REGULATORY ASSETS & REGULATORY LIABILITIES:

There have been no significant changes to the nature of the Company’s regulatory assets and liabilities since December 31, 2014 which are described in Note 11 to the Consolidated Financial Statements in Item 8 of SJI’s Annual Report on Form 10-K for the year ended December 31, 2014.

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



	March 31, 2015		December 31, 2014
Environmental Remediation Costs:
Expended - Net	$	28,057	$	29,540
Liability for Future Expenditures	124,761		124,308
Deferred Asset Retirement Obligation Costs	31,604		31,584
Deferred Pension and Other Postretirement Benefit Costs	99,040		99,040
Deferred Gas Costs - Net	20,291		32,202
Societal Benefit Costs Receivable	—		385
Deferred Interest Rate Contracts	8,330		7,325
Energy Efficiency Tracker	1,782		11,247
Pipeline Supplier Service Charges	5,025		5,441
Pipeline Integrity Cost	3,439		3,431
AFUDC - Equity Related Deferrals	10,987		10,781
Other Regulatory Assets	1,693		1,876

Total Regulatory Assets	$	335,009	$	357,160

DEFERRED GAS COSTS - NET - Over/under collections of gas costs are monitored through SJG's Basic Gas Supply Service (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 reduction in deferred gas costs from December 31, 2014 was due to gas costs recovered from customers exceeding the actual cost of the commodity incurred during the first three months of 2015 as a result of more normal gas prices. SJG's BGSS mechanism is designed to over-collect gas costs during the winter season when usage is highest.

ENERGY EFFICIENCY TRACKER - This regulatory asset primarily represents energy efficiency measures installed in customer homes and businesses. The decrease from December 31, 2014 is due to higher recoveries in the first three months of 2015 due to high level of recoveries resulting from extremely cold weather.

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



	March 31, 2015		December 31, 2014
Excess Plant Removal Costs	$	35,762	$	35,940
Conservation Incentive Program Payable	21,825		4,700
Societal Benefit Costs	8,939		—
Other Regulatory Liabilities	—		1,259

Total Regulatory Liabilities	$	66,526	$	41,899

EXCESS PLANT REMOVAL COSTS - Represents amounts accrued in excess of actual utility plant removal costs incurred to date. The decrease in the balance from year end is due to an amortization as a credit to depreciation expense as required as part of SJG's September 2014 base rate increase.

CONSERVATION INCENTIVE PROGRAM (CIP) PAYABLE – The CIP tracking mechanism adjusts earnings when actual usage per customer experienced during the period varies from an established baseline usage per customer. Actual usage per customer was greater than the established baseline during 2014 and more notably during the first three months of 2015 resulting in a payable. This is primarily the result of extremely cold weather experienced in the region.

SOCIETAL BENEFIT COSTS (SBC) - This regulatory liability primarily represents the excess recoveries over the expenses incurred under the New Jersey Clean Energy Program which is a mechanism designed to recover costs associated with energy efficiency and renewable energy programs. The change from a $0.4 million regulatory asset to a $8.9 million regulatory liability is due to current SBC rates which are producing revenue greater than SBC expenses. In July 2014, SJG made its annual 2014-2015 SBC filing requesting a decrease in SBC revenues, in part, to avoid this liability. The petition is currently pending.