REGULATORY ASSETS AND REGULATORY LIABILITIES

9 Months Ended

Sep. 30, 2020

Regulatory Assets and Liabilities Disclosure [Abstract]

REGULATORY ASSETS AND REGULATORY LIABILITIES

REGULATORY ASSETS AND REGULATORY LIABILITIES:

Except as described below, there have been no significant changes to the nature or balances of the Utilities' regulatory assets and liabilities since December 31, 2019, 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, 2019.

The Utilities' Regulatory Assets as of September 30, 2020 and December 31, 2019 consisted of the following items (in thousands):

	September 30, 2020
	SJG		ETG		ELK		Total SJI
Environmental Remediation Costs:
Expended - Net	$	160,828	$	10,267	$	—	$	171,095
Liability for Future Expenditures	102,889		93,111		—		196,000
Insurance Recovery Receivables	—		(13,615)		—		(13,615)
Deferred ARO Costs	40,858		23,591		—		64,449
Deferred Pension Costs - Unrecognized Prior Service Cost	—		34,940		—		34,940
Deferred Pension and Other Postretirement Benefit Costs	72,010		1,825		—		73,835
Deferred Gas Costs - Net	19,222		—		—		19,222
CIP Receivable	16,242		—		—		16,242
SBC Receivable	2,665		—		—		2,665
Deferred Interest Rate Contracts	10,872		—		—		10,872
EET	16,810		—		—		16,810
Pipeline Supplier Service Charges	457		—		—		457
Pipeline Integrity Cost	5,837		—		—		5,837
AFUDC - Equity Related Deferrals	11,491		—		—		11,491
WNC	—		5,535		—		5,535
Other Regulatory Assets	25,889		18,000		—		43,889
Total Regulatory Assets	$	486,070	$	173,654	$	—	$	659,724

	December 31, 2019
	SJG		ETG		ELK		Total SJI
Environmental Remediation Costs:
Expended - Net	$	156,279	$	16,955	$	—	$	173,234
Liability for Future Expenditures	131,262		101,083		—		232,345
Insurance Recovery Receivables	—		(20,423)		—		(20,423)
Deferred ARO Costs	36,515		18,108		—		54,623
Deferred Pension Costs - Unrecognized Prior Service Cost	—		37,378		—		37,378
Deferred Pension and Other Postretirement Benefit Costs	72,010		1,825		—		73,835
Deferred Gas Costs - Net	49,469		5,301		293		55,063
SBC Receivable	1,478		—		—		1,478
Deferred Interest Rate Contracts	7,856		—		—		7,856
EET	12,877		—		—		12,877
Pipeline Supplier Service Charges	525		—		—		525
Pipeline Integrity Cost	6,516		—		—		6,516
AFUDC - Equity Related Deferrals	10,712		—		—		10,712
WNC	—		—		231		231
Other Regulatory Assets	10,678		9,004		—		19,682
Total Regulatory Assets	$	496,177	$	169,231	$	524	$	665,932

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, SBC 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 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 five former manufactured gas plant sites in New Jersey. "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 ASC 980, as the BPU allows SJG and ETG to recover such expenditures through the RAC. "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. Environmental remediation costs at ETG are recoverable from customers through the RAC approved by the BPU. "Insurance Recovery Receivables" represents the balance of an insurance settlement executed in the fourth quarter of 2019 with a third party. This settlement, which is expected to be received in installments through the end of 2021, will be returned to ETG's customers through the RAC. Of the original total of $20.4 million, $6.8 million was received by ETG in 2020.

DEFERRED GAS COSTS - NET - Over/under collections of gas costs are monitored through SJG's BGSS clause. Net under-collected gas costs are classified as a regulatory asset and net over-collected 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 (see Note 12). SJG's balance as of both September 30, 2020 and December 31, 2019 also includes $22.9 million of costs related to a previous pricing dispute on a long-term gas supply contract. We believe that the amount paid by SJG to the third party supplier to settle the pricing dispute reflects a gas cost that ultimately will be recovered from SJG's customers through adjusted rates through the BGSS clause and the matter is currently pending review by the BPU. The BGSS regulatory assets of SJI and SJG decreased from December 31, 2019 to September 30, 2020, primarily due to recoveries from customers exceeding the actual gas commodity costs, changes in valuations of hedged natural gas positions from prior periods and refunds from a third party gas supplier (see Note 1).

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 from the prior year due to the revisions to the settlement timing, retirement costs and changes to inflation and discount rates used to measure the expected retirement costs. Corresponding changes are made to the ARO liability, thus having no impact on earnings.

CIP RECEIVABLE - The CIP tracking mechanism at SJG adjusts earnings when actual usage per customer experienced during the period varies from an established baseline usage per customer. Actual usage per customer was less than the established baseline during the first nine months of 2020, resulting in a regulatory asset at September 30, 2020 as compared to a regulatory liability at December 31, 2019. This is primarily the result of warmer than normal weather experienced in the region during the winter months.

WNC - The tariffs for ETG include a weather normalization clause that reduces customer bills when weather is colder than normal and increases customer bills when weather is warmer than normal. The overall change in ETG's weather normalization from a regulatory liability at December 31, 2019 to a regulatory asset at June 30, 2020 was due to timing of collections from customers and warmer than normal weather during the winter months.

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 Other Regulatory Assets 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, 2019. The increase in Other Regulatory Assets for SJG is primarily due to a $10.1 million reclassification of costs from Utility Plant to Regulatory Assets on the condensed consolidated balance sheet related to a previous project to re-power the former BL England facility with natural gas. RC Cape May Holdings, LLC has communicated to SJG that it no longer intends to proceed with a project to re-power the former BL England facility with natural gas. As of March 2020, SJG had determined that the project under construction will be abandoned. SJG requested that the project costs spent to date be recovered as a regulatory asset within its rate case petition, which was approved by the BPU during the third quarter of 2020 (see Note 7).

On July 2, 2020, the BPU issued an Order authorizing New Jersey's regulated utilities to create a COVID-19-related regulatory asset by deferring on their books and records the prudently incurred incremental costs related to COVID-19 beginning on March 9, 2020 and continuing through September 30, 2021, or 60 days after the termination of the public health emergency, whichever is later. The Company will be required to file quarterly reports with the BPU, along with a petition of recovery of such incremental costs with the BPU by December 31, 2021 or within 60 days of the close of the tracking period, whichever is later. As of September 30, 2020, ETG and SJG deferred $9.3 million and $3.8 million, respectively, of incremental costs principally related to expected credit losses from uncollectibles as a result of the COVID-19 pandemic, specifically related to changes in payment patterns observed to date and consideration of macroeconomic factors. We have deemed these costs to be probable of recovery.

The Utilities Regulatory Liabilities as of September 30, 2020 and December 31, 2019 consisted of the following items (in thousands):

	September 30, 2020
	SJG		ETG		ELK		Total SJI
Excess Plant Removal Costs	$	12,849	$	37,648	$	—	$	50,497
Excess Deferred Taxes	240,453		114,839		—		355,292
Deferred Revenues - Net	—		15,106		—		15,106
Amounts to be Refunded to Customers	—		7,455		—		7,455
Other Regulatory Liabilities	—		589		—		589
Total Regulatory Liabilities	$	253,302	$	175,637	$	—	$	428,939

	December 31, 2019
	SJG		ETG		ELK		Total SJI
Excess Plant Removal Costs	$	16,333	$	36,343	$	—	$	52,676
Excess Deferred Taxes	251,355		117,695		—		369,050
Deferred Revenues - Net	—		52		—		52
CIP Payable	6,794		—		—		6,794
WNC	—		2,684		—		2,684
Amounts to be Refunded to Customers	—		10,625		—		10,625
Other Regulatory Liabilities	—		1,037		—		1,037
Total Regulatory Liabilities	$	274,482	$	168,436	$	—	$	442,918

EXCESS DEFERRED TAXES - This liability is recognized as a result of Tax Reform enacted into law on December 22, 2017. The decrease in this liability from December 31, 2019 to September 30, 2020 is related to excess tax amounts returned to customers through customer billings. The Unprotected amount of excess deferred taxes will be returned to customers over a five year period. As part of the BPU approved settlement of its 2020 base rate case, SJG will amortize the Protected Excess ADIT liability and the Excess ADIT Asset NOL (see Note 7).

DEFERRED REVENUES - NET - Over/under collections of gas costs are monitored through SJG's and ETG's bill credit. Net under-collected gas costs are classified as a regulatory asset and net over-collected 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 regulatory liability as of September 30, 2020 is a result of over-collection and refunds from a third party gas supplier (see Note 1).