REGULATORY ASSETS AND REGULATORY LIABILITIES

9 Months Ended

Sep. 30, 2019

Regulatory Assets and Liabilities Disclosure [Abstract]

REGULATORY ASSETS AND REGULATORY LIABILITIES

REGULATORY ASSETS AND REGULATORY LIABILITIES:

There have been no significant changes to the nature of the Utilities' regulatory assets and liabilities since December 31, 2018, which are described in Note 11 to the Consolidated Financial Statements in Item 8 of SJI’s and SJG's Annual Report on Form 10-K for the year ended December 31, 2018.

The Utilities' Regulatory Assets as of September 30, 2019 consisted of the following items (in thousands):

	September 30, 2019
	SJG		ETG		ELK		Total SJI
Environmental Remediation Costs:
Expended - Net	$	149,402	$	16,809	$	—	$	166,211
Liability for Future Expenditures	144,543		103,332		—		247,875
Deferred ARO Costs	34,941		13,176		143		48,260
Deferred Pension Costs - Unrecognized Prior Service Cost	—		38,183		14		38,197
Deferred Pension and Other Postretirement Benefit Costs	79,466		2,607		30		82,103
Deferred Gas Costs - Net	66,265		12,929		924		80,118
SBC Receivable	1,159		—		—		1,159
Deferred Interest Rate Contracts	8,996		—		—		8,996
Energy Efficiency Tracker	9,322		—		—		9,322
Pipeline Supplier Service Charges	548		—		—		548
Pipeline Integrity Cost	5,923		—		—		5,923
AFUDC - Equity Related Deferrals	10,397		—		—		10,397
Other Regulatory Assets	10,054		9,817		446		20,317
Total Regulatory Assets	$	521,016	$	196,853	$	1,557	$	719,426

The Utilities' Regulatory Assets as of December 31, 2018 consisted of the following items (in thousands):

	December 31, 2018
	SJG		ETG		ELK		Total SJI
Environmental Remediation Costs:
Expended - Net	$	136,227	$	10,875	$	—	$	147,102
Liability for Future Expenditures	148,071		104,594		—		252,665
Deferred ARO Costs	31,096		—		—		31,096
Deferred Pension Costs - Unrecognized Prior Service Cost	—		40,612		14		40,626
Deferred Pension and Other Postretirement Benefit Costs	80,121		2,607		30		82,758
Deferred Gas Costs - Net	57,889		—		289		58,178
SBC Receivable	2,173		—		—		2,173
Deferred Interest Rate Contracts	5,867		—		—		5,867
Energy Efficiency Tracker	2,319		—		—		2,319
Pipeline Supplier Service Charges	617		—		—		617
Pipeline Integrity Cost	5,140		—		—		5,140
AFUDC - Equity Related Deferrals	13,914		—		—		13,914
Weather Normalization	—		3,210		139		3,349
Other Regulatory Assets	8,931		8,023		211		17,165
Total Regulatory Assets	$	492,365	$	169,921	$	683	$	662,969

Except where noted below, all regulatory assets are or are expected to be recovered through utility rate charges, as detailed in the following discussion. The Utilities are currently permitted to recover interest on Environmental Remediation Costs, Societal Benefit Costs Receivable, EET and Pipeline Integrity Costs, while the other assets are being recovered without a return on investment.

ENVIRONMENTAL REMEDIATION COSTS - SJG and ETG have two regulatory assets associated with environmental costs related to the cleanup of environmental sites. SJG has 12 sites where SJG or its predecessors previously operated gas manufacturing plants, while ETG is subject to environmental remediation liabilities associated with six former manufactured gas plant sites in New Jersey. 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 GAAP, as the BPU allows SJG and ETG 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. SJG and ETG recorded this estimated amount as a regulatory asset with the corresponding current and noncurrent liabilities on the condensed consolidated balance sheets under the captions "Current Liabilities" (SJI and SJG), "Deferred Credits and Other Noncurrent Liabilities" (SJI) and "Regulatory and Other Noncurrent Liabilities" (SJG). The BPU allows SJG to recover the deferred costs over seven year periods after they are incurred. Accrued environmental remediation costs at ETG are recoverable from customers through rate mechanisms approved by the BPU.

DEFERRED GAS COSTS - NET - Over/under collections of gas costs are monitored through SJG's and ETG's BGSS bill credit. 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 regulatory assets of SJI and SJG increased $21.9 million and $8.4 million, respectively, from December 31, 2018 to September 30, 2019, primarily due to gas commodity costs exceeding recoveries from customers and changes in valuations of hedged natural gas positions from prior periods.

DEFERRED ARO COSTS - The Utilities record AROs primarily related to the legal obligation to cut and cap gas distribution pipelines when taking those pipelines out of service. Deferred ARO costs represent the period to period passage of time (accretion) and the revision to cash flows originally estimated to settle the retirement obligation. The Deferred ARO Costs regulatory asset increased $17.2 million from December 31, 2018 to September 30, 2019, due to revisions to the settlement timing, retirement costs, and changes to inflation and discount rates used to measure the expected retirement costs combined with the addition of ETG's ARO liability recorded through purchase accounting (see Note 17). Corresponding decreases are made to the ARO liability, thus having no impact on earnings.

EET - The EET Regulatory Asset increased $7.0 million from December 31, 2018 to September 30, 2019 due to excess program expenditures incurred net of recoveries.

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. Included in this number for SJG is the impact of the ERIP on SJG employees, see Note 1 to the Consolidated Financial Statements in Item 8 of SJI’s and SJG's Annual Report on Form 10-K for the year ended December 31, 2018.

The Utilities Regulatory Liabilities as of September 30, 2019 consisted of the following items (in thousands):

	September 30, 2019
	SJG		ETG		ELK		Total SJI
Excess Plant Removal Costs	$	17,088	$	34,761	$	1,419	$	53,268
Excess Deferred Taxes	252,499		118,459		1,233		372,191
Deferred Revenues - Net	—		13		—		13
CIP Payable	2,944		—		—		2,944
Weather Normalization	—		1,646		—		1,646
Amounts to be Refunded to Customers	—		11,687		—		11,687
Other Regulatory Liabilities	—		415		—		415
Total Regulatory Liabilities	$	272,531	$	166,981	$	2,652	$	442,164

The Utilities Regulatory Liabilities as of December 31, 2018 consisted of the following items (in thousands):

	December 31, 2018
	SJG		ETG		ELK		Total SJI
Excess Plant Removal Costs	$	20,805	$	47,909	$	1,393	$	70,107
Excess Deferred Taxes	259,863		118,757		1,231		379,851
Deferred Gas Costs - Net	—		3,188		—		3,188
CIP Payable	5,871		—		—		5,871
Amounts to be Refunded to Customers	—		17,039		—		17,039
Other Regulatory Liabilities	—		2,443		—		2,443
Total Regulatory Liabilities	$	286,539	$	189,336	$	2,624	$	478,499

EXCESS DEFERRED TAXES - This liability is recognized as a result of Tax Reform (see Notes 1 and 4 to the Consolidated Financial Statements in Item 8 of SJI’s and SJG's Annual Report on Form 10-K for the year ended December 31, 2018). The decrease in this liability from December 31, 2018 to September 30, 2019 is related to excess tax amounts returned to customers through customer billings. The Unprotected amount of excess deferred taxes of $26.1 million will be returned to customers over a five year period. The remaining balance will be deferred until SJG's next base rate case as approved by the BPU.

WEATHER NORMALIZATION - The tariffs for ETG include a weather normalization clause that reduces customer bills when winter weather is colder than normal and increases customer bills when winter weather is warmer than normal. The overall reduction of ETG's weather normalization from a $3.2 million regulatory asset at December 31, 2018 to a $1.6 million regulatory liability at September 30, 2019, was due to timing of collections from customers and colder than normal weather during the first three months of the year.

EXCESS PLANT REMOVAL COSTS - The Utilities accrue and collect for cost of removal of utility property. This regulatory liability represents customer collections in excess of actual expenditures, which will be returned to customers as a reduction to depreciation expense. The Excess Plant Removal Costs Liability decreased from December 31, 2018 primarily related to removal costs incurred by the Utilities.

AMOUNTS TO BE REFUNDED TO CUSTOMERS - See "AMA" section in Note 1.