REGULATION

NJNG is subject to cost-based regulation, therefore, it is permitted to recover authorized operating expenses and earn a reasonable return on its utility investment based on the BPU's approval, in accordance with accounting guidance applicable to regulated operations. Accordingly, NJNG capitalizes or defers certain costs that are expected to be recovered from its customers as regulatory assets and recognizes certain obligations representing amounts that are probable future expenditures as regulatory liabilities.

Regulatory assets and liabilities included on the Unaudited Condensed Consolidated Balance Sheets are comprised of the following:



(Thousands)	December 31, 2011		September 30, 2011
Regulatory assets-current
Conservation Incentive Program	$	1,812	$	9,178
Derivatives, net	26,382		8,452
Total current	$	28,194	$	17,630
Regulatory assets-noncurrent
Environmental remediation costs
Expended, net of recoveries	$	70,142	$	75,646
Liability for future expenditures	182,900		182,900
Deferred income taxes	10,879		10,879
Energy Efficiency Program	14,264		11,906
New Jersey Clean Energy Program	18,799		20,144
Postemployment and other benefit costs	122,037		123,827
Other	4,195		8,883
Total noncurrent	$	423,216	$	434,185
Regulatory liability-current
Overrecovered gas costs	$	31,077	$	4,633
Total current	$	31,077	$	4,633
Regulatory liabilities-noncurrent
Cost of removal obligation	$	60,704	$	59,752
Other	401		85
Total noncurrent	$	61,105	$	59,837

NJNG's recovery of costs is facilitated through its base rates, Basic Gas Supply Service (BGSS) and other regulatory riders. As recovery of regulatory assets is subject to BPU approval, if there are any changes in regulatory positions that indicate recovery is not probable, the related cost would be charged to income in the period of such determination. See Note 3. Regulation in Item 8. Financial Statements and Supplementary Data of NJR's 2011 Annual Report on Form 10-K for further discussion of NJNG's regulatory assets and liabilities and applicable recoveries.

Recent regulatory filings and/or actions include the following:

•

On June 1, 2011, NJNG filed its annual EE program rate filing with the BPU. On July 15, 2011, the annual filing was amended to request that the current rate remain the same. Also on July 15, 2011, NJNG filed a separate petition to extend its current EE program through December 31, 2012. On January 18, 2012, the BPU approved the extension with an additional $18.4 million of investments in customer incentives and financing earning a weighted average return of 7.1 percent, including a cost of equity of 10.3 percent and $1 million of incentives related to customer conversions recoverable over a five-year amortization period.

•

On November 17, 2011, NJNG notified the BPU that it will provide bill credits of approximately $71.2 million to NJNG's residential and small commercial customers during December 2011 and January 2012, as a result of the decline in the wholesale price of natural gas and a change in the methodology used to develop estimates of unaccounted-for gas. Due to warmer-than-normal weather in this period, customers used lower volumes of natural gas than expected and received less credits. As a result of the decreased customer usage and continued lower-cost wholesale natural gas purchasing opportunities, on January 25, 2012, the BPU was notified that NJNG will extend the bill credits through February 2012. In total, customers are expected to receive approximately $91 million in credits during the three-month period.


•	On January 18, 2012, the BPU issued an Order approving NJNG's 2010 Societal Benefits Clause (SBC) filing, in which NJNG requested approval of its manufactured gas plant remediation expenditures incurred through September 30, 2009, as well as continuation of its existing overall SBC rate.