The EDECA is the legal framework for New Jersey’s public utility and wholesale energy landscape. NJNG is required, pursuant to a written order by the BPU under EDECA, to open its residential markets to competition from third-party natural gas suppliers. Customers can choose the supplier of their natural gas commodity in NJNG’s service territory.

As required by EDECA, NJNG’s rates are segregated into two primary components: the commodity portion, which represents the wholesale cost of natural gas, including the cost for interstate pipeline capacity to transport the natural gas to NJNG’s service territory; and the delivery portion, which represents the transportation of the commodity portion through NJNG’s natural gas distribution system to the end-use customer. NJNG does not earn Utility Gross Margin on the commodity portion of its natural gas sales. NJNG earns Utility Gross Margin through the delivery of natural gas to its customers, regardless of whether it or a third-party supplier provides the wholesale natural gas commodity.

Under EDECA, the BPU is required to audit the state’s energy utilities every two years. The primary purpose of the audit is to ensure that utilities and their affiliates offering unregulated retail services do not have an unfair competitive advantage over nonaffiliated providers of similar retail services. A combined competitive services and management audit of NJNG commenced in August 1, 2013. A draft management audit report was accepted by the BPU on July 23, 2014, for public comment. To date, NJNG has implemented all audit recommendations with the approval of BPU staff and is waiting for final BPU approval.

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.


(Thousands)	2022		2021
Regulatory assets-current
New Jersey Clean Energy Program	$	15,697	$	16,308
Conservation Incentive Program	23,099		11,839


Other current regulatory assets	1,290		1,554
Total current regulatory assets	$	40,086	$	29,701
Regulatory assets-noncurrent
Environmental remediation costs:
Expended, net of recoveries	$	66,149	$	58,483
Liability for future expenditures	127,070		135,012
Deferred income taxes	40,520		39,694

SAVEGREEN	52,690		32,941
Postemployment and other benefit costs	56,021		117,194
Deferred storm damage costs	2,172		4,343
Cost of removal	104,850		99,238

Other noncurrent regulatory assets	45,828		32,695
Total noncurrent regulatory assets	$	495,300	$	519,600
Regulatory liability-current
Overrecovered natural gas costs	$	17,807	$	5,510


Derivatives at fair value, net	7,972		22,497
Total current regulatory liabilities	$	25,779	$	28,007
Regulatory liabilities-noncurrent
Tax Act impact (1)	$	185,367	$	190,386
Derivatives at fair value, net	116		1,166

Other noncurrent regulatory liabilities	151		336
Total noncurrent regulatory liabilities	$	185,634	$	191,888

The NJCEP is a statewide program that encourages energy efficiency and renewable energy. Funding amounts are determined by the BPU’s Office of Clean Energy and all New Jersey utilities are required to share in the annual funding obligation. The current NJCEP program is for the State of New Jersey’s fiscal year ending June 2023. NJNG recovers the costs associated with its portion of the NJCEP obligation through its NJCEP rider, with interest.

The CIP permits NJNG to recover Utility Gross Margin variations related to customer usage resulting from customer conservation efforts and mitigates the impact of weather on its margin. Such Utility Gross Margin variations are recovered in the year following the end of the CIP usage year, without interest, and are subject to additional conditions, including an earnings test, a revenue test and an evaluation of BGSS-related savings. This program has no expiration date.

NJNG is responsible for the cleanup of certain former gas manufacturing facilities. Actual expenditures are recovered from customers, with interest, over seven-year rolling periods, through a RAC rate rider. Recovery for NJNG’s estimated future liability will be requested and/or recovered when actual expenditures are incurred. See Note 15. Commitments and Contingent Liabilities.

Derivatives are utilized by NJNG to manage the price risk associated with its natural gas purchasing activities and to participate in certain BGSS incentive programs. The gains and losses associated with NJNG’s derivatives are recoverable through its BGSS, as noted above, without interest. See Note 5. Derivative Instruments.

Upon adoption of a 1993 provision of ASC 740, Income Taxes, NJNG recognized a transition adjustment and corresponding regulatory asset representing the difference between NJNG’s existing deferred tax amounts compared with the deferred tax amounts calculated in accordance with the change in method prescribed by ASC 740. NJNG recovers the regulatory asset associated with these tax impacts through future base rates, without interest.

NJNG administers certain programs that supplement the state’s NJCEP and that allow NJNG to promote clean energy to its residential and commercial customers, as described further below. NJNG will recover related expenditures and a weighted average cost of capital on the unamortized balance through a tariff rider, with interest, as approved by the BPU, over a two- to 10-year period depending upon the specific program incentive.

Postemployment and Other Benefit Costs represents NJNG’s underfunded postemployment benefit obligations, as well as a fiscal 2010 tax charge resulting from a change in the deductibility of federal subsidies associated with Medicare Part D, both of which are deferred as regulatory assets and are recoverable, without interest, in base rates. The BPU approved the recovery of the tax charge through NJNG’s base rates effective October 2016 over a seven-year amortization period. See Note 11. Employee Benefit Plans.

Portions of NJNG’s distribution system incurred significant damage as a result of Post-Tropical Cyclone Sandy in October 2012. NJNG deferred the uninsured incremental O&M costs associated with its restoration efforts, which were approved for recovery by the BPU through NJNG’s base rates, without interest, effective October 2016 over a seven-year amortization period.

NJNG accrues and collects for cost of removal in base rates on its utility property, without interest. These costs are recorded in accumulated depreciation for regulatory reporting purposes, and actual costs of removal, without interest, will be recovered in subsequent rates, pursuant to the BPU order. Consistent with GAAP, amounts recorded within accumulated depreciation for regulatory accounting purposes are reclassified out of accumulated depreciation to either a regulatory asset or a regulatory liability depending on whether actual cost of removal is still subject to collection or amounts overcollected will be refunded back to customers.

Other regulatory assets consist primarily of deferred costs associated with certain components of NJNG’s SBC, as discussed further in the regulatory proceedings section, and NJNG’s compliance with federal and state-mandated PIM provisions. NJNG’s related costs to maintain the operational integrity of its distribution and transmission main are recoverable, without interest, subject to BPU review and approval. As of September 30, 2022, NJNG recorded $635,000 of PIM in other regulatory assets, which is being recovered through base rates over a seven-year amortization period effective October 2016.

NJNG recovers its cost of natural gas through the BGSS rate component of its customers’ bills. NJNG’s cost of natural gas includes the purchased cost of the natural gas commodity, fees paid to pipelines and storage facilities, adjustments as a result of BGSS incentive programs and hedging transactions. Overrecovered natural gas costs represent a regulatory liability that generally occurs when NJNG’s BGSS rates are higher than actual costs and requests approval to be returned to customers including interest, when applicable, in accordance with NJNG’s approved BGSS tariff. Conversely, underrecovered natural gas costs generally occur during periods when NJNG’s BGSS rates are lower than actual costs, in which case NJNG records a regulatory asset and requests amounts to be recovered from customers in the future.

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. 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.

BGSS rates are normally revised on an annual basis. In addition, to manage the fluctuations in wholesale natural gas costs, NJNG has the ability to make two interim filings during each fiscal year to increase residential and small commercial customer BGSS rates on a self-implementing and provisional basis. NJNG is also permitted to refund or credit back a portion of the commodity costs to customers at any time given five days’ notice when the natural gas commodity costs decrease in comparison to amounts projected or to amounts previously collected from customers. Concurrent with the annual BGSS filing, NJNG files for an annual review of its CIP. NJNG’s annual BGSS and CIP filings are summarized as follows:

•In November 2020, NJNG notified the BPU of its intent to provide BGSS bill credits to residential and small commercial sales customers effective December 1, 2020 to December 31, 2020. In December 2020, NJNG notified the BPU of the extension of the BGSS bill credits through January 2021. The actual bill credits given to customers totaled $20.6 million, $19.3 million net of tax.

•2021 BGSS/CIP filing — In May 2021, NJNG submitted to the BPU the annual petition to modify its BGSS, balancing charge and CIP rates. On November 17, 2021, the BPU approved a $2.9 million increase to the annual revenues credited to BGSS and 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 November 17, 2021, the BPU approved, on a preliminary basis, NJNG’s annual petition to modify its BGSS, balancing charge and CIP rates for residential and small commercial customers. The rate changes resulted in a $2.9 million increase to the annual revenues credited to BGSS and a $13.0 million annual increase related to its balancing charge, as well as changes to CIP rates, which resulted in a $6.3 million annual recovery decrease, effective December 1, 2021, and was approved on a final basis on May 4, 2022.

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

•2022 BGSS/CIP filing — On June 1, 2022, NJNG submitted its annual petition to modify its BGSS, balancing charge and CIP rates for residential and small commercial customers. On September 7, 2022, the BPU approved, on a preliminary basis, an $81.9 million increase to the annual revenues credited to BGSS and a $9.0 million annual increase related to its balancing charge, as well as a $10.2 million increase to CIP rates, effective October 1, 2022.

NJNG is eligible to receive financial incentives for reducing BGSS costs through a series of Utility Gross Margin-sharing programs that include off-system sales, capacity release and storage incentive programs. The Company is permitted to annually propose a process to evaluate and discuss alternative incentive programs, should performance of the existing incentives or market conditions warrant re-evaluation.

SAVEGREEN conducts home energy audits and provides various grants, incentives and financing alternatives, which are designed to encourage the installation of high efficiency heating and cooling equipment and other upgrades to promote energy efficiency to its residential and commercial customers while stimulating state and local economies through the creation of jobs. Depending on the specific initiative or approval, NJNG recovers costs associated with the programs over a three- to 10-year period through a tariff rider mechanism. In March 2021, the BPU approved a three-year SAVEGREEN program that included $126.1 million of direct investment, $109.4 million in financing options and $23.4 million in operation and maintenance expenses, which resulted in a $15.6 million annual recovery increase, effective July 1, 2021.

•2020 EE filing — In May 2020, NJNG filed a petition with the BPU to minimally decrease its EE recovery rate. Throughout the course of the proceeding, the Company updated the filing for additional actual information. Based on the updated information, the BPU approved the request to maintain its existing rate, which results in an annual recovery of approximately $11.4 million, effective November 1, 2020.

•2021 EE filing — In June 2021, NJNG submitted its annual cost recovery filing for the SAVEGREEN programs established from 2010 through 2018. On January 26, 2022, the BPU approved the stipulation to resolve the current EE annual cost recovery filing, which increases annual recoveries by $2.2 million, effective February 1, 2022.

•2022 EE filing — On June 1, 2022, NJNG submitted its annual cost recovery filing for the SAVEGREEN programs established from 2010 through the present. On September 28, 2022, the BPU approved the filing, which decreases annual recoveries by $3.5 million, effective October 1, 2022.

The SBC is comprised of three primary riders that allow NJNG to recover costs associated with USF, which is a permanent statewide program for all natural gas and electric utilities for the benefit of income-eligible customers, MGP remediation and the NJCEP. NJNG has submitted the following filings to the BPU, which include a report of program expenditures incurred each program year:

•2020 SBC filing — In April 2021, the BPU approved a stipulation resolving NJNG’s annual SBC application requesting to recover remediation expenses, including an increase in the RAC of approximately $1.3 million annually and an increase to the NJCEP factor, which resulted in an annual increase of approximately $6.0 million, effective May 1, 2021.

•2021 USF filing — In June 2021, NJNG filed its annual USF compliance filing proposing an annual increase to the statewide USF rate of approximately $4.9 million. In September 2021, the BPU approved the increase, effective October 1, 2021.

•2022 USF filing — On June 27, 2022, NJNG filed its annual USF compliance filing proposing a decrease to the statewide USF rate. On August 25, 2022, an additional update was submitted on behalf of all NJ utilities with actual information through July 31, 2022. On September 28, 2022, the BPU approved a decrease based on the August update, which resulted in an annual decrease of approximately $1.6 million, effective October 1, 2022.

•2022 SBC filing — On September 13, 2022, NJNG submitted its annual SBC filing to the BPU requesting approval of RAC expenditures through June 30, 2022, as well as an increase to the RAC annual recoveries of $3.8 million and an increase to the NJCEP annual recoveries of $2.2 million, with a proposed effective date of April 1, 2023.

NJNG has significant annual capital expenditures associated with the management of its natural gas distribution and transmission system, including new utility plant for customer growth and its associated PIM and infrastructure programs. NJNG continues to implement BPU-approved infrastructure projects that are designed to enhance the reliability of NJNG’s natural gas distribution system, including SAFE and NJ RISE.

The SAFE program replaced portions of NJNG’s natural gas distribution unprotected steel, cast iron infrastructure and associated services to improve the safety and reliability of the natural gas distribution system. SAFE I was approved to invest up to $130.0 million, exclusive of AFUDC, over a four-year period. SAFE II was approved to invest up to $200.0 million, excluding AFUDC, over a five-year period. NJNG recovered approximately $157.5 million through annual rate filings, with the remainder recovered through subsequent rate cases. As a condition of approval of the program, NJNG was required to file a base rate case no later than November 2019 and satisfied this requirement with its March 29, 2019 base rate case filing.

NJ RISE consisted of six capital investment projects estimated to cost $102.5 million over a five-year period, excluding AFUDC, for natural gas distribution storm-hardening and mitigation projects, along with incremental depreciation expense. NJ RISE includes a weighted average cost of capital that ranges from 6.74 percent to 6.9 percent and a return on equity of 9.75 percent. Requests for recovery of future NJ RISE capital costs occurred in conjunction with SAFE II.

In March 2021, NJNG filed a petition with the BPU requesting the final base rate increase for the recovery associated with NJ RISE and SAFE II capital investments cost of approximately $3.4 million made through June 30, 2021. In June 2021, this filing was consolidated with the 2021 base rate case. In November 2021, the BPU issued an order for the consolidated matter which included approval for the final increase for the NJ RISE and SAFE II programs of $269,000. With this approval, the BPU filings with respect to NJ RISE and SAFE II are complete.

In February 2019, NJNG filed a petition with the BPU seeking authority to implement a five-year IIP. The IIP consists of two components, transmission and distribution investments and information technology replacement and enhancements. The total investment for the IIP is approximately $507.0 million. Upon approval from the BPU, investments will be recovered through annual filings to adjust base rates. In October 2020, the BPU approved the Company’s transmission and distribution component of the IIP for $150.0 million over five years, effective November 1, 2020. The recovery of information technology replacement and enhancements that was included in the original IIP filing will be included as part of base rate filings as projects are placed in service. On March 31, 2022, NJNG filed its first rate recovery request for its BPU-approved IIP with capital expenditures estimated through June 30, 2022, including AFUDC. On July 13, 2022, NJNG filed its update with actual capital expenditures of $28.9 million through June 30, 2022. On September 7, 2022, the BPU approved the rate increase resulting in a $3.2 million revenue increase, effective October 1, 2022.

In July 2020, the BPU issued an order which authorized New Jersey utilities to create a regulatory asset by deferring incremental COVID-19 related costs and required a related quarterly report be filed for the COVID-19-related costs and savings incurred. Utilities were to file a petition by the later of December 31, 2021, or within 60 days of the close of the regulatory asset period, and rate recovery can be addressed in the filing or the utility may request consideration be deferred to a future rate case. Any potential rate recovery, and the appropriate period of recovery, would be addressed through that filing, or may have requested a deferral of rate recovery for a future base rate case. In September 2021, the BPU extended the filing date to December 31, 2022, or within 60 days of the close of the regulatory asset period.