UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark one)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2017

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________ to ______________________

Commission File Number	Exact name of registrant as specified in its charter and principal office address and telephone number	State of Incorporation	I.R.S. Employer Identification No.
1-6364	South Jersey Industries, Inc. 1 South Jersey Plaza Folsom, NJ 08037 (609) 561-9000	New Jersey	22-1901645
000-22211	South Jersey Gas Company 1 South Jersey Plaza Folsom, NJ 08037 (609) 561-9000	New Jersey	21-0398330

Indicate by check mark whether each registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that such registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes x   No o

Indicate by check mark whether each registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that such registrant was required to submit and post such files). Yes x   No o

Indicate by check mark whether each registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

South Jersey Industries, Inc.:
Large accelerated filer   x	Accelerated filer      o	Non-accelerated filer     o
Smaller reporting company      o	Emerging growth company      o
South Jersey Gas Company:
Large accelerated filer   o	Accelerated filer      o	Non-accelerated filer     x
Smaller reporting company      o	Emerging growth company      o

If an emerging growth company, indicate by check mark if either registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o

Indicate by check mark whether either registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x

South Jersey Industries, Inc. common stock ($1.25 par value) outstanding as of May 1, 2017 was 79,547,998 shares. South Jersey Gas Company common stock ($2.50 par value) outstanding as of May 1, 2017 was 2,339,139 shares. All of South Jersey Gas Company's outstanding shares of common stock are held by South Jersey Industries, Inc.

South Jersey Gas Company is a wholly-owned subsidiary of South Jersey Industries, Inc. and meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q. As such, South Jersey Gas Company files its Quarterly Report on Form 10-Q with the reduced disclosure format authorized by General Instruction H.

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION	Page No.
Item 1.	Financial Statements (Unaudited)	1
	South Jersey Industries, Inc.
	Condensed Consolidated Statements of Income	1
	Condensed Consolidated Statements of Comprehensive Income	2
	Condensed Consolidated Statements of Cash Flows	3
	Condensed Consolidated Balance Sheets	4
	South Jersey Gas Company
	Condensed Statements of Income	6
	Condensed Statements of Comprehensive Income	7
	Condensed Statements of Cash Flows	8
	Condensed Balance Sheets	9
	Notes to Unaudited Condensed Consolidated Financial Statements	11
	South Jersey Industries, Inc. and South Jersey Gas Company - Combined
	Note  1. Summary of Significant Accounting Policies	11
	Note  2. Stock-Based Compensation Plan	15
	Note 3. Affiliations, Discontinued Operations and Related-Party Transactions	17
	Note  4. Common Stock	19
	Note  5. Financial Instruments	19
	Note  6. Segments of Business	21
	Note  7. Rates and Regulatory Actions	25
	Note  8. Regulatory Assets & Regulatory Liabilities	25
	Note  9. Pension and Other Postretirement Benefits	27
	Note 10. Lines of Credit	28
	Note 11. Commitments and Contingencies	29
	Note 12. Derivative Instruments	30
	Note 13. Fair Value of Financial Assets and Financial Liabilities	34
	Note 14. Long-Term Debt	38
	Note 15. Accumulated Other Comprehensive Loss	38
	Note 16. Subsequent Events	40
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41
	South Jersey Industries, Inc.	43
	South Jersey Gas Company	58
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	61
Item 4.	Controls and Procedures	65
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	66
Item 1A.	Risk Factors	66
Item 6.	Exhibits	67
Signatures		68

INTRODUCTION

FILING FORMAT

This Quarterly Report on Form 10-Q is a combined report being filed separately by two registrants: South Jersey Industries, Inc. (SJI) and South Jersey Gas Company (SJG). Information relating to SJI or any of its subsidiaries, other than SJG, is filed by SJI on its own behalf. SJG is only responsible for information about itself.

Except where the content clearly indicates otherwise, any reference in the report to "SJI," "the Company," "we," "us" or "our" is to the holding company or SJI and all of its subsidiaries, including SJG, which is a wholly owned subsidiary of SJI.

Part 1 - Financial information in this Quarterly Report on Form 10-Q includes separate financial statements (i.e., balance sheets, statements of income, statements of comprehensive income and statements of cash flows) for SJI and SJG. The Notes to Unaudited Condensed Consolidated Financial Statements are presented on a combined basis for both SJI and SJG. Management's Discussion and Analysis of Financial Condition and Results of Operations (Management's Discussion) included under Item 2 is divided into two major sections: SJI and SJG.

Item 1. Unaudited Condensed Consolidated Financial Statements

SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(In Thousands Except for Per Share Data)

	Three Months Ended March 31,
	2017			2016
Operating Revenues:
Utility	$	195,769		$	183,669
Nonutility	230,060			149,366
Total Operating Revenues	425,829			333,035
Operating Expenses:
Cost of Sales - (Excluding depreciation)
- Utility	71,379			65,206
- Nonutility	215,763			87,769
Operations	39,626			38,797
Maintenance	4,981			4,384
Depreciation	24,323			20,701
Energy and Other Taxes	2,071			1,925
Total Operating Expenses	358,143			218,782
Operating Income	67,686			114,253
Other Income and Expense	5,665			2,203
Interest Charges	(16,745		)	(9,160		)
Income Before Income Taxes	56,606			107,296
Income Taxes	(21,870		)	(39,267		)
Equity in Earnings of Affiliated Companies	3,011			158
Income from Continuing Operations	37,747			68,187
Loss from Discontinued Operations - (Net of tax benefit)	(30		)	(118		)
Net Income	$	37,717		$	68,069
Basic Earnings Per Common Share:
Continuing Operations	$	0.47		$	0.96
Discontinued Operations	—			—
Basic Earnings Per Common Share	$	0.47		$	0.96
Average Shares of Common Stock Outstanding - Basic	79,519			71,127
Diluted Earnings Per Common Share:
Continuing Operations	$	0.47		$	0.95
Discontinued Operations	—			—
Diluted Earnings Per Common Share	$	0.47		$	0.95
Average Shares of Common Stock Outstanding - Diluted	79,641			71,416
Dividends Declared Per Common Share	$	0.27		$	0.26

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

1

SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(In Thousands)

	Three Months Ended March 31,
	2017		2016
Net Income	$	37,717	$	68,069
Other Comprehensive Income, Net of Tax:*
Unrealized Gain on Available-for-Sale Securities	—		49
Unrealized Gain on Derivatives - Other	1,515		51
Other Comprehensive Income - Net of Tax*	1,515		100
Comprehensive Income	$	39,232	$	68,169

* Determined using a combined average statutory tax rate of 40%.

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

2

SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In Thousands)

	Three Months Ended March 31,
	2017			2016
Net Cash Provided by Operating Activities (See Note 1)	$	79,528		$	98,465
Cash Flows from Investing Activities:
Capital Expenditures (See Note 1)	(67,278		)	(67,637		)
Proceeds from Sale of Property, Plant & Equipment	3,058			—
Investment in Long-Term Receivables	(2,362		)	(3,142		)
Proceeds from Long-Term Receivables	2,554			2,527
Notes Receivable	3,000			(50		)
Purchase of Company-Owned Life Insurance	(8,074		)	(357		)
Investment in Affiliate	(5,902		)	(3,079		)
Net Repayment of Notes Receivable - Affiliate	2,251			1,626
Net Cash Used in Investing Activities (See Note 1)	(72,753		)	(70,112		)
Cash Flows from Financing Activities:
Net Repayments of Short-Term Credit Facilities	(91,000		)	(92,200		)
Proceeds from Issuance of Long-Term Debt	273,000			61,000
Principal Repayments of Long-Term Debt	(200,000		)	(12,905		)
Payments for Issuance of Long-Term Debt	(2,021		)	—
Net Settlement of Restricted Stock (See Note 1)	(751		)	(385		)
Proceeds from Sale of Common Stock	—			5,645
Net Cash Used in Financing Activities	(20,772		)	(38,845		)
Net Decrease in Cash, Cash Equivalents and Restricted Cash	(13,997		)	(10,492		)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period (See Note 1)	31,910			52,635
Cash, Cash Equivalents and Restricted Cash at End of Period (See Note 1)	$	17,913		$	42,143

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

3

SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In Thousands)

	March 31, 2017			December 31, 2016
Assets
Property, Plant and Equipment:
Utility Plant, at original cost	$	2,479,539		$	2,424,134
Accumulated Depreciation	(476,774		)	(471,222		)
Nonutility Property and Equipment, at cost	821,230			821,942
Accumulated Depreciation	(161,310		)	(151,084		)
Property, Plant and Equipment - Net	2,662,685			2,623,770
Investments:
Available-for-Sale Securities	32			32
Restricted	2,865			13,628
Investment in Affiliates	37,331			28,906
Total Investments	40,228			42,566
Current Assets:
Cash and Cash Equivalents	15,048			18,282
Accounts Receivable	234,312			222,339
Unbilled Revenues	54,803			59,680
Provision for Uncollectibles	(11,972		)	(12,744		)
Notes Receivable	1,454			1,454
Notes Receivable - Affiliate	211			2,461
Natural Gas in Storage, average cost	35,216			53,857
Materials and Supplies, average cost	6,916			6,753
Prepaid Taxes	10,601			17,471
Derivatives - Energy Related Assets	58,129			72,391
Other Prepayments and Current Assets	31,910			31,369
Total Current Assets	436,628			473,313
Regulatory and Other Noncurrent Assets:
Regulatory Assets	424,990			410,746
Derivatives - Energy Related Assets	8,061			8,502
Notes Receivable - Affiliate	13,275			13,275
Contract Receivables	28,961			29,037
Notes Receivable	20,433			25,271
Goodwill	4,838			4,838
Identifiable Intangible Assets	15,537			15,820
Other	91,716			83,429
Total Regulatory and Other Noncurrent Assets	607,811			590,918
Total Assets	$	3,747,352		$	3,730,567

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

4

SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In Thousands)

	March 31, 2017			December 31, 2016
Capitalization and Liabilities
Equity:
Common Stock	$	99,435		$	99,347
Premium on Common Stock	707,483			706,943
Treasury Stock (at par)	(269		)	(266		)
Accumulated Other Comprehensive Loss	(25,866		)	(27,381		)
Retained Earnings	527,115			510,597
Total Equity	1,307,898			1,289,240
Long-Term Debt	1,079,298			808,005
Total Capitalization	2,387,196			2,097,245
Current Liabilities:
Notes Payable	205,100			296,100
Current Portion of Long-Term Debt	31,909			231,909
Accounts Payable	272,673			243,669
Customer Deposits and Credit Balances	38,366			48,068
Environmental Remediation Costs	54,210			46,120
Taxes Accrued	6,288			2,082
Derivatives - Energy Related Liabilities	31,702			60,082
Derivatives - Other	738			681
Dividends Payable	21,750			—
Interest Accrued	7,189			6,231
Pension Benefits	2,463			2,463
Other Current Liabilities	8,635			15,219
Total Current Liabilities	681,023			952,624
Deferred Credits and Other Noncurrent Liabilities:
Deferred Income Taxes - Net	365,764			343,549
Pension and Other Postretirement Benefits	87,654			95,235
Environmental Remediation Costs	104,705			108,893
Asset Retirement Obligations	59,598			59,427
Derivatives - Energy Related Liabilities	4,036			4,540
Derivatives - Other	10,017			9,349
Regulatory Liabilities	37,308			49,121
Other	10,051			10,584
Total Deferred Credits and Other Noncurrent Liabilities	679,133			680,698
Commitments and Contingencies  (Note 11)
Total Capitalization and Liabilities	$	3,747,352		$	3,730,567

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

5

SOUTH JERSEY GAS COMPANY

CONDENSED STATEMENTS OF INCOME (UNAUDITED)

(In Thousands)

	Three Months Ended
	March 31,
	2017			2016
Operating Revenues	$	196,814		$	187,766
Operating Expenses:
Cost of Sales (Excluding depreciation)	72,424			69,303
Operations	24,754			26,069
Maintenance	4,981			4,384
Depreciation	12,714			11,210
Energy and Other Taxes	1,295			1,027
Total Operating Expenses	116,168			111,993
Operating Income	80,646			75,773
Other Income and Expense	1,621			836
Interest Charges	(5,878		)	(4,787		)
Income Before Income Taxes	76,389			71,822
Income Taxes	(29,911		)	(27,404		)
Net Income	$	46,478		$	44,418

The accompanying notes are an integral part of the unaudited condensed financial statements.

6

SOUTH JERSEY GAS COMPANY

CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(In Thousands)

	Three Months Ended
	March 31,
	2017		2016
Net Income	$	46,478	$	44,418
Other Comprehensive Income - Net of Tax: *
Unrealized Gain on Available-for-Sale Securities	—		4
Unrealized Gain on Derivatives - Other	7		7
Other Comprehensive Income - Net of Tax *	7		11
Comprehensive Income	$	46,485	$	44,429

* Determined using a combined average statutory tax rate of 40%.

The accompanying notes are an integral part of the unaudited condensed financial statements.

7

SOUTH JERSEY GAS COMPANY

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In Thousands)

	Three Months Ended
	March 31,
	2017			2016
Net Cash Provided by Operating Activities	$	56,986		$	68,838
Cash Flows from Investing Activities:
Capital Expenditures	(56,086		)	(60,098		)
Note Receivable	—			(50		)
Purchase of Company-Owned Life Insurance	(4,875		)	—
Investment in Long-Term Receivables	(2,362		)	(3,142		)
Proceeds from Long-Term Receivables	2,554			2,527
Net Cash Used in Investing Activities (See Note 1)	(60,769		)	(60,763		)
Cash Flows from Financing Activities:
Net Repayments of Short-Term Credit Facilities	(104,300		)	(69,600		)
Proceeds from Issuance of Long-Term Debt	273,000			61,000
Principal Repayments of Long-Term Debt	(200,000		)	—
Payments for Issuance of Long-Term Debt	(2,021		)	(1		)
Additional Investment by Shareholder	40,000			—
Net Cash Provided by (Used in) Financing Activities	6,679			(8,601		)
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash	2,896			(526		)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period (See Note 1)	1,391			7,544
Cash, Cash Equivalents and Restricted Cash at End of Period (See Note 1)	$	4,287		$	7,018

The accompanying notes are an integral part of the unaudited condensed financial statements.

8

SOUTH JERSEY GAS COMPANY

CONDENSED BALANCE SHEETS (UNAUDITED)

(In Thousands)

	March 31, 2017			December 31, 2016
Assets
Property, Plant and Equipment:
Utility Plant, at original cost	$	2,479,539		$	2,424,134
Accumulated Depreciation	(476,774		)	(471,222		)
Property, Plant and Equipment - Net	2,002,765			1,952,912
Investments:
Restricted Investments	32			32
Total Investments	32			32
Current Assets:
Cash and Cash Equivalents	4,255			1,359
Accounts Receivable	96,741			69,651
Accounts Receivable - Related Parties	1,096			1,355
Unbilled Revenues	37,085			41,754
Provision for Uncollectibles	(11,784		)	(12,570		)
Natural Gas in Storage, average cost	2,924			11,621
Materials and Supplies, average cost	909			914
Prepaid Taxes	9,581			16,428
Derivatives - Energy Related Assets	3,107			5,434
Other Prepayments and Current Assets	13,486			13,853
Total Current Assets	157,400			149,799
Regulatory and Other Noncurrent Assets:
Regulatory Assets	424,990			410,746
Long-Term Receivables	25,781			25,758
Derivatives - Energy Related Assets	—			373
Other	16,448			12,303
Total Regulatory and Other Noncurrent Assets	467,219			449,180
Total Assets	$	2,627,416		$	2,551,923

The accompanying notes are an integral part of the unaudited condensed financial statements.

9

SOUTH JERSEY GAS COMPANY

CONDENSED BALANCE SHEETS (UNAUDITED)

(In Thousands, except per share amounts)

	March 31, 2017			December 31, 2016
Capitalization and Liabilities
Equity:
Common Stock	$	5,848		$	5,848
Other Paid-In Capital and Premium on Common Stock	355,744			315,827
Accumulated Other Comprehensive Loss	(14,927		)	(14,934		)
Retained Earnings	579,758			533,159
Total Equity	926,423			839,900
Long-Term Debt	694,351			423,177
Total Capitalization	1,620,774			1,263,077
Current Liabilities:
Notes Payable	—			104,300
Current Portion of Long-Term Debt	15,909			215,909
Accounts Payable - Commodity	18,044			23,815
Accounts Payable - Other	63,901			45,370
Accounts Payable - Related Parties	11,767			11,216
Derivatives - Energy Related Liabilities	339			1,372
Derivatives - Other Current	371			386
Customer Deposits and Credit Balances	36,927			45,816
Environmental Remediation Costs	53,736			45,018
Taxes Accrued	4,946			855
Pension Benefits	2,428			2,428
Interest Accrued	5,681			5,369
Other Current Liabilities	5,833			8,011
Total Current Liabilities	219,882			509,865
Regulatory and Other Noncurrent Liabilities:
Regulatory Liabilities	37,308			49,121
Deferred Income Taxes - Net	499,450			469,408
Environmental Remediation Costs	103,841			108,029
Asset Retirement Obligations	58,837			58,674
Pension and Other Postretirement Benefits	75,806			81,800
Derivatives - Energy Related Liabilities	225			—
Derivatives - Other Noncurrent	6,714			6,979
Other	4,579			4,970
Total Regulatory and Other Noncurrent Liabilities	786,760			778,981
Commitments and Contingencies (Note 11)
Total Capitalization and Liabilities	$	2,627,416		$	2,551,923

The accompanying notes are an integral part of the unaudited condensed financial statements.

10

Notes to Unaudited Condensed Consolidated Financial Statements

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

GENERAL - South Jersey Industries, Inc. (SJI or the Company) currently provides a variety of energy-related products and services primarily through the following wholly-owned subsidiaries:

▪ South Jersey Gas Company (SJG) is a regulated natural gas utility. SJG distributes natural gas in the seven southernmost counties of New Jersey.

▪ South Jersey Energy Company (SJE) acquires and markets natural gas and electricity to retail end users and provides total energy management services to commercial, industrial and residential customers.

▪ South Jersey Resources Group, LLC (SJRG) markets natural gas storage, commodity and transportation assets along with fuel management services on a wholesale basis in the mid-Atlantic, Appalachian and southern states.

▪ South Jersey Exploration, LLC (SJEX) owns oil, gas and mineral rights in the Marcellus Shale region of Pennsylvania.

▪ Marina Energy, LLC (Marina) develops and operates on-site energy-related projects. The significant wholly-owned subsidiaries of Marina are:

•ACB Energy Partners, LLC (ACB) owns and operates a natural gas fueled combined heating, cooling and power facility located in Atlantic City, New Jersey.

•AC Landfill Energy, LLC (ACLE), BC Landfill Energy, LLC (BCLE), SC Landfill Energy, LLC (SCLE) and SX Landfill Energy, LLC (SXLE) own and operate landfill gas-fired electric production facilities in Atlantic, Burlington, Salem and Sussex Counties located in New Jersey.

•MCS Energy Partners, LLC (MCS), NBS Energy Partners, LLC (NBS) and SBS Energy Partners, LLC (SBS) own and operate solar-generation sites located in New Jersey.

▪ South Jersey Energy Service Plus, LLC (SJESP) services residential and small commercial HVAC systems, installs small commercial HVAC systems, provides plumbing services and services appliances under warranty via a subcontractor arrangement as well as on a time and materials basis.

▪ SJI Midstream, LLC (Midstream) invests in infrastructure and other midstream projects, including a current project to build a 100-mile natural gas pipeline in Pennsylvania and New Jersey.

BASIS OF PRESENTATION - SJI's condensed consolidated financial statements include the accounts of SJI, its wholly-owned subsidiaries (including SJG) and subsidiaries in which SJI has a controlling interest. SJI eliminates all significant intercompany accounts and transactions. In management’s opinion, the unaudited condensed consolidated financial statements of SJI and SJG reflect all normal and recurring adjustments needed to fairly present their respective financial position, operating results and cash flows at the dates and for the periods presented. SJI’s and SJG's businesses are subject to seasonal fluctuations and, accordingly, this interim financial information should not be the basis for estimating the full year’s operating results. As permitted by the rules and regulations of the Securities and Exchange Commission (SEC), the accompanying unaudited condensed consolidated financial statements of SJI and SJG contain certain condensed financial information and exclude certain footnote disclosures normally included in annual audited consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). These financial statements should be read in conjunction with SJI’s and SJG's Annual Reports on Form 10-K for the year ended December 31, 2016 for a more complete discussion of the accounting policies and certain other information.

Certain reclassifications have been made to SJI's and SJG's prior period condensed consolidated statements of cash flows to conform to the current period presentation. Restricted cash is now combined with cash and cash equivalents when reconciling the beginning and end of period balances on the condensed consolidated statements of cash flows of SJI, as well as the condensed statements of cash flows for SJG, to conform to ASU 2016-18, which is described below under "New Accounting Pronouncements." This combination of restricted cash and cash and cash equivalents caused Cash Flows from Investing Activities for both SJI and SJG to be adjusted in order to remove items relating to capital expenditures and proceeds from restricted investments (SJI only), as well as the sale of restricted investments in a margin account (SJI and SJG).

11

Certain reclassifications have been made to SJI's prior period condensed consolidated statements of cash flows to conform to the current period presentation. Cash paid by an employer when directly withholding shares for tax-withholding purposes is now classified as a financing activity in the condensed consolidated statements of cash flows to conform to ASU 2016-09, which is described below under "New Accounting Pronouncements." This caused SJI's prior period Cash Flows Provided by Operating Activities to increase by $0.4 million and Net Cash Flows from Financing Activities to decrease by the same amount. Adoption of this guidance did not effect SJG's condensed statements of cash flows.

REVENUE-BASED TAXES - SJG collects certain revenue-based energy taxes from its customers. Such taxes include the New Jersey State Sales Tax and Public Utilities Assessment (PUA). State sales tax is recorded as a liability when billed to customers and is not included in revenue or operating expenses. The PUA is included in both utility revenue and energy and other taxes and totaled $0.4 million for both the three months ended March 31, 2017 and 2016.

IMPAIRMENT OF LONG-LIVED ASSETS - SJI and SJG review the carrying amount of long-lived assets for possible impairment whenever events or changes in circumstances indicate that such amounts may not be recoverable. For the three months ended March 31, 2017, SJI recorded an impairment charge of $0.3 million within Operating Expenses on the condensed consolidated statements of income due to a reduction in the expected cash flows to be received from a solar generating facility within the on-site energy production segment. No impairments were identified at SJG for the three months ended March 31, 2017. For the three months ended March 31, 2016, no impairments were identified at SJI or SJG.

GAS EXPLORATION AND DEVELOPMENT - SJI capitalizes all costs associated with gas property acquisition, exploration and development activities under the full cost method of accounting. Capitalized costs include costs related to unproved properties, which are not amortized until proved reserves are found or it is determined that the unproved properties are impaired. All costs related to unproved properties are reviewed quarterly to determine if impairment has occurred. No impairment charges were recorded during the three months ended March 31, 2017 or 2016. As of both March 31, 2017 and December 31, 2016,

$8.8 million related to interests in proved and unproved properties in Pennsylvania, net of amortization, is included with Nonutility Property and Equipment and Other Noncurrent Assets on SJI's condensed consolidated balance sheets.

TREASURY STOCK - SJI uses the par value method of accounting for treasury stock. As of March 31, 2017 and December 31, 2016, SJI held 215,274 and 212,617 shares of treasury stock, respectively. These shares are related to deferred compensation arrangements where the amounts earned are held in the stock of SJI.

INCOME TAXES - Deferred income taxes are provided for all significant temporary differences between the book and taxable bases of assets and liabilities in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 740 - “Income Taxes.” A valuation allowance is established when it is determined that it is more likely than not that a deferred tax asset will not be realized. Investment tax credits related to renewable energy facilities of Marina are recognized on the flow-through method, which may result in variations in the customary relationship between income taxes and pre-tax income for interim periods.

GOODWILL - Goodwill represents the excess of the consideration paid over the fair value of identifiable net assets acquired. Goodwill is not amortized, but instead is subject to impairment testing on an annual basis, and between annual tests whenever events or changes in circumstances indicate that the fair value of a reporting unit may be below its carrying amount. No such events have occurred during the three months ended March 31, 2017. Goodwill totaled $4.8 million on the condensed consolidated balance sheets of SJI as of both March 31, 2017 and December 31, 2016.

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NEW ACCOUNTING PRONOUNCEMENTS - Other than as described below, no new accounting pronouncement issued or effective during 2017 or 2016 had, or are expected to have, a material impact on the condensed consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU supersedes the revenue recognition requirements in FASB ASC 605, Revenue Recognition, and in most industry-specific topics. The new guidance identifies how and when entities should recognize revenue. The new rules establish a core principle requiring the recognition of revenue to depict the transfer of promised goods or services to customers in an amount reflecting the consideration to which the entity expects to be entitled in exchange for such goods or services. In connection with this new standard, the FASB has issued several amendments to ASU 2014-09, as follows:

• In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net). This standard improves the implementation guidance on principal versus agent considerations and whether an entity reports revenue on a gross or net basis.

• In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. This standard clarifies identifying performance obligations and the licensing implementation guidance.

• In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. This standard provides additional guidance on (a) the objective of the collectibility criterion, (b) the presentation of sales tax collected from customers, (c) the measurement date of non-cash consideration received, (d) practical expedients in respect of contract modifications and completed contracts at transition, and (e) disclosure of the effects of the accounting change in the period of adoption.

• In December 2016, the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which amends certain narrow aspects of the guidance, including the disclosure of remaining performance obligations and prior-period performance obligations, as well as other amendments to the guidance on loan guarantee fees, contract costs, refund liabilities, advertising costs and the clarification of certain examples.

The new guidance in ASU 2014-09, as well as all amendments discussed above, is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Management has formed an implementation team that is currently evaluating the impact that adoption of this guidance will have on the financial statement results of SJI and SJG. We are in the process of assessing the impact of the guidance on our contracts in all our revenue streams by reviewing our current accounting policies and practices to identify potential differences that would result from applying the new requirements to our revenue contracts. We continue to make significant progress on our contract reviews and are also in the process of evaluating the impact, if any, on changes to our business processes, systems and controls to support recognition and disclosure under the new guidance. Based on the review of customer contracts to date, SJI is not anticipating this guidance to have a material impact to SJI's or SJG's statements of consolidated income, cash flows or consolidated balance sheets upon adoption. We are continuing with our implementation plan and expect to transition to the new guidance beginning in 2018 using the modified retrospective approach.

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. This ASU states that inventory for which cost is determined using a method other than last-in, first-out (LIFO) or the retail method should be subsequently measured at the lower of cost or net realizable value (NRV), rather than at the lower of cost or market. The standard was effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2016. Adoption of this guidance did not have an impact on the financial statement results of SJI or SJG.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which enhances the reporting model for financial instruments and includes amendments to address aspects of recognition, measurement, presentation and disclosure. The standard is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted for only certain portions of the new guidance. Management is currently determining the impact that adoption of this guidance will have on the financial statement results of SJI and SJG.

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In March 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which establishes a new lease accounting model for lessees. The new standard requires substantially all leases be recognized by lessees on their balance sheet as a right-of-use asset and corresponding lease liability, including leases currently accounted for as operating leases. The new standard also will result in enhanced quantitative and qualitative disclosures, including significant judgments made by management, to provide greater insight into the extent of revenue and expense recognized and expected to be recognized from existing leases. The accounting for leases by the lessor remains relatively the same. The standard is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2018, with early adoption permitted. Management has formed an implementation team that is inventorying leases and evaluating the impact that adoption of this guidance will have on SJI's and SJG's financial statement results, as well as the transition method that will be elected to adopt the guidance.

In March 2016, the FASB issued ASU 2016-05, Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships. The amendments in this guidance clarify that a change in the counterparty to a derivative instrument that has been designated as a hedging instrument under Topic 815 does not, in and of itself, require de-designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. The standard was effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2016, with early adoption permitted. Adoption of this guidance did not have an impact on the financial statement results of SJI or SJG.

In March 2016, the FASB issued ASU 2016-07, Investments - Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting, which eliminates the requirement to apply the equity method of accounting retrospectively when a reporting entity obtains significant influence over a previously held investment. The standard was effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2016, with early adoption permitted. Adoption of this guidance did not have an impact on the financial statement results of SJI or SJG.

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplifies various aspects of accounting for share-based payment arrangements. The standard was effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2016, with early adoption permitted. Adoption of this guidance did not have a material impact on the financial statement results of SJI or SJG; however, cash flow presentation was modified for SJI to conform to this guidance, as described under “Basis of Presentation” above.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This standard is intended to provide guidance concerning the classification of certain cash receipts and cash payments in the statement of cash flows and to eliminate the diversity in practice related to such classifications. This standard is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. Both SJI and SJG early adopted this ASU in the first quarter of 2017, and adoption of this guidance did not have an impact on the financial statement results of SJI or SJG.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. This standard requires recognition of the current and deferred income tax effects of an intra-entity asset transfer, other than inventory, when the transfer occurs, as opposed to current GAAP, which requires companies to defer the income tax effects of intra-entity asset transfers until the asset has been sold to an outside party. The income tax effects of intra-entity inventory transfers will continue to be deferred until the inventory is sold. ASU 2016-16 is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods, with early adoption permitted. The standard is required to be adopted on a modified retrospective basis with a cumulative-effect adjustment recorded to retained earnings as of the beginning of the period of adoption. Management is currently determining the impact that adoption of this guidance will have on the financial statement results of SJI and SJG.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. This standard is intended to reduce diversity in practice in the classification and presentation of changes in restricted cash on the statement of cash flows. The ASU requires that the statement of cash flows explain the change in total cash and cash equivalents and amounts generally described as restricted cash or restricted cash equivalents when reconciling the beginning-of-period and end-of-period total amounts. The ASU also requires a reconciliation between the total of cash and cash equivalents and restricted cash presented on the statement of cash flows and the cash and cash equivalents balance presented on the balance sheets. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. Both SJI and SJG early adopted this ASU in the first quarter of 2017. Accordingly, cash flow presentations were modified for both entities to conform to this guidance, as described under “Basis of Presentation” above.

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In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This new standard provides amended and clarifying guidance regarding whether an integrated set of assets and activities acquired is deemed the acquisition of a business (and, thus, accounted for as a business combination) or the acquisition of assets. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. Management is currently determining the impact that adoption of this guidance will have on the financial statement results of SJI and SJG.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The update simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. The amendments in this update are effective for annual and any interim impairment tests performed in periods beginning after December 31, 2019. Management is currently determining the impact that adoption of this guidance will have on the financial statement results of SJI and SJG.

In March 2017, the FASB has issued ASU 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The ASU is designed to improve guidance related to the presentation of defined benefit costs in the income statement. In particular, this ASU requires an employer to report the service cost component in the same line item(s) as other compensation costs arising from services rendered by the pertinent employees during the period. The standard is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Management is currently determining the impact that adoption of this guidance will have on the financial statement results of SJI and SJG.

2. STOCK-BASED COMPENSATION PLAN:

On April 30, 2015, the shareholders of SJI approved the adoption of SJI's 2015 Omnibus Equity Compensation Plan (Plan), replacing the Amended and Restated 1997 Stock-Based Compensation Plan that had terminated on January 26, 2015. Under the Plan, shares may be issued to SJI’s officers (Officers), non-employee directors (Directors) and other key employees. No options were granted or outstanding during the three months ended March 31, 2017 and 2016. No stock appreciation rights have been issued under the plans. During the three months ended March 31, 2017 and 2016, SJI granted 158,688 and 192,760 restricted shares, respectively, to Officers and other key employees under the Plan. Performance-based restricted shares vest over a three-year period and are subject to SJI achieving certain market and earnings-based performance targets, which can cause the actual amount of shares that ultimately vest to range from 0% to 200% of the original shares granted.

In 2015, SJI began granting time-based shares of restricted stock, one-third of which vest annually over a three-year period and which are limited to a 100% payout. Vesting of time-based grants is contingent upon SJI achieving a return on equity (ROE) of at least 7% during the initial year of the grant and meeting the service requirement. Provided that the 7% ROE requirement is met in the initial year, payout is solely contingent upon the service requirement being met in years two and three of the grant. During the three months ended March 31, 2017 and 2016, Officers and other key employees were granted 48,790 and 57,828 shares of time-based restricted stock, respectively, which are included in the shares noted above.

Grants containing market-based performance targets use SJI's total shareholder return (TSR) relative to a peer group to measure performance. As TSR-based grants are contingent upon market and service conditions, SJI is required to measure and recognize stock-based compensation expense based on the fair value at the date of grant on a straight-line basis over the requisite three-year period of each award. In addition, SJI identifies specific forfeitures of share-based awards, and compensation expense is adjusted accordingly over the requisite service period. Compensation expense is not adjusted based on the actual achievement of performance goals. The fair value of TSR-based restricted stock awards on the date of grant is estimated using a Monte Carlo simulation model.

Through 2014, grants containing earnings-based targets were based on SJI's earnings growth rate per share (EGR) relative to a peer group to measure performance. In 2015, earnings-based performance targets included pre-defined EGR and ROE goals to measure performance. Beginning in 2016, performance targets include pre-defined compounded earnings annual growth rate (CEGR) for SJI. As EGR-based, ROE-based and CEGR-based grants are contingent upon performance and service conditions, SJI is required to measure and recognize stock-based compensation expense based on the fair value at the date of grant over the requisite three-year period of each award. The fair value is measured as the market price at the date of grant. The initial accruals of compensation expense are based on the estimated number of shares expected to vest, assuming the requisite service is rendered and probable outcome of the performance condition is achieved. That estimate is revised if subsequent information indicates that the actual number of shares is likely to differ from previous estimates. Compensation expense is ultimately adjusted based on the actual achievement of service and performance targets.

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During the three months ended March 31, 2017 and 2016, SJI granted 30,394 and 32,882 restricted shares, respectively, to Directors. Shares issued to Directors vest over twelve months and contain no performance conditions. As a result, 100% of the shares granted generally vest.

The following table summarizes the nonvested restricted stock awards outstanding for SJI at March 31, 2017 and the assumptions used to estimate the fair value of the awards:

	Grants	Shares Outstanding	Fair Value Per Share		Expected Volatility		Risk-Free Interest Rate
Officers & Key Employees -	2015 - TSR	33,537	$	26.31	16.0	%	1.10	%
	2015 - EGR, ROE, Time	61,586	$	29.47	N/A		N/A
	2016 - TSR	66,101	$	22.53	18.1	%	1.31	%
	2016 - CEGR, Time	103,650	$	23.52	N/A		N/A
	2017 - TSR	54,949	$	32.17	20.8	%	1.47	%
	2017 - CEGR, Time	103,739	$	33.69	N/A		N/A
Directors -	2017	30,394	$	33.64	N/A		N/A

Expected volatility is based on the actual volatility of SJI’s share price over the preceding three-year period as of the valuation date. The risk-free interest rate is based on the zero-coupon U.S. Treasury Bond, with a term equal to the three-year term of the Officers’ and other key employees’ restricted shares. As notional dividend equivalents are credited to the holders during the three-year service period, no reduction to the fair value of the award is required. As the Directors’ restricted stock awards contain no performance conditions and dividends are paid or credited to the holder during the requisite service period, the fair value of these awards are equal to the market value of the shares on the date of grant.

The following table summarizes the total stock-based compensation cost to SJI for the three months ended March 31, 2017 and 2016 (in thousands):

	Three Months Ended March 31,
	2017			2016
Officers & Key Employees	$	1,070		$	817
Directors	256			193
Total Cost	1,326			1,010
Capitalized	(88		)	(106		)
Net Expense	$	1,238		$	904

As of March 31, 2017, there was $8.9 million of total unrecognized compensation cost related to nonvested stock-based compensation awards granted under the plans. That cost is expected to be recognized over a weighted average period of 2.1 years.

The following table summarizes information regarding restricted stock award activity for SJI during the three months ended March 31, 2017, excluding accrued dividend equivalents:

	Officers &Other Key Employees		Directors		Weighted Average Fair Value
Nonvested Shares Outstanding, January 1, 2017	295,515		35,197		$	24.96
Granted	158,688		30,394		$	33.24
Cancelled/Forfeited	—		—		$	—
Vested	(30,641	)	(35,197	)	$	24.75
Nonvested Shares Outstanding, March 31, 2017	423,562		30,394		$	28.44

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During the three months ended March 31, 2017 and 2016, SJI awarded 65,628 shares to its Officers and other key employees at a market value of $2.2 million, and 13,247 shares at a market value of $0.3 million, respectively. During the three months ended March 31, 2017 and 2016, SJI also granted 30,394 and 32,882 shares to its Directors at a market value of $1.0 million and $0.8 million, respectively.

SJI has a policy of issuing new shares to satisfy its obligations under the Plan; therefore, there are no cash payment requirements resulting from the normal operation of the Plan. However, a change in control could result in such shares becoming nonforfeitable or immediately payable in cash. At the discretion of the Officers, Directors and other key employees, the receipt of vested shares can be deferred until future periods. These deferred shares are included in Treasury Stock on the condensed consolidated balance sheets.

South Jersey Gas Company - Officers and other key employees of SJG participate in the stock-based compensation plans of SJI. During the three months ended March 31, 2017 and 2016, SJG officers and other key employees were granted 21,061 and 32,592 shares of SJI restricted stock, respectively. The cost of outstanding stock awards for SJG during the three months ended March 31, 2017 and 2016 was $0.1 million and $0.2 million, respectively. Approximately one-half of these costs were capitalized on SJG's condensed balance sheets to Utility Plant.

3. AFFILIATIONS, DISCONTINUED OPERATIONS AND RELATED-PARTY TRANSACTIONS:

AFFILIATIONS — The following affiliated entities are accounted for under the equity method:

Energenic – US, LLC (Energenic) - Marina and a joint venture partner formed Energenic, in which Marina has a 50% equity interest. Energenic developed and operated on-site, self-contained, energy-related projects.

Millennium Account Services, LLC (Millennium) - SJI and a joint venture partner formed Millennium, in which SJI has a 50% equity interest. Millennium reads utility customers’ meters on a monthly basis for a fee.

Potato Creek, LLC (Potato Creek) - SJI and a joint venture partner formed Potato Creek, in which SJI has a 30% equity interest.  Potato Creek owns and manages the oil, gas and mineral rights of certain real estate in Pennsylvania.

PennEast Pipeline Company, LLC (PennEast) - Midstream has a 20% investment in PennEast, which is planning to construct an approximately 100-mile natural gas pipeline that will extend from Northeastern Pennsylvania into New Jersey, with a target completion of late 2018.

During the first three months of 2017 and 2016, SJI made net investments in unconsolidated affiliates of $3.7 million and $1.5 million, respectively.  As of March 31, 2017 and December 31, 2016, the outstanding balance of Notes Receivable – Affiliate was $13.5 million and $15.7 million, respectively. As of March 31, 2017, the total amount of these notes were secured by property, plant and equipment of the affiliates, accrue interest at 7.5% and are to be repaid through 2025.

SJI holds significant variable interests in these entities but is not the primary beneficiary. Consequently, these entities are accounted for under the equity method because SJI does not have both (a) the power to direct the activities of the entity that most significantly impact the entity’s economic performance and (b) the obligation to absorb losses of the entity that could potentially be significant to the entity or the right to receive benefits from the entity that could potentially be significant to the entity. As of March 31, 2017, SJI had a net asset of approximately $37.3 million included in Investment in Affiliates on the condensed consolidated balance sheets related to equity method investees, in addition to Notes Receivable – Affiliate as discussed above. SJI’s maximum exposure to loss from these entities as of March 31, 2017, is limited to its combined equity contributions and the Notes Receivable-Affiliate in the aggregate amount of $50.8 million.

DISCONTINUED OPERATIONS - Discontinued Operations consist of the environmental remediation activities related to the properties of South Jersey Fuel, Inc. (SJF) and the product liability litigation and environmental remediation activities related to the prior business of The Morie Company, Inc. (Morie). SJF is a subsidiary of Energy & Minerals, Inc. (EMI), an SJI subsidiary, which previously operated a fuel oil business. Morie is the former sand mining and processing subsidiary of EMI. EMI sold the common stock of Morie in 1996.

SJI conducts tests annually to estimate the environmental remediation costs for these properties (see Note 11).

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Summarized operating results of the discontinued operations for the three months ended March 31, 2017 and 2016, were (in thousands, except per share amounts):

	Three Months Ended March 31,
	2017			2016
Loss before Income Taxes:
Sand Mining	$	(17	)	$	(146	)
Fuel Oil	(29		)	(35		)
Income Tax Benefits	16			63
Loss from Discontinued Operations — Net	$	(30	)	$	(118	)
Earnings Per Common Share from
Discontinued Operations — Net:
Basic and Diluted	$	—		$	—

SJG RELATED-PARTY TRANSACTIONS - There have been no significant changes in the nature of SJG’s related-party transactions since December 31, 2016. See Note 5 to the Financial Statements in Item 8 of SJG’s Form 10-K for the year ended December 31, 2016 for a detailed description of the related parties and their associated transactions.

A summary of related party transactions involving SJG, excluding pass-through items, included in SJG's Operating Revenues were as follows (in thousands):

	Three Months Ended March 31,
	2017		2016
Operating Revenues/Affiliates:
SJRG	$	963	$	4,001
Marina	82		96
Other	21		21
Total Operating Revenue/Affiliates	$	1,066	$	4,118

Related-party transactions involving SJG, excluding pass-through items, included in SJG's Cost of Sales and Operating Expenses were as follows (in thousands):

	Three Months Ended March 31,
	2017			2016
Costs of Sales/Affiliates (Excluding depreciation)
SJRG	$	10,450		$	7,989
Operations Expense/Affiliates:
SJI	$	6,050		$	4,555
Millennium	708			694
Other	(39		)	(57		)
Total Operations Expense/Affiliates	$	6,719		$	5,192

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4. COMMON STOCK:

The following shares were issued and outstanding for SJI:

	2017
Beginning Balance, January 1	79,478,055
New Issuances During the Period:
Stock-Based Compensation Plan	69,943
Ending Balance, March 31	79,547,998

The par value ($1.25 per share) of stock issued was recorded in Common Stock and the net excess over par value of approximately $0.5 million was recorded in Premium on Common Stock.

In May 2016, the Company issued and sold 8,050,000 shares of its common stock, par value $1.25 per share pursuant to a public offering, raising net proceeds of approximately $203.6 million. The net proceeds from this offering were or will be used for capital expenditures, primarily for regulated businesses, including infrastructure investments at its utility business.

There were 2,339,139 shares of SJG's common stock (par value $2.50 per share) outstanding as of March 31, 2017. SJG did not issue any new shares during the period. SJI owns all of the outstanding common stock of SJG.

SJI's EARNINGS PER COMMON SHARE (EPS) - SJI's Basic EPS is based on the weighted-average number of common shares outstanding.  The incremental shares required for inclusion in the denominator for the diluted EPS calculation were 121,812 and 288,502 for the three months ended March 31, 2017 and 2016, respectively. These additional shares relate to SJI's restricted stock as discussed in Note 2.

DIVIDEND REINVESTMENT PLAN (DRP) - SJI offers a DRP which allows participating shareholders to purchase shares of SJI common stock by automatic reinvestment of dividends or optional purchases. Prior to May 1, 2016 shares of common stock offered by the DRP had been issued directly by SJI from its authorized but unissued shares of common stock. SJI raised $5.6 million of equity capital through the DRP during the three months ended March 31, 2016. Effective May 1, 2016, SJI switched to purchasing shares on the open market to fund share purchases by DRP participants. SJI does not intend to issue any new equity capital via the DRP in 2017.

5. FINANCIAL INSTRUMENTS:

RESTRICTED INVESTMENTS — Marina is required to maintain escrow accounts related to ongoing capital projects as well as unused loan proceeds pending approval of construction expenditures. As of March 31, 2017 and December 31, 2016, the escrowed funds, including interest earned, totaled $2.0 million and $1.9 million, respectively, which are recorded in Restricted Investments on the condensed consolidated balance sheets.

SJI and SJG maintain margin accounts with selected counterparties to support their risk management activities. The balances required to be held in these margin accounts increase as the net value of the outstanding energy-related contracts with the respective counterparties decrease. As of March 31, 2017 and December 31, 2016, SJI's balances in these accounts totaled $0.9 million and $11.7 million, respectively, which are recorded in Restricted Investments on the condensed consolidated balance sheets. As of March 31, 2017 and December 31, 2016, SJG's balance held for the counterparty totaled $0.3 million and $3.6 million, respectively, which is included in Accounts Payable - Other on the condensed balance sheets.

The carrying amounts of the Restricted Investments for both SJI and SJG approximate their fair values at March 31, 2017 and December 31, 2016, which would be included in Level 1 of the fair value hierarchy (see Note 13).

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The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the statement of cash flows (in thousands):

	As of March 31, 2017
Balance Sheet Line Item	SJI		SJG
Cash and Cash Equivalents	$	15,048	$	4,255
Restricted Investments	2,865		32
Total cash, cash equivalents and restricted cash shown in the statement of cash flows	$	17,913	$	4,287

	As of December 31, 2016
Balance Sheet Line Item	SJI		SJG
Cash and Cash Equivalents	$	18,282	$	1,359
Restricted Investments	13,628		32
Total cash, cash equivalents and restricted cash shown in the statement of cash flows	$	31,910	$	1,391

INVESTMENT IN AFFILIATES - During 2011, subsidiaries of Energenic, in which Marina has a 50% equity interest, entered into 20-year contracts to build, own and operate a central energy center and energy distribution system for a new hotel, casino and entertainment complex in Atlantic City, New Jersey. The complex commenced operations in April 2012, and as a result, Energenic subsidiaries began providing full energy services to the complex.

In June 2014, the parent company of the hotel, casino and entertainment complex filed petitions in U.S. Bankruptcy Court to facilitate a sale of substantially all of its assets. The complex ceased normal business operations in September 2014. Energenic subsidiaries continued to provide limited energy services to the complex during the shutdown period under a temporary agreement with the trustee. The hotel, casino and entertainment complex was sold in April 2015. As of December 31, 2015, the Energenic subsidiaries were providing limited services to the complex under a short-term agreement with the new owner. However, the Energenic subsidiaries had not been able to secure a permanent or long-term energy services agreement with the new owner.

The central energy center and energy distribution system owned by the Energenic subsidiaries was financed in part by the issuance of bonds during 2011. These bonds were collateralized primarily by certain assets of the central energy center and revenue from the energy services agreement with the hotel, casino and entertainment complex. During 2015, due to the cessation of normal business operations of the complex and the inability of the Energenic subsidiaries to meet its obligations under the bonds, the trustee for the bondholders filed suit to foreclose on certain assets of the central energy center. In November 2015 during settlement discussions, the bondholders alleged, among other things, that they were entitled to recover from Energenic itself, any amounts owed under the bonds that were not covered by the collateral, including principal, interest and attorney’s fees. The bondholders’ assertion was based on inconsistent language in the bond documents. In January 2016, Energenic and certain subsidiaries reached a multi-party settlement with the bondholders. This agreement resolves all outstanding litigation and transfers ownership of the bondholders’ collateral to the owners of the entertainment complex. The Company's share of this settlement was $7.5 million, which was accrued by Energenic as of December 31, 2015 and paid in 2016. The Company entered into agreements with its insurance carrier and external legal advisors to recover, net of legal costs, approximately $7.0 million of costs associated with the bondholder settlement discussed above. The Company received $2.1 million in the second quarter of 2016, which is included in Other Income on the statements of consolidated income for the year ended December 31, 2016, and $5.3 million was received in the third quarter of 2016 and is included in Equity in Earnings of Affiliated Companies on the statements of consolidated income for the year ended December 31, 2016, as the loss recorded in the prior year was included in this line item on the statements of consolidated income for the year ended December 31, 2015.

As of March 31, 2017, SJI, through its investment in Energenic, had a remaining net asset of approximately $0.4 million included in Investment in Affiliates on the condensed consolidated balance sheets related to cogeneration assets for the energy services project. In addition, SJI had approximately $13.9 million included in Notes Receivable - Affiliate on the condensed consolidated balance sheets, due from Energenic, which is secured by those cogeneration assets. This note is subject to a reimbursement agreement that secures reimbursement for SJI, from its joint venture partner, of a proportionate share of any amounts that are not repaid.

Management will continue to monitor the situation surrounding the cogeneration assets and will evaluate the carrying value of the investment and the note receivable as future events occur.

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LONG-TERM RECEIVABLES - SJG provides financing to customers for the purpose of attracting conversions to natural gas heating systems from competing fuel sources. The terms of these loans call for customers to make monthly payments over periods ranging from five to ten years, with no interest.  The carrying amounts of such loans were $8.7 million and $9.5 million as of March 31, 2017 and December 31, 2016, respectively. The current portion of these receivables is reflected in Accounts Receivable and the non-current portion is reflected in Contract Receivables on the condensed consolidated balance sheets. The carrying amounts noted above are net of unamortized discounts resulting from imputed interest in the amount of $0.9 million as of both March 31, 2017 and December 31, 2016. The annualized amortization to interest is not material to SJI’s or SJG's condensed consolidated financial statements. The carrying amounts of these receivables approximate their fair value at March 31, 2017 and December 31, 2016, which would be included in Level 2 of the fair value hierarchy (see Note 13).

CREDIT RISK - As of March 31, 2017, SJI had approximately $5.8 million, or 8.8%, of the current and noncurrent Derivatives – Energy Related Assets transacted with two counterparties. One counterparty has contracts with a large number of diverse customers which minimizes the concentration of this risk. A portion of these contracts may be assigned to SJI in the event of default by the counterparty. The second counterparty is investment-grade rated.

FINANCIAL INSTRUMENTS NOT CARRIED AT FAIR VALUE - The fair value of a financial instrument is the market price to sell an asset or transfer a liability at the measurement date. The carrying amounts of SJI's and SJG's financial instruments approximate their fair values at March 31, 2017 and December 31, 2016, except as noted below.

• For Long-Term Debt, in estimating the fair value, SJI and SJG use the present value of remaining cash flows at the balance sheet date. SJI and SJG based the estimates on interest rates available at the end of each period for debt with similar terms and maturities (Level 2 in the fair value hierarchy, see Note 13).

• The estimated fair values of SJI's long-term debt (which includes SJG and all consolidated subsidiaries), including current maturities, as of March 31, 2017 and December 31, 2016, were $1,127.9 million and $1,080.8 million, respectively.  The carrying amounts of SJI's long-term debt, including current maturities, as of March 31, 2017 and December 31, 2016, were $1,111.2 million and $1,039.9 million, respectively. SJI's carrying amounts as of March 31, 2017 and December 31, 2016 are net of unamortized debt issuance costs of $9.3 million and $7.6 million, respectively.

• The estimated fair values of SJG's long-term debt, including current maturities, as of March 31, 2017 and December 31, 2016, were $721.2 million and $673.1 million, respectively. The carrying amount of SJG's long-term debt, including current maturities, as of March 31, 2017 and December 31, 2016, was $710.3 million and $639.1 million, respectively. The carrying amounts as of March 31, 2017 and December 31, 2016 are net of unamortized debt issuance costs of $7.8 million and $6.0 million, respectively.

OTHER FINANCIAL INSTRUMENTS - The carrying amounts of SJI's and SJG's other financial instruments approximate their fair values at March 31, 2017 and December 31, 2016.

6. SEGMENTS OF BUSINESS:

SJI operates in several different reportable operating segments which reflect the financial information regularly evaluated by the chief operating decision maker. These segments are as follows:

• Gas utility operations (SJG) consist primarily of natural gas distribution to residential, commercial and industrial customers. The result of SJG are only included in this operating segment.

• Wholesale energy operations include the activities of SJRG and SJEX.

• 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, industrial and residential customers.

• On-site energy production consists of Marina's thermal energy facility and other energy-related projects. Also included in this segment are the activities of ACB, ACLE, BCLE, SCLE, SXLE, MCS, NBS and SBS.

• Appliance service operations includes SJESP, which services residential and small commercial HVAC systems, installs small commercial HVAC systems, provides plumbing services and services appliances under warranty via a subcontractor arrangement as well as on a time and materials basis.

• Midstream was formed to invest in infrastructure and other midstream projects, including a current project to build a natural gas pipeline in Pennsylvania and New Jersey. The activities of Midstream are a part of the Corporate and Services segment.

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SJI groups its nonutility operations into two categories: Energy Group and Energy Services. Energy Group includes wholesale energy, retail gas and other, and retail electric operations. Energy Services includes on-site energy production and appliance service operations. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Intersegment sales and transfers are treated as if the sales or transfers were to third parties at current market prices.

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

	Three Months Ended March 31,
	2017			2016
Operating Revenues:
Gas Utility Operations	$	196,814		$	187,766
Energy Group:
Wholesale Energy Operations	127,517			65,074
Retail Gas and Other Operations	36,878			29,733
Retail Electric Operations	48,957			39,491
Subtotal Energy Group	213,352			134,298
Energy Services:
On-Site Energy Production	19,612			16,321
Appliance Service Operations	1,658			1,888
Subtotal Energy Services	21,270			18,209
Corporate and Services	11,596			8,876
Subtotal	443,032			349,149
Intersegment Sales	(17,203		)	(16,114		)
Total Operating Revenues	$	425,829		$	333,035

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	Three Months Ended March 31,
	2017			2016
Operating Income:
Gas Utility Operations	$	80,646		$	75,773
Energy Group:
Wholesale Energy Operations	(11,626		)	38,244
Retail Gas and Other Operations	(1,667		)	(759		)
Retail Electric Operations	1,306			585
Subtotal Energy Group	(11,987		)	38,070
Energy Services:
On-Site Energy Production	(1,969		)	(89		)
Appliance Service Operations	(72		)	44
Subtotal Energy Services	(2,041		)	(45		)
Corporate and Services	1,068			455
Total Operating Income	$	67,686		$	114,253
Depreciation and Amortization:
Gas Utility Operations	$	17,362		$	15,626
Energy Group:
Wholesale Energy Operations	28			204
Retail Gas and Other Operations	83			85
Subtotal Energy Group	111			289
Energy Services:
On-Site Energy Production	11,593			9,919
Appliance Service Operations	54			84
Subtotal Energy Services	11,647			10,003
Corporate and Services	401			223
Total Depreciation and Amortization	$	29,521		$	26,141
Interest Charges:
Gas Utility Operations	$	5,878		$	4,787
Energy Group:
Wholesale Energy Operations	3,059			64
Retail Gas and Other Operations	85			132
Subtotal Energy Group	3,144			196
Energy Services:
On-Site Energy Production	5,814			3,462
Corporate and Services	5,241			3,452
Subtotal	20,077			11,897
Intersegment Borrowings	(3,332		)	(2,737		)
Total Interest Charges	$	16,745		$	9,160

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	Three Months Ended March 31,
	2017			2016
Income Taxes:
Gas Utility Operations	$	29,911		$	27,404
Energy Group:
Wholesale Energy Operations	(6,319		)	14,737
Retail Gas and Other Operations	(447		)	(168		)
Retail Electric Operations	535			239
Subtotal Energy Group	(6,231		)	14,808
Energy Services:
On-Site Energy Production	(3,069		)	(3,012		)
Appliance Service Operations	(17		)	26
Subtotal Energy Services	(3,086		)	(2,986		)
Corporate and Services	1,276			41
Total Income Taxes	$	21,870		$	39,267
Property Additions:
Gas Utility Operations	$	62,280		$	51,370
Energy Group:
Wholesale Energy Operations	3			6
Retail Gas and Other Operations	295			371
Subtotal Energy Group	298			377
Energy Services:
On-Site Energy Production	7,349			2,651
Appliance Service Operations	6			101
Subtotal Energy Services	7,355			2,752
Corporate and Services	245			163
Total Property Additions	$	70,178		$	54,662

	March 31, 2017			December 31, 2016
Identifiable Assets:
Gas Utility Operations	$	2,627,416		$	2,551,923
Energy Group:
Wholesale Energy Operations	193,181			233,019
Retail Gas and Other Operations	50,515			52,729
Retail Electric Operations	37,827			41,280
Subtotal Energy Group	281,523			327,028
Energy Services:
On-Site Energy Production	746,728			767,710
Appliance Service Operations	2,269			2,879
Subtotal Energy Services	748,997			770,589
Discontinued Operations	1,749			1,756
Corporate and Services	644,046			649,795
Intersegment Assets	(556,379		)	(570,524		)
Total Identifiable Assets	$	3,747,352		$	3,730,567

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7. RATES AND REGULATORY ACTIONS:

SJG is subject to the rules and regulations of the New Jersey Board of Public Utilities (BPU).

In January 2017, SJG filed a base rate case with the BPU to increase its base rates in order to obtain a return on new capital investments made by SJG since the settlement of its last base rate case in 2014. SJG expects the base rate case to be concluded during 2017.

Also in January 2017, the BPU issued an order approving SJG’s request to extend the expiration date of its Energy Efficiency Programs (EEPs) from August 2017 to December 2018, without any modification to the programs or the amount of the previously authorized budget of $36.3 million, inclusive of operation and maintenance expenses.

There have been no other significant regulatory actions or changes to SJG's rate structure since December 31, 2016. See Note 10 to the Consolidated Financial Statements in Item 8 of SJI's Annual Report on Form 10-K for the year ended December 31, 2016 and Note 3 to the Financial Statements in Item 8 of SJG’s Annual Report on Form 10-K for the year ended December 31, 2016.

8. REGULATORY ASSETS AND REGULATORY LIABILITIES:

There have been no significant changes to the nature of SJG’s regulatory assets and liabilities since December 31, 2016, which are described in Note 11 to the Consolidated Financial Statements in Item 8 of SJI’s Annual Report on Form 10-K for the year ended December 31, 2016 and Note 4 to the Financial Statements in Item 8 of SJG’s Annual Report on Form 10-K for the year ended December 31, 2016. SJI has no regulatory assets or regulatory liabilities other than those of SJG.

SJI's and SJG's Regulatory Assets consisted of the following items (in thousands):

	March 31, 2017		December 31, 2016
Environmental Remediation Costs:
Expended - Net	$	79,206	$	71,997
Liability for Future Expenditures	157,577		153,047
Deferred Asset Retirement Obligation Costs	43,100		43,014
Deferred Pension and Other Postretirement Benefit Costs	85,693		85,693
Conservation Incentive Program Receivable	30,977		27,567
Deferred Interest Rate Contracts	7,085		7,365
Energy Efficiency Tracker	40		219
Pipeline Supplier Service Charges	1,738		2,122
Pipeline Integrity Cost	4,617		4,810
AFUDC - Equity Related Deferrals	12,395		12,434
Other Regulatory Assets	2,562		2,478
Total Regulatory Assets	$	424,990	$	410,746

ENVIRONMENTAL REMEDIATION COSTS - SJG has two regulatory assets associated with environmental costs related to the cleanup of 12 sites where SJG or its predecessors previously operated gas manufacturing plants. The first asset, "Environmental Remediation Cost: Expended - Net," represents what was actually spent to clean up the sites, less recoveries through the Remediation Adjustment Clause (RAC) and insurance carriers. These costs meet the deferral requirements of GAAP, as the BPU allows SJG to recover such expenditures through the RAC. The other asset, "Environmental Remediation Cost: Liability for Future Expenditures," relates to estimated future expenditures required to complete the remediation of these sites. SJG recorded this estimated amount as a regulatory asset with the corresponding current and noncurrent liabilities on the balance sheets under the captions "Current Liabilities" (both SJI and SJG), "Deferred Credits and Other Noncurrent Liabilities" (SJI) and "Regulatory and Other Noncurrent Liabilities" (SJG). The BPU allows SJG to recover the deferred costs over seven-year periods after they are spent. The increase from December 31, 2016 is a result of expenditures made during the first three months of 2017 and an increase in the expected future expenditures for remediation activities, primarily due to an increase in contractor costs at two of the sites currently under remediation.

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CONSERVATION INCENTIVE PROGRAM (CIP) RECEIVABLE – The CIP tracking mechanism adjusts earnings when actual usage per customer experienced during the period varies from an established baseline usage per customer. Actual usage per customer was less than the established baseline during the first three months of 2017, resulting in an increase in the receivable. This is primarily the result of warm weather experienced in the region.

SJI's and SJG's Regulatory Liabilities consisted of the following items (in thousands):

	March 31, 2017		December 31, 2016
Excess Plant Removal Costs	$	27,143	$	28,226
Deferred Revenues - Net	10,087		17,800
Societal Benefit Costs	78		3,095
Total Regulatory Liabilities	$	37,308	$	49,121

DEFERRED REVENUES - NET - Over/under collections of gas costs are monitored through SJG's Basic Gas Supply Service (BGSS) mechanism. Net under collected gas costs are classified as a regulatory asset and net over collected gas costs are classified as a regulatory liability. Derivative contracts used to hedge natural gas purchases are also included in the BGSS, subject to BPU approval. The BGSS regulatory liability decreased from December 31, 2016 primarily due to an unfavorable court ruling related to a pricing dispute between SJG and a supplier (see Notes 11 and 16), partially offset by the gas costs recovered from customers exceeding the actual cost of the commodity.

SOCIETAL BENEFIT COSTS (SBC) - This regulatory liability primarily represents the excess recoveries over the expenses incurred under the New Jersey Clean Energy Program, which is a mechanism designed to recover costs associated with energy efficiency and renewable energy programs. Previous SBC rates produced recoveries greater than SBC costs, which resulted in the regulatory liability. The decrease in the liability from December 31, 2016 is due to an increase in rates.

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9. PENSION AND OTHER POSTRETIREMENT BENEFITS:

For the three months ended March 31, 2017 and 2016, net periodic benefit cost related to the employee and officer pension and other postretirement benefit plans for SJI consisted of the following components (in thousands):

	Pension Benefits
	Three Months Ended March 31,
	2017			2016
Service Cost	$	1,382		$	1,315
Interest Cost	2,955			3,000
Expected Return on Plan Assets	(3,524		)	(3,380		)
Amortizations:
Prior Service Cost	33			53
Actuarial Loss	2,613			2,309
Net Periodic Benefit Cost	3,459			3,297
Capitalized Benefit Cost	(1,271		)	(1,187		)
Deferred Benefit Cost	(161		)	(161		)
Total Net Periodic Benefit Expense	$	2,027		$	1,949

	Other Postretirement Benefits
	Three Months Ended March 31,
	2017			2016
Service Cost	$	247		$	230
Interest Cost	601			653
Expected Return on Plan Assets	(853		)	(776		)
Amortizations:
Prior Service Cost	(86		)	(86		)
Actuarial Loss	312			294
Net Periodic Benefit Cost	221			315
Capitalized Benefit Cost	(55		)	(101		)
Total Net Periodic Benefit Expense	$	166		$	214

During both of the three months ended March 31, 2017 and 2016, the Pension Benefits Net Periodic Benefit Cost incurred by SJG was approximately $2.5 million of the totals presented in the table above. During the three months ended March 31, 2017 and 2016, the Other Postretirement Benefits Net Periodic Benefit Cost incurred by SJG was approximately $0.1 million and $0.2 million, respectively, of the totals presented in the table above.

Capitalized benefit costs reflected in the table above relate to SJG’s construction program. Deferred benefit costs relate to SJG's deferral of incremental expense associated with the adoption of new mortality tables effective December 31, 2014, and subsequent adjustments thereto in both 2015 and 2016. Deferred benefit costs are expected to be recovered through rates as part of SJG's next base rate case.

SJI contributed $10.0 million to the pension plans, of which SJG contributed $8.0 million, in January 2017. No contributions were made to the pension plans by either SJI or SJG during the three months ended March 31, 2016. SJI and SJG do not expect to make any additional contributions to the pension plans in 2017; however, changes in future investment performance and discount rates may ultimately result in a contribution. Payments related to the unfunded supplemental executive retirement plan (SERP) are expected to approximate $2.5 million in 2017. SJG also has a regulatory obligation to contribute approximately $3.6 million annually to the other postretirement benefit plans’ trusts, less direct costs incurred.

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See Note 12 to the Consolidated Financial Statements in Item 8 of SJI’s Annual Report on Form 10-K for the year ended December 31, 2016 for additional information related to SJI’s pension and other postretirement benefits and Note 11 to the Financial Statements in Item 8 of SJG’s Form 10-K for the year ended December 31, 2016 for additional information related to SJG’s pension and other postretirement benefits.

10. LINES OF CREDIT:

Credit facilities and available liquidity as of March 31, 2017 were as follows (in thousands):

Company	Total Facility		Usage			Available Liquidity		Expiration Date
SJI:
Revolving Credit Facilities	$	450,000	$	209,900	(A)	$	240,100	August 2017; February 2018
Total SJI	450,000		209,900			240,100
SJG:
Commercial Paper Program/Revolving Credit Facility	200,000		800		(B)	199,200		May 2018
Uncommitted Bank Line	10,000		—			10,000		August 2017
Total SJG	210,000		800			209,200
Total	$	660,000	$	210,700		$	449,300

(A) Includes letters of credit outstanding in the amount of $4.8 million.

(B) Includes letters of credit outstanding in the amount of $0.8 million.

The SJG facilities are restricted as to use and availability specifically to SJG; however, if necessary, the SJI facilities can also be used to support SJG’s liquidity needs. Borrowings under these credit facilities are at market rates. SJI's weighted average interest rate on these borrowings, which changes daily, was 1.98% and 1.34% at March 31, 2017 and 2016, respectively. SJG's weighted average interest rate on these borrowings, which changes daily, was 1.15% and 0.69% at March 31, 2017 and 2016, respectively.

SJI's average borrowings outstanding under these credit facilities (which includes SJG), not including letters of credit, during the three months ended March 31, 2017 and 2016 were $287.9 million and $394.6 million, respectively. The maximum amounts outstanding under these credit facilities, not including letters of credit, during the three months ended March 31, 2017 and 2016 were $354.1 million and $467.7 million, respectively.

SJG's average borrowings outstanding under its credit facilities during the three months ended March 31, 2017 and 2016 were $34.7 million and $88.4 million, respectively. The maximum amounts outstanding under its credit facilities during the three months ended March 31, 2017 and 2016 were $110.1 million and $141.7 million, respectively.

The SJI and SJG facilities are provided by a syndicate of banks and contain one financial covenant limiting the ratio of indebtedness to total capitalization (as defined in the respective credit agreements) to not more than 0.65 to 1, measured at the end of each fiscal quarter. SJI and SJG were in compliance with this covenant as of March 31, 2017.

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SJG has a commercial paper program under which SJG may issue short-term, unsecured promissory notes to qualified investors up to a maximum aggregate amount outstanding at any time of $200.0 million. The notes have fixed maturities which vary by note, but may not exceed 270 days from the date of issue. Proceeds from the notes are used for general corporate purposes. SJG uses the commercial paper program in tandem with its $200.0 million revolving credit facility and does not expect the principal amount of borrowings outstanding under the commercial paper program and the credit facility at any time to exceed an aggregate of $200.0 million.

11. COMMITMENTS AND CONTINGENCIES:

GUARANTEES — As of March 31, 2017, SJI had issued $7.5 million of parental guarantees on behalf of an unconsolidated subsidiary. These guarantees generally expire within the next two years and were issued to enable the subsidiary to market retail natural gas.

GAS SUPPLY CONTRACTS - In the normal course of business, SJG and SJRG have entered into long-term contracts for natural gas supplies, firm transportation and gas storage service. The transportation and storage service agreements with interstate pipeline suppliers were made under Federal Energy Regulatory Commission (FERC) approved tariffs. SJG's cumulative obligation for gas supply-related demand charges and reservation fees paid to suppliers for these services averages approximately $5.3 million per month and is recovered on a current basis through the BGSS. SJRG's cumulative obligation for demand charges and reservation fees paid to suppliers for these services is approximately $0.5 million per month. SJRG has also committed to purchase a minimum of 745,000 dts/d and up to 940,000 dts/d of natural gas, from various suppliers, for terms ranging from 3 to 10 years at index-based prices.

COLLECTIVE BARGAINING AGREEMENTS— Unionized personnel represent approximately 44% and 60% of SJI's and SJG's workforce at March 31, 2017, respectively. SJI has collective bargaining agreements with two unions that represent these employees: the International Brotherhood of Electrical Workers (IBEW) Local 1293 and the International Association of Machinists and Aerospace Workers (IAM) Local 76. SJG and SJESP employees represented by the IBEW operate under collective bargaining agreements that run through February 2018. SJG's remaining unionized employees are represented by the IAM and operate under collective bargaining agreements that run through August 2017.

STANDBY LETTERS OF CREDIT — As of March 31, 2017, SJI provided $4.8 million of standby letters of credit through its revolving credit facility to enable SJE to market retail electricity and for various construction and operating activities. SJG provided a $0.8 million letter of credit under its revolving credit facility to support the remediation of environmental conditions at certain locations in SJG's service territory. SJG and Marina have provided $25.2 million and $62.3 million, respectively, of additional letters of credit under separate facilities outside of the revolving credit facilities to support variable-rate demand bonds issued through the New Jersey Economic Development Authority (NJEDA) to finance the expansion of SJG’s natural gas distribution system and to finance Marina's initial thermal plant project, respectively. In May 2017, Marina redeemed its variable-rate demand bonds (see Note 16) and the related letters of credit reimbursement agreements were terminated.

PENDING LITIGATION — SJI and SJG are subject to claims arising in the ordinary course of business and other legal proceedings.  SJI has been named in, among other actions, certain gas supply and capacity management contract disputes and certain product liability claims related to our former sand mining subsidiary. 

SJI is currently involved in a pricing dispute related to two long-term gas supply contracts whereby SJI had sued the supplier to recover amounts that were improperly invoiced. Subsequently, the supplier countersued SJI claiming it is owed an amount which we extrapolate to be $15.0 million from SJG, plus interest, and $40.6 million from SJRG, plus interest, through March 31, 2017. SJI has since dropped its lawsuit against the supplier. We believe any monies paid associated with the SJG claims would reflect gas costs that would be recovered from SJG's customers through adjusted rates (see Note 16 for an update to this litigation).

SJI is also involved in a dispute in the Court of Common Pleas of Philadelphia related to a three-year capacity management contract with a counterparty whereby SJI is the manager. The counterparty is claiming that it is owed approximately $13.3 million, plus interest, from SJRG under a sharing credit within the contract. Litigation is currently expected to start in June 2017.

Liabilities related to claims are accrued when the amount or range of amounts of probable settlement costs or other charges for these claims can be reasonably estimated. For matters other than the pricing dispute noted above, SJI has accrued approximately $3.2 million and $3.1 million related to all claims in the aggregate as of March 31, 2017 and December 31, 2016, respectively, of which SJG has accrued approximately $0.6 million as of both March 31, 2017 and December 31, 2016. Although SJI and SJG do not presently believe that these matters will have a material adverse effect on its business, given the inherent uncertainties in such situations, SJI and SJG can provide no assurance regarding the outcome of litigation.

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ENVIRONMENTAL REMEDIATION COSTS — SJG 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. Other than the changes discussed in Note 8 to the condensed consolidated financial statements, there have been no changes to the status of SJI’s environmental remediation efforts since December 31, 2016, as described in Note 15 to the Consolidated Financial Statements in Item 8 of SJI’s Annual Report on Form 10-K for the year ended December 31, 2016 and in Note 12 to the Financial Statements in Item 8 of SJG’s Annual Report on Form 10-K for the year ended December 31, 2016.

12. DERIVATIVE INSTRUMENTS:

Certain SJI subsidiaries, including SJG, are involved in buying, selling, transporting and storing natural gas and buying and selling retail electricity for their own accounts as well as managing these activities for third parties. These subsidiaries are subject to market risk on expected future purchases and sales due to commodity price fluctuations. SJI and SJG use a variety of derivative instruments to limit this exposure to market risk in accordance with strict corporate guidelines.  These derivative instruments include forward contracts, swap agreements, options contracts and futures contracts.

As of March 31, 2017, SJI had outstanding derivative contracts as follows (1 MMdts = one million decatherms; 1 MMmWh = one million megawatt hours): 

	SJI Consolidated	SJG
Derivative contracts intended to limit exposure to market risk to:
Expected future purchases of natural gas (in MMdts)	59.9	13.0
Expected future sales of natural gas (in MMdts)	51.3	0.1
Expected future purchases of electricity (in MMmWh)	1.7	—
Expected future sales of electricity (in MMmWh)	1.3	—
Basis and Index related net purchase (sales) contracts (in MMdts)	108.2	(3.6	)

These contracts, which have not been designated as hedging instruments under GAAP, are measured at fair value and recorded in Derivatives - Energy Related Assets or Derivatives - Energy Related Liabilities on the condensed consolidated balance sheets of SJI and SJG. For SJE and SJRG contracts, the net unrealized pre-tax gains for these energy-related commodity contracts included with realized gains in Operating Revenues – Nonutility on the condensed consolidated statements of income for SJI were $14.7 million and $18.7 millionfor the three months ended March 31, 2017 and 2016, respectively. For SJG's contracts, the costs or benefits are recoverable through the BGSS clause, subject to BPU approval. As a result, the net unrealized pre-tax gains and losses for these energy-related commodity contracts are included with realized gains and losses in Regulatory Assets or Regulatory Liabilities on the condensed consolidated balance sheets of both SJI and SJG. As of March 31, 2017 and December 31, 2016, SJG had $2.5 million of unrealized gains and $4.4 million of unrealized losses, respectively, along with a net realized gain of $0.8 million and a net realized loss of $2.8 million, respectively, included in its BGSS related to energy-related commodity contracts.

SJI, including SJG, has also entered into interest rate derivatives to hedge exposure to increasing interest rates and the impact of those rates on cash flows of variable-rate debt. These interest rate derivatives, some of which had been designated as hedging instruments under GAAP, are measured at fair value and recorded in Derivatives - Other on the condensed consolidated balance sheets. Hedge accounting has been discontinued prospectively for these derivatives. As a result, any unrealized gains and losses on these derivatives, that were previously included in Accumulated Other Comprehensive Loss (AOCL) on the condensed consolidated balance sheets, are being recorded in earnings over the remaining life of the derivative.

In March 2017, SJI entered into a new interest rate derivative and amended the existing interest rate derivative linked to unrealized losses previously recorded in AOCL. SJI reclassified $2.4 million of pre-tax unrealized loss in AOCL to Interest Charges on the condensed consolidated statements of income as a result of the prior hedged transactions being deemed probable of not occurring.

For SJG interest rate derivatives, the fair value represents the amount SJG would have to pay the counterparty to terminate these contracts as of those dates.

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SJG previously used derivative transactions known as “Treasury Locks” to hedge against the impact on its cash flows of possible interest rate increases on debt issued in September 2005. The initial $1.4 million cost of the Treasury Locks has been included in AOCL and is being amortized over the 30-year life of the associated debt issue. As of both March 31, 2017 and December 31, 2016, the unamortized balance was approximately $0.9 million.

As of March 31, 2017, SJI’s active interest rate swaps were as follows:

Notional Amount		Fixed Interest Rate	Start Date	Maturity	Obligor
$	20,000,000	3.049%	3/15/2017	3/15/2027	SJI
$	20,000,000	3.049%	3/15/2017	3/15/2027	SJI
$	10,000,000	3.049%	3/15/2017	3/15/2027	SJI
$	12,500,000	3.530%	12/1/2006	2/1/2036	SJG
$	12,500,000	3.430%	12/1/2006	2/1/2036