REGULATION

9 Months Ended

Jun. 30, 2024

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% and a return on common equity of 9.6%. 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)	June 30, 2024		September 30, 2023
Regulatory assets-current
New Jersey Clean Energy Program	$	20,265	$	15,804
Conservation Incentive Program	54,169		50,356

Derivatives at fair value, net	13,347		6,017
Other current regulatory assets	1,791		1,410
Total current regulatory assets	$	89,572	$	73,587
Regulatory assets-noncurrent
Environmental remediation costs:
Expended, net of recoveries	$	74,316	$	66,298
Liability for future expenditures	153,818		169,390
Deferred income taxes	43,107		41,667

SAVEGREEN	93,713		83,589
Postemployment and other benefit costs	9,493		55,274

Cost of removal	122,859		112,362

Other noncurrent regulatory assets	54,846		51,019
Total noncurrent regulatory assets	$	552,152	$	579,599
Regulatory liability-current
Overrecovered natural gas costs	$	31,244	$	30,637



Total current regulatory liabilities	$	31,244	$	30,637
Regulatory liabilities-noncurrent
Tax Act impact (1)	$	176,583	$	180,347



Other noncurrent regulatory liabilities	137		111
Total noncurrent regulatory liabilities	$	176,720	$	180,458

(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. The Tax Act is 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.

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


(Thousands)	June 30, 2024		September 30, 2023

Total noncurrent regulatory assets	$	5,128	$	5,231
Total current regulatory liabilities	$	329	$	1,650

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 9, 2023, NJNG filed a letter petition seeking BPU approval to extend NJNG’s current SAVEGREEN program through December 31, 2024, with an additional $76.9M in order to meet customer demand for this program, which was approved by the BPU on April 30, 2024.

•On December 1, 2023, NJNG filed a petition seeking BPU approval of its 2024 SAVEGREEN program, which would support new energy efficiency, demand response and building decarbonization start-up programs from January 1, 2025 through June 30, 2027. The 2024 SAVEGREEN program includes $245.1M of direct investment, $217.2M in financing options and $20.1M in O&M.

•On January 31, 2024, NJNG filed a base rate case with the BPU requesting a natural gas revenue increase of $222.6M including a recovery of infrastructure investments, a change in the Company’s overall rate of return on rate base to 7.57% and a change in the return on common equity to 10.42%. On May 15, 2024, the filing was updated to reflect actual results through March 31, 2024, which reduced the requested increase to $219.6M.

•On March 20, 2024, the BPU approved NJNG's annual SBC filing of RAC expenditures through June 30, 2023, which included an increase to the RAC annual recoveries of approximately $2.4M and an increase to the NJCEP annual recoveries of approximately $5.5M, effective April 1, 2024.

•On March 28, 2024, NJNG submitted its annual IIP filing to the BPU requesting a rate increase for capital expenditures of $43.5M through June 30, 2024. The filing was updated July 26, 2024, to reflect actual expenses of $41.2M through June 30, 2024, which will result in a $5.3M revenue increase, with a proposed effective date of October 1, 2024.

•On April 30, 2024, the BPU approved on a final basis NJNG's June 2023 filing, which included a $38.6M decrease to the annual revenues credited to BGSS, a $7.4M annual decrease related to its balancing charge and a $27.0M increase to CIP rates for residential and small business customers, which was effective October 1, 2023.

•On May 31, 2024, NJNG filed its annual petition to modify its BGSS rates for residential and small business customers, the balancing charge and CIP rates. This included a $31.0M decrease to the annual revenues credited to BGSS, a $40.3M annual increase related to its balancing charge and a $0.6M decrease to CIP rates, which would be effective October 1, 2024.

•On May 31, 2024, NJNG submitted its annual EE filing with the BPU for the recovery of SAVEGREEN costs, proposing an increase in annual recoveries of approximately $5.6M, which would be effective October 1, 2024.

•On June 28, 2024, NJNG submitted its annual USF filing to the BPU requesting an increase to the statewide USF rate, which will result in a $6.8M increase to annual recoveries, which would be effective October 1, 2024.