0000091928 sji:SouthJerseyGasCompanyMember srt:MaximumMember sji:NaturalGasInMmdtsMember us-gaap:FairValueInputsLevel3Member us-gaap:ForwardContractsMember 2019-06-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark one)



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

For the quarterly period ended ~~March 31,~~June 30, 2019



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



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.	Securities registered pursuant to Section 12(b) of the Act (Title of each class):	Trading Symbol	Name of exchange on which registered
1-6364	South Jersey Industries, Inc. ~~1 South Jersey Plaza~~ ~~Folsom, NJ 08037~~ ~~(609) 561-9000~~	New Jersey	22-1901645	Common Stock - $1.25 par value per share	SJI	New York Stock Exchange
000-22211	South Jersey Gas ~~Company~~ ~~1 South Jersey Plaza~~ ~~Folsom, NJ 08037~~ ~~(609) 561-9000~~ Co	New Jersey	21-0398330	None	N/A	N/A



	Address of principal executive offices	City	State	Zip Code	Registrant's telephone number, including area code
South Jersey Industries, Inc.	1 South Jersey Plaza	Folsom	New Jersey	08037	(609)	561-9000
South Jersey Gas Co	1 South Jersey Plaza	Folsom	New Jersey	08037	(609)	561-9000

Indicate by check mark whether each registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that such registrant was required to file such reports), and (2) has been subject to such filing

requirements for the past 90 days. Yes x☒ No o☐

Indicate by check mark whether each registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that such registrant was required to submit such files). Yes x☒ No o☐

Indicate by check mark whether each registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



South Jersey Industries, Inc.:
Large accelerated filerx	☒	Accelerated filer o	☐	Non-accelerated filer o	☐
Smaller reporting company o	☐	Emerging growth company o	☐
South Jersey Gas ~~Company:~~Co:
Large accelerated filer o	☐	Accelerated filer o	☐	Non-accelerated filerx	☒
Smaller reporting company o	☐	Emerging growth company o	☐

If an emerging growth company, indicate by check mark if either registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o☐

Indicate by check mark whether either registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐

No x☒

South Jersey Industries, Inc. (SJI) common stock ($1.25 par value) outstanding as of ~~May~~August 1, 2019 was ~~92,388,676~~92,390,349 shares. South Jersey Gas ~~Company~~Co common stock ($2.50 par value) outstanding as of ~~May~~August 1, 2019 was 2,339,139 shares. All of South Jersey Gas ~~Company's~~Co's outstanding shares of common stock are held by SJI Utilities, Inc, which is a wholly-owned subsidiary of SJI.

South Jersey Gas ~~Company~~Co is a wholly-owned subsidiary of SJI Utilities, Inc. and meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q. As such, South Jersey Gas ~~Company~~Co files its Quarterly Report on Form 10-Q with the reduced disclosure format authorized by General Instruction H.

TABLE OF CONTENTS



PART I	FINANCIAL INFORMATION	Page No.
Glossary of Terms and Abbreviations		34
Item 1.	Financial Statements (Unaudited)	67
	South Jersey Industries, Inc.
	Condensed Consolidated Statements of Income	6
	~~Condensed Consolidated Statements of Comprehensive Income~~	7
	Condensed Consolidated Statements of ~~Cash Flows~~	8
	~~Condensed Consolidated Balance Sheets~~Comprehensive Income	9
	Condensed Consolidated Statements of Cash Flows	10
	Condensed Consolidated Balance Sheets	11
	Condensed Consolidated Statements of Changes in Equity and Comprehensive Income	1113

	South Jersey Gas Company
	Condensed Statements of Income	13
	~~Condensed Statements of Comprehensive Income~~	14
	~~Condensed Statements of Cash Flows~~	15
	Condensed ~~Balance Sheets~~Statements of Comprehensive Income	1617
	Condensed Statements of Cash Flows	18
	Condensed Balance Sheets	19
	Condensed Statements of Changes in Equity and Comprehensive Income	1821

	Notes to Unaudited Condensed Consolidated Financial Statements	1922
	South Jersey Industries, Inc. and South Jersey Gas Company - Combined
	Note 1. Summary of Significant Accounting Policies	1922
	Note 2. Stock-Based Compensation Plan	2427
	Note 3. Affiliations, Discontinued Operations and Related-Party Transactions	26
	~~Note 4. Common Stock~~	28
	~~Note 5. Financial Instruments~~	29
	Note ~~6. Segments of Business~~4. Common Stock	3031
	Note 5. Financial Instruments	32
	Note 6. Segments of Business	33
	Note 7. Rates and Regulatory Actions	3437
	Note 8. Regulatory Assets & Regulatory Liabilities	35
	~~Note 9. Pension and Other Postretirement Benefits~~	38
	Note ~~10. Lines of Credit~~	39
	~~Note 11. Commitments~~9. Pension and ~~Contingencies~~	40
	~~Note 12. Derivative Instruments~~Other Postretirement Benefits	42
	Note 10. Lines of Credit	43
	Note 11. Commitments and Contingencies	44
	Note 12. Derivative Instruments	46
	Note 13. Fair Value of Financial Assets and Financial Liabilities	45
	~~Note 14. Long-Term Debt~~	50
	Note 14. Long-Term Debt	55
	Note 15. Accumulated Other Comprehensive Loss	5055
	Note 16. Revenue	5258
	Note 17. Business Combination	5462
	Note 18. Goodwill and Identifiable Intangible Assets	5664
	Note 19. Leases	5765
	Note 20. Subsequent ~~Events~~Event	5967
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	6068
	South Jersey Industries, Inc.	6270
	South Jersey Gas Company	7787
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	8090
Item 4.	Controls and Procedures	8494
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	8595
Item 1A.	Risk Factors	8595
Item 6.	Exhibits	8696

Signatures		8797

GLOSSARY OF TERMS AND ABBREVIATIONS



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
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
CHP	Combined Heat and Power
CIP	Conservation Incentive Program
CLEP	Clean Energy Program
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
LFGTE	Landfill Gas-to-Energy
LIBOR	London Interbank Offer Rate
LMP	Locational Marginal Price
Marina	Marina Energy, LLC



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
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
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

INTRODUCTION

FILING FORMAT

This Quarterly Report on Form 10-Q is a combined report being filed separately by two registrants: South Jersey Industries, Inc. (SJI) and South Jersey Gas Company (SJG). Information relating to SJI or any of its subsidiaries, other than SJG, is filed by SJI on its own behalf. SJG is only responsible for information about itself.

Except where the content clearly indicates otherwise, any reference in the report to "SJI," "the Company," "we," "us" or "our" is to the holding company or SJI and all of its subsidiaries, including SJG, which is a wholly-owned subsidiary of SJI Utilities, Inc. (which is wholly-owned by SJI).

Part 1 - Financial information in this Quarterly Report on Form 10-Q includes separate financial statements (i.e., balance sheets, statements of income, statements of comprehensive income, statements of equity and statements of cash flows) for SJI and SJG. The Notes to Unaudited Condensed Consolidated Financial Statements are presented on a combined basis for both SJI and SJG. Management's Discussion and Analysis of Financial Condition and Results of Operations (Management's Discussion) included under Item 2 is divided into two major sections: SJI and SJG.

Item 1. Condensed Consolidated Financial Statements

SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)

(In Thousands, Except for Per Share Data)


	Three Months Ended March 31,						Three Months Ended June 30,
	2019			2018			2019			2018
Operating Revenues:
Utility	$	414,346		$	231,768		$	106,832		$	75,603
Nonutility	222,952			290,177			160,102			151,727
Total Operating Revenues	637,298			521,945			266,934			227,330
Operating Expenses:
Cost of Sales - (Excluding depreciation and amortization)
- Utility	188,449			87,117			16,721			18,181
- Nonutility	213,938			195,951			148,620			127,615
Operations	62,826			47,044			56,608			58,007
Impairment Charges							—			99,233
Maintenance	9,630			6,862			9,273			6,812
Depreciation	23,685			24,662			24,129			24,771
Energy and Other Taxes	4,217			2,439			2,717			1,243
Total Operating Expenses	502,745			364,075			258,068			335,862
Operating Income	134,553			157,870
Operating Income (Loss)							8,866			(108,532		)

Other Income and Expense	2,575			2,761			29			974
Interest Charges	(28,653		)	(13,972		)	(28,434		)	(19,561		)
Income Before Income Taxes	108,475			146,659
Loss Before Income Taxes							(19,539		)	(127,119		)
Income Taxes	(24,949		)	(36,415		)	4,646			31,972
Equity in Earnings of Affiliated Companies	2,173			1,062			1,589			1,354
Income from Continuing Operations	85,699			111,306
Loss from Continuing Operations							(13,304		)	(93,793		)
Loss from Discontinued Operations - (Net of tax benefit)	(62		)	(66		)	(95		)	(26		)
Net Income	$	85,637		$	111,240
Net Loss							$	(13,399	)	$	(93,819	)

Basic Earnings Per Common Share:
Continuing Operations	$	0.94		$	1.40		$	(0.14	)	$	(1.12	)
Discontinued Operations	—			—			—			—
Basic Earnings Per Common Share	$	0.94		$	1.40		$	(0.14	)	$	(1.12	)

Average Shares of Common Stock Outstanding - Basic	91,332			79,595			92,389			84,080

Diluted Earnings Per Common Share:
Continuing Operations	$	0.94		$	1.40		$	(0.14	)	$	(1.12	)
Discontinued Operations	—			—			—			—
Diluted Earnings Per Common Share	$	0.94		$	1.40		$	(0.14	)	$	(1.12	)

Average Shares of Common Stock Outstanding - Diluted	91,432			79,724			92,389			84,080

The accompanying notes are an integral part of the condensed consolidated financial statements.




	Six Months Ended June 30,
	2019			2018
Operating Revenues:
Utility	$	521,178		$	307,371
Nonutility	383,054			441,904
Total Operating Revenues	904,232			749,275
Operating Expenses:
Cost of Sales - (Excluding depreciation and amortization)
- Utility	205,170			105,298
- Nonutility	362,558			323,566
Operations	119,434			105,051
Impairment Charges	—			99,233
Maintenance	18,903			13,674
Depreciation	47,814			49,433
Energy and Other Taxes	6,934			3,682
Total Operating Expenses	760,813			699,937
Operating Income	143,419			49,338

Other Income and Expense	2,604			3,735
Interest Charges	(57,087		)	(33,533		)
Income Before Income Taxes	88,936			19,540
Income Taxes	(20,303		)	(4,443		)
Equity in Earnings of Affiliated Companies	3,762			2,416
Income from Continuing Operations	72,395			17,513
Loss from Discontinued Operations - (Net of tax benefit)	(157		)	(92		)
Net Income	$	72,238		$	17,421

Basic Earnings Per Common Share:
Continuing Operations	$	0.79		$	0.21
Discontinued Operations	—			—
Basic Earnings Per Common Share	$	0.79		$	0.21

Average Shares of Common Stock Outstanding - Basic	91,863			81,850

Diluted Earnings Per Common Share:
Continuing Operations	$	0.79		$	0.21
Discontinued Operations	—			—
Diluted Earnings Per Common Share	$	0.79		$	0.21

Average Shares of Common Stock Outstanding - Diluted	91,979			82,302

The accompanying notes are an integral part of the condensed consolidated financial statements.

SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(In Thousands)


	Three Months Ended March 31,				Three Months Ended June 30,
	2019		2018		2019			2018
Net Income	$	85,637	$	111,240
Net Loss					$	(13,399	)	$	(93,819	)

Other Comprehensive Income, Net of Tax:*

Unrealized Gain on Derivatives - Other	8		9		8			8

Other Comprehensive Income - Net of Tax*	8		9		8			8

Comprehensive Income	$	85,645	$	111,249
Comprehensive Loss					$	(13,391	)	$	(93,811	)



	Six Months Ended June 30,
	2019		2018
Net Income	$	72,238	$	17,421

Other Comprehensive Income, Net of Tax:*

Unrealized Gain on Derivatives - Other	16		17

Other Comprehensive Income - Net of Tax*	16		17

Comprehensive Income	$	72,254	$	17,438

* Determined using a combined average statutory tax rate of approximately 27% and 25% in 2019 and 2018, respectively.

The accompanying notes are an integral part of the condensed consolidated financial statements.

SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In Thousands)


	Three Months Ended March 31,						Six Months Ended June 30,
	2019			2018			2019			2018
Net Cash Provided by Operating Activities	$	212,252		$	95,201		$	216,079		$	152,828

Cash Flows from Investing Activities:
Capital Expenditures	(121,887		)	(58,816		)	(256,587		)	(125,973		)
Acquisition-related Working Capital Settlement							15,600			—
Proceeds from Sale of Property, Plant & Equipment	16,130			—			24,292			—
Investment in Long-Term Receivables	(3,408		)	(1,916		)	(6,585		)	(3,947		)
Proceeds from Long-Term Receivables	2,466			2,390			4,983			5,035
Purchase of Company-Owned Life Insurance	—			(279		)	—			(574		)
Investment in Affiliate	(1,458		)	(3,975		)
Advances to Affiliate	(620		)	—
Net Repayment of Notes Receivable - Affiliate	—			1,065
Investment in Affiliates							(3,088		)	(8,413		)
Advances to Affiliates							(858		)	—
Net Repayment of Notes Receivable - Affiliates							—			2,006

Net Cash Used in Investing Activities	(108,777		)	(61,531		)	(222,243		)	(131,866		)

Cash Flows from Financing Activities:
Net Borrowings from (Repayments of) Short-Term Credit Facilities	84,621			(98,300		)	409,502			(10,000		)
Proceeds from Issuance of Long-Term Debt	10,000			50,000			10,000			1,592,500
Principal Repayments of Long-Term Debt	(400,000		)	—			(575,000		)	—
Payments for Issuance of Long-Term Debt	(798		)	(1,264		)	(1,275		)	(13,821		)
Net Settlement of Restricted Stock	—			(776		)	—			(776		)
Dividends on Common Stock							(26,562		)	(22,292		)
Proceeds from Sale of Common Stock	189,032			—			189,032			173,750
Payments for the Issuance of Common Stock							—			(6,554		)

Net Cash Used in Financing Activities	(117,145		)	(50,340		)
Net Cash Provided by Financing Activities							5,697			1,712,807

Net Decrease in Cash, Cash Equivalents and Restricted Cash	(13,670		)	(16,670		)
Net (Decrease) Increase in Cash, Cash Equivalents and Restricted Cash							(467		)	1,733,769
Cash, Cash Equivalents and Restricted Cash at Beginning of Period	31,679			39,695			31,679			39,695

Cash, Cash Equivalents and Restricted Cash at End of Period	$	18,009		$	23,025		$	31,212		$	1,773,464

The accompanying notes are an integral part of the condensed consolidated financial statements.

SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In Thousands)


	March 31, 2019			December 31, 2018			June 30, 2019			December 31, 2018
Assets
Property, Plant and Equipment:
Utility Plant, at original cost	$	4,427,438		$	4,341,113		$	4,660,845		$	4,341,113
Accumulated Depreciation	(799,637		)	(787,243		)	(815,987		)	(787,243		)
Nonutility Property and Equipment, at cost	152,270			152,232			151,628			152,232
Accumulated Depreciation	(53,992		)	(52,629		)	(54,845		)	(52,629		)

Property, Plant and Equipment - Net	3,726,079			3,653,473			3,941,641			3,653,473

Investments:
Available-for-Sale Securities	41			41			41			41
Restricted	7,649			1,649			19,019			1,649
Investment in Affiliates	79,243			76,122			81,759			76,122

Total Investments	86,933			77,812			100,819			77,812

Current Assets:
Cash and Cash Equivalents	10,360			30,030			12,193			30,030
Accounts Receivable	317,917			337,502			223,314			337,502
Unbilled Revenues	68,155			79,538			21,253			79,538
Provision for Uncollectibles	(20,753		)	(18,842		)	(20,508		)	(18,842		)
Notes Receivable - Affiliate	2,566			1,945			2,804			1,945
Natural Gas in Storage, average cost	26,613			60,425			49,431			60,425
Materials and Supplies, average cost	1,744			1,743			1,751			1,743
Prepaid Taxes	13,586			30,694			38,982			30,694
Derivatives - Energy Related Assets	29,180			54,021			34,988			54,021
Assets Held For Sale	37,532			59,588			28,696			59,588
Other Prepayments and Current Assets	33,807			26,548			36,056			26,548

Total Current Assets	520,707			663,192			428,960			663,192

Regulatory and Other Noncurrent Assets:
Regulatory Assets	624,187			662,969			682,264			662,969
Derivatives - Energy Related Assets	13,677			7,169			11,883			7,169
Notes Receivable - Affiliate	13,275			13,275			13,275			13,275
Contract Receivables	28,744			27,961			29,325			27,961
Goodwill	734,607			734,607			703,864			734,607
Other	115,153			116,119			116,231			116,119

Total Regulatory and Other Noncurrent Assets	1,529,643			1,562,100			1,556,842			1,562,100

Total Assets	$	5,863,362		$	5,956,577		$	6,028,262		$	5,956,577

The accompanying notes are an integral part of the condensed consolidated financial statements.

SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In Thousands)


	March 31, 2019			December 31, 2018			June 30, 2019			December 31, 2018
Capitalization and Liabilities
Equity:
Common Stock	$	115,486		$	106,883		$	115,488		$	106,883
Premium on Common Stock	1,023,097			843,268			1,024,974			843,268
Treasury Stock (at par)	(275		)	(292		)	(283		)	(292		)
Accumulated Other Comprehensive Loss	(26,087		)	(26,095		)	(26,079		)	(26,095		)
Retained Earnings	402,333			343,258			362,372			343,258

Total Equity	1,514,554			1,267,022			1,476,472			1,267,022

Long-Term Debt	2,117,903			2,106,863			1,798,551			2,106,863

Total Capitalization	3,632,457			3,373,885			3,275,023			3,373,885

Current Liabilities:
Notes Payable	355,121			270,500			680,002			270,500
Current Portion of Long-Term Debt	333,909			733,909			478,909			733,909
Accounts Payable	332,876			410,463			288,881			410,463
Customer Deposits and Credit Balances	26,434			32,058			33,427			32,058
Environmental Remediation Costs	50,258			47,592			53,230			47,592
Taxes Accrued	10,715			5,881			2,671			5,881
Derivatives - Energy Related Liabilities	21,392			24,134			35,229			24,134
Deferred Contract Revenues	1,772			1,772			1,772			1,772
Derivatives - Other Current	780			588			1,092			588
Dividends Payable	26,562			—			26,562			—
Interest Accrued	13,962			14,208			13,895			14,208
Pension Benefits	3,631			3,631			3,632			3,631
Other Current Liabilities	27,643			36,102			26,766			36,102

Total Current Liabilities	1,205,055			1,580,838			1,646,068			1,580,838

Deferred Credits and Other Noncurrent Liabilities:
Deferred Income Taxes - Net	111,614			85,836			89,450			85,836
Pension and Other Postretirement Benefits	110,049			110,112			111,134			110,112
Environmental Remediation Costs	204,645			206,058			201,381			206,058
Asset Retirement Obligations	81,032			80,163			206,741			80,163
Derivatives - Energy Related Liabilities	5,713			7,256			7,278			7,256
Derivatives - Other Noncurrent	8,898			7,285			11,449			7,285
Regulatory Liabilities	478,592			478,499			457,958			478,499
Other	25,307			26,645			21,780			26,645

Total Deferred Credits and Other Noncurrent Liabilities	1,025,850			1,001,854			1,107,171			1,001,854

Commitments and Contingencies (Note 11)

Total Capitalization and Liabilities	$	5,863,362		$	5,956,577		$	6,028,262		$	5,956,577

The accompanying notes are an integral part of the condensed consolidated financial statements.

SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)

(In Thousands, Except for Per Share Data)



	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

South Jersey Industries, Inc. and Subsidiaries
Three Months Ended March 31, 2019

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 Loss, 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



Balance at January 1, 2018	99,436	709,658	(271	)	(36,765	)	420,351		1,192,409
Net Income	—	—	—		—		111,240		111,240
Other Comprehensive Income, Net of Tax	—	—	—		9		—		9
Common Stock Issued or Granted Through Equity Offering or Stock Plans	80	98	(3	)	—		—		175
Cash Dividends Declared - Common Stock ($0.28 per share)	—	—	—		—		(22,336	)	(22,336	)
Balance at March 31, 2018	99,516	709,756	(274	)	(36,756	)	509,255		1,281,497
Net Loss	—	—	—		—		(93,819	)	(93,819	)
Other Comprehensive Income, Net of Tax	—	—	—		8		—		8
Common Stock Issued or Granted Through Equity Offering or Stock Plans	7,366	132,571	(8	)	—		—		139,929
Cash Dividends Declared - Common Stock ($0.28 per share)	—	—	—		—		(23,898	)	(23,898	)
Balance at June 30, 2018	106,882	842,327	(282	)	(36,748	)	391,538		1,303,717

South Jersey Industries, Inc. and Subsidiaries
Three Months Ended March 31, 2018

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

Balance at January 1, 2018 $ 99,436
$ 709,658
$ (271 ) $ (36,765 ) $ 420,351
$ 1,192,409
Net Income —
—
—
—
111,240
111,240
Other Comprehensive Loss, Net of Tax —
—
—
9
—
9
Common Stock Issued or Granted Through Equity Offering or Stock Plans 80
98
(3 ) —
—
175
Cash Dividends Declared - Common Stock ($0.28 per share) —
—
—
—
(22,336 ) (22,336 )
Balance at March 31, 2018 $ 99,516
$ 709,756
$ (274 ) $ (36,756 ) $ 509,255
$ 1,281,497

The accompanying notes are an integral part of the condensed consolidated financial statements.

Disclosure of Changes in Accumulated Other Comprehensive Loss Balances (Unaudited)

(In Thousands)


	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			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	)	(25,626	)	(362	)	(10	)	(97	)	(26,095	)
Changes During Period	—			8			—			—			8			—		8		—		—		8
Balance at March 31, 2019	$	(25,626	)	$	(354	)	$	(10	)	$	(97	)	$	(26,087	)	(25,626	)	(354	)	(10	)	(97	)	(26,087	)
Changes During Period																—		8		—		—		8
Balance at June 30, 2019																(25,626	)	(346	)	(10	)	(97	)	(26,079	)

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

(A) Determined using a combined average statutory tax rate of 27% for 2019 and 25% for 2018.

The accompanying notes are an integral part of the condensed consolidated financial statements.

SOUTH JERSEY GAS COMPANY

CONDENSED STATEMENTS OF INCOME (UNAUDITED)

(In Thousands)


	Three Months Ended March 31,						Three Months Ended June 30,

	2019			2018			2019			2018
Operating Revenues	$	272,198		$	234,459		$	62,268		$	76,801

Operating Expenses:
Cost of Sales (Excluding depreciation and amortization)	118,880			89,808			2,654			19,379
Operations	29,097			29,370			25,194			27,268
Maintenance	8,143			6,862			7,006			6,812
Depreciation	15,744			14,363			16,045			14,401
Energy and Other Taxes	1,989			1,255			1,154			498

Total Operating Expenses	173,853			141,658			52,053			68,358

Operating Income	98,345			92,801			10,215			8,443

Other Income and Expense	1,931			2,510			328			607

Interest Charges	(7,848		)	(6,728		)	(7,896		)	(6,999		)

Income Before Income Taxes	92,428			88,583			2,647			2,051

Income Taxes	(23,697		)	(21,836		)	(671		)	(482		)

Net Income	$	68,731		$	66,747		$	1,976		$	1,569

The accompanying notes are an integral part of the condensed financial statements.



	Six Months Ended June 30,

	2019			2018
Operating Revenues	$	334,466		$	311,260

Operating Expenses:
Cost of Sales (Excluding depreciation and amortization)	121,534			109,187
Operations	54,291			56,638
Maintenance	15,149			13,674
Depreciation	31,789			28,764
Energy and Other Taxes	3,143			1,753

Total Operating Expenses	225,906			210,016

Operating Income	108,560			101,244

Other Income and Expense	2,259			3,117

Interest Charges	(15,744		)	(13,727		)

Income Before Income Taxes	95,075			90,634

Income Taxes	(24,368		)	(22,318		)

Net Income	$	70,707		$	68,316

The accompanying notes are an integral part of the condensed financial statements.

SOUTH JERSEY GAS COMPANY

CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(In Thousands)


	Three Months Ended March 31,				Three Months Ended June 30,

	2019		2018		2019		2018
Net Income	$	68,731	$	66,747	$	1,976	$	1,569

Other Comprehensive Income - Net of Tax: *

Unrealized Gain on Derivatives - Other	8		9		8		8

Other Comprehensive Income - Net of Tax *	8		9		8		8

Comprehensive Income	$	68,739	$	66,756	$	1,984	$	1,577



	Six Months Ended June 30,
	2019		2018
Net Income	$	70,707	$	68,316

Other Comprehensive Income - Net of Tax: *

Unrealized Gain on Derivatives - Other	16		17

Other Comprehensive Income - Net of Tax *	16		17

Comprehensive Income	$	70,723	$	68,333

* Determined using a combined average statutory tax rate of approximately 27% and 25% in 2019 and 2018, respectively.

The accompanying notes are an integral part of the condensed financial statements.

SOUTH JERSEY GAS COMPANY

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In Thousands)


	Three Months Ended March 31,						Six Months Ended June 30,

	2019			2018			2019			2018
Net Cash Provided by Operating Activities	$	87,752		$	44,492		$	126,275		$	85,263

Cash Flows from Investing Activities:
Capital Expenditures	(57,850		)	(54,960		)	(124,122		)	(113,226		)
Investment in Long-Term Receivables	(3,408		)	(1,916		)	(6,585		)	(3,947		)
Proceeds from Long-Term Receivables	2,466			2,390			4,983			5,035

Net Cash Used in Investing Activities	(58,792		)	(54,486		)	(125,724		)	(112,138		)

Cash Flows from Financing Activities:
Net Borrowings from (Repayments of) Short-Term Credit Facilities	(38,998		)	11,100
Net (Repayments of) Borrowings from Short-Term Credit Facilities							(4,398		)	24,400
Proceeds from Issuance of Long-Term Debt	10,000			(5		)	10,000			—
Payments from Issuance of Long-Term Debt							—			(5		)

Net Cash (Used in) Provided by Financing Activities	(28,998		)	11,095
Net Cash Provided by Financing Activities							5,602			24,395

Net Increase in Cash, Cash Equivalents and Restricted Cash	(38		)	1,101
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash							6,153			(2,480		)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period	3,262			4,619			3,262			4,619

Cash, Cash Equivalents and Restricted Cash at End of Period	$	3,224		$	5,720		$	9,415		$	2,139

The accompanying notes are an integral part of the ~~unaudited~~ condensed financial statements.

SOUTH JERSEY GAS COMPANY

CONDENSED BALANCE SHEETS (UNAUDITED)

(In Thousands)


	March 31, 2019			December 31, 2018			June 30, 2019			December 31, 2018
Assets
Property, Plant and Equipment:
Utility Plant, at original cost	$	2,958,656		$	2,907,202		$	3,020,518		$	2,907,202
Accumulated Depreciation	(535,551		)	(523,743		)	(546,149		)	(523,743		)

Property, Plant and Equipment - Net	2,423,105			2,383,459			2,474,369			2,383,459

Investments:
Restricted Investments	1,468			1,278			7,798			1,278

Total Investments	1,468			1,278			7,798			1,278

Current Assets:
Cash and Cash Equivalents	1,756			1,984			1,617			1,984
Accounts Receivable	146,185			101,572			90,190			101,572
Accounts Receivable - Related Parties	16,338			2,442			203			2,442
Unbilled Revenues	38,292			43,271			8,415			43,271
Provision for Uncollectibles	(13,968		)	(13,643		)	(13,724		)	(13,643		)
Natural Gas in Storage, average cost	3,504			16,336			13,270			16,336
Materials and Supplies, average cost	619			619			619			619
Prepaid Taxes	11,113			28,772			28,475			28,772
Derivatives - Energy Related Assets	2,076			5,464			1,829			5,464
Other Prepayments and Current Assets	18,888			11,280			20,500			11,280

Total Current Assets	224,803			198,097			151,394			198,097

Regulatory and Other Noncurrent Assets:
Regulatory Assets	454,542			492,365			499,864			492,365
Long-Term Receivables	26,428			25,531			27,126			25,531
Derivatives - Energy Related Assets	—			15			—			15
Other	20,047			17,491			23,159			17,491

Total Regulatory and Other Noncurrent Assets	501,017			535,402			550,149			535,402

Total Assets	$	3,150,393		$	3,118,236		$	3,183,710		$	3,118,236

The accompanying notes are an integral part of the condensed financial statements.

SOUTH JERSEY GAS COMPANY

CONDENSED BALANCE SHEETS (UNAUDITED)

(In Thousands)


	March 31, 2019			December 31, 2018			June 30, 2019			December 31, 2018
Capitalization and Liabilities
Equity:
Common Stock	$	5,848		$	5,848		$	5,848		$	5,848
Other Paid-In Capital and Premium on Common Stock	355,744			355,744			355,744			355,744
Accumulated Other Comprehensive Loss	(22,349		)	(22,357		)	(22,341		)	(22,357		)
Retained Earnings	737,518			668,787			739,494			668,787

Total Equity	1,076,761			1,008,022			1,078,745			1,008,022

Long-Term Debt	884,655			874,507			564,808			874,507

Total Capitalization	1,961,416			1,882,529			1,643,553			1,882,529

Current Liabilities:
Notes Payable	68,502			107,500			103,102			107,500
Current Portion of Long-Term Debt	18,909			18,909			338,909			18,909
Accounts Payable - Commodity	41,155			48,490			34,065			48,490
Accounts Payable - Other	44,701			52,966			43,577			52,966
Accounts Payable - Related Parties	6,058			12,563			6,265			12,563
Derivatives - Energy Related Liabilities	693			2,146			5,996			2,146
Derivatives - Other Current	391			343			464			343
Customer Deposits and Credit Balances	18,018			23,862			22,683			23,862
Environmental Remediation Costs	36,338			33,022			39,860			33,022
Taxes Accrued	7,012			1,891			2,141			1,891
Pension Benefits	3,597			3,597			3,597			3,597
Interest Accrued	4,842			7,134			7,117			7,134
Other Current Liabilities	7,759			9,444			7,664			9,444

Total Current Liabilities	257,975			321,867			615,440			321,867

Regulatory and Other Noncurrent Liabilities:
Regulatory Liabilities	278,827			286,539			272,370			286,539
Deferred Income Taxes - Net	349,676			325,886			350,500			325,886
Environmental Remediation Costs	113,703			115,049			110,491			115,049
Asset Retirement Obligations	80,756			79,890			81,631			79,890
Pension and Other Postretirement Benefits	96,497			96,053			97,970			96,053
Derivatives - Energy Related Liabilities	96			43			297			43
Derivatives - Other Noncurrent	6,191			5,524			7,236			5,524
Other	5,256			4,856			4,222			4,856

Total Regulatory and Other Noncurrent Liabilities	931,002			913,840			924,717			913,840

Commitments and Contingencies (Note 11)

Total Capitalization and Liabilities	$	3,150,393		$	3,118,236		$	3,183,710		$	3,118,236

The accompanying notes are an integral part of the condensed financial statements.

SOUTH JERSEY GAS COMPANY

STATEMENTS OF CHANGES IN COMMON EQUITY (UNAUDITED)

(In Thousands)


	Three Months Ended March 31, 2019
	Common Stock		Other Paid-In Capital and Premium on Common Stock		Accumulated Other Comprehensive Loss			Retained Earnings		Total		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	5,848	355,744	(22,357	)	668,787	1,008,022
Net Income	—		—		—			68,731		68,731		—	—	—		68,731	68,731
Other Comprehensive Loss, Net of Tax	—		—		8			—		8
Other Comprehensive Income, Net of Tax												—	—	8		—	8
Balance at March 31, 2019	$	5,848	$	355,744	$	(22,349	)	$	737,518	$	1,076,761	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


	Three Months Ended March 31, 2018
	Common Stock		Other Paid-In Capital and Premium on Common Stock		Accumulated Other Comprehensive Loss			Retained Earnings		Total
Balance at January 1, 2018	$	5,848	$	355,744	$	(25,997	)	$	585,838	$	921,433	5,848	355,744	(25,997	)	585,838	921,433
Net Income	—		—		—			66,747		66,747		—	—	—		66,747	66,747
Other Comprehensive Loss, Net of Tax	—		—		9			—		9
Other Comprehensive Income, Net of Tax												—	—	9		—	9
Balance at March 31, 2018	$	5,848	$	355,744	$	(25,988	)	$	652,585	$	988,189	5,848	355,744	(25,988	)	652,585	988,189
Net Income												—	—	—		1,569	1,569
Other Comprehensive Income, Net of Tax												—	—	8		—	8
Balance at June 30, 2018												5,848	355,744	(25,980	)	654,154	989,766

The accompanying notes are an integral part of the condensed financial statements.

Disclosure of Changes in Accumulated Other Comprehensive Loss Balances (Unaudited)

(In Thousands)


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

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

(A) Determined using a combined average statutory tax rate of 27% for 2019 and 25% for 2018.

The accompanying notes are an integral part of the condensed financial statements.

Notes to Condensed Consolidated Financial Statements


1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

GENERAL - SJI provides a variety of energy-related products and services primarily through the following wholly-owned subsidiaries:


▪	SJIU is a holding company that owns SJG, and, as of July 1, 2018, ETG and ELK (see "Acquisition" below).


*	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.


▪	SJE acquires and markets electricity to retail end users. In November 2018, the Company sold SJE's retail gas businesses.


▪	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.


▪	SJEX owns oil, gas and mineral rights in the Marcellus Shale region of Pennsylvania.


▪	Marina develops and operates on-site energy-related projects. The significant wholly-owned subsidiaries of Marina include:

• ACB, which owns and operates a natural gas fueled combined heating, cooling and power facility located in Atlantic City, New Jersey.

• ACLE, BCLE, SCLE and SXLE, which own and operate LFGTE production facilities in Atlantic, Burlington, Salem and Sussex Counties located in New Jersey.


▪	SJESP receives commissions on service contracts from a third party.


▪	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.

BASIS OF PRESENTATION - SJI's condensed consolidated financial statements include the accounts of SJI, its direct and indirect wholly-owned subsidiaries (including SJG) and subsidiaries in which SJI has a controlling interest. All significant intercompany accounts and transactions have been eliminated in consolidation. Beginning as of the date of their acquisition, July 1, 2018, SJI is also reporting on a consolidated basis the combined operations of ETG and ELK.

As permitted by the rules and regulations of the SEC, the accompanying unaudited condensed consolidated financial statements of SJI and SJG contain certain condensed financial information and exclude certain footnote disclosures normally included in annual audited consolidated financial statements prepared in accordance with GAAP. These financial statements should be read in conjunction with SJI’s and SJG's Annual Reports on Form 10-K for the year ended December 31, 2018. In management’s opinion, the condensed consolidated financial statements of SJI and SJG reflect all normal recurring adjustments needed to fairly present their respective financial positions, operating results and cash flows at the dates and for the periods presented. SJI’s and SJG's businesses are subject to seasonal fluctuations and, accordingly, this interim financial information should not be the basis for estimating the full year’s operating results.

ACQUISITION - On July 1, 2018, SJI, through its wholly-owned subsidiary SJIU, acquired the assets of ETG and ELK from Pivotal Utility Holdings, Inc., a subsidiary of Southern Company Gas (collectively, the "Acquisition"), for total consideration of ~~$1.74~~$1.72 billion (see Note 17).

AGREEMENT TO SELL SOLAR ASSETS - On June 27, 2018, the Company, through its wholly-owned subsidiary, Marina, entered into a series of agreements whereby Marina agreed to 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 across New Jersey, Maryland, Massachusetts and Vermont (the “Projects”), along with the assets comprising the Projects. The sale of individual Projects is occurring on a rolling basis as the conditions precedent to each closing are satisfied. Also in connection with the Transaction, Marina is leasing certain of the Projects that have not yet passed the fifth anniversary of their placed-in-service dates for U.S. federal income tax purposes back from the buyer from the date each such project is acquired by the buyer until the later of the first anniversary of the applicable acquisition date and the fifth anniversary of the applicable placed-in-service date of the project.

During the first ~~quarter~~six months of 2019, ~~four~~seven projects were sold for total consideration of ~~$16.1 million, with a gain recognized on these projects of less than $0.1~~$24.3 million. The Company currently has ~~four~~one other ~~projects~~project that ~~are a~~is part of the Transaction and ~~have~~has not yet closed, but ~~are~~is expected to close in 2019. The Company also has two projects that are not part of the Transaction but are also expected to be sold in 2019. The value of all unsold solar assets is ~~$37.5~~$28.7 million and is recorded as Assets Held For Sale on the condensed consolidated balance sheets as of ~~March 31,~~June 30, 2019, where they will remain until they are transferred to a buyer.

IMPAIRMENT OF LONG-LIVED ASSETS - Long-lived assets that are held and used are reviewed for impairment whenever events or changes in circumstances indicate carrying values may not be recoverable. Such reviews are performed in accordance with FASB ASC Topic 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 Operating Income on the 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.

No impairments were identified at ~~either~~ SJI orfor the three and six months ended June 30, 2019. SJI recorded an impairment charge within the on-site energy production segment of $99.2 million (pre-tax) during the three and six months ended June 30, 2018, which was recorded in Impairment Charges on the condensed consolidated statements of income. This impairment charge was the result of the transaction described above under "Agreement to Sell Solar Assets" triggering an indicator of impairment as the purchase price was less than the carrying amount for several of the assets being sold (but not all of them) and, as a result, several assets were considered to be impaired.

No impairments were identified at SJG for the three and six months ended ~~March 31,~~June 30, 2019 orand 2018, respectively.

GAS EXPLORATION AND DEVELOPMENT - SJI capitalizes all costs associated with gas property acquisition, exploration and development activities under the full cost method of accounting. Capitalized costs include costs related to unproved properties, which are not amortized until proved reserves are found or it is determined that the unproved properties are impaired. All costs related to unproved properties are reviewed quarterly to determine if impairment has occurred. No impairment charges were recorded on these properties during the three and six months ended ~~March 31,~~June 30, 2019 or 2018. As of both ~~March 31,~~June 30, 2019 and December 31, 2018, $8.6 million related to interests in proved and unproved properties in Pennsylvania, net of amortization, is included with Nonutility Property and Equipment and Other Noncurrent Assets on the condensed consolidated balance sheets.

TREASURY STOCK - SJI uses the par value method of accounting for treasury stock. As of ~~March 31,~~June 30, 2019 and December 31, 2018, SJI held ~~220,339~~226,245 and 233,482 shares of treasury stock, respectively. These shares are related to deferred compensation arrangements where the amounts earned are held in the stock of SJI.

AFUDC - SJI and SJG record AFUDC, which represents the estimated debt and equity costs of capital funds that are necessary to finance the construction of new regulated facilities. While cash is not realized currently, AFUDC increases the regulated revenue requirement and is included in rate base and recovered over the service life of the asset through a higher rate base and higher depreciation.

INCOME TAXES - Deferred income taxes are provided for all significant temporary differences between the book and taxable bases of assets and liabilities in accordance with FASB ASC Topic 740 - “Income Taxes.” A valuation allowance is established when it is determined that it is more likely than not that a deferred tax asset will not be realized.

BUSINESS COMBINATION - The Company applies the acquisition method to account for business combinations. The consideration transferred for an acquisition is the fair value of the assets transferred, the liabilities incurred by the acquirer and the equity interests issued by the acquirer. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The excess of the consideration transferred over the fair value of the identifiable net assets acquired is recorded as goodwill (see Note 17).

GOODWILL - See Note 18.

AMA - On July 1, 2018, SJRG purchased from a third party an AMA whereby SJRG ~~will manage~~manages the pipeline capacity of ETG. Total cash payment was $11.3 million. The AMA expires on March 31, 2022. Under the AMA, SJRG ~~will pay~~pays ETG an annual fee of $4.25 million, plus additional profit sharing as defined in the AMA. The amounts received by ETG ~~will be~~are credited to its BGSS clause and returned to its ratepayers. The total purchase price was allocated as follows (in thousands):



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

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

As of ~~March 31,~~June 30, 2019 and December 31, 2018, the balance of the intangible asset is ~~$15.4~~$14.1 million and $16.6 million, respectively, and is recorded to Other Current and Noncurrent Assets on the condensed consolidated balance sheets of SJI, with the reduction being due to amortization. As of ~~March 31,~~June 30, 2019 and December 31, 2018, the balance in the liability is ~~$17.3~~$12.8 million and $17.0 million and is recorded to Regulatory Liabilities on the condensed consolidated balance sheets of SJI, with the change resulting from profit sharing earned.

CURRENT PORTION OF LONG-TERM DEBT - As of ~~March 31,~~June 30, 2019 and December 31, 2018, SJI had ~~$333.9~~$478.9 million and $733.9 million, respectively, of long-term debt that is due within one ~~year, with the difference being $400.0~~year. The decrease is due to $575.0 million inof long-term debt that was paid down ~~during the three months ended March 31,~~in 2019 (see Note 14)~~. Additional debt was paid down~~, partially offset by SJG's term loan of $320.0 million becoming due in April ~~2019 (see Note 20).~~2020 and classified as current on the condensed consolidated balance sheets. SJI expects to further reduce its debt in 2019 using cash provided from the sale of the remaining solar assets, along with the sale of other assets considered non-core to its business. The remaining long-term debt that is due within one year is expected to be paid by utilizing funds provided from refinancing activity and from the Company's revolving credit ~~facility.~~facilities.

AOCL - SJI and SJG release income tax effects from AOCL on an individual unit of account basis.

NEW ACCOUNTING PRONOUNCEMENTS - Other than as described below, no new accounting pronouncement had, or is expected to have, a material impact on the condensed consolidated financial statements of SJI, or the condensed financial statements of SJG.

In March 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize substantially all leases on their balance sheet as a right-of-use asset and corresponding lease liability, including leases accounted for as operating leases. Topic 842 also resulted in enhanced quantitative and qualitative disclosures, including significant judgments made by management, to provide greater insight into the extent of revenue and expense recognized and expected to be recognized from existing leases. The accounting for leases by the lessor remains relatively the same. In connection with this new standard, the FASB has issued the following amendments to ASU 2016-02:

In January 2018, the FASB issued an amendment (ASU 2018-01) to clarify the application of the new lease guidance to land easements and provided relief concerning adoption efforts for existing land easements that are not accounted for as leases under current GAAP.

In July 2018, the FASB issued ASUs 2018-10 and 2018-11, which included a number of technical corrections and improvements to this standard, including an additional option for transition. The guidance initially required a modified retrospective transition method of adoption, under which lessees and lessors were to recognize and measure leases at the beginning of the earliest period presented. The additional, optional transition method allows an entity to initially apply the requirements of the lease standard at the adoption date, and avoid restating the comparative periods.

•

In December 2018, the FASB issued ASU 2018-20, Narrow-Scope Improvements for Lessors. The amendments in this ASU permit lessors, as an accounting policy election, to not evaluate whether certain sales taxes and other similar taxes are lessor costs or lessee costs. A lessor making this election will exclude from the consideration in the contract all collections from lessees of taxes within the scope of the election and will provide certain disclosures. The amendments in this ASU related to certain lessor costs also require lessors to exclude from variable payments, and therefore revenue, lessor costs paid by lessees directly to third parties, and require lessors to account for costs excluded from the consideration of a contract that are paid by the lessor and reimbursed by the lessee as variable payments, and record those reimbursed costs as revenue. Lastly, the amendments in this ASU related to recognizing variable payments for contracts with lease and nonlease components require lessors to allocate (rather than recognize as currently required) certain variable payments to the lease and nonlease components when the changes in facts and circumstances on which the variable payment is based occur.

•

In March 2019, the FASB issued ASU 2019-01, Leases (Topic 842) Codification Improvements. The amendments in this ASU reinstate a Topic 840 explicit exception for lessors that are not manufacturers or dealers for determining fair value of the leased property in Topic 842. This exception specifies that such lessors will use their cost, reflecting any volume or trade discounts that may apply, as the fair value of the underlying asset. However, if significant time lapses between the acquisition of the underlying asset and lease commencement, those lessors will be required to apply the definition of fair value (exit price) in Topic 820. Lastly, the amendments in this ASU added an explicit exception to the Topic 250, Accounting Changes and Error Corrections, paragraph 250-10-50-3 interim disclosure requirements in the Topic 842 transition disclosure requirements.

~~In December 2018, the FASB issued ASU 2018-20,~~ ~~Narrow-Scope Improvements for Lessors~~. The amendments in this ASU permit lessors, as an accounting policy election, to not evaluate whether certain sales taxes and other similar taxes are lessor costs or lessee costs. A lessor making this election will exclude from the consideration in the contract all collections from lessees of taxes within the scope of the election and will provide certain disclosures. The amendments in this ASU related to certain lessor costs also require lessors to exclude from variable payments, and therefore revenue, lessor costs paid by lessees directly to third parties, and require lessors to account for costs excluded from the consideration of a contract that are paid by the lessor and reimbursed by the lessee as variable payments, and record those reimbursed costs as revenue. Lastly, the amendments in this ASU related to recognizing variable payments for contracts with lease and nonlease components require lessors to allocate (rather than recognize as currently required) certain variable payments to the lease and nonlease components when the changes in facts and circumstances on which the variable payment is based occur.

~~In March 2019, the FASB issued ASU 2019-01,~~ ~~Leases (Topic 842) Codification Improvements~~. The amendments in this ASU reinstate a Topic 840 explicit exception for lessors that are not manufacturers or dealers for determining fair value of the leased property in Topic 842. This exception specifies that such lessors will use their cost, reflecting any volume or trade discounts that may apply, as the fair value of the underlying asset. However, if significant time lapses between the acquisition of the underlying asset and lease commencement, those lessors will be required to apply the definition of fair value (exit price) in Topic 820. Lastly, the amendments in this ASU added an explicit exception to the Topic 250, ~~Accounting Changes and Error Corrections, paragraph 250-10-50-3 interim disclosure requirements in the Topic 842 transition disclosure requirements.~~

The new guidance in ASU 2016-02, as well as all amendments discussed above, was effective for the Company beginning on January 1, 2019. The impact of adopting Topic 842 did not result in an adjustment to retained earnings as of January 1, 2019.

As of January 1, 2019, the Company designed the necessary changes to its existing processes and configured all system requirements to adopt the new standard and applied its provisions to all contracts using the optional transition method discussed above, and by applying certain transition practical expedients. The Company elected the “package of practical expedients,” which permits the Company to not reassess under Topic 842 the Company’s prior conclusions about lease identification, lease classification and initial direct costs. The Company also elected the expedient not to evaluate existing or expired land easements under Topic 842 that were not previously accounted for as leases. The Company has elected not to use hindsight when determining the lease term at the effective date. The Company elected the short-term lease recognition exemption for all leases that qualify. For the leases that qualify, including leases effective at adoption, the Company will not recognize right-of-use assets or lease liabilities. The Company has elected the practical expedient to not separate lease and non-lease components for all leases. The Company’s non-lease components are primarily related to property maintenance on real estate leases, which varies based on future outcomes, and thus is recognized in rent expense when incurred. Additionally, the Company elected to apply a portfolio approach when establishing the discount rate for certain of its leases.

The Company has leases for the following classes of underlying assets: equipment, real estate (land and building), and fleet vehicles. After adopting Topic 842, SJI and SJG had operating right-of-use assets of approximately $3.1 million and $0.5 million, respectively, as of January 1, 2019, with operating lease liabilities of the same amounts. The Company did not have any finance leases.

The Company determines the initial classification and measurement of its right-of-use assets and lease liabilities at the lease commencement date and thereafter if modified. The lease term includes any renewal options that the Company is reasonably certain to exercise. The present value of lease payments is determined by using the interest rate implicit in the lease, if that rate is readily determinable. Otherwise, the Company uses its incremental borrowing rate, which is determined by using a portfolio approach based on the rate of interest in its existing collateralized term loan facility adjusted for lease term.

Rent expense for operating leases is recognized on a straight-line basis over the reasonably certain lease term based on the total lease payments and is included in Operations Expense in the condensed consolidated statements of income.

For all leases, rent payments that are based on a fixed index or rate are included in the measurement of right-of-use assets and lease liabilities using the index or rate at the lease commencement date. Rent payments that vary based on changes in future indexes or rates are expensed in the period incurred.

For more information on the Company's leases, see Note 19.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The update simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. The amendments in this update are effective for annual and any interim impairment tests performed in periods beginning after December 31, 2019. Management is currently determining the impact that adoption of this guidance will have on the financial statements of SJI and SJG.

~~In August 2017, the FASB issued ASU 2017-12,~~ ~~Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities~~. This ASU is intended to improve the financial reporting of hedging relationships so that it represents a more faithful portrayal of an entity’s risk management activities (i.e. to help financial statement users understand an entity’s risk exposures and the manner in which hedging strategies are used to manage them), as well as to further simplify the application of the hedge accounting guidance in GAAP. SJI and SJG adopted this guidance on January 1, 2019, consistent with the effective date. Adoption of this guidance did not have an impact on the financial statement results of SJI or SJG.

~~In February 2018, the FASB issued ASU 2018-02,~~ ~~Reclassification of Certain Tax Effects From Accumulated Other Comprehensive Income~~. This ASU allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from Tax Reform. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Reform and will improve the usefulness of information reported to financial statement users. SJI and SJG adopted this guidance on January 1, 2019, consistent with the effective date. Adoption of this guidance did not have an impact on the financial statement results of SJI or SJG. An election was not made to reclassify the income tax effects of Tax Reform from AOCL to retained earnings. SJI and SJG release income tax effects from AOCL on an individual unit of account basis.

~~In June 2018, the FASB issued ASU 2018-07,~~ ~~Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting~~. This ASU aligns the accounting for share-based payment awards issued to employees and nonemployees. Under the new guidance, equity-classified share-based payment awards issued to nonemployees are now measured on the grant date, instead of the previous requirement to remeasure the awards through the performance completion date. For performance conditions, compensation cost associated with the award are now recognized when achievement of the performance condition is probable, rather than upon achievement of the performance condition. The previous requirement to reassess the classification (equity or liability) for nonemployee awards upon vesting was eliminated, except for awards in the form of convertible instruments. SJI and SJG adopted this guidance on January 1, 2019, consistent with the effective date. Adoption of this guidance did not have an impact on the financial statement results of SJI or SJG.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements on the timing of liquidation of an investee's assets and the description of measurement uncertainty at the reporting date. Entities are now required to disclose: (1) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements; and (2) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. Further, the standard eliminates disclosure requirements with respect to: (1) the transfers between Level 1 and Level 2 of the fair value hierarchy; (2) the policy for timing of transfers between levels; and (3) the valuation process for Level 3 fair value measurements. The standard is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The new disclosure requirement for unrealized gains and losses, the range and weighted average of significant unobservable inputs and the narrative description of measurement uncertainty should be applied prospectively. All other amendments should be applied retrospectively to all periods presented upon their effective date. Management is currently determining the impact that adoption of this guidance will have on the financial statements of SJI and SJG.

In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20) Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plan. This ASU eliminates requirements for certain disclosures such as the amount and timing of plan assets expected to be returned to the employer and the amount of future annual benefits covered by insurance contracts. The standard added new disclosures such as for sponsors of the defined benefit plans to provide information relating to the weighted-average interest crediting rate for cash balance plans and other plans with promised interest crediting rates and an explanation for significant gains or losses related to changes in the benefit obligations for the period. The standard is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. Management is currently determining the impact that adoption of this guidance will have on the financial statements of SJI and SJG.

~~In October 2018, the FASB issued ASU 2018-16,~~ ~~Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes~~. The amendments in this ASU permit the use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815 in addition to the UST, the LIBOR swap rate, the OIS rate based on the Fed Funds Effective Rate, and the SIFMA Municipal Swap Rate. SJI and SJG adopted this guidance on January 1, 2019, consistent with the effective date. Adoption of this guidance did not have an impact on the financial statement results of SJI or SJG.

In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities. The amendments in this ASU for determining whether a decision-making fee is a variable interest require reporting entities to consider indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety (as currently required by GAAP). These amendments will create alignment between determining whether a decision-making fee is a variable interest and determining whether a reporting entity within a related party group is the primary beneficiary of a VIE. The standard is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019 for public companies. Early adoption is permitted. Management is currently determining the impact that adoption of this guidance will have on the financial statements of SJI and SJG.

In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The amendments in this ASU provide codification improvements and further clarification on several topics, including ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities~~(discussed above)~~, as well as ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10). Since SJI and SJG have adopted the amendments in ASU 2017-12 (with no impact to the financial statements results of SJI or SJG) as of April 25, 2019 (the issuance date of ASU 2019-04), the effective date for the amendments to Topic 815 contained in ASU 2019-04 is as of the beginning of the first annual reporting period beginning after April 25, 2019. Early adoption is permitted, including adoption on any date on or after April 25, 2019. The amendments ~~related to ASU 2016-01~~ are effective for fiscal years and interim periods beginning after December 15, 2019. Early adoption in any interim period is permitted. Management is currently determining the impact that adoption of this guidance will have on the financial statements of SJI and SJG.

In May 2019, the FASB issued ASU 2019-05, Financial Instruments - Credit Losses (Topic 326). The amendments in this ASU provide optional targeted transition relief for entities adopting the provisions of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which introduced the expected credit losses methodology for the measurement of credit losses on financial assets measured at amortized cost basis, replacing the previous incurred loss methodology. The amendments in ASU 2019-05 provide entities that have certain instruments within the scope of Subtopic 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost, with an option to irrevocably elect the fair value option in Subtopic 825-10, Financial Instruments - Overall, applied on an instrument-by-instrument basis for eligible instruments, upon adoption of Topic 326. The fair value option election does not apply to held-to-maturity debt securities. An entity that elects the fair value option should subsequently apply the guidance in Subtopics 820-10, Fair Value Measurement - Overall, and 825-10. The amendments in ASU 2019-05, along with ASU 2016-13, are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Management is currently determining the impact that adoption of this guidance will have on the financial statements of SJI and SJG.


2.	STOCK-BASED COMPENSATION PLAN:

Under SJI's 2015 Omnibus Equity Compensation Plan (Plan), shares may be issued to SJI’s officers (Officers), non-employee directors (Directors) and other key employees. No options were granted or outstanding during the ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018. No stock appreciation rights have been issued under the ~~plans. No~~Plan. During the six months ended June 30, 2019 and 2018, SJI granted 181,387 and 197,844 restricted shares, ~~were granted during the three months ended March 31, 2019 to Officers and other key employees; SJI granted 185,214 restricted shares during the three months ended March 31, 2018~~respectively, to Officers and other key employees under the Plan. Performance-based restricted shares vest over a three-year period and are subject to SJI achieving certain market and earnings-based performance targets, which can cause the actual amount of shares that ultimately vest to range from 0% to 200% of the original shares granted.

SJI grants time-based shares of restricted stock, one-third of which vest annually over a three-year period and which are limited to a 100% payout. Vesting of time-based grants is contingent upon SJI achieving aan ROE of at least 7% during the initial year of the grant and meeting the service requirement. Provided that the 7% ROE requirement is met in the initial year, payout is solely contingent upon the service requirement being met in years two and three of the grant. Beginning in 2018, the vesting and payout of time-based shares of restricted stock is solely contingent upon the service requirement being met in years one, two, and three of the grant. ~~No time-based restricted stock was granted during~~During the ~~three~~six months ended ~~March 31, 2019.~~June 30, 2019 and 2018, Officers and other key employees were granted ~~56,634~~85,146 and 64,712 shares of time-based restricted stock, ~~during the three months ended March 31, 2018,~~respectively, which are included in the shares noted above.

~~SJI granted 96,240 performance-based and 81,631 time-based restricted shares to Officers and other key employees under the Plan in April 2019.~~

Grants containing market-based performance targets use SJI's TSR relative to a peer group to measure performance. As TSR-based grants are contingent upon market and service conditions, SJI is required to measure and recognize stock-based compensation expense based on the fair value at the date of grant on a straight-line basis over the requisite ~~three-year~~three year period of each award. In addition, SJI identifies specific forfeitures of share-based awards, and compensation expense is adjusted accordingly over the requisite service period. Compensation expense is not adjusted based on the actual achievement of performance goals. The fair value of TSR-based restricted stock awards on the date of grant is estimated using a Monte Carlo simulation model.

Earnings-based performance targets include pre-defined EGR and ROE goals to measure performance. Performance targets include pre-defined CEGR for SJI. As EGR-based, ROE-based and CEGR-based grants are contingent upon performance and service conditions, SJI is required to measure and recognize stock-based compensation expense based on the fair value at the date of grant over the requisite ~~three-year~~three year period of each award. The fair value is measured as the market price at the date of grant. The initial accruals of compensation expense are based on the estimated number of shares expected to vest, assuming the requisite service is rendered and probable outcome of the performance condition is achieved. That estimate is revised if subsequent information indicates that the actual number of shares is likely to differ from previous estimates. Compensation expense is ultimately adjusted based on the actual achievement of service and performance targets.

During the ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018, SJI granted 30,028 and 26,416 restricted shares, respectively, to Directors. Shares issued to Directors vest over twelve months and contain no performance conditions. As a result, 100% of the shares granted generally vest.

The following table summarizes the nonvested restricted stock awards outstanding for SJI at ~~March 31,~~June 30, 2019 and the assumptions used to estimate the fair value of the awards:



	Grants	Shares Outstanding	Fair Value Per Share		Expected Volatility		Risk-Free Interest Rate
Officers & Key Employees -	2017 - TSR	41,103	$	32.17	20.8	%	1.47	%
	2017 - CEGR, Time	54,677	$	33.69	N/A		N/A
	2018 - TSR	51,731	$	31.05	21.9	%	2.00	%
	2018 - CEGR, Time	86,038	$	31.23	N/A		N/A
	2019 - TSR	38,934	$	32.88	23.2	%	2.40	%
	2019 - CEGR, Time	139,663	$	31.26	N/A		N/A

Directors -	2019	30,028	$	26.89	N/A		N/A

Grants Shares Outstanding Fair Value Per Share Expected Volatility Risk-Free Interest Rate
Officers & Key Employees - 2017 - TSR 42,214
$ 32.17
20.8 % 1.47 %
2017 - CEGR, Time 56,741
$ 33.69
N/A
N/A
2018 - TSR 56,411
$ 31.05
21.9 % 2.00 %
2018 - CEGR, Time 94,729
$ 31.23
N/A
N/A

Directors - 2019 30,028
$ 26.89
N/A
N/A

Expected volatility is based on the actual volatility of SJI’s share price over the preceding three-year period as of the valuation date. The risk-free interest rate is based on the zero-coupon U.S. Treasury Bond, with a term equal to the three-year term of the Officers’ and other key employees’ restricted shares. As notional dividend equivalents are credited to the holders during the three-year service period, no reduction to the fair value of the award is required. As the Directors’ restricted stock awards contain no performance conditions and dividends are paid or credited to the holder during the requisite service period, the fair value of these awards are equal to the market value of the shares on the date of grant.

The following table summarizes the total stock-based compensation cost to SJI for the three and six months ended ~~March 31,~~June 30, 2019 and 2018 (in thousands):



	Three Months Ended June 30,					Six Months Ended June 30,
	2019		2018			2019			2018
Officers & Key Employees	$	1,534	$	1,090		$	2,284		$	2,190
Directors	202		206			404			412
Total Cost	1,736		1,296			2,688			2,602

Capitalized	47		(101		)	(34		)	(202		)
Net Expense	$	1,783	$	1,195		$	2,654		$	2,400

Three Months Ended
March 31,
2019 2018
Officers & Key Employees $ 750
$ 1,100
Directors 202
206
Total Cost 952
1,306

Capitalized (81 ) (101 )
Net Expense $ 871
$ 1,205

As of ~~March 31,~~June 30, 2019, there was ~~$5.3~~$8.6 million of total unrecognized compensation cost related to nonvested stock-based compensation awards granted under the ~~plans.~~Plan. That cost is expected to be recognized over a weighted average period of ~~1.4~~1.9 years.

The following table summarizes information regarding restricted stock award activity for SJI during the ~~three~~six months ended ~~March 31,~~June 30, 2019, excluding accrued dividend equivalents:



	Officers and Other Key Employees		Directors		Weighted Average Fair Value
Nonvested Shares Outstanding, January 1, 2019	411,809		26,416		$	29.57
Granted	181,387		30,028		$	30.94
Cancelled/Forfeited	(33,516	)	—		$	31.60
Vested	(147,534	)	(26,416	)	$	26.04
Nonvested Shares Outstanding, June 30, 2019	412,146		30,028		$	31.46

Officers and Other Key Employees Directors
Weighted
Average
Fair Value
Nonvested Shares Outstanding, January 1, 2019 411,809
26,416
$ 29.57
  Granted —
30,028
$ 26.89
  Cancelled/Forfeited (14,181 ) —
$ 31.73
  Vested (147,533 ) (26,416 ) $ 26.04
Nonvested Shares Outstanding, March 31, 2019 250,095
30,028
$ 31.37

During the ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018, SJI awarded ~~122,265~~125,288 shares to its Officers and other key employees at a market value of ~~$3.6~~$3.7 million, and ~~63,030~~66,894 shares at a market value of ~~$1.9~~$2.0 million, respectively. During the ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018, SJI also awarded 26,416 and 30,394 shares to its Directors at a market value of $0.8 million and $1.0 million, respectively.

SJI has a policy of issuing new shares to satisfy its obligations under the Plan; therefore, there are no cash payment requirements resulting from the normal operation of the Plan. However, a change in control could result in such shares becoming nonforfeitable or immediately payable in cash. At the discretion of the Officers, Directors and other key employees, the receipt of vested shares can be deferred until future periods. These deferred shares are included in Treasury Stock on the condensed consolidated balance sheets.

SJG - Officers and other key employees of SJG participate in the stock-based compensation plans of SJI. During the ~~three~~six months ended ~~March 31,~~June 30, 2019 ~~no shares of restricted stock were granted; during the three months ended March 31,~~and 2018, SJG officers and other key employees were granted ~~26,652~~6,095 and 32,185 shares of SJI restricted ~~stock.~~stock, respectively. The cost of outstanding stock awards for SJG during the ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018 was $0.1 million and ~~$0.2~~$0.3 million, respectively. Approximately ~~60%~~65% of these costs were capitalized on SJG's condensed balance sheets to Utility Plant.


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

AFFILIATIONS — The following affiliated entities are accounted for under the equity method:

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.

Energenic - Marina and a joint venture partner formed Energenic, in which Marina has a 50% equity interest. Energenic developed and operated on-site, self-contained, energy-related projects. Energenic currently does not have any projects that are operational.

Millennium - SJI and a joint venture partner formed Millennium, in which SJI has a 50% equity interest. Millennium reads utility customers’ meters on a monthly basis for a fee.

Potato Creek - SJI and a joint venture partner formed Potato Creek, in which SJI has a 30% equity interest. Potato Creek owns and manages the oil, gas and mineral rights of certain real estate in Pennsylvania.

EnergyMark - SJE has a 33% investment in EnergyMark, an entity that acquires and markets natural gas to retail end users.

SJRG had net sales to EnergyMark of ~~$13.9~~$5.3 million and ~~$14.6~~$8.0 million for the three months ended ~~March 31,~~June 30, 2019 and 2018, respectively, and $19.2 million and $21.2 million for the six months ended June 30, 2019 and 2018, respectively.

EnerConnex - SJI has a 25% investment in EnerConnex, which is a retail and wholesale broker and consultant that matches end users with suppliers for the procurement of natural gas and electricity.

During the first ~~three~~six months of 2019 and 2018, SJI made net investments in unconsolidated affiliates of ~~$2.1~~$3.9 million and ~~$2.9~~$6.4 million, respectively. As of ~~March 31,~~June 30, 2019 and December 31, 2018, the outstanding balance of Notes Receivable – Affiliate was ~~$15.8~~$16.1 million and $15.2 million, respectively. As of both ~~March 31,~~June 30, 2019 and December 31, 2018, $13.6 million of these notes were secured by property, plant and equipment of the affiliates, accrue interest at 7.5% and are to be repaid through 2025. As of ~~March 31,~~June 30, 2019 and December 31, 2018, the remaining ~~$2.2~~$2.5 million and $1.6 million, respectively, of these notes are unsecured and accrue interest at variable rates.

SJI holds significant variable interests in these entities but is not the primary beneficiary. Consequently, these entities are accounted for under the equity method because SJI does not have both (a) the power to direct the activities of the entity that most significantly impact the entity’s economic performance and (b) the obligation to absorb losses of the entity that could potentially be significant to the entity or the right to receive benefits from the entity that could potentially be significant to the entity. As of ~~March 31,~~June 30, 2019, SJI had a net asset of approximately ~~$79.2~~$81.8 million included in Investment in Affiliates on the condensed consolidated balance sheets related to equity method investees, in addition to Notes Receivable – Affiliate as discussed above. SJI’s maximum exposure to loss from these entities as of ~~March 31,~~June 30, 2019, is limited to its combined investments in these entities and the Notes Receivable-Affiliate in the aggregate amount of ~~$95.0~~$97.9 million.

DISCONTINUED OPERATIONS - Discontinued Operations consist of the environmental remediation activities related to the properties of SJF and the product liability litigation and environmental remediation activities related to the prior business of Morie. SJF is a subsidiary of EMI, an SJI subsidiary, which previously operated a fuel oil business. Morie is the former sand mining and processing subsidiary of EMI. EMI sold the common stock of Morie in 1996.

SJI conducts tests annually to estimate the environmental remediation costs for these properties (see Note 11).

Summarized operating results of the discontinued operations for the three and six months ended ~~March 31,~~June 30, 2019 and 2018, were (in thousands, except per share amounts):



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Loss before Income Taxes:
Sand Mining	$	(23	)	$	7		$	(44	)	$	(33	)
Fuel Oil	(96		)	(40		)	(153		)	(81		)
Income Tax Benefits	24			7			40			22
Loss from Discontinued Operations — Net	$	(95	)	$	(26	)	$	(157	)	$	(92	)
Earnings Per Common Share from
Discontinued Operations — Net:
Basic and Diluted	$	—		$	—		$	—		$	—

Three Months Ended
March 31,
2019 2018
Loss before Income Taxes:
Sand Mining $ (21 ) $ (40 )
Fuel Oil (57 ) (42 )
Income Tax Benefits 16
16
Loss from Discontinued Operations — Net $ (62 ) $ (66 )
Earnings Per Common Share from
Discontinued Operations — Net:
Basic and Diluted $ —
$ —

SJG RELATED-PARTY TRANSACTIONS - There have been no significant changes in the nature of SJG’s related-party transactions since December 31, 2018. See Note 3 to the Financial Statements in Item 8 of SJI's and SJG’s Form 10-K for the year ended December 31, 2018 for a detailed description of the related parties and their associated transactions.

A summary of related-party transactions involving SJG, excluding pass-through items, included in SJG's Operating Revenues were as follows (in thousands):


	Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018		2019		2018
Operating Revenues/Affiliates:
SJRG	$	1,284	$	2,588	$	1,142	$	1,109	$	2,426	$	3,697
Marina	116		103		105		89		221		192
Other	20		23		20		23		40		46
Total Operating Revenue/Affiliates	$	1,420	$	2,714	$	1,267	$	1,221	$	2,687	$	3,935

Related-party transactions involving SJG, excluding pass-through items, included in SJG's Cost of Sales and Operating Expenses were as follows (in thousands):


	Three Months Ended March 31,					Three Months Ended June 30,					Six Months Ended June 30,
	2019		2018			2019		2018			2019		2018
Costs of Sales/Affiliates (Excluding depreciation and amortization)
SJRG*	$	3,427	$	25,338		$	3,335	$	2,093		$	6,582	$	27,431

Operations Expense/Affiliates:
SJI	$	4,726	$	7,043		$	5,694	$	6,708		$	10,420	$	13,751
SJIU						578		—			578		—
Millennium	763		697			789		744			1,552		1,441
Other	535		(115		)	426		(117		)	961		(232		)
Total Operations Expense/Affiliates	$	6,024	$	7,625		$	7,487	$	7,335		$	13,511	$	14,960

*These costs are included in either SJG's Cost of Sales on the condensed statements of income, or Regulatory Assets on the condensed balance sheets. 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.


4.	COMMON STOCK:

The following shares were issued and outstanding for SJI:



	2019
Beginning Balance, January 1	85,506,218
New Issuances During the Period:
Settlement of Equity Forward Sale Agreement	6,779,661
Stock-Based Compensation Plan	~~102,797~~104,470
Ending Balance, ~~March 31~~June 30	~~92,388,676~~92,390,349

The par value ($1.25 per share) of stock issued was recorded in Common Stock and the net excess over par value of approximately ~~$179.8~~$181.7 million was recorded in Premium on Common Stock. The increase is discussed under "Forward Shares" below.

There were 2,339,139 shares of SJG's common stock (par value $2.50 per share) outstanding as of ~~March 31,~~June 30, 2019. SJG did not issue any new shares during the period. SJIU owns all of the outstanding common stock of SJG.

FORWARD SHARES - In the second quarter of 2018, 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. On January 15, 2019, SJI settled its equity forward sale agreement by physically delivering the remaining 6,779,661 shares of common stock and receiving net cash proceeds of approximately $189.0 million. The forward price used to determine cash proceeds received by SJI at settlement was calculated based on the initial forward sale price, as adjusted for underwriting fees, interest rate adjustments as specified in the equity forward agreement and any dividends paid on our common stock during the forward period.

CONVERTIBLE UNITS - In 2018, SJI issued 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 principal amount of SJI’s 2018 Series A 3.70% Remarketable Junior Subordinated Notes due 2031. SJI will pay the holder quarterly contract adjustment payments at a rate of 3.55% per year on the stated amount of $50 per Equity Unit, in respect of each purchase contract, subject to the Company's right to defer these payments. The net proceeds, after amortization of the underwriting discounts, are recorded as Long-Term Debt on the condensed consolidated balance sheets.

SJI's EPS — SJI's Basic EPS is based on the weighted-average number of common shares outstanding. The incremental shares required for inclusion in the denominator for the diluted EPS calculation were ~~100,012~~115,798 and ~~129,369~~452,210 for the six months ended June 30, 2019 and 2018, respectively. For the three months ended ~~March 31,~~June 30, 2019 and 2018, ~~respectively.~~incremental shares of 100,012 and 806,695, respectively, were not included in the denominator for the diluted EPS calculation because they would have an antidilutive effect on EPS. These additional shares relate to SJI's restricted stock as discussed in Note 2, along with ~~for the three months ended March 31, 2019,~~ the impact of the Equity Units discussed above, accounted for under the treasury stock method.

DIVIDENDS PER SHARE — SJI's dividends per share were $0.29 and $0.28 for the three months ended ~~March 31,~~June 30, 2019 and 2018, respectively, and $0.58 and $0.56 for the six months ended June 30, 2019 and 2018, respectively. Cash dividends were not declared or paid by ~~SJG~~the Utilities to SJI during the three and six months ended ~~March 31,~~June 30, 2019 or 2018.

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 2018 or 2019. SJI does not intend to issue equity capital via the DRP in 2019.


5.	FINANCIAL INSTRUMENTS:

RESTRICTED INVESTMENTS — SJI and SJG maintain margin accounts with certain counterparties to support their risk management ~~activities.~~activities associated with hedging commodities. The balances required to be held in these margin accounts increase as the net value of the outstanding energy-related contracts with the respective counterparties decrease. As of ~~March 31,~~June 30, 2019 and December 31, 2018, SJI's balances (including SJG) in these accounts totaled ~~$7.6~~$19.0 million and $1.6 million, respectively, held by the counterparties, which is recorded in Restricted Investments on the condensed consolidated balance sheets. As of ~~March 31,~~June 30, 2019 and December 31, 2018, SJG's balance held by the counterparties totaled ~~$1.5~~$7.8 million and $1.3 million and was recorded in Restricted Investments on the condensed balance sheets.

The carrying amounts of the Restricted Investments for both SJI and SJG approximate their fair values at ~~March 31,~~June 30, 2019 and December 31, 2018, which would be included in Level 1 of the fair value hierarchy (see Note 13).

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows (in thousands):


	As of March 31, 2019				As of June 30, 2019
Balance Sheet Line Item	SJI		SJG		SJI		SJG
Cash and Cash Equivalents	$	10,360	$	1,756	$	12,193	$	1,617
Restricted Investments	7,649		1,468		19,019		7,798
Total cash, cash equivalents and restricted cash shown in the statement of cash flows	$	18,009	$	3,224	$	31,212	$	9,415



	As of December 31, 2018
Balance Sheet Line Item	SJI		SJG
Cash and Cash Equivalents	$	30,030	$	1,984
Restricted Investments	1,649		1,278
Total cash, cash equivalents and restricted cash shown in the statement of cash flows	$	31,679	$	3,262

As of December 31, 2018
Balance Sheet Line Item SJI SJG
Cash and Cash Equivalents $ 30,030
$ 1,984
Restricted Investments 1,649
1,278
Total cash, cash equivalents and restricted cash shown in the statement of cash flows $ 31,679
$ 3,262

NOTES RECEIVABLE-AFFILIATES - As of ~~March 31,~~June 30, 2019, 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 for energy service projects. This note is subject 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.

LONG-TERM RECEIVABLES - SJG provides financing to customers for the purpose of attracting conversions to natural gas heating systems from competing fuel sources. The terms of these loans call for customers to make monthly payments over periods ranging from five to ten years, with no interest. The carrying amounts of such loans were ~~$5.1~~$4.5 million and $5.3 million as of ~~March 31,~~June 30, 2019 and December 31, 2018, respectively. The current portion of these receivables is reflected in Accounts Receivable and the non-current portion is reflected in Contract Receivables on the condensed consolidated balance sheets. The carrying amounts noted above are net of unamortized discounts resulting from imputed interest in the amount of $0.6 million and $0.7 million as of ~~both March 31,~~June 30, 2019 and December 31, ~~2018.~~2018, respectively. The annualized amortization to interest is not material to SJI’s or SJG's condensed consolidated financial statements. The carrying amounts of these receivables approximate their fair value at ~~March 31,~~June 30, 2019 and December 31, 2018, which would be included in Level 2 of the fair value hierarchy (see Note 13).

CREDIT RISK - As of ~~March 31,~~June 30, 2019, SJI had approximately ~~$14.5~~$15.9 million, or ~~33.9%~~33.8%, of the current and noncurrent Derivatives – Energy Related Assets transacted with two counterparties. These counterparties are investment-grade rated.

FINANCIAL INSTRUMENTS NOT CARRIED AT FAIR VALUE - The fair value of a financial instrument is the market price to sell an asset or transfer a liability at the measurement date. The carrying amounts of SJI's and SJG's financial instruments approximate their fair values at ~~March 31,~~June 30, 2019 and December 31, 2018, except as noted below.

For Long-Term Debt, in estimating the fair value, SJI and SJG use the present value of remaining cash flows at the balance sheet date. SJI and SJG based the estimates on interest rates available at the end of each period for debt with similar terms and maturities (Level 2 in the fair value hierarchy, see Note 13).

The estimated fair values of SJI's long-term debt (which includes SJG and all consolidated subsidiaries), including current maturities, as of ~~March 31,~~June 30, 2019 and December 31, 2018, were ~~$2.54~~$2.43 billion and $2.91 billion, respectively. The carrying amounts of SJI's long-term debt, including current maturities, as of ~~March 31,~~June 30, 2019 and December 31, 2018, were ~~$2.45~~$2.28 billion and $2.84 billion, respectively. SJI's carrying amounts as of ~~March 31,~~June 30, 2019 and December 31, 2018 are net of unamortized debt issuance costs of ~~$25.9~~$25.3 million and $27.0 million, respectively.

The estimated fair values of SJG's long-term debt, including current maturities, as of ~~March 31,~~June 30, 2019 and December 31, 2018, were ~~$907.5~~$929.3 million and $895.1 million, respectively. The carrying amounts of SJG's long-term debt, including current maturities, as of ~~March 31,~~June 30, 2019 and December 31, 2018, were ~~$903.6~~$903.7 million and $893.4 million, respectively. The carrying amounts as of ~~March 31,~~June 30, 2019 and December 31, 2018 are net of unamortized debt issuance costs of ~~$6.7~~$6.5 million and $6.8 million, respectively.

OTHER FINANCIAL INSTRUMENTS - The carrying amounts of SJI's and SJG's other financial instruments approximate their fair values at ~~March 31,~~June 30, 2019 and December 31, 2018.


6.	SEGMENTS OF BUSINESS:

SJI operates in several different reportable operating segments which reflect the financial information regularly evaluated by the CODM. These segments are as follows:

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


•	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.

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

Wholesale energy operations include the activities of SJRG and SJEX.

Retail gas and other operations at SJE included natural gas acquisition and transportation service business lines. This business was sold on November 30, 2018.

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

On-site energy production consists of Marina's thermal energy facility and other energy-related projects. Also included in this segment are the activities of ACB, ACLE, BCLE, SCLE and SXLE.

Appliance service operations includes SJESP, which receives commissions on service contracts from a third party.

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 costs related to the Acquisition, along with other unallocated costs.

Intersegment represents intercompany transactions among the above SJI consolidated entities.

SJI groups its utility businesses under its wholly-owned subsidiary SJIU. This group consists of gas utility operations of SJG, ETG and ELK. SJI groups its nonutility operations into 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. The accounting policies of the segments are the same as those described in the summary of significant accounting policies.

Information about SJI’s operations in different reportable operating segments is presented below (in thousands):


	Three Months Ended March 31,						Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018			2019			2018
Operating Revenues:
SJI Utilities:
SJG Utility Operations	$	272,198		$	234,459		62,268			$	76,801		$	334,466		$	311,260
ETG Utility Operations	140,174			—			44,854			—			185,028			—
ELK Utility Operations	3,374			—			944			—			4,318			—
Subtotal SJI Utilities	415,746			234,459			108,066			76,801			523,812			311,260
Energy Group:
Wholesale Energy Operations	190,007			190,343			126,483			67,220			316,490			257,563
Retail Gas and Other Operations	—			40,201			—			23,168			—			63,369
Retail Electric Operations	22,691			44,035			20,531			42,662			43,222			86,697
Subtotal Energy Group	212,698			274,579			147,014			133,050			359,712			407,629
Energy Services:
On-Site Energy Production	11,330			21,157			14,788			24,734			26,118			45,891
Appliance Service Operations	531			520			484			451			1,015			971
Subtotal Energy Services	11,861			21,677			15,272			25,185			27,133			46,862
Corporate and Services	9,371			13,000			11,815			11,082			21,186			24,082
Subtotal	649,676			543,715			282,167			246,118			931,843			789,833
Intersegment Sales	(12,378		)	(21,770		)	(15,233		)	(18,788		)	(27,611		)	(40,558		)
Total Operating Revenues	$	637,298		$	521,945		$	266,934		$	227,330		$	904,232		$	749,275



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Operating Income (Loss):
SJI Utilities:
SJG Utility Operations	$	10,215		$	8,443		$	108,560		$	101,244
ETG Utility Operations	2,051			—			46,200			—
ELK Utility Operations	(32		)	—			598			—
Subtotal SJI Utilities	12,234			8,443			155,358			101,244
Energy Group:
Wholesale Energy Operations	(2,386		)	(10,472		)	(4,892		)	65,185
Retail Gas and Other Operations	—			1,659			—			(4,099		)
Retail Electric Operations	(2,313		)	1,094			(3,969		)	886
Subtotal Energy Group	(4,699		)	(7,719		)	(8,861		)	61,972
Energy Services:
On-Site Energy Production	1,343			(100,435		)	1,461			(100,989		)
Appliance Service Operations	421			442			1,016			945
Subtotal Energy Services	1,764			(99,993		)	2,477			(100,044		)
Corporate and Services	(433		)	(9,263		)	(5,555		)	(13,834		)
Total Operating Income (Loss)	$	8,866		$	(108,532	)	$	143,419		$	49,338

Depreciation and Amortization:
SJI Utilities:
SJG Utility Operations	$	23,083		$	20,274		$	45,785		$	40,589
ETG Utility Operations	6,813			—			13,471			—



ELK Utility Operations	113			—			225			—
Subtotal SJI Utilities	30,009			20,274			59,481			40,589
Energy Group:
Wholesale Energy Operations	25			29			48			52
Retail Gas and Other Operations	—			78			—			153
Subtotal Energy Group	25			107			48			205
Energy Services:
On-Site Energy Production	1,256			10,324			2,508			20,595
Appliance Service Operations	—			—			—			—
Subtotal Energy Services	1,256			10,324			2,508			20,595
Corporate and Services	1,754			5,951			2,998			9,165
Total Depreciation and Amortization	$	33,044		$	36,656		$	65,035		$	70,554

Interest Charges:
SJI Utilities:
SJG Utility Operations	$	7,896		$	6,999		$	15,744		$	13,727
ETG Utility Operations	6,620			—			12,941			—
ELK Utility Operations	5			—			11			—
Subtotal SJI Utilities	14,521			6,999			28,696			13,727
Energy Group:
Retail Gas and Other Operations	—			105			—			251
Subtotal Energy Group	—			105			—			251
Energy Services:
On-Site Energy Production	2,138			4,098			4,423			7,945
Midstream	555			479			1,099			905
Corporate and Services	14,659			13,368			30,063			20,838
Subtotal	31,873			25,049			64,281			43,666
Intersegment Borrowings	(3,439		)	(5,488		)	(7,194		)	(10,133		)
Total Interest Charges	$	28,434		$	19,561		$	57,087		$	33,533


	Three Months Ended March 31,						Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018			2019			2018
Operating Income:
Income Taxes:
SJI Utilities:
SJG Utility Operations	$	98,345		$	92,801		$	671		$	482		$	24,368		$	22,318
ETG Utility Operations	44,149			—			(809		)	—			6,093			—
ELK Utility Operations	630			—			(9		)	—			154			—
Subtotal SJI Utilities	143,124			92,801			(147		)	482			30,615			22,318
Energy Group:
Wholesale Energy Operations	(2,506		)	75,657			(481		)	(2,478		)	(958		)	16,649
Retail Gas and Other Operations	—			(5,758		)	—			474			—			(1,060		)
Retail Electric Operations	(1,656		)	(208		)	(569		)	307			(818		)	249
Subtotal Energy Group	(4,162		)	69,691			(1,050		)	(1,697		)	(1,776		)	15,838
Energy Services:
On-Site Energy Production	118			(554		)	121			(26,489		)	(357		)	(27,646		)
Appliance Service Operations	595			503			136			106			303			237
Subtotal Energy Services	713			(51		)	257			(26,383		)	(54		)	(27,409		)
Midstream							(33		)	(22		)	(65		)	40
Corporate and Services	(5,122		)	(4,571		)	(3,673		)	(4,352		)	(8,417		)	(6,344		)
Total Operating Income	$	134,553		$	157,870
Total Income Taxes							$	(4,646	)	$	(31,972	)	$	20,303		$	4,443

Depreciation and Amortization:
Property Additions:
SJI Utilities:
SJG Utility Operations	$	22,702		$	20,315		$	67,257		$	65,148		$	122,562		$	115,385
ETG Utility Operations	6,658			—			53,938			—			91,962			—
ELK Utility Operations	112			—			983			—			1,628			—
Subtotal SJI Utilities	29,472			20,315			122,178			65,148			216,152			115,385
Energy Group:
Wholesale Energy Operations	23			23			—			27			—			32
Retail Gas and Other Operations	—			75			—			136			—			309
Subtotal Energy Group	23			98			—			163			—			341
Energy Services:
On-Site Energy Production	1,252			10,271			141			570			164			1,683
Appliance Service Operations	—			—
Subtotal Energy Services	1,252			10,271			141			570			164			1,683
Midstream							7			99			19			310
Corporate and Services	1,244			3,214			1			8,204			586			11,549
Total Depreciation and Amortization	$	31,991		$	33,898

Interest Charges:
SJI Utilities:
SJG Utility Operations	$	7,848		$	6,728
ETG Utility Operations	6,321			—
ELK Utility Operations	6			—
Subtotal SJI Utilities	14,175			6,728
Energy Group:
Wholesale Energy Operations	—			—
Retail Gas and Other Operations	—			146
Subtotal Energy Group	—			146
Total Property Additions							$	122,327		$	74,184		$	216,921		$	129,268



	June 30, 2019			December 31, 2018
Identifiable Assets:
SJI Utilities:
SJG Utility Operations	$	3,183,710		$	3,118,236
ETG Utility Operations	2,291,156			2,148,175
ELK Utility Operations	19,043			16,482
Subtotal SJI Utilities	5,493,909			5,282,893
Energy Group:
Wholesale Energy Operations	177,183			266,417
Retail Gas and Other Operations (A)	141			12,736
Retail Electric Operations	34,394			39,345
Subtotal Energy Group	211,718			318,498
Energy Services:
On-Site Energy Production	170,251			195,329
Appliance Service Operations	81			—
Subtotal Energy Services	170,332			195,329
Midstream	78,246			72,333
Discontinued Operations	1,742			1,777
Corporate and Services	317,842			387,482
Intersegment Assets	(245,527		)	(301,735		)
Total Identifiable Assets	$	6,028,262		$	5,956,577

Energy Services:
On-Site Energy Production 2,285
3,847
Midstream 544
426
Corporate and Services 15,404
7,470
Subtotal 32,408
18,617
Intersegment Borrowings (3,755 ) (4,645 )
Total Interest Charges $ 28,653
$ 13,972

Three Months Ended
March 31,
2019 2018
Income Taxes:

SJI Utilities:
     SJG Utility Operations $ 23,697
$ 21,836
     ETG Utility Operations 6,902
—
     ELK Utility Operations 163
—
           Subtotal SJI Utilities 30,762

21,836
Energy Group:
     Wholesale Energy Operations (477 ) 19,127
Retail Gas and Other Operations —
(1,534 )
Retail Electric Operations (249 ) (58 )
     Subtotal Energy Group (726 ) 17,535
Energy Services:
On-Site Energy Production (478 ) (1,157 )
Appliance Service Operations 167
131
  Subtotal Energy Services (311 ) (1,026 )
Midstream (32 ) 62
Corporate and Services (4,744 ) (1,992 )
Total Income Taxes $ 24,949
$ 36,415

Property Additions:
SJI Utilities:
     SJG Utility Operations $ 55,305
$ 50,237
     ETG Utility Operations 38,024
—
     ELK Utility Operations 645
—
          Subtotal SJI Utilities 93,974

50,237
Energy Group:
     Wholesale Energy Operations —
5
Retail Gas and Other Operations —
173
     Subtotal Energy Group —
178
Energy Services:
On-Site Energy Production 23
1,113
Appliance Service Operations —
—
  Subtotal Energy Services 23
1,113
Midstream 12
211
Corporate and Services 585
3,345
Total Property Additions $ 94,594
$ 55,084

March 31, 2019 December 31, 2018
Identifiable Assets:
SJI Utilities:
     SJG Utility Operations $ 3,150,393
$ 3,118,236
     ETG Utility Operations 2,177,507
2,148,175
     ELK Utility Operations 17,088
16,482
          Subtotal SJI Utilities 5,344,988
5,282,893
Energy Group:
     Wholesale Energy Operations 183,303
266,417
Retail Gas and Other Operations (A) 337
12,736
Retail Electric Operations 32,104
39,345
     Subtotal Energy Group 215,744
318,498
Energy Services:
On-Site Energy Production 175,508
195,329
Appliance Service Operations 243
—
Subtotal Energy Services 175,751
195,329
Midstream 75,298
72,333
Discontinued Operations 1,758
1,777
Corporate and Services 270,381
387,482
Intersegment Assets (220,558 ) (301,735 )
Total Identifiable Assets $ 5,863,362
$ 5,956,577

(A) As of ~~March 31,~~June 30, 2019, the remaining ~~$0.3~~$0.1 million of assets in the retail gas and other operations segment represents outstanding accounts receivable balances.


7.	RATES AND REGULATORY ACTIONS:

SJG and ETG are subject to the rules and regulations of the BPU. ELK is subject to the rules and regulations of the MPSC.

SJG:

In September 2018, the BPU issued an Order approving, on a provisional basis, SJG's request for a $65.5 million increase in the gas cost recoveries associated with the 2018-2019 BGSS year, effective October 1, 2018. The matter was thereafter referred to the Office of Administrative Law for further proceedings. Also, in December 2018, SJG submitted a notice of intent to self-implement a BGSS rate adjustment based on a 5% increase of the monthly bill of a typical residential customer; that adjustment took effect on February 1, 2019. In ~~April 2019, SJG executed a Stipulation of Settlement, with anticipated approval in~~ May 2019, ~~which will~~the BPU issued an Order authorizing SJG to spread ~~the authorized recovery of~~ the $65.5 million recovery of gas costs over a two-year period, ~~rather than the 2018-2019 BGSS year alone. This will result~~resulting in a reduction in the BGSS rate effective ~~June 1,~~May 15, 2019, and a one-time bill credit of approximately $24.0 million.

In ~~January~~April 2019, SJG submitted its annual filing, pursuant to the October 2016 BPU approval of the AIRP II, seeking a base rate adjustment to increase annual revenues by approximately $6.5 million to reflect the roll-in of approximately $63.0 million of AIRP II investments placed in service during July 1, 2018 through June 30, 2019. The matter is currently pending BPU approval.

In April 2019, SJG submitted its first annual filing, pursuant to the May 2018 BPU approval of the SHARP II, seeking a base rate adjustment to increase annual revenues by approximately $3.0 million to reflect the roll-in of approximately $28.3 million of SHARP II investments placed in service during June 1, 2018 through June 30, 2019. The matter is currently pending BPU approval.

In June 2019, SJG filed its annual BGSS and CIP filing with the BPU, ~~issued an Order approving~~requesting a $27.6 million decrease in gas cost recoveries related to its BGSS and a $7.6 million decrease in revenues related to its CIP, resulting in a net revenue decrease of ~~$1.6 million associated with SJG's~~$35.2 million. The matter is currently pending BPU approval. SJG does not profit from the sale of the commodity and will pass through the costs of the commodity to the customer. Similarly BGSS recoveries/refunds may impact Operating Revenue and Cost of Sales, however would not have an impact on SJG’s net income.

In June 2019, SJG filed its annual EET rate adjustment ~~filing, effective February 1, 2019.~~petition, requesting a $1.3 million increase in revenues to continue recovering the costs of, and the allowed return on, investments associated with its EEPs. The matter is currently pending BPU approval.

In ~~March~~June 2019, SJG filed its annual USF petition, along with the State’s other electric and gas utilities. The proposed revenue increase for SJG is approximately $1.0 million. The matter is currently pending BPU ~~issued an Order approving~~approval.

In June 2019, SJG filed its first annual Tax Act Rider petition, requesting a ~~revenue decrease of $2.2~~rate adjustment to refund approximately $6.8 million related to SJG’s excess deferred income taxes, resulting from the change in the Federal corporate tax rate from 35% to 21% associated with ~~SJG’s SBC and TIC, effective May 1, 2019.~~the Tax Reform. The matter is currently pending BPU approval.

ETG:

In December 2018, ETG submitted a notice of intent to self-implement a BGSS rate adjustment based on a 5% increase of the monthly bill of a typical residential customer; that adjustment took effect on February 1, 2019.

In January 2019, ETG entered into a Stipulation with the BPU and the New Jersey Division of Rate Counsel extending its EEP through February 2020 at a total budget of approximately $3.0 million. The BPU issued an Order in February 2019 approving the Stipulation.

In April 2019, ETG filed a petition with the BPU requesting a base rate revenue increase of approximately $65.0 million to recognize the infrastructure investments made to maintain the safety and reliability of its natural gas system. The petition reflects approximately $346.0 million in net plant additions not reflected in ETG’s current rates. ~~This~~The matter is currently pending BPU approval.

In April 2019, the BPU issued an Order approving a revenue increase of $1.3 million associated with ETG’s annual EEP rate adjustment filing, effective May 1, 2019.

In May 2019, the BPU issued an Order approving a revenue increase of $6.9 million associated with ETG’s annual RAC rate adjustment filing, effective June 1, 2019.

In June 2019, the BPU issued an Order approving a $300.0 million IIP effective July 1, 2019. The Order authorized the recovery of costs associated with ETG’s investments of approximately $300.0 million between 2019-2024 to replace its cast-iron and bare steel vintage main and related services. The Order provides for annual recovery of ETG's investments through a separate rate mechanism.

In June 2019, ETG along with the other NJ gas utilities filed jointly for statewide USF and Lifeline rate increases with an effective date of October 1, 2019. The proposed revenue increase for ETG is ~~pending.~~approximately $0.8 million.

There have been no other significant regulatory actions or changes to the Utilities' rate structure since December 31, 2018. See 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, 2018.


8.	REGULATORY ASSETS AND REGULATORY LIABILITIES:

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

The Utilities Regulatory Assets as of ~~March 31,~~June 30, 2019 consisted of the following items (in thousands):



	June 30, 2019
	SJG		ETG		ELK		Total SJI
Environmental Remediation Costs:
Expended - Net	$	136,772	$	16,510	$	—	$	153,282
Liability for Future Expenditures	150,351		103,349		—		253,700
Deferred ARO Costs	33,659		10,655		128		44,442
Deferred Pension Costs - Unrecognized Prior Service Cost	—		38,996		14		39,010
Deferred Pension and Other Postretirement Benefit Costs	79,466		2,607		30		82,103
Deferred Gas Costs - Net	60,993		—		549		61,542
SBC Receivable	150		—		—		150
Deferred Interest Rate Contracts	7,700		—		—		7,700
Energy Efficiency Tracker	4,919		—		—		4,919
Pipeline Supplier Service Charges	571		—		—		571
Pipeline Integrity Cost	5,325		—		—		5,325
AFUDC - Equity Related Deferrals	10,224		—		—		10,224
Weather Normalization	—		—		252		252
Other Regulatory Assets	9,734		9,085		225		19,044

Total Regulatory Assets	$	499,864	$	181,202	$	1,198	$	682,264

March 31, 2019
SJG ETG ELK Total SJI
Environmental Remediation Costs:
Expended - Net $ 134,662
$ 14,429
$ —
$ 149,091
Liability for Future Expenditures 150,041
103,944
—
253,985
Deferred ARO Costs 32,373
—
—
32,373
Deferred Pension Costs - Unrecognized Prior Service Cost —
39,809
14
39,823
Deferred Pension and Other Postretirement Benefit Costs 79,466
2,607
30
82,103
Deferred Gas Costs - Net 23,572
—
70
23,642
Societal Benefit Costs Receivable 716
—
—
716
Deferred Interest Rate Contracts 6,582
—
—
6,582
Energy Efficiency Tracker 2,136
—
—
2,136
Pipeline Supplier Service Charges 594
—
—
594
Pipeline Integrity Cost 5,078
—
—
5,078
AFUDC - Equity Related Deferrals 10,043
—
—
10,043
Weather Normalization —
—
36
36
Other Regulatory Assets 9,279
8,462
244
17,985

Total Regulatory Assets $ 454,542
$ 169,251
$ 394
$ 624,187

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



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

Total Regulatory Assets	$	492,365	$	169,921	$	683	$	662,969

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

Total Regulatory Assets $ 492,365
$ 169,921
$ 683
$ 662,969

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

ENVIRONMENTAL REMEDIATION COSTS - SJG and ETG have two regulatory assets associated with environmental costs related to the cleanup of environmental sites. SJG has 12 sites where SJG or its predecessors previously operated gas manufacturing plants, while ETG is subject to environmental remediation liabilities associated with six former manufactured gas plant sites in New Jersey. The first asset, "Environmental Remediation Cost: Expended - Net," represents what was actually spent to clean up the sites, less recoveries through the RAC and insurance carriers. These costs meet the deferral requirements of GAAP, as the BPU allows SJG and ETG to recover such expenditures through the RAC. The other asset, "Environmental Remediation Cost: Liability for Future Expenditures," relates to estimated future expenditures required to complete the remediation of these sites. SJG and ETG recorded this estimated amount as a regulatory asset with the corresponding current and noncurrent liabilities on the condensed consolidated balance sheets under the captions "Current Liabilities" (SJI and SJG), "Deferred Credits and Other Noncurrent Liabilities" (SJI) and "Regulatory and Other Noncurrent Liabilities" (SJG). The BPU allows SJG to recover the deferred costs over ~~seven-year~~seven year periods after they are incurred. Accrued environmental remediation costs at ETG are recoverable from customers through rate mechanisms approved by the BPU.

DEFERRED GAS COSTS - NET - Over/under collections of gas costs are monitored through SJG's and ETG's BGSS bill credit. Net undercollected gas costs are classified as a regulatory asset and net overcollected gas costs are classified as a regulatory liability. Derivative contracts used to hedge natural gas purchases are also included in the BGSS, subject to BPU approval. The BGSS regulatory assets of SJI and SJG ~~decreased$34.5~~increased $3.4 million and ~~$34.3~~$3.1 million, respectively, from December 31, 2018 to ~~March 31,~~June 30, 2019, primarily due to gas commodity costs exceeding recoveries from ~~customers exceeding the actual gas commodity costs.~~customers.

OTHER REGULATORY ASSETS - Some of the assets included in Other Regulatory Assets are currently being recovered from ratepayers as approved by the BPU. Management believes the remaining deferred costs are probable of recovery from ratepayers through future utility rates. Included in this number for SJG is the impact of the ERIP on SJG employees, see Note 1 to the Consolidated Financial Statements in Item 8 of SJI’s and SJG's Annual Report on Form 10-K for the year ended December 31, 2018.

The Utilities Regulatory Liabilities as of ~~March 31,~~June 30, 2019 consisted of the following items (in thousands):



	June 30, 2019
	SJG		ETG		ELK		Total SJI
Excess Plant Removal Costs	$	17,910	$	47,827	$	1,386	$	67,123
Excess Deferred Taxes	252,854		120,470		1,231		374,555
CIP Payable	1,606		—		—		1,606
Weather Normalization	—		1,641		—		1,641
Amounts to be Refunded to Customers	—		12,750		—		12,750
Other Regulatory Liabilities	—		283		—		283

Total Regulatory Liabilities	$	272,370	$	182,971	$	2,617	$	457,958

March 31, 2019
SJG ETG ELK Total SJI
Excess Plant Removal Costs $ 19,849
$ 47,996
$ 1,395
$ 69,240
Excess Deferred Taxes 253,241
117,963
1,231
372,435
Deferred Revenues - Net —
8,935
—
8,935
CIP Payable 5,737
—
—
5,737
Weather Normalization —
1,400
—
1,400
Amounts to be Refunded to Customers —
17,296
—
17,296
Other Regulatory Liabilities —
3,549
—
3,549

Total Regulatory Liabilities $ 278,827
$ 197,139
$ 2,626
$ 478,592

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



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

Total Regulatory Liabilities	$	286,539	$	189,336	$	2,624	$	478,499

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

Total Regulatory Liabilities $ 286,539
$ 189,336
$ 2,624
$ 478,499

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

WEATHER NORMALIZATION - The tariffs for ETG include a weather normalization clause that reduces customer bills when winter weather is colder than normal and increases customer bills when winter weather is warmer than normal. The ~~change in~~overall reduction of the weather normalization from a $3.2 million regulatory asset at December 31, 2018 to a ~~$1.4~~

$1.6 million regulatory liability at ~~March 31,~~June 30, 2019, was due to timing of collections from customers and colder than normal weather during the first three months of the year.

DEFERRED REVENUES - NET - Over/under collections of gas costs are monitored through ETG's BGSS mechanism. Net under collected gas costs are classified as a regulatory asset and net over collected gas costs are classified as a regulatory liability. Derivative contracts used to hedge natural gas purchases are also included in the BGSS, subject to BPU approval. The BGSS regulatory liability of ETG increased due to recoveries from customers exceeding actual gas costs.

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


9.	PENSION AND OTHER POSTRETIREMENT BENEFITS:

For the three and six months ended ~~March 31,~~June 30, 2019 and 2018, net periodic benefit cost related to the employee and officer pension and other postretirement benefit plans for SJI consisted of the following components (in thousands):


	Pension Benefits						Pension Benefits
	Three Months Ended March 31,						Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018			2019			2018
Service Cost	$	1,719		$	2,177		$	1,081		$	639		$	2,800		$	2,816
Interest Cost	4,229			5,108			4,435			716			8,664			5,824
Expected Return on Plan Assets	(5,193		)	(7,633		)	(4,942		)	(19		)	(10,135		)	(7,652		)
Amortizations:
Prior Service Cost	26			71			27			(13		)	53			58
Actuarial Loss	2,437			4,132			2,360			1,632			4,797			5,764
Net Periodic Benefit Cost	3,218			3,855			2,961			2,955			6,179			6,810
Capitalized Benefit Cost	(594		)	(483		)	(374		)	(554		)	(968		)	(1,037		)
Deferred Benefit Cost	(541		)	(751		)	(653		)	(374		)	(1,194		)	(1,125		)
Total Net Periodic Benefit Expense	$	2,083		$	2,621		$	1,934		$	2,027		$	4,017		$	4,648


	Other Postretirement Benefits						Other Postretirement Benefits
	Three Months Ended March 31,						Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018			2019			2018
Service Cost	$	234		$	81		$	37		$	360		$	271		$	441
Interest Cost	628			217			806			859			1,434			1,076
Expected Return on Plan Assets	(1,149		)	(305		)	(1,133		)	(1,578		)	(2,282		)	(1,883		)
Amortizations:
Prior Service Cost	(143		)	(31		)	(145		)	(141		)	(288		)	(172		)
Actuarial Loss	263			111			321			340			584			451
Net Periodic Benefit Cost	(167		)	73			(114		)	(160		)	(281		)	(87		)
Capitalized Benefit Cost	(56		)	(5		)	(99		)	—			(155		)	(5		)
Deferred Benefit Cost	116			—			119			—			235			—
Total Net Periodic Benefit Expense	$	(107	)	$	68		$	(94	)	$	(160	)	$	(201	)	$	(92	)

The Pension Benefits Net Periodic Benefit Cost incurred by SJG was approximately ~~$2.3~~$2.1 million and ~~$2.5~~$1.9 million of the totals presented in the table above for the three months ended ~~March 31,~~June 30, 2019 and 2018, respectively, and $4.4 million and $4.3 million of the totals presented in the table above for the six months ended June 30, 2019 and 2018, respectively.

For the three months ended ~~March 31,~~June 30, 2019 and 2018, the Other Postretirement Benefits Net Periodic Benefit Cost incurred by SJG was ~~a benefit of~~$(0.1) million and less than $0.1 million, respectively, of the totals presented in the table above, and, ~~a cost of~~for the six months ended June 30, 2019 and 2018, $(0.2) million and less than $0.1 million, respectively, of the totals presented in the table above.

Capitalized benefit costs reflected in the table above relate to the Utilities' construction ~~program.~~programs.

Companies with publicly traded equity securities that sponsor a postretirement benefit plan are required to fully recognize, as an asset or liability, the overfunded or underfunded status of its benefit plans and recognize changes in the funded status in the year in which the changes occur. Changes in funded status are generally reported in AOCL; however, since the Utilities recover all prudently incurred pension and postretirement benefit costs from ~~its~~their ratepayers, a significant portion of the changes resulting from the recording of additional liabilities under this requirement is reported as regulatory assets.

No contributions were made to the pension plans by either SJI or SJG during the ~~three~~six months ended ~~March 31,~~June 30, 2019 or 2018. SJI and SJG do not expect to make any contributions to the pension plans during the remainder of 2019; however, changes in future investment performance and discount rates may ultimately result in a contribution. Payments related to the unfunded SERP are expected to be approximately $3.6 million in 2019.

As part of the Acquisition, SJI acquired ETG's and ELK's existing pension and other post-employment benefit plans. The plans include a qualified defined benefit, trusteed, pension plan covering most eligible employees. The qualified pension plan is funded in accordance with requirements of the ERISA. The Company also provides certain non-qualified defined benefit and defined contribution pension plans for a selected group of the Company's management and highly compensated employees. Benefits under these non-qualified pension plans are funded on a cash basis. In addition, the entities ~~also~~ have a postretirement benefit plan, which provides certain medical care and life insurance benefits for eligible retired employees through a postretirement benefit plan.

See Note 12 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 for additional information related to SJI’s and SJG's pension and other postretirement benefits.


10.	LINES OF CREDIT:

Credit facilities and available liquidity as of ~~March 31,~~June 30, 2019 were as follows (in thousands):


Company	Total Facility		Usage			Available Liquidity		Expiration Date	Total Facility		Usage			Available Liquidity		Expiration Date
SJI:
SJI Syndicated Revolving Credit Facility	$	400,000	$	152,200	(A)	$	247,800	August 2022	$	500,000	$	396,600	(A)	$	103,400	August 2022
Revolving Credit Facility	50,000		50,000			—		September 2019	50,000		50,000			—		September 2019 (D)

Total SJI	450,000		202,200			247,800			550,000		446,600			103,400

SJG:
Commercial Paper Program/Revolving Credit Facility	200,000		69,300		(B)	130,700		August 2022	200,000		104,000		(B)	96,000		August 2022
Uncommitted Bank Line	10,000		—			10,000		August 2019	10,000		—			10,000		August 2019 (D)

Total SJG	210,000		69,300			140,700			210,000		104,000			106,000

ETG/ELK:
ETG/ELK Revolving Credit Facility	200,000		95,000			105,000		June 2020	200,000		140,900		(C)	59,100		June 2021

Total	$	860,000	$	366,500		$	493,500		$	960,000	$	691,500		$	268,500

(A) Includes letters of credit outstanding in the amount of ~~$10.6~~$9.6 million.

(B) Includes letters of credit outstanding in the amount of ~~$0.8~~$0.9 million.

(D) SJI and SJG intend to renew these facilities upon expiration.

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.

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 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 one financial covenant, limiting the ratio of indebtedness to total capitalization (as defined in the credit agreement) of each Borrower 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 ~~March 31,~~June 30, 2019. 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.

The Utilities' facilities are restricted as to use and availability specifically to the respective Utilities; however, if necessary, the SJI facilities can also be used to support the liquidity needs of 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 and the Utilities were in compliance with these covenants as of ~~March 31,~~June 30, 2019. Borrowings under these credit facilities are at market rates.

SJI's weighted average interest rate on these borrowings (inclusive of SJG for both periods and ETG/ELK for 2019), which changes daily, was ~~3.46%~~3.45% and ~~2.67%~~2.90% at ~~March 31,~~June 30, 2019 and 2018, respectively. SJG's weighted average interest rate on these borrowings, which changes daily, was ~~2.74%~~2.60% and ~~2.32%~~2.33% at ~~March 31,~~June 30, 2019 and 2018, respectively.

SJI's average borrowings outstanding under these credit facilities (inclusive of SJG for both periods and ETG/ELK for 2019), not including letters of credit, during the ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018 were ~~$241.9~~$347.2 million and ~~$238.0~~$201.6 million, respectively. The maximum amounts outstanding under these credit facilities, not including letters of credit, during the ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018 were ~~$404.8~~$687.2 million and ~~$431.0~~$397.3 million, respectively.

SJG's average borrowings outstanding under its credit facilities during the ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018 were ~~$84.6~~$72.5 million and ~~$47.7~~$49.3 million, respectively. The maximum amounts outstanding under its credit facilities during the ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018 were $108.0 million and $85.0 million, respectively.

The SJI, SJG and ETG/ELK principal credit facilities are provided by a syndicate of banks. The NPA for Senior Unsecured Notes issued by SJI ~~contain~~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 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. SJI and SJG were in compliance with this covenant as of ~~March 31,~~June 30, 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 is was in compliance with this covenant as of ~~March 31,~~June 30, 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.


11.	COMMITMENTS AND CONTINGENCIES:

GUARANTEES — As of ~~March 31,~~June 30, 2019, SJI had issued ~~$9.2~~$8.8 million of parental guarantees on behalf of an unconsolidated subsidiary. These guarantees generally expire within the next two years and were issued to enable the subsidiary to market retail natural gas.

GAS SUPPLY CONTRACTS - In the normal course of business, SJG, SJRG and ETG have entered into long-term contracts for natural gas supplies, firm transportation and gas storage service. The transportation and storage service agreements with interstate pipeline suppliers were made under ~~FERC approved~~FERC-approved tariffs. SJG and ETG's cumulative obligation for gas supply-related demand charges and reservation fees paid to suppliers for these services averages approximately ~~$6.8~~$6.7 million and ~~$4.1~~$5.2 million per month, respectively, and is recovered on a current basis through the BGSS. SJRG's cumulative obligation for demand charges and reservation fees paid to suppliers for these services averages approximately $1.3 million per month. SJRG has also committed to purchase 832,500 dts/d of natural gas, from various suppliers, for terms ranging from 4 to 10 years at index-based prices.

ETG has an AMA with SJRG for transportation and storage capacity to meet natural gas demands. The AMA is valid through March 31, 2022. It also requires SJRG to pay minimum annual fees of $4.25 million to ETG and includes tiered margin sharing levels between ETG and SJRG (see Note 1).

TSA - SJI has entered into a TSA with Southern Company Gas whereby the latter will provide certain administrative and operational services through no later than January 31, 2020.

COLLECTIVE BARGAINING AGREEMENTS— Unionized personnel represent approximately ~~45%~~46% and ~~65%~~67% of SJI's and SJG's workforce at ~~March 31,~~June 30, 2019, respectively. SJI has collective bargaining agreements with unions that represent these employees: IBEW Local 1293, IAM Local 76 and UWUA Local 424. SJG employees represented by the IBEW operate under a collective bargaining agreement that runs through February 2022. SJG's remaining unionized employees are represented by the IAM and operate under a collective bargaining agreement that runs through August 2021. ETG employees represented by the UWUA operate under a collective bargaining agreement that runs through November ~~2019.~~2020.

STANDBY LETTERS OF CREDIT — As of ~~March 31,~~June 30, 2019, SJI provided ~~$10.6~~$9.6 million of standby letters of credit through its revolving credit facility to enable SJE to market retail electricity and for various construction and operating activities. ETG provided a $1.0 million letter of credit under its revolving credit facility to support commodity trading activity. SJG provided a ~~$0.8~~$0.9 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 NJEDA to finance the expansion of SJG’s natural gas distribution system.

EQUITY AND CORPORATE UNITS - The Company has a 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. See Note 4.

PENDING LITIGATION — SJI and SJG are subject to claims, actions and other legal proceedings arising in the ordinary course of business. Neither SJI nor SJG can make any assurance as to the outcome of any of these actions but, based on an analysis of these claims and consultation with outside counsel, we do not believe that any of these claims, other than described below, will have a material impact on the business or financial statements of SJI or SJG.

SJI is currently involved in a pricing dispute related to 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, SJG and SJRG have accrued, including interest, ~~$22.4~~$22.6 million and ~~$58.2~~$58.9 million, respectively, from the first quarter of 2017 through ~~March 31,~~June 30, 2019. We believe that the amount to be paid by SJG reflects a gas cost that ultimately will be recovered from SJG’s customers through adjusted rates. As such, the ~~$22.4~~$22.6 million associated with SJG was recorded as both an Accounts Payable and an increase in Regulatory Assets on the condensed consolidated balance sheets of both SJI and SJG as of ~~March 31,~~June 30, 2019. The ~~$58.2~~$58.9 million associated with SJRG was also recorded as an Accounts Payable on the condensed consolidated balance sheets of SJI as of ~~March 31,~~June 30, 2019. Charges ~~of $0.1 million were~~ recorded to Cost of Sales - Nonutility on the condensed consolidated statements of income of SJI ~~for both the three months ended March 31, 2019 and 2018. SJI also recorded~~were $0.4 million and ~~$0.2~~$0.5 million for the three and six months ended June 30, 2019, respectively, and $0.9 million and $1.0 million for the three and six months ended June 30, 2018, respectively. SJI also recorded to Interest Charges on the condensed consolidated statements of income $0.4 million and $0.7 million for the three and six months ended ~~March 31,~~June 30, 2019, respectively, and $0.2 million and $0.4 million for the three and six months ended June 30, 2018, respectively. In April 2018, SJI filed an appeal of this judgment which was heard by the Tenth Circuit on January 22, ~~2019; however, no~~2019. On August 6, 2019, the Tenth Circuit issued its decision onaffirming the ~~appeal~~lower court’s decision and finding that SJG and SJRG breached the contracts and the plaintiff is entitled to damages. SJI has ~~been made at the time of filing this Report. SJI continues to dispute the supplier invoices received but has created~~ a reserve to reflect the differences between the invoices and paid ~~amounts.~~amounts, and SJI will be required to make payment by September 5, 2019 in an amount not materially different from what has been reserved. 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~~decision in the ~~pending appeal~~first lawsuit is prejudicial to this second lawsuit and SJI is similarly obligated to pay damages related to this breach of ~~the first lawsuit.~~contract claim as well. 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 a manufactured gas plant. The State of New Jersey is alleging damage to the State's natural resources and seeking payment for damages to those natural resources. SJG has been working with a licensed state remediation professional to remediate the site and is currently evaluating the merits of the State of New Jersey's allegations. At this time, SJG cannot reasonably estimate nor provide an assessment of the claim or any 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~~$2.8 million and $3.2 million related to all claims in the aggregate as of ~~March 31,~~June 30, 2019 and December 31, 2018, respectively, of which SJG has accrued approximately $0.6 million and $0.9 million as of ~~both March 31,~~June 30, 2019 and December 31, ~~2018.~~2018, respectively.

ENVIRONMENTAL REMEDIATION COSTS — SJG incurred and recorded costs for environmental cleanup of 12 sites where SJG or its predecessors operated gas manufacturing plants. SJG stopped manufacturing gas in the 1950s. ETG is subject to environmental remediation liabilities associated with six former manufactured gas plant sites in New Jersey. These environmental remediation expenditures are recoverable from customers through rate mechanisms approved by the BPU. SJI and some of its nonutility subsidiaries also recorded costs for environmental cleanup of sites where SJF previously operated a fuel oil business and Morie maintained equipment, fueling stations and storage. ~~Other than the changes discussed in Note 8, there~~There have been no signifcant changes to the status of SJI’s environmental remediation efforts since December 31, 2018, as 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, 2018.


12.	DERIVATIVE INSTRUMENTS:

Certain SJI subsidiaries, including SJG, are involved in buying, selling, transporting and storing natural gas and buying and selling retail electricity for their own accounts as well as managing these activities for third parties. These subsidiaries are subject to market risk on expected future purchases and sales due to commodity price fluctuations. SJI and SJG use a variety of derivative instruments to limit this exposure to market risk in accordance with strict corporate guidelines. These derivative instruments include forward contracts, swap agreements, options contracts and futures contracts.

As of ~~March 31,~~June 30, 2019, SJI and SJG had outstanding derivative contracts as follows:


	SJI Consolidated	SJG	SJI Consolidated	SJG
Derivative contracts intended to limit exposure to market risk to:
Expected future purchases of natural gas (in MMdts)	81.0	13.5	90.8	24.5
Expected future sales of natural gas (in MMdts)	76.8	0.3	87.7	0.3
Expected future purchases of electricity (in MMmWh)	1.4	—	1.1
Expected future sales of electricity (in MMmWh)	1.1	—	0.9

Basis and Index related net purchase (sale) contracts (in MMdts)	15.5	2.5	18.8	3.8

These contracts, which have not been designated as hedging instruments under GAAP, are measured at fair value and recorded in Derivatives - Energy Related Assets or Derivatives - Energy Related Liabilities on the condensed consolidated balance sheets of SJI and SJG. For SJE and SJRG contracts, the net unrealized pre-tax gains (losses) for these energy-related commodity contracts are included with realized gains (losses) in Operating Revenues – Nonutility on the condensed consolidated statements of income for SJI. These unrealized pre-tax (losses) gains were ~~$(12.1)~~$(0.1) million and ~~$23.4~~$(6.2) million for the three months ended ~~March 31,~~June 30, 2019 and 2018, respectively, and $(12.2) million and $17.2 million for the six months ended June 30, 2019 and 2018, respectively. For ETG's and SJG's contracts, the costs or benefits are recoverable through the BGSS clause, subject to BPU approval. As a result, the net unrealized pre-tax gains and losses for SJG and ETG energy-related commodity contracts are included with realized gains and losses in Regulatory Assets or Regulatory Liabilities on the condensed consolidated balance sheets of SJI (ETG and SJG) and SJG. As of ~~March 31,~~June 30, 2019 and December 31, 2018, SJI had ~~$2.2~~$(9.0) million and $4.1 million, respectively, and SJG had ~~$1.3~~$(4.5) million and $3.3 million, respectively, of unrealized (losses) gains included in its BGSS related to energy-related commodity contracts.

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

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

As of ~~March 31,~~June 30, 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

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

The unrealized gains and losses on interest rate derivatives that are not designated as cash flow hedges are included in Interest Charges in the condensed consolidated statements of income. However, for selected interest rate derivatives at SJG, management believes that, subject to BPU approval, the market value upon termination can be recovered in rates and, therefore, these unrealized losses have been included in Other Regulatory Assets in the condensed consolidated balance sheets.

The fair values of all derivative instruments, as reflected in the condensed consolidated balance sheets as of ~~March 31,~~June 30, 2019 and December 31, 2018, are as follows (in thousands):


SJI (includes SJG and all other consolidated subsidiaries):
Derivatives not designated as hedging instruments under GAAP	March 31, 2019				December 31, 2018				June 30, 2019				December 31, 2018
	Assets		Liabilities		Assets		Liabilities		Assets		Liabilities		Assets		Liabilities
Energy-related commodity contracts:
Derivatives - Energy Related - Current	$	29,180	$	21,392	$	54,021	$	24,134	$	34,988	$	35,229	$	54,021	$	24,134
Derivatives - Energy Related - Non-Current	13,677		5,713		7,169		7,256		11,883		7,278		7,169		7,256
Interest rate contracts:
Derivatives - Other - Current	—		780		—		588		—		1,092		—		588
Derivatives - Other - Noncurrent	—		8,898		—		7,285		—		11,449		—		7,285
Total derivatives not designated as hedging instruments under GAAP	$	42,857	$	36,783	$	61,190	$	39,263	$	46,871	$	55,048	$	61,190	$	39,263

Total Derivatives	$	42,857	$	36,783	$	61,190	$	39,263	$	46,871	$	55,048	$	61,190	$	39,263



SJG:
Derivatives not designated as hedging instruments under GAAP	June 30, 2019				December 31, 2018
	Assets		Liabilities		Assets		Liabilities
Energy-related commodity contracts:
Derivatives – Energy Related – Current	$	1,829	$	5,996	$	5,464	$	2,146
Derivatives – Energy Related – Non-Current	—		297		15		43
Interest rate contracts:
Derivatives – Other - Current	—		464		—		343
Derivatives – Other - Noncurrent	—		7,236		—		5,524
Total derivatives not designated as hedging instruments under GAAP	$	1,829	$	13,993	$	5,479	$	8,056

Total Derivatives	$	1,829	$	13,993	$	5,479	$	8,056

SJG:
Derivatives not designated as hedging instruments under GAAP March 31, 2019 December 31, 2018
Assets Liabilities Assets Liabilities
Energy-related commodity contracts:
Derivatives – Energy Related – Current $ 2,076
$ 693
$ 5,464
$ 2,146
Derivatives – Energy Related – Non-Current —
96
15
43
Interest rate contracts:
Derivatives – Other - Current —
391
—
343
Derivatives – Other - Noncurrent —
6,191
—
5,524
Total derivatives not designated as hedging instruments under GAAP $ 2,076
$ 7,371
$ 5,479
$ 8,056

Total Derivatives $ 2,076
$ 7,371
$ 5,479
$ 8,056

SJI and SJG enter into derivative contracts with counterparties, some of which are subject to master netting arrangements, which allow net settlements under certain conditions. These derivatives are presented at gross fair values on the condensed consolidated balance sheets.

As of ~~March 31,~~June 30, 2019 and December 31, 2018, information related to these offsetting arrangements were as follows (in thousands):



As of June 30, 2019
Description	Gross amounts of recognized assets/liabilities			Gross amount offset in the balance sheet		Net amounts of assets/liabilities in balance sheet			Gross amounts not offset in the balance sheet						Net amount
Description	Gross amounts of recognized assets/liabilities			Gross amount offset in the balance sheet		Net amounts of assets/liabilities in balance sheet			Financial Instruments				Cash Collateral Posted		Net amount
SJI (includes SJG and all other consolidated subsidiaries):
Derivatives - Energy Related Assets	$	46,871		$	—	$	46,871		$	(25,996	)	(A)	$	—	$	20,875
Derivatives - Energy Related Liabilities	$	(42,507	)	$	—	$	(42,507	)	$	25,996		(B)	$	10,371	$	(6,140	)
Derivatives - Other	$	(12,541	)	$	—	$	(12,541	)	$	—			$	—	$	(12,541	)
SJG:
Derivatives - Energy Related Assets	$	1,829		$	—	$	1,829		$	(45	)	(A)	$	—	$	1,784
Derivatives - Energy Related Liabilities	$	(6,293	)	$	—	$	(6,293	)	$	45		(B)	$	5,794	$	(454	)
Derivatives - Other	$	(7,700	)	$	—	$	(7,700	)	$	—			$	—	$	(7,700	)

As of March 31, 2019
Description Gross amounts of recognized assets/liabilities Gross amount offset in the balance sheet Net amounts of assets/liabilities in balance sheet Gross amounts not offset in the balance sheet Net amount
Financial Instruments Cash Collateral Posted
SJI (includes SJG and all other consolidated subsidiaries):
Derivatives - Energy Related Assets $ 42,857
$ —
$ 42,857
$ (23,142 ) (A) $ —
$ 19,715
Derivatives - Energy Related Liabilities $ (27,105 ) $ —
$ (27,105 ) $ 23,142
(B) $ 479
$ (3,484 )
Derivatives - Other $ (9,678 ) $ —
$ (9,678 ) $ —
$ —
$ (9,678 )
SJG:
Derivatives - Energy Related Assets $ 2,076
$ —
$ 2,076
$ (303 ) (A) $ —
$ 1,773
Derivatives - Energy Related Liabilities $ (789 ) $ —
$ (789 ) $ 303
(B) $ 479
$ (7 )
Derivatives - Other $ (6,582 ) $ —
$ (6,582 ) $ —
$ —
$ (6,582 )



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

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

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

The effect of derivative instruments on the condensed consolidated statements of income for the three and six months ended ~~March 31,~~June 30, 2019 and 2018 are as follows (in thousands):


	Three Months Ended March 31,						Three Months Ended June 30,						Six Months Ended June 30,
Derivatives in Cash Flow Hedging Relationships under GAAP	2019			2018			2019			2018			2019			2018
SJI (includes SJG and all other consolidated subsidiaries):
Interest Rate Contracts:
Losses reclassified from AOCL into income (a)	$	(12	)	$	(12	)	$	(12	)	$	(12	)	$	(24	)	$	(24	)

SJG:
Interest Rate Contracts:
Losses reclassified from AOCL into income (a)	$	(12	)	$	(12	)	$	(12	)	$	(12	)	(24		)	(24		)

(a) Included in Interest Charges


	Three Months Ended March 31,					Three Months Ended June 30,						Six Months Ended June 30,
Derivatives Not Designated as Hedging Instruments under GAAP	2019			2018		2019			2018			2019			2018
SJI (includes SJG and all other consolidated subsidiaries):
(Losses) Gains on energy-related commodity contracts (a)	$	(12,060	)	$	23,353	$	(143	)	$	(6,178	)	$	(12,203	)	$	17,175
(Losses) Gains on interest rate contracts (b)	(1,090		)	1,628		(1,745		)	620			(2,835		)	2,248

Total	$	(13,150	)	$	24,981	$	(1,888	)	$	(5,558	)	$	(15,038	)	$	19,423

(a) Included in Operating Revenues - Nonutility

(b) Included in Interest Charges

Certain of SJI’s derivative instruments contain provisions that require immediate payment or demand immediate and ongoing collateralization on derivative instruments in net liability positions in the event of a material adverse change in the credit standing of SJI. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a liability position on ~~March 31,~~June 30, 2019, is less than ~~$0.1~~$0.5 million. If the credit-risk-related contingent features underlying these agreements were triggered on ~~March 31,~~June 30, 2019, SJI would have been required to settle the instruments immediately or post collateral to its counterparties of less than ~~$0.1~~$0.5 million after offsetting asset positions with the same counterparties under master netting arrangements.


13.	FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES:

GAAP establishes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques. The levels of the hierarchy are described below:

Level 1: Observable inputs, such as quoted prices in active markets for identical assets or liabilities.

Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.

Assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of financial assets and financial liabilities and their placement within the fair value hierarchy.

For financial assets and financial liabilities measured at fair value on a recurring basis, information about the fair value measurements for each major category is as follows (in thousands):


As of March 31, 2019	Total		Level 1		Level 2		Level 3
As of June 30, 2019									Total		Level 1		Level 2		Level 3
SJI (includes SJG and all other consolidated subsidiaries):
Assets
Available-for-Sale Securities (A)	$	41	$	41	$	—	$	—	$	41	$	41	$	—	$	—
Derivatives – Energy Related Assets (B)	42,857		4,867		16,523		21,467		46,871		6,935		16,212		23,724
	$	42,898	$	4,908	$	16,523	$	21,467	$	46,912	$	6,976	$	16,212	$	23,724
SJG:
Assets
Derivatives – Energy Related Assets (B)	$	2,076	$	303	$	64	$	1,709	$	1,829	$	45	$	24	$	1,760
	$	2,076	$	303	$	64	$	1,709	$	1,829	$	45	$	24	$	1,760
SJI (includes SJG and all other consolidated subsidiaries):
Liabilities
Derivatives – Energy Related Liabilities (B)	$	27,105	$	2,227	$	11,688	$	13,190	$	42,507	$	20,245	$	8,498	$	13,764
Derivatives – Other (C)	9,678		—		9,678		—		12,541		—		12,541		—
	$	36,783	$	2,227	$	21,366	$	13,190	$	55,048	$	20,245	$	21,039	$	13,764
SJG:
Liabilities
Derivatives – Energy Related Liabilities (B)	$	789	$	783	$	3	$	3	$	6,293	$	5,839	$	402	$	52
Derivatives – Other (C)	6,582		—		6,582		—		7,700		—		7,700		—
	$	7,371	$	783	$	6,585	$	3	$	13,993	$	5,839	$	8,102	$	52



As of December 31, 2018	Total		Level 1		Level 2		Level 3
SJI (includes SJG and all other consolidated subsidiaries):
Assets
Available-for-Sale Securities (A)	$	41	$	41	$	—	$	—
Derivatives – Energy Related Assets (B)	61,190		9,955		23,429		27,806
	$	61,231	$	9,996	$	23,429	$	27,806
SJG:
Assets
Derivatives – Energy Related Assets (B)	$	5,479	$	348	$	126	$	5,005
	$	5,479	$	348	$	126	$	5,005

SJI (includes SJG and all other consolidated subsidiaries):
Liabilities
Derivatives – Energy Related Liabilities (B)	$	31,390	$	7,291	$	12,354	$	11,745
Derivatives – Other (C)	7,873		—		7,873		—
	$	39,263	$	7,291	$	20,227	$	11,745
SJG:
Liabilities
Derivatives – Energy Related Liabilities (B)	$	2,189	$	1,035	$	1,077	$	77
Derivatives – Other (C)	5,867		—		5,867		—
	$	8,056	$	1,035	$	6,944	$	77

(A) Available-for-Sale Securities include securities that are traded in active markets and securities that are not traded publicly. The securities traded in active markets are valued using the quoted principal market close prices that are provided by the trustees and are categorized in Level 1 in the fair value hierarchy.

(B) Derivatives – Energy Related Assets and Liabilities are traded in both exchange-based and non-exchange-based markets. Exchange-based contracts are valued using unadjusted quoted market sources in active markets and are categorized in Level 1 in the fair value hierarchy. Certain non-exchange-based contracts are valued using indicative price quotations available through brokers or over-the-counter, on-line exchanges and are categorized in Level 2. These price quotations reflect the average of the bid-ask mid-point prices and are obtained from sources that management believes provide the most liquid market. For non-exchange-based derivatives that trade in less liquid markets with limited pricing information, model inputs generally would include both observable and unobservable inputs. In instances where observable data is unavailable, management considers the assumptions that market participants would use in valuing the asset or liability. This includes assumptions about market risks such as liquidity, volatility and contract duration. Such instruments are categorized in Level 3 as the model inputs generally are not observable.

Significant Unobservable Inputs - Management uses the discounted cash flow model to value Level 3 physical and financial forward contracts, which calculates mark-to-market valuations based on forward market prices, original transaction prices, volumes, risk-free rate of return and credit spreads. Inputs to the valuation model are reviewed and revised as needed, based on historical information, updated market data, market liquidity and relationships, and changes in third party pricing sources. The validity of the mark-to-market valuations and changes in mark-to-market valuations from period to period are examined and qualified against historical expectations by the risk management function. If any discrepancies are identified during this process, the mark-to-market valuations or the market pricing information is evaluated further and adjusted, if necessary.

Level 3 valuation methods for natural gas derivative contracts include utilizing another location in close proximity adjusted for certain pipeline charges to derive a basis value. The significant unobservable inputs used in the fair value measurement of certain natural gas contracts consist of forward prices developed based on industry-standard methodologies. Significant increases (decreases) in these forward prices for purchases of natural gas would result in a directionally similar impact to the fair value measurement and for sales of natural gas would result in a directionally opposite impact to the fair value measurement. Level 3 valuation methods for electric represent the value of the contract marked to the forward wholesale curve, as provided by daily exchange quotes for delivered electricity. The significant unobservable inputs used in the fair value measurement of electric contracts consist of fixed contracted electric load profiles; therefore, no change in unobservable inputs would occur. Unobservable inputs are updated daily using industry-standard techniques. Management reviews and corroborates the price quotations to ensure the prices are observable which includes consideration of actual transaction volumes, market delivery points, bid-ask spreads and contract duration.

(C) Derivatives – Other are valued using quoted prices on commonly quoted intervals, which are interpolated for periods different than the quoted intervals, as inputs to a market valuation model. Market inputs can generally be verified and model selection does not involve significant management judgment.

The following table provides quantitative information regarding significant unobservable inputs in Level 3 fair value measurements (in thousands, except for ranges):

SJI (includes SJG and all other consolidated subsidiaries):



Type	Fair Value at June 30, 2019		Valuation Technique	Significant Unobservable Input	Range [Weighted Average]
	Assets	Liabilities
Forward Contract - Natural Gas	$18,772	$9,815	Discounted Cash Flow	Forward price (per dt)	$1.69 - $8.31 [$2.50]	(A)
Forward Contract - Electric	$4,952	$3,949	Discounted Cash Flow	Fixed electric load profile (on-peak)	40.24% - 100.00% [54.98%]	(B)
Forward Contract - Electric	$4,952	$3,949	Discounted Cash Flow	Fixed electric load profile (off-peak)	0.00% - 59.76% [45.02%]	(B)



Type	Fair Value at December 31, 2018		Valuation Technique	Significant Unobservable Input	Range [Weighted Average]
	Assets	Liabilities
Forward Contract - Natural Gas	$20,706	$8,976	Discounted Cash Flow	Forward price (per dt)	$1.56 - $9.00 [$3.12]	(A)
Forward Contract - Electric	$7,100	$2,769	Discounted Cash Flow	Fixed electric load profile (on-peak)	0.00% - 100.00% [54.55%]	(B)
Forward Contract - Electric	$7,100	$2,769	Discounted Cash Flow	Fixed electric load profile (off-peak)	0.00% - 100.00% [45.45%]	(B)

Type Fair Value at March 31, 2019 Valuation Technique Significant Unobservable Input
Range
[Weighted Average]

Assets Liabilities
Forward Contract - Natural Gas $17,342 $12,019 Discounted Cash Flow
Forward price (per dt)

$1.87 - $8.88 [$2.84] (A)
Forward Contract - Electric

$4,125 $1,171 Discounted Cash Flow Fixed electric load profile (on-peak) 37.45% - 100.00% [54.68%] (B)
Fixed electric load profile (off-peak) 0.00% - 62.55% [45.32%] (B)

Type Fair Value at December 31, 2018 Valuation Technique Significant Unobservable Input
Range
[Weighted Average]

Assets Liabilities
Forward Contract - Natural Gas $20,706 $8,976 Discounted Cash Flow
Forward price (per dt)

$1.56 - $9.00 [$3.12] (A)
Forward Contract - Electric

$7,100 $2,769 Discounted Cash Flow Fixed electric load profile (on-peak) 0.00% - 100.00% [54.55%] (B)
Fixed electric load profile (off-peak) 0.00% - 100.00% [45.45%] (B)

SJG:

Type

Fair Value at March 31, 2019

Valuation Technique

Significant Unobservable Input

Range
[Weighted Average]

Fair Value at June 30, 2019

Valuation Technique

Significant Unobservable Input

Range
[Weighted Average]

Assets

Liabilities

Assets

Liabilities

Forward Contract - Natural Gas

1,709

Discounted Cash Flow

Forward price (per dt)

$2.28 - $6.39 [$2.97]

(A)

1,760

Discounted Cash Flow

Forward price (per dt)

$1.78 - $5.78 [$2.66]

(A)



Type	Fair Value at December 31, 2018				Valuation Technique	Significant Unobservable Input	Range [Weighted Average]
	Assets		Liabilities
Forward Contract - Natural Gas	$	5,005	$	77	Discounted Cash Flow	Forward price (per dt)	$3.13 - $6.00 [$4.53]	(A)

(A) Represents the range, along with the weighted average, of forward prices for the sale and purchase of natural gas.

(B) Represents the range, along with the weighted average, of the percentage of contracted usage that is loaded during on-peak hours versus off-peak.

The changes in fair value measurements of Derivatives – Energy Related Assets and Liabilities for the three and six months ended ~~March 31,~~June 30, 2019 and 2018, using significant unobservable inputs (Level 3), are as follows (in thousands):



	Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
SJI (includes SJG and all other consolidated subsidiaries):
Balance at beginning of period	$	8,277		$	16,061
Other Changes in Fair Value from Continuing and New Contracts, Net (A)	6,553			4,285
Settlements	(4,870		)	(10,386		)

Balance at end of period	$	9,960		$	9,960

SJG:
Balance at beginning of period	$	1,706		$	4,928
Other Changes in Fair Value from Continuing and New Contracts, Net (A)	2			1,708
Settlements	—			(4,928		)

Balance at end of period	$	1,708		$	1,708


	Three Months Ended March 31, 2019			Three Months Ended June 30, 2018			Six Months Ended June 30, 2018
SJI (includes SJG and all other consolidated subsidiaries):
Balance at beginning of period	$	16,061		$	16,586		$	3,110
Other Changes in Fair Value from Continuing and New Contracts, Net(A)	(2,268		)	6,215			10,204
Settlements	(5,516		)	(4,440		)	5,047

Balance at end of period	$	8,277		$	18,361		$	18,361

SJG:
Balance at beginning of period	$	4,928		$	(6	)	$	2,052
Other Changes in Fair Value from Continuing and New Contracts, Net(A)	1,706			6,003			5,997
Settlements	(4,928		)	—			(2,052		)

Balance at end of period	$	1,706		$	5,997		$	5,997

Three Months Ended
March 31, 2018
SJI (includes SJG and all other consolidated subsidiaries):
Balance at beginning of period $ 3,110
Other Changes in Fair Value from Continuing and New Contracts, Net 3,989
Settlements 9,487

Balance at end of period $ 16,586

SJG:
Balance at beginning of period $ 2,052
Other Changes in Fair Value from Continuing and New Contracts, Net (6 )
Settlements (2,052 )

Balance at end of period $ (6 )

~~Total~~(A) Represents total gains (losses) included in earnings for SJI and SJG for the three and six months ended ~~March 31,~~June 30, 2019 and 2018 that are attributable to the change in unrealized gains (losses) relating to those assets and liabilities included in Level 3 still held as of ~~March 31,~~June 30, 2019 ~~are $(2.3) million~~ and ~~$1.7 million,~~2018, respectively. These gains (losses) are included in Operating Revenues-Nonutility on the condensed consolidated statements of income.


14.	LONG-TERM DEBT:

InDuring the ~~first quarter~~six months ended June 30, 2019, SJI provided ~~three~~four Notices of Optional Prepayment to the holders of its Floating Rate Senior Notes, Series 2018D, due June 20, 2019 of the Company’s intent to prepay the $475.0 million aggregate principal amount outstanding. As a result of these ~~three~~ notices, the Company has repaid the $475.0 million aggregate principal amount in full.

During the six months ended June 30, 2019, SJI paid ~~a total of $400.0~~off $60.0 million principal amount outstanding on its 3.30% Senior Notes, Series 2014A-1, due June 26, 2019, and paid off $40.0 million principal amount outstanding on its Floating Rate Senior Notes, Series 2014B-1, due June 26, 2019.

Also during the ~~first quarter 2019. The remaining $75.0 million was paid in April 2019 (see Note 20).~~

~~Also in the first quarter~~six months ended June 30, 2019, 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.~~2020; as such, the issuance amount is recorded in current portion of long-term debt on the condensed consolidated balance sheets.

SJI and SJG did not issue or retire any other long-term debt during the ~~three~~six months ended ~~March 31,~~June 30, 2019.


15.	ACCUMULATED OTHER COMPREHENSIVE LOSS:

The following table summarizes the changes in SJI's AOCL for the three and six months ended ~~March 31,~~June 30, 2019 (in thousands):



	Postretirement Liability Adjustment			Unrealized Gain (Loss) on Derivatives-Other			Unrealized Gain (Loss) on Available-for-Sale Securities			Other Comprehensive Income (Loss) of Affiliated Companies			Total
Balance at April 1, 2019 (a)	$	(25,626	)	$	(354	)	$	(10	)	$	(97	)	$	(26,087	)
Other comprehensive income before reclassifications	—			—			—			—			—
Amounts reclassified from AOCL (b)	—			8			—			—			8
Net current period other comprehensive income	—			8			—			—			8
Balance at June 30, 2019 (a)	$	(25,626	)	$	(346	)	$	(10	)	$	(97	)	$	(26,079	)



	Postretirement Liability Adjustment			Unrealized Gain (Loss) on Derivatives-Other			Unrealized Gain (Loss) on Available-for-Sale Securities			Other Comprehensive Income (Loss) of Affiliated Companies			Total			Postretirement Liability Adjustment			Unrealized Gain (Loss) on Derivatives-Other			Unrealized Gain (Loss) on Available-for-Sale Securities			Other Comprehensive Income (Loss) of Affiliated Companies			Total
Balance at January 1, 2019 (a)	$	(25,626	)	$	(362	)	$	(10	)	$	(97	)	$	(26,095	)	$	(25,626	)	$	(362	)	$	(10	)	$	(97	)	$	(26,095	)
Other comprehensive income before reclassifications	—			—			—			—			—			—			—			—			—			—
Amounts reclassified from AOCL (b)	—			8			—			—			8			—			16			—			—			16
Net current period other comprehensive income	—			8			—			—			8			—			16			—			—			16
Balance at March 31, 2019 (a)	$	(25,626	)	$	(354	)	$	(10	)	$	(97	)	$	(26,087	)
Balance at June 30, 2019 (a)																$	(25,626	)	$	(346	)	$	(10	)	$	(97	)	$	(26,079	)

(a) Determined using a combined average statutory tax rate of 27%.

(b) See table below.

The following table provides details about reclassifications out of SJI's AOCL for the three and six months ended ~~March 31,~~June 30, 2019 (in thousands):



Components of AOCL	Amounts Reclassified from AOCL						Affected Line Item in the Condensed Consolidated Statements of Income
Components of AOCL	Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
Unrealized Loss on Derivatives-Other - interest rate contracts designated as cash flow hedges	$	12		$	24		Interest Charges
Income Taxes	(4		)	(8		)	Income Taxes (a)
Losses from reclassifications for the period net of tax	$	8		$	16

Components of AOCL Amounts Reclassified from AOCL Affected Line Item in the Condensed Consolidated Statements of Income
Three Months Ended
March 31, 2019
Unrealized Loss on Derivatives-Other - interest rate contracts designated as cash flow hedges $ 12
Interest Charges
Income Taxes (4 ) Income Taxes (a)
Losses from reclassifications for the period net of tax $ 8

(a) Determined using a combined average statutory tax rate of 27%.

The following table summarizes the changes in SJG's AOCL for the three and six months ended ~~March 31,~~June 30, 2019 (in thousands):



	Postretirement Liability Adjustment			Unrealized Gain (Loss) on Derivatives-Other			Total
Balance at April 1, 2019 (a)	$	(21,901	)	$	(448	)	$	(22,349	)
Other comprehensive loss before reclassifications	—			—			—
Amounts reclassified from AOCL (b)	—			8			8
Net current period other comprehensive income	—			8			8
Balance at June 30, 2019 (a)	$	(21,901	)	$	(440	)	$	(22,341	)



	Postretirement Liability Adjustment			Unrealized Gain (Loss) on Derivatives-Other			Total			Postretirement Liability Adjustment			Unrealized Gain (Loss) on Derivatives-Other			Total
Balance at January 1, 2019 (a)	$	(21,901	)	$	(456	)	$	(22,357	)	$	(21,901	)	$	(456	)	$	(22,357	)
Other comprehensive loss before reclassifications	—			—			—			—			—			—
Amounts reclassified from AOCL (b)	—			8			8			—			16			16
Net current period other comprehensive income (loss)	—			8			8			—			16			16
Balance at March 31, 2019 (a)	$	(21,901	)	$	(448	)	$	(22,349	)
Balance at June 30, 2019 (a)										$	(21,901	)	$	(440	)	$	(22,341	)

(a) Determined using a combined average statutory tax rate of 27%.

(b) See table below.

The reclassifications out of SJG's AOCL during the three and six months ended ~~March 31,~~June 30, 2019 are as follows (in thousands):


Components of AOCL	Amounts Reclassified from AOCL			Affected Line Item in the Condensed Statements of Income	Amounts Reclassified from AOCL						Affected Line Item in the Condensed Statements of Income
	Three Months Ended March 31, 2019				Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
Unrealized Loss in on Derivatives - Other - Interest Rate Contracts designated as cash flow hedges	$	12		Interest Charges	$	12		$	24		Interest Charges
Income Taxes	(4		)	Income Taxes (a)	(4		)	(8		)	Income Taxes (a)
Losses from reclassifications for the period net of tax	$	8			$	8		$	16

(a) Determined using a combined average statutory tax rate of 27%.


16.	REVENUE:

At contract inception, SJI and SJG assess the goods and services promised in all of its contracts with customers, and identify a performance obligation for each promise to transfer to a customer a distinct good or service.

SJI revenues from contracts with customers totaled ~~$606.7~~$231.8 million and ~~$444.0~~$201.9 million for the three months ended ~~March 31,~~June 30, 2019 and 2018, respectively, and $838.5 million and $645.8 million for the six months ended June 30, 2019 and 2018, respectively. SJG revenues from contracts with customers totaled ~~$233.0~~$47.0 million and ~~$193.9~~$64.1 million for the three months ended ~~March 31,~~June 30, 2019 and 2018, respectively, and $280.0 million and $258.0 million for the six months ended June 30, 2019 and 2018, respectively. The SJG balance is a part of the SJG utility operating segment, and is before intercompany eliminations with other SJI entities. Revenues on the condensed consolidated statements of income that are not with contracts with customers consist of (a) revenues from alternative revenue programs at the SJG, ETG and ELK gas utility operating segments (including CIP, AIRP, SHARP, and WNC), and (b) both utility and nonutility revenue from derivative contracts at the SJG and ETG gas utility, wholesale energy and retail electric operating segments.

SJI and SJG disaggregate revenue from contracts with customers into customer type and product line. SJI and SJG have determined that disaggregating revenue into these categories achieves the disclosure objective in ASC 606 to depict how the nature, timing and uncertainty of revenue and cash flows are affected by economic factors. Further, disaggregating revenue into these categories is consistent with information regularly reviewed by the CODM in evaluating the financial performance of SJI's operating segments. SJG only operates in the SJG Utility Operations segment. See Note 6 for further information regarding SJI's operating segments.

Disaggregated revenues from contracts with customers, by both customer type and product line, are disclosed below, by operating segment, for the three and six months ended ~~March 31,~~June 30, 2019 (in thousands):


Three Months Ended March 31, 2019
Three Months Ended June 30, 2019																				Three Months Ended June 30, 2019
	SJG Utility Operations		ETG Utility Operations		ELK Utility Operations		Wholesale Energy Operations		Retail Electric Operations		On-Site Energy Production		Appliance Service Operations		Corporate Services and Intersegment			Total		SJG Utility Operations		ETG Utility Operations		ELK Utility Operations		Wholesale Energy Operations		Retail Electric Operations		On-Site Energy Production		Appliance Service Operations		Corporate Services and Intersegment			Total
Customer Type:
Residential	$	184,954	$	99,989	$	1,754	$	—	$	3,808	$	—	$	531	$	—		$	291,036	$	28,679	$	27,503	$	207	$	—	$	2,953	$	—	$	484	$	—		$	59,826
Commercial & Industrial	45,588		42,148		1,658		199,767		13,003		11,330		—		(3,007		)	310,487		15,503		16,065		482		111,794		12,419		14,788		—		(3,418		)	167,633
OSS & Capacity Release	1,770		—		—		—		—		—		—		—			1,770		2,244		—		—		—		—		—		—		—			2,244
Other	672		2,647		65		—		—		—		—		—			3,384		571		1,527		39		—		—		—		—		—			2,137
	$	232,984	$	144,784	$	3,477	$	199,767	$	16,811	$	11,330	$	531	$	(3,007	)	$	606,677	$	46,997	$	45,095	$	728	$	111,794	$	15,372	$	14,788	$	484	$	(3,418	)	$	231,840
Product Line:
Gas	$	232,984	$	144,784	$	3,477	$	199,767	$	—	$	—	$	—	$	(1,400	)	$	579,612	$	46,997	$	45,095	$	728	$	111,794	$	—	$	—	$	—	$	(1,234	)	$	203,380
Electric	—		—		—		—		16,811		—		—		(1,607		)	15,204		—		—		—		—		15,372		—		—		(2,184		)	13,188
Solar	—		—		—		—		—		2,576		—		—			2,576		—		—		—		—		—		6,438		—		—			6,438
CHP	—		—		—		—		—		7,359		—		—			7,359		—		—		—		—		—		6,794		—		—			6,794
Landfills	—		—		—		—		—		1,395		—		—			1,395		—		—		—		—		—		1,556		—		—			1,556
Other	—		—		—		—		—		—		531		—			531		—		—		—		—		—		—		484		—			484
	$	232,984	$	144,784	$	3,477	$	199,767	$	16,811	$	11,330	$	531	$	(3,007	)	$	606,677	$	46,997	$	45,095	$	728	$	111,794	$	15,372	$	14,788	$	484	$	(3,418	)	$	231,840



Six Months Ended June 30, 2019
	SJG Utility Operations		ETG Utility Operations		ELK Utility Operations		Wholesale Energy Operations		Retail Electric Operations		On-Site Energy Production		Appliance Service Operations		Corporate Services and Intersegment			Total
Customer Type:
Residential	$	213,633	$	127,492	$	1,961	$	—	$	6,761	$	—	$	1,015	$	—		$	350,862
Commercial & Industrial	61,091		58,213		2,140		311,561		25,422		26,118		—		(6,425		)	478,120
OSS & Capacity Release	4,014		—		—		—		—		—		—		—			4,014
Other	1,243		4,174		104		—		—		—		—		—			5,521
	$	279,981	$	189,879	$	4,205	$	311,561	$	32,183	$	26,118	$	1,015	$	(6,425	)	$	838,517
Product Line:
Gas	$	279,981	$	189,879	$	4,205	$	311,561	$	—	$	—	$	—	$	(2,634	)	$	782,992
Electric	—		—		—		—		32,183		—		—		(3,791		)	28,392
Solar	—		—		—		—		—		9,014		—		—			9,014
CHP	—		—		—		—		—		14,153		—		—			14,153
Landfills	—		—		—		—		—		2,951		—		—			2,951
Other	—		—		—		—		—		—		1,015		—			1,015
	$	279,981	$	189,879	$	4,205	$	311,561	$	32,183	$	26,118	$	1,015	$	(6,425	)	$	838,517


Three Months Ended March 31, 2018
Three Months Ended June 30, 2018																						Three Months Ended June 30, 2018
	SJG Utility Operations		ETG Utility Operations		ELK Utility Operations		Wholesale Energy Operations		Retail Gas and Other Operations		Retail Electric Operations		On-Site Energy Production		Appliance Service Operations		Corporate Services and Intersegment			Total		SJG Utility Operations		ETG Utility Operations		ELK Utility Operations		Wholesale Energy Operations		Retail Gas and Other Operations		Retail Electric Operations		On-Site Energy Production		Appliance Service Operations		Corporate Services and Intersegment			Total
Customer Type:
Residential	$	147,262	$	—	$	—	$	—	$	—	$	8,096	$	—	$	520	$	—		$	155,878	$	43,982	$	—	$	—	$	—	$	—	$	6,391	$	—	$	451	$	—		$	50,824
Commercial & Industrial	40,805		—		—		173,846		33,246		21,950		21,157		—		(8,770		)	282,234		18,563		—		—		76,376		15,121		22,430		24,734		—		(7,705		)	149,519
OSS & Capacity Release	5,204		—		—		—		—		—		—		—		—			5,204		972		—		—		—		—		—		—		—		—			972
Other	663		—		—		—		—		—		—		—		—			663		539		—		—		—		—		—		—		—		—			539
	$	193,934	$	—	$	—	$	173,846	$	33,246	$	30,046	$	21,157	$	520	$	(8,770	)	$	443,979	$	64,056	$	—	$	—	$	76,376	$	15,121	$	28,821	$	24,734	$	451	$	(7,705	)	$	201,854
Product Line:
Gas	$	193,934	$	—	$	—	$	173,846	$	33,246	$	—	$	—	$	—	$	(4,574	)	$	396,452	$	64,056	$	—	$	—	$	76,376	$	15,121	$	—	$	—	$	—	$	(1,914	)	$	153,639
Electric	—		—		—		—		—		30,046		—		—		(1,668		)	28,378		—		—		—		—		—		28,821		—		—		(2,012		)	26,809
Solar	—		—		—		—		—		—		11,836		—		(2,528		)	9,308		—		—		—		—		—		—		15,905		—		(3,779		)	12,126
CHP	—		—		—		—		—		—		7,853		—		—			7,853		—		—		—		—		—		—		7,161		—		—			7,161
Landfills	—		—		—		—		—		—		1,468		—		—			1,468		—		—		—		—		—		—		1,668		—		—			1,668
Other	—		—		—		—		—		—		—		520		—			520		—		—		—		—		—		—		—		451		—			451
	$	193,934	$	—	$	—	$	173,846	$	33,246	$	30,046	$	21,157	$	520	$	(8,770	)	$	443,979	$	64,056	$	—	$	—	$	76,376	$	15,121	$	28,821	$	24,734	$	451	$	(7,705	)	$	201,854



Six Months Ended June 30, 2018
	SJG Utility Operations		ETG Utility Operations		ELK Utility Operations		Wholesale Energy Operations		Retail Gas and Other Operations		Retail Electric Operations		On-Site Energy Production		Appliance Service Operations		Corporate Services and Intersegment			Total
Customer Type:
Residential	$	191,244	$	—	$	—	—		—		$	14,487	—		$	971	—			$	206,702
Commercial & Industrial	59,368		—		—		250,222		48,367		44,380		45,891		—		(16,475		)	431,753
OSS & Capacity Release	6,176		—		—		—		—		—		—		—		—			6,176
Other	1,202		—		—		—		—		—		—		—		—			1,202
	$	257,990	$	—	$	—	$	250,222	$	48,367	$	58,867	$	45,891	$	971	$	(16,475	)	$	645,833
Product Line:
Gas	$	257,990	$	—	$	—	$	250,222	$	48,367	—		—		—		$	(6,488	)	$	550,091
Electric	—		—		—		—		—		58,867		—		—		(3,680		)	55,187
Solar	—		—		—		—		—		—		27,741		—		(6,307		)	21,434
CHP	—		—		—		—		—		—		15,014		—		—			15,014
Landfills	—		—		—		—		—		—		3,136		—		—			3,136
Other	—		—		—		—		—		—		—		971		—			971
	$	257,990	$	—	$	—	$	250,222	$	48,367	$	58,867	$	45,891	$	971	$	(16,475	)	$	645,833

The following table provides information about SJI's and SJG's receivables and unbilled revenue from contracts with customers (in thousands):


	Accounts Receivable (1)			Unbilled Revenue (2)			Accounts Receivable (1)			Unbilled Revenue (2)
SJI (including SJG and all other consolidated subsidiaries):
Beginning balance as of 1/1/19	$	337,502		$	79,538		$	337,502		$	79,538
Ending balance as of 3/31/19	317,917			68,155
Ending balance as of 6/30/19							223,314			21,253
Increase (Decrease)	$	(19,585	)	$	(11,383	)	$	(114,188	)	$	(58,285	)

Beginning balance as of 1/1/18	$	202,379		$	73,377		$	202,379		$	73,377
Ending balance as of 3/31/18	243,395			62,601
Ending balance as of 6/30/18							196,601			24,464
Increase (Decrease)	$	41,016		$	(10,776	)	$	(5,778	)	$	(48,913	)

SJG:
Beginning balance as of 1/1/19	$	101,572		$	43,271		$	101,572		$	43,271
Ending balance as of 3/31/19	146,185			38,292
Ending balance as of 6/30/19							90,190			8,415
Increase (Decrease)	$	44,613		$	(4,979	)	$	(11,382	)	$	(34,856	)

Beginning balance as of 1/1/18	$	78,571		$	54,980		$	78,571		$	54,980
Ending balance as of 3/31/18	128,583			44,287
Ending balance as of 6/30/18							95,420			9,721
Increase (Decrease)	$	50,012		$	(10,693	)	$	16,849		$	(45,259	)

(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 ~~three~~six months ended ~~March 31,~~June 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:

On July 1, 2018, the Company completed the Acquisition of ETG and ELK. The Company completed the Acquisition for total consideration of ~~$1.74~~$1.72 billion in cash, inclusive of ~~$40.3~~$24.7 million of certain net working capital adjustments. Of the total, ~~$1.73~~$1.71 billion relates to the acquisition of ETG, while $10.9 million relates to the acquisition of ELK. 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			ETG and ELK
Property, Plant and Equipment	$	1,089,342		$	1,202,435
Accounts Receivable	45,875			45,875
Provision for Uncollectibles	(6,579		)	(6,579		)
Natural Gas in Storage	12,204			12,204
Materials and Supplies	345			345
Other Prepayments and Current Assets	200			200
Deferred Income Taxes	21,024			39,470
Regulatory Assets	136,213			136,212
Goodwill	731,029			700,286
Total assets acquired	2,029,653			2,130,448
Accounts Payable	13,089			13,089
Other Current Liabilities	9,185			9,185
Environmental Remediation Costs - Current	7,100			7,100
Pension and Other Postretirement Benefits	3,213			3,213
Environmental Remediation Costs - Non Current	66,165			66,165
Regulatory Liabilities	189,509			192,811
Asset Retirement Obligation				113,093
Other	1,107			1,107
Total liabilities assumed	289,368			405,763
Total net assets acquired	$	1,740,285		$	1,724,685

Goodwill of ~~$731.0~~$700.3 million arising from the Acquisition includes the potential synergies between ETG, ELK and the Company. The goodwill, of which ~~$677.6~~$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. Other key conditions of approval related to the Acquisition include but are not limited to ETG filing a base rate case no later than June 2020, which ETG accomplished with its April 2019 base rate case filing (see Note ~~20)~~7).

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~~June 2019, the BPU ~~seeking authorization to recover~~issued an Order approving a $300.0 million IIP effective July 1, 2019. The Order authorized the recovery of costs associated with ~~its proposed investment~~ETG’s investments of approximately ~~$518.0~~$300.0 million ~~from~~between 2019-2023 ~~necessary~~ to ~~among other things,~~ replace its cast-iron and ~~low-pressure~~bare steel vintage main and related services. The ~~design of ETG's IIP includes a request~~Order provides for ~~timely~~annual recovery of ETG's ~~investment on a semi-annual basis~~investments through a separate ~~rider recovery~~rate mechanism. ~~A final decision from the BPU is anticipated in 2019.~~

Financial information of the acquirees

The amount of ETG and ELK revenues included in the Company's condensed consolidated statement of income for the three and six months ended ~~March 31,~~June 30, 2019 is ~~$143.5 million.~~$45.8 million and $189.3 million, respectively. The amount of ETG and ELK ~~earnings~~net income (loss) included in the Company's condensed consolidated statement of income for the three and six months ended ~~March 31,~~June 30, 2019 is ~~$31.3 million.~~$(3.9) million and $27.4 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 six months ended ~~March 31,~~June 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 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 $703.9 million and $734.6 million is recorded on the condensed consolidated balance sheets as of ~~both March 31,~~June 30, 2019 and December 31, ~~2018. Of this total balance for both periods, $730.9~~2018, respectively. As of June 30, 2019, $700.2 million iswas included in the ETG Utility Operations segment, $3.6 million iswas included in the On-Site Energy Production segment, and $0.1 million iswas 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
Acquisition-related Working Capital Settlement	(15,600		)
Fair Value Adjustments During Measurement Period	(15,143		)
Ending Balance, June 30	$	703,864

IDENTIFIABLE INTANGIBLE ASSETS - The primary identifiable intangible assets of the Company are customer relationships and 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 ~~$26.7~~$25.1 million and $28.1 million are included in Other Noncurrent Assets on the consolidated balance sheets as of ~~March 31,~~June 30, 2019 and December 31, 2018, respectively. The decrease from the prior year is due to amortization recorded during the ~~three~~six months ended ~~March 31,~~June 30, 2019. No impairment charges were recorded on identifiable intangible assets during the three and six months ended ~~March 31,~~June 30, 2019 or 2018. SJG does not have any identifiable intangible assets.


19.	LEASES:

SJI and SJG (collectively, ~~"The Company"~~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 77% and ~~31%~~35%, 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 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 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 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 ~~March 31,~~June 30, 2019, SJI recognized right-of-use assets and lease liabilities of ~~$2.7~~$2.3 million each for operating leases, with the difference being amortization. The lease liability is comprised of approximately ~~$2.1~~$1.8 million of real estate leases, $0.4 million of equipment leases and ~~$0.2~~$0.1 million of fleet vehicle leases. As of ~~March 31,~~June 30, 2019, SJG recognized right-of-use assets and lease liabilities of $0.4 million each for operating leases, with the difference also ~~being~~including amortization. The lease liability is comprised of approximately $0.3 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 ~~March 31,~~June 30, 2019.

The maturity of the Company’s operating lease liabilities as of ~~March 31,~~June 30, 2019 is as follows (in thousands):



	As of June 30, 2019
	SJI Consolidated		SJG
2019 (excluding the six months ended June 30, 2019)	$	850	$	91
2020	1,080		152
2021	233		39
2022	65		21
2023	34		19
Thereafter	114		114
Total future minimum lease payments	2,376		436
Less imputed interest	82		38
Total lease payments	$	2,294	$	398
Included in the condensed consolidated balance sheet
Current lease liabilities (included in Other Current Liabilities)	$	1,519	$	169
Long-term lease liabilities (included in Other Noncurrent Liabilities)	775		229
Total lease liabilities	$	2,294	$	398

Three Months Ended
March 31, 2019
SJI Consolidated SJG
2019 (excluding the three months ended March 31, 2019) $ 1,298
$ 145
2020 1,081
151
2021 233
39
2022 65
21
2023 34
19
Thereafter 114
114
Total future minimum lease payments 2,825
489
Less imputed interest 100
41
Total lease payments $ 2,725
$ 448
Included in the condensed consolidated balance sheet
Current lease liabilities (included in Other Current Liabilities) $ 1,644
$ 178
Long-term lease liabilities (included in Other Noncurrent Liabilities) 1,081
270
Total lease liabilities $ 2,725
$ 448

The total operating lease cost for SJI ~~and SJG~~ was $0.8 million and ~~$0.1~~$1.6 million ~~respectively,~~ during the three and six months ended ~~March 31, 2019.~~June 30, 2019, respectively. The total operating lease cost for SJG was $0.1 million and $0.2 million during the three and six months ended June 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 six months ended ~~March 31,~~June 30, 2019. Operating cash flows from operating leases for SJI ~~and SJG was~~were $0.4 million and ~~$0.1~~$0.8 million ~~respectively,~~ during the three and six months ended ~~March 31, 2019.~~June 30, 2019, respectively. Operating cash flows from operating leases for SJG were $0.1 million and $0.2 million during the three and six months ended June 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.

SJI had $0.4 million and $0.8 million of variable lease payments ~~during the three months ended March 31, 2019~~ pertaining to leased back ~~assets.~~assets during the three and six months ended June 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	—

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 six months ended ~~March 31,~~June 30, 2019.

The weighted average remaining lease term for SJI's operating leases is ~~2.6~~2.5 years at a weighted average discount rate of 3.0%.

The weighted average remaining lease term for SJG's operating leases is ~~6.3~~6.6 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 ~~March 31,~~June 30, 2019 and December 31, 2018, the carrying costs of this property and equipment under

operating lease was ~~$70.7~~$69.9 million and $71.5 million, respectively (net of accumulated depreciation of ~~$38.5~~$39.3 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 ~~March 31,~~June 30, 2019 for the remainder of 2019 and each of the next five years and in the aggregate are (in thousands):



Year ended June 30,
2019 (remaining six months)	$	2,698
2020	5,396
2021	5,396
2022	5,396
2023	5,396
2024	5,396
Thereafter	13,042
Total minimum future rentals	$	42,720

Year ended March 31,
2019 (remaining nine months) $ 4,047
2020 5,396
2021 5,396
2022 5,396
2023 5,396
2024 5,396
Thereafter 13,042
Total minimum future rentals $ 44,069

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


20.	SUBSEQUENT ~~EVENTS:~~EVENT:

~~In April~~See Note 11 - Commitments and Contingencies, Pending Litigation for information related to a court decision issued against SJG and SJRG on August 6, 2019 related to an ongoing pricing dispute related to two long-term gas supply contracts. SJI ~~provided a fourth Notice of Optional Prepayment~~will be required to ~~the holders of its Floating Rate Senior Notes, Series 2018D, due June 20,~~make payment by September 5, 2019 ~~of the Company's intent to prepay the remaining aggregate principal~~in an amount outstanding (see Note 14 for discussion of prepayments that occurred during the three months ended March 31, 2019). As a result, the Company paid $75.0 million on April 26, 2019, which fully extinguished these Notes.not materially different from what has been reserved.

~~In April 2019, ETG filed a petition with the BPU requesting a base rate revenue increase of approximately $65.0 million. See Note 7.~~

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 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 SJI and its subsidiaries on a consolidated basis. It includes discussions of our regulated operations, including SJG, and our non-regulated operations.


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

~~SJI~~ - This section describes the financial condition and results of operations of SJI and its subsidiaries on a consolidated basis. It includes discussions of our regulated operations, including SJG, and our non-regulated operations.

~~SJG~~ ~~- This section describes the financial condition and results of operations of SJG, a subsidiary of SJI 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 condensed consolidated financial statements and the combined Notes to 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, 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, 2018 and in any other SEC filings made by SJI or SJG during 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.

Critical Accounting Policies — Estimates and Assumptions— Management must make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and related disclosures. Actual results could differ from those estimates. Certain types of transactions presented in our 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 benefit costs, revenue recognition, and 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, 2018.

Business Combination - On July 1, 2018, the Company completed the Acquisition. See detailed discussions concerning the Acquisition and its impact on SJI, including the accounting for business combinations, in Note 17 to the 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 condensed consolidated financial statements.

Regulatory Actions— Other than the changes discussed in Note 7 to the condensed consolidated financial statements, there have been no significant regulatory actions since December 31, 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, 2018.

Environmental Remediation— ~~Other than the changes discussed in Note 8 and Note 11 to the condensed consolidated financial statements, there~~There have been no significant changes to the status of SJI’s and SJG's environmental remediation efforts since December 31, 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, 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 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 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.