FILE NO. _____________
FORM U-3A-2
2004
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC
STATEMENT BY HOLDING COMPANY CLAIMING EXEMPTION UNDER
RULE U-3A-2 FROM THE PROVISIONS OF THE PUBLIC UTILITY
HOLDING COMPANY ACT OF 1935
TO BE FILED ANNUALLY PRIOR TO MARCH 1
SOUTH JERSEY INDUSTRIES, INC.
hereby files with the Securities and Exchange Commission, pursuant to Rule 2,
its statement claiming exemption as a holding company from the provisions of the
Public Utility Holding Company Act of 1935. In support of such claim for
exemption, the following information is submitted:
1. Name, State of organization, location and nature of business of claimant and
every subsidiary thereof other than any exempt wholesale generator (EWG) or
foreign utility company in which claimant directly or indirectly holds an
interest.
The claimant, South Jersey Industries, Inc. (SJI), was organized under
the laws of the State of New Jersey; its principal location is 1 South
Jersey Plaza, Folsom, New Jersey 08037. SJI is not a public utility
company. It is primarily engaged in the business of owning and holding
a majority interest in other business enterprises.
SJI owns all of the outstanding common stock of South Jersey Gas
Company (SJG), which was organized under the laws of the State of New
Jersey. SJG's principal location is 1 South Jersey Plaza, Folsom, New
Jersey 08037. SJG is a public utility company engaged in the purchase,
transmission and sale of natural and mixed gases for residential,
commercial, and industrial use in an area of approximately 2,500 square
miles in the southern part of New Jersey. SJG also makes off-system
sales of natural gas on a wholesale basis to various customers on the
interstate pipeline system and transports natural gas purchased
directly from producers or suppliers for its own sales and for some of
its customers. SJG also assigns or buys capacity for the purchase or
transportation of natural gas.
-1-
SJI has a 100% ownership interest in South Jersey Resources Group, LLC
(SJRG) which was formed on April 1, 1996 under the laws of the State of
Delaware. SJRG's principal location is 1 South Jersey Plaza, Folsom,
New Jersey 08037. SJRG is not a public utility company. It provides
services for the sale of natural gas to energy marketers, electric and
gas utilities and other wholesale users in the mid-Atlantic and
southern regions of the country.
SJI owns all of the outstanding common stock of South Jersey Energy
Company (SJE), which was organized on January 15, 1973 under the laws
of the State of New Jersey. SJE's principal location is 1 South Jersey
Plaza, Folsom, New Jersey 08037. SJE is not a public utility company.
SJE provides services for the acquisition, sale and transportation of
natural gas and electricity for industrial, commercial and residential
users and markets total energy management services. SJE also markets an
air quality monitoring system that tests for hazardous airborne
particulate on a real-time basis through AirLogics, LLC.
SJE owns a 50% interest in AirLogics, LLC (AirLogics), a joint venture
with GZA GeoEnvironmental, Inc., formed on April 1, 2000 under the laws
of the State of Delaware. AirLogics' principal location is 1 South
Jersey Plaza, Folsom, New Jersey 08037. AirLogics is not a public
utility company. It markets a proprietary air monitoring system
designed to assist companies involved in environmental clean-up
activities.
SJE owns all of the outstanding common stock of SJ EnerTrade, Inc.
(EnerTrade) which was formed on October 22, 1997 under the laws of the
State of New Jersey. EnerTrade's principal location is 1 South Jersey
Plaza, Folsom, New Jersey 08037. EnerTrade is not a public utility
company. It formerly provided services for the sale of natural gas to
the casino industry in Atlantic City, New Jersey. EnerTrade is not
engaged in any business activity at this time.
SJE also owns 100% of South Jersey Energy Solutions, LLC (SJES), formed
June 1, 1999 under the laws of the State of Delaware. SJES's principal
location is 1 South Jersey Plaza, Folsom, New Jersey 08037. SJES is not
a public utility company. It sold electricity on a retail basis in the
mid-Atlantic states. In May 2002, SJES ceased selling electricity. SJES
is not engaged in any business activity at this time.
SJI owns a 50% interest in Millennium Account Services, LLC
(Millennium), a joint venture with Conectiv Solutions, LLC formed
January 4, 1999 under the laws of the State of Delaware. Millennium's
principal location is 2 Regulus Drive, Suite B, Turnersville, New
Jersey 08012. Millennium is not a public utility company. It provides
meter reading services in southern New Jersey.
SJI has a 100% ownership interest in Marina Energy LLC (Marina) which
was formed on October 1, 2000 under the laws of the State of New
Jersey. Marina's principal location is 1 South Jersey Plaza, Folsom,
-2-
New Jersey 08037. Marina develops and operates energy related projects
in southern New Jersey. Marina is not a public utility company.
Marina owns a 51% interest in AC Landfill Energy, LLC (ACLE), which was
formed on January 13, 2004, under the laws of the State of New Jersey.
DCO Energy, LLC owns the remaining 49% interest. ACLE's principal
location is 1 South Jersey Plaza, Folsom, New Jersey 08037. ACLE is
developing a 1,400 kilowatt methane-to-electric power generation system
at a county-owned landfill in New Jersey. The facility was not
operational as of December 31, 2004. ACLE is not a public utility
company.
SJI has a 100% ownership interest in South Jersey Energy Service Plus,
LLC (Service Plus) which was formed on March 1, 2003 under the laws of
the State of New Jersey. Service Plus's principal location is 1 South
Jersey Plaza, Folsom, New Jersey 08037. Service Plus sell appliance
service plans, services major household appliances, and installs
residential heating and air conditioning systems in southern New
Jersey. Service Plus is not a public utility company.
SJI owns all of the outstanding common stock of Energy & Minerals, Inc.
(EMI), which was organized under the laws of the State of New Jersey.
EMI's principal location is 1 South Jersey Plaza, Folsom, New Jersey
08037. EMI is not a public utility company. It principally owns real
estate and the stock of an inactive nonutility subsidiary.
EMI owns all of the outstanding common stock of South Jersey Fuel, Inc.
(SJF), which was organized under the laws of the State of New Jersey.
SJF's principal location is 1 South Jersey Plaza, Folsom, New Jersey
08037. SJF is not a public utility company and is presently inactive.
SJI owns all of the outstanding common stock of R&T Group, Inc. (R&T),
which was organized under the laws of the State of New Jersey. R&T's
principal location is 1 South Jersey Plaza, Folsom, New Jersey 08037.
R&T is not a public utility company. It holds the remaining assets and
liabilities of certain nonutility subsidiaries of SJI which were merged
into R&T in 1997. R&T is presently inactive.
Neither the claimant nor any of its subsidiaries is an EWG nor do they
hold a direct or indirect interest in a foreign utility company.
2. A brief description of the properties of claimant and each of its subsidiary
public utility companies used for the generation, transmission, and distribution
of electric energy for sale, or for the production, transmission, and
distribution of natural or manufactured gas, indicating the location of
principal generating plants, transmission lines, producing fields, gas
manufacturing plants, and electric and gas distribution facilities, including
all such properties which are outside the State in which claimant and its
subsidiaries are organized and all transmission or pipelines which deliver or
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receive electric energy or gas at the borders of such State.
SJI does not own directly any properties used for the production,
transmission, and distribution of natural or manufactured gas or
electric energy.
The properties of SJG used for the production, transmission, and
distribution of natural or manufactured gas include mains, service
connections and meters, supplemental gas storage facilities, and an LNG
storage and vaporization facility, all of which are located in the
State of New Jersey (except that certain gas owned by SJG is stored
outside the State and transported when needed). There are 5,478 miles
of distribution mains. There are 92 miles of mains in the transmission
system. No pipelines of SJG deliver or receive gas at the borders of
the State of New Jersey.
3. The following information for the last calendar year with respect to claimant
and each of its subsidiary public utility companies:
(a) Number of Kwh of electric energy sold (at retail or wholesale) and
Mcf of natural or manufactured gas distributed at retail.
During 2004, SJG distributed at retail to residential,
commercial and industrial customers 21,375 MMcf of natural or
manufactured gas and transported 35,593 MMcf of natural gas
purchased directly by its industrial, residential and
commercial customers. Retail distribution revenues were $257.0
million and transportation revenues were $82.0 million. SJG
also sold 7,457 MMcf, or $50.0 million, of natural gas at
wholesale for resale within the State of New Jersey.
(b) Number of Kwh of electric energy and Mcf of natural or manufactured
gas distributed at retail outside the State in which each company is
organized.
None
(c) Number of Kwh of electric energy and Mcf of natural or manufactured
gas sold at wholesale outside the State in which each such company is
organized, or at the State line.
During 2004, SJG sold 13,940 MMcf, or $101.5 million, of
natural gas at wholesale to customers outside the borders of
the State of New Jersey.
Also, throughput related to capacity release amounted to
54,638 MMcf, or $14.4 million in revenues, in 2004.
-4-
(d) Number of Kwh of electric energy and Mcf of natural or manufactured
gas purchased outside the State in which each such company is organized
or at the State line.
During 2004, SJG purchased approximately 33,769 MMcf of
natural gas from out-of-state sources at a total cost,
including related expenses, of $339.0 million.
During 2004 SJG purchased and had delivered to it
approximately 498 MMcf of liquefied natural gas by
over-the-road truck transport to SJG's LNG Storage and
Vaporization facility at McKee City, Atlantic County, New
Jersey, at a cost of $5.3 million.
4. The following information for the reporting period with respect to claimant
and each interest it holds directly or indirectly in an EWG or a foreign utility
company, stating monetary amounts in United States dollars:
(a) Name, location, business address and description of the facilities
used by the EWG or foreign utility company for the generation,
transmission and distribution of electric energy for sale or for the
distribution at retail of natural or manufactured gas.
The claimant has no direct or indirect interest or investment
of any kind in, or has any sales, service or construction
contracts of any kind with, an EWG or a foreign utility
company.
(b) Name of each system company that holds an interest in such EWG or
foreign utility company; and description of the interest held.
No system company holds any direct or indirect interest in an
EWG or foreign utility company.
(c) Type and amount of capital invested, directly or indirectly, by the
holding company claiming exemption; any direct or indirect guarantee of
the security of the EWG or foreign utility company by the holding
company claiming exemption; and any debt or other financial obligation
for which there is recourse, directly or indirectly, to the holding
company claiming exemption or another system company, other than the
EWG or foreign utility company.
The claimant holding company has no capital invested, directly
or indirectly; nor does it directly or indirectly guarantee
any security debt of an EWG or foreign utility company; nor
debt or other financial obligation for which there is
recourse, directly or indirectly, to the holding company
claiming exemption on another system company.
-5-
(d) Capitalization and earnings of the EWG or foreign utility company
during the reporting period.
None
(e) Identify any service, sales or construction contract(s) between the
EWG or foreign utility company and a system company, and describe the
services to be rendered or goods sold and fees or revenues under such
agreement(s).
None
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EXHIBIT A
A consolidating statement of income and retained earnings of the claimant and
its subsidiary companies for the last calendar year, together with a
consolidating balance sheet of claimant and its subsidiary companies as of the
close of such calendar year.
The above-named claimant has caused this statement to be duly executed on its
behalf by its authorized officer on this 28th day of February 2005.
SOUTH JERSEY INDUSTRIES, INC.
/s/ David A. Kindlick
---------------------------------------------------------
DAVID A. KINDLICK
Vice President & Chief Financial Officer
CORPORATE SEAL
ATTEST:
/s/ Richard H. Walker, Jr., Esquire
-----------------------------------------------------------------------------
RICHARD H. WALKER, JR., ESQUIRE
Vice President, Corporate Secretary, & Corporate Counsel
Name, title and address of officer to whom notices and correspondence concerning
this statement should be addressed:
Richard H. Walker, Jr., Esquire
Vice President, Corporate Secretary, & Corporate Counsel
South Jersey Industries, Inc.
1 South Jersey Plaza
Folsom, New Jersey 08037
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EXHIBIT B
EWG ORGANIZATIONAL CHART
Not applicable. See response to Item 4.
-8-
SOUTH JERSEY INDUSTRIES, INC.
CONSOLIDATING STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2004
(In Thousands)
South South Energy
South South Jersey Jersey South South &
Jersey Jersey Energy Energy Jersey Marina Minerals R & T Elimin.
Indust. Gas Serv Company Resources Energy LLC Inc Group & Consd.
Inc. Company Plus LLC Consd. Group LLC Consd. Consd. Inc. Total Adjust. Total
------- ------- -------- ------- --------- --------- ------- ------ ------- ------- -----
Operating Revenues:
Utility $0 $508,827 $0 $0 $0 $0 $0 $0 $508,827 ($13,879)[C]$494,948
Nonutility 2,491 0 6,371 284,148 18,059 20,865 0 0 331,934 (7,806)[C]324,128
-------- --------- ------- --------- -------- -------- ------ ------ --------- -------- --------
Total Operating Revenues 2,491 508,827 6,371 284,148 18,059 20,865 0 0 840,761 (21,685) 819,076
-------- --------- ------- --------- -------- -------- ------ ------ ---------- --------- --------
Operating Expenses:
Cost of Sales - Utility 0 340,860 0 0 0 0 0 0 340,860 (13,879)[C]326,981
Cost of Sales - Nonutility 0 0 2,018 270,845 11,355 8,811 0 0 293,029 (5,315)[C]287,714
Operations 4,145 56,238 3,389 4,311 1,289 4,619 48 49 74,088 (3,105)[C] 70,983
Maintenance 0 5,772 0 0 0 0 0 0 5,772 0 5,772
Depreciation 101 23,047 31 14 15 1,680 0 0 24,888 0 24,888
Energy and Other Taxes 392 11,458 149 0 0 0 0 0 11,999 0 11,999
-------- --------- ------- --------- -------- -------- ------ ------- --------- --------- --------
Total Operating Expenses 4,638 437,375 5,587 275,170 12,659 15,110 48 49 750,636 (22,299) 728,337
-------- --------- ------- --------- -------- -------- ------ ------- --------- --------- --------
Operating (Loss) Income (2,147) 71,452 784 8,978 5,400 5,755 (48) (49) 90,125 614 90,739
-------- --------- ------- --------- -------- -------- ------ ------- --------- --------- --------
Other Income and Expense:
Dividends from Subsidiaries 9,123 0 0 0 0 0 0 0 9,123 (9,123)[A] 0
Equity in Undistributed
Earnings of Subs 33,915 0 0 0 0 0 0 0 33,915 (33,915)[A] 0
Other 417 886 4 27 146 599 73 48 2,200 (1,215)[C] 985
-------- --------- ------- --------- -------- -------- ------ ------- --------- --------- --------
Total Other Income and
Expense 43,455 886 4 27 146 599 73 48 45,238 (44,253) 985
Interest Charges 620 17,906 1 198 45 2,404 0 0 21,174 (601)[C] 20,573
-------- --------- ------- --------- -------- -------- ------ ------- --------- --------- --------
Income (Loss) Before Income
Taxes 40,688 54,432 787 8,807 5,501 3,950 25 (1) 114,189 (43,038) 71,151
-------- --------- ------- --------- -------- -------- ------ ------- --------- --------- --------
Income Taxes
Current Federal and State
Income Taxes (1,430) 8,711 132 3,498 3,020 239 (17) (3) 14,150 0 14,150
Deferred Federal and State
Income Taxes (89) 14,259 190 154 (771) 1,157 26 3 14,929 0 14,929
-------- --------- ------- --------- -------- -------- ------ ------- --------- --------- --------
Total Income Taxes (1,519) 22,970 322 3,652 2,249 1,396 9 0 29,079 0 29,079
-------- --------- ------- --------- -------- -------- ------ ------- --------- --------- --------
Equity in Affiliated Companies 766 0 0 135 0 0 0 0 901 0 901
-------- --------- ------- --------- -------- -------- ------ ------- --------- --------- --------
Income(Loss) from Continuing
Operations 42,973 31,462 465 5,290 3,252 2,554 16 (1) 86,011 (43,038) 42,973
-------- --------- ------- --------- -------- -------- ------ ------- --------- --------- --------
Equity in Undistributed Earnings
of Discontinued Subsidiaries (680) 0 0 0 0 0 0 0 (680) 680 [A] 0
Discontinued Operations - Net 0 0 0 0 0 0 (680) 0 (680) 0 (680)
Cumulative Effect of Accounting
Change - Net 0 0 0 0 0 0 0 0 0 0 0
-------- --------- ------- --------- -------- -------- ------ ------- --------- --------- --------
Net Income (Loss) Applicable
to Common Stock $42,293 $31,462 $465 $5,290 $3,252 $2,554 ($664) ($1) $84,651 ($42,358) $42,293
======== ========= ======= ========= ======== ======== ====== ======= ========= ========= ========
-9-
SOUTH JERSEY INDUSTRIES, INC.
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2004
(In Thousands)
South South South South South
Jersey Jersey Energy Energy Jersey Marina Minerals R & T Elimin.
Indust. Gas Serv Company Resources Energy LLC Inc Group & Consd.
Inc. Company Plus LLC Consd. Group LLC Consd. Consd. Inc. Total Adjust. Total
------- ------- -------- ------- --------- --------- ------- ------ ------- ------- -----
Retained Earnings -
Beginning $91,638 $108,356 $67 $662 $2,454 $1,428 ($14,302) ($7,043) $183,260 ($91,622)[B] $91,638
Net Income Applic to
Common Stock 42,293 31,462 465 5,290 3,252 2,554 (664) (1) 84,651 (42,358)[A] 42,293
--------- -------- ------- ------- ------- --------- -------- ------- -------- ---------- -------
133,931 139,818 532 5,952 5,706 3,982 (14,966) (7,044) 267,911 (133,980) 133,931
Dividends Declared -
Common Stock 22,534 9,123 0 0 0 0 0 0 31,657 (9,123)[A] 22,534
--------- --------- ------ -------- ------- --------- -------- ------- ------- ---------- --------
Retained Earnings -
Ending $111,397 $130,695 $532 $5,952 $5,706 $3,982 ($14,966) ($7,044) $236,254 ($124,857) $111,397
========== ========= ===== ======== ======== ======= ======== ======== ======== ========= =========
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SOUTH JERSEY INDUSTRIES, INC.
CONSOLIDATING ELIMINATIONS AND ADJUSTMENTS
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2004
(In Thousands)
[A] Equity in Undistributed Earnings
of Subsidiaries $33,915
Dividends from Subsidiaries 9,123
Dividends Declared - Common Stock $9,123
Investment in Subsidiaries 33,235
Equity in Undistributed Earnings
of Discontinued Subsidiaries 680
To eliminate equity in undistributed earnings
recorded by South Jersey Industries, Inc.
[B] Retained Earnings - 1/1/04 91,622
Investment in Subsidiaries 91,622
To eliminate retained earnings of subsidiaries
at 1/1/04 previously recorded by South Jersey
Industries, Inc. under the equity method of accounting.
[C] Operating Revenues - Utility 13,879
Operating Revenues - Nonutility 7,806
Other Income and Expense 1,215
Cost of Sales - Utility 13,879
Cost of Sales - Nonutility 5,315
Operations 3,105
Interest Charges 601
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SOUTH JERSEY INDUSTRIES, INC.
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2004
(In Thousands)
South South Energy
South South Jersey Jersey South Marina &
Jersey Jersey Energy Energy Jersey Energy Minerls, R & T Elimin.
Indust. Gas Service Company Resources LLC Inc. Group & Consolidated
Inc. Company Plus LLC Consld. Group,LLC Consld. Consld. Inc. Total Adjustmts Total
------- ------- -------- -------- ---------- ------- -------- ----- ---------- --------- ----------
Assets
Property, Plant and Equipment:
Utility Plant, at
original cost $0 $957,287 $0 $0 $0 $0 $0 $0 $957,287 $0 $957,287
Accumulated Depreciation
and Amortization 0 (224,506) 0 0 0 0 0 0 (224,506) 0 (224,506)
Nonutility Property and
Equipment, at cost 1,338 0 183 57 71 68,129 859 492 71,129 0 71,129
Accum. Depreciation (279) 0 (39) (33) (41) (2,556) (787) (305) (4,040) 0 (4,040)
------- ----------- ------- -------- --------- -------- ------- ------- ----------- --------- ---------
Property, Plant and
Equipment - Net 1,059 732,781 144 24 30 65,573 72 187 799,870 0 799,870
------- ----------- ------- -------- --------- -------- ------- ------- ----------- --------- ---------
Investments:
Investments in
Subsidiaries 347,857 0 0 0 0 0 0 0 347,857 (347,857)[1] 0
Available-for-Sale
Securities 14 5,296 0 0 0 0 0 0 5,310 0 5,310
Restricted 0 0 0 0 13,044 553 0 0 13,597 0 13,597
Investment in
Affiliates 1,249 0 0 693 0 0 0 0 1,942 0 1,942
-------- ----------- ------- -------- --------- -------- ------- ------- ----------- --------- ---------
Total Investments 349,120 5,296 0 693 13,044 553 0 0 368,706 (347,857) 20,849
-------- ----------- ------- -------- --------- -------- ------- ------- ----------- --------- ----------
Current Assets:
Cash and Cash Equivalnts 790 3,310 100 393 118 510 36 15 5,272 0 5,272
Notes Receivable -
Associated Companies 33,448 0 0 970 0 0 3,320 1,630 39,368 (39,368)[3] 0
Accounts Receivable 10 39,032 6,237 42,903 56,279 2,660 0 0 147,121 (33,343)[2,6]113,778
Unbilled Revenues 0 34,862 0 10,995 0 0 0 0 45,857 0 45,857
Provision for
Uncollectibles 0 (2,871) (87) (537) 0 0 0 0 (3,495) 0 (3,495)
Accounts Receivable -
Associated Companies 2,287 885 1,844 5 1 0 8 4 5,034 (5,034)[2] 0
Natural Gas in Storage,
Average Cost 0 65,691 0 0 13,590 0 0 0 79,281 0 79,281
Materials and Supplies,
Average Cost 0 4,554 471 0 0 332 0 0 5,357 0 5,357
Assets of Discontinued
Businesses Held
for Disposal 0 0 0 0 0 0 402 0 402 0 402
Accumulated Deferred
Income Taxes 22 0 0 171 120 2 1 0 316 (316)[4] 0
Derivatives - Energy
Related Assets 0 1,272 0 9,186 27,016 0 0 0 37,474 (11,797)[7] 25,677
Derivatives - Other 0 0 0 0 1,549 0 0 0 1,549 0 1,549
Prepaid Taxes 0 6,104 0 0 0 0 0 0 6,104 0 6,104
Other Prepayments and
Current Assets 192 2,077 42 238 22 1,508 5 5 4,089 0 4,089
------- ----------- ------- -------- --------- -------- ------- ------- ----------- --------- ---------
Total Current Assets 36,749 154,916 8,607 64,324 98,695 5,012 3,772 1,654 373,729 (89,858) 283,871
-------- ----------- ------- -------- --------- -------- ------- ------- ----------- --------- ---------
Regulatory and Other
Noncurrent Assets:
Regulatory Assets 0 72,635 0 0 0 0 0 0 72,635 0 72,635
Accumulated Deferred
Income Taxes 466 0 653 6 0 767 2,144 64 4,100 (4,100)[5] 0
Prepaid Pension 2,342 24,812 1,435 0 0 0 0 0 28,589 0 28,589
Derivatives - Energy
Related Assets 0 0 0 1,590 5,173 0 0 0 6,763 (1,533)[7] 5,230
Derivatives - Other 0 0 0 0 197 0 0 0 197 0 197
Unamortized Debt
Discount and Expense 0 7,957 0 0 0 937 0 0 8,894 0 8,894
Contract Receivables 0 7,101 0 0 0 9,052 0 0 16,153 0 16,153
Other 0 2,089 1,454 0 0 3,490 13 0 7,046 0 7,046
------ ----------- ------- -------- --------- -------- ------- ------- ----------- --------- ----------
Total Regulatory and
Other Noncurrent
Assets 2,808 114,594 3,542 1,596 5,370 14,246 2,157 64 144,377 (5,633) 138,744
------- ----------- ------- -------- --------- -------- ------- ------- ----------- --------- ----------
Total Assets $389,736 $1,007,587 $12,293 $66,637 $117,139 $85,384 $6,001 $1,905 $1,686,682 ($443,348) $1,243,334
======== ========== ======== ======== ======== ======= ====== ====== ========== ========= ============
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SOUTH JERSEY INDUSTRIES, INC.
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2004
(In Thousands)
South South Energy
South South Jersey Jersey South Marina &
Jersey Jersey Energy Energy Jersey Energy Minerls, R & T Elimin.
Indust. Gas Service Company Resources LLC Inc. Group & Consolidated
Inc. Company Plus LLC Consld. Group,LLC Consld. Consld. Inc. Total Adjustmts Total
------- ------- -------- -------- ---------- ------- -------- ----- ---------- --------- ----------
Capitalization and Liabilities
Common Equity:
Common Stock SJI
Par Value $1.25 a share
Authorized - 20,000,000 shares
Outstanding -
13,879,968 shares $17,350 $0 $0 $0 $0 $0 $0 $0 $17,350 $0 $17,350
Common Stock -
Subsidiaries 0 5,848 0 50 0 0 13,283 1,000 20,181 (20,181)[1] 0
Premium on Common
Stock 213,045 170,317 4,200 3,500 2,918 12,500 1,584 7,800 415,864 (202,819)[1] 213,045
Capital Stock Expense (833) 0 0 0 0 0 0 0 (833) 0 (833)
Accumulated Other
Comprehen. (Loss) Income 0 (112) 0 0 4,462 (897) 0 0 3,453 0 3,453
Retained Earnings 111,397 130,695 532 5,952 5,706 3,982 (14,966) (7,044) 236,254 (124,857)[1] 111,397
--------- --------- ------- ------- -------- ------- -------- ------- ---------- ---------- ----------
Total Common Equity 340,959 306,748 4,732 9,502 13,086 15,585 (99) 1,756 692,269 (347,857) 344,412
Minority Interest 0 0 0 0 0 227 0 0 227 0 227
--------- --------- ------- ------- -------- ------- -------- ------- ---------- ---------- ----------
Preferred Stock of
Subsidiary 0 1,690 0 0 0 0 0 0 1,690 0 1,690
--------- --------- ------- ------- -------- ------- -------- ------- ---------- ---------- ----------
Long-Term Debt
(less current maturities
& sinking fund
requirements) 0 282,008 0 0 0 46,906 0 0 328,914 0 328,914
-------- -------- ------- ------- -------- ------- -------- ------- ---------- ---------- ----------
Current Liabilities:
Notes Payable - Banks 39,300 53,000 0 0 0 0 0 0 92,300 0 92,300
Notes Payable - Affiliate 0 0 0 195 0 0 0 0 195 0 195
Current Maturities of
Long-Term Debt 0 5,273 0 0 0 75 0 0 5,348 0 5,348
Notes Payable - Associated
Companies 5,920 0 140 9,100 14,320 9,377 511 0 39,368 (39,368)[3] 0
Accounts Payable 1,535 55,193 136 33,685 57,932 2,246 30 0 150,757 (31,921)[2,6]118,836
Accounts Payable to
Associated Companies 511 3,834 334 561 227 962 26 1 6,456 (6,456)[2] 0
Customer Deposits 0 8,846 0 0 0 0 0 0 8,846 0 8,846
Accumulated Deferred
Income Taxes 68 2,627 5 562 4,139 0 (6) 3 7,398 (316)[4] 7,082
Taxes Accrued (1,580) 1,228 53 3,183 2,459 (61) 124 13 5,419 0 5,419
Environmental Remediation
Costs 2 13,531 0 0 0 0 277 0 13,810 0 13,810
Interest Accrued 0 6,448 0 0 0 199 0 0 6,647 0 6,647
Derivatives - Energy
Related Liabilities 0 1,799 0 8,046 20,185 0 0 0 30,030 (11,797)[7] 18,233
Derivatives - Other 0 344 0 0 1,049 0 0 0 1,393 0 1,393
Other Current Liabilities 589 5,938 395 117 46 79 23 23 7,210 0 7,210
--------- --------- ------- ------- -------- ------- -------- ------- ---------- ---------- ----------
Total Current
Liabilities 46,345 158,061 1,063 55,449 100,357 12,877 985 40 375,177 (89,858) 285,319
--------- --------- ------- ------- -------- ------- -------- ------- ---------- ---------- ----------
Deferred Credits and
Other Noncurrent Liabilities:
Pension and Other
Postretirement Benefits 1,348 11,039 622 0 0 0 0 94 13,103 0 13,103
Accumulated Deferred
Income Taxes - Net 616 138,209 578 188 0 7,118 444 15 147,168 (4,100)[5] 143,068
Investment Tax Credits 0 3,129 0 0 0 0 0 0 3,129 0 3,129
Environmental
Remediation Costs 12 37,515 0 0 0 0 3,654 0 41,181 0 41,181
Derivatives - Energy
Related Liabilities 0 0 0 1,498 3,672 0 0 0 5,170 (1,533)[7] 3,637
Derivatives - Other 0 0 0 0 24 1,516 0 0 1,540 0 1,540
Regulatory Liabilities 0 63,836 0 0 0 0 0 0 63,836 0 63,836
Other 456 5,352 5,298 0 0 1,155 1,017 0 13,278 0 13,278
------ --------- ------- ------- -------- ------- -------- ------- ---------- ---------- ----------
Total Def. Credits and
Other Noncurrent
Liabilities 2,432 259,080 6,498 1,686 3,696 9,789 5,115 109 288,405 (5,633) 282,772
------- --------- ------- ------- -------- ------- -------- ------- ---------- ---------- ----------
Total Capitalization
and Liabilities $389,736 $1,007,587 $12,293 $66,637 $117,139 $85,384 $6,001 $1,905 $1,686,682 ($443,348) $1,243,334
======== ========== ======= ======= ======== ======= ======== ======= ========== ========== ============
-13-
SOUTH JERSEY INDUSTRIES, INC.
CONSOLIDATING ELIMINATIONS AND ADJUSTMENTS
AS OF DECEMBER 31, 2004
(In Thousands)
1] Common Stock - Subsidiaries $20,181
Premium on Common Stock 202,819
Retained Earnings 124,857
Investment in Subsidiaries $347,857
To eliminate South Jersey Industries, Inc.
investment in subsidiaries which is maintained
on the equity method of accounting.
[2] Accounts Payable - Associated Companies 6,456
Accounts Payable 131
Accounts Receivable - Associated Companies 5,034
Accounts Receivable 1,553
To eliminate intercompany accounts receivable
and payable.
[3] Notes Payable - Associated Companies 39,368
Notes Receivable - Associated Companies 39,368
To eliminate intercompany short-term notes between
South Jersey Industries, Inc. and Subsidiaries
[4] Accumulated Deferred Income Taxes - Current Liability 316
Accumulated Deferred Income Taxes - Current Asset 316
To net current accumulated DFIT asset and liability
[5] Accumulated Deferred Income Taxes - Noncurrent Liability 4,100
Accumulated Deferred Income Taxes - Noncurrent Asset 4,100
To net noncurrent accumulated DFIT asset and liability
[6] Accounts Payable 31,790
Accounts Receivable 31,790
To eliminate intercompany gas receivable and payable.
[7] Derivatives - Energy Related Liabilities - Current 11,797
Derivatives - Energy Related Liabilities - Non-Current 1,533
Derivatives - Energy Related Assets - Current 11,797
Derivatives - Energy Related Assets - Non-Current 1,533
To eliminate intercompany mark-to-market of gas contracts.
-14-
SOUTH JERSEY ENERGY COMPANY
CONSOLIDATING STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2004
(In Thousands)
South Jersey Eliminations
South Jersey SJ EnerTrade Energy Solutions & Consolidated
Energy Company Inc. LLC Total Adjustments Total
-------------- ------------ ------------ ------------- ------------ -------------
Operating Revenues:
Utility $0 $0 $0 $0 $0 $0
Nonutility 284,148 0 0 284,148 0 284,148
-------------- ------------- ------------ ------------ ------------- -------------
Total Operating Revenues 284,148 0 0 284,148 0 284,148
-------------- ------------ ------------ ------------- ------------ -------------
Operating Expenses:
Cost of Sales - Utility 0 0 0 0 0 0
Cost of Sales - Nonutility 270,884 (39) 0 270,845 0 270,845
Operations 4,310 1 0 4,311 0 4,311
Maintenance 0 0 0 0 0 0
Depreciation 14 0 0 14 0 14
Energy and Other Taxes 0 0 0 0 0 0
-------------- ------------ ------------ ------------- ------------ -------------
Total Operating Expenses 275,208 (38) 0 275,170 0 275,170
-------------- ------------ ------------ ------------- ------------ -------------
Operating Income 8,940 38 0 8,978 0 8,978
-------------- ------------ ------------ ------------- ------------ -------------
Other Income and Expense:
Dividends from Subsidiaries 0 0 0 0 0 0
Equity in Undistributed Earnings of Subs 35 0 0 35 (35)[A] 0
Other 7 20 0 27 0 27
-------------- ------------ ------------ ------------- ------------ -------------
Total Other Income and Expense 42 20 0 62 (35) 27
-------------- ------------ ------------ ------------- ------------ -------------
Interest Charges 198 0 0 198 0 198
-------------- ------------ ------------ ------------- ------------ -------------
Income Before Income Taxes 8,784 58 0 8,842 (35) 8,807
-------------- ------------ ------------ ------------- ------------ -------------
Income Taxes
Current Federal and State Income Taxes 3,474 24 0 3,498 0 3,498
Deferred Federal and State Income Taxes 155 (1) 154 0 154
-------------- ------------ ------------ ------------- ------------ -------------
Total Income Taxes 3,629 23 0 3,652 0 3,652
Equity in Affiliated Companies 135 0 0 135 0 135
-------------- ----------- ------------ ------------- ----------- -------------
Income from Continuing Operations 5,290 35 0 5,325 (35) 5,290
-------------- ----------- ------------ ------------- ----------- -------------
Equity in Undistributed Earnings of
Discontinued Subsidiaries 0 0 0 0 0 0
Discontinued Operations - Net 0 0 0 0 0 0
Cumulative Effect of Accounting Change - Net 0 0 0 0 0 0
-------------- ------------ ------------ ------------- ------------ -------------
Net Income Applicable to Common Stock $5,290 $35 $0 $5,325 ($35) $5,290
============== ============ ============ ============= ============ =============
-15-
SOUTH JERSEY ENERGY COMPANY, INC.
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2004
(In Thousands)
South
Jersey Eliminations
South Jersey SJ EnerTrade Energy Solutions & Consolidated
Energy Company Inc. LLC Total Adjustments Total
-------------- ------------ ------------ ------------- ------------ ------------
Retained Earnings - Beginning $662 ($841) $7 ($172) $834 [B] $662
Net Income Applicable to Common Stock 5,290 35 0 5,325 (35)[A] 5,290
-------------- -------------- ------------ ------------- ------------- -----------
5,952 (806) 7 5,153 799 5,952
Dividends Declared - Common Stock 0 0 0 0 0 0
-------------- -------------- ------------ ------------- ------------- -----------
Retained Earnings - Ending $5,952 ($806) $7 $5,153 $799 $5,952
============== ============== ============ ============= ============= ===========
-16-
SOUTH JERSEY ENERGY COMPANY
CONSOLIDATING ELIMINATIONS AND ADJUSTMENTS
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2004
(In Thousands)
[A] Investment in Subsidiary $35
Equity in Undistributed Earnings of Subsidiary $35
To eliminate and equity in undistributed earnings recorded by
South Jersey Energy Company, Inc.
[B] Retained Earnings - 1/1/2004 834
Investment in Subsidiary 834
To eliminate retained earnings of subsidiary at 1/1/2004
previously recorded by South Jersey Energy Company, Inc.
under the equity method of accounting.
-17-
SOUTH JERSEY ENERGY COMPANY
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2004
(In Thousands)
South Jersey South Jersey Eliminations
South Jersey EnerTrade, Energy Solutions & Consolidated
Energy Company Inc. LLC Total Adjustments Total
---------- --------- --------- --------- -------- -----------
Assets
Property, Plant and Equipment:
Utility Plant, at original cost $0 $0 $0 $0 $0 $0
Accumulated Depreciation and Amortization 0 0 0 0 0 0
Nonutility Property and Equipment, at cost 57 0 0 57 0 57
Accumulated Depreciation (33) 0 0 (33) 0 (33)
---------- ---------- ---------- --------- --------- --------
Property, Plant and Equipment - Net 24 0 0 24 0 24
---------- ---------- ---------- --------- --------- --------
Investments:
Investments in Subsidiaries 808 0 0 808 (808)[1] 0
Available-for-Sale Securities 0 0 0 0 0 0
Restricted 0 0 0 0 0 0
Investment in Affiliates 693 0 0 693 0 693
---------- ---------- ---------- --------- --------- --------
Total Investments 1,501 0 0 1,501 (808) 693
---------- ---------- ---------- --------- --------- --------
Current Assets:
Cash and Cash Equivalents 369 5 19 393 0 393
Notes Receivable - Associated Companies 0 970 0 970 0 970
Accounts Receivable 42,903 0 0 42,903 0 42,903
Unbilled Revenues 10,995 0 0 10,995 0 10,995
Provision for Uncollectibles (537) 0 0 (537) 0 (537)
Accounts Receivable - Associated Companies 2 3 0 5 0 5
Natural Gas in Storage, Average Cost 0 0 0 0 0 0
Materials and Supplies, Average Cost 0 0 0 0 0 0
Assets of Discontinued Businesses Held for Disposal 0 0 0 0 0 0
Accumulated Deferred Income Taxes 171 0 0 171 0 171
Derivatives - Energy Related Assets 9,186 0 0 9,186 0 9,186
Derivatives - Other 0 0 0 0 0 0
Prepaid Taxes 0 0 0 0 0 0
Other Prepayments and Current Assets 238 0 0 238 0 238
---------- ---------- ---------- --------- --------- --------
Total Current Assets 63,327 978 19 64,324 0 64,324
---------- ---------- ---------- --------- --------- --------
Regulatory and Other Noncurrent Assets:
Regulatory Assets 0 0 0 0 0 0
Accumulated Deferred Income Taxes 11 (5) 0 6 0 6
Prepaid Pension 0 0 0 0 0 0
Derivatives - Energy Related Assets 1,590 0 0 1,590 0 1,590
Derivatives - Other 0 0 0 0 0 0
Unamortized Debt Discount and Expense 0 0 0 0 0 0
Contract Receivables 0 0 0 0 0 0
Other 0 0 0 0 0 0
---------- ---------- ---------- --------- --------- --------
Total Regulatory and Other
Noncurrent Assets 1,601 (5) 0 1,596 0 1,596
---------- ---------- ---------- --------- --------- --------
Total Assets $66,453 $973 $19 $67,445 ($808) $66,637
========== ========== ========== ========= ========= ========
-18-
SOUTH JERSEY ENERGY COMPANY
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2004
(In Thousands)
South Jersey South Jersey Eliminations
South Jersey EnerTrade, Energy Solutions & Consolidated
Energy Company Inc. LLC Total Adjustments Total
---------- ---------- ---------- --------- --------- --------
Capitalization and Liabilities
Common Equity:
Common Stock SJE
No Par Value
Authorized - 2,500 shares
Outstanding - 500 shares $50 $0 $0 $50 $0 $50
Common Stock - Subsidiaries 0 1 0 1 (1)[1] 0
Premium on Common Stock 3,500 1,599 7 5,106 (1,606)[1] 3,500
Capital Stock Expense 0 0 0 0 0 0
Accumulated Other Comprehensive (Loss) Income 0 0 0 0 0 0
Retained Earnings 5,952 (806) 7 5,153 799 [1] 5,952
---------- ---------- ---------- --------- --------- --------
Total Common Equity 9,502 794 14 10,310 (808) 9,502
---------- ---------- ---------- --------- --------- --------
Minority Interest 0 0 0 0 0 0
---------- ---------- --------- --------- --------- --------
Preferred Stock of Subsidiary 0 0 0 0 0 0
---------- ---------- ---------- --------- --------- --------
Long-Term Debt (less current maturities
& sinking fund requirements) 0 0 0 0 0 0
---------- ---------- ---------- --------- --------- --------
Current Liabilities:
Notes Payable - Banks 0 0 0 0 0 0
Notes Payable - Affiliate 195 0 0 195 0 195
Current Maturities of Long-Term Debt 0 0 0 0 0 0
Notes Payable - Associated Companies 9,100 0 0 9,100 0 9,100
Accounts Payable 33,685 0 0 33,685 0 33,685
Accounts Payable to Associated Companies 560 1 0 561 0 561
Customer Deposits 0 0 0 0 0 0
Accumulated Deferred Income Taxes 549 13 0 562 0 562
Taxes Accrued 3,008 170 5 3,183 0 3,183
Environmental Remediation Costs 0 0 0 0 0 0
Interest Accrued 0 0 0 0 0 0
Derivatives - Energy Related Liabilities 8,046 0 0 8,046 0 8,046
Derivatives - Other 0 0 0 0 0 0
Other Current Liabilities 117 0 0 117 0 117
---------- ---------- ---------- --------- --------- --------
Total Current Liabilities 55,260 184 5 55,449 0 55,449
---------- ---------- ---------- --------- --------- --------
Deferred Credits and Other Noncurrent Liabilities:
Pension and Other Postretirement Benefits 0 0 0 0 0 0
Accumulated Deferred Income Taxes - Net 193 (5) 0 188 0 188
Investment Tax Credits 0 0 0 0 0 0
Environmental Remediation Costs 0 0 0 0 0 0
Derivatives - Energy Related Liabilities 1,498 0 0 1,498 0 1,498
Derivatives - Other 0 0 0 0 0 0
Regulatory Liabilities 0 0 0 0 0 0
Other 0 0 0 0 0 0
---------- ---------- ---------- --------- --------- --------
Total Def. Credits and Other
Noncurrent liabilities 1,691 (5) 0 1,686 0 1,686
---------- ---------- ---------- --------- --------- --------
Total Capitalization and Liabilities $66,453 $973 $19 $67,445 ($808) $66,637
========== ========== ========== ========= ========= ========
-19-
SOUTH JERSEY ENERGY COMPANY
CONSOLIDATING ELIMINATIONS AND ADJUSTMENTS
AS OF DECEMBER 31, 2004
(In Thousands)
[1] Common Stock-Subsidiary $1
Premium on Common Stock 1,606
Retained Earnings $799
Investment in Subsidiary 808
To eliminate South Jersey Energy Company, Inc. investment in subsidiary
which is maintained on the equity method of accounting.
-20-
MARINA ENERGY LLC
CONSOLIDATING STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2004
(In Thousands)
Eliminations
Marina AC Landfill & Consolidated
Energy LLC Energy LLC Total Adjustments Total
-------------- ------------- ------------ ------------ ------------
Operating Revenues:
Utility $0 $0 $0 $0 $0
Nonutility 20,865 0 20,865 0 20,865
-------------- ------------- ------------ ------------ ------------
Total Operating Revenues 20,865 0 20,865 0 20,865
-------------- ------------- ------------ ------------ ------------
Operating Expenses:
Cost of Sales - Utility 0 0 0 0 0
Cost of Sales - Nonutility 8,811 0 8,811 0 8,811
Operations 4,619 0 4,619 0 4,619
Maintenance 0 0 0 0 0
Depreciation 1,680 0 1,680 0 1,680
Energy and Other Taxes 0 0 0 0 0
-------------- ------------- ------------ ------------ ------------
Total Operating Expenses 15,110 0 15,110 0 15,110
-------------- ------------- ------------ ------------ ------------
Operating Income 5,755 0 5,755 0 5,755
-------------- ------------- ------------ ------------ ------------
Other Income and Expense:
Dividends from Subsidiaries 0 0 0 0 0
Equity in Undistributed Earnings of Subs 0 0 0 0 0
Other 599 0 599 0 599
-------------- ------------- ------------ ------------ ------------
Total Other Income and Expense 599 0 599 0 599
-------------- ------------- ------------ ------------ ------------
Interest Charges 2,404 0 2,404 0 2,404
-------------- ------------- ------------ ------------ ------------
Income Before Income Taxes 3,950 0 3,950 0 3,950
-------------- ------------- ------------ ------------ ------------
Income Taxes
Current Federal and State Income Taxes 239 0 239 0 239
Deferred Federal and State Income Taxes 1,157 0 1,157 0 1,157
-------------- ------------- ------------ ------------ ------------
Total Income Taxes 1,396 0 1,396 0 1,396
Equity in Affiliated Companies 0 0 0 0 0
-------------- ------------- ------------ ------------ ------------
Income from Continuing Operations 2,554 0 2,554 0 2,554
-------------- ------------- ------------ ------------ ------------
Equity in Undistributed Earnings of
Discontinued Subsidiaries 0 0 0 0 0
Discontinued Operations - Net 0 0 0 0 0
Cumulative Effect of Accounting Change - Net 0 0 0 0 0
-------------- ------------- ------------ ------------ ------------
Net Income Applicable to Common Stock $2,554 $0 $2,554 $0 $2,554
============== ============= ============ ============ ============
-21-
MARINA ENERGY LLC
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2004
(In Thousands)
Eliminations
Marina AC Landfill & Consolidated
Energy LLC Energy LLC Total Adjustments Total
-------------- ------------- ------------ ------------ ------------
Retained Earnings - Beginning $1,428 $0 $1,428 $0 $1,428
Net Income Applicable to Common Stock 2,554 0 0 0 0
-------------- ------------- ------------ ------------ ------------
3,982 0 1,428 0 1,428
Dividends Declared - Common Stock 0 0 0 0 0
-------------- ------------- ------------ ------------ ------------
Retained Earnings - Ending $3,982 $0 $1,428 $0 $1,428
============== ============= ============ ============ ============
-22-
MARINA ENERGY LLC
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2004
(In Thousands)
Eliminations
Marina AC Landfill & Consolidated
Energy LLC Energy LLC Total Adjustments Total
----------- ----------- ---------- ------------ ------------
Assets
Property, Plant and Equipment:
Utility Plant, at original cost $0 $0 $0 $0 $0
Accumulated Depreciation and Amortization 0 0 0 0 0
Nonutility Property and Equipment, at cost 66,023 2,106 68,129 0 68,129
Accumulated Depreciation (2,556) 0 (2,556) 0 (2,556)
----------- ----------- ---------- ------------ ------------
Property, Plant and Equipment - Net 63,467 2,106 65,573 0 65,573
----------- ----------- ---------- ------------ ------------
Investments:
Investments in Subsidiaries 236 0 236 (236)[1] 0
Available-for-Sale Securities 0 0 0 0 0
Restricted 0 553 553 0 553
Investment in Affiliates 0 0 0 0 0
----------- ----------- ---------- ------------ ------------
Total Investments 236 553 789 (236) 553
----------- ----------- ---------- ------------ ------------
Current Assets:
Cash and Cash Equivalents 474 36 510 0 510
Notes Receivable - Associated Companies 0 0 0 0 0
Accounts Receivable 2,660 0 2,660 0 2,660
Unbilled Revenues 0 0 0 0 0
Provision for Uncollectibles 0 0 0 0 0
Accounts Receivable - Associated Companies 0 0 0 0 0
Natural Gas in Storage, Average Cost 0 0 0 0 0
Materials and Supplies, Average Cost 332 0 332 0 332
Assets of Discontinued Businesses Held for
Disposal 0 0 0 0 0
Accumulated Deferred Income Taxes 0 2 2 0 2
Derivatives - Energy Related Assets 0 0 0 0 0
Derivatives - Other 0 0 0 0 0
Prepaid Taxes 0 0 0 0 0
Other Prepayments and Current Assets 1,490 18 1,508 0 1,508
----------- ----------- ---------- ------------ ------------
Total Current Assets 4,956 56 5,012 0 5,012
----------- ----------- ---------- ------------ ------------
Regulatory and Other Noncurrent Assets:
Regulatory Assets 0 0 0 0 0
Accumulated Deferred Income Taxes 767 0 767 0 767
Prepaid Pension 0 0 0 0 0
Derivatives - Energy Related Assets 0 0 0 0 0
Derivatives - Other 0 0 0 0 0
Unamortized Debt Discount and Expense 872 65 937 0 937
Contract Receivables 9,052 0 9,052 0 9,052
Other 3,251 239 3,490 0 3,490
----------- ----------- ---------- ------------ ------------
Total Regulatory and Other
Noncurrent Assets 13,942 304 14,246 0 14,246
----------- ----------- ---------- ------------ ------------
Total Assets $82,601 $3,019 $85,620 ($236) $85,384
=========== =========== ========== ============ ============
-23-
MARINA ENERGY LLC
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2004
(In Thousands)
Eliminations
Marina AC Landfill & Consolidated
Energy LLC Energy LLC Total Adjustments Total
----------- ----------- ---------- ------------ ------------
Capitalization and Liabilities
Common Equity:
Common Stock Marina
No Par Value
Authorized - 0 shares
Outstanding - 0 shares $0 $0 $0 $0 $0
Common Stock - Subsidiaries 0 0 0 0 0
Premium on Common Stock 12,500 236 12,736 (236)[1] 12,500
Capital Stock Expense 0 0 0 0 0
Accumulated Other Comprehensive Loss (897) 0 (897) 0 (897)
Retained Earnings 3,982 0 3,982 0 3,982
----------- ----------- ---------- ------------ ------------
Total Common Equity 15,585 236 15,821 (236) 15,585
----------- ----------- ---------- ------------ ------------
Minority Interest 0 227 227 0 227
----------- ----------- ---------- ------------ ------------
Preferred Stock of Subsidiary 0 0 0 0 0
----------- ----------- ---------- ------------ ------------
Long-Term Debt (less current maturities
& sinking fund requirements) 45,000 1,906 46,906 0 46,906
----------- ----------- ---------- ------------ ------------
Current Liabilities:
Notes Payable - Banks 0 75 0 0 0
Notes Payable - Affiliate 0 0 0 0 0
Current Maturities of Long-Term Debt 0 0 75 0 75
Notes Payable - Associated Companies 9,377 0 9,377 0 9,377
Accounts Payable 1,673 573 2,246 0 2,246
Accounts Payable to Associated Companies 962 0 962 0 962
Customer Deposits 0 0 0 0 0
Accumulated Deferred Income Taxes 0 0 0 0 0
Taxes Accrued 65 (126) (61) 0 (61)
Environmental Remediation Costs 0 0 0 0 0
Interest Accrued 199 0 199 0 199
Derivatives - Energy Related Liabilities 0 0 0 0 0
Derivatives - Other 0 0 0 0 0
Other Current Liabilities 79 0 79 0 79
----------- ----------- ---------- ------------ ------------
Total Current Liabilities 12,355 522 12,877 0 12,877
----------- ----------- ---------- ------------ ------------
Deferred Credits and Other Noncurrent Liabilities:
Pension and Other Postretirement Benefits 0 0 0 0 0
Accumulated Deferred Income Taxes - Net 6,990 128 7,118 0 7,118
Investment Tax Credits 0 0 0 0 0
Environmental Remediation Costs 0 0 0 0 0
Derivatives - Energy Related Liabilities 0 0 0 0 0
Derivatives - Other 1,516 0 1,516 0 1,516
Regulatory Liabilities 0 0 0 0 0
Other 1,155 0 1,155 0 1,155
----------- ----------- ---------- ------------ ------------
Total Def. Credits and Other
Noncurrent Liabi1ities 9,661 128 9,789 0 9,789
----------- ----------- ---------- ------------ ------------
Total Capitalization and
Liabilities $82,601 $3,019 $85,620 ($236) $85,384
=========== =========== ========== ============ ============
-24-
MARINA ENERGY LLC
CONSOLIDATING ELIMINATIONS AND ADJUSTMENTS
AS OF DECEMBER 31, 2004
(In Thousands)
[1] Premium on Common Stock $236
Investment in Subsidiary $236
To eliminate Marina Energy LLC's investment in subsidiary
which is maintained on the equity method of accounting.
-25-
ENERGY & MINERALS, INC.
CONSOLIDATING STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2004
(In Thousands)
Eliminations
Energy & South Jersey Fuel & Consolidated
Minerals, Inc Company, Inc. Total Adjustments Total
------------ -------------- ----------- ----------- ------------
Operating Revenues:
Utility $0 $0 $0 $0 $0
Nonutility 0 0 0 0 0
------------ -------------- ----------- ----------- ------------
Total Operating Revenues 0 0 0 0 0
------------ -------------- ----------- ----------- ------------
Operating Expenses:
Cost of Sales - Utility 0 0 0 0 0
Cost of Sales - Nonutility 0 0 0 0 0
Operations 48 0 48 0 48
Maintenance 0 0 0 0 0
Depreciation 0 0 0 0 0
Energy and Other Taxes 0 0 0 0 0
------------ -------------- ----------- ----------- ------------
Total Operating Expenses 48 0 48 0 48
------------ -------------- ----------- ----------- ------------
Operating Loss (48) 0 (48) 0 (48)
------------ -------------- ----------- ----------- ------------
Other Income and Expense:
Dividends from Subsidiaries 0 0 0 0 0
Equity in Undistributed Earnings of Subs 0 0 0 0 0
Other 73 0 73 0 73
------------ -------------- ----------- ----------- ------------
Total Other Income and Expense 73 0 73 0 73
------------ -------------- ----------- ----------- ------------
Interest Charges 0 0 0 0 0
------------ -------------- ----------- ----------- ------------
Income Before Income Taxes 25 0 25 0 25
------------ -------------- ----------- ----------- ------------
Income Taxes
Current Federal and State Income Taxes (17) 0 (17) 0 (17)
Deferred Federal and State Income Taxes 26 0 26 0 26
------------ -------------- ----------- ----------- ------------
Total Income Taxes 9 0 9 0 9
Equity in Affiliated Companies 0 0 0 0 0
------------ -------------- ----------- ----------- ------------
Income from Continuing Operations 16 0 16 0 16
------------ -------------- ----------- ----------- ------------
Equity in Undistributed Earnings of
Discontinued Subsidiaries (119) 0 (119) 119 [A] 0
Discontinued Operations - Net (561) (119) (680) 0 (680)
Cumulative Effect of Accounting Change - Net 0 0 0 0 0
------------ -------------- ----------- ----------- ------------
Net Loss Applicable to Common Stock ($664) ($119) ($783) $119 ($664)
============ ============== =========== =========== ============
-26-
ENERGY & MINERALS, INC.
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2004
(In Thousands)
Eliminations
Energy & South Jersey Fuel & Consolidated
Minerals, Inc. Company, Inc. Total Adjustments Total
------------ -------------- ----------- ----------- ------------
Retained Earnings - Beginning ($14,302) ($1,811) ($16,113) $1,811 [B] ($14,302)
Net Loss Applicable to Common Stock (664) (119) (783) 119 [A] (664)
------------ -------------- ----------- ----------- ------------
(14,966) (1,930) (16,896) 1,930 (14,966)
Dividends Declared - Common Stock 0 0 0 0 0
------------ -------------- ----------- ----------- ------------
Retained Earnings - Ending ($14,966) ($1,930) ($16,896) $1,930 ($14,966)
============ ============== =========== =========== ============
-27-
ENERGY & MINERALS, INC.
CONSOLIDATING ELIMINATIONS AND ADJUSTMENTS
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2004
(In Thousands)
[A] Equity in Undistributed Earnings $119
of Subsidiary
Investment in Subsidiary $119
To eliminate equity in undistributed
earnings recorded by Energy & Minerals, Inc.
[B] Retained Earnings - 1/1/2004 1,811
Investment in Subsidiaries 1,811
To eliminate retained earnings of
subsidiary at 1/1/2004 previously recorded
by Energy & Minerals, Inc. under the
equity method of accounting.
-28-
ENERGY & MINERALS, INC.
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2004
(In Thousands)
South Jersey Eliminations
Energy & Fuel Company & Consolidated
Minerals, Inc. Inc. Total Adjustments Total
---------- ---------- -------- --------- ---------
Assets
Property, Plant and Equipment:
Utility Plant, at original cost $0 $0 $0 $0 $0
Accumulated Depreciation and Amortization 0 0 0 0 0
Nonutility Property and Equipment, at cost 859 0 859 0 859
Accumulated Depreciation (787) 0 (787) 0 (787)
---------- ---------- --------- --------- ---------
Property, Plant and Equipment - Net 72 0 72 0 72
---------- ---------- --------- --------- ---------
Investments:
Investments in Subsidiaries (872) 0 (872) 872 [1] 0
Available-for-Sale Securities 0 0 0 0 0
Restricted 0 0 0 0 0
Investment in Affiliates 0 0 0 0 0
---------- ---------- --------- --------- ---------
Total Investments (872) 0 (872) 872 0
---------- ---------- --------- --------- ---------
Current Assets:
Cash and Cash Equivalents 26 10 36 0 36
Notes Receivable - Associated Companies 3,320 0 3,320 0 3,320
Notes Receivable - Affiliate 0 0 0 0 0
Accounts Receivable 0 0 0 0 0
Unbilled Revenues 0 0 0 0 0
Provision for Uncollectibles 0 0 0 0 0
Accounts Receivable - Associated Companies 8 0 8 0 8
Natural Gas in Storage, Average Cost 0 0 0 0 0
Materials and Supplies, Average Cost 0 0 0 0 0
Assets of Discontinued Businesses Held for Disposal 0 402 402 0 402
Accumulated Deferred Income Taxes 1 0 1 0 1
Derivatives - Energy Related Assets 0 0 0 0 0
Derivatives - Other 0 0 0 0 0
Prepaid Taxes 0 0 0 0 0
Other Prepayments and Current Assets 4 1 5 0 5
---------- ---------- --------- --------- ---------
Total Current Assets 3,359 413 3,772 0 3,772
---------- ---------- --------- --------- ---------
Regulatory and Other Noncurrent Assets:
Regulatory Assets 0 0 0 0 0
Accumulated Deferred Income Taxes 1,679 465 2,144 0 2,144
Prepaid Pension 0 0 0 0 0
Derivatives - Energy Related Assets 0 0 0 0 0
Derivatives - Other 0 0 0 0 0
Unamortized Debt Discount and Expense 0 0 0 0 0
Contract Receivables 0 0 0 0 0
Other 13 0 13 0 13
---------- ---------- --------- --------- ---------
Total Regulatory and Other Noncurrent Assets 1,692 465 2,157 0 2,157
---------- ---------- --------- --------- ---------
Total Assets $4,251 $878 $5,129 $872 $6,001
========== ========== ========= ========= =========
-29-
ENERGY & MINERALS, INC.
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2004
(In Thousands)
South Jersey Eliminations
Energy & Fuel Company & Consolidated
Minerals, Inc. Inc. Total Adjustments Total
---------- ---------- --------- --------- ---------
Capitalization and Liabilities
Common Equity:
Common Stock EMI
No Par Value
Authorized - 500,000 shares
Outstanding - 98,341 share $13,283 $0 $13,283 $0 $13,283
Common Stock - Subsidiaries 0 0 0 0 0
Premium on Common Stock 1,584 1,058 2,642 (1,058)[1] 1,584
Capital Stock Expense 0 0 0 0 0
Accumulated Other Comprehensive (Loss) Income 0 0 0 0 0
Retained Earnings (14,966) (1,930) (16,896) 1,930 [1] (14,966)
---------- ---------- --------- --------- ---------
Total Common Equity (99) (872) (971) 872 (99)
---------- ---------- --------- --------- ---------
Minority Interest
Preferred Stock of Subsidiary 0 0 0 0 0
---------- ---------- --------- --------- ---------
Long-Term Debt (less current maturities
& sinking fund requirements) 0 0 0 0 0
---------- ---------- --------- --------- ---------
Current Liabilities:
Notes Payable - Banks 0 0 0 0 0
Notes Payable - Affiliate 0 0 0 0 0
Current Maturities of Long-Term Debt 0 0 0 0 0
Notes Payable - Associated Companies 0 511 511 0 511
Accounts Payable 3 27 30 0 30
Accounts Payable to Associated Companies 24 2 26 0 26
Customer Deposits 0 0 0 0 0
Accumulated Deferred Income Taxes (6) 0 (6) 0 (6)
Taxes Accrued 164 (40) 124 0 124
Environmental Remediation Costs 39 238 277 0 277
Interest Accrued 0 0 0 0 0
Derivatives - Energy Related Liabilities 0 0 0 0 0
Derivatives - Other 0 0 0 0 0
Other Current Liabilities 6 17 23 0 23
---------- ---------- --------- --------- ---------
Total Current Liabilities 230 755 985 0 985
---------- ---------- --------- --------- ---------
Deferred Credits and Other Noncurrent Liabilities:
Pension and Other Postretirement Benefits 0 0 0 0 0
Accumulated Deferred Income Taxes - Net 395 49 444 0 444
Investment Tax Credits 0 0 0 0 0
Environmental Remediation Costs 2,708 946 3,654 0 3,654
Derivatives - Energy Related Liabilities 0 0 0 0 0
Derivatives - Other 0 0 0 0 0
Regulatory Liabilities 0 0 0 0 0
Other 1,017 0 1,017 0 1,017
---------- ---------- --------- --------- ---------
Total Def. Credits and Other
Noncurrent Liabilities 4,120 995 5,115 0 5,115
---------- ---------- --------- --------- ---------
Total Capitalization and Liabilities $4,251 $878 $5,129 $872 $6,001
========== ========== ========= ========= =========
-30-
ENERGY & MINERALS, INC.
CONSOLIDATING ELIMINATIONS AND ADJUSTMENTS
AS OF DECEMBER 31, 2004
(In Thousands)
[1] Premium on Common Stock $1,058
Investment in Subsidiary 872
Retained Earnings $1,930
To eliminate Energy & Minerals, Inc. investment in subsidiary
which is maintained on the equity method of accounting.
-31-
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CONSOLIDATION -- The consolidated financial statements include the accounts of
South Jersey Industries, Inc. (SJI), its wholly owned subsidiaries and a
subsidiary in which we have a controlling interest. We eliminated all
significant intercompany accounts and transactions.
RESTATEMENT -- Subsequent to the issuance of the consolidated financial
statements for the year December 31, 2003, SJI determined that its prepaid
pension asset of $19,690,000 classified as a current asset should have been
classified as a noncurrent asset. As a result, the December 31, 2003
consolidated balance sheet was restated to reclassify the $19,690,000 from
current assets to noncurrent assets. This restatement had no impact on total
assets, common equity, the statements of consolidated income, or the statements
of consolidated cash flows.
EQUITY INVESTMENTS -- We classify equity investments purchased as long-term
investments as Available-for-Sale Securities on our consolidated balance sheets
and carry them at their fair value with any unrealized gains or losses included
in Accumulated Other Comprehensive Income. SJI, either directly or through its
wholly owned subsidiaries, currently holds a 50% non-controlling interest in two
affiliated companies and accounts for the investments under the equity method.
We include the operations of these affiliated companies on a pre-tax basis in
the statements of consolidated income under Equity in Affiliated Companies (See
Note 3).
ESTIMATES AND ASSUMPTIONS -- We prepare our financial statements to conform with
generally accepted accounting principles. Management makes estimates and
assumptions that affect the amounts reported in the financial statements and
related disclosures. Therefore, actual results could differ from those
estimates. Significant estimates include amounts related to regulatory
accounting, energy derivatives, environmental remediation costs, pension and
other postretirement benefit costs, and revenue recognition.
REGULATION -- South Jersey Gas Company (SJG) is subject to the rules and
regulations of the New Jersey Board of Public Utilities (BPU). We maintain our
accounts according to the BPU's prescribed Uniform System of Accounts (See Note
9). SJG follows the accounting for regulated enterprises prescribed by the
Financial Accounting Standards Board (FASB) Statement No. 71, "Accounting for
the Effects of Certain Types of Regulation." In general, Statement No. 71 allows
deferral of certain costs and creation of certain obligations when it is
probable that these items will be recovered from or refunded to customers in
future periods.
REVENUES -- Gas and electric revenues are recognized in the period the commodity
is delivered and customers are billed monthly. For SJG and SJE retail customers
not billed at the end of each month, we record an estimate to recognize unbilled
revenues for gas and electricity delivered from the date of the last meter
reading to the end of the month.
We defer and recognize revenues related to South Jersey Energy Service Plus, LLC
(SJESP) appliance service contracts seasonally over the full 12-month term of
the contract.
Marina Energy LLC (Marina) recognizes revenue on a monthly basis as services are
provided and for on-site energy production that is delivered to its customers.
-32-
The BPU allows SJG to recover gas costs through the Basic Gas Supply Service
(BGSS) clause. We collect these costs on a forecasted basis upon BPU order. SJG
defers over/under-recoveries of gas costs and includes them in the following
year's BGSS or other similar recovery mechanism. We pay interest on
overcollected BGSS balances at the rate of return on rate base utilized by the
BPU to set rates in its last base rate proceeding (See Note 9).
SJG's tariff also includes a Temperature Adjustment Clause (TAC), a Remediation
Adjustment Clause (RAC), a New Jersey Clean Energy Program (NJCEP) and a
Universal Service Fund (USF) program. Our TAC reduces the impact of temperature
fluctuations on SJG and its customers. The RAC recovers environmental
remediation costs of former gas manufacturing plants and the NJCEP recovers
costs associated with our energy efficiency and renewable energy programs. The
USF is a statewide customer assistance program that utilizes utilities as a
collection agent. TAC adjustments affect revenue, income and cash flows since
colder-than-normal weather can generate credits to customers, while
warmer-than-normal weather can result in additional billings. RAC adjustments do
not directly affect earnings because we defer and recover related costs through
rates over 7-year amortization periods (See Notes 9 & 13). NJCEP and USF
adjustments are also deferred and do not affect earnings, as related costs and
customer credits are recovered through rates on an ongoing basis (See Note 9).
ACCOUNTS RECEIVABLE AND PROVISION FOR UNCOLLECTIBLE ACCOUNTS -- Accounts
receivable are carried at the amount owed by customers. A provision for
uncollectible accounts was established based on our collection experience and an
assessment of the collectibility of specific accounts.
PROPERTY, PLANT AND EQUIPMENT -- For regulatory purposes, utility plant is
stated at original cost, which may be different than SJG's cost if the assets
were acquired from another regulated entity. Nonutility plant is stated at cost.
The cost of adding, replacing and renewing property is charged to the
appropriate plant account.
DEPRECIATION -- We depreciate utility plant on a straight-line basis over the
estimated remaining lives of the various property classes. These estimates are
periodically reviewed and adjusted as required after BPU approval. The composite
annual rate for all depreciable utility property was approximately 2.9% in both
2003 and 2002. As a result of SJG's recent rate case settlement, its composite
depreciation rate was reduced from 2.9 to 2.4% effective July 8, 2004 (See Note
9). Except for extraordinary retirements, accumulated depreciation is charged
with the cost of depreciable utility property retired less salvage (See Asset
Retirement Costs). Nonutility property depreciation is computed on a
straight-line basis over the estimated useful lives of the property, ranging up
to 50 years. Gain or loss on the disposition of nonutility property is
recognized in net income.
CAPITALIZED INTEREST -- SJG capitalizes interest on construction at the rate of
return on rate base utilized by the BPU to set rates in its last base rate
-32-
proceeding (See Note 9). SJG capitalized interest of $0.7 million in 2004, $0.6
million in 2003 and $0.4 million in 2002. Marina also capitalized interest
during the construction of its thermal energy facility based on the actual cost
of borrowed funds. Marina capitalized interest of $1.8 million in 2003 and $1.6
million in 2002. Marina did not capitalize any interest during 2004. SJG's
amounts are included in Utility Plant and Marina's amounts are included in
Nonutility Property and Equipment on the consolidated balance sheets. All
capitalized interest is reflected on the statements of consolidated income as a
reduction of Interest Charges.
IMPAIRMENT OF LONG-LIVED ASSETS -- We review the carrying amount of an asset for
possible impairment whenever events or changes in circumstances indicate that
such amount may not be recoverable. For the years ended 2004, 2003 and 2002, we
did not identify any significant impairments.
ENERGY TRADING ACTIVITIES AND DERIVATIVE INSTRUMENTS -- Certain SJI subsidiaries
are involved in buying, selling, transporting and storing natural gas and
buying and selling of retail electricity for their own accounts as well as
managing these activities for others. These subsidiaries are subject to market
risk due to price fluctuations. To manage this risk, our companies enter into a
variety of physical and financial transactions including forward contracts, swap
agreements, option contracts and futures contracts.
SJI structured its subsidiaries so that SJG and SJE transact commodities on a
physical basis and typically do not directly enter into positions that
financially settle. SJRG performs this risk management function for these
entities and enters into the types of financial transactions noted above. As
part of its gas purchasing strategy, SJG occasionally uses financial contracts
to hedge against forward price risk. The costs of these short-term contracts are
recoverable through SJG's BGSS, subject to BPU approval. As of December 31, 2004
and 2003, SJG had $0.5 million and $(1.8) million of cost (cost reductions),
respectively, included in its BGSS related to these short-term contracts (See
Regulatory Assets & Regulatory Liabilities). Management takes an active role in
the risk management process and has developed policies and procedures that
require specific administrative and business functions to assist in identifying,
assessing and controlling various risks. Management reviews any open positions
in accordance with strict policies to limit exposure to market risk.
SJI accounts for derivative instruments in accordance with FASB Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities," as amended.
We record all derivatives, whether designated in hedging relationships or not,
on the consolidated balance sheets at fair value unless the derivative contracts
qualify for the normal purchase and sale exemption. If the derivative is
designated as a fair value hedge, we recognize the changes in the fair value of
the derivative and of the hedged item attributable to the hedged risk in
earnings. We currently have no fair value hedges. If the derivative is
designated as a cash flow hedge, we record the effective portion of the hedge in
Accumulated Other Comprehensive Income and recognize it in the income statement
-34-
when the hedged item affects earnings. We recognize ineffective portions of the
cash flow hedges immediately in earnings. For the years ended December 31, 2004,
2003 and 2002, the ineffective portions of the derivatives designated as cash
flow hedges were not material. We formally document all relationships between
hedging instruments and hedged items, as well as our risk management objectives,
strategies for undertaking various hedge transactions and our methods for
assessing and testing correlation and hedge ineffectiveness. All hedging
instruments are linked to the hedged asset, liability, firm commitment or
forecasted transaction. We also assess whether these derivatives are highly
effective in offsetting changes in cash flows or fair values of the hedged
items. We discontinue hedge accounting prospectively if we decide to discontinue
the hedging relationship; determine that the anticipated transaction is no
longer likely to occur; or if we determine that a derivative is no longer highly
effective as a hedge. In the event that hedge accounting is discontinued, we
will continue to carry the derivative on the balance sheet at its current fair
value and recognize subsequent changes in fair value in current period earnings.
Unrealized gains and losses on the discontinued hedges that were previously
included in Accumulated Other Comprehensive Income will be reclassified into
earnings. During 2004, $0.7 million of unrealized gain on derivatives previously
designated as cash flow hedges was reclassified into Operating Revenues -
Nonutility because we determined that the anticipated hedged transaction was no
longer likely to occur. As permitted under Statement No. 133, SJI has elected to
designate certain energy-related derivative instruments as cash flow hedges
which protect against the price variability of our forecasted sales and
purchases of natural gas. Based on the amount recorded in Accumulated Other
Comprehensive Income at December 31, 2004, we expect $6.4 million to be recorded
as an increase in revenues in 2005. As of December 31, 2004, hedges for future
forecasted transactions exist into 2006.
SJRG manages its portfolio of purchases and sales, as well as natural gas in
storage, using a variety of instruments that include forward contracts, swap
agreements, option contracts and futures contracts. SJI measures the fair value
of the contracts and records these as Derivatives -- Energy Related Assets or
Derivatives -- Energy Related Liabilities on our consolidated balance sheets.
For those derivatives not designated as hedges, we recorded the net unrealized
pre-tax (loss) gain of $(1.0) million, $2.3 million and $(0.5) million in
earnings during the years ended December 31, 2004, 2003 and 2002, respectively,
which are included with realized gains and losses in Operating Revenues --
Nonutility.
SJI presents revenues and expenses related to its trading derivatives on a net
basis in Operating Revenues -- Nonutility in our consolidated statements of
income consistent with Emerging Issues Task Force (EITF) Issue No. 02-03,
"Issues Involved in Accounting for Derivative Contracts Held for Trading
Purposes and Contracts Involved in Energy Trading and Risk Management
Activities." There is no effect on operating income or net income from the above
presentation.
On October 25, 2002, the EITF reached a consensus on Issue No. 02-03 that
rescinded EITF Issue No. 98-10, "Accounting for Contracts Involved in Energy
Trading and Risk Management Activities", and changed the accounting for certain
energy contracts effective for transactions entered into after that date, with a
-35-
cumulative effect adjustment for previously existing transactions to be
recognized in the quarter beginning January 1, 2003. As a result of EITF Issue
No. 02-03, SJI only marks-to-market those energy-related contracts that meet the
definition of a derivative in Statement No. 133. Energy-related contracts that
do not meet the definition of a derivative are accounted for using the accrual
basis of accounting. The effect of this change in accounting resulted in the net
charge of $426,338 shown as a Cumulative Effect of a Change in Accounting
Principle -- Net in 2003.
In November 2001, we entered into two interest rate swap contracts. The first
swap effectively provides us with a fixed interest rate of 4.08% on Marina's
tax-exempt Series A variable rate bonds for a 10-year period. The second swap
effectively fixed the interest rate of Marina's taxable Series B variable rate
bonds at 4.55% for a 6-year period. The notional amount of this second swap
decreases by $3.0 million per year beginning in December 2005.
In January 2002, Marina issued an additional $10.0 million of taxable Series B
variable rate bonds through the New Jersey Economic Development Authority. In
April 2002, we entered into an interest rate swap contract that effectively
fixed the interest rate on these bonds at 4.62% for a 4-year period. The
notional amount of this swap decreased to $8.0 million in December 2003, then
decreased to $3.9 million in December 2004, and terminates in December 2005.
In November 2004, we entered into two additional interest rate swap contracts
against Marina's taxable Series B variable rate bonds for a 10-year period. The
swaps effectively provide us with a fixed interest rate of 4.80% on $3.9 million
and 4.78% on $8.0 million of the bonds, respectively.
Also in November 2004, we entered into a derivative transaction known as a
"Treasury Lock" to hedge against the impact of possible interest rate increases
on a $10.0 million, 30-year debt issuance by SJG planned for July 2005.
We entered into interest rate swap agreements to hedge the exposure to
increasing rates with respect to our variable rate debt. The differential to be
-36-
paid or received as a result of these swap agreements is accrued as interest
rates change and is recognized as an adjustment to interest expense. We account
for these interest rate swaps as cash flow hedges. At inception, and as of
December 31, 2004 and 2003, the market value of these swaps was $(1.9) million
and $(1.8) million, respectively, which represents the amount we would have to
pay the counterparty to terminate these contracts as of those dates. We include
these balances on the consolidated balance sheets under Derivatives -- Other. As
of December 31, 2004 and 2003, we calculated the swaps to be highly effective;
therefore, we record the changes in fair value of the swaps, net of taxes, in
Accumulated Other Comprehensive Income.
We determined the fair value of derivative instruments by reference to quoted
market prices of listed contracts, published quotations or quotations from
independent parties.
STOCK COMPENSATION -- Prior to 2003, SJI valued stock options to employees using
the intrinsic value method. Effective in 2003, SJI adopted the policy of
accounting for this compensation using the fair value based method on a
prospective basis. At this time, SJI has no stock options outstanding.
ASSET RETIREMENT COSTS -- In January 2003, SJI adopted FASB Statement No. 143,
"Accounting for Asset Retirement Obligations," which establishes accounting and
reporting standards for legal obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. SJG has
certain easements and right-of-way agreements that qualify as legal obligations
under Statement No. 143. However, it is our intent to maintain these agreements
in perpetuity; therefore, no change in SJG's current accounting practices is
required related to these agreements.
SJG recovers certain asset retirement costs through rates charged to customers.
As of December 31, 2004 and 2003, SJG had accrued amounts in excess of actual
removal costs incurred totaling $47.3 million and $45.2 million, respectively,
which in accordance with Statement No. 143, we recorded as Regulatory
Liabilities on the consolidated balance sheets. The adoption of this statement
did not materially affect SJI's financial condition or results of operations.
NEW ACCOUNTING PRONOUNCEMENTS -- In December 2002, the FASB issued Statement No.
148, "Accounting for Stock-Based Compensation -- Transition and Disclosure,"
which was effective for SJI's 2002 annual financial statements. Effective in
2003, SJI adopted the policy of accounting for this compensation using the fair
value based method on a prospective basis. This method calls for expensing the
estimated fair value of a stock option. The provisions of this statement
currently have no impact on SJI's financial statements. In addition, the FASB
issued a revision to Statement No. 123, "Accounting for Stock-Based
Compensation" in December 2004. This statement establishes standards for the
accounting for transactions in which an entity exchanges its equity instruments
for goods or services. While this statement is not effective until reporting
periods beginning after June 15, 2005, SJI has completed its assessment of
Statement No. 123, as revised, and has determined that it does not have any
impact on our accounting for share-based payments.
In December 2003, the FASB revised Interpretation No. 46, "Consolidation of
Variable Interest Entities" (FIN 46R), which clarifies the application of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements." This
interpretation provides guidance on the identification and consolidation of
variable interest entities (VIEs), whereby consolidation is achieved through
means other than through control. SJI has completed its assessment of FIN 46R
and has determined that it does not have any VIEs.
Also in December 2003, the FASB revised Statement No. 132, "Employers'
Disclosure about Pensions and Other Postretirement Benefits." This statement
revises employers' disclosures about pension and other post-retirement benefit
plans, including new interim reporting requirements. SJI has complied with new
disclosure requirements (See Note 10).
-37-
In November 2004, the FASB issued Statement No. 151, "Inventory Costs." This
statement requires that abnormal amounts of idle facility expense, freight,
handling costs and spoilage be charged to income as a current period expense
rather than capitalized as inventory costs. The effective date of this statement
is January 1, 2006; however, we do not expect it to impact SJI based on its
current lines of business.
In December 2004, the FASB issued Statement No. 153, "Exchanges of Nonmonetary
Assets, an amendment to APB Opinion No. 29, Accounting for Nonmonetary
Transactions." This statement redefines the types of nonmonetary exchanges that
require fair value measurement. Statement No. 153 is effective for nonmonetary
transactions entered into on and after July 1, 2005. SJI is currently evaluating
the effect of this standard, but we do not anticipate the adoption of this
statement will materially affect SJI's consolidated financial statements.
INCOME TAXES -- Deferred income taxes are provided for all significant temporary
differences between book and taxable basis of assets and liabilities (See Notes
5 & 6).
REGULATORY ASSETS & REGULATORY LIABILITIES -- Regulatory Assets at December 31,
2004 and 2003 consisted of the following items:
Years Remaining
as of Thousands of Dollars
Dec. 31, 2004 2004 2003
------------- --------------------
Environmental Remediation Costs:
(Notes 9 & 13)
Expended -- Net Various $ 5,281 $ 4,147
Liability for Future Expenditures -- 51,046 50,983
Income Taxes -- Flowthrough
Depreciation (Note 6) 7 6,641 7,619
Postretirement Benefit Costs (Note 10) 8 3,024 3,402
Gross Receipts and Franchise Taxes (Note 6) 2 924 1,367
Societal Benefit Charges (Note 9) Various 4,562 7,529
Other -- 1,157 733
---------------------------
Total Regulatory Assets $ 72,635 $ 75,780
===========================
Each item separately identified above is being recovered through utility rate
charges. SJG is currently permitted to recover interest on its Environmental
Remediation and Societal Benefit costs while the other assets are being
recovered without a return on investment over the period indicated (See Note 9).
Most of the assets reflected within the above caption "Other" are currently
being recovered from ratepayers as approved by the BPU (See Note 9). Management
believes that all deferred costs are probable of recovery from ratepayers
through future utility rates.
-38-
Regulatory Liabilities at December 31, 2004 and 2003 consisted of the following
items:
Thousands of Dollars
2004 2003
-------------------------
Deferred Gas Revenues -- Net $ 12,334 $ 90
Excess Plant Removal Costs 47,345 45,241
Overcollected State Taxes 3,871 4,353
Other 286 286
------- --------
Total Regulatory Liabilities $ 63,836 $ 49,970
=========== ===========
Deferred Gas Revenues - Net represent SJG's net overcollected gas costs and are
monitored through SJG's BGSS mechanism. As of December 31, 2003, SJG carried an
offsetting underrecovery of gas costs in the amount of $16.1 million
representing the remaining balance of a $38.9 million underrecovery originating
in 2001. We collected this 2001 underrecovery from customers over three years.
We collected the remaining balance during 2004 (See previous discussion of
Revenues and Note 9).
Derivatives used to hedge SJG's natural gas purchases are recoverable through
its BGSS, subject to BPU approval. We record the offset to the change in fair
value of these contracts as a Regulatory Asset or Regulatory Liability
accordingly.
Excess Plant Removal Costs represent amounts accrued in excess of actual utility
plant removal costs incurred to date (See Asset Retirement Costs). All other
amounts are subject to being returned to ratepayers in future rate proceedings.
STATEMENTS OF CONSOLIDATED CASH FLOWS -- For purposes of reporting cash flows,
highly liquid investments with original maturities of three months or less are
considered cash equivalents.
RECLASSIFICATIONS -- SJI reclassified some previously reported amounts to
conform with current year classifications. Such reclassifications include the
move of $8.4 million and $6.8 million of certain operating expenses previously
included in Utility Revenue to Cost of Sales - Utility and Operations Expense
for 2003 and 2002, respectively. These amounts are considered immaterial to the
overall presentation of SJI's consolidated financial statements.
2. PREFERRED STOCK:
REDEEMABLE CUMULATIVE PREFERRED STOCK -- Annually, SJG is required to offer to
purchase 1,500 shares of its Cumulative Preferred Stock, Series B at par value,
-39-
plus accrued dividends. SJG may not declare or pay dividends or make
distributions on its common stock if preferred stock dividends are in arrears.
Preferred shareholders may elect a majority of SJG's directors if four or more
quarterly dividends are in arrears.
SJI has 2,500,000 authorized shares of Preference Stock, no par value, which has
not been issued. SJI has authorized, registered and reserved for issuance 15,000
shares of Series A Junior Participating Cumulative Preferred Stock (Series A
Preferred Stock) connected with its Shareholder Rights Plan (See Note 4).
3. DIVESTITURES AND AFFILIATIONS:
DIVESTITURES -- In 1996, Energy & Minerals, Inc. (EMI), an SJI subsidiary, sold
the common stock of The Morie Company, Inc. (Morie), its sand mining and
processing subsidiary (See Note 13).
SJI conducts tests annually to estimate the environmental remediation costs for
properties owned by South Jersey Fuel, Inc. (SJF), an EMI subsidiary, from its
previously operated fuel oil business. SJI reports the environmental remediation
activity related to these properties as discontinued operations.
Summarized operating results of the discontinued operations were:
Thousands of Dollars
2004 2003 2002
----------------------------------
Loss before Income Taxes:
Sand Mining $ (863) $ (705) $ (467)
Fuel Oil (183) (495) (122)
Other -- (32) (67)
Income Tax Credits 366 458 232
-------------------------------------------
Loss from Discontinued Operations -- Net $ (680) $ (774) $ (424)
===========================================
Earnings Per Common Share from
Discontinued Operations -- Net:
Basic $ (0.05) $ (0.06) $ (0.03)
===========================================
Diluted $ (0.05) $ (0.06) $ (0.04)
===========================================
Losses from sand mining are mainly comprised of environmental remediation and
product liability litigation associated with Morie's prior activities. Losses
from fuel oil in 2003 are mainly attributable to a property sale. The caption
"Other" represents construction and merchandising activities that were
discontinued in 1997 and 2001, respectively.
AFFILIATIONS -- SJI and Conectiv Solutions, LLC formed Millennium Account
Services, LLC to provide meter reading services in southern New Jersey.
-40-
SJE and GZA GeoEnvironmental, Inc. formed AirLogics, LLC to market a jointly
developed air monitoring system designed to assist companies involved in
environmental cleanup activities.
In April 2004, Marina and DCO Energy, LLC formed AC Landfill Energy, LLC (ACLE)
to develop and install a 1,400-kilowatt methane-to-electric power generation
system at a county-owned landfill in Egg Harbor Township, NJ. Marina owns a 51%
interest in ACLE and consolidates ACLE's balance sheet and results of operation
accordingly, as applicable. Commercial operation of the plant is targeted for
early 2005.
4. COMMON STOCK:
SJI has 20,000,000 shares of authorized Common Stock. The following shares were
issued and outstanding:
2004 2003 2002
------------------------------------------
Beginning of Year 13,229,001 12,206,474 11,860,990
New Issues During Year:
Dividend Reinvestment Plan 616,301 986,731 338,518
Employees' Stock Ownership Plan -- 1,511 4,162
Stock Option, Stock Appreciation Rights
and Restricted Stock Award Plan 32,056 32,005 590
Directors' Restricted Stock 2,610 2,280 2,214
-----------------------------------------
End of Year 13,879,968 13,229,001 12,206,474
=========================================
We credited the par value ($1.25 per share) of stock issued in 2004, 2003 and
2002 to Common Stock. We credited the net excess over par value of approximately
$25.9 million, $35.9 million and $10.5 million, respectively, to Premium on
Common Stock.
EARNINGS PER COMMON SHARE -- We present basic EPS based on the weighted-average
number of common shares outstanding. EPS is presented in accordance with FASB
Statement No. 128, "Earnings Per Share," which establishes standards for
computing and presenting basic and diluted EPS. The incremental shares required
for inclusion in the denominator for the diluted EPS calculation were 106,762,
99,649 and 77,866 shares for the years ended December 31, 2004, 2003 and 2002,
respectively. These shares relate to SJI's restricted stock as discussed below.
STOCK OPTION, STOCK APPRECIATION RIGHTS AND RESTRICTED STOCK AWARD PLAN -- Under
this plan, no more than 306,000 shares in the aggregate may be issued to SJI's
officers and other key employees. No options or stock appreciation rights may be
granted under the plan after November 22, 2006. No options were granted or
outstanding during the three years ended December 31, 2004, 2003 and 2002. No
stock appreciation rights have been issued under the plan. In 2004, 2003 and
2002, we granted 21,899, 30,810 and 26,034 restricted shares, respectively.
These restricted shares vest over a 3-year period and are subject to SJI
achieving certain performance targets. The annual expense associated with these
-41-
awards was approximately $2.1 million, $1.0 million and $0.6 million in 2004,
2003 and 2002, respectively.
DIVIDEND REINVESTMENT PLAN (DRP) AND EMPLOYEES' STOCK OWNERSHIP PLAN (ESOP) --
Newly issued shares of common stock offered through the DRP are issued directly
by SJI. All shares previously offered through the ESOP, which was terminated as
of October 1, 2003, were also issued directly by SJI. As of December 31, 2004,
SJI reserved 1,062,675 shares of authorized, but unissued, common stock for
future issuance to the DRP.
DIRECTORS' RESTRICTED STOCK PLAN -- Under this plan, SJI grants annual awards to
outside directors which vest over three years. SJI holds shares issued as
restricted stock until the attached restrictions lapse. We record the stock's
market value on the grant date as compensation expense over the applicable
vesting period. The annual expense associated with this plan was $82,826,
$80,255 and $67,242 in 2004, 2003 and 2002, respectively.
SHAREHOLDER RIGHTS PLAN -- In 1996, the board of directors adopted a shareholder
rights plan providing for the distribution of one right for each share of common
stock outstanding on and after October 11, 1996. Each right entitles its holder
to purchase 1/1000 of one share of Series A Preferred Stock at an exercise price
of $90 (See Note 2). The rights will not be exercisable until after a person or
group acquires 10% or more of SJI's common stock and will expire if not
exercised or redeemed by September 20, 2006.
5. INCOME TAXES:
SJI files a consolidated federal income tax return. State income tax returns are
filed on a separate company basis in states where SJI has operations and/or a
requirement to file.
Total income taxes applicable to operations differ from the tax that would have
resulted by applying the statutory Federal Income Tax rate to pre-tax income for
the following reasons:
Thousands of Dollars
2004 2003 2002
-----------------------------------
Tax at Statutory Rate $ 25,218 $ 20,352 $ 17,436
Increase (Decrease) Resulting from:
State Income Taxes 4,383 3,659 3,143
ESOP (766) (723) (489)
Amortization of Investment Tax Credit (Note 6) (342) (347) (347)
Amortization of Flowthrough
Depreciation (Note 6) 664 664 664
Other -- Net (78) (9) (3)
-32-
------------------------------------------
Income Taxes:
Continuing Operations 29,079 23,596 20,404
Discontinued Operations (366) (458) (232)
Cumulative Effect of a Change
in Accounting Principle -- (294) --
-------------------------------------------
Net Income Taxes $ 28,713 $ 22,844 $ 20,172
===========================================
The provision for Income Taxes is comprised of the following:
Thousands of Dollars
2004 2003 2002
-----------------------------------
Current:
Federal $ 8,270 $ 12,402 $ 3,044
State 5,879 6,919 3,017
------------------------------------------
Total Current 14,149 19,321 6,061
------------------------------------------
Deferred:
Federal:
Excess of Tax Depreciation Over
Book Depreciation -- Net 16,102 12,339 10,960
Deferred Fuel Costs -- Net (3,548) (10,446) (3,728)
Environmental Costs -- Net 826 (162) (1,490)
Alternative Minimum Tax -- 2,181 (495)
Prepaid Pension 3,038 1,647 5,743
Deferred Regulatory Costs (883) 750 1,543
Other -- Net (1,188) (397) 339
State 925 (1,290) 1,818
-------------------------------------------
Total Deferred 15,272 4,275 14,690
-------------------------------------------
Investment Tax Credit (342) (347) (347)
-------------------------------------------
Income Taxes:
Continuing Operations 29,079 23,596 20,404
Discontinued Operations (366) (458) (232)
Cumulative Effect of a Change
in Accounting Principle -- (294) --
-------------------------------------------
Net Income Taxes $ 28,713 $ 22,844 $ 20,172
===========================================
The net tax effect of temporary differences between the carrying amounts of
assets and liabilities for financial reporting and income tax purposes resulted
in the following deferred tax liabilities at December 31:
Thousands of Dollars
2004 2003
-------------------
Current:
Deferred Fuel Costs -- Net $ 2,774 $ 7,235
Derivatives / Unrealized Gain 4,518 4,868
Other (210) (566)
---------------------------
Current Deferred Tax Liability -- Net $ 7,082 $ 11,537
===========================
-43-
Noncurrent:
Book versus Tax Basis of Property $ 130,788 $ 116,504
Prepaid Pension 12,842 7,616
Environmental 1,709 694
Deferred Regulatory Costs 3,242 4,687
Deferred State Tax (2,706) (2,358)
Investment Tax Credit Basis Gross-Up (1,612) (1,891)
Other (1,195) (3,330)
---------------------------
Noncurrent Deferred Tax Liability -- Net $ 143,068 $ 121,922
===========================
6. FEDERAL AND OTHER REGULATORY TAX ASSETS AND DEFERRED CREDITS:
The primary asset created by adopting FASB Statement No. 109, "Accounting for
Income Taxes," was Income Taxes - Flowthrough Depreciation in the amount of
$17.6 million as of January 1, 1993. This amount represented excess tax
depreciation over book depreciation on utility plant because of temporary
differences for which, prior to Statement No. 109, deferred taxes previously
were not provided. SJG previously passed these tax benefits through to
ratepayers. SJG is recovering the amortization of the regulatory asset through
rates over 18 years which began in December 1994 (See Note 1).
The Investment Tax Credit attributable to SJG was deferred and continues to be
amortized at the annual rate of 3%, which approximates the life of related
assets (See Note 5).
SJG deferred $11.8 million resulting from a change in the basis for accruing the
Gross Receipts & Franchise Tax in 1978 and is amortizing it to operations over
30 years beginning that same year. We accelerated this amortization slightly as
a result of a subsequent rate making proceeding (See Note 1 - Regulatory
Assets).
7. FINANCIAL INSTRUMENTS:
RESTRICTED INVESTMENTS -- In accordance with the terms of ACLE's loan
agreements, we were required to escrow unused proceeds pending approved
construction expenditures. As of December 31, 2004, the escrowed proceeds
totaled $553,000.
SJRG maintains a margin account with a national investment firm to support its
risk management activities. As of December 31, 2004 and 2003, the balance of
this account was $13.0 million and $4.0 million, respectively, due to changes in
the market value of outstanding contracts.
LONG-TERM DEBT -- We estimate the fair values of SJI's long-term debt, including
current maturities, as of December 31, 2004 and 2003, to be $350.2 million and
$338.6 million, respectively. Carrying amounts are $334.3 million and $314.1
million, respectively. We base the estimates on interest rates available to SJI
at the end of each year for debt with similar terms and maturities. SJI retires
debt when it is cost effective as permitted by the debt agreements.
-44-
OTHER FINANCIAL INSTRUMENTS -- The carrying amounts of SJI's other financial
instruments approximate their fair values at December 31, 2004 and 2003.
8. SEGMENTS OF BUSINESS:
Information about SJI's operations in different industry segments is presented
below:
Thousands of Dollars
2004 2003 2002
--------------------------------------------
Operating Revenues:
Gas Utility Operations $ 502,465 $ 526,846 $ 415,640
Wholesale Gas Operations 18,059 10,560 4,998
Retail Gas and Other Operations 213,786 175,512 112,002
Retail Electric Operations 72,852 14,868 2,704
On-Site Energy Production 20,866 12,736 852
Appliance Service Operations 12,733 9,596 8,386
-----------------------------------------------
Subtotal 840,761 750,118 544,582
Intersegment Sales (21,685) (44,922) (32,692)
-----------------------------------------------
Total Operating Revenues $ 819,076 $ 705,196 $ 511,890
===============================================
Operating Income:
Gas Utility Operations $ 70,455 $ 64,200 $ 59,252
Wholesale Gas Operations 5,400 4,998 4,280
Retail Gas and Other Operations 7,366 5,447 4,201
Retail Electric Operations 1,612 153 (42)
On-Site Energy Production 5,756 3,122 416
Appliance Service Operations 1,780 1,220 1,622
General Corporate (1,630) (1,297) (654)
-----------------------------------------------
Total Operating Income $ 90,739 $ 77,843 $ 69,075
===============================================
Depreciation and Amortization:
Gas Utility Operations $ 25,831 $ 26,627 $ 24,730
Wholesale Gas Operations 15 13 12
Retail Gas and Other Operations 113 106 84
Retail Electric Operations -- -- --
On-Site Energy Production 1,680 866 10
Appliance Service Operations 81 -- --
Discontinued Operations -- 28 28
-----------------------------------------------
Total Depreciation and Amortization $ 27,720 $ 27,640 $ 24,864
===============================================
-45-
Property Additions:
Gas Utility Operations $ 68,656 $ 53,238 $ 49,646
Wholesale Gas Operations 15 6 --
Retail Gas and Other Operations 90 245 138
Retail Electric Operations -- -- --
On-Site Energy Production 5,314 8,137 33,925
Appliance Service Operations 97 -- --
-----------------------------------------------
Total Property Additions $ 74,172 $ 61,626 $ 83,709
===============================================
Identifiable Assets:
Gas Utility Operations $ 1,007,587 $ 937,732
Wholesale Gas Operations 103,689 70,156
Retail Gas and Other Operations 53,880 51,405
Retail Electric Operations 12,580 8,801
On-Site Energy Production 84,616 72,896
Appliance Service Operations 11,640 6,830
Discontinued Operations 413 2,358
-------------------------------
Subtotal 1,274,405 1,150,178
Corporate Assets 46,674 36,755
Intersegment Assets (77,745) (60,730)
-------------------------------
Total Identifiable Assets $ 1,243,334 $ 1,126,203
===============================
Gas Utility Operations consist primarily of natural gas distribution to
residential, commercial and industrial customers. Wholesale Gas Operations
include SJRG's activities. Retail Gas and Other Operations include natural gas
acquisition and transportation service companies. Retail Electric Operations
consist of electricity acquisition and transportation to retail, commercial and
industrial customers. On-Site Energy Production consists of Marina's thermal
energy facility and other energy-related projects. Appliance Service Operations
include the servicing of appliances via the sale of appliance service programs
as well as on a time and materials basis and the installation of residential and
small commercial HVAC systems.
SJI's interest expense relates primarily to SJG's and Marina's borrowing and
financing activities. Interest income is essentially derived from borrowings
between the subsidiaries and is eliminated during consolidation.
9. REGULATORY ACTIONS:
BASE RATES -- In January 1997, the BPU granted SJG rate relief, which was
predicated in part upon a 9.62% rate of return on rate base that included an
11.25% return on common equity. This rate relief provided for cost-of-service
recovery, including deferred costs, through base rates. Additionally, SJG's
threshold for sharing pre-tax margins generated by interruptible and off-system
sales and transportation increased. As a result of this case, SJG kept 100% of
pre-tax margins up to the threshold level of $7.8 million. The next $750,000 was
credited to customers through the Basic Gas Supply Service (BGSS) clause.
Thereafter, SJG kept 20% of the pre-tax margins as it had historically.
On July 7, 2004, the BPU granted SJG a base rate increase of $20.0 million,
which was predicated in part upon a 7.97% rate of return on rate base that
included a 10.0% return on common equity. The increase, effective July 8, 2004,
was designed to provide an incremental $8.5 million on an annualized basis to
net income. SJG was also permitted to recover regulatory assets contained in its
petition to reduce its composite depreciation rate from 2.9 to 2.4%.
-46-
Included in the base rate increase was a change to the sharing of pre-tax
margins on interruptible and off-system sales and transportation. SJG now
recovers through its base rates the $7.8 million that it had previously
recovered through the sharing of pre-tax margins. As a result, the sharing of
pre-tax margins now begins from dollar one, with SJG retaining 20%. Moreover,
SJG now shares pre-tax margins from on-system capacity release sales, in
addition to the interruptible and off-system sales and transportation. Effective
July 1, 2006, the 20% retained by SJG will decrease to 15% of such margins.
As part of the overall settlement effective July 8, 2004, SJG is providing
customers with an offsetting $38.9 million in rate reductions. These reductions
are being provided to customers through the reduction and elimination of rates
associated with SJG's various clauses. Under those clauses, costs incurred by
SJG were being billed to customers on a dollar-for-dollar basis and these
reductions do not negatively impact SJG's net income.
PENDING AUDITS -- The BPU issued an order under which it will perform a
competitive services audit and a management audit that includes a focused review
of SJG's gas supply and purchasing practices. The audits, which commenced in
October 2004, are mandated by statute to be conducted at predetermined
intervals. Management does not currently anticipate the outcome of these audits
to materially affect SJI's financial position, results of operations or
liquidity.
APPLIANCE SERVICE BUSINESS -- On July 23, 2004, the BPU approved SJG's petition
and related agreements to transfer its appliance service business from the
regulated utility. In anticipation of this transfer, SJI formed South Jersey
Energy Service Plus, LLC (SJESP) to perform appliance repair services after BPU
approval of the transfer. SJESP purchased certain assets and assumed certain
liabilities required to perform such repair services from SJG for the net book
value of $1.2 million on September 1, 2004. The agreements also called for SJESP
to pay an additional $1.5 million to SJG. SJG credited this $1.5 million to
customers through the Remediation Adjustment Clause (RAC) which had no earnings
impact on SJG. The $1.5 million is considered an intangible asset by SJESP and
is being amortized on a straight-line basis over a 12-year period, which
commenced as of the transfer date. The amortization period was based on a study
performed by an independent consultant. The study results indicate the benefit
period is linked to residential homeowner moving rates based on U.S. Census
Bureau and regional information.
OTHER REGULATORY MATTERS -- Effective January 10, 2000, the BPU approved full
unbundling of SJG's system. This allows all natural gas consumers to select
their natural gas commodity supplier. As of December 31, 2004, 87,645 of SJG's
residential customers were purchasing their gas commodity from someone other
than SJG. Customers choosing to purchase natural gas from providers other than
the utility are charged for the cost of gas by the marketer, not the utility.
-47-
The resulting decrease in SJG's revenues is offset by a corresponding decrease
in gas costs. While customer choice can reduce utility revenues, it does not
negatively affect SJG's net income or financial condition. The BPU continues to
allow for full recovery of prudently incurred natural gas costs through the
BGSS. Unbundling did not change the fact that SJG still recovers cost of
service, including deferred costs, through base rates.
In December 2001, the BPU approved recovery of SJG's October 31, 2001
underrecovered gas cost balance of $48.9 million plus accrued interest since
April 1, 2001 at a rate of 5.75%. SJG finished recovering this balance upon the
settlement of its base rate case in July 2004.
In August 2002, SJG filed for a Societal Benefits Clause (SBC) rate increase.
The SBC recovers costs related to BPU-mandated programs, including environmental
remediation costs recovered through SJG's RAC; energy efficiency and renewable
energy program costs recovered through SJG's New Jersey Clean Energy Programs;
consumer education program costs; and low income program costs recovered through
the Universal Service Fund. In August 2003, the BPU approved a $6.7 million
increase to SJG's SBC, effective September 1, 2003. In September 2004, SJG filed
for a $2.6 million reduction to its current SBC annual recovery level of $17.5
million.
In September 2002, SJG filed for an $8.6 million rate increase to recover the
cash related to a Temperature Adjustment Clause (TAC) deficiency resulting from
warmer-than-normal weather for the 2001-2002 winter. As a result of the
colder-than-normal 2002-2003 winter, the cumulative TAC deficiency decreased to
$5.7 million. In August 2003, the BPU approved the recovery of the $5.7 million
TAC deficiency, effective September 1, 2003. SJG has fully recovered the $5.7
million. In September 2004, SJG filed for a $1.2 million increase to recover the
cash related to the TAC deficiency resulting from the 2003-2004 winter, which
was warmer than normal.
Also, in September 2002, SJG filed with the BPU to maintain its current BGSS
rate through October 2003. However, due to price increases in the wholesale
market, in February 2003, SJG filed an amendment to the September 2002 filing.
In April 2003, the BPU approved a $16.6 million increase to SJG's annual gas
costs recoveries.
In March 2003, the BPU approved a statewide Universal Service Fund (USF) program
on a permanent basis. In June 2003, the BPU established a statewide program
through which funds for the USF and Lifeline Credit and Tenants Assistance
(Lifeline) Programs would be collected from customers of all New Jersey electric
and gas utilities. The BPU ordered that utility rates be set to recover a total
statewide USF budget of $33.0 million, and a total Lifeline budget of $72.0
million. Recovery rates for both programs were implemented in August 2003. In
April 2004, SJG made its annual USF filing, along with the state's other
electric and gas utilities, proposing a statewide USF budget of $105.5 million.
The proposed statewide budget was updated to $113.0 million and filed with the
BPU in May 2004. In June 2004, the BPU approved the statewide budget of $113.0
million and the increased rates were implemented effective July 1, 2004,
resulting in a $3.9 million increase to SJG's annual USF recoveries.
-48-
In July 2003, SJG made its annual BGSS filing, as amended, with the BPU. Due to
further price increases in the wholesale market, SJG filed for a $24.0 million
increase to its annual gas cost revenues. In August 2003, the BPU approved SJG's
price increase on a provisional basis, subject to refund with interest,
effective September 1, 2003. In October 2004, the provisional rate increase was
made final with no refund required.
In February 2004, SJG filed notice with the BPU to reduce its gas cost revenues
by approximately $5.0 million, via a rate reduction, in addition to a $21.8
million bill credit to customers. Both the rate reduction and bill credit were
approved and implemented in March 2004.
In June 2004, SJG made its annual BGSS filing with the BPU requesting a $4.9
million increase in gas cost recoveries. In October 2004, the requested increase
was approved on a provisional basis.
Filings and petitions described above are still pending unless otherwise
indicated.
10. EMPLOYEE BENEFIT PLANS:
PENSIONS & OTHER POSTRETIREMENT BENEFIT PLANS -- SJI has several defined benefit
pension plans and other postretirement benefit plans. The pension plans provide
annuity payments to the majority of full-time, regular employees upon
retirement. Newly hired employees in certain classifications and companies do
not qualify for participation in the defined benefit pension plans. The other
postretirement benefit plans provide health care and life insurance benefits to
some retirees.
The BPU authorized SJG to recover costs related to postretirement benefits other
than pensions under the accrual method of accounting consistent with FASB
Statement No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." We deferred amounts accrued prior to that authorization and are
amortizing them as allowed by the BPU. The unamortized balance of $3.0 million
at December 31, 2004 is recoverable in rates. We are amortizing this amount over
15 years which started January 1998.
On December 8, 2003, the President signed into law the Medicare Prescription
Drug, Improvement and Modernization Act (the "Act") of 2003. In accordance with
FASB Staff Position No. 106-1, "Accounting and Disclosure Requirements Related
to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,"
issued in December 2003, management elected to defer any financial impact
resulting from the Act pending the availability of more information. In 2004,
with the assistance of SJI's actuary, management has determined that the Act has
no impact on SJI's postretirement benefits plans.
-49-
Net periodic benefit cost related to the pension and other postretirement
benefit plans consisted of the following components:
Thousands of Dollars
Other
Pension Benefits Postretirement Benefits
2004 2003 2002 2004 2003 2002
-----------------------------------------------------------
Service Cost $ 2,939 $ 2,574 $ 2,237 $ 1,402 $ 1,551 $ 1,131
Interest Cost 5,699 5,353 5,029 2,412 2,545 2,355
Expected Return on
Plan Assets (7,094) (5,514) (4,567) (1,402) (1,078) (1,046)
Amortization of
Transition Obligation -- 72 72 643 772 772
Amortization of Loss
and Other 1,774 1,784 838 133 396 73
----------------------------------------------------------------
Net Periodic
Benefit Cost 3,318 4,269 3,609 3,188 4,186 3,285
ERIP Cost 814 -- -- 160 -- --
----------------------------------------------------------------
Total Net Periodic
Benefit Cost $ 4,132 $ 4,269 $ 3,609 $ 3,348 $ 4,186 $ 3,285
================================================================
The table abve includes benefit costs capitalize by SJG related to its
construction program. Capitalized pension benefit costs totaled $1.0 million,
$1.3 million and $1.1 million in 2004, 2003 and 2002, respectively. Capitalized
other postretirement benefit costs totaled $1.0 million, $1.3 million and $1.0
million in 2004, 2003 and 2002, respectively.
The ERIP costs reflected in the table above relate to an early retirement plan
offered during 2004. Additional monetary incentives not reflected in the table
above totaled $405,000, which will be funded outside of SJI's retirement plans.
A reconciliation of the plans' benefit obligations, fair value of plan assets,
funded status and amounts recognized in SJI's consolidated balance sheets
follows:
Thousands of Dollars
Other
Postretirement
Pension Benefits Benefits
2004 2003 2004 2003
------------------------------------------------
Change in Benefit Obligations:
Benefit Obligation at Beginning
of Year $ 91,036 $ 81,106 $ 44,926 $ 30,973
Service Cost 2,939 2,574 1,402 1,551
Interest Cost 5,699 5,353 2,412 2,545
Plan Amendments 492 -- (10,085) --
Actuarial Loss and Other 11,324 6,054 1,580 11,239
Benefits Paid (4,032) (4,051) (1,751) (1,382)
------------------------------------------------------------
Benefit Obligation at End of Year $ 107,458 $ 91,036 $ 38,484 $ 44,926
============================================================
-50-
Change in Plan Assets:
Fair Value of Plan Assets at
Beginning of Year $ 83,145 $ 63,112 $ 19,095 $ 13,835
Actual Return on Plan Assets 8,411 14,084 1,740 3,336
Employer Contributions 13,000 10,000 3,226 3,306
Benefits Paid (4,032) (4,051) (1,751) (1,382)
----------------------------------------------------------
Fair Value of Plan Assets at
End of Year $ 100,524 $ 83,145 $ 22,310 $ 19,095
==========================================================
Funded Status: $ (6,934) $ (7,890) $ (16,174) $ (25,831)
Unrecognized Prior Service Cost 2,941 2,823 (4,229) (809)
Unrecognized Net Obligation
Assets from Transition -- -- -- 6,946
Unrecognized Net Loss
and Other 32,582 24,757 12,317 11,731
----------------------------------------------------------
Prepaid (Accrued) Net Benefit Cost at
End of Year $ 28,589 $ 19,690 $ (8,086) $ (7,963)
==========================================================
The accumulated benefit obligation of SJI's pension plans at December 31, 2004
and 2003 was $93.6 million and $76.6 million, respectively. In 2003, SJI had a
decrease in its minimum pension liability included in Accumulated Other
Comprehensive Income amounting to $9.3 million. As of December 31, 2004, no
minimum pension liability adjustment was required.
As of November 2004, SJI has implemented caps on the amount of the premium we
pay for all employees eligible for postretirement health care. Employees are
responsible for those costs which exceed the premium caps. Subsequently, we were
able to reduce our 2004 postretirement benefit costs other than pension by a
total of $383,400 for the months of November and December 2004. On an ongoing
basis, we will experience reduced postretirement benefit costs other than
pension due to this plan change.
SJI also has unqualified pension plans provided to certain officers and outside
directors which are unfunded. The aggregate accrued net benefit obligation of
such plans as of December 31, 2004 and 2003 was $4.9 million and $4.3 million,
respectively.
-51-
The weighted-average assumptions used to determine benefit obligations at
December 31 were:
Other
Pension Benefits Postretirement Benefits
2004 2003 2004 2003
----------------------------------------------
Discount Rate 5.75% 6.25% 5.75% 6.25%
Rate of Compensation Increase 3.60% 3.60% -- --
The weighted-average assumptions used to determine net periodic benefit cost for
years ended December 31 were:
Other
Pension Benefits Postretirement Benefits
2004 2003 2002 2004 2003 2002
----------------------------------------------
Discount Rate 6.25% 6.75% 7.25% 6.25% 6.75% 7.25
Expected Long-Term Return
on Plan Assets 8.75% 9.00% 9.00% 7.25% 7.50% 7.50
Rate of Compensation Increase 3.60% 3.60% 4.10% -- -- --
The expected long-term return on plan assets was based on return projections
prepared by our investment manager using SJI's current investment mix as
described under Plan Assets below.
The assumed health care cost trend rates at December 31 were:
2004 2003
-----------------
Post-65 Medical Care Cost Trend Rate Assumed for Next Year 6.5% 7.0%
Pre-65 Medical Care Cost Trend Rate Assumed for Next Year 11.0% 11.5%
Dental Care Cost Trend Rate Assumed for Next Year 6.5% 7.0%
Rate to which Cost Trend Rates are Assumed to Decline
(the Ultimate Trend Rate) 5.0% 5.0%
Year that the Rate Reaches the Ultimate Trend Rate 2016 2016
Assumed health care cost trend rates have a significant effect on the amounts
reported for SJI's postretirement health care plans. A one-percentage-point
change in assumed health care cost trend rates would have the following effects:
-52-
Thousands of Dollars
1-Percentage- 1-Percentage-
Point Increase Point Decrease
Effect on the Total of Service and Interest Cost $ 88 $ (76)
Effect on Postretirement Benefit Obligation $ 1,174 $ (1,127)
Plan Assets -- SJI's weighted-average asset allocations at December 31, 2004 and
2003, by asset category are as follows:
Other
Pension Benefits Postretirement Benefits
2004 2003 2004 2003
---------------------------------------------------
Asset Category
U.S. Equity Securities 52% 47% 48% 47%
International Equity Securities 16 13 16 13
Fixed Income 32 40 36 40
-------------------------------------------------
Total 100% 100% 100% 100%
=================================================
Based on the investment objectives and risk tolerances stated in SJI's current
pension and other postretirement benefit plans' investment policy and
guidelines, the long-term asset mix target considered appropriate for SJI is
within the range of 58% to 68% equity and 32% to 42% fixed-income investments.
Historical performance results and future expectations suggest that equities
will provide higher total investment returns than fixed-income securities over a
long-term investment horizon.
The policy recognizes that risk and volatility are present to some degree with
all types of investments. We seek to avoid high levels of risk at the total fund
level through diversification by asset class, style of manager, and sector and
industry limits. Specifically prohibited investments include, but are not
limited to, venture capital, margin trading, commodities and securities of
companies with less than $250.0 million capitalization (except in the small-cap
portion of the fund where capitalization levels as low as $50.0 million are
permissible).
FUTURE BENEFIT PAYMENTS -- The following benefit payments, which reflect
expected future service, as appropriate, are expected to be paid during the
following years:
Thousands of Dollars
Other
Pension Benefits Postretirement Benefits
2005 $ 4,209 $ 1,522
2006 4,397 1,737
2007 4,621 1,970
2008 4,898 2,187
2009 5,205 2,386
2010-2014 32,748 13,837
-53-
CONTRIBUTIONS -- SJI expects to make no contributions to its pension plan and
contribute approximately $3.0 million to its other postretirement benefit plan
in 2005.
DEFINED CONTRIBUTION PLAN -- SJI offers an Employees' Retirement Savings Plan
(Savings Plan) to eligible employees. SJI matches 50% of participants'
contributions up to 6% of base compensation. For newly hired employees who are
not eligible for participation in SJI's defined benefit plan, we match 50% of
participants' contributions up to 8% of base compensation. We also contribute a
year-end contribution of $500 for employees with fewer than 10 years of service
and $1,000 for employees with 10 years of service or more.
The amount expensed and contributed for the matching provision of the Savings
Plan approximated $1.0 million in each of the years 2004, 2003 and 2002.
11. RETAINED EARNINGS:
Restrictions exist under various loan agreements regarding the amount of cash
dividends or other distributions that SJG may pay on its common stock. As of
December 31, 2004, SJG's loan restrictions did not affect the amount that may be
distributed from SJI's retained earnings.
SJG is restricted as to the amount of cash dividends or other distributions that
may be paid on its common stock by an order issued by the New Jersey Board of
Public Utilities in July 2004, that granted SJG an increase in base rates. Per
the order, SJG is required to maintain Total Common Equity of no less than $289
million. SJG's Total Common Equity balance was $344 million at December 31,
2004.
12. UNUSED LINES OF CREDIT AND COMPENSATING BALANCES:
Bank credit available to SJI totaled $266.0 million at December 31, 2004, of
which $98.7 million, inclusive of $6.4 million of letters of credit, was used.
Those bank facilities consist of a $100.0 million revolving credit facility that
expires in August 2006 and $76.0 million of uncommitted bank lines available to
SJG; and a $60.0 million revolving credit facility that expires in August 2007,
and $30.0 million of uncommitted bank lines available to SJI. The amount of the
revolving credit to SJI was increased by $20.0 million and the expiration date
was extended to 2007 in August 2004. The revolving credit facilities contain
certain financial covenants measured on a quarterly basis. SJI and SJG were in
compliance with these covenants as of December 31, 2004. Borrowings under these
lines of credit are at market rates. The weighted borrowing cost, which changes
daily, was 3.02% and 1.87% at December 31, 2004 and 2003, respectively. We
maintain demand deposits with lending banks on an informal basis and they do not
constitute compensating balances.
13. COMMITMENTS AND CONTINGENCIES:
CONTRACTUAL CASH OBLIGATIONS -- The following table summarizes our contractual
cash obligations and their applicable payment due dates (in thousands):
-54-
Up to Years Years More than
Contractual Obligations Total 1 Year 2 & 3 4 & 5 5 Years
----------------------------------------------------------
Long-Term Debt $ 334,262 $ 5,348 $ 10,737 $ 1,720 $ 316,457
Interest on Long-Term Debt 300,751 20,214 39,081 37,972 203,484
Operating Leases 900 321 512 51 16
Construction Obligations 5,133 5,133 -- -- --
Commodity Supply
Purchase Obligations 430,098 245,389 92,247 66,167 26,295
Other Purchase
Obligations 3,509 3,446 63 -- --
-------------------------------------------------------------------
Total Contractual
Cash Obligations $ 1,074,653 $ 279,851 $ 142,640 $ 105,910 $ 546,252
===================================================================
Expected environmental remediation costs are not included in the table above due
to the subjective nature of such costs and the timing of anticipated payments.
SJG's regulatory obligation to contribute $3.6 million annually to
its postretirement benefit plans, less costs incurred directly, is not included
as the duration is indefinite. As a result, the total obligation cannot be
calculated. SJI does not expect to make a pension contribution in 2005 and
future contributions cannot be determined at this time (See Note 10).
CONSTRUCTION AND ENVIRONMENTAL -- SJI's estimated net cost of construction and
environmental remediation programs for 2005 totals $87.2 million. Commitments
were made regarding some of these programs.
GAS SUPPLY CONTRACTS -- SJG, in the normal course of business, has entered into
long-term contracts for natural gas supplies, firm transportation and gas
storage service. The earliest that any of these contracts expires is 2005. The
transportation and storage service agreements between SJG and its interstate
pipeline suppliers were made under Federal Energy Regulatory Commission approved
tariffs. SJG's cumulative obligation for demand charges and reservation fees
paid to suppliers for these services is approximately $4.5 million per month,
recovered on a current basis through the BGSS.
PENDING LITIGATION -- SJI is subject to claims arising in the ordinary course of
business and other legal proceedings. We accrue liabilities related to these
claims when we can determine the amount or range of amounts of likely settlement
costs for those claims. SJI has been named in, among other actions, certain
product liability claims related to our former sand mining subsidiary.
Management does not currently anticipate the disposition of any known claims to
have a material adverse effect on SJI's financial position, results of
operations or liquidity.
PARENTAL GUARANTEES -- As of December 31, 2004, SJI had issued $196.6 million of
parental guarantees on behalf of its subsidiaries. Of this total, $159.6 million
expire within one year, $0.2 million expire in 2006 and $36.8 million have no
expiration date. The vast majority of these guarantees were issued to guarantee
payment to third parties with whom our subsidiaries have commodity supply
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contracts. These contracts contain netting provisions which permit us to net the
ultimate cash payment for monthly buys and sells from/to counterparties. As of
December 31, 2004, these guarantees support future firm commitments and $56.1
million of the Accounts Payable recorded on our consolidated balance sheet. As
part of our risk management policy, we also require parental guarantees from
trading counterparties as applicable. These arrangements are typical in our
industry. SJI has also issued two parental guarantees totaling $6.3 million
related to Marina's construction activity.
STANDBY LETTERS OF CREDIT -- As of December 31, 2004, SJI provided $46.0 million
of standby letters of credit from four commercial banks supporting the variable
rate demand bonds issued through the New Jersey Economic Development Authority
to finance Marina's thermal plant project. The letter of credit agreement
contains certain financial covenants measured on a quarterly basis. SJI was in
compliance with these covenants as of December 31, 2004.
Also, as of December 31, 2004, SJI has issued four letters of credit totaling
$6.3 million. Three of these letters were posted to two different utilities to
enable SJE to market retail electricity within the respective utilities' service
territories. The remaining letter was posted related to the construction
activity of AC Landfill Energy, LLC.
SALE LEASEBACK -- On January 5, 2004, Marina paid $2.7 million to purchase a
cogeneration facility in Salem County, NJ and is leasing the facility back to a
large manufacturer located on the same site over an 8-year lease. Marina also
entered into an 8-year operating contract to operate and manage the facility.
ENVIRONMENTAL REMEDIATION COSTS -- SJI incurred and recorded costs for
environmental cleanup of 12 sites where SJG or its predecessors operated gas
manufacturing plants. SJG stopped manufacturing gas in the 1950s. SJI and some
of its nonutility subsidiaries also recorded costs for environmental cleanup of
sites where SJF previously operated a fuel oil business and Morie maintained
equipment, fueling stations and storage.
SJI successfully entered into settlements with all of its historic comprehensive
general liability carriers regarding the environmental remediation expenditures
at the SJG sites. Also, SJG purchased a Cleanup Cost Cap Insurance Policy
limiting the amount of remediation expenditures that SJG will be required to
make at 11 of its sites. This Policy will be in force until 2024 at 10 sites and
until 2029 at one site. The minimum future cost estimate discussed below is not
reduced by projected insurance recoveries from the Cleanup Cost Cap Insurance
Policy.
Since the early 1980s, SJI accrued environmental remediation costs of $153.5
million, of which $98.5 million was spent as of December 31, 2004. With the
assistance of a consulting firm, we estimate that undiscounted future costs to
clean up SJG's sites will range from $51.0 million to $167.3 million. We
recorded the lower end of this range as a liability because a single reliable
estimation point is not feasible due to the amount of uncertainty involved in
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the nature of projected remediation efforts and the long period over which
remediation efforts will continue. It is reflected on the 2004 consolidated
balance sheet under Current Liabilities and Deferred Credits and Other
Noncurrent Liabilities. Recorded amounts include estimated costs based on
projected investigation and remediation work plans using existing technologies.
Actual costs could differ from the estimates due to the long-term nature of the
projects, changing technology, government regulations and site-specific
requirements. The major portion of accrued environmental costs relate to the
cleanup of SJG's former gas manufacturing sites.
SJG has two regulatory assets associated with environmental costs (See Note 1).
The first asset, Environmental Remediation Cost: Expended -- Net, represents
what was actually spent to clean up former gas manufacturing plant sites. These
costs meet the requirements of Statement No. 71. The BPU allows SJG to recover
expenditures through the RAC (See Note 9).
The other asset, Environmental Remediation Cost: Liability for Future
Expenditures, relates to estimated future expenditures determined under the
guidance of FASB Statement No. 5, "Accounting for Contingencies." We recorded
this amount, which relates to former manufactured gas plant sites, as a
regulatory asset under Statement No. 71 with the corresponding amount reflected
on the consolidated balance sheet under Current Liabilities and Deferred Credits
and Other Noncurrent Liabilities. The BPU's intent, evidenced by current
practice, is to allow SJG to recover the deferred costs after they are spent
over 7-year periods. As of December 31, 2004, we reflected SJG's unamortized
remediation costs of $5.3 million on the consolidated balance sheet under
Regulatory Assets. Since implementing the RAC in 1992, SJG has recovered $43.9
million through rates (See Note 9).
With Morie's sale, EMI assumed responsibility for environmental liabilities
estimated between $2.8 million and $8.8 million. The information available on
these sites is sufficient only to establish a range of probable liability and no
point within the range is more likely than any other. Therefore, EMI has accrued
the lower end of the range. Changes in the accrual are included in the
statements of consolidated income under Loss from Discontinued Operations --
Net.
SJI and SJF estimated their potential exposure for the future remediation of
four sites where fuel oil operations existed years ago. Estimates for these
sites range from $1.2 million to $5.0 million. We recorded the lower ends of
these ranges on the 2004 consolidated balance sheet under Current Liabilities
and Deferred Credits and Other Noncurrent Liabilities as of December 31, 2004.
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