REGULATION

NJNG is subject to cost-based regulation, therefore, it is permitted to recover authorized operating expenses and earn a reasonable return on its utility investment based on the BPU's approval, in accordance with accounting guidance applicable to regulated operations. Accordingly, NJNG capitalizes or defers certain costs that are expected to be recovered from its customers as regulatory assets and recognizes certain obligations representing amounts that are probable future expenditures as regulatory liabilities.

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



(Thousands)	December 31, 2012		September 30, 2012
Regulatory assets-current
Conservation Incentive Program	$	25,681	$	25,681
Underrecovered gas costs	5,513		7,053
Total current	$	31,194	$	32,734
Regulatory assets-noncurrent
Environmental remediation costs
Expended, net of recoveries	$	56,333	$	59,745
Liability for future expenditures	182,000		182,000
Deferred income taxes	11,405		11,405
Energy Efficiency Program	28,762		26,025
New Jersey Clean Energy Program (NJCEP)	13,621		5,619
Postemployment and other benefit costs	140,098		142,495
Deferred Superstorm Sandy costs	14,110		—
Other	11,551		13,974
Total noncurrent	$	457,880	$	441,263
Regulatory liability-current
Derivatives, net	$	—	$	1,169
Total current	$	—	$	1,169
Regulatory liabilities-noncurrent
Cost of removal obligation	$	65,382	$	65,994
Derivatives, net	966		1,000
Other	395		83
Total noncurrent	$	66,743	$	67,077

NJNG's recovery of costs is facilitated through its base tariff rates, Basic Gas Supply Service (BGSS) and other regulatory riders. As recovery of regulatory assets is subject to BPU approval, if there are any changes in regulatory positions that indicate recovery is not probable, the related cost would be charged to income in the period of such determination.

Recent regulatory filings and/or actions include the following:


•	In November 2012, the BPU approved new state utilities' funding obligations for NJCEP for the period from January 1, 2013 to June 30, 2013. NJNG's share of the total funding requirement will be approximately $9.8 million. Accordingly, NJNG recorded the obligation and a corresponding regulatory asset on the Unaudited Condensed Consolidated Balance Sheets.

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On October 23, 2012, the BPU approved the Safety Acceleration and Facility Enhancement (SAFE) program, to include a four-year incremental investment program of $130 million, exclusive of allowance for funds used during construction (AFUDC) accruals. The approved SAFE Program will include infrastructure costs subject to review in NJNG's next base rate case to be filed no later than November 2015, the deferral of depreciation expense on SAFE investments and recognizes an overall rate of return on infrastructure investments of 6.9 percent. The deferred cost recovery will include accruals for both debt and equity components of AFUDC while construction is in progress. When construction is completed and plant is placed in service, NJNG will accrue an AFUDC rate at 6.9 percent per year until such time that NJNG receives approval for recovery of all costs through base rates.


•	On November 19, 2012, NJNG filed a petition with the BPU requesting deferral accounting for uninsured incremental operating and maintenance costs associated with Superstorm Sandy. In addition, NJNG requested the review of and the appropriate recovery period for such deferred expenses be addressed in the Company's next base rate case.

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On November 20, 2012, NJNG filed for Accelerated Infrastructure Programs (AIP) base rate cost recovery, requesting an increase of $6.9 million, which represents a cumulative impact of $15.8 million annually, related to AIP I and AIP II infrastructure investments installed in NJNG's distribution and transmission systems through October 31, 2012. The existing weighted average cost of capital remained the same for both AIP I and AIP II. The base rate change is requested to be approved in March 2013.


•	On January 1, 2013, a Transitional Energy Facilities Assessment (TEFA) tax reduction went into effect. This is the second of three TEFA rate reductions with the last TEFA rate reduction effective January 2014.

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On January 23, 2013, the BPU approved a stipulation to extend NJNG's current SAVEGREEN Project^® (SAVEGREEN) through June 30, 2013. The extension will allow the previously approved SAVEGREEN programs to continue with additional grants, incentives and financing to eligible customers. NJNG's July 9, 2012 petition, for an extension and expansion of the SAVEGREEN programs over a four-year period, remains open.