax benefits during 2014, 2013 or 2012 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 relating to the Company's nexus in certain states. Federal and state income tax returns from 2011 forward and state income tax returns from 2008 forward are open and subject to examination.