REGULATION

6 Months Ended

Mar. 31, 2022

4. 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 capital investments 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 rates, BGSS and other regulatory tariff riders. NJNG is required to make filings to the BPU for review of its BGSS, CIP and other programs and related rates. Annual rate changes are typically requested to be effective at the beginning of the following fiscal year. The current base rates include a weighted average cost of capital of 6.84 percent and a return on common equity of 9.6 percent. All rate and program changes are subject to proper notification and BPU review and approval. In addition, NJNG is permitted to implement certain BGSS rate changes on a provisional basis with proper notification to the BPU.

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


(Thousands)	March 31, 2022		September 30, 2021
Regulatory assets-current
New Jersey Clean Energy Program	$	6,608	$	16,308
Conservation Incentive Program	24,997		11,839


Other current regulatory assets	1,241		1,554
Total current regulatory assets	$	32,846	$	29,701
Regulatory assets-noncurrent
Environmental remediation costs:
Expended, net of recoveries	$	65,523	$	58,483
Liability for future expenditures	121,615		135,012
Deferred income taxes	39,857		39,694

SAVEGREEN	33,917		32,941
Postemployment and other benefit costs	111,918		117,194
Deferred storm damage costs	3,257		4,343
Cost of removal	100,423		99,238

Other noncurrent regulatory assets	32,040		32,695
Total noncurrent regulatory assets	$	508,550	$	519,600
Regulatory liability-current
Overrecovered natural gas costs	$	27,133	$	5,510


Derivatives at fair value, net	60,931		22,497
Total current regulatory liabilities	$	88,064	$	28,007
Regulatory liabilities-noncurrent
Tax Act impact (1)	$	187,876	$	190,386
Derivatives at fair value, net	—		1,166

Other noncurrent regulatory liabilities	590		336
Total noncurrent regulatory liabilities	$	188,466	$	191,888

(1)Reflects the re-measurement and subsequent amortization of NJNG's net deferred tax liabilities as a result of the change in federal tax rates enacted in the Tax Act, an Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018, previously known as The Tax Cuts and Jobs Act of 2017.

As of March 31, 2022, other noncurrent regulatory assets include deferred pandemic costs of $7.5 million primarily related to a portion of bad debt associated with customer accounts receivable resulting from the impacts of the ongoing COVID-19 pandemic. These costs are eligible for future regulatory recovery. There were no deferred pandemic costs as of September 30, 2021.

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


(Thousands)	March 31, 2022		September 30, 2021
Total current regulatory assets	$	871	$	417
Total noncurrent regulatory assets	$	4,456	$	2,499

Total noncurrent regulatory liabilities	$	2,984	$	1,163

The assets are comprised primarily of the tax benefit associated with the equity component of AFUDC and the liability consists primarily of scheduling penalties. Recovery of regulatory assets is subject to FERC approval.

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

•On November 17, 2021, the BPU issued an order adopting a stipulation of settlement approving a $79.0 million increase to base rates, effective December 1, 2021. In addition, the order also included approval for the final increase for the NJ RISE/SAFE II programs, which totaled $269,000. The increase includes an overall rate of return on rate base of 6.84 percent, return on common equity of 9.6 percent, a common equity ratio of 54.0 percent and a depreciation rate of 2.78 percent.

•On November 17, 2021, the BPU approved a $2.9 million increase to the annual revenues credited to BGSS, a $13.0 million annual increase related to its balancing charge, as well as changes to CIP rates, which will result in a $6.3 million decrease to the annual recovery, effective December 1, 2021. On April 6, 2022, the BPU and Rate Counsel executed a Stipulation for final BGSS/CIP rates. The BGSS, CIP, and balancing charge rates are currently in effect, on an interim basis, so there is no further rate impact to customers with this filing.

•On November 19, 2021, NJNG submitted notification of its intent to self-implement an increase to its BGSS rate which will result in an approximately $24.2 million increase to annual revenues credited to BGSS, effective December 1, 2021.

•On January 26, 2022, the BPU approved a stipulation to resolve the current EE annual cost recovery filing, which will increase annual recoveries by $2.2 million, effective February 1, 2022.

•On March 23, 2022, the BPU approved NJNG's annual filing to increase the RAC by $600,000 and decrease the NJCEP by $2.9 million, effective April 1, 2022.

•On March 31, 2022, NJNG filed its first rate recovery request for its BPU approved IIP with capital expenditures estimated at $25.6 million, including AFUDC through June 30, 2022.

•On April 22, 2022, NJNG filed a petition with the BPU seeking authority to issue up to $500 million in Medium Term Notes over a 3-year period.