DERIVATIVE INSTRUMENTS

3 Months Ended

Mar. 31, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS

DERIVATIVE INSTRUMENTS:

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 third parties. These subsidiaries are subject to market risk on expected future purchases and sales due to commodity price fluctuations. The Company uses a variety of derivative instruments to limit this exposure to market risk in accordance with strict corporate guidelines.  These derivative instruments include forward contracts, swap agreements, options contracts and futures contracts. As of March 31, 2016, the Company had outstanding derivative contracts intended to limit the exposure to market risk on 71.9 MMdts (1 MMdts = one million decatherms) of expected future purchases of natural gas, 59.2 MMdts of expected future sales of natural gas, 2.6 MMmwh (1 MMmwh = one million megawatt hours) of expected future purchases of electricity and 2.4 MMmwh of expected future sales of electricity. In addition to these derivative contracts, the Company has basis and index related purchase and sales contracts totaling 169.6 MMdts.  These contracts, which have not been designated as hedging instruments under GAAP, are measured at fair value and recorded in Derivatives - Energy Related Assets or Derivatives - Energy Related Liabilities on the condensed consolidated balance sheets. The net unrealized pre-tax gains and losses for these energy-related commodity contracts are included with realized gains and losses in Operating Revenues – Nonutility.

The Company has also entered into interest rate derivatives to hedge exposure to increasing interest rates and the impact of those rates on cash flows of variable-rate debt. These interest rate derivatives, some of which had been designated as hedging instruments under GAAP, are measured at fair value and recorded in Derivatives - Other on the condensed consolidated balance sheets. Hedge accounting has been discontinued for these derivatives. As a result, unrealized gains and losses on these derivatives, that were previously included in Accumulated Other Comprehensive Loss (AOCL) on the condensed consolidated balance sheets, are being recorded in earnings over the remaining life of the derivative. These derivatives are expected to mature in 2026.

As of March 31, 2016, SJI’s active interest rate swaps were as follows:

Notional Amount		Fixed Interest Rate	Start Date	Maturity	Type	Obligor
$	14,500,000	3.905%	3/17/2006	1/15/2026	Tax-exempt	Marina
$	500,000	3.905%	3/17/2006	1/15/2026	Tax-exempt	Marina
$	330,000	3.905%	3/17/2006	1/15/2026	Tax-exempt	Marina
$	12,500,000	3.530%	12/1/2006	2/1/2036	Tax-exempt	SJG
$	12,500,000	3.430%	12/1/2006	2/1/2036	Tax-exempt	SJG

The fair values of all derivative instruments, as reflected in the condensed consolidated balance sheets as of March 31, 2016 and December 31, 2015, are as follows (in thousands):

Derivatives not designated as hedging instruments under GAAP	March 31, 2016				December 31, 2015
	Assets		Liabilities		Assets		Liabilities
Energy-related commodity contracts:
Derivatives – Energy Related – Current	$	57,815	$	66,370	$	83,093	$	90,708
Derivatives – Energy Related – Non-Current	19,489		10,148		16,238		21,697
Interest rate contracts:
Derivatives - Other	—		13,118		—		10,943
Total derivatives not designated as hedging instruments under GAAP	$	77,304	$	89,636	$	99,331	$	123,348
Total Derivatives	$	77,304	$	89,636	$	99,331	$	123,348

The Company enters into derivative contracts with counterparties, some of which are subject to master netting arrangements, which allow net settlements under certain conditions. The Company presents derivatives at gross fair values on the condensed consolidated balance sheets. As of March 31, 2016 and December 31, 2015, information related to these offsetting arrangements were as follows (in thousands):

As of March 31, 2016
Description	Gross amounts of recognized assets/liabilities			Gross amount offset in the balance sheet		Net amounts of assets/liabilities in balance sheet			Gross amounts not offset in the balance sheet						Net amount
									Financial Instruments				Cash Collateral Posted
Derivatives - Energy Related Assets	$	77,304		$	—	$	77,304		$	(15,597	)	(A)	$	—	$	61,707
Derivatives - Energy Related Liabilities	$	(76,518	)	$	—	$	(76,518	)	$	15,597		(B)	$	22,020	$	(38,901	)
Derivatives - Other	$	(13,118	)	$	—	$	(13,118	)	$	—			$	—	$	(13,118	)

As of December 31, 2015
Description	Gross amounts of recognized assets/liabilities			Gross amount offset in the balance sheet		Net amounts of assets/liabilities in balance sheet			Gross amounts not offset in the balance sheet						Net amount
									Financial Instruments				Cash Collateral Posted
Derivatives - Energy Related Assets	$	99,331		$	—	$	99,331		$	(35,491	)	(A)	$	—	$	63,840
Derivatives - Energy Related Liabilities	$	(112,405	)	$	—	$	(112,405	)	$	35,491		(B)	$	23,045	$	(53,869	)
Derivatives - Other	$	(10,943	)	$	—	$	(10,943	)	$	—			$	—	$	(10,943	)

(A) The balances at March 31, 2016 and December 31, 2015 were related to derivative liabilities which can be net settled against derivative assets.

(B) The balances at March 31, 2016 and December 31, 2015 were related to derivative assets which can be net settled against derivative liabilities.

The effect of derivative instruments on the condensed consolidated statements of income for the three months ended March 31, 2016 and 2015 are as follows (in thousands):

	Three Months Ended March 31,
Derivatives in Cash Flow Hedging Relationships under GAAP	2016			2015
Interest Rate Contracts:
Losses recognized in AOCL on effective portion	$	—		$	—
Losses reclassified from AOCL into income (a)	$	(86	)	$	(23	)
Gains (losses) recognized in income on ineffective portion (a)	$	—		$	—

(a) Included in Interest Charges

	Three Months Ended March 31,
Derivatives Not Designated as Hedging Instruments under GAAP	2016			2015
Gains (losses) on energy-related commodity contracts (a)	$	18,655		$	(6,707	)
Losses on interest rate contracts (b)	(427		)	(298		)
Total	$	18,228		$	(7,005	)

(a)  Included in Operating Revenues - Nonutility

(b)  Included in Interest Charges

Net realized loss of $2.8 million and $2.6 million associated with SJG's energy-related financial commodity contracts for the three months ended March 31, 2016 and 2015, respectively, are not included in the above table. These contracts are part of SJG’s regulated risk management activities that serve to mitigate BGSS costs passed on to its customers. As these transactions are entered into pursuant to, and recoverable through, regulatory riders, any changes in the value of SJG’s energy-related financial commodity contracts are deferred in Regulatory Assets or Liabilities, as applicable, and there is no impact to earnings.

Certain of the Company’s derivative instruments contain provisions that require immediate payment or demand immediate and ongoing collateralization on derivative instruments in net liability positions in the event of a material adverse change in the credit standing of the Company. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a liability position on March 31, 2016, is $33.6 million.  If the credit-risk-related contingent features underlying these agreements were triggered on March 31, 2016, the Company would have been required to settle the instruments immediately or post collateral to its counterparties of approximately $31.5 million after offsetting asset positions with the same counterparties under master netting arrangements.