Accounts Receivable (1) Unbilled Revenue (2)
SJI (including SJG and all other consolidated subsidiaries):
Beginning balance as of 1/1/18 $ 202,379
$ 73,377
Ending balance as of 9/30/18 220,561
29,313
Increase (Decrease) $ 18,182
$ (44,064 )
SJG:
Beginning balance as of 1/1/18 $ 78,571
$ 54,980
Ending balance as of 9/30/18 72,010
7,995
Increase (Decrease) $ (6,561 ) $ (46,985 )

(1) Included in Accounts Receivable in the condensed consolidated balance sheets. A receivable is SJI's and SJG's right to consideration that is unconditional, as only the passage of time is required before payment is expected from the customer. All of SJI's and SJG's Accounts Receivable arise from contracts with customers.

(2) Included in Unbilled Revenues in the condensed consolidated balance sheets. All unbilled revenue for SJI and SJG arises from contracts with customers. Unbilled revenue relates to SJI's and SJG's right to receive payment for commodity delivered but not yet billed. This represents contract assets that arise from contracts with customers, which is defined in ASC 606 as the right to payment in exchange for goods already transferred to a customer, excluding any amounts presented as a receivable. The unbilled revenue is transferred to accounts receivable when billing occurs and the rights to collection become unconditional. The change in unbilled revenues for the nine months ended September 30, 2019 and 2018 is due primarily to the timing difference between SJI and SJG delivering the commodity to the customer and the customer actually receiving the bill for payment.


~~17.~~	~~BUSINESS COMBINATION:~~

17. BUSINESS COMBINATIONS:

ETG and ELK Acquisition

On July 1, 2018, the Company completed the ~~previously announced acquisitions~~Acquisition of ETG and ~~ELK from Pivotal Utility Holdings, Inc., a subsidiary of Southern Company Gas (collectively, the "Acquisition").~~ELK. The Company completed the Acquisition for total consideration of ~~$1.74~~$1.72 billion in cash, inclusive of ~~$40.4~~$24.7 million of certain net working capital adjustments. Of the total, ~~$1.73~~$1.71 billion relates to the acquisition of ETG, while ~~$11.0~~$10.9 million relates to the acquisition of ~~the~~ ELK. ~~In the second quarter of 2018, the Company completed public equity offerings and issued long-term debt to help fund the Acquisition (see Notes 4 and 14, respectively).~~ The Acquisition supports the Company’s strategy of earnings growth derived from high-quality, regulated utilities. Further, the Acquisition expands the Company’s customer base in the natural gas industry, which drives efficiencies by providing a greater operating scale.

~~Preliminary purchase~~Purchase price allocations

The Acquisition was accounted for as a business combination using the acquisition method of accounting in accordance with GAAP, which includes GAAP for regulated operations. Under the acquisition method of accounting, the total estimated purchase price of an acquisition is allocated to the net assets based on their estimated fair values. ETG's and ELK's regulated natural gas distribution operations are subject to rate-setting authorities of the BPU and the MPSC, respectively, which includes provisions in place that provide revenues to recover costs of service, including a carrying charge on most net assets and liabilities. Given the regulatory environment under which ETG and ELK operate, the historical book value of the assets acquired and liabilities assumed approximate fair value.

The Company has not finalized its valuation of certain assets and liabilities in connection with the Acquisition. As such, the estimated measurements recorded to date are subject to change and these changes, if any, could be material. Any changes will be recorded as adjustments to the fair value of those assets and liabilities and residual amounts will be allocated to goodwill. The final valuation adjustments may also require adjustment to the consolidated statements of operations and cash flows. The final determination of these fair values will be completed as soon as possible but no later than one year from the Acquisition date.

~~The preliminary~~ purchase price for the Acquisition has been allocated to the assets acquired and liabilities assumed as of the acquisition date and is as follows:


(in thousands)	ETG and ELK
Property, Plant and Equipment	$	1,202,435
Accounts Receivable	45,875
Provision for Uncollectibles	(6,579)
Natural Gas in Storage	12,204
Materials and Supplies	345
Other Prepayments and Current Assets	200
Deferred Income Taxes	39,470
Regulatory Assets	136,212
Goodwill	700,286
Total assets acquired	2,130,448
Accounts Payable	13,089
Other Current Liabilities	9,185
Environmental Remediation Costs - Current	7,100
Pension and Other Postretirement Benefits	3,213
Environmental Remediation Costs - Non Current	66,165
Regulatory Liabilities	192,811
Asset Retirement Obligation	113,093
Other	1,107
Total liabilities assumed	405,763
Total net assets acquired	$	1,724,685

(in thousands) ETG and ELK
Property, Plant and Equipment $ 1,089,071
Accounts Receivable 39,023
Natural Gas in Storage 12,204
Materials and Supplies 345
Other Prepayments and Current Assets 200
Regulatory Assets 137,334
Goodwill 756,247
     Total assets acquired 2,034,424
Accounts Payable 13,173
Other Current Liabilities 9,241
Environmental Remediation Costs - Current 7,100
Pension and Other Postretirement Benefits 7,183
Environmental Remediation Costs - Non Current 67,532
Regulatory Liabilities 188,510
Other 1,310
     Total liabilities assumed 294,049
          Total net assets acquired $ 1,740,375

Table of Contents

Goodwill of ~~$756.2~~$700.3 million arising from the Acquisition includes the potential synergies between ETG, ELK and the Company. The goodwill, of which $599.7 million is expected to be deductible for income tax purposes, was assigned to the ETG and ELK Utility Operations segments.

Conditions of approval

The Acquisition was subject to regulatory approval from the BPU and the MPSC. Approvals were obtained from both commissions, subject to various conditions. As a requirement for approval of the acquisition of ETG, the BPU mandated that the Company pay $15.0 million to existing ETG customers in the form of a one-time credit. As a requirement for approval of ELK, the MPSC mandated that the Company pay $0.3 million to existing ELK customers in the form of a one-time payout. ~~See Note 7 to the unaudited condensed consolidated financial statements.~~ Other key conditions of approval related to the ~~acquisition~~Acquisition include but are not limited to ETG filing a base rate case no later than June ~~2020. Prior to~~2020, which ETG accomplished with its ~~next~~April 2019 base rate case ~~ETG will be~~filing (see Note 7).

Consistent with Acquisition approval, SJI was required to ~~maintain~~develop a ~~capital structure that consists~~plan, in concert with the BPU, to address the remaining aging infrastructure at ETG. In June 2019, the BPU issued an Order approving a $300.0 million IIP effective July 1, 2019. The Order authorized the recovery of ~~no less than 46% common equity which excludes goodwill. In addition, the Company will need~~costs associated with ETG’s investments of approximately $300.0 million between 2019-2023 to ~~complete~~replace its cast-iron and bare steel vintage main and related services. The Order provides for annual recovery of ETG's investments through a ~~refinancing related to its $530.0 million 364-day term loan credit agreement to a long term permanent financing plan within 180 days of the close.~~separate rate mechanism.

~~Financial information of the acquirees~~

The amount of ETG and ELK revenues included in the Company's unaudited condensed consolidated statement of income for both the three and nine months ended September 30, 2018 is $29.9 million. The amount of ETG and ELK earnings included in the Company's condensed unaudited consolidated statements of income for both the three and nine months ended September 30, 2018 is a net loss of $18.2 million.

During the three and nine months ended September 30, 2018, the Company recorded $19.8 million and $47.1 million of acquisition-related expenses directly related to the Acquisition. Included in both periods is $15.3 million payments to customers under "Conditions of approval" above.

Supplemental disclosure of pro forma information

The following supplemental unaudited pro forma information presents the combined results of SJI, ETG, and ELK as if the Acquisition occurred on January 1, 2017. This supplemental pro forma information has been prepared for comparative purposes and does not purport to be indicative of what would have occurred had the Acquisition been made on January 1, 2017, nor is it indicative of any future results.

The pro forma results include adjustments for the financing impact of the Acquisition, along with the tax-related impacts. Other material non-recurring adjustments are reflected in the pro forma and described below:


													Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands, except per share data)	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018		2017				2019		2018		2019		2018
Revenues	$	302,480		$	258,021		$	1,240,240	$	1,106,409		Revenues	$	261,203	$	302,480	$	1,165,435	$	1,240,240
Net (loss) income	$	(25,116	)	$	(46,393	)	$	38,307	$	(33,008	)
Net income (loss)												Net income (loss)	$	(34,805)	$	(25,116)	$	37,433	$	38,307
Earnings (loss) per share	$	(0.29	)	$	(0.54	)	$	0.46	$	(0.39	)	Earnings (loss) per share	$	(0.38)	$	(0.29)	$	0.41	$	0.46

The supplemental unaudited pro forma net income for the three and nine months ended September 30, 2018 were adjusted to exclude $18.9 million and $32.1 million, respectively, of acquisition-related costs, which includes one-time regulatory approval costs, but excludes financing adjustments and recurring charges.

Financial information of the acquirees

The ~~supplemental unaudited pro forma~~amount of ETG and ELK revenues included in the Company's condensed consolidated statement of income for the three and nine months ended September 30, 2019 is $31.5 million and $220.9 million, respectively. The amount of ETG and ELK net income (loss) included in the Company's condensed consolidated statement of income for the three and nine months ended September 30, 2019 is $(10.0) million and $17.4 million, respectively.

AEP Acquisition

On August 31, 2019, SJI, through its wholly-owned subsidiary SJEI, completed its acquisition of AEP for $4.0 million in total consideration, inclusive of certain working capital and other closing adjustments.

Table of Contents

The acquisition of AEP was accounted for as a business combination using the acquisition method of accounting in accordance with GAAP. Under the acquisition method of accounting, the total estimated purchase price of an acquisition is allocated to the net assets based on their estimated fair values. AEP does not have any regulated operations.

The Company has not finalized its valuation of certain assets and liabilities in connection with the acquisition of AEP. As such, the estimated measurements recorded to date are subject to change. Any changes will be recorded as adjustments to the fair value of those assets and liabilities and residual amounts will be allocated to goodwill. The final valuation adjustments may also require adjustment to the consolidated statements of operations and cash flows. The final determination of these fair values will be completed as soon as possible but no later than one year from the acquisition date.

The purchase price for the AEP acquisition has been allocated, on a preliminary basis, to the assets acquired and liabilities assumed as of the acquisition date and is as follows:


(in thousands)	AEP
Cash	$	43
Accounts Receivable	116
Other Prepayments and Current Assets	53
Goodwill	1,843
Other Noncurrent Assets	2,400
Total assets acquired	4,455
Accounts Payable	11
Other Current Liabilities	449
Total liabilities assumed	460
Total net assets acquired	$	3,995

All assets and financial results of AEP are included in the Corporate & Services segment. The amount of AEP revenues and net income included in the Company's condensed consolidated statement of income for the three and nine months ended September 30, 2019 is approximately $0.1 million and less than $0.1 million, respectively.

18. GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS:

GOODWILL - Goodwill represents future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Goodwill is initially measured at cost, being the excess of the aggregate of the consideration paid or transferred over the fair value of identifiable net assets acquired. Goodwill is not amortized, but instead is subject to impairment testing on an annual basis, and between annual tests whenever events or changes in circumstances indicate that the fair value of a reporting unit may be below its carrying amount. No such events have occurred during the three and nine months ended September 30, 2019.

The Company performs its annual goodwill impairment test in the fourth quarter of each fiscal year beginning with a qualitative assessment at the reporting unit level. The reporting unit level is identified by assessing whether the components of our operating segments constitute businesses for which discrete financial information is available, whether segment management regularly reviews the operating results of those components and whether the economic and regulatory characteristics are similar. Factors utilized in the qualitative analysis performed on goodwill in our reporting units include, among other things, macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, company specific operating results and other relevant entity-specific events affecting individual reporting units.

In the absence of sufficient qualitative factors, goodwill impairment is determined using a two-step process. Step one identifies potential impairment by comparing the fair value of a reporting unit to the book value, including goodwill. The Company estimates the fair value of a reporting unit using a discounted cash flow analysis. Management also considers other methods, which includes a market multiples analysis. Determining the fair value of a reporting unit requires judgment and the use of significant estimates and assumptions. Such estimates and assumptions include, but are not limited to, forecasts of future operating results, discount and growth rates, capital expenditures, tax rates, and projected terminal values. Changes in estimates or the application of alternative assumptions could produce significantly different results. If the fair value exceeds book value, goodwill of the reporting unit is not considered impaired. If the book value exceeds fair value, proceed to step two, which

Table of Contents

compares the implied fair value of the reporting unit's goodwill to the book value of the reporting unit goodwill. If the book value of goodwill exceeds the implied fair value, an impairment charge is recognized for the excess.

Total goodwill of $705.7 million and $734.6 million was recorded on the condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018, respectively. As of September 30, 2019, $700.2 million was included in the ETG Utility Operations segment, $3.6 million was included in the On-Site Energy Production segment, $1.8 million was included in the Corporate & Services segment and $0.1 million was included in the ELK Utility Operations segment. As of December 31, 2018, $730.9 million was included in the ETG Utility Operations segment, $3.6 million was included in the On-Site Energy Production segment, and $0.1 million was included in the ELK Utility Operations segment. SJG does not have any goodwill.

A rollforward of the Company's goodwill is as follows (in thousands):



	2019
Beginning Balance, January 1	$	734,607
Goodwill from AEP Acquisition	1,843
ETG and ELK Acquisition-related Working Capital Settlement	(15,600)
ETG and ELK Fair Value Adjustments During Measurement Period	(15,143)
Ending Balance, September 30	$	705,707

IDENTIFIABLE INTANGIBLE ASSETS - The primary identifiable intangible assets of the Company are customer relationships, including those obtained in the acquisition of AEP (see Note 17), along with the AMA (see Note 1). The Company determines the useful lives of identifiable intangible assets after considering the specific facts and circumstances related to each intangible asset. Considerations may include the contractual term of any agreement related to the asset, the historical performance of the asset, the Company's long-term strategy for using the asset, any laws or other local regulations which could impact the useful life of the asset, and other economic factors, including competition and specific market conditions. Intangible assets that are deemed to have definite lives (finite-lived intangible assets) are amortized, primarily on a straight-line basis, over their useful lives, generally ranging from 2 to 20 years.

The cost (less accumulated amortization) of identifiable intangible assets of $26.0 million and $28.1 million are included in Other Noncurrent Assets on the consolidated balance sheets as of September 30, 2019 and December 31, 2018, respectively. The decrease from the prior year is due to amortization recorded during the nine months ended September 30, ~~2017 were adjusted to include $46.5~~2019, partially offset by $2.4 million of ~~acquisition-related~~customer relationship intangible assets recorded in connection with the AEP acquisition during the third quarter of 2019. NaN impairment charges were recorded on identifiable intangible assets during the three and nine months ended September 30, 2019 or 2018. SJG does not have any identifiable intangible assets.

19. LEASES:

SJI and SJG (collectively, the "Company" for purposes of Note 19) is a lessee for the following classes of underlying assets: equipment, real estate (land and building), and fleet vehicles. The Company determines if it is considered a lessee in an arrangement that qualifies as a lease at its inception based on whether or not the contract grants the Company the use of a specifically identified asset for a period of time, as well as both the right to direct the use of that asset and receive the significant economic benefits of the asset. SJI's and SJG's real estate leases, which are comprised primarily of office space and payment centers, represent approximately 64% and 38%, respectively, of operating lease liabilities and generally have a lease term between 5 and 15 years. The remaining operating leases primarily consist of fleet vehicles (SJI only), communication towers, and general office equipment, each with various lease terms ranging between 3 and 25 years. The majority of our leases are comprised of fixed lease payments, with a portion of the Company’s real estate, fleet vehicles, and office equipment leases including lease payments tied to levels of production, maintenance and property taxes, which may be subject to variability. The Company does not have any finance leases. The Company also evaluates contracts in which it is the owner of an underlying asset in the same manner as if it is a lessee, to determine if it should be considered the lessor of that asset. SJI has one contract where it is considered the lessor, see "Thermal Facility" below; SJG is not considered the lessor of any assets.

As a practical expedient permitted under Topic 842, the Company has elected to account for the lease and non-lease components as a single lease component for all leases. Lease payments, which may include lease components, non-lease components and non-components, are included in the measurement of the Company’s lease liabilities to the extent that such payments are either fixed amounts or variable amounts that depend on a rate or index as stipulated in the lease contract. The Company discounts its lease liability using an estimated incremental borrowing rate computed based on its existing term loan facility adjusted for lease term. On January 1, 2019, the discount rate used on existing leases at adoption was determined using the remaining lease term and available data as of that date based on the Company's collateralized incremental interest rate to

Table of Contents

borrow over a comparable term. For new or modified leases starting in 2019, the discount rate is determined using available data at lease commencement and is based on its collateralized incremental interest rate to borrow over the lease term, including any reasonably certain renewal periods.

Some of its lease agreements, primarily related to real estate, include Company options to either extend and/or early terminate the lease, the costs of which ~~excludes financing adjustments~~are included in our lease liability to the extent that such options are reasonably certain of being exercised. Leases with renewal options allow the Company to extend the lease term typically between 1 and ~~recurring charges.~~5 years. When determining the lease term, renewal options reasonably certain of being exercised are included in the lease term. When determining if a renewal option is reasonably certain of being exercised, the Company considers several economic factors, including the significance of leasehold improvements incurred on the property, whether the asset is difficult to replace, underlying contractual obligations, or specific characteristics unique to that particular lease that would make it reasonably certain that we would exercise such option. Renewal options were generally not included in the lease term for the Company’s existing leases. The Company does not generally enter into leases involving the construction or design of the underlying asset, and nearly all of the assets we lease are not specialized in nature. Our lease agreements generally do not include restrictions, financial covenants or residual value guarantees.

As stated in Note 1, SJI and SJG had $3.1 million and $0.5 million, respectively, of right-of-use assets upon adoption of Topic 842 on January 1, 2019, with lease liabilities of the same amount. As of September 30, 2019, SJI recognized right-of-use assets and lease liabilities of $1.9 million and $2.1 million, respectively, for operating leases, with the reduction being amortization. The lease liability is comprised of approximately $1.3 million of real estate leases, $0.7 million of equipment leases and $0.1 million of fleet vehicle leases. As of September 30, 2019, SJG recognized right-of-use assets and lease liabilities of $0.4 million each for operating leases, with the difference also being amortization. The lease liability is comprised of approximately $0.2 million of equipment leases and $0.1 million of real estate leases. SJI and SJG recorded the right-of-use assets in Other Noncurrent Assets and the lease liabilities in Other Current and Noncurrent Liabilities (as shown in the table below) on the condensed consolidated balance sheets as of September 30, 2019.


~~18.~~	~~SUBSEQUENT EVENTS:~~

The maturity of the Company’s operating lease liabilities as of September 30, 2019 is as follows (in thousands):


	As of September 30, 2019
	SJI Consolidated		SJG
2019 (excluding the nine months ended September 30, 2019)	$	414	$	43
2020	1,075		150
2021	233		39
2022	65		21
2023	34		19
Thereafter	114		114
Total future minimum lease payments	1,935		386
Less imputed interest	64		32
Total lease payments	$	1,871	$	354
Included in the condensed consolidated balance sheet
Current lease liabilities (included in Other Current Liabilities)	$	1,326	$	166
Long-term lease liabilities (included in Other Noncurrent Liabilities)	545		188
Total lease liabilities	$	1,871	$	354

The total operating lease cost for SJI was $0.7 million and $2.3 million during the three and nine months ended September 30, 2019, respectively. The total operating lease cost for SJG was $0.1 million and $0.3 million during the three and nine months ended September 30, 2019, respectively. Short-term lease costs were immaterial for both SJI and SJG. Neither SJI nor SJG had any sublease income during the three and nine months ended September 30, 2019. Operating cash flows from operating leases for SJI were $0.4 million and $1.2 million during the three and nine months ended September 30, 2019, respectively. Operating cash flows from operating leases for SJG were $0.1 million and $0.3 million during the three and nine months ended September 30, 2019, respectively.

Neither SJI nor SJG have leases with related parties or leverage lease arrangements. There are no leases that have not yet commenced but that create significant rights and obligations.

Table of Contents

SJI had $0.3 million and $1.1 million of variable lease payments pertaining to leased back assets during the three and nine months ended September 30, 2019, respectively. As discussed in Note 1 under "Agreement to Sell Solar Assets," SJI has solar assets that are being leased back from the buyer; however these assets were leased back in 2018 and are treated as operating leases. As per the "package of expedients" discussed in Note 1, SJI is not required to reassess under Topic 842 the Company’s prior conclusions about lease identification or classification.

The following summarizes our contractual obligations for operating leases and their applicable payment due dates, as of December 31, 2018 under ASC Topic 840, prior to the implementation of ASC 842:


	Total	Up to 1 year	Years 2&3	Years 4&5	More than 5 years
SJI Consolidated	1,885	838	916	131	—
SJG	175	56	112	7	—

Supplemental Non-Cash Disclosures

SJI and SJG did not record any new leases during the three and nine months ended September 30, 2019.

The weighted average remaining lease term for SJI's operating leases is 2.6 years at a weighted average discount rate of 3.0%.

The weighted average remaining lease term for SJG's operating leases is 6.9 years at a weighted average discount rate of 3.0%.

Thermal Facility

Marina is considered to be the lessor of certain thermal energy generating property and equipment under an operating lease which expires in May 2027. As of September 30, 2019 and December 31, 2018, the carrying costs of this property and equipment under operating lease was $69.1 million and $71.5 million, respectively (net of accumulated depreciation of $40.1 million and $37.7 million, respectively), and is included in Nonutility Property and Equipment in the condensed consolidated balance sheets.

Minimum future rentals to be received on this operating lease of property and equipment as of September 30, 2019 for the remainder of 2019 and each of the next five fiscal years and in the aggregate are (in thousands):


2019 (remaining three months)	$	1,349
2020	5,396
2021	5,396
2022	5,396
2023	5,396
2024	5,396
Thereafter	13,042
Total minimum future rentals	$	41,371

Minimum future rentals do not include additional amounts to be received based on actual use of the leased property.

Table of Contents

20. SUBSEQUENT EVENTS:

See Note 11 - Commitments and Contingencies, Pending Litigation for information related to an August 2019 court decision issued against SJG and SJRG related to a pricing dispute related to 2 long-term gas supply contracts. As a result of this judgment, SJG paid $22.9 million in October 2019 to the plaintiff supplier.

On October 29, 2019, ETG issued 2.84% First Mortgage Bonds, Series 2019A-2, due October 29, 2029 in the aggregate principal amount of $35.0 million.

In October ~~2018, Marina closed~~2019, SJG issued $80.0 million of debt by drawing on the ~~sale~~remaining portion of two tranches of sites related to the sale of Marina's portfolio of solar energy assets to a third-party buyer (see Note 1). Included in these tranches of sites were the wholly-owned subsidiaries of MCS, NBS and SBS. Total consideration received in October 2018 was approximately $117.8 million, while total consideration received on the transaction to date is $180.3 million, which includes $62.5 million of SREC's received in July 2018 (see Note 1).

In October 2018, the Company announced it will offer an early retirement incentive program (ERIP) for eligible non-union employees. The Company also announced that it will eliminate retiree medical benefits for current active non-union employees.

Consistent with acquisition approval, SJI was required to develop a plan, in concert with the BPU, to address the remaining aging infrastructure at ETG. In October 2018, ETG filed an IIP petition with the BPU seeking authorization to recover the costs associated with its proposed investment of approximately $518.0 million from 2019-2023 necessary to, among other things, replace its cast-iron and low-pressure vintage main and related services. The design of ETGs IIP includes a request for timely recovery of ETG's investment on a semi-annual basis through a separate Rider recovery mechanism. A final decision from the BPU is anticipated in 2019.

~~In October 2018, SJG entered into an unsecured,~~ $400.0 million term loan credit agreement (the “Credit Agreement”), under which SJG can borrow up to an aggregate of $400.0 million until October 2019. All loans under the Credit Agreement become due and payable in April 2020. Any amounts repaid prior to the maturity date cannot be reborrowed.agreement.

~~In October 2018, SJG received approval from the BPU on its EEP and EEP IV programs.~~ See Note 7.3 - Affiliations, Discontinued Operations and Related-Party Transactions for information on developments with PennEast.

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction

Management's Discussion and Analysis of Financial Condition and Results of Operations (Management's Discussion) analyzes the financial condition, results of operations and cash flows of ~~South Jersey Industries, Inc. (SJI)~~SJI and its subsidiaries. It also includes management’s analysis of past financial results and potential factors that may affect future results, potential future risks and approaches that may be used to manage them. Except where the content clearly indicates otherwise, “SJI,” “we,” “us” or “our” refers to the holding company or the consolidated entity of SJI and all of its subsidiaries.

Management's Discussion is divided into the following two major sections:

•SJI - This section describes the financial condition and results of operations of ~~South Jersey Industries, Inc.~~SJI and its subsidiaries on a consolidated basis. It includes discussions of our regulated operations, including ~~South Jersey Gas Company (SJG),~~SJG, and our non-regulated operations.

•SJG - This section describes the financial condition and results of operations of SJG, a ~~wholly-owned~~ subsidiary of SJI ~~Utilities, Inc,~~and separate registrant, which comprises the SJG utility operations segment.

Both sections of Management's Discussion - SJI and SJG - are designed to provide an understanding of each company's respective operations and financial performance and should be read in conjunction with each other as well as in conjunction with the respective company's ~~unaudited~~ condensed consolidated financial statements and the combined Notes to ~~Unaudited~~ Condensed Consolidated Financial Statements in this Quarterly Report as well as SJI’s and SJG's Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

Unless otherwise noted, earnings per share amounts are presented on a diluted basis, and are based on weighted average common and common equivalent shares outstanding. SJI's and SJG's operations are seasonal and accordingly, operating results for the interim periods presented are not indicative of the results to be expected for the full fiscal year.

Forward-Looking Statements and Risk Factors— This Quarterly Report, including information incorporated by reference, contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995.

All statements other than statements of historical fact, including statements regarding guidance, industry prospects or future results of operations or financial position, expected sources of incremental margin, strategy, financing needs, future capital expenditures and the outcome or effect of ongoing litigation, are forward-looking. This Quarterly Report uses words such as "anticipate," "believe," "expect," "estimate," "forecast," "goal," "intend," "objective," "plan," "project," "seek," "strategy," "target," "will" and similar expressions to identify forward-looking statements. These forward-looking statements are based on the beliefs and assumptions of management at the time that these statements were prepared and are inherently uncertain. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. These risks and uncertainties include, but are not limited to, general economic conditions on an international, national, state and local level; weather conditions in SJI’s marketing areas; changes in commodity costs; changes in the availability of natural gas; “non-routine” or “extraordinary” disruptions in SJI’s distribution system; regulatory, legislative and court decisions; competition; the availability and cost of capital; costs and effects of legal proceedings and environmental liabilities; the failure of customers, suppliers or business partners to fulfill their contractual obligations; and changes in business strategies.

These risks and uncertainties, as well as other risks and uncertainties that could cause our actual results to differ materially from those expressed in the forward-looking statements, are described in greater detail under the heading “Item 1A. Risk Factors” in this Quarterly Report, SJI’s and SJG's Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 and in any other SEC filings made by SJI or SJG during ~~2018~~2019 and prior to the filing of this Quarterly Report. No assurance can be given that any goal or plan set forth in any forward-looking statement can or will be achieved, and readers are cautioned not to place undue reliance on such statements, which speak only as of the date they are made. SJI and SJG undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Table of Contents

Critical Accounting Policies — Estimates and Assumptions— Management must make estimates and assumptions that affect the amounts reported in the ~~unaudited~~ condensed consolidated financial statements and related disclosures. Actual results could differ from those estimates. ~~Six~~Certain types of transactions presented in our ~~unaudited~~ condensed consolidated financial statements require a significant amount of judgment and estimation. These relate to regulatory accounting, derivatives, environmental remediation costs, pension and other postretirement ~~employee~~ benefit costs, revenue recognition, and ~~impairment of long-lived assets.~~goodwill. A discussion of these estimates and assumptions may be found in SJI's and SJG's Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

In addition, our evaluation of impairment of equity method investments when conditions exist that could indicate that the fair value of the investment is less than book value includes key inputs that involve significant management judgments and estimates, including projections of the investment's cash flows, selection of a discount rate and probability weighting of potential outcomes of legal proceedings and other available options. See Note 3 to the condensed consolidated financial statements.

Business ~~Combination~~Combinations - On July 1, 2018, the Company completed the ~~previously announced acquisitions~~Acquisition of ~~Elizabethtown Gas Company ("ETG")~~ETG and ~~Elkton Gas Company ("ELK")~~ELK. On August 31, 2019, SJI, through its wholly-owned subsidiary SJEI, completed its acquisition of ~~Pivotal Utility Holdings, Inc., a subsidiary of Southern Company Gas (collectively, the "Acquisition").~~AEP. See detailed discussions concerning ~~the Acquisition~~these acquisitions and their impact on SJI, including the accounting for business combinations, in Note 17 to the ~~unaudited~~ condensed consolidated financial statements.

New Accounting Pronouncements— See detailed discussions concerning New Accounting Pronouncements and their impact on SJI and SJG in Note 1 to the ~~unaudited~~ condensed consolidated financial statements.

Regulatory Actions— Other than the changes discussed in Note 7 to the ~~unaudited~~ condensed consolidated financial statements, ~~including the Acquisition,~~ there have been no significant regulatory actions since December 31, ~~2017.~~2018. See detailed discussion concerning Regulatory Actions in Note 10 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, ~~2017.~~2018.

Environmental Remediation— ~~Other than the changes discussed in Note 8 and Note 11 to the unaudited condensed consolidated financial statements, including the Acquisition, there~~There have been no significant changes to the status of SJI’s and SJG's environmental remediation efforts since December 31, ~~2017.~~2018. See detailed discussion concerning Environmental Remediation Costs in Note 15 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, ~~2017.~~2018.

Impairment of Long-Lived Assets — Long-lived assets that are held and used are reviewed for impairment whenever events or changes in circumstances, such as significant adverse changes in regulation, business climate or market conditions, indicate carrying values may not be recoverable. Such reviews are performed in accordance with ASC 360. An impairment loss is indicated if the total future estimated undiscounted cash flows expected from an asset are less than its carrying value. An impairment charge is measured by the difference between an asset's carrying amount and fair value with the difference recorded within Impairment Charges on the ~~unaudited~~ condensed consolidated statements of income. Fair values can be determined by a variety of valuation methods, including third-party appraisals, sales prices of similar assets, and present value techniques. SJI and SJG determine the fair values by using an income approach by applying a discounted cash flow methodology to the future estimated cash flows, and include key inputs such as forecasted revenues, operating expenses and discount rates. See Note 1 to the ~~unaudited~~ condensed consolidated financial statements.

Goodwill - See detailed discussion concerning Goodwill in Note 18 to the condensed consolidated financial statements, along with Note 21 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.

Operating Segments:

SJI operates in several different reportable operating segments. These segments are as follows:

•SJG utility operations consist primarily of natural gas distribution to residential, commercial and industrial customers in southern New Jersey.


▪	~~ETG utility operations consist of natural gas distribution to residential, commercial and industrial customers in northern and central New Jersey.~~

▪ETG utility operations consist of natural gas distribution to residential, commercial and industrial customers in northern and central New Jersey.

•ELK utility operations consist of natural gas distribution to residential, commercial and industrial customers in Maryland.

Table of Contents

•Wholesale energy operations include the activities of ~~South Jersey Resources Group, LLC (SJRG)~~SJRG and ~~South Jersey Exploration, LLC (SJEX).~~SJEX.

~~South Jersey Energy Company (SJE) is involved in both retail~~•Retail gas and ~~retail~~other operations at SJE included natural gas acquisition and transportation service business lines. This business was sold on November 30, 2018.

•Retail electric ~~activities.~~


◦	~~Retail gas and other operations include natural gas acquisition and transportation service business lines.~~


◦	~~Retail electric operations consist of electricity acquisition and transportation to commercial, industrial and residential customers.~~

operations at SJE consist of electricity acquisition and transportation to commercial, industrial and residential customers.

•On-site energy production consists of ~~the~~Marina's thermal energy facility ~~of Marina Energy, LLC (Marina)~~ and other energy-related projects. Also included in this segment are the activities of ACB, Energy Partners, LLC (ACB), AC Landfill Energy, LLC (ACLE), BC Landfill Energy, LLC (BCLE), SC Landfill Energy, LLC (SCLE), SX Landfill Energy, LLC (SXLE), MCS Energy Partners, LLC (MCS), NBS Energy Partners, LLC (NBS)ACLE, BCLE, SCLE and SBS Energy Partners, LLC (SBS). As discussed in Notes 1 and 18 to the condensed consolidated financial statements, in October 2018, Marina closed on the sale of the first group of sites related to Marina's portfolio of solar energy assets to a third party. Included in this group of sites were the wholly-owned subsidiaries of MCS, NBS and SBS.SXLE.

•Appliance service operations includes ~~South Jersey Energy Service Plus, LLC (SJESP),~~SJESP, which serviced residential and small commercial HVAC systems, installed small commercial HVAC systems, provided plumbing services and serviced appliances under warranty via a subcontractor arrangement as well as on a time and materials basis. On September 1, 2017, SJESP sold certain assets of its residential and small commercial HVAC and plumbing business to a third party. SJESP continues to receivereceives commissions ~~paid~~ on service contracts from ~~the~~a third ~~party and will do so on a going forward basis.~~party.

~~SJI~~ •Midstream ~~LLC (Midstream)~~ was formed to invest in infrastructure and other midstream projects, including a current project to build a natural gas pipeline in Pennsylvania and New Jersey.

•Corporate & Services segment includes ~~the~~ costs related to ~~ETG and ELK,~~the Acquisition, along with other unallocated costs. Also included in this segment are the results of AEP.

•Intersegment represents intercompany transactions among the above SJI consolidated entities.

SJI groups its utility businesses under its wholly-owned subsidiary ~~SJI Utilities (SJIU).~~SJIU. This group consists of gas utility operations of SJG, ETG and ELK. SJI groups its nonutility operations into ~~two~~separate categories: Energy Group and Energy Services. Energy Group includes wholesale energy, retail gas and other, and retail electric operations. Energy Services includes on-site energy production and appliance service operations.

Table of Contents

SOUTH JERSEY INDUSTRIES, INC.

RESULTS OF OPERATIONS:

Summary:

SJI's net income for the three months ended September 30, ~~2018 decreased $8.1~~2019 increased $10.9 million to a net loss of ~~$45.7~~$34.8 million compared with the same period in ~~2017.~~2018. The significant drivers for the overall change were as ~~follows:~~follows (all numbers in the bullet points below are presented after-tax):

~~In connection with~~•The net income contribution from the ~~Acquisition (see Notes 1 and 17 to the unaudited condensed consolidated financial statements), SJI consolidated the accounts of ETG and ELK~~ gas utility operations ~~beginning with the third quarter 2018. This contributed a net loss of $18.2 million~~at ETG for the three months ended September 30, 2019 increased $7.9 million to a net loss of $9.9 million compared with the same period in 2018, ~~which included~~primarily due to credits issued to ETG customers during the three months ended September 30, 2018 that were required as part of the Acquisition that did not recur in 2019. This was partially offset by higher interest charges and depreciation expense during the three months ended September 30, 2019 compared with the same period in 2018.

•Acquisition costs were approximately ~~$11.1~~$2.8 million ~~(after-tax) of credits provided~~lower during the three months ended September 30, 2019 compared with the same period in 2018. This is primarily due to ~~customers of ETG~~the Company incurring legal, consulting and ~~ELK~~other professional fees related to the Acquisition during the first period after its completion in the third quarter ~~2018 (see Note 7~~of 2018. These costs are partially offset with costs incurred in 2019 to exit the ~~unaudited condensed consolidated financial statements).~~

~~SJI recorded $11.5 million (after-tax) of financing costs~~TSA. All Acquisition and ~~other charges in connection with the Acquisition (see Note 14 and 17 to the unaudited condensed consolidated financial statements). These~~TSA-related costs are recorded in the Corporate & Services segment.

The net income contribution from gas utility operations at SJG for the three months ended September 30, 2018 decreased $3.2 million to a net loss of $9.0 million, primarily due to an overall increase in depreciation, interest and operations expenses, partially offset by customer growth.

•The net income contribution from the wholesale energy operations at SJRG for the three months ended September 30, ~~2018 decreased $1.8~~2019 increased $2.7 million to a net loss of ~~$8.6~~$5.9 million compared with the same period in ~~2017,~~2018, primarily due to the change in unrealized gains and losses on derivatives used by the wholesale energy operations to mitigate natural gas commodity price risk, as discussed under "Operating Revenues - Energy Group" below. This was partially offset by higher margins on daily energy trading activities as discussed under "Gross Margin - Energy Group" below.

The net income contribution from on-site energy production at Marina for the three months ended September 30, 2018 increased $24.8 million to a net loss of $0.6 million, primarily due to an impairment charge recorded on solar generating facilities located in the state of Maryland during the third quarter of 2017. This was partially offset with decreased net income due to the sale of certain Solar Renewable Energy Credits ("SREC's") (see Note 1 to the unaudited condensed consolidated financial statements).

The net income contribution from the retail gas and electric operations at SJE for the three months ended September 30, 2018 increased $1.3 million to $0.8 million compared with the same period in 2017, primarily duerelated to the change in unrealized gains and losses on forward financial contracts ~~used~~due to ~~mitigate~~ price ~~risk~~volatility. This was partially offset with lower margins on ~~retail gas as discussed under "Operating Revenues – Energy Group" below, along with~~daily energy trading activities in the ~~impact~~third quarter of ~~Tax Reform, as discussed in Note 1~~2019 compared to the ~~condensed consolidated financial statements.~~same period in the prior year.

•The net income contribution from gas utility operations at SJG for the three months ended September 30, 2019 decreased $2.6 million to a net loss of $11.6 million, primarily due to an overall increase in operations, depreciation and interest expenses.

SJI's net income for the nine months ended September 30, ~~2018 decreased $20.7~~2019 increased $65.7 million to ~~a net loss of $28.3~~$37.4 million compared with the same period in ~~2017.~~2018. The significant drivers for the overall change were as ~~follows:~~follows (all numbers in the bullet points below are presented after-tax):

•The net income contribution from on-site energy production at Marina for the nine months ended September 30, ~~2018 decreased $52.9~~2019 increased $80.8 million to a net loss of ~~$81.8~~$1.0 million compared with the same period in 2018, primarily due to $74.2 million ~~(after-tax)~~ of impairment charges taken on solar generating facilities in the second quarter of 2018, which were primarily driven by the purchase price in the agreement to sell solar assets being less than the carrying amount of the ~~assets.~~assets (see Note 1 to the condensed consolidated financial statements). Also contributing were consulting and legal costs ~~incurred as~~related to the sale of Marina's solar assets to a ~~result of the expected sale. This was partially offset by an impairment charge recorded on solar generating facilities located in the state of Maryland~~third-party buyer that were incurred during the ~~third quarter of 2017~~nine months ended September 30, 2018 that did not ~~occur~~recur in ~~2018.~~

~~SJI recorded $30.1 million (after-tax)~~the same period in 2019. Lower depreciation expense resulting from the sale of ~~financing costs and other charges in connection with the Acquisition (see Note 14 and 17~~solar assets also contributed to the ~~unaudited condensed consolidated financial statements).~~overall increase in net income. These ~~costs~~ are ~~recorded in the Corporate & Services segment.~~partially offset with lower margins resulting from less SREC revenue as discussed under "Gross Margin - Energy Services" below.

•In connection with the Acquisition, SJI consolidated the accounts of ETG and ELK gas utility operations beginning with the third quarter of 2018. ~~This~~ETG and ELK contributed a combined net ~~loss~~income of ~~$18.2~~$27.4 million during the six months ended June 30, 2019. Further, the net income contribution from the gas utility operations at ETG increased $7.9 million for the three months ended September 30, 2019 compared with the same period in 2018 as explained above.

•Acquisition costs were approximately $21.2 million lower during the nine months ended September 30, 2019 compared with the same period in 2018. This is primarily due to the Company incurring less legal, consulting and other professional fees related to the Acquisition than the prior year period, as the costs incurred in 2018 ~~which included approximately $11.1 million (after-tax) of credits provided~~were to ~~customers of ETG~~finalize the Acquisition. These costs are partially offset with costs incurred in 2019 to exit the TSA. All Acquisition and ~~ELK~~TSA related costs are recorded in the ~~third quarter 2018 (see Note 7~~Corporate & Services segment.

Table of Contents

•The net income contribution from Midstream increased $1.2 million to ~~the unaudited condensed consolidated financial statements).~~$3.2 million primarily due to recognition of AFUDC at PennEast, of which Midstream has a 20% equity interest.

•The net income contribution from the wholesale energy operations at SJRG for the nine months ended September 30, ~~2018 increased $66.7~~2019 decreased $48.9 million to ~~$40.1~~a net loss of $8.7 million compared with the same period in 2018, primarily due to lower margins on daily energy trading activities and an overall decrease in sales as discussed under "Operating Revenues - Energy Group" below. Also contributing was the ~~following:~~change in unrealized gains and losses on forward financial contracts due to price volatility, as discussed under "Operating Revenues - Energy Group" below.

◦

~~$30.0 million increase~~ primarily due to higher margins on daily energy trading activities and an overall increase in sales due to cold weather experienced in the first quarter of 2018, as discussed under "Gross Margin - Energy Group" below. Also contributing was the impact of the ~~Tax Cuts and Jobs Act~~ ~~(Tax Reform), as discussed in Note 1 to the unaudited condensed consolidated financial statements.~~


◦	$27.9 million increase due to lower legal fees, reserves and interest recorded on a pricing dispute between SJI and a gas supplier as compared with the same period in 2017 (see Note 11 to the unaudited condensed consolidated financial statements).


◦	~~$5.8 million increase resulting from an unfavorable legal settlement that occurred during the second quarter of 2017, which SJRG did not incur in 2018.~~


◦	$3.0 million increase due to the change in unrealized gains and losses on derivatives used by the wholesale energy operations to mitigate natural gas commodity price risk, as discussed under "Operating Revenues - Energy Group" below. This change was also impacted by Tax Reform.

~~The net income contribution from gas utility operations at SJG for~~•SJI had an increase of $16.4 million in financing/interest costs during the nine months ended September 30, 2019 compared with the same period in 2018. These costs are related to debt that was entered into during the second quarter of 2018 ~~increased $16.4~~in order to finance the Acquisition. These costs are recorded in the Corporate & Services segment.

•The change in unrealized gains and losses on the Company's interest rate derivative contracts contributed a $5.1 million ~~to $59.3 million, primarily due~~decrease in net income when comparing the nine months ended September 30, 2019 to the ~~base rate case settlement,~~same period in 2018.

•SJI recorded $2.4 million of severance and other employee separation costs that were incurred during the ~~roll-in of investments for infrastructure replacement and improvement, along with customer growth, partially offset with an overall increase~~nine months ended September 30, 2019. These costs are recorded in ~~depreciation, interest and operations expenses.~~

the Corporate & Services segment.

A significant portion of the volatility in operating results is due to the impact of the accounting methods associated with SJI’s derivative activities. SJI uses derivatives to limit its exposure to market risk on transactions to buy, sell, transport and store natural gas and to buy and sell retail electricity. SJI also uses derivatives to limit its exposure to increasing interest rates on variable-rate debt.

The types of transactions that typically cause the most significant volatility in operating results are as follows:

•The wholesale energy operations at SJRG purchases and holds natural gas in storage and maintains capacity on interstate pipelines to earn profit margins in the future. The wholesale energy operations utilize derivatives to mitigate commodity price risk in order to substantially lock-in the profit margin that will ultimately be realized. However, both gas stored in inventory and pipeline capacity are not considered derivatives and are not subject to fair value accounting. Conversely, the derivatives used to reduce the risk associated with a change in the value of inventory and pipeline capacity are accounted for at fair value, with changes in fair value recorded in operating results in the period of change. As a result, earnings are subject to volatility as the market price of derivatives change, even when the underlying hedged value of inventory and pipeline capacity are unchanged. Additionally, volatility in earnings is created when realized gains and losses on derivatives used to mitigate commodity price risk on expected future purchases of gas injected into storage are recognized in earnings when the derivatives settle, but the cost of the related gas in storage is not recognized in earnings until the period of withdrawal. This volatility can be significant from period to period. Over time, gains or losses on the sale of gas in storage, as well as use of capacity, will be offset by losses or gains on the derivatives, resulting in the realization of the profit margin expected when the transactions were initiated.

•The retail electric operations at SJE use forward contracts to mitigate commodity price risk on fixed price electric contracts with customers. In accordance with GAAP, the forward contracts are recorded at fair value, with changes in fair value recorded in earnings in the period of change. Several related customer contracts are not considered derivatives and, therefore, are not recorded in earnings until the electricity is delivered. As a result, earnings are subject to volatility as the market price of the forward contracts change, even when the underlying hedged value of the customer contract is unchanged. Over time, gains or losses on the sale of the fixed price electric under contract will be offset by losses or gains on the forward contracts, resulting in the realization of the profit margin expected when the transactions were initiated.

As a result, management also uses the non-generally accepted accounting principles (non-GAAP) financial measures of Economic Earnings and Economic Earnings per share when evaluating its results of operations. These non-GAAP financial measures should not be considered as an alternative to GAAP measures, such as net income, operating income, earnings per share from continuing operations or any other GAAP measure of liquidity or financial performance.

Table of Contents

We define Economic Earnings as: Income from continuing operations, (i) less the change in unrealized gains and plus the change in unrealized losses on all derivative transactions; (ii) less realized gains and plus realized losses on all commodity derivative transactions attributed to expected purchases of gas in storage to match the recognition of these gains and losses with the recognition of the related cost of the gas in storage in the period of withdrawal; and (iii) less the impact of transactions, or contractual arrangements ~~where the true economic impact will be realized in a future period, along with~~or other events ~~that~~where management believes ~~make~~ period to period comparisons of SJI's operations could be difficult or potentially confusing. With respect to part (iii) of the definition of Economic Earnings, for the three and nine months ~~ended~~ September 30, ~~2018~~2019 and ~~2017,~~2018, Economic Earnings excludes the following:

For the nine months ended September 30, 2018, Economic Earnings excludes approximately $99.2 million (pre-tax) of impairment charges recorded on solar generating facilities, which was primarily driven by the purchase price in the agreement to sell solar assets being less than the carrying amount of the assets. See Note 1 to the unaudited condensed consolidated financial statements.

•For the three and nine months ended September 30, ~~2018,~~2019, Economic Earnings excludes ~~$2.9 million~~severance and $38.4 million (pre-tax), respectively, of various costs related to the Acquisition as well as to a series of agreements whereby Marina will sell its portfolio of solar energy assets to a third-party buyer. See Note 17 to the unaudited condensed consolidated financial statements.other employee separation costs.

•For the three and nine months ended September 30, 2019 and 2018, Economic Earnings excludes ~~approximately $15.3 million (pre-tax)~~costs to acquire the assets of ~~credits to~~ ETG and ELK, ~~customers. See Note 7~~including legal, consulting and other professional fees, and costs incurred to exit the ~~unaudited condensed consolidated financial statements.~~Transaction Service Agreement (TSA). Economic Earnings also excludes costs incurred and gains recognized on the sale of the remaining solar assets, and the sale of certain SREC's.

•For the three and nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, Economic Earnings excludes the impact of a May 2017 jury verdict stemming from a pricing dispute with a gas supplier over costs, including interest charges and legal fees incurred, along with the realized difference in the market value of the commodity (including financial hedges). Economic Earnings also excludes, for the three and nine months ended September 30, 2017, the impact of a 2017 settlement of a legal claim stemming from a dispute related to a three-year capacity management contract with a counterparty, including legal fees incurred.

For the nine months ended September 30, 2017, Economic Earnings excludes an approximately $2.4 million pre-tax loss related to a new interest rate derivative and amendments made to an existing interest rate derivative linked to unrealized losses previously recorded in Accumulated Other Comprehensive Loss (AOCL). SJI reclassified this amount from AOCL to Interest Charges on the condensed consolidated statements of income as a result of the prior hedged transactions being deemed probable of not occurring. Since the economic impact will not be realized until future periods, this amount is excluded from Economic Earnings. See Note 12 to the unaudited condensed consolidated financial statements.

•For the three and nine months ended September 30, ~~2017,~~2019, as well as the nine months ended September 30, 2018, Economic Earnings excludes ~~approximately $43.9 million and $44.2 million, respectively, of pre-tax charges related to~~ impairment charges ~~taken in the first and third quarters of 2017~~recorded on solar generating facilities, ~~for~~ which was primarily driven by the ~~economic impact will not be realized until a future period.~~purchase price in the agreement to sell solar assets being less than the carrying amount of the assets. See Note 1 to the ~~unaudited~~ condensed consolidated financial statements.

•For the three and nine months ended September 30, 2018, Economic Earnings excludes credits to ETG and ELK customers that were required as part of the Acquisition.

Economic Earnings is a significant performance metric used by our management to indicate the amount and timing of income from continuing operations that we expect to earn after taking into account the impact of derivative instruments on the related transactions, ~~those transactions or~~as well as the impact of contractual arrangements ~~where the true economic impact will be realized primarily in a future period or was realized in a previous period,~~ and other events that management believes make period to period comparisons of SJI's operations difficult or potentially confusing. Management uses Economic Earnings to manage its business and to determine such items as incentive/compensation arrangements and allocation of resources. Specifically regarding derivatives, we believe that this financial measure indicates to investors the profitability of the entire derivative-related transaction and not just the portion that is subject to mark-to-market valuation under GAAP. We believe that considering only the change in market value on the derivative side of the transaction can produce a false sense as to the ultimate profitability of the total transaction as no change in value is reflected for the non-derivative portion of the transaction.

Economic Earnings for the three months ended September 30, ~~2018~~2019 decreased ~~$19.2~~$4.3 million to a net loss of ~~$23.2~~$27.5 million compared with the same period in ~~2017.~~2018. The significant drivers for the overall change were as ~~follows:~~follows (all numbers in the bullet points below are presented after-tax):

SJI recorded $8.7 million (after-tax) of financing costs relating to the debt that was issued during the second quarter of 2018 (see Note 14 to the unaudited condensed consolidated financial statements).

In connection with the Acquisition, SJI consolidated the accounts of ETG and ELK gas utility operations beginning July 2018 (see Note 17 to the unaudited condensed consolidated financial statements), contributing a net loss of $7.1 million for the three months ended September 30, 2018, excluding the customer credits discussed above.

The income contribution from on-site energy production at Marina for the three months ended September 30, 2018 decreased $3.4 million to a net loss of $1.8 million primarily due to the sale of solar assets (see Note 1 to the unaudited condensed consolidated financial statements).

The income contribution from gas utility operations at SJG for the three months ended September 30, 2018 decreased $3.2 million to a loss of approximately $9.0 million, primarily due to an overall increase in depreciation, interest and operations expenses, partially offset by customer growth.

•The income contribution from the wholesale energy operations at SJRG for the three months ended September 30, ~~2018 increased $2.3~~2019 decreased $3.4 million to ~~$2.3~~a net loss of $1.1 million compared with the same period in 2018, primarily due to lower margins on daily energy trading activities.

•The income contribution from gas utility operations at ETG decreased $2.9 million to a net loss of $9.9 million, primarily due to higher ~~margins on daily~~interest charges and depreciation expense during the three months ended September 30, 2019 compared with the same period in 2018.

•The income contribution from gas utility operations at SJG for the three months ended September 30, 2019 decreased $2.6 million to a net loss of $11.6 million, primarily due to an overall increase in operations, depreciation and interest expenses.

•The income contribution from on-site energy ~~trading activities.~~production at Marina for the three months ended September 30, 2019 increased $2.9 million to a net loss of $1.1 million, primarily due to the sale of a separate solar project during the third quarter of 2019 (see Note 1 to the condensed consolidated financial statements).

Table of Contents

•SJI recognized a gain of $0.8 million from the settlement of an insurance claim during the three months ended September 30, 2019.

Economic Earnings for the nine months ended September 30, ~~2018 increased $24.6~~2019 decreased $23.0 million to ~~$82.7~~$59.7 million compared with the same period in ~~2017.~~2018. The significant drivers for the overall change were as ~~follows:~~follows (all numbers in the bullet points below are presented after-tax):

•The income contribution from the wholesale energy operations at SJRG for the nine months ended September 30, ~~2018 increased $30.0~~2019 decreased $35.0 million to ~~$39.2~~$4.2 million compared with the same period in 2018, primarily due to ~~higher~~lower margins on daily energy trading ~~activities and~~activities.

•SJI had an ~~overall~~ increase of $16.4 million in sales due to cold weather experienced in the first quarter of 2018, as discussed under "Gross Margin - Energy Group" below. Also contributing was the impact of Tax Reform, as discussed in Note 1 to the unaudited condensed consolidated financial statements.

~~The income contribution from gas utility operations at SJG for~~financing/interest costs during the nine months ended September 30, ~~2018 increased $16.4 million~~2019 compared with the same period in 2018. These costs are related to $59.3 million, primarily due to the base rate case settlement, the roll-in of investments for infrastructure replacement and improvement, along with customer growth, partially offset with an overall increase in depreciation, interest and operations expenses.

~~SJI recorded $8.7 million (after-tax) of financing costs relating to the~~ debt that was ~~issued~~entered into during the second quarter of 2018 ~~(see Note 14~~in order to finance the ~~unaudited condensed consolidated financial statements).~~Acquisition and are recorded in the Corporate & Services segment.

•In connection with the Acquisition (see Notes 1 and 17 to the condensed consolidated financial statements), SJI consolidated the accounts of ETG and ELK gas utility operations beginning ~~July 2018 (see Note 17 to~~with the ~~unaudited condensed consolidated financial statements), contributing~~third quarter of 2018. ETG and ELK contributed a combined net ~~loss~~income of ~~$7.1~~$27.4 million ~~for~~during the ~~nine~~six months ended June 30, 2019 without a comparable contribution in the prior year period. This combined net income contribution from the first six months of 2019 was partially offset by the net income contribution from gas utility operations at ETG decreasing $2.9 million during the three months ended September 30, 2019 compared with the same period in 2018 ~~excluding the customer credits discussed~~as explained above.

•The income contribution from ~~on-site energy production~~Midstream increased $1.2 million to $3.2 million primarily due to recognition of AFUDC at ~~Marina for~~PennEast, of which Midstream has a 20% equity interest.

•SJI recognized a gain of $0.8 million from the ~~nine~~settlement of an insurance claim during the three months ended September 30, ~~2018 decreased $2.7 million to a net loss~~2019.

Table of ~~$2.6 million primarily due to the sale of solar assets (see Note 1 to the unaudited condensed consolidated financial statements).~~Contents

The income contribution from the retail gas and electric operations at SJE for the nine months ended September 30, 2018 decreased $1.5 million to a net loss of $1.2 million primarily due to the expiration in the second quarter of 2017 of a large electric sales contract with a group of school boards. Also contributing was a lower tax benefit on SJE's net loss as a result of Tax Reform.

The following table presents a reconciliation of SJI's ~~income/(loss)~~income from continuing operations and earnings per share from continuing operations to Economic Earnings and Economic Earnings per share for the three and nine months ended September 30 (in thousands, except per share data):


														Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended September 30,						Nine Months Ended September 30,							2019		2018		2019		2018
	2018			2017			2018			2017
Loss from Continuing Operations	$	(45,642	)	$	(37,548	)	$	(28,129	)	$	(7,413	)
Income from Continuing Operations													Income from Continuing Operations	$	(34,746)	$	(45,642)	$	37,649	$	(28,129)
Minus/Plus:													Minus/Plus:
Unrealized Mark-to-Market Losses (Gains) on Derivatives	10,623			4,649			(8,870		)	(924		)	Unrealized Mark-to-Market Losses (Gains) on Derivatives	7,324		10,623		22,362		(8,870)
Realized Losses on Inventory Injection Hedges	—			—			—			332
Unrealized Loss on Property, Plant and Equipment (A)	—			43,966			99,233			44,222
Net Losses from Legal Proceedings (B)	1,726			6,292			4,732			61,899
Acquisition/Sale Costs (C)	2,859			—			38,382			—
Loss on Property, Plant and Equipment (A)													Loss on Property, Plant and Equipment (A)	1,296		—		1,296		99,233
Net Losses from a Legal Proceeding in a Pricing Dispute (B)													Net Losses from a Legal Proceeding in a Pricing Dispute (B)	359		1,726		2,336		4,732
Acquisition/Sale Net Costs (C)													Acquisition/Sale Net Costs (C)	540		2,859		703		38,382
Customer Credits (D)	15,333			—			15,333			—			Customer Credits (D)	—		15,333		—		15,333
Other (E)	—			(47		)	—			2,257
Other Costs (E)													Other Costs (E)	299		—		3,294		—
Income Taxes (F)	(8,110		)	(21,284		)	(37,985		)	(42,312		)	Income Taxes (F)	(2,605)		(8,110)		(7,957)		(37,985)
Economic Earnings	$	(23,211	)	$	(3,972	)	$	82,696		$	58,061		Economic Earnings	$	(27,533)	$	(23,211)	$	59,683	$	82,696

Earnings per Share from Continuing Operations	$	(0.53	)	$	(0.47	)	$	(0.34	)	$	(0.09	)	Earnings per Share from Continuing Operations	$	(0.38)	$	(0.53)	$	0.41	$	(0.34)
Minus/Plus:													Minus/Plus:
Unrealized Mark-to-Market Losses (Gains) on Derivatives	0.12			0.06			(0.10		)	(0.01		)	Unrealized Mark-to-Market Losses (Gains) on Derivatives	0.08		0.12		0.24		(0.10)
Unrealized Loss on Property, Plant and Equipment (A)	—			0.55			1.18			0.55
Net Losses from Legal Proceedings (B)	0.02			0.08			0.06			0.78
Acquisition/Sale Costs (C)	0.03			—			0.46			—
Loss on Property, Plant and Equipment (A)													Loss on Property, Plant and Equipment (A)	0.02		—		0.02		1.18
Net Losses from a Legal Proceeding in a Pricing Dispute (B)													Net Losses from a Legal Proceeding in a Pricing Dispute (B)	—		0.02		0.02		0.06
Acquisition/Sale Net Costs (C)													Acquisition/Sale Net Costs (C)	0.01		0.03		0.01		0.46
Customer Credits (D)	0.18			—			0.18			—			Customer Credits (D)	—		0.18		—		0.18
Other (E)	—			—			—			0.03
Other Costs (E)													Other Costs (E)	—		—		0.04		—
Income Taxes (F)	(0.09		)	(0.27		)	(0.45		)	(0.53		)	Income Taxes (F)	(0.03)		(0.09)		(0.09)		(0.45)
Economic Earnings per Share	$	(0.27	)	$	(0.05	)	$	0.99		$	0.73		Economic Earnings per Share	$	(0.30)	$	(0.27)	$	0.65	$	0.99

The effect of derivative instruments not designated as hedging instruments under GAAP in the ~~unaudited~~ condensed consolidated statements of income (see Note 12 to the ~~unaudited~~ condensed consolidated financial statements), as compared to the Economic Earnings table above, is as follows ~~(gains (losses) in~~(in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2019		2018		2019		2018
(Losses) Gains on Energy Related Commodity Contracts	$	(6,187)	$	(11,225)	$	(18,390)	$	5,950
(Losses) Gains on Interest Rate Contracts	(1,137)		673		(3,972)		2,921
Total before income taxes	(7,324)		(10,552)		(22,362)		8,871
Unrealized mark-to-market gains on derivatives held by affiliated companies, before taxes	—		(71)		—		(1)
Total unrealized mark-to-market (losses) gains on derivatives	(7,324)		(10,623)		(22,362)		8,870
Loss on Property, Plant and Equipment (A)	(1,296)		—		(1,296)		(99,233)
Net Losses from a Legal Proceeding in a Pricing Dispute (B)	(359)		(1,726)		(2,336)		(4,732)
Acquisition/Sale Net Costs (C)	(540)		(2,859)		(703)		(38,382)
Customer Credits (D)	—		(15,333)		—		(15,333)
Other Costs (E)	(299)		—		(3,294)		—
Income Taxes (F)	2,605		8,110		7,957		37,985
Total reconciling items between (losses) income from continuing operations and economic earnings	$	(7,213)	$	(22,431)	$	(22,034)	$	(110,825)

Three Months Ended
September 30, Nine Months Ended
September 30,
2018 2017 2018 2017
(Losses) Gains on Energy Related Commodity Contracts $ (11,225 ) $ (4,632 ) $ 5,950
$ 2,200
Gains (Losses) on Interest Rate Contracts 673
52
2,921
(1,332 )
Total before income taxes (10,552 ) (4,580 ) 8,871
868
Unrealized mark-to-market (losses) gains on derivatives held by affiliated companies, before taxes (71 ) (69 ) (1 ) 56
Total unrealized mark-to-market (losses) gains on derivatives (10,623 ) (4,649 ) 8,870
924
Realized Losses on Inventory Injection Hedges —
—
—
(332 )
Unrealized Loss on Property, Plant and Equipment (A) —
(43,966 ) (99,233 ) (44,222 )
Net Losses from Legal Proceedings (B) (1,726 ) (6,292 ) (4,732 ) (61,899 )
Acquisition/Sale Costs (C) (2,859 ) —
(38,382 ) —
Customer Credits (D) (15,333 ) —
(15,333 ) —
Other (E) —
47
—
(2,257 )
Income Taxes (F) 8,110
21,284
37,985
42,312
Total reconciling items between income (losses) from continuing operations and economic earnings $ (22,431 ) $ (33,576 ) $ (110,825 ) $ (65,474 )

Table of Contents

(A) Represents impairment charges taken on solar generating facilities in 2019 and 2018, which ~~was~~were primarily driven by the purchase price in the agreement to sell solar assets being less than the carrying amount of the assets, and in 2017, which was primarily driven by declining market conditions at that time, specifically market prices of SRECs. See Note 1 to the unaudited condensed consolidated financial statements.assets.

(B) Represents net losses, ~~from two separate legal proceedings: (a) charges,~~ including interest, legal fees, and the realized difference in the market value of the commodity (including financial hedges), resulting from a ruling in a legal proceeding related to a pricing dispute between SJI and a gas supplier that began in October 2014; and (b) a charge in the nine months ended September 30, 2017, including legal fees, resulting from a settlement with a counterparty over a dispute related to a three-year capacity management contract. Since the net losses relate to purchase transactions that primarily occurred in prior periods, these amounts are excluded from Economic Earnings.2014.

(C) Represents costs incurred ~~in connection with the acquisition of~~to acquire the assets of ~~Elizabethtown Gas~~ETG and ~~Elkton Gas. See Note 17 to the unaudited condensed consolidated financial statements. Also represents~~ELK, including legal, consulting and other professional fees, and costs incurred to ~~enter into series~~exit the TSA. Also included here are gains recognized and costs incurred on the sale of ~~agreements whereby Marina will sell its portfolio~~the remaining solar assets and sales of ~~solar energy assets to a third-party buyer. See Note 1 to the condensed consolidated financial statements.~~certain SREC's.

(D) Represents credits to ETG and ELK ~~customers. See Note 7 to the unaudited condensed consolidated financial statements.~~

(E) Included in this amount are amendments made to an existing interest rate derivative linked to unrealized losses previously recorded in AOCL. SJI reclassified this amount from AOCL to Interest Charges on the unaudited condensed consolidated statements of incomecustomers that were required as ~~a result~~part of the prior hedged transactions being deemed probable of not occurring. Since the economic impact will not be realized until future periods, this amount is excluded from Economic Earnings. Also included is additional depreciation expense within Economic Earnings on a solar generating facility where an impairment charge was recorded in the past, which reduced the depreciable basisAcquisition.

(E) Represents severance and ~~recurring depreciation expense, and the related reduction in depreciation expense was added back in the prior year.~~ other employee separation costs.

(F) Determined using a combined average statutory tax rate of approximately 27% for the three and ~~40% for 2018~~nine months ended September 30, 2019 and ~~2017, respectively.~~ 2018.

Table of Contents

SJI Utilities:

SJG Utility Operations:

The following tables summarize the composition of SJG utility operations operating revenues and margin for the three and nine months ended September 30 (in ~~thousands, except for degree day data)~~thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2019		2018		2019		2018
Utility Operating Revenues:
Firm Sales -
Residential	$	30,267	$	25,617	237,372		$	208,555
Commercial	8,448		7,436		54,863		46,663
Industrial	352		608		2,887		3,378
Cogeneration & Electric Generation	1,899		2,908		2,870		5,957
Firm Transportation -
Residential	989		1,066		7,517		9,372
Commercial	4,682		4,601		26,635		27,136
Industrial	5,909		5,793		18,159		17,842
Cogeneration & Electric Generation	1,089		977		4,058		3,327

Total Firm Revenues	53,635		49,006		354,361		322,230

Interruptible Sales	—		86		62		209
Interruptible Transportation	241		244		881		822
Off-System Sales	6,292		4,636		35,838		36,821
Capacity Release	1,568		2,071		4,519		6,720
Other	303		328		844		829
	62,039		56,371		396,505		367,631
Less: Intercompany Sales	(1,174)		(780)		(3,808)		(4,669)
Total Utility Operating Revenues	60,865		55,591		392,697		362,962
Less:
Cost of Sales - Utility	19,268		16,079		140,802		125,266
Less: Intercompany Cost of Sales	(1,174)		(780)		(3,808)		(4,669)
Total Cost of Sales - Utility (Excluding depreciation)	18,094		15,299		136,994		120,597
Total Gross Margin	42,771		40,292		255,703		242,365
Conservation Recoveries*	1,290		1,582		10,648		10,546
RAC Recoveries*	5,219		4,086		15,657		12,258
EET Recoveries*	1,024		365		2,170		1,342
Revenue Taxes	175		150		1,055		696
Utility Margin**	$	35,063	$	34,109	$	226,173	$	217,523

Table of Contents

Three Months Ended
September 30, Nine Months Ended
September 30,
2018 2017 2018 2017
Utility Operating Revenues:
Firm Sales -
Residential $ 25,617
$ 22,797
208,555
$ 172,887
Commercial 7,436
6,805
46,663
43,445
Industrial 608
499
3,378
2,988
Cogeneration & Electric Generation 2,908
1,771
5,957
3,233
Firm Transportation -
Residential 1,066
1,238
9,372
9,271
Commercial 4,601
4,293
27,136
22,457
Industrial 5,793
5,193
17,842
14,655
Cogeneration & Electric Generation 977
1,076
3,327
3,310

Total Firm Revenues 49,006
43,672
322,230
272,246

Interruptible Sales 86
—
209
22
Interruptible Transportation 244
195
822
627
Off-System Sales 4,636
20,795
36,821
67,994
Capacity Release 2,071
1,776
6,720
5,056
Other 328
317
829
875
56,371
66,755
367,631
346,820
Less: Intercompany Sales (780 ) (1,282 ) (4,669 ) (3,640 )
Total Utility Operating Revenues 55,591
65,473
362,962
343,180
Less:

Cost of Sales - Utility 16,079
29,499
125,266
135,567
Less: Intercompany Cost of Sales (780 ) (1,282 ) (4,669 ) (3,640 )
Total Cost of Sales - Utility (Excluding depreciation) 15,299
28,217
120,597
131,927
Conservation Recoveries* 1,582
1,133
10,546
4,927
RAC Recoveries* 4,086
2,501
12,258
7,502
EET Recoveries* 365
297
1,342
983
Revenue Taxes 150
156
696
790
Utility Margin** $ 34,109
$ 33,169
$ 217,523
$ 197,051


	Three Months Ended September 30,						Nine Months Ended September 30,
	2019		2018		2019		2018
Utility Margin:
Residential	$	20,432	$	18,997	$	147,244	$	147,803
Commercial and Industrial	12,559		12,944		64,381		65,099
Cogeneration and Electric Generation	1,223		1,356		3,491		3,547
Interruptible	19		50		62		77
Off-System Sales & Capacity Release	489		553		2,675		3,096
Other Revenues	469		653		1,256		1,695
Margin Before Weather Normalization & Decoupling	35,191		34,553		219,109		221,317
CIP Mechanism	(1,248)		(1,187)		4,008		(6,091)
EET Mechanism	1,120		743		3,056		2,297
Utility Margin**	$	35,063	$	34,109	$	226,173	$	217,523

Three Months Ended
September 30, Nine Months Ended
September 30,
2018 2017 2018 2017
Utility Margin:
Residential $ 18,997
$ 16,662
$ 147,803
$ 114,162
Commercial and Industrial 12,944
10,620
65,099
50,277
Cogeneration and Electric Generation 1,356
1,261
3,547
3,482
Interruptible 50
11
77
48
Off-System Sales & Capacity Release 553
775
3,096
3,407
Other Revenues 653
724
1,695
1,573
Margin Before Weather Normalization & Decoupling 34,553
30,053
221,317
172,949
CIP Mechanism (1,187 ) 2,165
(6,091 ) 21,306
EET Mechanism 743
951
2,297
2,796
Utility Margin** $ 34,109
$ 33,169
$ 217,523
$ 197,051

Degree Days: 12
48
2,973
2,631

*Represents expenses for which there is a corresponding credit in operating revenues. Therefore, such recoveries have no impact on SJG's financial results.

**Utility Margin is a non-GAAP financial measure and is further defined under the caption "Utility Margin" below.

Operating Revenues - SJG Utility Operations

Revenues from the gas utility operations at SJG decreased $10.4 million, or 15.6%, for the three months ended September 30, 2018 compared with the same period in 2017. Excluding intercompany transactions, revenues decreased $9.9 million, or 15.1%, for the three months ended September 30, 2018 compared with the same period in 2017.

Revenues from the gas utility operations at SJG increased ~~$20.8~~$5.7 million, or ~~6.0%~~10.1%, for the ~~nine~~three months ended September 30, ~~2018~~2019 compared with the same period in ~~2017.~~2018. Excluding intercompany transactions, revenues increased ~~$19.8~~$5.3 million, or ~~5.8%~~9.5%, for the ~~nine~~three months ended September 30, ~~2018~~2019 compared with the same period in ~~2017.~~2018.

The main driver for the increased revenue was higher firm sales. Total firm revenue increased ~~$5.3~~$4.6 million, or ~~12.2%, and $50.0 million, or 18.4%~~9.4%, for the three ~~and nine~~ months ended September 30, ~~2018, respectively,~~2019, compared with the same periods in ~~2017~~2018 primarily due to an increase in base rates. Also contributing to the increase was higher OSS sales, which was primarily due to advantageous commodity pricing spreads during the quarter.

Revenues from the gas utility operations at SJG increased $28.9 million, or 7.9%, for the nine months ended September 30, 2019 compared with the same period in 2018. Excluding intercompany transactions, revenues increased $29.7 million, or 8.2%, for the nine months ended September 30, 2019 compared with the same period in 2018.

Total firm revenue increased $32.1 million or 10.0%, for the nine months ended September 30, 2019 as a result of ~~colder weather~~customer growth and ~~additional customers. Additionally, firm sales increased due to~~increase in base ~~rate increases related to the settlement of SJG's base rate case, effective November 1, 2017.~~rates. While changes in gas costs and ~~Basic Gas Supply Service (BGSS)~~BGSS recoveries/refunds fluctuate from period to period, SJG does not profit from the sale of the commodity. Therefore, corresponding fluctuations in Operating Revenue or Cost of Sales have no impact on profitability, as further discussed below under the caption "Utility Margin."

Partially offsetting these increases was the impact of ~~Off-System Sales (OSS) volume, discussed under "Throughput - Gas Utility Operations" below,~~decreased OSS and capacity release sales, which ~~resulted~~was primarily due to fluctuations in ~~corresponding decreases of $16.2 million, or 77.7%,~~commodity pricing and ~~$31.2 million, or 45.8%, in OSS revenues for~~capacity values during the ~~three and nine months ended September 30, 2018, respectively, compared with the same periods in 2017.~~period. However, the impact of changes in OSS and capacity release activity do not have a material impact on the earnings of SJG, as SJG is required to return 85% of the profits of such activity to its ratepayers. Earnings from OSS can be seen in the “Margin” table above.

Utility Margin - SJG Utility Operations

Management uses Utility Margin, a non-GAAP financial measure, when evaluating the operating results of SJG. Utility Margin is defined as natural gas revenues less natural gas costs, regulatory rider expenses and related volumetric and revenue-based energy taxes. Management believes that Utility Margin provides a more meaningful basis for evaluating utility operations than revenues since natural gas costs, regulatory rider expenses and related energy taxes are passed through to customers. Natural gas costs are charged to operating expenses on the basis of therm sales at the prices approved by the ~~New Jersey Board of Public Utilities (BPU)~~BPU through SJG’s BGSS clause. Non-GAAP financial measures are not in accordance with, or an alternative to, GAAP and should be considered in

Table of Contents

addition to, and not as a substitute for, the comparable GAAP ~~measure.~~measure of gross margin, which is calculated as revenues less cost of sales as shown in the table above.

Total Utility Margin increased ~~$0.9~~$1.0 million, or 2.8%, and ~~$20.5~~$8.7 million, or ~~10.4%~~4.0%, for the three and nine months ended September 30, ~~2018,~~2019, respectively, compared with the same periods in ~~2017.~~2018. The ~~three month comparative period change was not significant.~~increase is primarily due to customer growth and the roll-in of AIRP II Investments.

~~The~~Also contributing to the nine month comparative period increase ~~is primarily due to~~was the base rate case settlement and the roll-in of Storm Hardening and Reliability Program (SHARP) and Accelerated Infrastructure Replacement Program II (AIRP II) investments, partially offset by the deferral of excess taxes billed which will be returned to ratepayers (see Note 7 to the unaudited condensed consolidated financial statements). The rolling into base rates of infrastructure and system improvements and the related expenses, effective November 1, 2017, contributed approximately $31.9 million of additional Utility Margin in 2018 and the rolling into base rates of SHARP and AIRP II investments contributed approximately $6.1 million of additional Utility Margin in 2018. Margin was reduced by $3.0 million and $19.3 million for the three and nine months ended September 30, 2018, respectively, due to the deferral of the excess taxes, with a corresponding decrease in tax expense.

~~The Conservation Incentive Program (CIP)~~CIP tracking mechanism, which adjusts earnings when actual usage per customer experienced during the period varies from an established baseline usage per customer. As reflected in the Utility Margin table above and the CIP table in SJG's Management Discussion section, the CIP mechanism ~~reduced~~increased Utility Margin ~~by $1.2 million, or $0.9 million after taxes,~~ for the ~~three~~nine months ended September 30, ~~2018,~~2019, primarily due to variation in customer usage ~~than~~compared to the same ~~period~~periods in 2017. For the nine months ended September 30, 2018, the CIP mechanism reduced Utility Margin by $6.1 million, or $4.4 million after taxes, primarily due to variation in customer usage and weather that was 13.0% colder than normal.2018.

ETG Utility Operations:

The following tables summarize the composition of regulated natural gas utility operations, operating revenues and margin at ETG for the three and nine months ended September 30 (in thousands, except for degree day data).


	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019		Three and Nine Months Ended September 30, 2018***
Utility Operating Revenues:
Firm & Interruptible Sales -
Residential	$	15,950	$	139,343	$	16,062
Commercial & Industrial	6,713		44,158		5,846
Firm & Interruptible Transportation -
Residential	141		1,136		131
Commercial & Industrial	6,085		25,104		6,100
Other	1,730		5,906		978
Total Firm & Interruptible Revenues	30,619		215,647		29,117
Less:
Total Cost of Sales - Utility (Excluding depreciation)	8,069		92,131		7,664
Total Gross Margin	22,550		123,516		21,453
Regulatory Rider Expenses*	1,357		4,816		632
Utility Margin**	$	21,193	$	118,700	$	20,821

Three and Nine Months Ended September 30, 2018
Utility Operating Revenues:
Firm & Interruptible Sales -
Residential $ 16,062
Commercial & Industrial 5,846
Firm & Interruptible Transportation -
Residential 131
Commercial & Industrial 6,100
Other 978
Total Firm & Interruptible Revenues 29,117
Less:
Total Cost of Sales - Utility (Excluding depreciation) 7,664
Regulatory Rider Expenses* 632
Utility Margin** $ 20,821


Utility Margin:
Residential	$	10,560	$	73,061	$	10,754
Commercial & Industrial	10,209		44,317		9,696
Regulatory Rider Expenses*	424		1,322		371
Utility Margin**	$	21,193	$	118,700	$	20,821

Degree Days	11		3,005		25

Utility Margin:
Residential $ 10,754
Commercial & Industrial 9,696
Regulatory Rider Expenses* 371
Utility Margin** $ 20,821

Degree Days 25

*Represents expenses for which there is a corresponding credit in operating revenues. Therefore, such recoveries have no impact on ~~ETG~~ETG's financial results.

**Utility Margin is a non-GAAP financial measure and is further defined under the caption "Utility Margin" above. The definition of Utility Margin is the same for ~~SJG,~~the Utilities.

***Three and nine month period results for 2018 for ETG ~~and ELK gas utility operations.~~are the same since the Acquisition closed July 1, 2018.

Table of Contents

As ETG was acquired on July 1, 2018, ~~there is no~~the activity for ~~the prior year period, and~~ the three and nine ~~month activity~~months ended September 30, 2018 is the same (see Note ~~1 and~~ 17 to the ~~unaudited~~ condensed consolidated financial statements). ~~ETG~~ETG's business consists of natural gas distribution to residential, commercial and industrial customers in northern and central New Jersey. ETG's operating revenues of $30.6 million and $215.6 million for the three and nine months ended September 30, 2019, respectively, and $29.1 million for the three and nine months ended September 30, 2018 ~~consists~~consist of firm sales and transportation, as well as interruptible sales and transportation. ETG does not have any off-system sales. The Utility Margin at ETG of $21.2 million and $118.7 million for the three and nine months ended September 30, 2019, respectively, and $20.8 million for the three and nine months ended September 30, 2018 is considered a non-GAAP measure and calculated the same as SJG as discussed under "Utility Margin" above. Increases in operating revenues and utility margin for the three months ended September 30, 2019 compared with the same period in 2018 was due to customer growth.

ELK Utility ~~Operations~~ - Operations:

The activities of ELK utility operations are ~~deemed~~not material to ~~be immaterial for further disclosure.~~SJI's financial results.

Nonutility:

Operating Revenues - Energy Group -

Combined revenues for Energy Group, net of intercompany transactions, ~~increased $69.8~~decreased $45.1 million, or ~~52.9%~~22.4%, to ~~$201.9~~$156.7 million, and ~~$122.0~~decreased $90.3 million, or ~~25.3%~~14.9%, to ~~$604.2~~$513.9 million, for the three and nine months ended September 30, ~~2018,~~2019, respectively, compared with the same periods in ~~2017.~~2018. The significant drivers for the overall change were as follows:

•Revenues from wholesale energy operations at SJRG, net of intercompany transactions, increased ~~$64.0~~$1.3 million to ~~$134.6~~$135.8 million for the three months ended September 30, ~~2018~~2019 compared with the same period in ~~2017, primarily~~2018. The main driver was the change in unrealized gains and losses recorded on forward financial contracts due to ~~revenues~~price volatility, which is excluded for Economic Earnings and represented a total increase of $6.7 million for the three months ended September 30, 2019 compared with the same period in 2018. Partially offsetting this increase was an overall decrease in sales during the three months ended September 30, 2019 due to maintenance at several electric generation facilities for which SJRG has gas supply contracts.

•Revenues from wholesale energy operations at SJRG, net of intercompany transactions, increased $60.8 million to $452.2 million for the nine months ended September 30, 2019 compared with the same period in 2018. Revenues earned on gas supply contracts with electric generation facilities ~~including~~increased for the nine months ended September 30, 2019 compared with the same period in 2018 primarily due to three contracts that began operations in ~~late 2017 or in~~ the ~~first~~second quarter of 2018. Partially offsetting this increase was an overall decrease in sales, specifically compared to the first two weeks of January 2018 due to market conditions during that time, along with maintenance at several electric generation facilities in the third quarter as noted above. Also contributing was the change in unrealized gains and losses recorded on forward financial contracts due to price volatility, which is excluded for Economic Earnings and represented a total decrease of ~~$7.9 million for the three months ended September 30, 2018 compared with the same period in 2017.~~

~~Revenues from wholesale energy operations at SJRG, net of intercompany transactions, increased $117.5 million to $391.5~~$21.3 million for the nine months ended September 30, ~~2018~~2019 compared with the same period in ~~2017. This increase was~~2018. As discussed in 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, revenues and expenses related to the energy trading activities of the wholesale energy operations at SJRG are presented on a net basis in Operating Revenues – Nonutility on the condensed consolidated income statement.

•The retail gas operations at SJE were sold November 30, 2018. As a result, the Company recorded no revenues from this business during the three and nine months ended September 30, 2019, as compared to revenues, net of intercompany transactions, of $17.7 million and $79.1 million for the same periods in the prior year.

•Revenues from retail electric operations at SJE, net of intercompany transactions, decreased $28.6 million to $20.9 million, and decreased $72.0 million to $61.5 million for the three and nine months ended September 30, 2019, respectively, compared with the same periods in 2018, primarily due to anlower average LMP per megawatt hour and lower overall ~~increase in~~ sales ~~due to cold weather experienced in the first quarter of 2018, along with revenues earned on gas supply contracts with electric generation facilities as discussed above.~~volumes. Also contributing to the ~~overall comparative period increase~~decrease was the change in unrealized gains and losses recorded on forward financial contracts due to price volatility, which is excluded for Economic Earnings and represented a total ~~increase~~decrease of ~~$4.0 million for the nine months ended September 30, 2018 compared with the same period in 2017.~~

Revenues from retail gas operations at SJE, net of intercompany transactions, remained flat at $17.7 million for both the three months ended September 30, 2018 and 2017. Revenues from retail gas operations at SJE, net of intercompany transactions, increased $4.0 million, or 5.3%, to $79.1 million for the nine months ended September 30, 2018 compared with the same period in 2017, primarily due to an increase in sales volumes due to cold weather experienced during the first quarter of 2018.

~~Revenues from retail electric operations at SJE, net of intercompany transactions, increased $5.8 million, or 13.3%, to $49.5~~$0.1 million and ~~$0.5 million, or 0.4%, to $133.5~~$3.9 million for the three and nine months ended September 30, ~~2018,~~2019, respectively, compared with the same periods in 2017, primarily due to higher average Locational Marginal Price (LMP) per megawatt hour. Partially offsetting the nine month comparative period increase was lower sales volumes in the first two quarters2018.

Table of ~~2018 resulting from the expiration in the second quarter of 2017 of a large electric sales contract with a group of school boards.~~Contents

SJE uses forward financial contracts to mitigate commodity price risk on fixed price electric contracts. In accordance with GAAP, the forward financial contracts are recorded at fair value, with changes in fair value recorded in earnings in the period of change. The related customer contracts are not considered derivatives and, therefore, are not recorded in earnings until the electricity is delivered. As a result, earnings are subject to volatility as the market price of the forward financial contracts change, even when the underlying hedged value of the customer contract is unchanged. Over time, gains or losses on the sale of the fixed price electric under contract will be offset by losses or gains on the forward financial contracts, resulting in the realization of the profit margin expected when the transactions were initiated. The retail electric operations at SJE serve both fixed and market-priced customers.

As discussed in Note 1 to the Consolidated Financial Statements in Item 8 of SJI’s Annual Report on Form 10-K for the year ended December 31, 2017, revenues and expenses related to the energy trading activities of the wholesale energy operations at SJRG are presented on a net basis in Operating Revenues – Nonutility on the condensed consolidated income statement.

Operating Revenues - Energy Services -

Combined revenues for Energy Services, net of intercompany transactions, decreased ~~$14.5~~$3.1 million, or ~~48.7%~~20.4%, to ~~$15.2~~$12.1 million, and ~~$17.2~~decreased $16.8 million, or ~~23.9%~~30.6%, to ~~$54.8~~$38.0 million for the three and nine months ended September 30, ~~2018,~~2019, respectively, compared with the same periods in ~~2017.~~2018. The significant drivers for the overall change were as follows:

•Revenues from on-site energy production at Marina, net of intercompany transactions, decreased ~~$13.4~~$3.3 million ~~or 47.7%,~~ to ~~$14.7~~$11.4 million and ~~$13.5~~decreased $17.1 million ~~or 20.2%,~~ to ~~$53.3~~$36.2 million for the three and nine months ended September 30, ~~2018,~~2019, respectively, compared with the same periods in ~~2017,~~2018, primarily due to ~~a lack of~~less SREC revenue in ~~the third quarter 2018~~2019 as a result of the sale of solar assets to a third party buyer (see Note 1 to the ~~unaudited~~ condensed consolidated financial statements). ~~This was partially offset by increased production at the thermal facility.~~

~~Revenues~~•The change in revenues from appliance service operations at SJESP, net of intercompany transactions, decreased $1.0 million, or 67.2%, to $0.5 million and $3.7 million, or 71.5%, to $1.5 million for the three and nine months ended September 30, 2018, respectively, compared with the same periods in 2017 primarily due to the sale of certain assets of SJESP's residential and small commercial HVAC and plumbing business to a third party, which was ~~completed on September 1, 2017 (see Note 1 to the unaudited condensed consolidated financial statements).~~not significant.

Gross Margin - Nonutility -

Gross margin for the nonutility businesses is defined as revenue less all costs that are directly related to the production, sale and delivery of SJI’s products and services. These costs primarily include natural gas and electric commodity costs as well as certain payroll and related benefits. On the ~~unaudited~~ condensed consolidated statements of income, revenue is reflected in Operating Revenues - Nonutility and the costs are reflected in Cost of Sales - Nonutility. As discussed in Note 161 to the Consolidated Financial Statements in Item 8 of SJI’s Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2018, revenues and expenses related to the energy trading activities of the wholesale energy operations at SJRG are presented on a net basis in Operating Revenues - Nonutility on the condensed consolidated statements of income.

Gross margin for our nonutility business totaled ~~$7.2~~$4.7 million and ~~$125.5~~$25.3 million for the three and nine months ended September 30, ~~2018,~~2019, respectively. Gross margin is broken out between Energy Group and Energy Services, which are defined as categories of segments in Note 6 to the condensed consolidated financial statements.

Gross Margin - Energy Group -

Combined gross margins for Energy Group increased $0.4 million to a loss of ~~$5.5~~$5.1 million and ~~$90.7~~decreased $76.0 million to ~~$69.3~~a loss of $6.7 million for the three and nine months ended September 30, ~~2018,~~2019, respectively, compared with the same periods in ~~2017. These changes~~2018. The significant drivers for the overall change were ~~primarily due to the following:~~as follows:

•Gross margin from the wholesale energy operations at SJRG ~~decreased $1.0~~increased $3.2 million to a loss of ~~$9.2~~$6.0 million for the three months ended September 30, ~~2018~~2019 compared with the same period in ~~2017, primarily due to a $7.9 million decrease resulting from~~2018, The main driver for the overall increase was the change in unrealized gains and losses recorded on forward financial contracts due to price volatility, which is excluded for Economic ~~Earnings.~~Earnings and represented a total increase of $6.7 million. This was partially offset with ~~higher~~lower margins on daily energy trading ~~activities .~~activities.

•Gross margin from the wholesale energy operations at SJRG ~~increased $92.0~~decreased $67.8 million to ~~$62.3~~a loss of $5.6 million primarily due to lower margins on daily energy trading activities and an overall decrease in sales as noted under "Operating Revenues-Energy Group" above. Also contributing was the change in unrealized gains and losses recorded on forward financial contracts due to price volatility, which is excluded for Economic Earnings and represented a total decrease of $21.3 million for the nine months ended September 30, ~~2018~~2019 compared with the same period in ~~2017, primarily due to:~~2018.


◦	$40.6 million charge from prior year recorded on a pricing dispute between SJI and a gas supplier during the first quarter of 2018 versus 2017 (see Note 11 to the unaudited condensed consolidated financial statements).


◦	~~$4.0 million increase resulting from the change in unrealized gains and losses recorded on forward financial contracts due to price volatility, which is excluded for Economic Earnings.~~


◦	~~$9.5 million increase due to an unfavorable settlement of a legal dispute that occurred in the second quarter of 2017, which SJRG did not incur in 2018.~~


◦	The remaining $37.9 million increase is primarily due to higher margins on daily energy trading activities and an overall increase in sales due to cold weather experienced in the first quarter of 2018.

Table of Contents

The wholesale energy operations at SJRG ~~expect~~are expected to continue to add incremental margin from marketing and related opportunities in the Marcellus region, capitalizing on its established presence in the area. Future margins could fluctuate significantly due to the volatile nature of wholesale gas prices.

•The retail gas operations at SJE were sold November 30, 2018. As ofa result, the Company recorded no margin from this business during the three and nine months ended September 30, ~~2018,~~2019, as compared to $2.3 million and $2.9 million for the ~~wholesale energy operations had 8.6 Bcf of storage and 556,982 dts/day of transportation under contract.~~same periods in the prior year.

•Gross margin from SJE’s retail ~~gas and other~~electric operations ~~increased~~decreased $0.6 million to ~~$2.3~~$0.8 million, and decreased ~~$0.4~~$5.3 million to ~~$2.9~~a loss of $1.2 million, for the three and nine months ended September 30, ~~2018,~~2019, respectively, compared with the same periods in ~~2017,~~2018, primarily due to the change in unrealized gains and losses recorded on forward financial contracts due to price volatility, which ~~did not represent~~is excluded for Economic Earnings and represented a ~~significant change for either period.~~

~~Gross margin from SJE’s retail electric operations increased $0.8 million to $1.4~~total decrease of $0.1 million and ~~decreased $0.9 million to $4.1~~$3.9 million for the three and nine months ended September 30, ~~2018,~~2019, respectively, compared with the same periods in ~~2017, which did not represent a significant change for either period.~~2018. Also contributing to the comparative period decreases is overall lower sales volumes.

Gross Margin - Energy Services -

Combined gross margins for Energy Services decreased ~~$14.3~~$2.8 million to ~~$12.7~~$9.8 million and ~~$15.7~~decreased $24.1 million to ~~$56.2~~$32.0 million for the three and nine months ended September 30, ~~2018,~~2019, respectively, compared with the same periods in ~~2017. These changes~~2018. The significant drivers for the overall change were ~~primarily due to the following:~~as follows:

•Gross margin from on-site energy production at Marina decreased ~~$14.3~~$2.8 million to ~~$12.1~~$9.3 million, and ~~$15.0~~decreased $24.2 million to ~~$54.7~~$30.5 million for the three and nine months ended September 30, ~~2018,~~2019, respectively, compared with the same periods in ~~2017,~~2018, primarily due to less SREC revenue in 2019 as a result of the sale of ~~certain SREC's~~solar assets to a third party buyer (see Note 1 to the ~~unaudited~~ condensed consolidated financial statements).

~~Gross~~•The change in gross margin from appliance service operations at SJESP increased $0.1 million to $0.5 million and decreased $0.7 million to $1.5 million for the three and nine months ended September 30, 2018, respectively, compared with the same periods in 2017, which didwas not ~~represent a significant change for either period. The nine-month comparative period was impacted by the sale~~significant.

Table of certain assets of SJESP's residential and small commercial HVAC and plumbing business to a third party, which was completed on September 1, 2017 (see Note 1 to the unaudited condensed consolidated financial statements).Contents

Operating Expenses - All Segments:

A summary of net changes in operations expense for the three and nine months ended September 30,, follows (in thousands):


	Three Months Ended September 30, 2019 vs. 2018		Nine Months Ended September 30, 2019 vs. 2018
SJI Utilities:
SJG Utility Operations	$	1,319	$	(1,028)
ETG Utility Operations	(14,546)		21,293
ELK Utility Operations	(169)		855
Subtotal SJI Utilities	(13,396)		21,120
Nonutility:
Energy Group:
Wholesale Energy Operations	(337)		(1,259)
Retail Gas and Other Operations	(1,935)		(6,924)
Retail Electric Operations	276		842
Subtotal Energy Group	(1,996)		(7,341)
Energy Services:
On-Site Energy Production	(1,203)		(7,598)
Appliance Service Operations	(803)		(831)
Subtotal Energy Services	(2,006)		(8,429)
Total Nonutility	(4,002)		(15,770)
Midstream	(284)		(213)
Corporate & Services and Intercompany Eliminations	(2,562)		(10,998)
Total Operations Expense	$	(20,244)	$	(5,861)

Three Months Ended September 30,
2018 vs. 2017 Nine Months Ended September 30,
2018 vs. 2017
SJI Utilities:
   SJG Utility Operations $ 1,937
$ 11,945
   ETG Utility Operations 32,740
32,740
   ELK Utility Operations 711
711
        Subtotal SJI Utilities 35,388
45,396
Nonutility:
Energy Group:
   Wholesale Energy Operations (378 ) (2,138 )
   Retail Gas and Other Operations (645 ) (410 )
   Retail Electric Operations (56 ) (170 )
      Subtotal Energy Group (1,079 ) (2,718 )
Energy Services:
   On-Site Energy Production (1,182 ) 5,842
   Appliance Service Operations 31
(1,511 )
Subtotal Energy Services (1,151 ) 4,331
     Total Nonutility (2,230 ) 1,613
Midstream 285
285
Corporate & Services and Intercompany Eliminations 3,593
19,305
Total Operations Expense $ 37,036
$ 66,599

Operations Expense

~~Operations~~ -

In connection with the Acquisition, SJI consolidated the accounts of ETG and ELK ~~gas~~ utility operations beginning July 1, 2018 (see Note 17 to the ~~unaudited~~ condensed consolidated financial statements), contributing an increase to Operations Expenses of ~~$33.4~~$36.9 million for the six months ended June 30, 2019. This increase to Operations Expense for the first six months of 2019 was partially offset by a $14.5 million decrease in Operations Expense at ETG for the three months ended September 30, 2019 compared with the same period in 2018, which was primarily due to credits issued to ETG customers during the three months ended September 30, 2018 that were required as part of the Acquisition that did not recur in 2019.

SJG utility operations expense increased $1.3 million and decreased $1.0 million for the three and nine months ended September 30, ~~2018 compared to the same periods in 2017.~~

~~SJG utility operations expense increased $1.9 million and $11.9 million for the three and nine months ended September 30, 2018,~~2019, respectively, compared with the same periods in ~~2017.~~2018. The three month comparative period increase primarily resulted from the operation of SJG’s New Jersey Clean Energy Program and Energy Efficiency Programs which experienced an aggregate net increase. Such costs are recovered on a dollar-for-dollar basis; therefore, SJG experienced an offsetting increase in revenue during the three and nine months ended September 30, 2018, compared with the same period in the prior year. This was ~~due to higher recoveries resulting from colder weather in the first quarter of 2018. In addition, the increase in operations expense was~~primarily due to higher expenses in various areas, including those associated with corporate support, governance and compliance costs. The nine month comparative period decrease was primarily due to the operation of SJG’s CLEP and EEP, which experienced an aggregate net decrease. Such costs ~~along~~are recovered on a dollar-for-dollar basis; therefore, SJG experienced an offsetting decrease in revenue during the three and nine months ended September 30, 2019, compared with ~~increases~~the same period in the ~~reserve for uncollectibles~~prior year. Partially offsetting this decrease was higher expenses in various areas as ~~a result of higher customer accounts receivable balances.~~noted above.

Nonutility operations expense decreased ~~$2.2~~$4.0 million and ~~increased $1.6~~$15.8 million for the three and nine months ended September 30, ~~2018,~~2019, respectively, compared with the same periods in ~~2017. The three month comparative period decrease is~~2018, primarily due to ~~lower expenses at the on-site energy production segment due~~consulting and legal costs related to the sale of ~~certain SRECs (see Note 1~~Marina's solar assets to ~~the unaudited condensed consolidated financial statements),~~a third-party buyer that were incurred in 2018 that did not recur in 2019, along with no expenses at the retail gas segment during 2019 resulting from the sale of the SJE gas business during the fourth quarter of 2018 as well as lower legal fees incurred at the wholesale energy operations at SJRG from an unfavorable court ruling related to a pricing dispute between SJRG and a supplier (see Note 11 to the ~~unaudited~~ condensed consolidated financial statements). ~~The nine month comparative period increase is primarily due to costs incurred in the first half~~

Table of 2018 at the on-site energy production segment to enter into a series of agreements whereby Marina will sell its portfolio of solar energy assets to a third-party buyer (see Note 1 to the unaudited condensed consolidated financial statements). These were partially offset with lower legal fees at SJRG discussed above, along with a reduction at the appliance service operations at SJESP due to the sale of certain assets of SJESP's residential and small commercial HVAC and plumbing business to a third party, which was completed on September 1, 2017.Contents

~~The Corporate & Services segment had a $3.6~~Maintenance - Maintenance expense increased $0.5 million and $19.3 million increase in total operations expense for the three and nine months ended September 30, 2018, respectively, compared with the same periods in 2017, primarily due to consulting and legal charges incurred on the agreement to acquire the assets of ETG and ELK (see Note 1 to the unaudited condensed consolidated financial statements). This is partially offset by intercompany eliminations.

~~Impairment Charges~~ ~~- SJI recorded impairment charges of $43.9 million and $44.2~~$5.7 million for the three and nine months ended September 30, 2017, respectively, primarily due to a significant decline in the market prices of Maryland SRECs, combined with an increase of operating expenses at the on-site energy production segment. During the nine months ended September 30, 2018, Marina incurred approximately $99.2 million of non-cash impairment charges taken at the on-site energy production segment on solar generating facilities in the second quarter of 2018, which was primarily driven by the purchase price in the agreement to sell solar assets being less than the carrying amount of the assets (see Note 1 to the condensed consolidated financial statements).

~~Maintenance~~ ~~- Maintenance expense increased $4.0 million and $8.0 million for the three and nine months ended September 30, 2018,~~2019, respectively, compared with the same periods in ~~2017, of which ETG and ELK contributed $1.7 million for both periods. The remaining increases were~~2018. This was primarily due to increased maintenance of services activity and higher levels of ~~Remediation Adjustment Clause (RAC) amortization.~~RAC amortization, both at SJG. This increase in RAC-related expenses does not affect earnings, as SJG recognizes an offsetting amount in revenues. Also contributing to the nine month comparative period increase was the results of ETG and ELK for the first six months of 2019, which totaled $3.8 million of maintenance expense during that period.

Depreciation - Depreciation ~~decreased~~increased $2.6 million and ~~$2.0~~$1.0 million for the three and nine months ended September 30, ~~2018,~~2019, respectively, compared with the same periods in ~~2017,~~2018, primarily due to ~~reduced depreciation expense at Marina as a result~~the impact of consolidating the solar assets being classified as held for sale (see Note 1 to the unaudited condensed consolidated financial statements), along with impairment charges taken on several long-lived assets in the second half of 2017 and the second quarter of 2018. Partially offsetting this decrease is the impactaccounts of ETG and ELK for the first six months of 2019, along with increased investment in property, plant and equipment by the gas utility operations of ~~SJG.~~SJG and ETG. This was partially offset by reduced depreciation expense at Marina as a result of the solar assets either being sold or classified as held for sale (see Note 1 to the condensed consolidated financial statements).

Energy and Other Taxes - The change in energy and other taxes for the three months ended September 30, 2019 compared to the same period in 2018 was not significant. Energy and other taxes increased $3.3 million for the nine months ended September 30, 2019 compared to the same period in 2018, of which ETG and ELK contributed the majority of the increase.

Net Gain on Sales of Assets - SJI recorded $2.3 million and $3.3 million of net gains on the sale of assets during the three and nine months ended September 30, ~~2018, respectively, compared with~~2019, respectively. These net gains were related to the ~~same~~sale of seven solar projects which were part of a series of agreements whereby Marina agreed to sell its portfolio of solar energy assets to a third-party buyer, as well as the sale of a separate solar project during the third quarter of 2019 (see Note 1 to the condensed consolidated financial statements). There were no such net gains related to the sale of assets in the comparative periods ~~in 2017, including the impact~~ of ~~ETG and ELK, was not significant.~~2018.

Other Income and Expense - The change in other income and expense for the three months ended September 30, ~~2018~~2019 compared ~~with~~to the same period in ~~2017~~2018 was not significant. Other income and expense ~~decreased $1.6 million~~ for the nine months ended September 30, ~~2018~~2019 decreased $2.9 million compared ~~with~~to the same period in ~~2017,~~2018 primarily due to ~~a gain recorded on a sale of real estate during the first quarter of 2017 that did not recur in 2018.~~lower AFUDC income at SJG.

Interest Charges – Interest charges increased ~~$16.0~~$2.3 million and ~~$21.8~~$25.9 million for the three and nine months ended September 30, ~~2018,~~2019, respectively, compared with the same periods in ~~2017,~~2018, primarily due to interest incurred on higher amounts of long-term debt outstanding at SJI and SJG, including financing for the ~~Acquisition (see Note 14 to the unaudited condensed consolidated financial statements).~~Acquisition.

Income Taxes– Income tax ~~benefit decreased $8.1~~expense increased $5.7 million and $21.6 million for the three months ended September 30, 2018, compared with the same period in 2017, primarily due to the impact of Tax Reform, which became effective January 1, 2018. Income tax benefit increased $3.8 million for theand nine months ended September 30, ~~2018,~~2019, respectively, compared with the same periods in 2018. For the three month comparative period, ~~in 2017, primarily due to~~the Company experienced a ~~higher~~lower loss before income taxes compared to the prior year period. For the nine month comparative period, ~~partially offset by~~ the ~~impact~~Company had income before income taxes of ~~Tax Reform.~~$41.7 million for the nine months ended September 30, 2019 compared to a loss before income taxes of $44.2 million for the nine months ended September 30, 2018.

Equity in Earnings of Affiliated Companies– The change in equity in earnings of affiliated companies for the three and nine months ended September 30, ~~2018,~~2019, respectively, compared with the same periods in ~~2017~~2018 was not significant.

Discontinued Operations —– The results are primarily comprised of environmental remediation and product liability litigation associated with previously disposed of businesses.

Table of Contents

LIQUIDITY AND CAPITAL RESOURCES:

Liquidity needs are driven by factors that include natural gas commodity prices; the impact of weather on customer bills; lags in fully collecting gas costs from customers under the BGSS charge and other regulatory clauses, settlement of legal matters, and environmental remediation expenditures through the ~~Remediation Adjustment Clause (RAC);~~RAC; working capital needs of SJI's energy trading and marketing activities; the timing of construction and remediation expenditures and related permanent financings; the timing of equity contributions to unconsolidated affiliates; mandated tax payment dates; both discretionary and required repayments of long-term debt; ~~amounts needed to fund acquisitions;~~ and the amounts and timing of dividend payments.

Cash Flows from Operating Activities — Liquidity needs are first met with net cash provided by operating activities. Net cash provided by operating activities totaled ~~$173.4~~$121.4 million and ~~$127.1~~$173.4 million in the first nine months of ~~2018~~2019 and ~~2017,~~2018, respectively. Net cash provided by operating activities varies from year-to-year primarily due to the impact of weather on customer demand and related gas purchases, customer usage factors related to conservation efforts and the price of the natural gas commodity, inventory utilization, and gas cost recoveries. Operating activities in the first nine months of ~~2018~~2019 produced ~~more~~less net cash than the same period in ~~2017, $4.8 million of which was produced by ETG and ELK. The remaining increases are~~2018, primarily due to ~~higher margins and increased collections on daily energy trading activities at SJRG driven in part by cold weather experienced in~~SJRG's cash payment related to a legal proceeding of a pricing dispute during the ~~first~~third quarter of ~~2018, along with~~2019 (see Note 11 to the SJG base rate case settlement and customer growth. In addition, SJI did not make a pension payment in 2018, but did make a $10.0 million contribution in the first quarter of 2017. These benefits were partially offset by the impacts of Tax Reform at SJG which resulted in lower collections from customers as well as higher costs experienced for environmental remediation, compared to prior year.condensed consolidated financial statements).

Cash Flows from Investing Activities — SJI has a continuing need for cash resources and capital, primarily to invest in new and replacement facilities and equipment. Net cash outflows from investing activities, which are primarily construction projects, ~~along with impacts from the Acquisition,~~ for the first nine months of ~~2018~~2019 and ~~2017~~2018 amounted to $327.5 million and $2.0 billion, ~~and $229.4 million,~~ respectively. The high amount of net cash outflows from investing activities for the first nine months of 2018 was due to cash paid for the ETG and ELK Acquisition (see Note 17 to the ~~unaudited~~ condensed consolidated financial statements). We estimate the cash outflows for investing activities, net of refinancings and returns/advances on investments from affiliates, for fiscal years ~~2018,~~ 2019, 2020 and ~~2020~~2021 at SJI to be approximately ~~$380.2~~$360.7 million, ~~$553.9~~$629.5 million and ~~$488.1~~$462.2 million, respectively. These amounts include the capital expenditures of ETG and ELK (post-Acquisition) for all three years, but do not include cash paid for the Acquisition in the third quarter of 2018 or expected cash to be received in the fourth quarter of 2018 from the sale of solar or other non-core assets. The high level of investing activities for ~~2018,~~ 2019, 2020 and ~~2020~~2021 is due to the accelerated infrastructure investment programs at SJG, ~~along with~~the capital expenditures of ETG and ELK (post-Acquisition) and projected SJI Midstream investments, net of projected returns, in ~~2018~~2019 through ~~2020.~~2021. SJI expects to use short-term borrowings under lines of credit from commercial banks and ~~the~~a commercial paper program to finance these investing activities as incurred. From time to time, SJI may refinance the short-term debt with long-term debt.

Other key investing activities of SJI during the first nine months of ~~2018~~2019 and ~~2017~~2018 were as follows:

•SJI received approximately $26.4 million during the first nine months of 2019 from the sale of certain solar assets. See Note 1 to the condensed consolidated financial statements.

•During the first nine months of 2019, SJI received $15.6 million as an adjustment to the purchase price related to the Acquisition. See Note 17 to the condensed consolidated financial statements.

•During the three and nine months ended September 30, 2019, SJI paid $4.0 million to acquire AEP (see Note 17 to the condensed consolidated financial statements).

•During the three and nine months ended September 30, 2019, SJI received $1.7 million in insurance proceeds.

•During the first nine months of 2019 and 2018, SJI made net investments in unconsolidated affiliates of $6.0 million and $8.2 million, respectively.

•During the three and nine months ended September 30, 2018, SJI paid $11.4 million to enter into a ~~new asset management agreement.~~AMA. See Note 1 to the ~~unaudited~~ condensed consolidated financial ~~statements,~~statements.

~~SJI made net investments in unconsolidated affiliates of $8.2 million in 2018 and $22.4 million in 2017.~~

~~During the first nine months of 2017, SJI received approximately $3.1 million related to the sale of real estate. SJI recognized an after-tax gain on this sale of approximately $1.7 million.~~

~~During the first nine months of 2017, SJI received $3.0 million of proceeds from a third party to pay down a portion of its outstanding note balance.~~

~~During the first nine months of 2017, SJI made an incremental $7.5 million payment to fund company-owned life insurance.~~

Cash Flows from Financing Activities — Short-term borrowings from the commercial paper program and lines of credit from commercial banks are used to supplement cash flows from operations, to support working capital needs and to finance capital expenditures and acquisitions as incurred. From time to time, short-term debt incurred to finance capital expenditures is refinanced with long-term debt.

Table of Contents

Credit facilities and available liquidity as of September 30, ~~2018~~2019 were as follows (in thousands):


Company	Total Facility		Usage			Available Liquidity		Expiration Date
SJI:
SJI Syndicated Revolving Credit Facility	$	500,000	$	352,400	(A)	$	147,600	August 2022
Revolving Credit Facility	50,000		50,000			—		September 2020
Term Loan Credit Agreement	100,000		100,000			—		September 2020

Total SJI	650,000		502,400			147,600

SJG:
Commercial Paper Program/Revolving Credit Facility	200,000		176,000		(B)	24,000		August 2022
Uncommitted Bank Line	10,000		—			10,000		September 2020

Total SJG	210,000		176,000			34,000

ETG/ELK:
ETG/ELK Revolving Credit Facility	200,000		145,300		(C)	54,700		June 2021

Total	$	1,060,000	$	823,700		$	236,300

Company Total Facility Usage Available Liquidity Expiration Date
SJI:
SJI Syndicated Revolving Credit Facility $ 400,000
$ 209,500
(A) $ 190,500
August 2022
Revolving Credit Facility 50,000
50,000
—
September 2019

Total SJI 450,000
259,500
190,500

SJG:
Commercial Paper Program/Revolving Credit Facility 200,000
141,000
(B) 59,000
August 2022
Uncommitted Bank Line 10,000
—
10,000
August 2019

Total SJG 210,000
141,000
69,000

ETG/ELK:
ETG/ELK Revolving Credit Facility 200,000
27,800
172,200
June 2020

Total $ 860,000
$ 428,300
$ 431,700

(A) Includes letters of credit outstanding in the amount of ~~$6.1~~$9.6 million.

(B) Includes letters of credit outstanding in the amount of ~~0.8~~$0.8 million.

In June 2019, SJI entered into an amendment to its Five Year Revolving Credit Agreement ("Credit Agreement"), expiring in August 2022, that increased by $100.0 million the amount SJI can borrow under the Credit Agreement in the form of revolving loans from a total aggregate amount of $400.0 million to $500.0 million. In addition, as part of the total $500.0 million extension of credit, the Credit Agreement provides for swingline loans (in an amount not to exceed an aggregate of $50.0 million ) and letters of credit (in an amount not to exceed an aggregate of $200.0 million), each at the applicable interest rates specified in the Credit Agreement. Subject to certain conditions set forth in the Credit Agreement, the Company may increase the revolving credit facility up to a maximum aggregate amount of $100.0 million (for a total facility of up to $600.0 million), although no lender is obligated to increase its commitment.

On September 23, 2019, SJI entered into an unsecured $100.0 million term loan credit agreement. The entire amount was borrowed on September 23, 2019. The maturity date of the term loan is September 18, 2020. Any amounts repaid prior to the maturity date cannot be reborrowed. The term loan bears interest at a variable base rate or a variable LIBOR rate, at the Company’s election.

SJI (as a guarantor to ELK's obligation under this revolving credit agreement) and ETG and ELK (as Borrowers) have a $200.0 million, two-year revolving credit agreement with several lenders. The revolving credit agreement provides for the extension of credit to the Borrowers in a total aggregate amount of $200.0 million ($175.0 million for ETG; $25.0 million for ELK). In June 2019, this revolving credit agreement was amended to add SJIU as an additional Borrower and to extend the termination date from June 2020 to June 2021. See Note 10 to the condensed consolidated financial statements.

The ~~SJG and ETG/ELK~~Utilities' facilities are restricted as to use and availability specifically to ~~SJG and ETG/ELK, respectively;~~the respective Utilities; however, if necessary, the SJI facilities can also be used to support liquidity needs of ~~SJG, ETG or ELK.~~the Utilities. All committed facilities contain one financial covenant limiting the ratio of indebtedness to total capitalization of the applicable borrowers (as defined in the respective credit agreements), measured on a quarterly basis. SJI ~~SJG, ETG~~ and ~~ELK~~the Utilities were in compliance with these covenants as of September 30, ~~2018.~~2019. Borrowings under these credit facilities are at market rates.

Table of Contents

SJI's weighted average interest rate on these borrowings ~~(which includes~~(inclusive of SJG, ETG and ~~ETG/~~ELK), which changes daily, was ~~2.68%~~3.00% and ~~2.26%~~2.68% at September 30, 2019 and 2018, ~~and 2017,~~ respectively. SJG did not have any outstanding borrowings at September 30, 2017 under the credit facility; however, SJG did have $140.2 million outstanding (exclusive of letters of credit) under the commercial paper program at September 30, 2018. SJG's weighted average interest rate on these borrowings, which changes daily, was 2.39% and 2.42% at September 30, ~~2018.~~2019 and 2018, respectively.

SJI's average borrowings outstanding under these credit facilities ~~(which includes~~(inclusive of SJG, ETG and ~~ETG/~~ELK), not including letters of credit, during the nine months ended September 30, 2019 and 2018 ~~and 2017~~ were ~~$258.8~~$487.8 million and ~~$260.9~~$258.8 million, respectively. The maximum amounts outstanding under these credit facilities, not including letters of credit, during the nine months ended September 30, 2019 and 2018 were $882.7 million and ~~2017 were~~ $516.9 million, ~~and $373.8 million,~~ respectively.

SJG's average borrowings outstanding under these credit facilities during the nine months ended September 30, 2019 and 2018 ~~and 2017~~ were ~~$67.9~~$96.2 million and ~~$17.0~~$67.9 million, respectively. The maximum amount outstanding under its credit facilities during the nine months ended September 30, 2019 and 2018 were $175.3 million and ~~2017 were~~ $141.1 million, ~~and $110.1 million,~~ respectively.

Based upon the existing credit facilities and a regular dialogue with our banks, we believe there will continue to be sufficient credit available to meet our business’ future liquidity needs.

The SJI SJG, and ~~SJG~~ETG/ELK principal credit facilities are provided by a syndicate of banks. ~~In January 2018, the Note Purchase Agreements (NPA)~~The NPA for Senior Unsecured Notes issued by SJI ~~as well as the credit agreements with its syndicate of banks, were amended to reflect~~contains a financial covenant limiting the ratio of indebtedness to total capitalization (as defined in the respective NPA or credit agreement) to not more than 0.70 to 1, measured at the end of each fiscal quarter. For SJI, the equity units issued in 2018 are treated as equity (as opposed to how they are classified on the condensed consolidated balance sheet, as long term debt) for purposes of the covenant calculation. Further, in the event that SJI receives less than $500.0 million of net cash proceeds from the issuance of equity or equity-linked securities, that financial covenant limiting the ratio of indebtedness to total capitalization (as defined in the respective NPA or credit agreement) increases to not more than 0.75 to 1, measured at the end of each fiscal quarter, for a period of one year following the closing of the acquisition of ETG and ELK. SJI and SJG were in compliance with this covenant as of September 30, ~~2018.~~2019. However, one SJG bank facility still contains a financial covenant limiting the ratio of indebtedness to total capitalization (as defined in the respective credit agreement) to not more than 0.65 to 1 measured at the end of each fiscal quarter. As a result, SJG must ensure that the ratio of indebtedness to total capitalization (as defined in the respective credit agreement) does not exceed 0.65 to 1, as measured at the end of each fiscal quarter. SJG was in compliance with this covenant as of September 30, ~~2018.~~2019.

SJG has a commercial paper program under which SJG may issue short-term, unsecured promissory notes to qualified investors up to a maximum aggregate amount outstanding at any time of $200.0 million. The notes have fixed maturities which vary by note, but may not exceed 270 days from the date of issue. Proceeds from the notes are used for general corporate purposes. SJG uses the commercial paper program in tandem with its $200.0 million revolving credit facility and does not expect the principal amount of borrowings outstanding under the commercial paper program and the credit facility at any time to exceed an aggregate of $200.0 million. In June 2019, the revolving credit agreement was amended to add SJIU as an additional Borrower.

SJI supplements its operating cash flow, commercial paper program and credit lines with both debt and equity capital. Over the years, SJG has used long-term debt, primarily in the form of First Mortgage Bonds and ~~Medium Term Notes (MTNs),~~MTN's, secured by the same pool of utility assets, to finance its long-term borrowing needs. These needs are primarily capital expenditures for property, plant and equipment.

In2019 Activity:

Equity Forward Sale Agreement:

On January ~~2018,~~15, 2019, SJI ~~issued~~settled its equity forward sale agreement by physically delivering the following MTN's: (a) $25.0 million aggregate principal amount of 3.32% Senior Notes, Series 2017A-2, due January 2025 and (b) $25.0 million aggregate principal amount of 3.56% Senior Notes, Series 2017B-2, due January 2028.

In April 2018, SJI entered into a Note Purchase Agreement (NPA) that provides for the issuance by the Company of an aggregate of $250.0 million of senior unsecured notes. During the second quarter of 2018, the Company issued these senior unsecured notes as follows: (a) $90.0 million aggregate principal amount of 3.18% Senior Notes, Series 2018A, due April 2021; (b) $80.0 million aggregate principal amount of 3.82% Senior Notes, Series 2018B, due 2028; and (c) $80.0 million aggregate principal amount of 3.92% Senior Notes, Series 2018C, due 2030.

In April 2018, the Company completed the following public offerings, the net proceeds of which were used to fund a portion of the consideration paid for the assets of ETG and ELK (see Note 1 to the unaudited condensed consolidated financial statements):

SJI offered 12,669,491 shares of its common stock, par value $1.25 per share, at a public offering price of $29.50 per share. Of the offered shares, 5,889,830 shares were issued at closing, including 1,652,542 shares pursuant to the underwriters’ option. The gross proceeds from these shares was $173.7 million, with net proceeds after deducting underwriting discounts and commissions of $167.7 million. The remaining 6,779,661 shares of common stock ~~("Forward Shares") are~~and receiving net cash proceeds of approximately $189.0 million. The forward price used to ~~be sold~~determine cash proceeds received by ~~Bank of America, N.A., as forward seller, pursuant to a~~SJI at settlement was calculated based on the initial forward sale ~~agreement. The Company received no proceeds from~~price, as adjusted for underwriting fees, interest rate adjustments as specified in the ~~sale of the Forward Shares at the closing,~~equity forward agreement and ~~has not received proceeds as of June 30, 2018. SJI has an option to settle~~any dividends paid on our common stock during the forward ~~sale agreement by delivering newly issued shares of~~ period. See Note 4 to the condensed consolidated financial statements.

Debt Issuances:

•SJI common stock and receive proceeds, subject to certain adjustments, from the sale of those shares, assuming one or more future physical settlements of the forward sale agreement, no later than April 2019. SJI may also choose to settle the forward sale contract with a cash payment, or multiple cash payments, no later than April 2019. In the event SJI elects to settle all or a portion of the forward sale contract with a cash payment, no additional shares of SJI common stock would be issued under the forward sale contract for the portions that were cash settled.

~~SJI issued~~offered and sold 5,750,000 Equity Units, initially in the form of Corporate Units, which included 750,000 Corporate Units pursuant to the underwriters’ option. Each Corporate Unit has a stated amount of $50 and is comprised of (a) a purchase contract obligating the holder to purchase from the Company, and for the Company to sell to the holder for a price in cash of $50, on the purchase contract settlement date, or April 15, 2021, subject to earlier termination or settlement, a certain number of shares of common stock; and (b) a 1/20, or 5%, undivided beneficial ownership interest in $1,000$200.0 million aggregate principal amount of ~~SJI’s 2018 Series A 3.70% Remarketable~~the Company's 5.625% Junior Subordinated Notes due ~~2031. SJI will pay~~2079. The total net cash proceeds, inclusive of a debt discount of $5.3 million, were $194.7 million.

Table of Contents

•ETG entered into a Bond Purchase Agreement which provides for the ~~holder quarterly contract adjustment payments at~~issuance of a ~~rate~~series of ~~3.55% per year on the stated~~first mortgage bonds in an aggregate principal amount of ~~$50 per Equity Unit,~~$145.0 million, in ~~respect~~four Tranches, as follows: (a) 2.84% First Mortgage Bonds, Series 2019A-1, due September 27, 2029 in the aggregate principal amount of ~~each purchase contract, subject~~$40.0 million, which were issued on September 27, 2019; (b) 2.84% First Mortgage Bonds, Series 2019A-2, due October 29, 2029 in the aggregate principal amount of $35.0 million, which were issued on October 29, 2019 (see Note 20 to the ~~Company's right~~condensed consolidated financial statements).; (c) 2.94% First Mortgage Bonds, Series 2019A-3, due November 26, 2031 in the aggregate principal amount of $25.0 million; and (d) 2.94% First Mortgage Bonds, Series 2019A-4, due December 27, 2031 in the aggregate principal amount of $45.0 million. The Series 2019A-3 and Series 2019A-4 First Mortgage Bonds are expected to ~~defer these payments. No deferral period will extend beyond~~be issued in November and December 2019, respectively.

•SJG issued $10.0 million of debt by drawing on its $400.0 million term loan credit agreement. All loans under this credit agreement are due and payable in April 2020; as such, the ~~purchase contract settlement date. The contract adjustment payments are payable quarterly on January 15, April 15, July 15 and October 15~~issuance amount is recorded in current portion of each year (except that if such date is not a business day, contract adjustment payments will be payable on the following business day, without adjustment), commencing on July 15, 2018. The contract adjustment payments will be subordinated to all of the Company's existing and future “Priority Indebtedness” and will be structurally subordinated to all liabilities of our subsidiaries. The present value of the contract adjustment payments due through April 15, 2021 will be initially charged to Shareholders’ Equity, with an offsetting credit to Other Current and Noncurrent Liabilitieslong-term debt on the condensed consolidated balance ~~sheet. These liabilities are accreted over the life~~sheets.

Debt Pay downs:

•SJI provided four Notices of ~~the purchase contract by interest charges~~Optional Prepayment to the ~~income statement based on a constant rate calculation. Subsequent contract adjustment payments reduce this liability.This offering resulted in gross proceeds~~holders of ~~approximately $287.5 million, with net proceeds, after deducting underwriting discounts and commissions, of $278.9 million.~~ ~~As of September 30, 2018~~, the net proceeds, after amortization of the underwriting discounts, are recorded as Long-Term Debt on the condensed consolidated balance sheets (see Note 14 to the unaudited condensed consolidated financial statements).

~~On June 20, 2018, the Company issued an aggregate of $475.0 million of~~its Floating Rate Senior Notes, Series 2018D, due June 20, 2019 ~~on the one-year anniversary~~ of the ~~date~~Company’s intent to prepay the $475.0 million aggregate principal amount outstanding. As a result of ~~initial issuance. These notes will be~~these notices, the Company has repaid ~~using~~ the ~~proceeds of~~$475.0 million aggregate principal amount in full.

•SJI paid off the ~~various contemplated asset sales or refinanced.~~

On$60.0 million principal amount outstanding on its 3.30% Senior Notes, Series 2014A-1, due June 26, ~~2018, ETG (Borrower)~~2019, and paid off the $40.0 million principal amount outstanding on its Floating Rate Senior Notes, Series 2014B-1, due June 26, 2019.

•SJI ~~(Guarantor) entered into a $530.0~~paid off the $30.0 million ~~364-day term loan credit agreement with several lenders.~~ principal amount outstanding on its 3.30% Senior Notes, Series 2014A-2, due August 15, 2019.

•SJI ~~guaranteed this facility until~~paid off the ~~closing~~$50.0 million principal amount outstanding on its 3.30% Senior Notes, Series 2014A-3, due September 26, 2019, and paid off the $60.0 million principal amount outstanding on its Floating Rate Senior Notes, Series 2014B-2, due September 26, 2019.

•SJG paid off the $10.0 million principal amount outstanding on its 5.587% First Mortgage Bond due August 1, 2019.

Current Portion of ~~the acquisition (see~~Long-Term Debt - See Note 171 to the ~~unaudited~~ condensed consolidated financial statements). On June 28, 2018, the lenders funded the term loan facility. At the election of the Company, the term loans will bear interest at a variable base rate or a variable LIBOR, The facility contains among others, a financial covenant, limiting the ratio of total indebtedness to total capitalization of the Company (as defined in the term loan credit agreement) by no more than 0.70 to 1.0, measured at the end of each fiscal quarter. ETG was in compliance with this covenant as of September 30, 2018.statements.

On June 26, 2018, SJI (as a Guarantor to ELK obligation under this revolving credit agreement) and ETG and ELK (as Borrowers) entered into a $200.0 million, two-year revolving credit agreement with several lenders. The revolving credit agreement provides for the extension of creditDRP - See Note 4 to the Borrowers by the lenders thereunder in a total aggregate amount of $200.0 million ($175.0 million for ETG; $25.0 million for ELK), in the form of revolving loans up to a full amount of $200.0 million, swingline loans in an amount not to exceed an aggregate of $20.0 million and letters of credit in an amount not to exceed an aggregate of $50.0 million, each at the applicable interest rates specified in the revolving credit agreement. Subject to certain conditions set forth in the revolving credit agreement, ETG may increase the revolving credit facility up to a maximum aggregate amount of $50.0 million (for a total revolving facility of up to $250.0 million). This facility contains onecondensed consolidated financial covenant, limiting the ratio of indebtedness to total capitalization of each Borrower (as defined in the credit agreement) to not more than 0.70 to 1, measured at the end of each fiscal quarter. ETG and ELK were in compliance with this covenant at September 30, 2018. As at September 30, 2018, outstanding loans from this credit facility amount to $27.8 million.statements.

In October 2018, SJG entered into an unsecured, $400.0 million term loan credit agreement (the “Credit Agreement”), under which SJG can borrow up to an aggregate of $400.0 million until October 2019. All loans under the Credit Agreement become due and payable in April 2020. Any amounts repaid prior to the maturity date cannot be reborrowed.

In July 2018, S&P downgraded SJI and SJG, from BBB+ with a negative outlook to BBB with a stable outlook. S&P had revised the outlook for both SJI and SJG from stable to negative after the announcement of the Acquisition in October 2017. Certain of SJI's and SJG's credit agreements are ratings-based so a downgrade could adversely impact the cost of future borrowings. The Company does not believe that the downgrade will negatively impact our ability to refinance any of our debt.

DIVIDEND REINVESTMENT PLAN (DRP) — SJI offers a DRP which allows participating shareholders to purchase shares of SJI common stock by automatic reinvestment of dividends or optional purchases. SJI currently purchases shares on the open market to fund share purchases by DRP participants, and as a result SJI did not raise any equity capital through the DRP in 2017 or 2018. SJI does not intend to issue equity capital via the DRP in 2018.

SJI’s capital structure was as follows:


	As of September 30, 2019		As of December 31, 2018
Equity	30.9	%	28.9	%
Long-Term Debt	51.4	%	64.9	%
Short-Term Debt	17.7	%	6.2	%
Total	100.0	%	100.0	%

As of September 30, 2018 As of December 31, 2017
Equity 27.9 % 43.7 %
Long-Term Debt 62.6 % 43.6 %
Short-Term Debt 9.5 % 12.7 %
Total 100.0 % 100.0 %

SJI has paid dividends on its common stock for 6768 consecutive years and has increased that dividend each year for the last 1920 years. SJI currently seeks to grow that dividend consistent with earnings growth while targeting a payout ratio of between 55% and 65% of Economic Earnings. In setting the dividend rate, the Board of Directors of SJI considers future earnings expectations, payout ratio, and dividend yield relative to those at peer companies, as well as returns available on other income-oriented investments. However, there can be no assurance that SJI will be able to continue to increase the dividend, meet the targeted payout ratio or pay a dividend at all in the future.

Table of Contents

COMMITMENTS AND CONTINGENCIES:

Environmental Remediation- Costs for remediation projects, net of recoveries from ratepayers, for the first nine months of ~~2018~~2019 and ~~2017~~2018 amounted to net cash outflows of $35.7 million and $40.6 million, ~~and $30.8 million,~~ respectively. ~~These~~The amounts for the first nine months of 2019 include environmental remediation liabilities of ETG associated with six former manufactured gas plant sites in New Jersey which are recoverable from customers through rate mechanisms approved by the BPU. Total net cash outflows for remediation projects are expected to be ~~$55.1~~$43.9 million, ~~$52.7~~$51.6 million and ~~$54.6~~$84.9 million for ~~2018,~~ 2019, 2020 and ~~2020,~~2021, respectively. As discussed in Notes 10 and 15 to the Consolidated Financial Statements in Item 8 of SJI’s and SJG's 10-K for the year ended December 31, ~~2017,~~2018, certain environmental costs are subject to recovery from ratepayers.

Standby Letters of Credit - ~~As of September 30, 2018, SJI provided $6.1 million of standby letters of credit through its revolving credit facility~~See Note 11 to ~~enable SJE to market retail electricity and for various construction and operating activities. SJG provided a $0.8 million letter of credit under its revolving credit facility to support~~ the remediation of environmental conditions at certain locations in SJG's service territory. SJG has provided $25.1 million of additional letters of credit under a separate facility outside of the revolving credit facility to support variable-rate demand bonds issued through the New Jersey Economic Development Authority (NJEDA) to finance the expansion of SJG’s natural gas distribution system.condensed consolidated financial statements.

Contractual Obligations- There were no significant changes to SJI’s contractual obligations described in Note 15 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, ~~2017,~~2018, except for the following:

•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. The proposed project was approved by the BPU in 2015 and the New Jersey Pinelands Commission in 2017, and would have supplied natural gas to this facility as well as provided a secondary supply of natural gas to customers in Atlantic and Cape May counties. SJG remains committed to meeting the vitally important needs of residents and businesses in these counties and is exploring other alternatives.

•$~~1.58 billion increase~~475.0 million decrease in long-term debt (excluding unamortized debt issuance ~~costs)~~costs and discounts), which ~~increased~~decreased due to ~~several SJI borrowings entered into to fund the acquisition~~net pay downs of ~~ETG and ELK, (see Note 14 to the unaudited condensed consolidated financial statements). These~~$725.0 million that occurred in 2019, partially offset with $250.0 million of debt issuances ~~also led to an approximately $247.0 million increase in interest over the terms of SJI's long-term debt.~~

~~The following increases are a result of adding ETG~~as discussed under "Liquidity and ~~ELK contractual obligations: $747.2 million increase in commodity supply purchase obligations; $69.8 million increase in environmental remediation costs; $16.3 increase in construction obligations.~~

~~Approximately $349.0 million decrease in commodity supply purchase obligations at SJRG and SJE due to payments made on commitments during the first nine months of 2018.~~

~~Approximately $66.6 million increase in construction obligations primarily due to vendor agreements at the gas utility operations at SJG due to new construction and environmental projects for 2018.~~

As part of the issuance of Equity and Corporate Units, the Company has a purchase contract obligating the holder of the units to purchase from the Company, and for the Company to sell to the holder for a price in cash of $50, a certain number of shares of common stock. SeeCapital Resources" above (also see Note 414 to the condensed consolidated financial ~~statements.~~statements). Also resulting from these pay downs was an overall decrease in future interest payments.

Off-Balance Sheet Arrangements– An off-balance sheet arrangement is any contractual arrangement involving an unconsolidated entity under which SJI has either made guarantees, or has certain other interests or obligations.

~~As of September 30, 2018, SJI had issued $6.9 million of parental guarantees on behalf of an unconsolidated subsidiary. These guarantees generally expire within the next two years and were issued~~See "Guarantees" in Note 11 to ~~enable the subsidiary to market retail natural gas.~~

~~In April 2018, SJI entered into various agreements relating to public offerings. See "Liquidity and Capital Resources."~~

~~Notes Receivable-Affiliates~~ ~~- As of September 30, 2018, SJI had approximately $13.6 million included in Notes Receivable - Affiliate on~~ the condensed consolidated ~~balance sheets, due from Energenic, which is secured by its cogeneration assets~~financial statements for ~~energy services projects. This note is subject~~more detail.

Notes Receivable-Affiliates - See Note 5 to ~~a reimbursement agreement that secures reimbursement for SJI, from its joint venture partner, of a proportionate share of any amounts that are not repaid.~~the condensed consolidated financial statements.

Pending Litigation — SJI and SJG are subject to claims, actions and other legal proceedings arising in the ordinary course of ~~business~~business. See Note 11 to the condensed consolidated financial statements for more detail on these claims, including information on a court decision issued against SJG and ~~other legal proceedings. SJI has been named in, among other actions, certain gas supply contract disputes and certain product liability claims~~SJRG on August 6, 2019 related to ~~our former sand mining subsidiary.~~

~~SJI is currently involved in a~~an ongoing pricing dispute ~~related to~~on two long-term gas supply contracts. On May 8, 2017, a jury from the United States District Court for the District of Colorado returned a verdict in favor of the plaintiff supplier. On July 21, 2017, the Court entered Final Judgment against SJG and SJRG. As a result of this ~~ruling,~~court decision, SJI made a payment of $59.3 million in September 2019, while SJG ~~and SJRG have accrued, including interest, $21.9~~made a payment of $22.9 million ~~and $56.3 million, respectively, from the first quarter of 2017 through September 30, 2018. We believe that the amount~~in October 2019 (see Note 20 to be paid by SJG reflects a gas cost that ultimately will be recovered from SJG’s customers through adjusted rates. As such, $21.9 million was recorded as both an Accounts Payable and an increase in Regulatory Assets on the condensed consolidated ~~balance sheets~~financial statements).

PennEast - Midstream has a 20% investment in PennEast, which is planning to construct an approximately 118-mile natural gas pipeline that will extend from Northeastern Pennsylvania into New Jersey. On September 10, 2019, the U.S. Court of ~~both~~Appeals for the Third Circuit ruled that PennEast does not have eminent domain authority over NJ state-owned lands. In October 2019, the New Jersey Department of Environmental Protection denied and closed PennEast’s application for several permits without prejudice, citing the Third Circuit Court decision. On November 5, 2019, the U.S. Court of Appeals for the Third Circuit denied PennEast's petition for rehearing en banc. PennEast management remains committed to pursuing the project and intends to pursue all available options to challenge the court’s decision. SJI, along with the other partners, are intending to contribute to the project. As a result of the court decision, we evaluated our investment in the PennEast project for an other-than-temporary impairment. At this time, we believe we do not have an other-than-temporary impairment and ~~SJG as~~have not recorded any impairment charge to reduce the carrying value of ~~September 30, 2018. Similarly, $56.3 million was associated with SJRG and was also recorded as an Accounts Payable on~~our investment. See Note 3 to the condensed consolidated ~~balance sheets~~financial statements.

Table of SJI as of September 30, 2018, with charges of $1.4 million and $2.7 million to Cost of Sales - Nonutility on the condensed consolidated statements of income of SJI for the three and nine months ended September 30, 2018, respectively. SJI also recorded $0.3 million and $0.7 million to Interest Charges on the condensed consolidated statements of income for the three and nine months ended September 30, 2018, respectively. In April 2018, SJI filed an appeal of this judgment. During the pendency of the appeal, SJI continues to dispute the supplier invoices received and has created a reserve to reflect the differences between the invoices and paid amounts.Contents

The plaintiff supplier filed a second related lawsuit against SJG and SJRG in the United States District Court for the District of Colorado on December 21, 2017, alleging that SJG and SJRG have continued to breach the gas supply contracts notwithstanding the judgment in the prior lawsuit. The plaintiff supplier is seeking recovery of the amounts disputed by SJI since the earlier judgment, and a declaration regarding the price under the disputed contracts going forward until the contracts terminate in October 2019. The outcome of this lawsuit will be determined by the outcome in the pending appeal of the first lawsuit. All reserves related to this second lawsuit are recorded as part of the accrued amounts disclosed above.

In August 2018, the State of New Jersey filed a civil enforcement action against SJG and several other current and former owners of certain property in Atlantic City, NJ where SJG and its predecessors previously operated manufactured gas plant. SJG is currently working with a licensed state remediation professional to remediate the site. The State of New Jersey is alleging damage to the State's natural resources and seeking payment for damages to those natural resources. The Company is currently evaluating the merits of the allegations and, at this time, can provide no assessment of the claim or assurance regarding its outcome.

Liabilities related to claims are accrued when the amount or range of amounts of probable settlement costs or other charges for these claims can be reasonably estimated. For matters other than the disputes noted above, SJI has accrued approximately $3.1 million and $3.0 million related to all claims in the aggregate as of September 30, 2018 and December 31, 2017, respectively, of which SJG has accrued approximately $0.8 million and $0.7 million as of September 30, 2018 and December 31, 2017, respectively. Although SJI and SJG do not presently believe that these matters will have a material adverse effect on its business, given the inherent uncertainties in such situations, SJI and SJG can provide no assurance regarding the outcome of litigation

SOUTH JERSEY GAS COMPANY

This section of Management’s Discussion focuses on ~~South Jersey Gas Company (SJG)~~SJG for the reported periods. In many cases, explanations and disclosures for both SJI and SJG are substantially the same or specific disclosures for SJG are included in the Management's Discussion for SJI.

RESULTS OF OPERATIONS:

The results of operations for the ~~gas~~SJG utility operations ~~at SJG~~ are described in detail above; therefore, this section primarily focuses on statistical information and other information that is not discussed in the results of operations under South Jersey Industries, Inc. Refer to the section entitled “Results of Operations - ~~Gas~~SJG Utility Operations” for a detailed discussion of the results of operations for SJG.

The following table summarizes the composition of selected gas utility throughput for the three and nine month periods ended September 30, (in ~~thousands, except for degree day data)~~thousands):


	Three Months Ended September 30,			Nine Months Ended September 30,
	2019	2018	2019	2018
Utility Throughput – dts:
Firm Sales -
Residential	1,429	1,395	16,937	17,447
Commercial	627	603	4,614	4,223
Industrial	37	50	296	324
Cogeneration & Electric Generation	588	738	727	1,420
Firm Transportation -
Residential	63	71	814	1,098
Commercial	654	673	4,327	4,986
Industrial	2,161	2,260	7,141	7,598
Cogeneration & Electric Generation	1,523	1,698	3,890	3,877

Total Firm Throughput	7,082	7,488	38,746	40,973

Interruptible Sales	—	7	6	17
Interruptible Transportation	216	199	763	733
Off-System Sales	2,547	1,153	10,088	9,030
Capacity Release	27,988	26,973	70,222	68,553

Total Throughput - Utility	37,833	35,820	119,825	119,306

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
Utility Throughput – decatherms(dt):
Firm Sales -
Residential 1,395
1,189
17,447
14,475
Commercial 603
461
4,223
3,679
Industrial 50
49
324
303
Cogeneration & Electric Generation 738
416
1,420
636
Firm Transportation -
Residential 71
81
1,098
1,102
Commercial 673
696
4,986
4,273
Industrial 2,260
2,454
7,598
8,087
Cogeneration & Electric Generation 1,698
2,093
3,877
4,798

Total Firm Throughput 7,488
7,439
40,973
37,353

Interruptible Sales 7
—
17
3
Interruptible Transportation 199
209
733
879
Off-System Sales 1,153
6,626
9,030
18,604
Capacity Release 26,973
16,141
68,553
50,810

Total Throughput - Utility 35,820
30,415
119,306
107,649

Throughput– Gas Utility Operations - Total gas throughput increased ~~5.4 MMdts and 11.7~~2.7 MMdts for the three ~~and nine~~ months ended September 30, ~~2018, respectively,~~2019, compared with the same ~~periods~~period in ~~2017,~~2018. This increase was realized primarily ~~due to 10.8~~in combined throughput in Capacity Release and OSS which increased 3.0 MMdts ~~and 17.7 MMdts increase in capacity release for~~during the three ~~and nine~~ months ended September 30, ~~2018, respectively,~~2019 as compared with the same ~~periods~~period in ~~2017. The increase in capacity release volume~~2018. Offsetting the three month comparative was primarily related to acquisition of additional pipeline capacity on the Tennessee pipeline system, which was not in service during the same periods in the prior year. The increase in capacity release volume was offset by 5.5 MMdts and 9.6a 0.4 MMdts decrease in OSS volume for the three and nine months ended September 30, 2018, respectively, compared with the same periods in 2017, primarily due to production area Off System Sales made for April through October 2017 which did not occur during 2018.total firm throughput.

Total ~~firm~~gas throughput increased ~~3.6~~0.5 MMdts, for the nine months ended September 30, ~~2018,~~2019, compared with the same ~~periods~~period in ~~2017,~~2018, primarily asdue to an increase in combined Capacity Release and OSS, offset by a ~~result~~decrease in firm throughput. Total firm throughput decreased 2.2 MMdts for the nine month period primarily due to the warmer weather. Total combined Capacity Release and OSS increased 2.7 MMdts for the nine months ended September 30, 2019 due to the warm weather making more pipeline capacity available for Capacity Release and OSS.

Table of ~~colder weather and additional customers.~~Contents

~~Conservation Incentive Program (CIP)~~CIP - The effects of the CIP on SJG's net income and the associated weather comparisons are as follows (dollars in millions):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2019		2018		2019		2018
Net Income Impact:
CIP – Weather Related	$	—	$	—	$	5.0	$	0.3
CIP – Usage Related	(0.9)		(0.9)		(2.1)		(4.7)
Total Net Income Impact	$	(0.9)	$	(0.9)	$	2.9	$	(4.4)

Weather Compared to 20-Year Average	48.4% Colder		27.4% Colder		269.6% Colder		176.9% Colder
Weather Compared to Prior Year	62.0% Colder		75.6% Warmer		4.3% Warmer		13.0% Colder

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
Net Income Impact:
CIP – Weather Related $ —
$ —
$ 0.3
$ 8.0
CIP – Usage Related (0.9 ) 1.3
(4.7 ) 4.7
Total Net Income Impact $ (0.9 ) $ 1.3
$ (4.4 ) $ 12.7

Weather Compared to 20-Year Average 27.4% Colder n/a 176.9% Colder 15.4% Warmer
Weather Compared to Prior Year 75.6% Warmer n/a 13.0% Colder 6.4% Warmer

Operating Revenues & Margin- See SJI's Management Discussion section above.

Operating Expenses - A summary of changes in operating expenses for SJG is as follows (in thousands):


	Three Months Ended September 30, 2019 vs. 2018	Nine Months Ended September 30, 2019 vs. 2018
Operations	1,319	$	(1,028)
Maintenance	786	$	2,261
Depreciation	1,695	$	4,720
Energy and Other Taxes	171	$	1,561

Three Months Ended September 30,
2018 vs. 2017 Nine Months Ended September 30,
2018 vs. 2017
Operations 1,937
$ 11,945
Maintenance 2,277
$ 6,298
Depreciation 1,477
$ 4,654
Energy and Other Taxes 123
$ (291 )

Operations - See SJI's Management Discussion section above.

Maintenance- See SJI's Management Discussion section above.

Depreciation - Depreciation expense increased ~~$1.5~~$1.7 million and $4.7 million for the three and nine months ended September 30, ~~2018,~~2019, respectively, compared with the same periods in ~~2017,~~2018, primarily due to ~~continuing~~New Jersey's infrastructure improvement efforts, which included the approval of SJG's AIRP and SHARP, in addition to significant investment in ~~property, plant and equipment and the increase in net salvage allowance as stipulated in the November 2017 rate case settlement.~~new technology systems.

Energy and Other Taxes ~~-The change in~~ - Energy and Other Taxes for the three and nine months ended September 30, ~~2018~~2019 increased $0.2 million and $1.6 million, respectively, compared with the same ~~period~~periods in ~~2017 was not significant.~~2018, primarily due to real estate taxes related to SJG's Atlantic City headquarters.

Other Income and Expense - Other Income and Expense ~~increased $1.1~~decreased $1.3 million and $2.2 million for the three and nine months ended September 30, ~~2018,~~2019, respectively, compared with the same periods in ~~2017,~~2018, primarily due to ~~increases in the cash surrender value of corporate-owned life insurance policies and proceeds from a corporate-owned life insurance policy.~~lower AFUDC income.

Interest Charges– Interest charges increased $0.7 million and ~~$2.4~~$2.7 million for the three and nine months ended September 30, ~~2018,~~2019, respectively, compared with the same periods in ~~2017,~~2018, primarily due to higher amounts of long-term debt outstanding.

Income Taxes– Income tax expense generally fluctuates as income before taxes changes. Minor variations will occur period to period as a result of effective tax rate adjustments. ~~Changes for the three and nine months ended September 30, 2018 were also impacted by Tax Reform.~~

Table of Contents

LIQUIDITY AND CAPITAL RESOURCES:

Liquidity and capital resources for SJG are substantially covered in the Management’s Discussion of SJI (except for the items and transactions that relate to SJI and its nonutility subsidiaries). Those explanations are incorporated by reference into this discussion.

Liquidity needs for SJG are driven by factors that include natural gas commodity prices; the impact of weather on customer bills; lags in fully collecting gas costs from customers under the BGSS charge, settlement of legal matters, and environmental remediation expenditures through the RAC; the timing of construction and remediation expenditures and related permanent financings; mandated tax payment dates; both discretionary and required repayments of long-term debt; and the amounts and timing of dividend payments.

Cash Flows from Operating Activities - Liquidity needs are first met with net cash provided by operating activities. Net cash provided by operating activities totaled ~~$86.8~~$114.5 million and ~~$73.2~~$86.8 million in the first nine months of ~~2018~~2019 and ~~2017,~~2018, respectively. Net cash provided by operating activities varies from year-to-year primarily due to the impact of weather on customer demand and related gas purchases, customer usage factors related to conversion efforts and the price of the natural gas commodity, inventory utilization, and gas cost recoveries. Operating activities in the first nine months of ~~2018~~2019 produced more net cash than the same period in ~~2017,~~2018, primarily due to ~~the base rate case settlement,~~higher customer ~~growth~~collections and ~~the lack of a pension payment~~improvements in ~~2018. In the first quarter of 2017, SJG made an $8.0 million payment to fund its pension plans. These increases were partially offset by increased~~ working capital used as a result of the impacts of Tax Reform, unusually cold temperatures during the first quarter causing an increase in the price of gas and the corresponding accounts receivable, and higher spending for environmental remediation.capital.

Cash Flows from Investing Activities - SJG has a continuing need for cash resources for capital expenditures, primarily to invest in new and replacement facilities and equipment. SJG estimates the net cash outflows for capital expenditures for fiscal years ~~2018,~~ 2019, 2020 and ~~2020~~2021 to be approximately ~~$268.0~~$269.7 million, ~~$268.0~~$285.1 million and ~~$263.0~~$259.1 million, respectively. For capital expenditures, including those under the AIRP and SHARP, SJG expects to use short-term borrowings under both its commercial paper program and lines of credit from commercial banks to finance capital expenditures as incurred. From time to time, SJG may refinance the short-term debt incurred to support capital expenditures with long-term debt.

~~During the first nine months of 2017, SJG made a $4.9 million payment to fund company-owned life insurance.~~

Cash Flows from Financing Activities - SJG supplements its operating cash flow and credit lines with both debt and equity capital. Over the years, SJG has used long-term debt, primarily in the form of First Mortgage Bonds and MTN's, secured by the same pool of utility assets, to finance its long-term borrowing needs. These needs are primarily capital expenditures for property, plant and equipment.

As noted above, SJG issued $10.0 million of debt by drawing on its $400.0 million term loan credit agreement. SJG paid off the $10.0 million principal amount outstanding on its 5.587% First Mortgage Bond due August 1, 2019.

SJI did not contribute any equity to SJG during the nine months ended September 30, 2019 or 2018. ~~SJI contributed an equity infusion of $40.0 million to SJG during the nine months ended September 30, 2017.~~

SJG’s capital structure was as follows:


	As of September 30, 2019		As of December 31, 2018
Common Equity	50.0	%	50.2	%
Long-Term Debt	41.8	%	44.5	%
Short-Term Debt	8.2	%	5.3	%

Total	100.0	%	100.0	%

As of September 30, 2018 As of December 31, 2017
Common Equity 50.7 % 51.3 %
Long-Term Debt 42.1 % 45.8 %
Short-Term Debt 7.2 % 2.9 %

Total 100.0 % 100.0 %

Table of Contents

COMMITMENTS AND CONTINGENCIES:

Costs for remediation projects, net of recoveries from ratepayers, for the first nine months of ~~2018~~2019 and ~~2017~~2018 amounted to net cash outflows of ~~$40.5~~$29.6 million and ~~$30.1~~$40.5 million, respectively. Total net cash outflows for remediation projects are expected to be ~~$45.1~~$33.6 million, ~~$28.3~~$31.3 million and ~~$37.4~~$45.5 million for ~~2018,~~ 2019, 2020 and ~~2020,~~2021, respectively. As discussed in Notes 10 and 15 to the Consolidated Financial Statements in Item 8 of SJI’s and SJG's 10-K for the year ended December 31, ~~2017,~~2018, certain environmental costs are subject to recovery from ratepayers.

SJG has certain commitments for both pipeline capacity and gas supply for which SJG pays fees regardless of usage. Those commitments, as of September 30, ~~2018,~~2019, averaged ~~$68.5~~$81.8 million annually and totaled ~~$461.8~~$460.6 million over the contracts’ lives. Approximately ~~27%~~31% of the financial commitments under these contracts expire during the next five years. SJG expects to renew each of these contracts under renewal provisions as provided in each contract. SJG recovers all such prudently incurred fees through rates via the BGSS.

Pending Litigation - See SJG's disclosure in the Commitments and Contingencies section of SJI's Management Discussion ~~above.~~above, including information on a court decision issued against SJG on August 6, 2019 related to an ongoing pricing dispute on two long-term gas supply contracts. As a result of this court decision, SJG made a payment of $22.9 million in October 2019 (see Note 20 to the condensed consolidated financial statements).

Contractual Cash Obligations – There were no significant changes to SJG's contractual obligations described in Note 15 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, ~~2017, except for an approximately $50.2 million increase in construction obligations primarily due to vendor agreements due to new construction and environmental projects for~~ 2018.

Off-Balance Sheet Arrangements- SJG has no off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

~~South Jersey Industries, Inc.~~SJI:

Commodity Market Risks — 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 due to price fluctuations. To hedge against this risk, SJI enters into a variety of physical and financial transactions including forward contracts, swaps, futures and options agreements. To manage these transactions, SJI has a well-defined risk management policy approved by SJI's Board of Directors that includes volumetric and monetary limits. Management reviews reports detailing activity daily. Generally, the derivative activities described above are entered into for risk management purposes.

As part of its gas purchasing strategy, SJG and ETG use financial contracts to hedge against forward price risk. These contracts are recoverable through ~~SJG~~SJG's and ~~ETG~~ETG's BGSS, subject to BPU approval.

~~The retail gas operations of SJE transact commodities on a physical basis, and SJE typically does not enter into financial derivative positions directly.~~ SJRG manages risk ~~in the natural gas markets for SJE as well as~~ for its own portfolio by entering into the types of transactions noted above. The retail electric operations of SJE use forward physical and financial contracts to mitigate commodity price risk on fixed price electric contracts. It is management's policy, to the extent practical, within predetermined risk management policy guidelines, to have limited unmatched positions on a deal or portfolio basis while conducting these activities. As a result of holding open positions to a minimal level, the economic impact of changes in value of a particular transaction is substantially offset by an opposite change in the related hedge transaction.

SJI has entered into certain contracts to buy, sell, and transport natural gas and to buy and sell retail electricity. SJI recorded net pre-tax unrealized (losses) gains ~~(losses)~~ of ~~$(11.2)~~$(6.2) million and ~~$(4.6)~~$(11.2) million for the three months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively, and ~~$6.0~~$(18.4) million and ~~$2.2~~$6.0 million for the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively, which are included with realized (losses) gains in Operating Revenues —- Nonutility on the condensed consolidated statements of income.

Table of Contents

The fair value and maturity of these energy-related contracts determined under the mark-to-market method as of September 30, ~~2018~~2019 is as follows (in thousands):


Assets
Source of Fair Value	Maturity < 1 Year		Maturity 1 -3 Years		Maturity Beyond 3 Years		Total
Prices actively quoted	$	10,161	$	98	$	3	$	10,262
Prices provided by other external sources	15,890		4,155		185		20,230
Prices based on internal models or other valuation methods	20,656		4,938		228		25,822

Total	$	46,707	$	9,191	$	416	$	56,314

Liabilities
Source of Fair Value	Maturity <1 Year		Maturity 1 -3 Years		Maturity Beyond 3 Years		Total
Prices actively quoted	$	18,441	$	3,888	$	36	$	22,365
Prices provided by other external sources	11,324		166		649		12,139
Prices based on internal models or other valuation methods	10,887		2,937		137		13,961

Total	$	40,652	$	6,991	$	822	$	48,465

Assets
Source of Fair Value
Maturity
< 1 Year

Maturity
1 -3 Years

Maturity
Beyond 3 Years
Total
Prices actively quoted $ 1,662
$ 152
$ 3
$ 1,817
Prices provided by other external sources 7,579
3,140
233
10,952
Prices based on internal models or other valuation methods 18,173
4,177
309
22,659

Total $ 27,414
$ 7,469
$ 545
$ 35,428

Liabilities

Source of Fair Value
Maturity
<1 Year

Maturity
1 -3 Years

Maturity
Beyond 3 Years
Total
Prices actively quoted $ 2,071
$ 1,854
$ 66
$ 3,991
Prices provided by other external sources 9,962
1,110
48
11,120
Prices based on internal models or other valuation methods 11,436
919
—
12,355

Total $ 23,469
$ 3,883
$ 114
$ 27,466

•NYMEX ~~(New York Mercantile Exchange)~~ is the primary national commodities exchange on which natural gas is traded. Volumes of our NYMEX contracts included in the table above under "Prices actively quoted" are ~~45.4 million decatherms (dts)~~50.3 MMdts with a weighted average settlement price of ~~$2.87~~$2.68 per dt.

•Basis represents the differential to the NYMEX natural gas futures contract for delivering gas to a specific location. Volumes of our basis contracts, along with volumes of our discounted index related purchase and sales contracts, included in the table above under "Prices provided by other external sources" and "Prices based on internal models or other valuation methods" are ~~87.6 million dts~~32.1 MMdts with a weighted average settlement price of ~~$(0.45)~~$(0.42) per dt.

•Fixed Price Gas Daily represents the price of a NYMEX natural gas futures contract adjusted for the difference in price for delivering the gas at another location. Volumes of our Fixed Price Gas Daily contracts included in the table above under "Prices provided by other external sources" are ~~24.7 million dts~~54.3 MMdts with a weighted average settlement price of ~~$2.40~~$2.02 per dt.

•Volumes of electric included in the table above under "Prices based on internal models or other valuation methods" are ~~0.4 million megawatt hours (mwh)~~0.1 MMmwh with a weighted average settlement price of ~~$32.70~~$32.17 per mwh.

A reconciliation of SJI’s estimated net fair value of energy-related derivatives follows (in thousands):


Net Derivatives — Energy Related Assets, January 1, 2019	$	29,800
Contracts Settled During the Nine Months Ended September 30, 2019, Net	(26,201)
Other Changes in Fair Value from Continuing and New Contracts, Net	4,250

Net Derivatives — Energy Related Assets, September 30, 2019	$	7,849

Table of Contents

Net Derivatives — Energy Related Liabilities, January 1, 2018 $ (4,836 )
Contracts Settled During the Nine Months Ended September 30, 2018, Net 7,679
Other Changes in Fair Value from Continuing and New Contracts, Net 5,119

Net Derivatives — Energy Related Assets, September 30, 2018 $ 7,962

On June 27, 2018, the Company, through Marina, entered into a series of agreements whereby Marina will sell its portfolio of solar energy assets (the “Transaction”) to a third-party buyer. As part of the Transaction, Marina has agreed to sell its distributed solar energy projects located at 143 sites across New Jersey, Maryland, Massachusetts and Vermont with total capacity of approximately 204 MW (the “Projects”). As a result of the Transaction, Marina will no longer generate SREC's on its own behalf.

The Company recorded an impairment loss within the on-site energy production segment of $99.2 million (pre-tax) in Operating Expenses during the nine months ended September 30, 2018, to reduce the carrying amount of several assets to their fair market value. As of September 30, 2018, Marina had total net solar assets of $329.6 million, of which $277.3 million are located in New Jersey, $38.5 million are located in Massachusetts, $1.1 million are located in Maryland, and $12.7 million are located in Vermont. These are recorded in Assets Held for Sale on the unaudited condensed consolidated balance sheets.

Interest Rate Risk— Our exposure to interest-rate risk relates to short-term and long-term variable-rate borrowings. Variable-rate debt outstanding, including short-term and long-term debt, at September 30, ~~2018~~2019 was ~~$1.73~~$1.10 billion and averaged ~~$895.2~~$985.7 million during the first nine months of ~~2018.~~2019. A hypothetical 100 basis point (1%) increase in interest rates on our average variable-rate debt outstanding would result in a ~~$6.6~~$7.3 million increase in our annual interest expense, net of tax. The 100 basis point increase was chosen for illustrative purposes, as it provides a simple basis for calculating the impact of interest rate changes under a variety of interest rate scenarios. Given the timing of when certain borrowings occurred late in the second quarter, the year-to-date average is significantly lower than the actual amount of variable rate debt outstanding as of September 30, 2018. When calculated as of that date, a 1% increase in interest rates on our average variable-rate debt outstanding would result in a $12.8 million increase in our annual interest expense, net of tax. SJI intends to reduce variable rate debt outstanding as asset sale proceeds are received or if we exercise any of the forward shares (see Note 4 to the unaudited condensed consolidated financial statements). Over the past five years, the change in basis points (b.p.) of our average monthly interest rates from the beginning to end of each year was as follows: 2018 - 91 b.p. increase; 2017 - 82 b.p. increase; 2016 - 47 b.p. increase; 2015 - 14 b.p. increase; and 2014 - 1 ~~b.p. decrease; and 2013 - 16~~ b.p. decrease. At September 30, ~~2018,~~2019, our average interest rate on variable-rate debt was ~~3.10%~~2.99%.

We typically issue long-term debt either at fixed rates or use interest rate derivatives to limit our exposure to changes in interest rates on variable rate, long-term debt. As of September 30, ~~2018,~~2019, the interest costs on ~~$1.47~~$2.12 billion of our long-term debt (including current portion) was either at a fixed rate or hedged via an interest rate derivative.

As of September 30, ~~2018~~,2019, SJI’s active interest rate swaps were as follows:


Notional Amount		Fixed Interest Rate	Start Date	Maturity	Obligor
$	20,000,000	3.049%	3/15/2017	3/15/2027	SJI
$	20,000,000	3.049%	3/15/2017	3/15/2027	SJI
$	10,000,000	3.049%	3/15/2017	3/15/2027	SJI
$	12,500,000	3.530%	12/1/2006	2/1/2036	SJG
$	12,500,000	3.430%	12/1/2006	2/1/2036	SJG

Credit Risk - As of September 30, ~~2018,~~2019, SJI had approximately ~~$12.2~~$17.3 million, or ~~34.5%~~30.7%, of the current and noncurrent Derivatives – Energy Related Assets transacted with ~~three~~two counterparties. These counterparties are ~~investment grade~~investment-grade rated.

As of September 30, ~~2018,~~2019, SJRG had ~~$77.7~~$61.7 million of Accounts Receivable under sales contracts. Of that total, ~~36.9%~~23.8% were with regulated utilities or companies rated investment-grade or guaranteed by an investment-grade-rated parent or were with companies where we have a collateral arrangement or insurance coverage. The remainder of the Accounts Receivable were within approved credit limits.

SJG:

~~South Jersey Gas Company:~~

The fair value and maturity of SJG's energy trading and hedging contracts determined using mark-to-market accounting as of September 30, ~~2018~~2019 are as follows (in thousands):


Assets
Source of Fair Value	Maturity < 1 Year		Maturity 1 - 3 Years		Total
Prices actively quoted	$	4,914	$	15	$	4,929
Prices provided by other external sources	17		—		17
Prices based on internal models or other valuable methods	8,947		—		8,947

Total	$	13,878	$	15	$	13,893


Liabilities
	Maturity		Maturity
Source of Fair Value	< 1 Year		1 - 3 Years		Total
Prices actively quoted	$	5,680	$	244	$	5,924
Prices provided by other external sources	1,356		—		1,356
Prices based on internal models or other valuable methods	706		—		706

Total	$	7,742	$	244	$	7,986

Assets
Source of Fair Value
Maturity
< 1 Year

Maturity
1 - 3 Years
Total
Prices Actively Quoted (NYMEX) $ 403
$ 2
$ 405
Prices Provided by Other External Sources (Basis) —
—
—
Prices based on internal models or other valuable methods 7,548
—
7,548

Total $ 7,951
$ 2
$ 7,953

Table of Contents

Liabilities
Maturity Maturity
Source of Fair Value < 1 Year 1 - 3 Years Total
Prices Actively Quoted (NYMEX) $ 219
$ 68
$ 287
Prices Provided by Other External Sources (Basis) 1,653
—
1,653
Prices based on internal models or other valuable methods 932
—
932

Total $ 2,804
$ 68
$ 2,872

Contracted volumes of SJG's NYMEX contracts are ~~8.6 MMdt~~12.5 MMdts with a weighted-average settlement price of ~~$2.86~~$2.65 per dt. Contracted volumes of SJG's Basis contracts are ~~1.1 million dts~~0.1 MMdts with a weighted-average settlement price of ~~$0.62~~$0.40 per dt.

A reconciliation of SJG's estimated net fair value of energy-related derivatives follows (in thousands):


Net Derivatives — Energy Related Assets, January 1, 2019	$	3,290
Contracts Settled During the Nine Months ended September 30, 2019, Net	(3,266)
Other Changes in Fair Value from Continuing and New Contracts, Net	5,883
Net Derivatives — Energy Related Assets, September 30, 2019	$	5,907

Net Derivatives — Energy Related Liabilities, January 1, 2018 $ (2,108 )
Contracts Settled During the Nine Months ended September 30, 2018, Net 1,817
Other Changes in Fair Value from Continuing and New Contracts, Net 5,372
Net Derivatives — Energy Related Assets, September 30, 2018 $ 5,081

Interest Rate Risk - SJG's exposure to interest rate risk relates primarily to variable-rate borrowings. Variable-rate debt, including both short-term and long-term debt outstanding at September 30, ~~2018,~~2019, was ~~$340.2~~$495.2 million and averaged ~~$267.7~~$407.8 million during the first nine months of ~~2018.~~2019. A hypothetical 100 basis point (1%) increase in interest rates on SJG's average variable-rate debt outstanding would result in a ~~$1.9~~$3.0 million increase in SJG's annual interest expense, net of tax. The 100 basis point increase was chosen for illustrative purposes, as it provides a simple basis for calculating the impact of interest rate changes under a variety of interest rate scenarios. Over the past five years, the change in basis points (b.p.) of SJG's average monthly interest rates from the beginning to end of each year was as follows: 2018 - 91 b.p. increase; 2017 - 91 b.p. increase; 2016 - 19 b.p. increase; 2015 - 20 b.p. increase; and 2014 - 32 b.p. ~~increase; and 2013 - 14 b.p. decrease.~~increase. As of September 30, ~~2018,~~2019, SJG's average interest rate on variable-rate debt was ~~2.33%~~2.76%.

SJG typically issues long-term debt either at fixed rates or uses interest rate derivatives to limit exposure to changes in interest rates on variable-rate, long-term debt. As of September 30, ~~2018,~~2019, the interest costs on ~~$619.2~~$580.3 million of long-term debt (including current portion) was either at a fixed-rate or hedged via an interest rate derivative.

100

Table of Contents

Item 4. Controls and Procedures

~~South Jersey Industries, Inc.~~

Evaluation of Disclosure Controls and Procedures

~~SJI's~~The management of each of SJI and SJG, with the participation of ~~its chief~~their respective principal executive officer and ~~chief~~principal financial officer, evaluated the effectiveness of the design and operation of SJI’s and SJG's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of September 30, ~~2018.~~2019. Based on that evaluation, ~~SJI’s chief~~the principal executive officer and ~~chief~~principal financial officer of each of SJI and SJG concluded that the disclosure controls and procedures employed at SJI and SJG are effective.

Changes in Internal Control Over Financial Reporting

On July 1, 2018, SJI completed the acquisition of ETG and ELK. See Note 17 - Business ~~Combinations~~Combination in the Notes to the ~~Unaudited Condensed Consolidated Financial Statements~~condensed consolidated financial statements for additional information. Under the guidelines established by the SEC, companies are permitted to exclude acquisitions from their assessment of internal control over financial reporting for a period of up to one year following an acquisition while integrating the acquired company. SJI is in the process of integrating ETG and ELK into its internal control over financial reporting structure. As a result of these integration activities, certain controls will be evaluated and may be changed. The operations of ETG and ELK represented 38% of SJI's consolidated assets and 46% of SJI's consolidated revenues as of and for the nine months ended September 30, 2019. There have not been any changes in SJI’s internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act, during the quarter ended September 30, ~~2018,~~2019, that has materially affected, or is reasonably likely to materially affect, SJI’s internal control over financial reporting.

~~South Jersey Gas Company~~

~~Evaluation~~

101

Table of ~~Disclosure Controls and Procedures~~Contents

SJG’s management, with the participation of its president (principal executive officer) and chief financial officer (principal financial officer), evaluated the effectiveness of the design and operation of SJG’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act) as of September 30, 2018. Based on that evaluation, SJG’s president and chief financial officer concluded that the disclosure controls and procedures employed at SJG are effective.

~~Changes in Internal Control Over Financial Reporting~~

There has not been any change in SJG’s internal control over financial reporting, as defined in Rules 13a-15(f) under the Securities Exchange Act, during the fiscal quarter ended September 30, 2018 that has materially affected, or is reasonably likely to materially affect, SJG’s internal control over financial reporting.

PART II — OTHER INFORMATION

Item l. Legal Proceedings

Information required by this Item for SJI and SJG is incorporated by reference to Part I, Item 2,1, Note 11, Pending Litigation.

Item 1A. Risk Factors

Other than ~~as set forth~~described below, there have been no material changes in the risk factors for SJI or SJG from those disclosed in Item 1A of SJI’s and SJG's Annual Reports on Form 10-K for the year ended December 31, ~~2017, respectively.~~2018.

~~Our acquisition of Elizabethtown Gas~~Failure to obtain proper approvals and Elkton Gas (the "Acquisition") involves risks associated with acquisitions and integrated acquired assets, including the potential exposure to significant liabilities, and the intended benefits of the Acquisition may not be realized.

~~The Acquisition involves risks associated with acquisitions and integrating acquired assets into existing operations, including that:~~

~~our senior management’s attention may be diverted from the management of daily operations to the integration of the assets acquired~~property rights in the ~~Acquisition;~~

wePennEast pipeline could ~~incur significant unknown~~hinder SJI's equity investment in the project. On September 10, 2019, the U.S. Court of Appeals for the Third Circuit ruled that PennEast does not have eminent domain authority over NJ state-owned lands. In October 2019, the New Jersey Department of Environmental Protection denied and ~~contingent liabilities~~closed PennEast’s application for ~~which we have limited or no contractual remedies or insurance coverage;~~

several permits without prejudice, citing the ~~assets~~Third Circuit Court decision. On November 5, 2019, the U.S. Court of Appeals for the Third Circuit denied PennEast's petition for rehearing en banc. PennEast management remains committed to ~~be acquired may not perform~~pursuing the project and intends to pursue all available options to challenge the court’s decision. SJI, as well as ~~we anticipate; and~~

~~unexpected costs, delays and challenges may arise in integrating the assets acquired~~our joint venture partners in the ~~Acquisition into our existing operations.~~

~~Even if we~~PennEast pipeline, may be unable to obtain all such needed property rights, permits and licenses to successfully ~~integrate~~construct and develop the ~~assets acquired~~pipeline, and failing to do this, or being unable to identify or implement other options, could cause SJI's equity investment in the ~~Acquisition into our operations, it may not be possible~~project to realize the full benefits we anticipate or we may not realize these benefits within the expected time frame. If we fail to realize the benefits we anticipate from the Acquisition, our business, results of operations and financial condition may be adversely affected.

We issued additional securities to provide permanent financing for the Acquisition, and, as a result, we are subject to market risks including market demand for our debt and equity securities. We are also seeking to consummate certain asset sales.

In connection with the Acquisition, we have obtained permanent financing which includes common stock and Equity Units, Senior Unsecured Notes, Floating Rate Senior Notes, a Term Loan Facility and a Revolving Credit Agreement.

~~Among other risks, the increase in our indebtedness may:~~

~~make it more difficult for us to repay or refinance our debts as they~~ become ~~due during adverse economic and industry conditions;~~

limit our flexibility to pursue other strategic opportunities or react to changes in our business and the industry in which we operate and, consequently, place us at a competitive disadvantage to competitors with less debt;

require an increased portion of our cash flows from operations to be used for debt service payments, thereby reducing the availability of cash flows to fund working capital, capital expenditures, dividend payments and other general corporate purposes;

~~result in a downgrade in the credit rating of our indebtedness, which could limit our ability to borrow additional funds or increase the interest rates applicable to our indebtedness;~~

result in higher interest expense in the event of increases in market interest rates for both long-term debt as well as short-term commercial paper, bank loans or borrowings under our line of credit at variable rates;

~~reduce the amount of credit available to support hedging activities; and~~

~~require that additional terms, conditions or covenants be placed on us.~~

~~Among other risks, the issuance of additional equity by SJI may:~~

~~be dilutive to our existing shareholders and earnings per share;~~

~~impact our capital structure and cost of the capital;~~

be adversely impacted by movements in the overall equity markets or the utility or natural gas utility industry sectors of that market, which could impact the offering price of our new equity or necessitate the use of other equity or equity-like instruments such as preferred stock, convertible preferred shares, or convertible debt; and

~~impact our ability to make our current and future dividend payments.~~

~~The agreements to sell certain non-core assets of the Company may not be consummated.~~

An agreement to sell solar assets has been entered into with a third party, which will occur on a rolling basis as the conditions precedent to the closing of each solar project, including certain regulatory filings and receipt of consents to assignment of project contracts and permits, are satisfied. While certain consents have been received and the sale of certain projects has consummated, we cannot guarantee that all approvals and consents will occur.

~~The Acquisition may not achieve its intended results, including anticipated investment opportunities and earnings growth.~~

Although we expect that the Acquisition will result in various benefits, including expanding our gas utility rate and customer bases, providing investment opportunities through infrastructure development and enhancing our regulatory relationships within the local communities served, we cannot assure you regarding when or the extent to which we will be able to realize these or other benefits. Achieving the anticipated benefits, is subject to a number of uncertainties, including whether the businesses acquired can be operated in the manner we intend and whether our costs to finance the Acquisition will be consistent with our expectations. Events outside of our control, including but not limited to regulatory changes or developments, could also adversely affect our ability to realize the anticipated benefits from the Acquisition. Thus the integration of the Elizabethtown Gas and Elkton Gas businesses, respectively, may be unpredictable, subject to delays or changed circumstances, and we cannot assure you that the acquired businesses will perform in accordance with our expectations or that our expectations with respect to improving our business risk profile, leveraging existing regulatory relationships or achieving earnings growth as a result of the Acquisition will be achieved. In addition, our anticipated costs to achieve the integration of the acquired businesses may differ significantly from our current estimates. The integration may place an additional burden on our management and internal resources, and the diversion of management’s attention during the integration processimpaired. Such impairment could have ana materially adverse effect on ~~our business,~~SJI's financial condition and ~~expected operating results.~~results of operations.

102

Table of Contents

Item 6. Exhibits

(a) Exhibits



Exhibit No.						Description

31.1						Certification of SJI's Principal Executive Officer Pursuant to Rule 13a-14(a) of the Exchange Act.

31.2						Certification of SJI's Principal Financial Officer Pursuant to Rule 13a-14(a) of the Exchange Act.

~~31.3~~31.3						Certification of SJG's Principal Executive Officer Pursuant to Rule 13a-14(a) of the Exchange Act.

31.4						Certification of SJG's Principal Financial Officer Pursuant to Rule 13a-14(a) of the Exchange Act.

32.1						Certification of SJI's Principal Executive Officer Pursuant to Rule 13a-14(b) of the Exchange Act as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code).

32.2						Certification of SJI's Principal Financial Officer Pursuant to Rule 13a-14(b) of the Exchange Act as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code).

32.3						Certification of SJG's Principal Executive Officer Pursuant to Rule 13a-14(b) of the Exchange Act as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code).

32.4						Certification of SJG's Principal Financial Officer Pursuant to Rule 13a-14(b) of the Exchange Act as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code).

101						The following financial statements from South Jersey Industries, Inc.’s Quarterly Report on Form 10-Q for the three and nine months ended September 30, ~~2018,~~2019, filed with the Securities and Exchange Commission on November ~~7, 2018~~6, 2019 formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Statements of Income; (ii) the Condensed Consolidated Statements of Comprehensive Income; (iii) the Condensed Consolidated Statements of Cash Flows; (iv) the Condensed Consolidated Balance ~~Sheets~~Sheets; (v) the Condensed Consolidated Statements of Equity; and ~~(v)~~(vi) the Notes to Condensed Consolidated Financial Statements. The following financial statements from South Jersey Gas’ Quarterly Report on Form 10-Q for the three and nine months ended September 30, ~~2018,~~2019, filed with the Securities and Exchange Commission on November ~~7, 2018~~6, 2019 formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Condensed Statements of Income; (ii) the Condensed Statements of Comprehensive Income; (iii) the Condensed Statements of Cash Flows; ~~and~~ (iv) the Condensed Balance ~~Sheets.~~Sheets; and (v) the Condensed Statements of Equity.

103

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the ~~registrants have~~registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

SOUTH JERSEY INDUSTRIES, INC.

~~SOUTH JERSEY INDUSTRIES, INC.~~

~~Dated:~~

~~November 7, 2018~~

~~By:~~

~~/s/ Kenneth A. Lynch~~

Dated:

November 6, 2019

By:

~~Kenneth A. Lynch~~/s/ Cielo Hernandez

~~Chief Accounting & Risk Officer - SJI~~Cielo Hernandez

Senior Vice President & Chief Financial Officer

(Principal Financial Officer)

SOUTH JERSEY GAS COMPANY

~~SOUTH JERSEY GAS COMPANY~~

~~Dated:~~

Dated:

November ~~7, 2018~~6, 2019

By:

/s/ Ann T. Anthony

Ann T. Anthony

Treasurer - SJG

(Principal Financial Officer)

104



Commission File Number	Exact name of registrant as specified in its charter ~~and principal~~ ~~office address and telephone number~~	State of Incorporation	I.R.S. Employer Identification No.
1-6364	South Jersey Industries, Inc.	New Jersey	22-1901645
000-22211	South Jersey Gas Co	New Jersey	21-0398330

	~~New Jersey~~	~~22-1901645~~
~~000-22211~~Title of each class			~~South Jersey Gas Company~~ ~~1 South Jersey Plaza~~ ~~Folsom, NJ 08037~~ ~~(609) 561-9000~~ Trading Symbol(s)	Name of exchange on which registered
Common Stock - $1.25 par value per share			SJI	New ~~Jersey~~York Stock Exchange
5.625% Junior Subordinated Notes due 2079			~~21-0398330~~SJIJ	New York Stock Exchange
Corporate Units			SJIU	New York Stock Exchange


Title of each class	Trading Symbol(s)	Name of exchange on which registered
None	N/A	N/A



PART I		FINANCIAL INFORMATION		Page No.
Glossary of Terms and Abbreviations					4
Item 1.		Financial Statements (Unaudited)		17
		South Jersey Industries, Inc.
		Condensed Consolidated Statements of Income		17
		Condensed Consolidated Statements of Comprehensive Income		39
		Condensed Consolidated Statements of Cash Flows		410
		Condensed Consolidated Balance Sheets		511
		Condensed Consolidated Statements of Changes in Equity and Comprehensive Income		13

		South Jersey Gas Company
		Condensed Statements of Income		716
		Condensed Statements of Comprehensive Income		918
		Condensed Statements of Cash Flows		1019
		Condensed Balance Sheets		1120
		Condensed Statements of Changes in Equity and Comprehensive Income		22

		Notes to Unaudited Condensed Consolidated Financial Statements		1324
		South Jersey Industries, Inc. and South Jersey Gas Company - Combined
		Note 1. Summary of Significant Accounting Policies		1324
		Note 2. Stock-Based Compensation Plan		1929
		Note 3. Affiliations, Discontinued Operations and Related-Party Transactions		2131
		Note 4. Common Stock		2333
		Note 5. Financial Instruments		2434
		Note 6. Segments of Business		2636
		Note 7. Rates and Regulatory Actions		3140
		Note 8. Regulatory Assets & Regulatory Liabilities		3242
		Note 9. Pension and Other Postretirement Benefits		3545
		Note 10. Lines of Credit		3646
		Note 11. Commitments and Contingencies		3748
		Note 12. Derivative Instruments		3949
		Note 13. Fair Value of Financial Assets and Financial Liabilities		4353
		Note 14. Long-Term Debt		4857
		Note 15. Accumulated Other Comprehensive Loss		4858
		Note 16. Revenue		5161
		Note 17. Business ~~Combination~~Combinations		5665
		Note 18. ~~Subsequent Events~~Goodwill and Identifiable Intangible Assets		5867
		Note 19. Leases		68
		Note 20. Subsequent Events		71
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		5972
		South Jersey Industries, Inc.		6175
		South Jersey Gas Company		8194
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		8597
Item 4.		Controls and Procedures		89101
PART II		OTHER INFORMATION
~~PART II~~		~~OTHER INFORMATION~~

Item 1.	Legal Proceedings		90102
Item 1A.		Risk Factors		90102
Item 6.		Exhibits		92103
Signatures


~~Signatures~~			93
ACB			ACB Energy Partners, LLC
ACLE			AC Landfill Energy, LLC
Acquisition			The Company's acquisition of the assets of Elizabethtown Gas Company and Elkton Gas Company effective July 1, 2018, from Pivotal Utility Holdings, Inc., a subsidiary of Southern Company Gas
AEP			Applied Energy Partners, LLC
AFUDC			Allowance for Funds During Construction
AIRP			Accelerated Infrastructure Replacement Program
AMA			Asset Management Agreement
AOCL			Accumulated Other Comprehensive Loss

ARO			Asset Retirement Obligation
ASC			Accounting Standards Codification
ASU			Accounting Standards Update
Bcf			One billion cubic feet
BCLE			BC Landfill Energy, LLC
BGSS			Basic Gas Supply Service

BPU			New Jersey Board of Public Utilities

CEGR			Compounded Earnings Annual Growth Rate
CEP			Clean Energy Program (ETG)
CHP			Combined Heat and Power
CIP			Conservation Incentive Program
CLEP			Clean Energy Program (SJG)
CODM			Chief Operating Decision Maker





DRP			Dividend Reinvestment Plan
dt			Decatherm
dts/d			Decatherms per day
EEP			Energy Efficiency Program
EET			Energy Efficiency Tracker
EGR			Earnings Growth Rate
ELK			Elkton Gas Company
EMI			Energy & Minerals, Inc.
EnerConnex			EnerConnex, LLC
Energenic			Energenic US, LLC
EnergyMark			EnergyMark, LLC
EPS			Earnings Per Share
ERIP			Early Retirement Incentive Program
ERISA			Employee Retirement Income Security Act of 1974
ETG			Elizabethtown Gas Company

FASB			Financial Accounting Standards Board
FERC			Federal Energy Regulatory Commission

GAAP			Generally Accepted Accounting Principles for financial reporting in the United States

IAM			International Association of Machinists and Aerospace Workers
IBEW			International Brotherhood of Electrical Workers
IIP			Infrastructure Investment Programs

LIBOR			London Interbank Offer Rate
LMP			Locational Marginal Price

Marina			Marina Energy, LLC



x☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



o☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________ to ______________________


Mcf			One thousand cubic feet



Midstream			SJI Midstream, LLC
Millennium			Millennium Account Services, LLC
MPSC			Maryland Public Service Commission
MMdts			One million decatherms
MMmwh			One million megawatt hours
Morie			The Morie Company, Inc.

MTN			Medium Term Notes
MW			Megawatts
MWh			Megawatt-hours



Non-GAAP			The financial measures that are not prepared in accordance with U.S. GAAP
NPA			Note Purchase Agreement


NJEDA			New Jersey Economic Development Authority

NYMEX			New York Mercantile Exchange

OSMC			On-System Margin Sharing Credit
OSS			Off-System Sales
PennEast			PennEast Pipeline, LLC
Potato Creek			Potato Creek, LLC
RAC			Remediation Adjustment Clause

ROE			Return on Equity


SBC			Societal Benefits Clause

SCLE			SC Landfill Energy, LLC
SEC			Securities and Exchange Commission
SERP			Supplemental Executive Retirement Plan
SHARP			Storm Hardening and Reliability Program
SJE			South Jersey Energy Company
SJEI			SJI Energy Investments, LLC
SJES			South Jersey Energy Solutions, LLC
SJESP			South Jersey Energy Service Plus, LLC
SJEX			South Jersey Exploration, LLC
SJF			South Jersey Fuel, Inc.
SJG			South Jersey Gas Co or South Jersey Gas Company
SJI			South Jersey Industries, Inc., or the Company
SJIU			SJI Utilities, Inc.
SJRG			South Jersey Resources Group, LLC
SRECs			Solar Renewable Energy Credits
SXLE			SX Landfill Energy, LLC
Tax Reform			Tax Cuts and Jobs Act which was enacted into law on December 22, 2017


TIC			Transportation Initiation Clause

TSA			Transition Services Agreement
TSR			Total Shareholder Return
USF			Statewide Universal Service Fund
Utilities			Represents SJI's three utility businesses: SJG, ETG, and ELK
UWUA			United Workers Union of America
VIE			Variable Interest Entity
WNC			Weather Normalization Clause


	September 30, 2018			December 31, 2017				September 30, 2019		December 31, 2018
Assets							Assets
Property, Plant and Equipment:							Property, Plant and Equipment:
Utility Plant, at original cost	$	4,200,565		$	2,652,244		Utility Plant, at original cost	$	4,776,014	$	4,341,113
Accumulated Depreciation	(781,824		)	(498,161		)	Accumulated Depreciation	(842,918)		(787,243)
Nonutility Property and Equipment, at cost	161,250			741,027			Nonutility Property and Equipment, at cost	151,826		152,232
Accumulated Depreciation	(49,888		)	(194,913		)	Accumulated Depreciation	(56,037)		(52,629)

Property, Plant and Equipment - Net	3,530,103			2,700,197			Property, Plant and Equipment - Net	4,028,885		3,653,473

Investments:							Investments:
Available-for-Sale Securities	36			36			Available-for-Sale Securities	41		41
Restricted	10,002			31,876			Restricted	16,271		1,649
Investment in Affiliates	74,811			62,292			Investment in Affiliates	84,162		76,122

Total Investments	84,849			94,204			Total Investments	100,474		77,812

Current Assets:							Current Assets:
Cash and Cash Equivalents	3,314			7,819			Cash and Cash Equivalents	4,602		30,030
Accounts Receivable	220,561			202,379			Accounts Receivable	179,108		337,502
Unbilled Revenues	29,313			73,377			Unbilled Revenues	18,714		79,538
Provision for Uncollectibles	(20,292		)	(13,988		)	Provision for Uncollectibles	(20,954)		(18,842)
Notes Receivable - Affiliate	3,552			4,913			Notes Receivable - Affiliate	3,847		1,945
Natural Gas in Storage, average cost	84,373			48,513			Natural Gas in Storage, average cost	64,404		60,425
Materials and Supplies, average cost	4,574			4,239			Materials and Supplies, average cost	1,798		1,743
Prepaid Taxes	28,185			41,355			Prepaid Taxes	35,887		30,694
Derivatives - Energy Related Assets	27,414			42,139			Derivatives - Energy Related Assets	46,708		54,021
Assets Held For Sale	329,622			—			Assets Held For Sale	27,830		59,588
Other Prepayments and Current Assets	26,703			28,247			Other Prepayments and Current Assets	43,152		26,548

Total Current Assets	737,319			438,993			Total Current Assets	405,096		663,192

Regulatory and Other Noncurrent Assets:							Regulatory and Other Noncurrent Assets:
Regulatory Assets	628,977			469,224			Regulatory Assets	719,426		662,969
Derivatives - Energy Related Assets	8,014			5,988			Derivatives - Energy Related Assets	9,606		7,169
Notes Receivable - Affiliate	13,275			13,275			Notes Receivable - Affiliate	13,275		13,275
Contract Receivables	27,934			28,721			Contract Receivables	30,747		27,961
Goodwill	759,826			3,578			Goodwill	705,707		734,607
Other (See Note 1)	124,225			110,906
Other							Other	116,837		116,119

Total Regulatory and Other Noncurrent Assets	1,562,251			631,692			Total Regulatory and Other Noncurrent Assets	1,595,598		1,562,100

Total Assets	$	5,914,522		$	3,865,086		Total Assets	$	6,130,053	$	5,956,577





	Common Stock	Premium on Common Stock	Treasury Stock	Accumulated Other Comprehensive Loss	Retained Earnings	Total

Balance at January 1, 2019	106,883	843,268	(292)	(26,095)	343,258	1,267,022
Net Income	—	—	—	—	85,637	85,637
Other Comprehensive Income, Net of Tax	—	—	—	8	—	8
Common Stock Issued or Granted Through Equity Offering or Stock Plans	8,603	179,829	17	—	—	188,449
Cash Dividends Declared - Common Stock ($0.29 per share)	—	—	—	—	(26,562)	(26,562)
Balance at March 31, 2019	115,486	1,023,097	(275)	(26,087)	402,333	1,514,554
Net Loss	—	—	—	—	(13,399)	(13,399)
Other Comprehensive Income, Net of Tax	—	—	—	8	—	8
Common Stock Issued or Granted Through Equity Offering or Stock Plans	2	1,877	(8)	—	—	1,871
Cash Dividends Declared - Common Stock ($0.29 per share)	—	—	—	—	(26,562)	(26,562)
Balance at June 30, 2019	115,488	1,024,974	(283)	(26,079)	362,372	1,476,472
Net Loss	—	—	—	—	(34,805)	(34,805)
Other Comprehensive Income, Net of Tax	—	—	—	9	—	9
Common Stock Issued or Granted Through Equity Offering or Stock Plans	3	1,669	(1)	—	—	1,671
Cash Dividends Declared - Common Stock ($0.29 per share)	—	—	—	—	(26,560)	(26,560)
Balance at September 30, 2019	115,491	1,026,643	(284)	(26,070)	301,007	1,416,787


	Postretirement Liability Adjustment	Unrealized Gain (Loss) on Derivatives-Other (A)	Unrealized Gain (Loss) on Available- for-Sale Securities	Other Comprehensive Income (Loss) of Affiliated Companies	Accumulated Other Comprehensive Loss

Balance at January 1, 2019	(25,626)	(362)	(10)	(97)	(26,095)
Changes During Period	—	8	—	—	8
Balance at March 31, 2019	(25,626)	(354)	(10)	(97)	(26,087)
Changes During Period	—	8	—	—	8
Balance at June 30, 2019	(25,626)	(346)	(10)	(97)	(26,079)
Changes During Period	—	9	—	—	9
Balance at September 30, 2019	(25,626)	(337)	(10)	(97)	(26,070)

Balance at January 1, 2018	(36,262)	(396)	(10)	(97)	(36,765)
Changes During Period	—	9	—	—	9
Balance at March 31, 2018	(36,262)	(387)	(10)	(97)	(36,756)
Changes During Period	—	8	—	—	8
Balance at June 30, 2018	(36,262)	(379)	(10)	(97)	(36,748)
Changes During Period	—	8	—	—	8
Balance at September 30, 2018	(36,262)	(371)	(10)	(97)	(36,740)


	September 30, 2018			December 31, 2017				September 30, 2019		December 31, 2018
Assets							Assets
Property, Plant and Equipment:							Property, Plant and Equipment:
Utility Plant, at original cost	$	2,812,128		$	2,652,244		Utility Plant, at original cost	$	3,087,846	$	2,907,202
Accumulated Depreciation	(519,924		)	(498,161		)	Accumulated Depreciation	(556,725)		(523,743)

Property, Plant and Equipment - Net	2,292,204			2,154,083			Property, Plant and Equipment - Net	2,531,121		2,383,459

Investments:							Investments:
Restricted Investments	532			2,912			Restricted Investments	2,084		1,278

Total Investments	532			2,912			Total Investments	2,084		1,278

Current Assets:							Current Assets:
Cash and Cash Equivalents	1,647			1,707			Cash and Cash Equivalents	1,347		1,984
Accounts Receivable	72,010			78,571			Accounts Receivable	65,511		101,572
Accounts Receivable - Related Parties	2,235			988			Accounts Receivable - Related Parties	1,921		2,442
Unbilled Revenues	7,995			54,980			Unbilled Revenues	7,831		43,271
Provision for Uncollectibles	(14,327		)	(13,799		)	Provision for Uncollectibles	(14,812)		(13,643)
Natural Gas in Storage, average cost	19,629			14,932			Natural Gas in Storage, average cost	20,232		16,336
Materials and Supplies, average cost	706			825			Materials and Supplies, average cost	619		619
Prepaid Taxes	25,667			38,326			Prepaid Taxes	26,590		28,772
Derivatives - Energy Related Assets	7,951			7,327			Derivatives - Energy Related Assets	13,878		5,464
Other Prepayments and Current Assets	10,498			12,670			Other Prepayments and Current Assets	24,550		11,280

Total Current Assets	134,011			196,527			Total Current Assets	147,667		198,097

Regulatory and Other Noncurrent Assets:							Regulatory and Other Noncurrent Assets:
Regulatory Assets	494,331			469,224			Regulatory Assets	521,016		492,365
Long-Term Receivables	25,390			25,851			Long-Term Receivables	28,668		25,531
Derivatives - Energy Related Assets	2			5			Derivatives - Energy Related Assets	15		15
Other	19,914			17,372			Other	23,705		17,491

Total Regulatory and Other Noncurrent Assets	539,637			512,452			Total Regulatory and Other Noncurrent Assets	573,404		535,402

Total Assets	$	2,966,384		$	2,865,974		Total Assets	$	3,254,276	$	3,118,236



	Common Stock	Other Paid-In Capital and Premium on Common Stock	Accumulated Other Comprehensive Loss	Retained Earnings	Total
Balance at January 1, 2019	5,848	355,744	(22,357)	668,787	1,008,022
Net Income	—	—	—	68,731	68,731
Other Comprehensive Income, Net of Tax	—	—	8	—	8
Balance at March 31, 2019	5,848	355,744	(22,349)	737,518	1,076,761
Net Income	—	—	—	1,976	1,976
Other Comprehensive Income, Net of Tax	—	—	8	—	8
Balance at June 30, 2019	5,848	355,744	(22,341)	739,494	1,078,745
Net Loss	—	—	—	(11,604)	(11,604)
Other Comprehensive Income, Net of Tax	—	—	9	—	9
Balance at September 30, 2019	5,848	355,744	(22,332)	727,890	1,067,150


	Postretirement Liability Adjustment	Unrealized Gain (Loss) on Derivatives (A)	Accumulated Other Comprehensive Income (Loss)
Balance at January 1, 2019	(21,901)	(456)	(22,357)
Changes During Period	—	8	8
Balance at March 31, 2019	(21,901)	(448)	(22,349)
Changes During Period	—	8	8
Balance at June 30, 2019	(21,901)	(440)	(22,341)
Changes During Period	—	9	9
Balance at September 30, 2019	(21,901)	(431)	(22,332)

Balance at January 1, 2018	(25,507)	(490)	(25,997)
Changes During Period	—	9	9
Balance at March 31, 2018	(25,507)	(481)	(25,988)
Changes During Period	—	8	8
Balance at June 30, 2018	(25,507)	(473)	(25,980)
Changes During Period	—	8	8
Balance at September 30, 2018	(25,507)	(465)	(25,972)


▪	SJI Utilities, Inc. (SJIU) is a holding company that owns South Jersey Gas Company ("SJG"), and, as of July 1, 2018, Elizabethtown Gas Company ("ETG") and Elkton Gas Company ("ELK") (see "Acquisition" below).


1.	~~SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:~~


*	~~SJG is a regulated natural gas utility which distributes natural gas in the seven southernmost counties of New Jersey.~~


*	~~ETG is a regulated natural gas utility which distributes natural gas in seven counties in northern and central New Jersey.~~


*	~~ELK is a regulated natural gas utility which distributes natural gas in northern Maryland.~~


▪	South Jersey Energy Company (SJE) acquires and markets natural gas and electricity to retail end users and provides total energy management services to commercial, industrial and residential customers.


▪	South Jersey Resources Group, LLC (SJRG) markets natural gas storage, commodity and transportation assets along with fuel management services on a wholesale basis in the mid-Atlantic, Appalachian and southern states.


▪	~~South Jersey Exploration, LLC (SJEX) owns oil, gas and mineral rights in the Marcellus Shale region of Pennsylvania.~~


▪	Marina Energy, LLC (Marina) develops and operates on-site energy-related projects. It currently operates projects in New Jersey, Maryland, Massachusetts and Vermont. The significant wholly-owned subsidiaries of Marina include:


▪	SJI Midstream, LLC (Midstream) invests in infrastructure and other midstream projects, including a current project to build an approximately 118-mile natural gas pipeline in Pennsylvania and New Jersey.


Natural Gas in Storage	$	9,685
Intangible Asset	19,200
Profit Sharing - Other Liabilities	(17,546)
Total Consideration	$	11,339


	Grants	Shares Outstanding	Fair Value Per Share		Expected Volatility		Risk-Free Interest Rate
Officers & Key Employees -	2017 - TSR	40,819	$	32.17	20.8	%	1.47	%
	2017 - CEGR, Time	54,135	$	33.69	N/A		N/A
	2018 - TSR	50,991	$	31.05	21.9	%	2.00	%
	2018 - CEGR, Time	83,989	$	31.23	N/A		N/A
	2019 - TSR	38,934	$	32.88	23.2	%	2.40	%
	2019 - CEGR, Time	139,863	$	31.38	N/A		N/A

Directors -	2019	30,961	$	27.07	N/A		N/A


	Officers and Other Key Employees	Directors	Weighted Average Fair Value
Nonvested Shares Outstanding, January 1, 2019	411,809	26,416	$	29.57
Granted	184,791	30,961	$	31.03
Cancelled/Forfeited	(38,788)	—	$	31.58
Vested	(149,082)	(26,416)	$	26.09
Nonvested Shares Outstanding, September 30, 2019	408,730	30,961	$	31.50


3.	~~AFFILIATIONS, DISCONTINUED OPERATIONS AND RELATED-PARTY TRANSACTIONS:~~



			~~2018~~2019
Beginning Balance, January 1			~~79,549,080~~85,506,218
New Issuances During the Period:
~~Public~~Settlement of Equity ~~Offering~~Forward Sale Agreement			~~5,889,830~~6,779,661
Stock-Based Compensation Plan			~~67,308~~106,997
Ending Balance, September 30			~~85,506,218~~92,392,876


	As of September 30, 2019
Balance Sheet Line Item	SJI		SJG
Cash and Cash Equivalents	$	4,602	$	1,347
Restricted Investments	16,271		2,084
Total cash, cash equivalents and restricted cash shown in the statement of cash flows	$	20,873	$	3,431



	As of September 30, 2018
Balance Sheet Line Item	SJI		SJG
Cash and Cash Equivalents	$	3,314	$	1,647
Restricted Investments	10,002		532
Total cash, cash equivalents and restricted cash shown in the statement of cash flows	$	13,316	$	2,179



	As of December 31, 2017
Balance Sheet Line Item	SJI		SJG
Cash and Cash Equivalents	$	7,819	$	1,707
Restricted Investments	31,876		2,912
Total cash, cash equivalents and restricted cash shown in the statement of cash flows	$	39,695	$	4,619


														September 30, 2019		December 31, 2018
Identifiable Assets:													Identifiable Assets:
SJI Utilities:													SJI Utilities:
SJG Utility Operations													SJG Utility Operations	$	3,254,276	$	3,118,236
ETG Utility Operations													ETG Utility Operations	2,335,164		2,148,175
ELK Utility Operations													ELK Utility Operations	19,808		16,482
Subtotal SJI Utilities													Subtotal SJI Utilities	5,609,248		5,282,893
Energy Group:													Energy Group:
Wholesale Energy Operations													Wholesale Energy Operations	173,252		266,417
Retail Gas and Other Operations (A)													Retail Gas and Other Operations (A)	120		12,736
Retail Electric Operations													Retail Electric Operations	29,572		39,345
Subtotal Energy Group													Subtotal Energy Group	202,944		318,498
Energy Services:													Energy Services:
On-Site Energy Production	4,115			3,549			12,060			13,240			On-Site Energy Production	163,716		195,329
Appliance Service Operations													Appliance Service Operations	—		—
Subtotal Energy Services													Subtotal Energy Services	163,716		195,329
Midstream	541			160			1,446			795			Midstream	81,099		72,333
Discontinued Operations													Discontinued Operations	1,778		1,777
Corporate and Services	15,303			4,895			36,141			14,442			Corporate and Services	394,897		387,482
Subtotal	32,046			14,934			75,712			50,104
Intersegment Borrowings	(5,512		)	(4,367		)	(15,645		)	(11,813		)
Total Interest Charges	$	26,534		$	10,567		$	60,067		$	38,291
Intersegment Assets													Intersegment Assets	(323,629)		(301,735)
Total Identifiable Assets													Total Identifiable Assets	$	6,130,053	$	5,956,577


◦	~~A final base rate adjustment to reflect an annual revenue reduction of approximately $25.9 million;~~


◦	~~A one-time customer refund of approximately $13.8 million, including interest, for over collected tax during the period January 1, 2018 through September 30, 2018; and~~


◦	A customer refund of approximately $27.5 million for the "Unprotected" Excess Deferred Income Tax through a separate tariff rider over a five-year period. The refund related to the "Protected" Excess Deferred Tax will be addressed no later than March 31, 2019.