XML 104 R19.htm IDEA: XBRL DOCUMENT v3.19.3
DERIVATIVE INSTRUMENTS
 9 Months Ended
Sep. 30, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVE INSTRUMENTS DERIVATIVE INSTRUMENTS:
Certain SJI subsidiaries, including SJG, 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. SJI and SJG use 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 September 30, 2019, SJI and SJG had outstanding derivative contracts as follows: 
SJI ConsolidatedSJG
Derivative contracts intended to limit exposure to market risk to:
    Expected future purchases of natural gas (in MMdts)112.8  42.1  
    Expected future sales of natural gas (in MMdts)116.8  29.6  
    Expected future purchases of electricity (in MMmWh)0.8  —  
    Expected future sales of electricity (in MMmWh)0.7  —  
Basis and Index related net purchase (sale) contracts (in MMdts)32.1  0.1  

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 of SJI and SJG. For SJE and SJRG contracts, the net unrealized pre-tax gains (losses) for these energy-related commodity contracts are included with realized gains (losses) in Operating Revenues – Nonutility on the condensed consolidated statements of income for SJI. These unrealized pre-tax (losses) gains were $(6.2) million and $(11.2) million for the three months ended September 30, 2019 and 2018, respectively, and $(18.4) million and $6.0 million for the nine months ended September 30, 2019 and 2018, respectively. For ETG's and SJG's contracts, the costs or benefits are recoverable through the BGSS clause, subject to BPU approval. As a result, the net unrealized pre-tax gains and losses for SJG and ETG energy-related commodity contracts are included with realized gains and losses in Regulatory Assets or Regulatory Liabilities on the condensed consolidated balance sheets of SJI (ETG and SJG) and SJG. As of September 30, 2019 and December 31, 2018, SJI had $0.6 million and $4.1 million, respectively, and SJG had $5.9 million and $3.3 million, respectively, of unrealized gains included in its BGSS related to energy-related commodity contracts.

SJI, including SJG, has also entered into interest rate derivatives to mitigate exposure to increasing interest rates and the impact of those rates on cash flows of variable-rate debt. These interest rate derivatives are measured at fair value and recorded in Derivatives - Other on the condensed consolidated balance sheets. Any unrealized gains and losses on these derivatives are being recorded in earnings over the remaining life of the derivative.

For SJI and SJG interest rate derivatives, the fair value represents the amount SJI and SJG would have to pay the counterparty to terminate these contracts as of those dates.

As of September 30, 2019, SJI’s active interest rate swaps were as follows:

Notional AmountFixed Interest RateStart DateMaturityObligor
$20,000,000  3.049%  3/15/20173/15/2027SJI
$20,000,000  3.049%  3/15/20173/15/2027SJI
$10,000,000  3.049%  3/15/20173/15/2027SJI
$12,500,000  3.530%  12/1/20062/1/2036SJG
$12,500,000  3.430%  12/1/20062/1/2036SJG

The unrealized gains and losses on interest rate derivatives that are not designated as cash flow hedges are included in Interest Charges in the condensed consolidated statements of income. However, for selected interest rate derivatives at SJG, management believes that, subject to BPU approval, the market value upon termination can be recovered in rates and, therefore, these unrealized losses have been included in Other Regulatory Assets in the condensed consolidated balance sheets.
The fair values of all derivative instruments, as reflected in the condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018, are as follows (in thousands):

SJI (includes SJG and all other consolidated subsidiaries):
Derivatives not designated as hedging instruments under GAAPSeptember 30, 2019December 31, 2018
 AssetsLiabilitiesAssetsLiabilities
Energy-related commodity contracts:    
Derivatives - Energy Related - Current$46,708  $40,653  $54,021  $24,134  
Derivatives - Energy Related - Non-Current9,606  7,812  7,169  7,256  
Interest rate contracts:    
Derivatives - Other - Current—  1,352  —  588  
Derivatives - Other - Noncurrent—  13,621  —  7,285  
Total derivatives not designated as hedging instruments under GAAP$56,314  $63,438  $61,190  $39,263  
Total Derivatives$56,314  $63,438  $61,190  $39,263  


SJG:
Derivatives not designated as hedging instruments under GAAPSeptember 30, 2019December 31, 2018
AssetsLiabilitiesAssetsLiabilities
Energy-related commodity contracts:    
Derivatives – Energy Related – Current$13,878  $7,742  $5,464  $2,146  
Derivatives – Energy Related – Non-Current15  244  15  43  
Interest rate contracts:  
Derivatives – Other - Current—  551  —  343  
Derivatives – Other - Noncurrent—  8,445  —  5,524  
Total derivatives not designated as hedging instruments under GAAP$13,893  $16,982  $5,479  $8,056  
Total Derivatives$13,893  $16,982  $5,479  $8,056  

SJI and SJG enter into derivative contracts with counterparties, some of which are subject to master netting arrangements, which allow net settlements under certain conditions. These derivatives are presented at gross fair values on the condensed consolidated balance sheets.
As of September 30, 2019 and December 31, 2018, information related to these offsetting arrangements were as follows (in thousands):
As of September 30, 2019
DescriptionGross amounts of recognized assets/liabilitiesGross amount offset in the balance sheetNet amounts of assets/liabilities in balance sheetGross amounts not offset in the balance sheetNet amount
Financial InstrumentsCash Collateral Posted
SJI (includes SJG and all other consolidated subsidiaries):
Derivatives - Energy Related Assets$56,314  $—  $56,314  $(35,430) (A) $—  $20,884  
Derivatives - Energy Related Liabilities$(48,465) $—  $(48,465) $35,430  (B) $7,814  $(5,221) 
Derivatives - Other$(14,973) $—  $(14,973) $—  $—  $(14,973) 
SJG:
Derivatives - Energy Related Assets$13,893  $—  $13,893  $(4,929) (A) $—  $8,964  
Derivatives - Energy Related Liabilities$(7,986) $—  $(7,986) $4,929  (B) $995  $(2,062) 
Derivatives - Other$(8,996) $—  $(8,996) $—  $—  $(8,996) 

As of December 31, 2018
DescriptionGross amounts of recognized assets/liabilitiesGross amount offset in the balance sheetNet amounts of assets/liabilities in balance sheetGross amounts not offset in the balance sheetNet amount
Financial InstrumentsCash Collateral Posted
SJI (includes SJG and all other consolidated subsidiaries):
Derivatives - Energy Related Assets$61,190  $—  $61,190  $(21,045) (A) $(7,252) $32,893  
Derivatives - Energy Related Liabilities$(31,390) $—  $(31,390) $21,045  (B) $—  $(10,345) 
Derivatives - Other$(7,873) $—  $(7,873) $—  $—  $(7,873) 
SJG:
Derivatives - Energy Related Assets$5,479  $—  $5,479  $(347) (A) $688  $5,820  
Derivatives - Energy Related Liabilities$(2,189) $—  $(2,189) $347  (B) $—  $(1,842) 
Derivatives - Other$(5,867) $—  $(5,867) $—  $—  $(5,867) 

(A) The balances at September 30, 2019 and December 31, 2018 were related to derivative liabilities which can be net settled against derivative assets.

(B) The balances at September 30, 2019 and December 31, 2018 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 and nine months ended September 30, 2019 and 2018 are as follows (in thousands):
 Three Months Ended
September 30,		Nine Months Ended
September 30,
Derivatives in Cash Flow Hedging Relationships under GAAP2019201820192018
SJI (includes SJG and all other consolidated subsidiaries):
Interest Rate Contracts:  
Losses reclassified from AOCL into income (a)$(12) $(11) $(35) $(35) 
SJG:
Interest Rate Contracts:
Losses reclassified from AOCL into income (a)$(12) $(11) (35) (35) 

(a) Included in Interest Charges

 Three Months Ended
September 30,		Nine Months Ended
September 30,
Derivatives Not Designated as Hedging Instruments under GAAP2019201820192018
SJI (includes SJG and all other consolidated subsidiaries):
(Losses) Gains on energy-related commodity contracts (a)$(6,187) $(11,225) $(18,390) $5,950  
(Losses) Gains on interest rate contracts (b)(1,137) 673  (3,972) 2,921  
Total$(7,324) $(10,552) $(22,362) $8,871  

(a)  Included in Operating Revenues - Nonutility
(b)  Included in Interest Charges

Certain of SJI’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 SJI. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a liability position on September 30, 2019, is approximately $0.2 million. If the credit-risk-related contingent features underlying these agreements were triggered on September 30, 2019, SJI would have been required to settle the instruments immediately or post collateral to its counterparties of approximately $0.1 million after offsetting asset positions with the same counterparties under master netting arrangements.