South Jersey Industries Annual Report 2005

In March 2005, the FASB issued Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations” (FIN 47). FIN 47 clarifies that the term conditional asset retirement obligation as used in Statement No. 143, refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the company’s control. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and/or settlement method. Thus, an entity is required to recognize a liability if it can be reasonably estimated.

During 2005, SJI identified certain AROs related to its nonutility operations. The liability for the fair value of these AROs was approximately $0.1 million, which has been recorded on the consolidated balance sheets in Asset Retirement Obligations, with an offsetting asset in Nonutility Property and Equipment. Annual accretion and depreciation expense associated with these AROs are not material.

SJG has identified several AROs within the expanded scope of FIN 47. Such AROs include asbestos removal, underground tank removal, mercury regulator removal, and a legal obligation for certain safety requirements upon the retirement of its gas distribution and transmission system. At December 31, 2005, the present value of SJG’s future ARO was approximately $22.5 million, of which $22.0 million is related to the safety requirements of the gas distribution and transmission system.

Upon adoption of FIN 47 on December 31, 2005, we recorded this obligation of $22.5 million on the consolidated balance sheet under Asset Retirement Obligations, which includes $16.9 million of accumulated accretion as of December 31, 2005. The present value of the initial ARO that is included in Utility Plant is $5.6 million. The accumulated depreciation on this asset totaled $3.1 million as of December 31, 2005. We believe that the recording of ARO-related accumulated accretion and depreciation amounts represent timing differences in the recognition of legal retirement costs that we are currently recovering in rates and, as such, we are deferring such differences as Regulatory Assets under FASB Statement No. 71 in the amount of $20.0 million at December 31, 2005.

Additionally, had FIN 47 been applied to earlier periods presented within this report, the ARO as of December 31, 2004 and 2003, would have been $19.2 million and $17.9 million, respectively. In accordance with FIN 47, such amounts are not required to be recorded on the consolidated balance sheets.

ASSET RETIREMENT COSTS — SJG recovers certain asset retirement costs through rates charged to customers. As of December 31, 2005 and 2004, SJG had accrued amounts in excess of actual removal costs incurred totaling $48.1 million and $47.3 million, respectively, which we recorded as Regulatory Liabilities on the consolidated balance sheets in accordance with FASB Statement No. 143.

NEW ACCOUNTING PRONOUNCEMENTS — In December 2004, the FASB issued Statement No. 123(R), “Share-Based Payment”, which revises FASB Statement No. 123, and supersedes Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees”. Statement No. 123(R) will require SJI to measure and recognize stock-based compensation expense in its financial statements based on the fair value at the date of grant for its share-based awards, which currently include performance shares containing market and service conditions. Statement No. 123(R) is effective for interim and annual financial statements beginning after January 1, 2006. In accordance with Statement No. 123(R), SJI is required to recognize compensation expense over the requisite service period for: (i) awards granted on, or after, January 1, 2006 and (ii) unvested awards previously granted and outstanding as of January 1, 2006. In addition, SJI can estimate forfeitures over the requisite service period when recognizing compensation expense. These estimates can be adjusted to the extent to which actual forfeitures differ, or are expected to materially differ, from such estimates.

As permitted by Statement No. 123(R), upon adoption, SJI may choose between two transition methods: the modified prospective or modified retrospective method. Under the modified prospective application, this Statement applies to new awards and to awards modified, repurchased, or cancelled after the required effective date. Compensation costs for the portion of awards for which the requisite service has not been rendered that are outstanding as of the required effective date shall be recognized as the requisite service is rendered based on the grant-date fair value. The modified retrospective application may be applied either (a) to all prior years for which Statement 123 was effective or (b) only to prior interim periods in the year of initial adoption if the required effective date of this Statement does not coincide with the beginning of the entity's fiscal year. Adjustments would be made to financial statements for prior periods to give effect to the fair-value-based method of accounting for awards granted, modified, or settled in cash in fiscal years beginning after December 15, 1994, on a basis consistent with the pro forma disclosures required for those periods by Statement No. 123.

SJI adopted Statement No. 123(R), as amended, on January 1, 2006, using the modified prospective method. The impact of the adoption of Statement No. 123(R) is not expected to materially impact SJI’s consolidated financial statements.

In November 2004, the FASB issued Statement No. 151, “Inventory Costs.” This statement requires that abnormal amounts of idle facility expense, freight, handling costs and spoilage be charged to income as a current period expense rather than capitalized as inventory costs. The effective date of this statement is January 1, 2006; however, we do not expect it to materially impact SJI’s consolidated financial statements.

In December 2004, the FASB issued Statement No. 153, “Exchanges of Nonmonetary Assets,” an amendment to APB Opinion No. 29, “Accounting for Nonmonetary Transactions.” This statement redefines the types of nonmonetary exchanges that require fair value measurement. Statement No. 153 is effective for nonmonetary transactions entered into on and after July 1, 2005. The adoption of this statement had no effect on SJI’s consolidated financial statements.

INCOME TAXES — Deferred income taxes are provided for all significant temporary differences between book and taxable basis of assets and liabilities in accordance with FASB Statement No. 109, “Accounting for Income Taxes” (See Notes 3 & 4). A valuation allowance will be established when it is determined that it is more likely than not that a deferred tax asset will not be realized.

REGULATORY ASSETS & REGULATORY LIABILITIES — Regulatory Assets at December 31, 2005 and 2004, consisted of the following items:

	Years Remaining
	as of	Thousands of Dollars
	Dec. 31, 2005		2005		2004
Environmental Remediation Costs:
(Notes 9 & 13)
Expended — Net	Various	$	9,350	$	5,281
Liability for Future Expenditures	—		56,717		51,046
Income Taxes — Flowthrough
Depreciation (Note 4)	6		5,663		6,641
Deferred Fuel Costs — Net (Note 9)	Various		21,237		—
ARO-Related Costs (Note 1)	Various		19,986		—
Postretirement Benefit Costs (Note 10)	7		2,646		3,024
Gross Receipts and Franchise Taxes (Note 4)	1		480		924
Societal Benefit Costs (Note 9)	Various		2,691		4,562
Premium for Early Retirement of Debt	Various		1,694		1,672
Other	—		1,019		1,157
Total Regulatory Assets		$	121,483	$	74,307

All significant regulatory assets were separately identified above and are being recovered through utility rate charges. SJG is currently permitted to recover interest on its Environmental Remediation Costs and Societal Benefit Costs while the other assets are being recovered without a return on investment over the period indicated. Some of the assets reflected within the above caption “Other” are currently being recovered from ratepayers as approved by the BPU (See Note 9). Management believes the remaining deferred costs are probable of recovery from ratepayers through future utility rates.

We monitor over/under collections of gas costs through SJG’s BGSS mechanism. Net undercollected gas costs are classified as a Regulatory Asset and net overcollected gas costs are classified as a Regulatory Liability. Derivative contracts used to hedge our natural gas purchases are recoverable through the BGSS, subject to BPU approval. The offset to the change in fair value of these contracts is recorded as a component of the regulatory asset Deferred Fuel Costs - Net, if we are in a net undercollected position, or as a component of the regulatory liability Deferred Gas Revenues - Net, if we are in a net overcollected position. As of December 31, 2005, benefits related to derivative contracts reduced Deferred Fuel Costs - Net by $0.5 million. As of December 31, 2004, costs related to derivative contracts offset Deferred Gas Revenues - Net by $0.5 million.

Regulatory Liabilities at December 31, 2005 and 2004 consisted of the following items (in thousands):

		2005		2004
Deferred Gas Revenues — Net (Note 9)	$	—	$	12,334
Excess Plant Removal Costs (Note 1)		48,071		47,345
Overcollected State Taxes		4,025		3,871
Other		1,906		286
Total Regulatory Liabilities	$	54,002	$	63,836

Deferred Gas Revenues - Net represent SJG’s net overcollected gas costs as previously discussed. Excess Plant Removal Costs represent amounts accrued in excess of actual utility plant removal costs incurred to date, which SJG has an obligation to either expend or return to ratepayers in future periods (See Asset Retirement Costs). All other regulatory liabilities are subject to being returned to ratepayers in future rate proceedings.

CASH AND CASH EQUIVALENTS — For purposes of reporting cash flows, highly liquid investments with original maturities of three months or less are considered cash equivalents.

RECLASSIFICATIONS — SJI reclassified some previously reported amounts to conform with current year classifications. Such reclassifications include the move of $4.8 million of deferred contract revenues previously classified as Other Noncurrent Liabilities to Deferred Contract Revenues, a new caption within current liabilities as of December 31, 2004. SJI determined that certain acquisitions of property and equipment made on account were reflected as cash capital expenditures in the statements of consolidated cash flows, and has reduced cash flows used in investing activities with a corresponding reduction in cash provided by operating activities of approximately $2.5 million and $0.8 million for the years ended December 31, 2004 and 2003, respectively. SJI reclassified amounts previously accrued as liabilities as of December 31, 2004 for the issuance of Restricted Stock Awards to Premium on Common Stock. The reclassification reduced Interest Accrued and Other Current Liabilities and Other Noncurrent Liabilities by $2.0 million and $0.9 million, respectively, with a corresponding increase to Premium on Common Stock for $2.9 million as of December 31, 2004. In 2005, SJI has separately disclosed cash flows attributable to its discontinued operations within the operating section of the statements of consolidated cash flows. In prior periods, these amounts were reported within various other lines of the operating section. In 2005, SJI was required to record an additional minimum liability for its supplemental executive retirement plan with offsetting amounts, net of tax, included in Common Equity within Accumulated Other Comprehensive Loss on the consolidated balance sheets. SJI recorded a similar additional minimum liability identified in 2005, related to 2004, in the amount of $6.9 million, with offsetting amounts of $0.3 million, $2.7 million and $3.9 million recorded in Other Noncurrent Assets, Deferred Income Taxes - Net and Common Equity within Accumulated Other Comprehensive Loss, respectively, on the consolidated balance sheets.

The amounts noted above are considered immaterial to the overall presentation of SJI’s consolidated financial statements.

2. DISCONTINUED OPERATIONS, AFFILIATIONS AND CONTROLLING INTERESTS:

DISCONTINUED OPERATIONS — In 1996, Energy & Minerals, Inc. (EMI), an SJI subsidiary, sold the common stock of The Morie Company, Inc. (Morie), its sand mining and processing subsidiary (See Note 13). SJI conducts tests annually to estimate the environmental remediation costs for properties owned by South Jersey Fuel, Inc. (SJF), an EMI subsidiary, from its previously operated fuel oil business. SJI reports the environmental remediation activity related to these properties as discontinued operations.

Summarized operating results of the discontinued operations were (in thousands):

	2005			2004			2003
Loss before Income Taxes:
Sand Mining	$	(944	)	$	(863	)	$	(705	)
Fuel Oil		(84	)		(183	)		(495	)
Other		—			—			(32	)
Income Tax Benefits		359			366			458
Loss from Discontinued Operations — Net	$	(669	)	$	(680	)	$	(774	)
Earnings Per Common Share from
Discontinued Operations — Net:
Basic and Diluted	$	(0.02	)	$	(0.03	)	$	(0.03	)

Losses from sand mining are mainly comprised of environmental remediation and product liability litigation associated with Morie’s prior activities. Losses from fuel oil in 2003 are mainly attributable to a property sale.

AFFILIATIONS — SJI and Conectiv Solutions, LLC formed Millennium Account Services, LLC to provide meter reading services in southern New Jersey. SJE and GZA GeoEnvironmental, Inc. formed AirLogics, LLC to market a jointly developed air monitoring system designed to assist companies involved in environmental cleanup activities. We account for our investment in these affiliated companies under the equity method.

CONTROLLING INTERESTS — Marina and DCO Energy, LLC (DCO) formed AC Landfill Energy, LLC (ACLE) to develop and install a 1,400-kilowatt methane-to-electric power generation system at a county-owned landfill in Egg Harbor Township, NJ. Marina owns a 51% interest in ACLE and accounts for ACLE as a consolidated subsidiary. Commercial operation of the plant began in March 2005.

In March 2005, Marina and DCO formed WC Landfill Energy, LLC (WCLE) to develop and install a 3,800 kilowatt methane-to-electric power generation system at a county-owned landfill in White Township, NJ. Marina owns a 51% interest in WCLE and accounts for WCLE as a consolidated subsidiary. Commercial operation of the plant is targeted to begin in the summer of 2006.

3. INCOME TAXES:

SJI files a consolidated federal income tax return. State income tax returns are filed on a separate company basis in states where SJI has operations and/or a requirement to file. Total income taxes applicable to operations differ from the tax that would have resulted by applying the statutory Federal Income Tax rate to pre-tax income for the following reasons (in thousands):

	2005			2004			2003
Tax at Statutory Rate	$	28,824		$	25,218		$	20,352
Increase (Decrease) Resulting from:
State Income Taxes		5,497			4,383			3,659
ESOP		(783	)		(766	)		(723	)
Amortization of Investment
Tax Credits (Note 4)		(334	)		(342	)		(347	)
Amortization of Flowthrough
Depreciation (Note 4)		664			664			664
Other — Net		(101	)		(78	)		(9	)
Income Taxes:
Continuing Operations		33,767			29,079			23,596
Discontinued Operations		(359	)		(366	)		(458	)
Cumulative Effect of a Change in Accounting Principle		—			—			(294	)
Net Income Taxes	$	33,408		$	28,713		$	22,844

The provision for Income Taxes is comprised of the following (in thousands):
		2005			2004			2003
Current:
Federal	$	5,040		$	8,270		$	12,402
State		3,432			5,879			6,919
Total Current		8,472			14,149			19,321
Deferred:
Federal:
Excess of Tax Depreciation Over
Book Depreciation — Net		5,528			15,548			11,905
Deferred Fuel Costs — Net		17,567			(3,229	)		(9,506	)
Environmental Costs — Net		970			752			(147	)
Alternative Minimum Tax		—			—			2,181
Prepaid Pension		368			2,765			1,499
Deferred Regulatory Costs		(1,156	)		(804	)		683
Other — Net		(2,673	)		(685	)		(703	)
State:		5,025			925			(1,290	)
Total Deferred		25,629			15,272			4,622
Investment Tax Credits		(334	)		(342	)		(347	)
Income Taxes:
Continuing Operations		33,767			29,079			23,596
Discontinued Operations		(359	)		(366	)		(458	)
Cumulative Effect of a Change in Accounting Principle		—			—			(294	)
Net Income Taxes	$	33,408		$	28,713		$	22,844

The net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes resulted in the following net deferred tax liabilities (assets) at December 31 (in thousands):

	2005			2004
Current:
Deferred Fuel Costs — Net	$	4,098		$	—
Derivatives / Unrealized (Loss) Gain		(4,515	)		4,518
Other		(1,906	)		(210	)
Current Deferred Tax (Asset) Liability — Net	$	(2,323	)	$	4,308
Noncurrent:
Book versus Tax Basis of Property	$	139,362		$	130,788
Deferred Fuel Costs - Net		22,890			2,774
Prepaid Pension		13,227			12,842
Environmental		3,013			1,709
Deferred Regulatory Costs		1,684			3,242
Deferred State Tax		(4,900	)		(2,497	)
Minimum Pension Liability		(2,602	)		(2,919	)
Investment Tax Credit Basis Gross-Up		(1,440	)		(1,612	)
Other		(1,811	)		(1,195	)
Noncurrent Deferred Tax Liability — Net	$	169,423		$	143,132

4. FEDERAL AND OTHER REGULATORY TAX ASSETS AND DEFERRED CREDITS:

The primary asset created by adopting FASB Statement No. 109, "Accounting for Income Taxes," was Income Taxes — Flowthrough Depreciation in the amount of $17.6 million as of January 1, 1993. This amount represented excess tax depreciation over book depreciation on utility plant because of temporary differences for which, prior to Statement No. 109, deferred taxes previously were not provided. SJG previously passed these tax benefits through to ratepayers. SJG is recovering the amortization of the regulatory asset through rates over 18 years, which began in December 1994 (See Note 1 - Regulatory Assets & Regulatory Liabilities).

Investment Tax Credits attributable to SJG were deferred and continue to be amortized at the annual rate of 3%, which approximates the life of related assets (See Note 3). SJG deferred $11.8 million resulting from a change in the basis for accruing the Gross Receipts & Franchise Taxes in 1978 and is amortizing it to operations over 30 years beginning that same year. We accelerated this amortization slightly as a result of a subsequent rate making proceeding (See Note 1 - Regulatory Assets & Regulatory Liabilities).

5. PREFERRED STOCK:

REDEEMABLE CUMULATIVE PREFERRED STOCK — On May 2, 2005, SJG redeemed all of its Redeemable Cumulative Preferred 8% Series of preferred stock at its par value of $1.7 million. SJI has 2,500,000 authorized shares of Preference Stock, no par value, which has not been issued. SJI has authorized, registered and reserved for issuance 15,000 shares of Series A Junior Participating Cumulative Preferred Stock (Series A Preferred Stock) connected with its Shareholder Rights Plan (See Note 6).

6. COMMON STOCK:

AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES — On March 3, 2005, the Board of Directors authorized an amendment to SJI’s Certificate of Incorporation to increase the authorized number of shares of Common Stock from 20,000,000 shares to 60,000,000 shares. This amendment was approved by a vote of SJI’s shareholders at SJI’s annual meeting of shareholders held on April 21, 2005. The principal purpose of the increase was to permit a two-for-one split of all the issued shares of SJI’s Common Stock, which was completed on June 30, 2005. Share-related information for prior periods is reported on a retroactive basis reflecting the stock split throughout this Report.

The following shares were issued and outstanding at December 31:

	2005		2004		2003
Beginning of Year		27,759,936		26,458,002		24,412,948
New Issues During Year:
Dividend Reinvestment Plan		1,141,590		1,232,602		1,973,462
Employees’ Stock Ownership Plan		—		—		3,022
Stock-Based Compensation Plan		80,914		69,332		68,570
End of Year		28,982,440		27,759,936		26,458,002

We credited the par value ($1.25 per share) of stock issued in 2005, 2004 and 2003 to Common Stock. We credited the net excess over par value of approximately $34.1 million, $26.7 million and $34.9 million, respectively, to Premium on Common Stock.

EARNINGS PER COMMON SHARE — We present basic EPS based on the weighted-average number of common shares outstanding. EPS is presented in accordance with FASB Statement No. 128, “Earnings Per Share,” which establishes standards for computing and presenting basic and diluted EPS. The incremental shares required for inclusion in the denominator for the diluted EPS calculation were 224,331, 213,524 and 199,298 shares for the years ended December 31, 2005, 2004 and 2003, respectively. These shares relate to SJI’s restricted stock as discussed below.

STOCK-BASED COMPENSATION PLAN — Under the Amended and Restated 1997 Stock-Based Compensation Plan that was amended and restated by our Board of Directors and approved by our shareholders on April 21, 2005, no more than 1,000,000 shares in the aggregate may be issued to SJI's officers, non-employee directors and other key employees. The plan will terminate on January 26, 2015, unless terminated earlier by the Board of Directors. No options were granted or outstanding during the years ended December 2005, 2004 and 2003. No stock appreciation rights have been issued under the plan. In 2005, 2004 and 2003, we granted 38,316, 43,798 and 61,620 restricted shares, respectively. These restricted shares vest over 3-year periods and are subject to SJI achieving certain performance targets as compared to a peer group average. Because the award number of shares issued is based on the achievement of certain performance targets, we have accounted for the plan as a variable plan. The annual expense associated with these awards, net of amounts capitalized, was approximately $2.8 million, $2.1 million and $1.0 million in 2005, 2004 and 2003, respectively.

SJI grants annual awards to outside directors which vest over three years. SJI holds shares issued as restricted stock until the attached restrictions lapse. We record the stock's market value on the grant date as compensation expense over the applicable vesting period. The annual expense associated with this plan was $92,854, $82,826 and $80,255 in 2005, 2004 and 2003, respectively.

DIVIDEND REINVESTMENT PLAN (DRP) — Newly issued shares of common stock offered through the DRP are issued directly by SJI. As of December 31, 2005, SJI reserved 1,596,022 shares of authorized, but unissued, common stock for future issuance to the DRP.

SHAREHOLDER RIGHTS PLAN — In 1996, the Board of Directors adopted a shareholder rights plan providing for the distribution of one right for each share of common stock outstanding on and after October 11, 1996. Each right entitles its holder to purchase 1/1000 of one share of Series A Preferred Stock at an exercise price of $90 (See Note 5). The rights will not be exercisable until after a person or group acquires 10% or more of SJI's common stock and will expire if not exercised or redeemed by September 20, 2006.

7. FINANCIAL INSTRUMENTS:

RESTRICTED INVESTMENTS — In accordance with the terms of ACLE’s loan agreements, we were required to escrow unused proceeds pending approved construction expenditures. As of December 31, 2004, the escrowed proceeds totaled $0.6 million. There were no escrowed proceeds as of December 31, 2005.

SJRG maintains a margin account with a national investment firm to support its risk management activities. As of December 31, 2005 and 2004, the balance of this account was $8.2 million and $13.0 million, respectively, due to changes in the market value of outstanding contracts.

LONG-TERM DEBT — We estimated the fair values of SJI's long-term debt, including current maturities, as of December 31, 2005 and 2004, to be $334.3 million and $350.2 million, respectively. Carrying amounts as of December 31, 2005 and 2004, were $321.4 million and $334.3 million, respectively. We based the estimates on interest rates available to SJI at the end of each year for debt with similar terms and maturities. SJI retires debt when it is cost effective as permitted by the debt agreements.

OTHER FINANCIAL INSTRUMENTS — The carrying amounts of SJI's other financial instruments approximate their fair values at December 31, 2005 and 2004.

8. SEGMENTS OF BUSINESS:

SJI operates in several different operating segments. Gas Utility Operations (SJG) consists primarily of natural gas distribution to residential, commercial and industrial customers. Wholesale Gas Operations include SJRG’s activities. SJE is involved in both retail gas and retail electric activities. Retail Gas and Other Operations include natural gas acquisition and transportation service business lines. Retail Electric Operations consist of electricity acquisition and transportation to commercial and industrial customers. On-Site Energy Production consists of Marina’s thermal energy facility and other energy-related projects. Appliance Service Operations includes SJESP’s servicing of appliances via the sale of appliance service programs as well as on a time and materials basis, and the installation of residential and small commercial HVAC systems. The appliance service business operated within SJG until September 1, 2004 (See Note 9).

Information about SJI's operations in different operating segments is presented below (in thousands):

	2005			2004			2003
Operating Revenues:
Gas Utility Operations	$	587,212		$	502,465		$	526,846
Wholesale Gas Operations		29,354			18,059			10,560
Retail Gas and Other Operations		207,487			213,786			175,512
Retail Electric Operations		75,779			72,852			14,868
On-Site Energy Production		25,190			20,866			12,736
Appliance Service Operations		14,870			12,733			9,596
Subtotal		939,892			840,761			750,118
Intersegment Sales		(18,910	)		(21,685	)		(44,922	)
Total Operating Revenues	$	920,982		$	819,076		$	705,196

Operating Income:
Gas Utility Operations	$	77,676		$	70,455		$	64,200
Wholesale Gas Operations		11,679			5,400			4,998
Retail Gas and Other Operations		1,511			7,366			5,447
Retail Electric Operations		602			1,612			153
On-Site Energy Production		8,785			5,756			3,122
Appliance Service Operations		2,896			1,780			1,220
General Corporate		(1,365	)		(1,630	)		(1,297	)
Total Operating Income	$	101,784		$	90,739		$	77,843

Depreciation and Amortization:
Gas Utility Operations	$	24,717		$	25,831		$	26,627
Wholesale Gas Operations		15			15			13
Retail Gas and Other Operations		111			113			106
Retail Electric Operations		—			—			—
On-Site Energy Production		1,817			1,680			866
Appliance Service Operations		182			81			—
Discontinued Operations		—			—			28
Total Depreciation and Amortization	$	26,842		$	27,720		$	27,640

Property Additions:
Gas Utility Operations	$	74,873		$	68,656		$	53,238
Wholesale Gas Operations		2			15			6
Retail Gas and Other Operations		151			90			245
Retail Electric Operations		—			—			—
On-Site Energy Production		23,149			5,314			8,137
Appliance Service Operations		315			97			—
Total Property Additions	$	98,490		$	74,172		$	61,626

Identifiable Assets:
Gas Utility Operations	$	1,164,576		$	1,007,919
Wholesale Gas Operations		122,462			103,689
Retail Gas and Other Operations		50,880			53,880
Retail Electric Operations		7,467			12,580
On-Site Energy Production		105,822			84,616
Appliance Service Operations		13,624			11,640
Discontinued Operations		408			413
Subtotal		1,465,239			1,274,737
Corporate Assets		70,379			46,674
Intersegment Assets		(99,472	)		(77,745	)
Total Identifiable Assets	$	1,436,146		$	1,243,666

9. REGULATORY ACTIONS:

BASE RATES — In January 1997, the BPU granted SJG rate relief, which was predicated in part upon a 9.62% rate of return on rate base that included an 11.25% return on common equity. This rate relief provided for the recovery of cost of service, including deferred costs, through base rates.

On July 7, 2004, the BPU granted SJG a base rate increase of $20.0 million, which was predicated in part upon a 7.97% rate of return on rate base that included a 10.0% return on common equity. The increase was effective July 8, 2004, and designed to provide an incremental $8.5 million on an annualized basis to net income. SJG was also permitted recovery of regulatory assets contained in its petition and a reduction in its composite depreciation rate from 2.9% to 2.4%.

As part of the overall settlement effective July 8, 2004, SJG provided customers with an offsetting $38.9 million revenue reduction. This reduction was provided to customers through the reduction and elimination of rates associated with SJG’s various clauses. Under those clauses, costs incurred by SJG were billed to customers on a dollar-for-dollar basis and these reductions do not negatively impact SJG’s net income.

PENDING AUDIT — In 2004, the BPU commenced a competitive services audit and a management audit that included a focused review of SJG’s gas supply and purchasing practices. The BPU is mandated by statute to conduct such audits at predetermined intervals. In February 2006, the audit reports were released by the BPU for comments. The recommendations contained in these audits have no apparent material effect on SJG’s financial statements.

APPLIANCE SERVICE BUSINESS — On July 23, 2004, the BPU approved SJG’s petition and related agreements to transfer its appliance service business from the regulated utility. In anticipation of this transfer, SJI had formed SJESP to perform appliance repair services after BPU approval of the transfer. SJESP purchased certain assets and assumed certain liabilities required to perform such repair services from SJG for the net book value of $1.2 million on September 1, 2004. The agreements also called for SJESP to pay an additional $1.5 million to SJG. This $1.5 million was credited by SJG to customers through the RAC and had no earnings impact on SJG. The $1.5 million is considered an intangible asset by SJESP and is being amortized on a straight-line basis over a 12-year period, which commenced as of the transfer date. The amortization period was based on a study performed by an independent consultant. The study results indicate the benefit period is linked to residential homeowner moving rates, based on U.S. Census Bureau and regional information. The transfer has no effect on the provision of safety-related or emergency-related services to the public since the transferred services include only non-safety related, competitive appliance services.

OTHER REGULATORY MATTERS — Effective January 10, 2000, the BPU approved full unbundling of SJG’s system. This allows all natural gas consumers to select their natural gas commodity supplier. As of December 31, 2005, approximately 9,800 of SJG’s residential customers were purchasing their gas commodity from someone other than SJG. Customers choosing to purchase natural gas from providers other than the utility are charged for the cost of gas by the marketer, not the utility. The resulting decrease in SJG’s revenues is offset by a corresponding decrease in gas costs. While customer choice can reduce utility revenues, it does not negatively affect SJG’s net income or financial condition. The BPU continues to allow for full recovery of prudently incurred natural gas costs through the BGSS. Unbundling did not change the fact that SJG still recovers cost of service, including certain deferred costs, through base rates.

In March 2003, the BPU approved a statewide Universal Service Fund (USF) program through which funds for the USF and Lifeline Credit and Tenants Assistance Programs would be collected from customers of all New Jersey electric and gas utilities. In June 2004, the BPU approved the statewide budget of $113.0 million for all the state’s electric and gas utilities and the increased rates were implemented effective July 1, 2004, resulting in a $3.9 million increase to SJG’s annual USF recoveries. In April 2005, SJG made its annual USF filing, along with the state’s other electric and gas utilities, proposing no rate change to the statewide program. This rate proposal was approved by the BPU in June 2005.

In February 2004, SJG filed notice with the BPU to reduce its gas cost revenues by approximately $5.0 million, via a rate reduction, in addition to providing for a $21.8 million bill credit to customers. Both the rate reduction and bill credit were approved and implemented in March 2004.

In June 2004, SJG made its annual BGSS filing with the BPU requesting a $4.9 million increase in gas cost recoveries. In October 2004, the requested increase was approved on a provisional basis.

In September 2004, SJG filed for a $2.6 million reduction to its annual SBC recovery level. The SBC recovers costs related to BPU-mandated programs, including environmental remediation costs that are recovered through SJG’s RAC; energy efficiency and renewable energy program costs that are recovered through the NJCEP; consumer education program costs; and low income program costs that are recovered through the USF.

In December 2004, the BPU approved the statewide funding of the NJCEP of $745.0 million for the years 2005 through 2008. Of this amount, SJG will be responsible for approximately $25.4 million over the 4-year period. Amounts not yet expended have been included in the Contractual Cash Obligations table included in Note 13.

In February 2005, SJG filed notice with the BPU to provide for an $11.4 million bill credit to customers. The bill credit was implemented in March 2005. In June 2005, SJG made its annual

BGSS filing with the BPU requesting a $17.1 million, or 6.3% increase in gas cost recoveries in response to increasing wholesale gas costs. In August 2005, the BPU approved SJG’s requested increase, effective September 1, 2005.

In October 2005, SJG, along with the three other natural gas distribution companies in New Jersey, filed a petition with the BPU to implement a Pipeline Integrity Management Tracker (Tracker). The purpose of the Tracker is to recover costs to be incurred by SJG as a result of new federal regulations, which are aimed at enhancing public safety and reliability. The regulations require that utilities use a comprehensive analysis to assess, evaluate, repair and validate the integrity of certain transmission lines in the event of a leak or failure. The New Jersey utilities are requesting approval of the Tracker since the new regulations will result in ongoing incremental costs. We anticipate that a large portion of the incremental cost is dependent upon overall assessment results, and therefore cannot be specifically predicted at this time.

In November 2005, SJG made its annual SBC filing, requesting a $6.1 million reduction in annual recoveries.

In November 2005, SJG also filed a BGSS Motion for Emergent Rate Relief in conjunction with the other natural gas utilities in New Jersey. This filing was necessary due to substantial increases in wholesale natural gas prices across the country. SJG requested a $103.2 million increase. In December 2005, the BPU approved an $85.7 million increase to SJG’s rates, effective December 15, 2005.

In November 2005, SJG also made its annual TAC filing, requesting a $1.0 million increase in annual revenues. The increase will recover the cash related to the net TAC deficiency resulting from warmer-than-normal weather for the 2003-2004 winter, partially offset by colder-than-normal weather for the 2004-2005 winter.

In December 2005, SJG made a filing to implement a Conservation and Usage Adjustment (CUA) Clause, on a 5-year pilot basis. The primary purpose of the CUA is to base SJG’s profit margin on its number of customers rather than the amount of natural gas it distributes to its customers. This structure will allow SJG to aggressively promote conservation programs without negatively impacting its financial stability. The proposed CUA would replace SJG’s existing TAC.

Filings and petitions described above are still pending unless otherwise indicated.

10. EMPLOYEE BENEFIT PLANS:

PENSIONS & OTHER POSTRETIREMENT BENEFIT PLANS — SJI has several defined benefit pension plans and other postretirement benefit plans. The pension plans provide annuity payments to the majority of full-time, regular employees upon retirement. Newly hired employees do not qualify for participation in the defined benefit pension plans. New hires are eligible to receive an enhanced version of SJI’s defined contribution plan. Certain SJI officers also participate in a non-funded supplemental executive retirement plan (SERP), a non-qualified defined benefit pension plan. The other postretirement benefit plans provide health care and life insurance benefits to some retirees.

The BPU authorized SJG to recover costs related to postretirement benefits other than pensions under the accrual method of accounting consistent with FASB Statement No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." We deferred amounts accrued prior to that authorization and are amortizing them as allowed by the BPU. The unamortized balance of $2.6 million at December 31, 2005 is recoverable in rates. We are amortizing this amount over 15 years, which started January 1998.

Net periodic benefit cost related to the employee and officer pension and other postretirement benefit plans consisted of the following components (in thousands):

	Pension Benefits									Other Postretirement Benefits
	2005			2004			2003			2005			2004			2003
Service Cost	$	3,236		$	3,041		$	2,664		$	907		$	1,402		$	1,551
Interest Cost		6,761			6,289			5,844			2,155			2,412			2,545
Expected Return on Plan Assets		(8,569	)		(7,094	)		(5,514	)		(1,597	)		(1,402	)		(1,078	)
Amortization of Transition Obligation		—			—			72			—			643			772
Amortization of Loss and Other		3,000			2,428			2,216			137			133			396
Net Periodic
Benefit Cost		4,428			4,664			5,282			1,602			3,188			4,186
ERIP Cost		532			814			—			1,415			160			—
Capitalized Benefit Costs		(1,823	)		(1,474	)		(1,615	)		(640	)		(991	)		(1,294	)
Total Net Periodic
Benefit Expense	$	3,137		$	4,004		$	3,667		$	2,377		$	2,357		$	2,892

Capitalized benefit costs reflected in the table above relate to SJG’s construction program.

The ERIP costs reflected in the table above relate to an early retirement plan offered during both 2005 and 2004. Additional monetary incentives not reflected in the table above totaled $0.2 million in 2005 and $0.4 million in 2004, which will be funded outside of SJI’s retirement plans.

A reconciliation of the plans' benefit obligations, fair value of plan assets, funded status and amounts recognized in SJI's consolidated balance sheets follows (in thousands):

							Other Postretirement
	Pension Benefits						Benefits
	2005			2004			2005			2004
Change in Benefit Obligations:
Benefit Obligation at Beginning of Year	$	119,252		$	100,719		$	38,484		$	44,926
Service Cost		3,236			3,041			907			1,402
Interest Cost		6,761			6,289			2,155			2,412
Plan Amendments		—			492			—			(10,085	)
Actuarial Loss and Other		2,771			13,220			3,983			1,580
Retiree Contributions		—			—			299			—
Benefits Paid		(5,340	)		(4,509	)		(2,437	)		(1,751	)
Benefit Obligation at End of Year	$	126,680		$	119,252		$	43,391		$	38,484

Change in Plan Assets:
Fair Value of Plan Assets at Beginning of Year	$	100,524		$	83,145		$	22,310		$	19,095
Actual Return on Plan Assets		7,618			8,411			1,277			1,740
Employer Contributions		5,727			13,477			3,604			3,226
Retiree Contributions		—			—			299			—
Benefits Paid		(5,340	)		(4,509	)		(2,437	)		(1,751	)
Fair Value of Plan Assets at End of Year	$	108,529		$	100,524		$	25,053		$	22,310

Funded Status:	$	(18,151	)	$	(18,728	)	$	(18,338	)	$	(16,174	)
Unrecognized Prior Service Cost		2,666			3,273			(3,762	)		(4,229	)
Unrecognized Net Loss and Other		39,977			39,306			14,790			12,317
Prepaid (Accrued) Net Benefit Cost at End of Year	$	24,492		$	23,851		$	(7,310	)	$	(8,086	)
Amounts Recognized in the Statement of Financial Position Consist of:
Prepaid (Accrued) Benefit Liability	$	18,444		$	16,885		$	(7,310	)	$	(8,086	)
Intangible Asset		135			332			—			—
Accumulated Other Comprehensive Income		5,913			6,634			—			—
Net Amount Recognized at End of Year	$	24,492		$	23,851		$	(7,310	)	$	(8,086	)

The accumulated benefit obligation (AB) of SJI’s qualified employee pension plans at December 31, 2005 and 2004 was $99.7 million and $93.6 million, respectively. The projected benefit obligation and ABO for SJI’s non-funded SERP, which had accumulated benefits in excess of plan assets, were $11.7 million and $11.6 million, respectively, as of December 31, 2005, and $11.8 million and $11.7 million, respectively, as of December 31, 2004. The SERP is reflected in the table above and has no assets.

At December 31, 2005 and 2004, SJI had recorded an additional minium pension obligation of $6.0 million and $6.9 million, respectively, related to the SERP, with a corresponding amount recorded to Accumulated Other Comprehensive Loss.

The net changes included in Accumulated Other Comprehensive Loss due to the increase in the minimum pension obligation related to the SERP were $0.4 million, $(1.1) million and $(1.2) million for the years ended December 31, 2005, 2004 and 2003, respectively.

As of November 2004, SJI has implemented caps on the amount of the premium we pay for all employees eligible for postretirement health care. Since employees are responsible for those costs that exceed the premium caps, we were able to substantially reduce our postretirement benefit costs other than pension from that date forward.

The weighted-average assumptions used to determine benefit obligations at December 31 were:

						Other
						Postretirement
	Pension Benefits					Benefits
		2005		2004			2005		2004
Discount Rate		5.84	%	5.75	%		5.84	%	5.75	%
Rate of Compensation Increase		3.60	%	3.60	%		—		—

The weighted-average assumptions used to determine net periodic benefit cost for years ended December 31 were:

								Other Postretirement
	Pension Benefits							Benefits
		2005		2004		2003			2005		2004		2003
Discount Rate		5.75	%	6.25	%	6.75	%		5.75	%	6.25	%	6.75	%
Expected Long-Term Return on Plan Assets		8.75	%	8.75	%	9.00	%		7.25	%	7.25	%	7.50	%
Rate of Compensation Increase		3.60	%	3.60	%	3.60	%		—		—		—

The discount rate used to determine the benefit obligations at December 31, 2005, which will be used to determine the net periodic benefit cost for 2006, was based on a portfolio model of high-quality instruments with maturities that match the expected benefit payments under our pension and other postretirement benefit plans. In prior years, SJI used the Moody’s Aa bond index yield at each respective year end. We believe that the new method better reflects the rate at which the benefit obligations could be effectively settled.

The expected long-term return on plan assets was based on return projections prepared by our investment manager using SJI’s current investment mix as described under Plan Assets below.

The assumed health care cost trend rates at December 31 were:

	2005		2004
Post-65 Medical Care Cost Trend Rate Assumed for Next Year	7.5	%	6.5	%
Pre-65 Medical Care Cost Trend Rate Assumed for Next Year	11.0	%	11.0	%
Dental Care Cost Trend Rate Assumed for Next Year	7.5	%	6.5	%
Rate to which Cost Trend Rates are Assumed to Decline (the Ultimate Trend Rate)	5.0	%	5.0	%
Year that the Rate Reaches the Ultimate Trend Rate	2013		2016

Assumed health care cost trend rates have a significant effect on the amounts reported for SJI’s postretirement health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects (in thousands):

	1-Percentage-		1-Percentage-
	Point Increase		Point Decrease
Effect on the Total of Service and Interest Cost	$	120	$	(107	)
Effect on Postretirement Benefit Obligation	$	1,994	$	(1,816	)

PLAN ASSETS — SJI’s weighted-average asset allocations at December 31, 2005 and 2004, by asset category are as follows:

						Other
						Postretirement
	Pension Benefits					Benefits
		2005		2004			2005		2004
Asset Category:
U.S. Equity Securities		50	%	52	%		48	%	48	%
International Equity Securities		15		16			16		16
Fixed Income		35		32			36		36
Total		100	%	100	%		100	%	100	%

Based on the investment objectives and risk tolerances stated in SJI’s current pension and other postretirement benefit plans’ investment policy and guidelines, the long-term asset mix target considered appropriate for SJI is within the range of 58% to 68% equity and 32% to 42% fixed-income investments. Historical performance results and future expectations suggest that equities will provide higher total investment returns than fixed-income securities over a long-term investment horizon.

The policy recognizes that risk and volatility are present to some degree with all types of investments. We seek to avoid high levels of risk at the total fund level through diversification by asset class, style of manager, and sector and industry limits. Specifically prohibited investments include, but are not limited to, venture capital, margin trading, commodities and securities of companies with less than $250.0 million capitalization (except in the small-cap portion of the fund where capitalization levels as low as $50.0 million are permissible).

FUTURE BENEFIT PAYMENTS — The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid during the following years (in thousands):

			Other Postretirement
	Pension Benefits		Benefits
2006	$	5,937	$	2,262
2007		6,028		2,490
2008		6,132		2,636
2009		6,256		2,733
2010		6,369		2,891
2011-2015		35,830		14,537

CONTRIBUTIONS — SJI expects to make no contributions to its pension plan in 2006; however, changes in future investment performance and discount rates may ultimately result in a contribution. SJG has a regulatory obligation to contribute approximately $3.6 million annually to its other postretirement benefit plans’ trusts, less costs incurred directly by the company.

DEFINED CONTRIBUTION PLAN — SJI offers an Employees’ Retirement Savings Plan (Savings Plan) to eligible employees. SJI matches 50% of participants’ contributions up to 6% of base compensation. For newly hired employees who are not eligible for participation in SJI’s defined benefit plan, we match 50% of participants’ contributions up to 8% of base compensation. We also make a year-end contribution of $500 for employees with fewer than 10 years of service and $1,000 for employees with 10 years or more of service. The amount expensed and contributed for the matching provision of the Savings Plan approximated $1.0 million in each of the years 2005, 2004 and 2003.

11. RETAINED EARNINGS:

SJG is restricted as to the amount of cash dividends or other distributions that may be paid on its common stock by an order issued by the BPU in July 2004, that granted SJG an increase in base rates. Per the order, SJG is required to maintain total common equity of no less than $289.0 million. SJG’s total common equity balance was $344.6 million at December 31, 2005.

Restrictions also exist under various loan agreements regarding the amount of cash dividends or other distributions that SJG may pay on its common stock. As of December 31, 2005, SJG’s loan restrictions did not affect the amount that may be distributed from either SJG’s or SJI’s retained earnings.

12. UNUSED LINES OF CREDIT AND COMPENSATING BALANCES:

Bank credit available to SJI totaled $266.0 million at December 31, 2005, of which $151.0 million, inclusive of $3.7 million of letters of credit, was used. Those bank facilities consist of a $100.0 million revolving credit facility that expires in August 2006 and $76.0 million of uncommitted bank lines available to SJG; and a $60.0 million revolving credit facility that expires in August 2007 and $30.0 million of uncommitted bank lines available to SJI. The revolving credit facilities contain certain financial covenants measured on a quarterly basis. SJI and SJG were in compliance with these covenants as of December 31, 2005. Borrowings under these lines of credit are at market rates. The weighted-average borrowing cost, which changes daily, was 4.96% and 3.02% at December 31, 2005 and 2004, respectively. We maintain demand deposits with lending banks on an informal basis and they do not constitute compensating balances.

13. COMMITMENTS AND CONTINGENCIES:

CONTRACTUAL CASH OBLIGATIONS — The following table summarizes our contractual cash obligations and their applicable payment due dates as of December 31, 2005 (in thousands):

Contractual			Up to		Years		Years		More than
Cash Obligations	Total		1 Year		2 & 3		4 & 5		5 Years
Long-Term Debt	$	321,430	$	2,364	$	2,479	$	10,235	$	306,352
Interest on Long-Term Debt		276,145		19,008		37,527		37,407		182,203
Operating Leases		822		391		316		115		—
Construction Obligations		13,154		13,056		98		—		—
Commodity Supply Purchase Obligations		433,230		221,653		92,370		48,635		70,572
New Jersey Clean Energy Program (Note 9)		20,600		5,600		15,000		—		—
Other Purchase Obligations		5,033		2,183		1,800		1,050		—
Total Contractual Cash Obligations	$	1,070,414	$	264,255	$	149,590	$	97,442	$	559,127

Expected environmental remediation costs and asset retirement obligations are not included in the table above due to the subjective nature of such costs and timing of anticipated payments. As a result, the total obligation cannot be calculated. As discussed in Note 10, we currently do not expect to make a pension contribution in 2006; however, changes in future investment performance and discount rates may ultimately result in a contribution. Furthermore, future pension contributions beyond 2006 cannot be determined at this time. SJG’s regulatory obligation to contribute $3.6 million annually to its other postretirement benefit plans’ trusts, less costs incurred directly by the company, is not included as the duration is indefinite.

GAS SUPPLY CONTRACTS — SJG, in the normal course of business, has entered into long-term contracts for natural gas supplies, firm transportation and gas storage service. The earliest that any of these contracts expires is March 2006. The transportation and storage service agreements between SJG and its interstate pipeline suppliers were made under Federal Energy Regulatory Commission approved tariffs. SJG's cumulative obligation for demand charges and reservation fees paid to suppliers for these services is approximately $4.4 million per month, recovered on a current basis through the BGSS.

PENDING LITIGATION — SJI is subject to claims arising in the ordinary course of business and other legal proceedings. We accrue liabilities related to these claims when we can determine the amount or range of amounts of probable settlement costs. SJI has been named in, among other actions, certain product liability claims related to our former sand mining subsidiary. Management does not currently anticipate the disposition of any known claims to have a material adverse effect on SJI’s financial position, results of operations or liquidity.

PARENTAL GUARANTEES — As of December 31, 2005, SJI had issued $268.2 million of parental guarantees on behalf of its subsidiaries. Of this total, $213.0 million expire within one year, $7.0 million expire in 2007 and $48.2 million have no expiration date. The vast majority of these guarantees were issued to guarantee payment to third parties with whom our subsidiaries have commodity supply contracts. These contracts contain netting provisions, which permit us to net the ultimate cash payment for monthly buys and sells from/to counterparties. As of December 31, 2005, these guarantees support future firm commitments and $62.2 million of the Accounts Payable recorded on our consolidated balance sheet. As part of our risk management policy, we also require parental guarantees from trading counterparties as applicable. These arrangements are typical in our industry. SJI has also issued several parental guarantees totaling $18.5 million related to Marina’s construction and operating activities.

STANDBY LETTERS OF CREDIT — As of December 31, 2005, SJI provided $46.0 million of standby letters of credit from four commercial banks supporting the variable-rate demand bonds issued through the New Jersey Economic Development Authority to finance Marina’s thermal plant project. The letter of credit agreement contains certain financial covenants measured on a quarterly basis. SJI was in compliance with these covenants as of December 31, 2005.

Also, as of December 31, 2005, SJI has five additional letters of credit outstanding totaling $3.7 million. Two of these letters were posted to different utilities and two more were posted to the PJM Interconnection to enable SJE to market retail electricity. The remaining letter was posted related to ACLE’s construction activity.

ENVIRONMENTAL REMEDIATION COSTS — SJI incurred and recorded costs for environmental cleanup of 12 sites where SJG or its predecessors operated gas manufacturing plants. SJG stopped manufacturing gas in the 1950s. SJI and some of its nonutility subsidiaries also recorded costs for environmental cleanup of sites where SJF previously operated a fuel oil business and Morie maintained equipment, fueling stations and storage.

SJI successfully entered into settlements with all of its historic comprehensive general liability carriers regarding the environmental remediation expenditures at the SJG sites. Also, SJG purchased a Cleanup Cost Cap Insurance Policy limiting the amount of remediation expenditures that SJG will be required to make at 11 of its sites. This Policy will be in force until 2024 at 10 sites and until 2029 at one site. The future cost estimates discussed hereafter are not reduced by projected insurance recoveries from the Cleanup Cost Cap Insurance Policy. The Policy is limited to an aggregate amount of $50.0 million, of which SJG has recovered $7.5 million through December 31, 2005.

Since the early 1980s, SJI accrued environmental remediation costs of $165.3 million, of which $104.6 million was spent as of December 31, 2005.

The following table details the amounts expended and accrued for SJI’s environmental remediation during the last two years (in thousands):

		2005			2004
Beginning of Year	$	54,991		$	54,866
Accruals		11,791			5,424
Expenditures		(6,128	)		(5,299	)
End of Year	$	60,654		$	54,991

The balances are segregated between current and noncurrent on the consolidated balance sheets under the captions Current Liabilities and Deferred Credits and Other Noncurrent Liabilities.

With the assistance of consulting firms, we estimate that undiscounted future costs to clean up SJG's sites will range from $56.7 million to $206.3 million. Four of SJG’s sites comprise a significant portion of these estimates, ranging from a low of $33.1 million and a high of $125.5 million. SJG recorded the lower end of this range, $56.7 million, as a liability because a single reliable estimation point is not feasible due to the amount of uncertainty involved in the nature of projected remediation efforts and the long period over which remediation efforts will continue. Recorded amounts include estimated costs based on projected investigation and remediation work plans using existing technologies. Actual costs could differ from the estimates due to the long-term nature of the projects, changing technology, government regulations and site-specific requirements. Significant risks surrounding these estimates include unforeseen market price increases for remedial services, property owner acceptance of remedy selection, regulatory approval of selected remedy and remedial investigative findings.

The remediation efforts at SJG’s four most significant sites include the following:

Site 1 - The remedial selection process is underway for this site. Once complete, a remedial action work plan will be submitted to the New Jersey Department of Environmental Protection (NJDEP) for approval. Remaining steps to remediate include remedy selection, regulatory approval and remedy implementation for impacted soil, groundwater, and river sediments as well as acceptance of the selected remedy by affected property owners.

Site 2 - Various remedial investigation and action activities, such as completed and approved interim remedial measures and conceptual remedy selection, are ongoing at this site. Remaining steps to remediate include remedy selection, regulatory approval, and implementation for the remaining impacted soil, groundwater, and stream sediments.

Site 3 - Remedial investigative activities are ongoing at this site. Remaining steps to remediate include completing the remedial investigation of impacted soil and groundwater in preparation for selecting the appropriate action and implementation gaining regulatory and property owner approval of the selected remedy.

Site 4 - The NJDEP has approved the selected remedy to address impacted soil and groundwater at this site. Remaining steps to remediate include bidding, implementation, and ongoing operation and maintenance of the selected remedy.

SJG has two regulatory assets associated with environmental costs (See Note 1). The first asset, Environmental Remediation Cost: Expended — Net, represents what was actually spent to clean up former gas manufacturing plant sites. These costs meet the requirements of Statement No. 71. The BPU allows SJG to recover expenditures through the RAC (See Note 9). The other asset, Environmental Remediation Cost: Liability for Future Expenditures, relates to estimated future expenditures determined under the guidance of FASB Statement No. 5, "Accounting for Contingencies." We recorded this amount, which relates to former manufactured gas plant sites, as a regulatory asset under Statement No. 71 with the corresponding amount reflected on the consolidated balance sheets under Current Liabilities and Deferred Credits and Other Noncurrent Liabilities. The BPU's intent, evidenced by current practice, is to allow SJG to recover the deferred costs over 7-year periods after they are spent. As of December 31, 2005, we reflected SJG's unamortized remediation costs of $9.4 million on the consolidated balance sheet under Regulatory Assets. Since implementing the RAC in 1992, SJG has recovered $45.5 million through rates (See Note 9).

With Morie's sale, EMI assumed responsibility for environmental liabilities estimated between $2.8 million and $8.8 million. The information available on these sites is sufficient only to establish a range of probable liability and no point within the range is more likely than any other. Therefore, EMI has accrued the lower end of the range. Changes in the accrual are included in the statements of consolidated income under Loss from Discontinued Operations — Net.

SJI and SJF estimated their potential exposure for the future remediation of four sites where fuel oil operations existed years ago. Estimates for these sites range from $1.2 million to $4.9 million. We recorded the lower end of this range on the 2005 consolidated balance sheet under Current Liabilities and Deferred Credits and Other Noncurrent Liabilities as of December 31, 2005.

Quarterly Financial Data (Unaudited)

(Summarized quarterly results of SJI's operations, in thousands except for per share amounts)

	2005 Quarter Ended												2004 Quarter Ended
		March 31			June 30			Sept. 30			Dec. 31			March 31			June 30			Sept. 30			Dec. 31

Operating Revenues	$	328,570		$	154,039		$	156,971		$	281,402		$	307,610		$	136,555		$	129,449		$	245,462

Expenses:
Cost of Sales		245,116			110,901			122,430			223,049			233,239			99,056			99,448			182,952
Operation and Maintenance Including Fixed Charges		32,868			28,535			28,166			36,448			29,007			29,305			28,091			35,812
Income Taxes		19,114			5,341			1,841			7,471			16,910			2,590			152			9,428
Energy and Other Taxes		5,158			2,117			1,733			3,627			4,872			2,088			1,772			3,267

Total Expenses		302,256			146,894			154,170			270,595			284,028			133,039			129,463			231,459

Other Income and Expense		578			160			132			651			877			404			452			153

Income from Continuing Operations		26,892			7,305			2,933			11,458			24,459			3,920			438			14,156

Discontinued Operations — Net		(144	)		(182	)		(191	)		(152	)		(140	)		(142	)		(184	)		(214	)

Net Income Applicable to Common Stock	$	26,748		$	7,123		$	2,742		$	11,306		$	24,319		$	3,778		$	254		$	13,942

Basic Earnings Per Common Share*
(Based on Average Basic Shares Outstanding):
Continuing Operations	$	0.97		$	0.27		$	0.10		$	0.40		$	0.92		$	0.14		$	0.02		$	0.51
Discontinued Operations — Net		(0.01	)		(0.01	)		(0.01	)		(0.01	)		(0.01	)		—			(0.01	)		(0.01	)

Basic Earnings Per Common Share	$	0.96		$	0.26		$	0.09		$	0.39		$	0.91		$	0.14		$	0.01		$	0.50

Average Shares Outstanding — Basic		27,799			27,953			28,244			28,702			26,785			27,460			27,590			27,694

Diluted Earnings Per Common Share*
(Based on Average Diluted Shares Outstanding):
Continuing Operations	$	0.97		$	0.27		$	0.10		$	0.40		$	0.91		$	0.14		$	0.02		$	0.51
Discontinued Operations — Net		(0.01	)		(0.01	)		(0.01	)		(0.01	)		(0.01	)		—			(0.01	)		(0.01	)

Diluted Earnings Per Common Share	$	0.96		$	0.26		$	0.09		$	0.39		$	0.90		$	0.14		$	0.01		$	0.50

Average Shares Outstanding — Diluted		27,999			28,180			28,459			28,932			26,923			27,696			27,829			27,935

*The sum of the quarters for 2005 and 2004 do not equal the year's total due to rounding.

NOTE: Because of the seasonal nature of the business, statements for the 3-month periods are not indicative of the results for a full year.

Market Price of Common Stock and Related Information

Quarter Ended	Market PricePer Share				Dividends Declared		Quarter Ended		Market Price Per Share				Dividends Declared
2005	High		Low		Per Share		2004		High		Low		Per Share

March 31	$	29.20	$	24.94	$	0.2125		March 31	$	21.15	$	19.68	$	0.2025
June 30	$	31.50	$	26.66	$	0.2125		June 30	$	22.23	$	19.99	$	0.2025
September 30	$	32.38	$	27.52	$	0.2125		September 30	$	24.00	$	21.48	$	0.2025
December 31	$	30.80	$	25.80	$	0.2225		December 31	$	26.56	$	23.11	$	0.2125

These quotations are based on the list of composite transactions of the New York Stock Exchange. Our stock is traded on the New York Stock Exchange under the symbol SJI. We have declared and expect to continue to declare regular quarterly cash dividends. As of December 31, 2005, the latest available date, our records indicate that there were 8,077 shareholders.

South Jersey Gas Company Comparative Operating Statistics

	2005			2004			2003			2002			2001

Operating Revenues (Thousands):
Firm Sales —
Residential	$	252,150		$	182,826		$	193,725		$	174,252		$	201,531
Commercial		88,321			57,826			58,749			52,300			76,416
Industrial		4,428			5,223			5,635			4,512			4,250
Cogeneration & Electric Generation		17,916			9,496			6,513			9,363			7,405
Firm Transportation —
Residential		25,296			42,375			40,067			23,172			11,280
Commercial		14,043			22,142			22,464			15,958			8,423
Industrial		12,999			15,732			11,500			10,065			9,591
Cogeneration & Electric Generation		259			323			49			241			271

Total Firm Revenues		415,412			335,943			338,702			289,863			319,167

Interruptible		1,498			1,641			1,682			1,142			1,485
Interruptible Transportation		1,898			1,462			1,121			1,567			1,268
Off-System		153,637			151,161			176,555			115,714			145,530
Capacity Release & Storage		12,808			10,157			6,686			5,365			5,596
Appliance Service		—			6,362			9,596			8,386			6,136
Other		1,960			2,101			2,099			1,989			2,267
Intercompany Sales		(10,808	)		(13,879	)		(40,387	)		(31,142	)		(30,257	)

Total Operating Revenues	$	576,405		$	494,948		$	496,054		$	392,884		$	451,192

Throughput (MMcf):
Firm Sales —
Residential		18,644			14,723			15,843			15,519			17,390
Commercial		7,287			5,198			5,351			5,273			7,544
Industrial		196			187			212			202			248
Cogeneration & Electric Generation		1,669			1,095			777			1,986			1,519
Firm Transportation —
Residential		5,512			9,059			8,774			5,174			2,887
Commercial		5,045			7,394			7,639			5,846			3,789
Industrial		15,492			16,441			15,774			15,292			14,795
Cogeneration & Electric Generation		335			236			27			158			614

Total Firm Throughput		54,180			54,333			54,397			49,450			48,786

Interruptible		114			172			220			198			207
Interruptible Transportation		2,716			2,463			2,247			3,189			2,638
Off-System		14,411			21,294			27,041			29,980			30,117
Capacity Release & Storage		82,490			54,585			41,119			38,048			27,187

Total Throughput		153,911			132,847			125,024			120,865			108,935

Number of Customers at Year End:
Residential		300,652			292,185			283,722			275,979			268,046
Commercial		21,322			20,939			20,405			19,966			19,542
Industrial		450			455			435			429			420

Total Customers		322,424			313,579			304,562			296,374			288,008

Maximum Daily Sendout (MMcf)		424			428			422			344			326

Annual Degree Days		4,777			4,641			4,929			4,380			4,495

South Jersey Industries

Board of Directors

Shirli M. Billings, Ph.D.

Director since 1983, Age 65 2,4,5*,6

President, Billings & Company, New Albany, OH

Charles Biscieglia

Director since 1998, Age 61 3,4,6

Former Chairman, South Jersey Industries

Helen R. Bosley, CFA

Director since 2004, Age 58 1,2

President, Corporate Financial Management, Inc., Yardley, PA

Thomas A. Bracken

Director since 2004, Age 58 1,2

President and CEO, Sun Bancorp. Inc., Vineland, NJ

Keith S. Campbell

Director since 2000, Age 51 3,5,6*

Chairman, Mannington Mills, Salem NJ

W. Cary Edwards

Lead Director since 2005

Director from April 1990 to January 1993 and September 1993 to present, Age 61 2*,3,4,6

Chairman, New Jersey State Commission on Investigation

Senior Attorney, law firm of Edwards & Caldwell, Hawthorne, NJ

Edward J. Graham

Director since 2004, Age 48 3,4*,6

Chairman, President and CEO, South Jersey Industries

Sheila Hartnett-Devlin, CFA

Director since 1999, Age 47 1*,2,5

Senior Investment Manager, Cohen, Klingenstein & Marks, Inc., New York, NY

William J. Hughes

Director since 2001, Age 73 1,5

Of Counsel, law firm of Riker, Danzig, Scherer, Hyland & Perretti, Trenton, NJ; Former Ambassador to Panama and former member of the United States House of Representatives

Herman D. James, Ph.D.

Director since 1990, Age 62 1,2,4,6

Distinguished Professor, Rowan University, Glassboro, NJ

Frederick R. Raring

Director since 1995, Age 68 1,3*,4,5

President, Seashore Supply Company, Ocean City, NJ

1	Audit Committee
2	Compensation/Pension Committee
3	Environmental Committee
4	Executive Committee
5	Nominating Committee
6	Management Development Committee
*	Committee Chair

South Jersey Industries

Officers

Edward J. Graham

Chairman, President and CEO

Jeffrey E. DuBois

Vice President

Richard J. Jackson

Vice President

David A. Kindlick

Vice President and CFO

Michael J. Renna

Vice President

Albert V. Ruggiero

Vice President

Richard J. Walker, Jr., Esq.

Vice President, General Counsel and Secretary

Stephen H. Clark

Treasurer

Jane F. Kelly, Esq.

Assistant Vice President, Assistant Corporate Counsel and Assistant Corporate Secretary

Dividend Reinvestment Plan

SJI’s Dividend Reinvestment Plan provides record shareholders of SJI’s common stock with a way to increase their investment in the company without payment of any brokerage commission or service charge.

Shareholders participating in the Plan may purchase shares of common stock by the automatic reinvestment of dividends and optional purchases. The Plan is now available to any person who, upon enrollment, agrees to become a shareholder by purchasing at least $100 of SJI common stock. Optional purchases may be made up to a maximum of $100,000 in any calendar year, as prescribed in the Plan.

Shares of common stock offered through the Plan are either newly issued or treasury common stock that the Plan acquires directly from SJI currently at a 2 percent discount.

The price will be 98 percent of the average of the high and low sale prices for SJI’s common stock for each of the last 12 days the common stock was traded prior to the purchase date. The offer and sale of shares under the Plan will be made only through a Prospectus, obtainable by contacting the Shareholder Records Department.

Direct Deposit of Dividends (Electronic Funds Transfer)

Stockholders of record can have immediate access to dividend funds. Your dividend funds can be deposited directly into your checking or savings account. Confirmation of dividend receipts will appear on your monthly bank statement.

South Jersey Industries stock is traded on the New York Stock Exchange under the trading symbol SJI. The information contained herein is not given in connection with any sale or offer of, or solicitation of an offer to buy, any securities.

Certifications

South Jersey Industries has included as Exhibit 31 to its Annual Report on Form 10-K for fiscal year 2005, filed with the Securities and Exchange Commission, certificates of the company’s Chief Executive Officer and Chief Financial Officer certifying the quality of the company’s public disclosure. The company has also submitted to the New York Stock Exchange a certificate of the Chief Executive Officer of the company certifying that he is not aware of any violation by the company of New York Stock Exchange corporate governance listing standards.

	South Jersey Industries, Inc. and Subsidiaries
	Year Ended December 31,

		2005			2004			2003			2002			2001

Operating Results:
Operating Revenues	$	920, 982		$	819,076		$	705,196		$	511,890		$	551,974

Operating Income	$	101,784		$	90,739		$	77,843		$	69,075		$	68,544

Income Applicable to Common Stock:
Continuing Operations	$	48,588		$	42,973		$	34,553		$	29,412		$	26,869
Discontinued Operations — Net (1)		(669	)		(680	)		(774	)		(424	)		(455	)
Cumulative Effect of a Change in Accounting Principle — Net		—			—			(426	)		—			148

Net Income Applicable to Common Stock	$	47,919		$	42,293		$	33,353		$	28,988		$	26,562

Total Assets	$	1,436,146		$	1,243,666		$	1,126,203		$	1,053,834		$	1,026,479

Capitalization:
Common Equity	$	391,185		$	343,363		$	296,412		$	237,156		$	220,286
Preferred Stock (2)		—			1,690			1,690			1,690			1,690
Long-Term Debt		319,066			328,914			308,781			274,099			295,329

Total Capitalization	$	710,251		$	673,967		$	606,883		$	512,945		$	517,305

Ratio of Operating Income to Fixed Charges		4.9x			4.4x			3.8x			3.3x			2.9x

Diluted Earnings Per Common Share
(Based on Average Diluted Shares Outstanding):
Continuing Operations	$	1.71		$	1.56		$	1.37		$	1.22		$	1.14
Discontinued Operations — Net (1)		(0.02	)		(0.03	)		(0.03	)		(0.02	)		(0.02	)
Cumulative Effect of a Change in Accounting Principle — Net		—			—			(0.02	)		—			0.01

Diluted Earnings Per Common Share	$	1.69		$	1.53		$	1.32		$	1.20		$	1.13

Return on Average Common Equity (3)		13.2	%		13.4	%		12.9	%		12.9	%		12.7	%

Share Data:
Number of Shareholders of Record		8.1			8.1			8.3			8.4			8.7
Average Common Shares		28,175			27,382			25,118			24,076			23,432
Common Shares Outstanding at Year End		28,982			27,760			26,458			24,412			23,722
Dividend Reinvestment Plan:
Number of Shareholders		5.3			5.2			5.1			5.1			5.0
Number of Participating Shares		2,722			2,764			2,750			2,608			2,560
Book Value at Year End	$	13.50		$	12.37		$	11.20		$	9.71		$	9.29
Dividends Declared	$	0.86		$	0.82		$	0.78		$	0.76		$	0.74
Market Price at Year End	$	29.14		$	26.28		$	20.25		$	16.51		$	16.30
Dividend Payout (4):
From Continuing Operations		50.2	%		52.4	%		57.1	%		60.9	%		63.9	%
From Total Net Income		50.9	%		53.3	%		59.1	%		61.8	%		64.6	%
Market-to-Book Ratio		2.2x			2.1x			1.8x			1.7x			1.8x
Price Earnings Ratio (3)		17.0x			16.9x			14.8x			13.6x			14.3x

		2005 vs. 2004			2004 vs. 2003
Utility	$	(1,394	)	$	1,970
Nonutility:
Wholesale Gas		122			215
Retail Gas and Other		2,017			(1,573	)
On-Site Energy Production		451			1,813
Appliance Service		2,939			2,885
Total Nonutility		5,529			3,340
Corporate		104			1,093
Total Operations	$	4,239		$	6,403

Assets	Source of		Maturity		Maturity		Beyond
		Fair Value		< 1 Year		1 - 3 Years		3 Years		Total
Prices Actively Quoted		NYMEX:
Trading			$	12,464	$	2,786	$	1,166	$	16,416
Hedging				1,871		131		—		2,002
Subtotal				14,335		2,917		1,166		18,418
Other External Sources		Basis:
Trading				9,756		953		44		10,753
Hedging				317		—		—		317
Subtotal				10,073		953		44		11,070
Total			$	24,408	$	3,870	$	1,210	$	29,488

Liabilities		Source of		Maturity		Maturity		Beyond
		Fair Value		< 1 Year		1 - 3 Years		3 Years		Total
Prices Actively Quoted		NYMEX:
Trading			$	12,150	$	2,266	$	1,148	$	15,564
Hedging				2,755		131		—		2,886
Subtotal				14,905		2,397		1,148		18,450
Other External Sources		Basis:
Trading				6,936		1,278		72		8,286
Hedging				116		—		—		116
Subtotal				7,052		1,278		72		8,402
Total			$	21,957	$	3,675	$	1,220	$	26,852

Net Derivatives — Energy Related Assets,
January 1, 2005	$	9,710
Contracts Settled During 2005, Net		(7,813	)
Other Changes in Fair Value from Continuing and New Contracts, Net		739

Net Derivatives — Energy Related Assets,
December 31, 2005	$	2,636

	South Jersey Industries, Inc. and Subsidiaries
	Year Ended December 31,

		2005			2004			2003

Operating Revenues:
Utility	$	576,405		$	494,948		$	496,054
Nonutility		344,577			324,128			209,142

Total Operating Revenues		920,982			819,076			705,196

Operating Expenses:
Cost of Sales — Utility		404,144			326,981			335,427
Cost of Sales — Nonutility		297,352			287,714			184,992
Operations		75,222			70,983			64,580
Maintenance		5,814			5,772			5,678
Depreciation		24,031			24,888			24,646
Energy and Other Taxes		12,635			11,999			12,030

Total Operating Expenses		819,198			728,337			627,353

Operating Income		101,784			90,739			77,843

Other Income and Expense		619			985			136
Interest Charges		(20,950	)		(20,573	)		(20,616	)

Income Before Income Taxes		81,453			71,151			57,363

Income Taxes		(33,767	)		(29,079	)		(23,596	)
Equity in Affiliated Companies		902			901			786

Income from Continuing Operations		48,588			42,973			34,553

Loss from Discontinued Operations — Net		(669	)		(680	)		(774	)
Cumulative Effect of a Change in Accounting Principle — Net		—			—			(426	)

Net Income Applicable to Common Stock	$	47,919		$	42,293		$	33,353

Basic Earnings Per Common Share:
Continuing Operations	$	1.72		$	1.57		$	1.38
Discontinued Operations		(0.02	)		(0.03	)		(0.03	)
Cumulative Effect of a Change in Accounting Principle — Net		—			—			(0.02	)

Basic Earnings Per Common Share	$	1.70		$	1.54		$	1.33

Average Shares of Common Stock Outstanding — Basic		28,175			27,382			25,118

Diluted Earnings Per Common Share:
Continuing Operations	$	1.71		$	1.56		$	1.37
Discontinued Operations		(0.02	)		(0.03	)		(0.03	)
Cumulative Effect of a Change in Accounting Principle — Net		—			—			(0.02	)

Diluted Earnings Per Common Share	$	1.69		$	1.53		$	1.32

Average Shares of Common Stock Outstanding — Diluted		28,399			27,596			25,317

Dividends Declared Per Common Share	$	0.86		$	0.82		$	0.78

1	Financial Highlights
2	Chairman, President & CEO’s Letter to Shareholders
12	Management’s Discussion
23	Consolidated Financial Statements
28	Notes to Consolidated Financial Statements
40	Quarterly Financial Data
41	Comparative Operating Statistics
42	SJI Directors and Officers

	As of December 31,
		2005		2004

Common Equity		45.5	%	44.6	%
Long-Term Debt		37.1	%	42.7	%
Short-Term Debt		17.4	%	12.7	%
Total		100.0	%	100.0	%

	South Jersey Industries, Inc. and Subsidiaries
	December 31,
		2005			2004

Assets
Property, Plant and Equipment:
Utility Plant, at original cost	$	1,030,028		$	957,287
Accumulated Depreciation		(241,242	)		(224,506	)
Nonutility Property and Equipment, at cost		94,623			71,129
Accumulated Depreciation		(6,061	)		(4,040	)
Property, Plant and Equipment — Net		877,348			799,870
Investments:
Available-for-Sale Securities		5,642			5,310
Restricted		8,234			13,597
Investments in Affiliates		2,094			1,942
Total Investments		15,970			20,849
Current Assets:
Cash and Cash Equivalents		4,884			5,272
Accounts Receivable		136,036			113,778
Unbilled Revenues		59,066			45,857
Provision for Uncollectibles		(5,871	)		(3,495	)
Natural Gas in Storage, average cost		113,383			79,281
Materials and Supplies, average cost		4,758			5,357
Deferred Income Taxes — Net		2,323			—
Prepaid Taxes		13,061			6,104
Derivatives — Energy Related Assets		24,408			27,226
Other Prepayments and Current Assets		5,415			4,491
Total Current Assets		357,463			283,871
Regulatory and Other Noncurrent Assets:
Regulatory Assets		121,483			74,307
Prepaid Pension		30,075			28,589
Derivatives — Energy Related Assets		5,080			5,427
Unamortized Debt Issuance Costs		7,147			7,222
Contract Receivables		14,766			16,153
Other		6,814			7,378
Total Regulatory and Other Noncurrent Assets		185,365			139,076
Total Assets	$	1,436,146		$	1,243,666

Capitalization and Liabilities
Capitalization:
Common Equity	$	391,185		$	343,363
Preferred Stock		—			1,690
Long-Term Debt		319,066			328,914
Total Capitalization		710,251			673,967
Minority Interest		394			227
Current Liabilities:
Notes Payable		147,300			92,300
Current Maturities of Long-Term Debt		2,364			5,348
Accounts Payable		179,023			118,507
Customer Deposits		9,428			8,846
Environmental Remediation Costs		18,165			13,810
Taxes Accrued		7,456			5,419
Derivatives — Energy Related Liabilities		21,957			19,282
Derivatives — Other		—			344
Deferred Income Taxes — Net		—			4,308
Deferred Contract Revenues		5,077			4,795
Interest Accrued and Other Current Liabilities		12,336			12,422
Total Current Liabilities		403,106			285,381
Deferred Credits and Other Noncurrent Liabilities:
Deferred Income Taxes — Net		169,423			143,132
Investment Tax Credits		2,795			3,129
Pension and Other Postretirement Benefits		18,941			19,790
Asset Retirement Obligations		22,588			—
Environmental Remediation Costs		42,489			41,181
Derivatives — Energy Related Liabilities		4,895			3,661
Derivatives — Other		491			1,516
Regulatory Liabilities		54,002			63,836
Other		6,771			7,846
Total Deferred Credits and Other Noncurrent Liabilities		322,395			284,091
Commitments and Contingencies (Note 13)
Total Capitalization and Liabilities	$	1,436,146		$	1,243,666

		South Jersey Industries, Inc. and Subsidiaries
		December 31,
			2005			2004
Common Equity:
Common Stock: Par Value $1.25 per share; Authorized 60,000,000 shares;
Outstanding Shares: 28,982,440 (2005) and 27,759,936 (2004)
Balance at Beginning of Year		$	34,700		$	33,072
Common Stock Issued Under Stock Plans			1,528			1,628
Balance at End of Year			36,228			34,700
Premium on Common Stock			231,861			197,737
Accumulated Other Comprehensive Loss			(11,261	)		(471	)
Retained Earnings			134,357			111,397
Total Common Equity			391,185			343,363

Preferred Stock: (Note 5)
South Jersey Gas Company - 8% Redeemable Cumulative Preferred Stock:
Par Value $100 per share; 41,966 Shares Authorized; 0 (2005) and 16,904 (2004) Outstanding			—			1,690

Long-Term Debt: (A)
South Jersey Gas Company:
First Mortgage Bonds: (B)
8.19%	Series due 2007		4,543			6,816
6.12%	Series due 2010		10,000			10,000
6.74%	Series due 2011		10,000			10,000
6.57%	Series due 2011		15,000			15,000
4.46%	Series due 2013		10,500			10,500
5.027%	Series due 2013		14,500			14,500
4.52%	Series due 2014		11,000			11,000
5.115%	Series due 2014		10,000			10,000
5.387%	Series due 2015		10,000			10,000
5.437%	Series due 2016		10,000			10,000
6.50%	Series due 2016		9,965			9,965
4.60%	Series due 2016		17,000			17,000
4.657%	Series due 2017		15,000			15,000
7.97%	Series due 2018		10,000			10,000
7.125%	Series due 2018		20,000			20,000
5.587%	Series due 2019		10,000			10,000
7.7%	Series due 2027		35,000			35,000
7.9%	Series due 2030 (C)		—			10,000
5.55%	Series due 2033		32,000			32,000
6.213%	Series due 2034		10,000			10,000
5.45%	Series due 2035 (D)		10,000			—
Unsecured Notes:
Debenture Notes, 8.6% due 2010 (E)			—			10,500
Marina Energy LLC: (F)
Series A Bonds at variable rates due 2031			20,000			20,000
Series B Bonds at variable rates due 2021			25,000			25,000
AC Landfill Energy, LLC: (G)
Bank Term Loan, 6% due 2014			741			800
Mortgage Bond, 4.19% due 2019			1,181			1,181

Total Long-Term Debt Outstanding			321,430			334,262
Less Current Maturities			(2,364	)		(5,348	)

Total Long-Term Debt			319,066			328,914

Total Capitalization		$	710,251		$	673,967

	South Jersey Industries, Inc. and Subsidiaries
	Years Ended December 31, 2003, 2004 & 2005
						Accumulated
						Other
		Common		Premium on		Comprehensive			Retained
		Stock		Common Stock		(Loss) Income			Earnings			Total
Balance at December 31, 2002	$	30,516	$	136,143	$	(7,505	)	$	78,002		$	237,156
Net Income Applicable to Common Stock									33,353			33,353
Other Comprehensive Income (Loss), Net of Tax:*
Minimum Pension Liability Adjustment						8,015						8,015
Unrealized Gain on Equity Investments						432						432
Unrealized Gain on Derivatives						4,582						4,582
Reclassification Adjustment for Amounts
Included in Net Income						(4,900	)					(4,900	)
Other Comprehensive Income, Net of Tax*												8,129
Comprehensive Income												41,482
Common Stock Issued or Granted Under Stock Plans		2,556		34,935								37,491
Cash Dividends Declared — Common Stock									(19,717	)		(19,717	)

Balance at December 31, 2003		33,072		171,078		624			91,638			296,412
Net Income Applicable to Common Stock									42,293			42,293
Other Comprehensive Income (Loss), Net of Tax:*
Minimum Pension Liability Adjustment						(1,077	)					(1,077	)
Unrealized Loss on Equity Investments						(192	)					(192	)
Unrealized Gain on Derivatives						3,445						3,445
Reclassification Adjustment for Amounts
Included in Net Income						(3,271	)					(3,271	)
Other Comprehensive Loss, Net of Tax*												(1,095	)
Comprehensive Income												41,198
Common Stock Issued or Granted Under Stock Plans		1,628		26,659								28,287
Cash Dividends Declared — Common Stock									(22,534	)		(22,534	)

Balance at December 31, 2004		34,700		197,737		(471	)		111,397			343,363
Net Income Applicable to Common Stock									47,919			47,919
Other Comprehensive Income (Loss), Net of Tax:*
Minimum Pension Liability Adjustment						427						427
Unrealized Gain on Equity Investments						63						63
Unrealized Loss on Derivatives						(15,063	)					(15,063	)
Reclassification Adjustment for Amounts
Included in Net Income						3,783						3,783
Other Comprehensive Loss, Net of Tax*												(10,790	)
Comprehensive Income												37,129
Common Stock Issued or Granted Under Stock Plans		1,528		34,124					(562	)		35,090
Cash Dividends Declared — Common Stock									(24,397	)		(24,397	)

Balance at December 31, 2005	$	36,228	$	231,861	$	(11,261	)	$	134,357		$	391,185

								Unrealized			Accumulated
		Minimum			Unrealized			(Loss)Gain			Other
		Pension Liability			Gain (Loss) on			on Equity			Comprehensive
		Adjustment			Derivatives			Investments			(Loss) Income

Balance at December 31, 2002	$	(10,862	)	$	3,506		$	(149	)	$	(7,505	)
Changes During Year		8,015			(318	)		432			8,129
Balance at December 31, 2003		(2,847	)		3,188			283			624
Changes During Year		(1,077	)		174			(192	)		(1,095	)
Balance at December 31, 2004		(3,924	)		3,362			91			(471	)
Changes During Year		427			(11,280	)		63			(10,790	)
Balance at December 31, 2005	$	(3,497	)	$	(7,918	)	$	154		$	(11,261	)