REGULATION

NJNG is subject to cost-based regulation and, as a result, it is permitted to recover authorized operating expenses and earn a reasonable return on its utility investment based on the BPU's approval. The impact of the ratemaking process and decisions authorized by the BPU allows NJNG to capitalize or defer certain costs that are expected to be recovered from its customers as regulatory assets and to recognize certain obligations representing amounts that are probable future expenditures as regulatory liabilities in accordance with accounting guidance applicable to regulated operations.

NJNG's recovery of costs is facilitated through its base tariff rates, BGSS and other regulatory tariff 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.

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



(Thousands)	June 30, 2016		September 30, 2015
Regulatory assets-current
Conservation Incentive Program	$	3,795	$	—
New Jersey Clean Energy Program	16,507		14,293
Derivatives at fair value, net	4,820		9,965
Total current regulatory assets	$	25,122	$	24,258
Regulatory assets-noncurrent
Environmental remediation costs
Expended, net of recoveries	$	18,543	$	18,886
Liability for future expenditures	175,310		180,400
Deferred income taxes	19,635		17,460
Derivatives at fair value, net	22,632		5,153
SAVEGREEN	24,108		26,882
Postemployment and other benefit costs	134,202		140,636
Deferred Superstorm Sandy costs	15,201		15,201
Conservation Incentive Program	30,018		—
Other noncurrent regulatory assets	7,577		5,537
Total noncurrent regulatory assets	$	447,226	$	410,155
Regulatory liability-current
Conservation Incentive Program	$	—	$	5,167
Overrecovered gas costs	6,572		6,987
Total current regulatory liabilities	$	6,572	$	12,154
Regulatory liabilities-noncurrent
Cost of removal obligation	$	38,179	$	54,880
Derivatives at fair value, net	293		—
New Jersey Clean Energy Program	12,020		11,956
Other noncurrent regulatory liabilities	172		697
Total noncurrent regulatory liabilities	$	50,664	$	67,533

Regulatory filings and/or actions that occurred during the current fiscal year include the following:

Base Rate Case

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On November 13, 2015, NJNG filed a base rate petition with the BPU to increase its base tariff rates in the amount of $147.6 million, including an extension of the SAFE Program for an additional five years with an estimated cost of approximately $200 million, excluding AFUDC. On July 20, 2016, an update was filed to include twelve months of actual financial information, which revised the requested base tariff rates increase to $112.9 million. NJNG is currently in discussions with the BPU and new base rates are expected to be effective in early fiscal 2017.

•

On May 4, 2016, NJNG supplemented its base rate case testimony supporting its November 2015 petition, which amended the accounting treatment and noted that the SRL project would not be completed by December 31, 2016. In addition, the Company sought to modify the rate treatment to include the September 30, 2016 balance of SRL project spending and rate adjustments on a quarterly basis until the project is complete, which was included in its May 20, 2016 base rate case update.


•	On May 20, 2016, NJNG included a proposal in its base rate case to recover certain capital costs and incremental operation and maintenance costs related to a March 2016 BPU Order regarding new cyber security requirements. This proposal was updated on July 20, 2016.

BGSS/CIP


•	On October 15, 2015, the BPU issued an order approving the continuation of the BGSS Incentive Programs with modification to the storage incentive program, beginning with the 2015 storage injection period, and termination of the FRM Program, effective November 1, 2015.


•	On October 27, 2015, NJNG notified the BPU that bill credits to residential and small commercial customers would be issued from November 2015 through February 2016. A total of $61.6 million in bill credits were issued during that period.


•	On February 24, 2016, the BPU approved on a final basis NJNG's June 2015 BGSS/CIP filing which continues its existing BGSS rate and adjusted its CIP rates resulting in a .08 percent increase to the average residential heat customer's bill effective October 1, 2015.

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On June 1, 2016, NJNG filed a petition with the BPU to increase its CIP rates resulting in an 8.2 percent increase to the average residential heat customer’s bill and to decrease its BGSS rate for residential and small commercial customers resulting in a 5.5 percent decrease to the average residential heat customer’s bill, effective October 1, 2016. This petition included proposed bill credits to residential and small commercial customers during the months of November 2016 through February 2017, as a result of a decline in the wholesale price of natural gas. The amount of the bill credits will be determined during fiscal 2017.

Other


•	On October 15, 2015, the BPU approved a base rate increase related to NJ RISE allowing NJNG to recover costs through July 31, 2015, resulting in a .07 percent increase to the average residential heat customer's bill, effective November 1, 2015.

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On December 24, 2015, NJNG filed an SBC petition with the BPU to increase the RA factor, to decrease the NJCEP factor and to request approval of its remediation expenses incurred through June 30, 2015, resulting in an overall decrease of .8 percent to the average residential heat customer's bill. On June 29, 2016, the BPU approved the Company’s request to modify its rates as proposed, effective July 9, 2016.

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On January 27, 2016, the BPU approved NJNG’s July 2015 petition to maintain its existing SAVEGREEN recovery rate. On April 15, 2016, NJNG filed a petition with the BPU to extend its current program, which was set to expire on July 31, 2017, to December 31, 2018, which was approved by the BPU on June 29, 2016. On May 26, 2016, NJNG submitted its 2016 SAVEGREEN rate recovery filing to maintain its existing SAVEGREEN recovery rate.


•	On January 27, 2016, the BPU approved NJNG's proposed SRL pipeline installation, operation and route selection, as modified by NJNG, including specific requirements regarding permitting, safety and integrity assessment. On March 18, 2016, the BPU approved the application for the SRL to be exempt from municipal land use ordinances.


•	On June 23, 2016, NJNG submitted its annual USF compliance filing proposing to increase the statewide USF rate, resulting in a .2 percent increase to the average residential heat customer’s bill, effective October 1, 2016.