SOUTH JERSEY INDUSTRIES INC - Quarter Report: 2020 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark one)


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

For the quarterly period ended September 30, 2020


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


Commission File Number	Exact name of registrant as specified in its charter	State of Incorporation	I.R.S. Employer Identification No.
1-6364	South Jersey Industries, Inc.	New Jersey	22-1901645
000-22211	South Jersey Gas Co	New Jersey	21-0398330

Address of principal executive offices

City

State

Zip Code

Registrant's telephone number, including area code

South Jersey Industries, Inc.

1 South Jersey Plaza

Folsom

New Jersey

08037

(609)

561-9000

South Jersey Gas Co

1 South Jersey Plaza

Folsom

New Jersey

08037

(609)

561-9000

Securities registered pursuant to Section 12(b) of the Act:

South Jersey Industries, Inc.


Title of each class	Trading Symbol(s)	Name of exchange on which registered
Common Stock - $1.25 par value per share	SJI	New York Stock Exchange
5.625% Junior Subordinated Notes due 2079	SJIJ	New York Stock Exchange
Corporate Units	SJIU	New York Stock Exchange

South Jersey Gas Co


Title of each class	Trading Symbol(s)	Name of exchange on which registered
None	N/A	N/A

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

Indicate by check mark whether each registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that such registrant was required to submit such files). Yes ☒ No ☐

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

South Jersey Industries, Inc.:

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

South Jersey Gas Co:

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☐

Emerging growth company

☐

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

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

South Jersey Industries, Inc. (SJI) common stock ($1.25 par value) outstanding as of November 1, 2020 was 100,590,307 shares. South Jersey Gas Company common stock ($2.50 par value) outstanding as of November 1, 2020 was 2,339,139 shares. All of South Jersey Gas Company's outstanding shares of common stock are held by SJI Utilities, Inc., which is a wholly-owned subsidiary of SJI.

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

TABLE OF CONTENTS


PART I	FINANCIAL INFORMATION	Page No.
Glossary of Terms and Abbreviations		4
Item 1.	Financial Statements (Unaudited)	8
	South Jersey Industries, Inc.
	Condensed Consolidated Statements of Income/(Loss)	8
	Condensed Consolidated Statements of Comprehensive Income/(Loss)	10
	Condensed Consolidated Statements of Cash Flows	11
	Condensed Consolidated Balance Sheets	12
	Condensed Consolidated Statements of Changes in Equity	14

	South Jersey Gas Company
	Condensed Statements of Income/(Loss)	16
	Condensed Statements of Comprehensive Income/(Loss)	18
	Condensed Statements of Cash Flows	19
	Condensed Balance Sheets	20
	Condensed Statements of Changes in Equity	22

	Notes to Unaudited Condensed Consolidated Financial Statements	23
	South Jersey Industries, Inc. and South Jersey Gas Company - Combined
	Note 1. Summary of Significant Accounting Policies	23
	Note 2. Stock-Based Compensation Plan	31
	Note 3. Affiliations, Discontinued Operations and Related-Party Transactions	33
	Note 4. Common Stock	36
	Note 5. Financial Instruments	37
	Note 6. Segments of Business	40
	Note 7. Rates and Regulatory Actions	44
	Note 8. Regulatory Assets & Regulatory Liabilities	47
	Note 9. Pension and Other Postretirement Benefits	50
	Note 10. Lines of Credit & Short-Term Borrowings	52
	Note 11. Commitments and Contingencies	53
	Note 12. Derivative Instruments	54
	Note 13. Fair Value of Financial Assets and Financial Liabilities	58
	Note 14. Long-Term Debt	63
	Note 15. Accumulated Other Comprehensive Loss	63
	Note 16. Revenue	65
	Note 17. Acquisitions & Business Combinations	68
	Note 18. Goodwill and Identifiable Intangible Assets	71
	Note 19. Leases	73
	Note 20. Subsequent Events	75
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	76
	South Jersey Industries, Inc.	81
	South Jersey Gas Company	99
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	102
Item 4.	Controls and Procedures	105
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	106
Item 1A.	Risk Factors	106
Item 6.	Exhibits	107
Signatures

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GLOSSARY OF TERMS AND ABBREVIATIONS



ACB			ACB Energy Partners, LLC
ACLE			AC Landfill Energy, LLC
ADIT			Accumulated Deferred Income Taxes
AEP			Applied Energy Partners, LLC
AFUDC			Allowance for Funds During Construction
AIRP			Accelerated Infrastructure Replacement Program
AMA			Asset Management Agreement
Annadale			Annadale Community Clean Energy Projects LLC
AOCL			Accumulated Other Comprehensive Loss

ARO			Asset Retirement Obligation
ASC			Accounting Standards Codification
ASU			Accounting Standards Update
ATM			At-The-Market

BCLE			BC Landfill Energy, LLC
BGSS			Basic Gas Supply Service

BPU			New Jersey Board of Public Utilities

CARES Act			Coronavirus Aid, Relief and Economic Security Act of 2020
Catamaran			Catamaran Renewables, LLC
CEGR			Compounded Earnings Annual Growth Rate
CEP			Clean Energy Program (ETG)
CHP			Combined Heat and Power
CIP			Conservation Incentive Program
CLEP			Clean Energy Program (SJG)
CODM			Chief Operating Decision Maker
COVID-19			Novel coronavirus





DRP			Dividend Reinvestment Plan
dt			Decatherm
dts/d			Decatherms per day
EDIT			Excess Deferred Income Taxes
EEP			Energy Efficiency Program
EET			Energy Efficiency Tracker
EGR			Earnings Growth Rate
ELK			Elkton Gas Company
EMI			Energy & Minerals, Inc.
EnerConnex			EnerConnex, LLC
Energenic			Energenic US, LLC
EnergyMark			EnergyMark, LLC
EPS			Earnings Per Share
ERIP			Early Retirement Incentive Program
ERISA			Employee Retirement Income Security Act of 1974
ETG			Elizabethtown Gas Company
ETG/ELK Acquisition			The Company's acquisition of the assets of Elizabethtown Gas Company and Elkton Gas Company effective July 1, 2018, from Pivotal Utility Holdings, Inc., a subsidiary of Southern Company Gas

FASB			Financial Accounting Standards Board
FERC			Federal Energy Regulatory Commission

GAAP			Generally Accepted Accounting Principles for financial reporting in the United States

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IAM			International Association of Machinists and Aerospace Workers
IBEW			International Brotherhood of Electrical Workers
IIP			Infrastructure Investment Programs
ITC			Investment Tax Credit
LIBOR			London Interbank Offer Rate
LMP			Locational Marginal Price

Marina			Marina Energy, LLC




Midstream			SJI Midstream, LLC
Millennium			Millennium Account Services, LLC
MPSC			Maryland Public Service Commission
MMdts			One million decatherms
MMmWh			One million megawatt hours
Morie			The Morie Company, Inc.
MTF			Marina Thermal Facility

MTN			Medium Term Notes

MW			Megawatt
MWh			Megawatt-hours



NCI			Non-Controlling Interest
NOL			Net Operating Loss
Non-GAAP			The financial measures that are not prepared in accordance with U.S. GAAP
NPA			Note Purchase Agreement


NJEDA			New Jersey Economic Development Authority

NYMEX			New York Mercantile Exchange

OSMC			On-System Margin Sharing Credit
OSS			Off-System Sales
PennEast			PennEast Pipeline, LLC
Potato Creek			Potato Creek, LLC
RAC			Remediation Adjustment Clause

ROE			Return on Equity
ROU			Right of Use
SBC			Societal Benefits Clause

SCLE			SC Landfill Energy, LLC
SEC			Securities and Exchange Commission
SERP			Supplemental Executive Retirement Plan
SHARP			Storm Hardening and Reliability Program
SJE			South Jersey Energy Company
SJEI			SJI Energy Investments, LLC
SJES			South Jersey Energy Solutions, LLC
SJESP			South Jersey Energy Service Plus, LLC
SJEX			South Jersey Exploration, LLC
SJF			South Jersey Fuel, Inc.
SJG			South Jersey Gas Co or South Jersey Gas Company
SJI			South Jersey Industries, Inc., or the Company
SJIU			SJI Utilities, Inc.
SJRG			South Jersey Resources Group, LLC
SRECs			Solar Renewable Energy Credits
SXLE			SX Landfill Energy, LLC

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Tax Reform			Tax Cuts and Jobs Act which was enacted into law on December 22, 2017


TIC			Transportation Initiation Clause

TSA			Transition Services Agreement
TSR			Total Shareholder Return

Utilities			Represents SJI's three utility businesses: SJG, ETG, and until its sale, ELK
UWUA			United Workers Union of America
VSIP			Voluntary Separation Incentive Program

WNC			Weather Normalization Clause

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INTRODUCTION

FILING FORMAT

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

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

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

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Item 1. Condensed Consolidated Financial Statements

SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME/(LOSS) (UNAUDITED)

(In Thousands, Except for Per Share Data)


	Three Months Ended September 30,
	2020		2019
Operating Revenues:
Utility	$	103,383	$	92,377
Nonutility	158,166		168,826
Total Operating Revenues	261,549		261,203
Operating Expenses:
Cost of Sales - (Excluding depreciation and amortization)
- Utility	29,277		26,452
- Nonutility	146,752		163,914
Operations	53,641		54,169
Impairment Charges	—		1,296
Maintenance	9,666		9,081
Depreciation	27,977		24,945
Energy and Other Taxes	2,730		2,663
Net Gain on Sales of Assets	—		(2,292)
Total Operating Expenses	270,043		280,228
Operating Loss	(8,494)		(19,025)

Other Income	5,143		618
Interest Charges	(27,762)		(28,857)
Loss Before Income Taxes	(31,113)		(47,264)
Income Taxes	19,467		10,925
Equity in Earnings of Affiliated Companies	1,302		1,593
Loss from Continuing Operations	(10,344)		(34,746)
Loss from Discontinued Operations - (Net of tax benefit)	(58)		(59)
Net Loss	$	(10,402)	$	(34,805)

Basic Loss Per Common Share:
Continuing Operations	$	(0.10)	$	(0.38)
Discontinued Operations	—		—
Basic Loss Per Common Share	$	(0.10)	$	(0.38)

Average Shares of Common Stock Outstanding - Basic	100,587		92,392

Diluted Loss Per Common Share:
Continuing Operations	$	(0.10)	$	(0.38)
Discontinued Operations	—		—
Diluted Loss Per Common Share	$	(0.10)	$	(0.38)

Average Shares of Common Stock Outstanding - Diluted	100,587		92,392

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

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	Nine Months Ended September 30,
	2020		2019
Operating Revenues:
Utility	$	636,110	$	613,555
Nonutility	419,515		551,880
Total Operating Revenues	1,055,625		1,165,435
Operating Expenses:
Cost of Sales - (Excluding depreciation and amortization)
- Utility	210,167		231,622
- Nonutility	379,583		526,472
Operations	168,653		173,603
Impairment Charges	—		1,296
Maintenance	28,658		27,984
Depreciation	81,877		72,759
Energy and Other Taxes	9,228		9,597
Net Gain on Sales of Assets	—		(3,246)
Total Operating Expenses	878,166		1,040,087
Operating Income	177,459		125,348

Other Income	7,621		2,268
Interest Charges	(88,887)		(85,944)
Income Before Income Taxes	96,193		41,672
Income Taxes	(13,725)		(9,378)
Equity in Earnings of Affiliated Companies	5,710		5,355
Income from Continuing Operations	88,178		37,649
Loss from Discontinued Operations - (Net of tax benefit)	(178)		(216)
Net Income	$	88,000	$	37,433

Basic Earnings Per Common Share:
Continuing Operations	$	0.92	$	0.41
Discontinued Operations	—		—
Basic Earnings Per Common Share	$	0.92	$	0.41

Average Shares of Common Stock Outstanding - Basic	95,599		92,041

Diluted Earnings Per Common Share:
Continuing Operations	$	0.92	$	0.41
Discontinued Operations	—		—
Diluted Earnings Per Common Share	$	0.92	$	0.41

Average Shares of Common Stock Outstanding - Diluted	95,724		92,158

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

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SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS) (UNAUDITED)

(In Thousands)


	Three Months Ended September 30,
	2020		2019
Net Loss	$	(10,402)	$	(34,805)

Other Comprehensive Income, Net of Tax:

Reclassification of Unrealized Gain on Derivatives - Other to Net Loss, net of tax of $(3) and $(3), respectively	9		9

Other Comprehensive Income - Net of Tax	9		9

Comprehensive Loss	$	(10,393)	$	(34,796)


	Nine Months Ended September 30,
	2020		2019
Net Income	$	88,000	$	37,433

Other Comprehensive Income, Net of Tax:

Reclassification of Unrealized Gain on Derivatives - Other to Net Income, net of tax of $(10) and $(10), respectively	25		25

Other Comprehensive Income - Net of Tax	25		25

Comprehensive Income	$	88,025	$	37,458

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

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SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In Thousands)


	Nine Months Ended September 30,
	2020		2019
Net Cash Provided by Operating Activities	$	254,200	$	121,416

Cash Flows from Investing Activities:
Capital Expenditures	(344,828)		(357,844)

Acquisition-related Working Capital Settlement	—		15,600
Cash Paid for Acquisition, Net of Cash Acquired	(10,932)		(3,952)
Proceeds from Dispositions and Sale of Property, Plant & Equipment	119,948		26,360
Investment in Long-Term Receivables	(18,787)		(10,939)
Proceeds from Long-Term Receivables	10,457		7,604
Proceeds from Company-Owned Life Insurance	—		1,694
Investment in Affiliates	(1,353)		(4,102)
Advances to Affiliates	—		(1,902)
Net Repayment of Notes Receivable - Affiliates	2,504		—
Investment in Subsidiary, Net of Cash Acquired	(54,328)		—

Net Cash Used in Investing Activities	(297,319)		(327,481)

Cash Flows from Financing Activities:
Net (Repayments of) Borrowings from Short-Term Credit Facilities	(251,700)		541,800
Proceeds from Issuance of Long-Term Debt	800,000		244,657
Principal Repayments of Long-Term Debt	(660,000)		(725,000)
Payments for Issuance of Long-Term Debt	(6,810)		(2,106)
Dividends on Common Stock	(54,553)		(53,124)
Proceeds from Sale of Common Stock	200,000		189,032
Payments for the Issuance of Common Stock	(1,897)		—

Net Cash Provided by Financing Activities	25,040		195,259

Net Decrease in Cash, Cash Equivalents and Restricted Cash	(18,079)		(10,806)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period	28,381		31,679

Cash, Cash Equivalents and Restricted Cash at End of Period	$	10,302	$	20,873

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

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SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In Thousands)


	September 30, 2020		December 31, 2019
Assets
Property, Plant and Equipment:
Utility Plant, at original cost	$	5,150,209	$	4,905,350
Accumulated Depreciation	(908,184)		(843,998)
Nonutility Property and Equipment, at cost	88,911		25,991
Accumulated Depreciation	(13,389)		(13,807)

Property, Plant and Equipment - Net	4,317,547		4,073,536

Investments:
Available-for-Sale Securities	40		40
Restricted	199		21,964
Investment in Affiliates	92,945		87,087

Total Investments	93,184		109,091

Current Assets:
Cash and Cash Equivalents	10,103		6,417
Accounts Receivable	167,534		253,661
Unbilled Revenues	22,712		84,821
Provision for Uncollectibles	(33,017)		(19,829)
Notes Receivable - Affiliate	2,875		5,379
Natural Gas in Storage, average cost	51,606		54,153
Materials and Supplies, average cost	1,061		1,164
Prepaid Taxes	37,333		26,918
Derivatives - Energy Related Assets	36,541		52,892
Assets Held for Sale	19,997		143,440
Other Prepayments and Current Assets	38,082		43,492

Total Current Assets	354,827		652,508

Regulatory and Other Noncurrent Assets:
Regulatory Assets	659,724		665,932
Derivatives - Energy Related Assets	10,407		7,243
Notes Receivable - Affiliate	12,009		12,720
Contract Receivables	38,530		30,958
Goodwill	706,960		702,070
Other	115,735		111,282

Total Regulatory and Other Noncurrent Assets	1,543,365		1,530,205

Total Assets	$	6,308,923	$	6,365,340

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

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SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In Thousands)


	September 30, 2020		December 31, 2019
Capitalization and Liabilities
Equity:
Common Stock	$	125,735	$	115,493
Premium on Common Stock	1,217,822		1,027,902
Treasury Stock (at par)	(314)		(289)
Accumulated Other Comprehensive Loss	(32,533)		(32,558)
Retained Earnings	317,007		313,237
Non-Controlling Interest	4,236		—

Total Equity	1,631,953		1,423,785

Long-Term Debt	2,531,632		2,070,086

Total Capitalization	4,163,585		3,493,871

Current Liabilities:
Notes Payable	597,000		848,700
Current Portion of Long-Term Debt	142,809		467,909
Accounts Payable	162,845		232,242
Customer Deposits and Credit Balances	37,697		35,004
Environmental Remediation Costs	47,956		43,849
Taxes Accrued	4,839		2,235
Derivatives - Energy Related Liabilities	25,005		41,965
Deferred Contract Revenues	321		—
Derivatives - Other Current	2,078		1,155
Liabilities Held for Sale	—		6,043
Dividends Payable	29,677		—
Interest Accrued	27,187		13,580
Pension Benefits	3,727		3,727
Other Current Liabilities	22,564		35,486

Total Current Liabilities	1,103,705		1,731,895

Deferred Credits and Other Noncurrent Liabilities:
Deferred Income Taxes - Net	116,321		92,166
Pension and Other Postretirement Benefits	114,764		114,055
Environmental Remediation Costs	148,515		189,036
Asset Retirement Obligations	195,718		263,950
Derivatives - Energy Related Liabilities	4,452		8,206
Derivatives - Other Noncurrent	17,637		11,505
Regulatory Liabilities	428,939		442,918
Other	15,287		17,738

Total Deferred Credits and Other Noncurrent Liabilities	1,041,633		1,139,574

Commitments and Contingencies (Note 11)

Total Capitalization and Liabilities	$	6,308,923	$	6,365,340

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

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SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)

(In Thousands, Except for Per Share Data)


	Common Stock		Premium on Common Stock		Treasury Stock		AOCL		Retained Earnings		NCI		Total

Balance at January 1, 2020	$	115,493	$	1,027,902	$	(289)	$	(32,558)	$	313,237	$	—	$	1,423,785
Net Income	—		—		—		—		101,041		—		101,041
Other Comprehensive Income, Net of Tax	—		—		—		8		—		—		8
Common Stock Issued or Granted Through Stock Plans	62		(352)		15		—		—		—		(275)
Cash Dividends Declared - Common Stock ($0.30 per share)	—		—		—		—		(27,276)		—		(27,276)
Balance at March 31, 2020	115,555		1,027,550		(274)		(32,550)		387,002		—		1,497,283
Net Loss	—		—		—		—		(2,639)		—		(2,639)
Other Comprehensive Income, Net of Tax	—		—		—		8		—		—		8
Common Stock Issued or Granted Through Equity Offering or Stock Plans	10,178		188,813		(37)		—		—		—		198,954
Cash Dividends Declared - Common Stock ($0.30 per share)	—		—		—		—		(27,277)		—		(27,277)
Balance at June 30, 2020	125,733		1,216,363		(311)		(32,542)		357,086		—		1,666,329
Net Loss	—		—		—		—		(10,402)		—		(10,402)
Other Comprehensive Income, Net of Tax	—		—		—		9		—		—		9
Common Stock Issued or Granted Through Equity Offering or Stock Plans	2		1,459		(3)		—		—		—		1,458
Cash Dividends Declared - Common Stock ($0.30 per share)	—		—		—		—		(29,677)		—		(29,677)
Capital Contributions of Non-Controlling Interest in Subsidiary	—		—		—		—		—		4,236		$	4,236
Balance at September 30, 2020	$	125,735	$	1,217,822	$	(314)	$	(32,533)	$	317,007	$	4,236	$	1,631,953

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	Common Stock		Premium on Common Stock		Treasury Stock		AOCL		Retained Earnings		Total

Balance at January 1, 2019	$	106,883	$	843,268	$	(292)	$	(26,095)	$	343,258	$	1,267,022
Net Income	—		—		—		—		85,637		85,637
Other Comprehensive Income, Net of Tax	—		—		—		8		—		8
Common Stock Issued or Granted Through Equity Offering or Stock Plans	8,603		179,829		17		—		—		188,449
Cash Dividends Declared - Common Stock ($0.29 per share)	—		—		—		—		(26,562)		(26,562)
Balance at March 31, 2019	115,486		1,023,097		(275)		(26,087)		402,333		1,514,554
Net Loss	—		—		—		—		(13,399)		(13,399)
Other Comprehensive Income, Net of Tax	—		—		—		8		—		8
Common Stock Issued or Granted Through Stock Plans	2		1,877		(8)		—		—		1,871
Cash Dividends Declared - Common Stock ($0.29 per share)	—		—		—		—		(26,562)		(26,562)
Balance at June 30, 2019	115,488		1,024,974		(283)		(26,079)		362,372		1,476,472
Net Loss	—		—		—		—		(34,805)		(34,805)
Other Comprehensive Income, Net of Tax	—		—		—		9		—		9
Common Stock Issued or Granted Through Equity Offering or Stock Plans	3		1,669		(1)		—		—		1,671
Cash Dividends Declared - Common Stock ($0.29 per share)	—		—		—		—		(26,560)		(26,560)
Balance at September 30, 2019	$	115,491	$	1,026,643	$	(284)	$	(26,070)	$	301,007	$	1,416,787

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

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SOUTH JERSEY GAS COMPANY

CONDENSED STATEMENTS OF INCOME/(LOSS) (UNAUDITED)

(In Thousands)


	Three Months Ended September 30,

	2020		2019
Operating Revenues	$	66,190	$	62,039

Operating Expenses:
Cost of Sales (Excluding depreciation and amortization)	20,575		19,268
Operations	24,763		25,855
Maintenance	8,399		7,678
Depreciation	17,339		16,398
Energy and Other Taxes	1,194		1,159

Total Operating Expenses	72,270		70,358

Operating Loss	(6,080)		(8,319)

Other Income	1,515		808

Interest Charges	(8,271)		(7,840)

Loss Before Income Taxes	(12,836)		(15,351)

Income Taxes	3,293		3,747

Net Loss	$	(9,543)	$	(11,604)

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

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	Nine Months Ended September 30,

	2020		2019
Operating Revenues	$	394,066	$	396,505

Operating Expenses:
Cost of Sales (Excluding depreciation and amortization)	126,655		140,802
Operations	78,740		80,146
Maintenance	25,457		22,827
Depreciation	51,038		48,187
Energy and Other Taxes	3,879		4,302

Total Operating Expenses	285,769		296,264

Operating Income	108,297		100,241

Other Income	3,349		3,067

Interest Charges	(23,832)		(23,584)

Income Before Income Taxes	87,814		79,724

Income Taxes	(23,157)		(20,620)

Net Income	$	64,657	$	59,104

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

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SOUTH JERSEY GAS COMPANY

CONDENSED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS) (UNAUDITED)

(In Thousands)


	Three Months Ended September 30,

	2020		2019
Net Loss	$	(9,543)	$	(11,604)

Other Comprehensive Income - Net of Tax:

Reclassification of Unrealized Gain on Derivatives - Other to Net Loss, net of tax of $(3) and $(3), respectively	9		9

Other Comprehensive Income - Net of Tax	9		9

Comprehensive Loss	$	(9,534)	$	(11,595)


	Nine Months Ended September 30,
	2020		2019
Net Income	$	64,657	$	59,104

Other Comprehensive Income - Net of Tax:

Reclassification of Unrealized Gain on Derivatives - Other to Net Income, net of tax of $(10) and $(10), respectively	25		25

Other Comprehensive Income - Net of Tax	25		25

Comprehensive Income	$	64,682	$	59,129

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

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SOUTH JERSEY GAS COMPANY

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In Thousands)


	Nine Months Ended September 30,

	2020		2019
Net Cash Provided by Operating Activities	$	158,813	$	114,482

Cash Flows from Investing Activities:
Capital Expenditures	(188,173)		(178,666)
Investment in Long-Term Receivables	(18,787)		(10,939)
Proceeds from Long-Term Receivables	10,457		7,604

Net Cash Used in Investing Activities	(196,503)		(182,001)

Cash Flows from Financing Activities:
Net (Repayments of) Borrowings from Short-Term Credit Facilities	(63,400)		67,700
Proceeds from Issuance of Long-Term Debt	400,000		10,000
Principal Repayments of Long-Term Debt	(410,000)		(10,000)
Payments for Issuance of Long-Term Debt	(3,434)		(12)
Additional Investment by Shareholder	109,500		—

Net Cash Provided by Financing Activities	32,666		67,688

Net (Decrease) Increase in Cash, Cash Equivalents and Restricted Cash	(5,024)		169
Cash, Cash Equivalents and Restricted Cash at Beginning of Period	6,751		3,262

Cash, Cash Equivalents and Restricted Cash at End of Period	$	1,727	$	3,431

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

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SOUTH JERSEY GAS COMPANY

CONDENSED BALANCE SHEETS (UNAUDITED)

(In Thousands)


	September 30, 2020		December 31, 2019
Assets
Property, Plant and Equipment:
Utility Plant, at original cost	$	3,308,798	$	3,154,736
Accumulated Depreciation	(601,318)		(558,634)

Property, Plant and Equipment - Net	2,707,480		2,596,102

Investments:
Restricted Investments	199		4,073

Total Investments	199		4,073

Current Assets:
Cash and Cash Equivalents	1,528		2,678
Accounts Receivable	62,447		84,940
Accounts Receivable - Related Parties	2,856		2,333
Unbilled Revenues	9,985		45,016
Provision for Uncollectibles	(16,837)		(14,032)
Natural Gas in Storage, average cost	15,041		14,839
Materials and Supplies, average cost	619		619
Prepaid Taxes	26,355		19,547
Derivatives - Energy Related Assets	6,060		16,904
Other Prepayments and Current Assets	19,316		25,074

Total Current Assets	127,370		197,918

Regulatory and Other Noncurrent Assets:
Regulatory Assets	486,070		496,177
Long-Term Receivables	38,530		30,958
Derivatives - Energy Related Assets	425		5
Other	23,375		23,322

Total Regulatory and Other Noncurrent Assets	548,400		550,462

Total Assets	$	3,383,449	$	3,348,555

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

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SOUTH JERSEY GAS COMPANY

CONDENSED BALANCE SHEETS (UNAUDITED)

(In Thousands)


	September 30, 2020		December 31, 2019
Capitalization and Liabilities
Equity:
Common Stock	$	5,848	$	5,848
Other Paid-In Capital and Premium on Common Stock	465,244		355,744
Accumulated Other Comprehensive Loss	(27,850)		(27,875)
Retained Earnings	820,838		756,181

Total Equity	1,264,080		1,089,898

Long-Term Debt	899,307		547,161

Total Capitalization	2,163,387		1,637,059

Current Liabilities:
Notes Payable	107,900		171,300
Current Portion of Long-Term Debt	52,809		417,909
Accounts Payable - Commodity	9,981		17,361
Accounts Payable - Other	46,379		60,797
Accounts Payable - Related Parties	5,339		9,752
Derivatives - Energy Related Liabilities	817		14,671
Derivatives - Other Current	709		488
Customer Deposits and Credit Balances	26,462		22,430
Environmental Remediation Costs	24,154		29,569
Taxes Accrued	2,785		1,907
Pension Benefits	3,693		3,693
Interest Accrued	11,239		6,789
Other Current Liabilities	6,774		12,489

Total Current Liabilities	299,041		769,155

Regulatory and Other Noncurrent Liabilities:
Regulatory Liabilities	253,302		274,482
Deferred Income Taxes - Net	387,840		357,637
Environmental Remediation Costs	78,735		101,693
Asset Retirement Obligations	80,855		96,509
Pension and Other Postretirement Benefits	105,510		99,981
Derivatives - Energy Related Liabilities	—		95
Derivatives - Other Noncurrent	10,163		7,368
Other	4,616		4,576

Total Regulatory and Other Noncurrent Liabilities	921,021		942,341

Commitments and Contingencies (Note 11)

Total Capitalization and Liabilities	$	3,383,449	$	3,348,555

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

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SOUTH JERSEY GAS COMPANY

STATEMENTS OF CHANGES IN COMMON EQUITY (UNAUDITED)

(In Thousands)



	Common Stock		Other Paid-In Capital and Premium on Common Stock		AOCL		Retained Earnings		Total
Balance at January 1, 2020	$	5,848	$	355,744	$	(27,875)	$	756,181	$	1,089,898
Net Income	—		—		—		70,522		70,522
Other Comprehensive Income, Net of Tax	—		—		8		—		8
Balance at March 31, 2020	5,848		355,744		(27,867)		826,703		1,160,428
Net Income	—		—		—		3,678		3,678
Other Comprehensive Income, Net of Tax	—		—		8		—		8
Additional Investment by Shareholder	—		9,500		—		—		9,500
Balance at June 30, 2020	5,848		365,244		(27,859)		830,381		1,173,614
Net Loss	—		—		—		(9,543)		(9,543)
Other Comprehensive Income, Net of Tax	—		—		9		—		9
Additional Investment by Shareholder	—		100,000		—		—		100,000
Balance at September 30, 2020	$	5,848	$	465,244	$	(27,850)	$	820,838	$	1,264,080




Balance at January 1, 2019	$	5,848	$	355,744	$	(22,357)	$	668,787	$	1,008,022
Net Income	—		—		—		68,731		68,731
Other Comprehensive Income, Net of Tax	—		—		8		—		8
Balance at March 31, 2019	5,848		355,744		(22,349)		737,518		1,076,761
Net Income	—		—		—		1,976		1,976
Other Comprehensive Income, Net of Tax	—		—		8		—		8
Balance at June 30, 2019	5,848		355,744		(22,341)		739,494		1,078,745
Net Loss	—		—		—		(11,604)		(11,604)
Other Comprehensive Income, Net of Tax	—		—		9		—		9
Balance at September 30, 2019	$	5,848	$	355,744	$	(22,332)	$	727,890	$	1,067,150

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

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Notes to Condensed Consolidated Financial Statements

1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

GENERAL - SJI provides a variety of energy-related products and services primarily through the following wholly-owned subsidiaries:

▪SJIU is a holding company that owns SJG and ETG and, until its sale, owned ELK.

•SJG is a regulated natural gas utility which distributes natural gas in the seven southernmost counties of New Jersey.

•ETG is a regulated natural gas utility which distributes natural gas in seven counties in northern and central New Jersey.

•ELK is a regulated natural gas utility which distributes natural gas in northern Maryland. On July 31, 2020, SJI sold ELK to a third-party buyer (see "Agreement to Sell ELK" below).

▪SJE acquires and markets electricity to retail end users.

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

▪SJEX owns oil, gas and mineral rights in the Marcellus Shale region of Pennsylvania.

▪Marina develops and operates on-site energy-related projects. Included in Marina were MTF and ACB, which, in February 2020, were sold to a third-party buyer (see "Agreement to Sell MTF & ACB" below). Also included in Marina are two solar projects which are currently classified as held for sale, and a third solar project that was sold in March 2020 (see "Agreement to Sell Solar Assets" below). The significant wholly-owned subsidiaries of Marina include:

•ACLE, BCLE, SCLE and SXLE own and operate landfill gas-to-energy production facilities in Atlantic, Burlington, Salem and Sussex Counties, respectively, located in New Jersey. On June 1, 2020, the BCLE, SCLE, and SXLE landfill gas-to-energy-production facilities ceased operations after receiving approval from their respective local governmental authorities to do so.

•ESNJ-AL-Somers Point LLC, ESNJ-AL-Hamilton Square LLC, ESNJ-AL-Browns Mills LLC, and ESNJ-AL-Woodbury LLC own and operate solar generation sites located in New Jersey. All four were acquired in 2020 (see "Acquisitions" below).

▪SJESP receives commissions on service contracts from a third party.

▪Midstream invests in infrastructure and other midstream projects, including PennEast. See Note 3.

▪SJEI provides energy procurement and cost reduction services. The significant wholly-owned subsidiaries of SJEI include:

•AEP, an aggregator, broker and consultant in the retail energy markets, which was acquired in August 2019.

•EnerConnex, which is a retail and wholesale broker and consultant that matches end users with suppliers for the procurement of natural gas and electricity. On August 7, 2020, SJEI acquired the remaining 75% of EnerConnex (see "Acquisitions" below), of which SJEI previously held a 25% interest.

BASIS OF PRESENTATION - SJI's condensed consolidated financial statements include the accounts of SJI, its direct and indirect wholly-owned subsidiaries (including SJG) and subsidiaries in which SJI has a controlling interest. All significant intercompany accounts and transactions have been eliminated in consolidation. SJI is reporting on a consolidated basis the results of operations of the acquired entities discussed above as of their respective dates of acquisition, along with its controlling interest in Catamaran as noted below.

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As permitted by the rules and regulations of the SEC, the accompanying unaudited condensed consolidated financial statements of SJI and SJG contain certain condensed financial information and exclude certain footnote disclosures normally included in annual audited consolidated financial statements prepared in accordance with GAAP. These financial statements should be read in conjunction with SJI’s and SJG's Annual Reports on Form 10-K for the year ended December 31, 2019. In management’s opinion, the condensed consolidated financial statements of SJI and SJG reflect all normal recurring adjustments needed to fairly present their respective financial positions, operating results and cash flows at the dates and for the periods presented. SJI’s and SJG's businesses are subject to seasonal fluctuations and, accordingly, this interim financial information should not be the basis for estimating the full year’s operating results.

As of September 30, 2020 and December 31, 2019, SJI had assets and liabilities held for sale on the condensed consolidated balance sheets as a result of the agreements to sell that are discussed below. Unless otherwise noted, the disclosures herein related to specific asset and liability balances as of September 30, 2020 and December 31, 2019 exclude assets and liabilities held for sale. See "Assets and Liabilities Held for Sale" below for additional information, including major classes of assets and liabilities classified as held for sale for both periods presented.

ESTIMATES AND ASSUMPTIONS - The condensed consolidated financial statements were prepared to conform with GAAP. Management makes estimates and assumptions that affect the amounts reported in the condensed consolidated 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, revenue recognition, goodwill and evaluation of equity method investments for other-than-temporary impairment.

REGULATION - SJG and ETG are subject to the rules and regulations of the BPU, while ELK is subject to the rules and regulations of the MPSC. See Note 7 for a discussion of the Utilities' rate structure and regulatory actions. The Utilities maintain their accounts according to the BPU's and MPSC's prescribed Uniform System of Accounts. The Utilities follow the accounting for regulated enterprises prescribed by ASC 980, Regulated Operations. In general, Topic 980 allows for the deferral of certain costs (regulatory assets) and creation of certain obligations (regulatory liabilities) when it is probable that such items will be recovered from or refunded to customers in future periods. See Note 8 for a detailed discussion of regulatory assets and liabilities.

ACQUISITIONS - SJI, through its wholly-owned subsidiary Marina, acquired ESNJ-AL-Somers Point LLC, ESNJ-AL-Hamilton Square LLC, and ESNJ-AL-Browns Mills LLC on June 30, 2020, and acquired ESNJ-AL-Woodbury LLC on August 21, 2020. These entities own newly operational solar-generation sites as noted above, and were acquired for $3.8 million in total consideration. See Note 17. These entities are separate from the solar assets and projects that are discussed under "Agreement to Sell Solar Assets."

On August 7, 2020, SJI, through its wholly-owned subsidiary SJEI, completed its acquisition of the remaining 75% of EnerConnex for total consideration of $7.5 million in cash. Prior to this transaction, SJEI had a 25% interest in EnerConnex; as such, the acquisition of the remaining 75% was accounted for as a business combination achieved in stages. See Note 17.

On August 12, 2020, SJI, through its wholly-owned subsidiary Marina, formed the Catamaran joint venture with a third party partner. On the same date, Catamaran purchased 100% ownership of Annadale, of which Marina has a 93% ownership interest. See Note 17.

On August 31, 2019, SJI, through its wholly-owned subsidiary SJEI, completed its acquisition of AEP for $4.0 million in total consideration.

ITC - The U.S. federal government provides businesses with an ITC under Section 48 of the Internal Revenue Code, available to the owner of solar and fuel cell systems that are purchased and placed into service. Among other requirements, such credits require projects to have commenced construction by a certain date. Accordingly, projects that commenced construction in 2019 were eligible for a 30% ITC. The credit will step down to 26% for projects that commence construction in 2020, 22% for projects that commence construction in 2021, and 10% for projects that commence construction thereafter. Marina is able to recognize a 30% ITC on the acquired solar assets of ESNJ-AL-Somers Point LLC, ESNJ-AL-Hamilton Square LLC, ESNJ-AL-Browns Mills LLC and ESNJ-AL-Woodbury LLC as all four projects commenced construction in 2019. Annadale also commenced construction in 2019 and qualified for a 30% ITC; however, as a fuel cell project, the ITC is capped at $1,500 per 0.5 kilowatt of capacity. Total ITCs on these solar and fuel cell projects recorded during the three and nine months ended September 30, 2020 were $12.0 million. No ITC was recorded during the three and nine months ended September 30, 2019.

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AGREEMENT TO SELL SOLAR ASSETS - See Note 1 to the Consolidated Financial Statements under "Agreement to Sell Solar Assets" in Item 8 of the Form 10-K for the year ended December 31, 2019 for additional information regarding SJI’s agreement to sell its portfolio of solar energy assets (each, a "Project" and, in total, the "Transaction").

During the first nine months of 2020, one Project was sold for total consideration of $7.2 million, which was the net book value of the asset on the date of sale. The solar assets related to that Project were recorded as Assets Held for Sale on the condensed consolidated balance sheets as of December 31, 2019. During the first nine months of 2019, seven Projects were sold for total consideration of $24.3 million.

The Company currently has two solar projects that are not part of the Transaction but are expected to be sold in 2020. The solar assets related to these two projects were recorded as Assets Held for Sale on the condensed consolidated balance sheets as of both September 30, 2020 and December 31, 2019, where they will remain until they are transferred to a buyer.

AGREEMENT TO SELL MTF & ACB - In December 2019, the Company announced it had entered into an agreement to sell MTF and ACB to a third-party buyer for an initial sales price of $100.0 million, which includes working capital. This sale closed on February 18, 2020 for a final sales price of $97.0 million, with the initial sales price being reduced by the amount of cash flows generated by MTF and ACB from October 1, 2019 through the date of closing. Before being sold, these assets and liabilities were recorded as Assets Held for Sale and Liabilities Held for Sale, respectively, on the condensed consolidated balance sheets as of December 31, 2019.

AGREEMENT TO SELL ELK - In December 2019, the Company announced it had entered into an agreement to sell ELK to a third-party buyer. The MPSC approved this transaction during the second quarter of 2020 (see Note 7), and the transaction closed on July 31, 2020. Total consideration received was approximately $15.6 million, with working capital and other closing adjustments pending. The total net loss on the sale of ELK was not material. The assets and liabilities for ELK were recorded as Assets Held for Sale and Liabilities Held for Sale, respectively, on the condensed consolidated balance sheets as of December 31, 2019.

ASSETS AND LIABILITIES HELD FOR SALE - As discussed above, SJI is involved in the potential sale of solar assets and has recorded $20.0 million of Nonutility Property & Equipment for two solar projects in Assets Held for Sale on the condensed consolidated balance sheets as of September 30, 2020. See Note 1 to the Consolidated Financial Statements in Item 8 of SJI's and SJG's Annual Report on Form 10-K for the year ended December 31, 2019 for more information about the Assets and Liabilities Held for Sale balances as of December 31, 2019, which, at the time, included three solar projects, MTF, ACB and ELK.

IMPAIRMENT OF LONG-LIVED ASSETS - Long-lived assets that are held and used are reviewed for impairment whenever events or changes in circumstances indicate carrying values may not be recoverable. We performed a qualitative assessment of the long-lived assets of SJI and SJG as of September 30, 2020 to determine whether the impact of the COVID-19 pandemic, and the resulting fluctuations in market conditions, indicate that the fair value of the assets are less than their carrying value. There were no indicators noted through these qualitative assessments that indicate an impairment has occurred.

No impairments were identified at SJI for the three and nine months ended September 30, 2020. An impairment charge of $1.3 million (pre-tax) was recorded within the on-site energy production segment at SJI for the three and nine months ended September 30, 2019, which was recorded in Impairment Charges on the condensed consolidated statements of income. This impairment charge was related to the expected purchase price of one of the unsold solar sites being less than its carrying value.

No impairments were identified at SJG for the three and nine months ended September 30, 2020 and 2019, respectively.

See discussion of impairment considerations related to goodwill and other intangible assets in Note 18.

OPERATING REVENUES - Gas and electric revenues are recognized in the period the commodity is delivered to customers. For retail customers (including SJG) that are not billed at the end of the 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. The Utilities also have revenues that arise from alternative revenue programs, which are discussed in Note 16. For ETG and SJG, unrealized gains and losses on energy-related derivative instruments are recorded in Regulatory Assets or Regulatory Liabilities on the condensed consolidated balance sheets of SJI and SJG (see Note 12) until they become realized, in which case they are recognized in operating revenues. SJRG's gas revenues are recognized in the period the commodity is delivered. Realized and unrealized gains and losses on energy-related derivative instruments are also recognized in operating revenues for SJRG. SJRG presents revenues and expenses related to its energy trading activities on a net basis in operating revenues. This net presentation has no

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effect on operating income or net income. The Company recognizes revenues on commissions received related to SJESP appliance service contracts, along with AEP and EnerConnex energy procurement service contracts from a third party, on a monthly basis as the commissions are earned. Marina recognizes revenues for renewable energy projects when renewable energy credits have been transferred to the third party at an agreed upon price.

We considered the impact the COVID-19 pandemic has had on operating revenues, noting that SJI and SJG have not seen a significant reduction in revenues as a result of the pandemic. This is due to gas and electricity being considered an essential service and continuing to be delivered timely to customers, and no delays or operational shutdowns taking place to date. Given the performance obligation is satisfied at delivery, which matches the time when the Company is able to invoice the customer, the Company is confident in being able to meet its future performance obligations. To the extent that the pandemic does impact our ability to deliver in the future, operating revenues could be impacted.

ARO - The amounts included under ARO are primarily related to the legal obligations SJI and SJG have to cut and cap gas distribution pipelines when taking those pipelines out of service in future years. These liabilities are generally recognized upon the acquisition or construction of the asset, or when management has adequate information in order to make an estimate of the obligation. The related asset retirement cost is capitalized concurrently by increasing the carrying amount of the related asset by the same amount as the liability. Changes in the liability are recorded for the passage of time (accretion) or for revisions to cash flows originally estimated to settle the ARO.

ARO activity for the nine months ended September 30, 2020 as follows (in thousands):


SJI (includes SJG and all other consolidated subsidiaries):	2020
ARO as of January 1,	$	263,950
Accretion	7,129
Additions	3,266
Settlements	(6,195)
Revisions in Estimated Cash Flows (A)	(72,432)
ARO as of September 30,	$	195,718

SJG:	2020
ARO as of January 1,	$	96,509
Accretion	3,078
Additions	1,161
Settlements	(1,142)
Revisions in Estimated Cash Flows (A)	(18,751)
ARO as of September 30,	$	80,855

(A) The revisions in estimated cash flows for SJI and SJG for the nine months ended September 30, 2020 shown in the table above reflect decreases in the estimated retirement costs primarily as a result of changes in contractor costs to settle the ARO liability. Corresponding entries were made to Regulatory Assets and Utility Plant, thus having no impact on earnings.

TREASURY STOCK - SJI uses the par value method of accounting for treasury stock. As of September 30, 2020 and December 31, 2019, SJI held 251,524 and 231,514 shares of treasury stock, respectively. These shares are related to deferred compensation arrangements where the amounts earned are held in the stock of SJI.

AFUDC - SJI and SJG record AFUDC, which represents the estimated debt and equity costs of capital funds that are necessary to finance the construction of new facilities. While cash is not realized currently, AFUDC increases the regulated revenue requirement and is included in rate base and recovered over the service life of the asset through a higher rate base and higher depreciation.

INCOME TAXES - Deferred income taxes are provided for all significant temporary differences between the book and taxable bases of assets and liabilities in accordance with ASC 740, Income Taxes. A valuation allowance is established when it is determined that it is more likely than not that a deferred tax asset will not be realized.

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GOODWILL - See Note 18.

AMA - On July 1, 2018, SJRG purchased from a third party an AMA whereby SJRG manages the pipeline capacity of ETG. Total cash payment was $11.3 million. The AMA expires on March 31, 2022. Under the AMA, SJRG pays ETG an annual fee of $4.25 million, plus additional profit sharing as defined in the AMA. The amounts received by ETG will be credited to its BGSS clause and returned to its ratepayers. The total purchase price was allocated as follows (in thousands):


Natural Gas in Storage	$	9,685
Intangible Asset	19,200
Profit Sharing - Other Liabilities	(17,546)
Total Consideration	$	11,339

As of September 30, 2020 and December 31, 2019, the balance of the intangible asset is $7.7 million and $11.5 million, respectively, and is recorded to Other Current and Noncurrent Assets on the condensed consolidated balance sheets of SJI, with the reduction being due to amortization. As of September 30, 2020 and December 31, 2019, the balance in the liability is $7.5 million and $10.6 million, respectively, and is recorded to Regulatory Liabilities on the condensed consolidated balance sheets of SJI, with the change resulting from profit sharing earned.

VSIP - SJG entered into a VSIP program with IBEW Local 1293 and IAM Local 76 union employees over the age of 60 years old with 10 or more years of service to SJG. Communication was made to these employees in both the first and second quarter 2020, with acceptance made by the Local 1293 employees by April 14, 2020 and by the Local 76 employees by May 6, 2020. Total cost to SJG for the VSIP recorded during the second quarter of 2020 was $0.6 million, all of which related to employees of SJG and was included in Operations Expense on the condensed consolidated statements of income (loss) of SJI and SJG for the nine months ended September 30, 2020.

THIRD PARTY GAS SUPPLIER REFUND - During the second quarter of 2020, a third party pipeline capacity supplier that is utilized by the Utilities and the wholesale energy operations at SJRG in the normal course of business settled its rate case with the FERC. As part of the executed settlement, the third party supplier was ordered to refund customers for over billings on transportation costs that had been charged during the rate case period. As a result, in June 2020, SJRG and SJG received notification from the supplier that refunds totaling approximately $11.2 million and $10.0 million, respectively, would be received. SJRG and SJG received the refunds in July 2020. Of the total SJRG refund, approximately $7.1 million was remitted to ETG under the terms of the AMA (see above). As transportation costs incurred by ETG under the AMA can be recovered from ratepayers under its BGSS rate mechanism, the $7.1 million was recorded as a Regulatory Liability (see Note 8). For the remaining $3.9 million retained by SJRG, approximately $3.8 million was recorded as Operating Revenues; as noted above, SJRG presents revenues and expenses related to its energy trading activities on a net basis in Operating Revenues. The remaining $0.1 million in interest was recorded in Other Income. As SJG also recovers these costs through its BGSS rate mechanism, the $10.0 million refund was recorded as a reduction to SJG's Regulatory Assets (see Note 8).

CURRENT PORTION OF LONG-TERM DEBT & SHORT-TERM BORROWINGS - As of September 30, 2020, the Company had $142.8 million of long-term debt that was due within one year ("current portion"), along with $597.0 million of notes payable which included borrowings under the commercial paper program and revolving credit facilities ("short-term borrowings" see Note 10). As of December 31, 2019, the Company had $467.9 million of current portion and $848.7 million of short-term borrowings. This reduction is the result of SJI refinancing $600.0 million of short-term and current portion amounts that were outstanding as of December 31, 2019, including $400.0 million at SJG (see Note 14), with the remainder being paid down using proceeds from the agreements to sell assets discussed above. SJI expects to further reduce its current portion and short-term borrowings over the next twelve months by utilizing funds provided from refinancing activities and from the Company's revolving credit facilities.

Although there can be no assurance, management believes that actions presently being taken to pay off or refinance the long-term debt and borrowings that are due within the next year will be successful, as the Company has been successful in refinancing debt in the past. No adjustments have been made to the financial statements to account for this uncertainty.

AOCL - SJI and SJG release income tax effects from AOCL on an individual unit of account basis.

NEW ACCOUNTING PRONOUNCEMENTS - Other than as described below, no new accounting pronouncement had, or is expected to have, a material impact on the condensed consolidated financial statements of SJI, or the condensed financial statements of SJG.

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Recently Adopted Standards:

Standard

Description

Date of Adoption

Application

Effect on the Financial Statements of SJI and SJG

ASU 2017-04:
Simplifying the Test for Goodwill Impairment

The update simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount.

January 1, 2020

Prospective

Adoption of this guidance did not have a material impact on the financial statement results of SJI or SJG.

ASU 2018-13:

Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement

This ASU modifies the disclosure requirements on the timing of liquidation of an investee's assets and the description of measurement uncertainty at the reporting date. Entities are now required to disclose: (1) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements; and (2) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. Further, the standard eliminates disclosure requirements with respect to: (1) the transfers between Level 1 and Level 2 of the fair value hierarchy; (2) the policy for timing of transfers between levels; and (3) the valuation process for Level 3 fair value measurements.

January 1, 2020

Prospective for added disclosures and for the narrative description of measurement uncertainty

Adoption of this guidance did not have a material impact on the financial statement results of SJI or SJG. Disclosures requirements are reflected in Note 13.

ASU 2019-04:

Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments

The amendments in this ASU provide codification improvements and further clarification on several topics, including ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, as well as ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10). See ASU 2016-13 below for more detail.

January 1, 2020

Amendments related to ASU 2016-01 and ASU 2016-13 - modified retrospective; all other amendments - prospective

Adoption of this guidance did not have a material impact on the financial statement results of SJI or SJG.

ASU 2016-13:

Measurement of Credit Losses on Financial Instruments

The amendments in this update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to develop credit loss estimates. An entity will apply the amendment through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective.

January 1, 2020

Modified retrospective

The impact of adoption did not result in an adjustment to retained earnings for either SJI or SJG as of January 1, 2020.

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Standards Not Yet Effective:

Standard

Description

Date of Adoption

Application

Effect on the Financial Statements of SJI and SJG

ASU 2018-14:
Changes to the Disclosure Requirements for Defined Benefit Plans

This ASU eliminates requirements for certain disclosures such as the amount and timing of plan assets expected to be returned to the employer and the amount of future annual benefits covered by insurance contracts. The standard adds new disclosures that provide information relating to the weighted-average interest crediting rate for cash balance plans and other plans with promised interest crediting rates and an explanation for significant gains or losses related to changes in the benefit obligations for the period.

Annual disclosures for the fiscal year ending December 31, 2020

Retrospective

Adoption of this guidance will not have a material impact on the financial statements of SJI and SJG. Management is currently determining the impact that adoption of this guidance will have on the SJI and SJG disclosures within the notes to the financial statements.

ASU 2019-12:
Simplifying the Accounting for Income Taxes

This ASU removes exceptions related to the incremental approach for intraperiod tax allocation, the requirement to recognize a deferred tax liability for changes in ownership of a foreign subsidiary or equity method investment, and the general methodology for calculating income taxes in an interim period when the year-to-date loss exceeds the anticipated loss. The guidance also adds requirements to reflect changes to tax laws or rates in the annual effective tax rate computation in the interim period in which the changes were enacted, to recognize franchise or other similar taxes that are partially based on income as an income-based tax and any incremental amounts as non-income-based tax, and to evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction.

January 1, 2021; early adoption permitted

Modified retrospective for amendments related to changes in ownership of a foreign subsidiary or equity method investment; Modified retrospective or retrospective for amendments related to taxes partially based on income; Prospective for all other amendments

Management is currently determining the impact that adoption of this guidance will have on the financial statements of SJI and SJG.

ASU 2020-01:

Clarifying the Interactions between Topic 321 (Investments - Equity Securities), Topic 323 (Investments - Equity Method and Joint Ventures), and Topic 815 (Derivatives and Hedging)

The amendments in this ASU clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. The amendments in this ASU also clarify that for the purposes of applying Topic 815, an entity should not consider whether, upon the settlement of a forward contract or exercise of a purchased option, individually or with existing investments, the underlying securities would be accounted for under the equity method in Topic 323 or the fair value option in accordance with the financial instruments guidance in Topic 825.

January 1, 2021; early adoption permitted

Prospective

Management is currently determining the impact that adoption of this guidance will have on the financial statements of SJI and SJG.

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ASU 2020-04:

Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting

The amendments in this ASU provide various optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship.

March 12, 2020 through December 31, 2022

An entity may elect to apply the amendments for contract modifications by Topic or Industry Subtopic as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued.

Prospective for contract modifications and hedging relationships. Once elected for a Topic or an Industry Subtopic, the amendments in this Update must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic.

Management is currently determining the impact that adoption of this guidance will have on the financial statements of SJI and SJG. Management is also evaluating timing of adoption.

ASU 2020-06:

Accounting for Convertible Instruments and Contracts in an Entity's Own Equity

The amendments in this ASU simplify the accounting for convertible instruments by removing certain separation models in Subtopic 470-20. Under the amendments, embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost and a convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost, as long as no other features require bifurcation and recognition as derivatives. The amendments also add new convertible instrument disclosure requirements. Additionally, the amendments in this ASU remove certain conditions from the settlement guidance within the derivative scope exception guidance contained in Subtopic 815-40 and further clarify the derivative scope exception guidance. Finally, the amendments in this ASU align the diluted EPS calculation for convertible instruments by requiring that an entity use the if-converted method instead of the treasury stock method when calculated diluted EPS for convertible instruments.

January 1, 2022; early adoption permitted, but not before January 1, 2021

Retrospective or Modified Retrospective

Management is currently determining the impact that adoption of this guidance will have on the financial statements of SJI and SJG.

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2. STOCK-BASED COMPENSATION PLAN:

Under SJI's 2015 Omnibus Equity Compensation Plan (Plan), shares may be issued to SJI’s officers (Officers), non-employee directors (Directors) and other key employees. No options were granted or outstanding during the nine months ended September 30, 2020 and 2019. No stock appreciation rights have been issued under the Plan. During the nine months ended September 30, 2020 and 2019, SJI granted 225,278 and 184,791 total restricted shares, respectively, to Officers and other key employees under the Plan.

SJI grants time-based shares of restricted stock, one-third of which vest annually over a three-year period and which are limited to a 100% payout. The vesting and payout of time-based shares of restricted stock is solely contingent upon the service requirement being met in years one, two, and three of the grant. During the nine months ended September 30, 2020 and 2019, Officers and other key employees were granted 105,451 and 88,550 shares of time-based restricted stock, respectively, which are included in the total restricted shares noted above.

Performance-based restricted shares vest over a three-year period and are subject to SJI achieving certain market and earnings-based performance targets, which can cause the actual amount of shares that ultimately vest to range from 0% to 200% of the original shares granted. During the nine months ended September 30, 2020 and 2019, Officers and other key employees were granted 119,827 and 96,241 shares of performance-based restricted stock, respectively, which are included in the total restricted shares noted above.

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

Earnings-based performance targets include pre-defined EGR and ROE goals to measure performance. Performance targets include pre-defined CEGR for SJI. As EGR-based, ROE-based and CEGR-based grants are contingent upon performance and service conditions, SJI is required to measure and recognize stock-based compensation expense based on the fair value at the date of grant over the requisite three-year period of each award. The fair value is measured as the market price at the date of grant. The initial accruals of compensation expense are based on the estimated number of shares expected to vest, assuming the requisite service is rendered and probable outcome of the performance condition is achieved. That estimate is revised if subsequent information indicates that the actual number of shares is likely to differ from previous estimates. Compensation expense is ultimately adjusted based on the actual achievement of service and performance targets.

During the nine months ended September 30, 2020 and 2019, SJI granted 38,456 and 30,961 restricted shares, respectively, to Directors. Shares issued to Directors vest over twelve months and contain no performance conditions. As a result, 100% of the shares granted generally vest.

The following table summarizes the nonvested restricted stock awards outstanding for SJI at September 30, 2020 and the assumptions used to estimate the fair value of the awards:


	Grants	Shares Outstanding	Fair Value Per Share		Expected Volatility		Risk-Free Interest Rate
Officers & Key Employees -	2018 - TSR	48,304	$	31.05	21.9	%	2.00	%
	2018 - CEGR, Time	63,389	$	31.23	N/A		N/A
	2019 - TSR	36,642	$	32.88	23.2	%	2.40	%
	2019 - CEGR, Time	101,982	$	31.38	N/A		N/A
	2020 - TSR	46,752	$	25.51	34.8	%	0.21	%
	2020 - CEGR, Time	178,526	$	25.19	N/A		N/A

Directors -	2020	38,456	$	32.07	N/A		N/A

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

The following table summarizes the total stock-based compensation cost to SJI for the three and nine months ended September 30, 2020 and 2019 (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Officers & Key Employees	$	1,220	$	1,071	$	3,671	$	3,355
Directors	302		209		899		613
Total Cost	1,522		1,280		4,570		3,968

Capitalized	(12)		(119)		(35)		(153)
Net Expense	$	1,510	$	1,161	$	4,535	$	3,815

The table above does not reflect the reversal of approximately $1.3 million in 2020 of previously recorded costs associated with TSR and CEGR-based grants for which performance goals were not met.

As of September 30, 2020, there was $7.0 million of total unrecognized compensation cost related to nonvested stock-based compensation awards granted under the Plan. That cost is expected to be recognized over a weighted average period of 1.8 years.

The following table summarizes information regarding restricted stock award activity for SJI during the nine months ended September 30, 2020, excluding accrued dividend equivalents:


	Officers and Other Key Employees	Directors	Weighted Average Fair Value
Nonvested Shares Outstanding, January 1, 2020	402,146	30,961	$	31.50
Granted	225,278	38,456	$	26.32
Cancelled/Forfeited	(14,867)	—	$	31.48
Vested*	(136,963)	(30,961)	$	31.49
Nonvested Shares Outstanding, September 30, 2020	475,594	38,456	$	28.84

*Earnings and performance-based targets during the three-year vesting periods were not attained for the 2017 Officer and other key employee grants that vested in the first quarter of 2020. As a result, no shares were awarded in 2020 associated with the 2017 TSR and CEGR-based grants.

The targets for the time-based grants were met. As a result, during the nine months ended September 30, 2020, SJI awarded 72,470 shares to its Officers and other key employees at a market value of $2.1 million. During the nine months ended September 30, 2019, SJI awarded 125,288 shares at a market value of $3.7 million. These awarded amounts for 2020 and 2019 include awards for previously deferred shares that were paid during the nine month periods.

During the nine months ended September 30, 2020 and 2019, SJI also awarded 30,961 and 26,416 shares to its Directors at a market value of $0.8 million for both periods.

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

SJG - Officers and other key employees of SJG participate in the stock-based compensation plans of SJI. During the nine months ended September 30, 2020 and 2019, SJG officers and other key employees were granted 7,902 and 6,095 shares of SJI restricted stock, respectively, which had an immaterial impact to SJG's financial statements for both the nine months ended September 30, 2020 and 2019.

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

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

PennEast - Midstream has a 20% investment in PennEast. SJG and ETG are each parties to a precedent capacity agreement with PennEast. The following events have occurred with respect to PennEast in recent months:

•On September 10, 2019, the U.S. Court of Appeals for the Third Circuit ruled that PennEast does not have eminent domain authority over NJ state-owned lands. A Petition for Rehearing En Banc was denied by the U.S. Court of Appeals for the Third Circuit on November 5, 2019.

•On October 8, 2019, the NJDEP denied and closed PennEast’s application for several permits without prejudice, citing the Third Circuit decision. On October 11, 2019, PennEast submitted a letter to the NJDEP objecting to its position that the application is administratively incomplete. PennEast's objections were rejected by the NJDEP on November 18, 2019.

•In December 2019, PennEast asked the FERC for a two-year extension to construct the pipeline.

•On January 30, 2020, the FERC voted to approve PennEast’s petition for a declaratory order and expedited action requesting that the body issue an order interpreting the Natural Gas Act’s eminent domain authority. On the same day, PennEast filed an amendment with FERC to construct PennEast in two phases. Phase one consists of construction of a pipeline in Pennsylvania from the eastern Marcellus Shale region in Luzerne County that would terminate in Northampton County. Phase two includes construction of the remaining original certificated route in Pennsylvania and New Jersey. Construction is expected to begin following approval by FERC of the phased approach and receipt of any remaining governmental and regulatory permits.

•On February 18, 2020, PennEast filed a Petition for a Writ of Certiorari with the Supreme Court of the United States ("petition") to review the September 10, 2019 Third Circuit decision.

•On February 20, 2020, FERC granted PennEast’s request for a two-year extension to complete the construction of the pipeline.

•On April 14, 2020, The U.S. Supreme Court ordered the state of New Jersey to respond to PennEast's petition. The court directed NJ respondents, including state agencies and the NJ Conservation Foundation, to answer the petition by PennEast. The state responded on June 2.

•On June 25, 2020, the U.S. Supreme Court examined the PennEast case to determine if it would review the decision by the U.S. Court of Appeals for the Third Circuit.

•On June 29, 2020, the U.S. Supreme Court invited the U.S. Solicitor General to file a brief expressing the views of the United States.

PennEast management remains committed to pursuing the project and intends to pursue all available options. SJI, along with the other partners, are intending to contribute to the project.

Our investment in PennEast totaled $89.4 million and $82.7 million as of September 30, 2020 and December 31, 2019, respectively. At September 30, 2020, the Company evaluated its investment in PennEast for impairment and determined there is not a triggering event for other-than-temporary impairment, and has not recorded any impairment charge to reduce the carrying value of our investment. Our evaluation considered that the pending legal proceedings are ongoing, and the intent is to move forward with all potential legal proceedings and other options available. Our evaluation also considered the current economic conditions as a result of COVID-19, noting that the timelines, potential options and legal proceedings have not been impacted. However, it is reasonably possible that the legal proceedings could have unfavorable outcomes, or there could be other future unfavorable developments, such as a reduced likelihood of success from development options and legal outcomes, estimated increases in construction costs, increases in the discount rate, or further significant delays, or PennEast could conclude that the project is not viable or does not go forward as actions progress. These could impact our conclusions with respect to other-than-temporary impairment and may require that we recognize an impairment charge of up to our recorded investment in the project,

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net of any cash and working capital. We will continue to monitor and update this analysis as required. Different assumptions could affect the timing and amount of any charge recorded in a period.

Energenic - Marina and a joint venture partner formed Energenic, in which Marina has a 50% equity interest. Energenic developed and operated on-site, self-contained, energy-related projects. Energenic currently does not have any projects that are operational.

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

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

EnergyMark - SJE has a 33% investment in EnergyMark, an entity that acquires and markets natural gas to retail end users.

SJRG had net sales to EnergyMark of $1.8 million and $3.4 million for the three months ended September 30, 2020 and 2019, respectively and $10.4 million and $22.6 million for the nine months ended September 30, 2020 and 2019, respectively.

Affiliate Transactions - During the first nine months of 2020, SJI had net repayments from unconsolidated affiliates of $1.2 million. During the first nine months of 2019, SJI made investments in and advances to unconsolidated affiliates of $6.0 million. As of September 30, 2020 and December 31, 2019, the outstanding balance of Notes Receivable – Affiliate was $14.9 million and $18.1 million, respectively. These Notes Receivable-Affiliates balances are broken out as follows:

•As of September 30, 2020 and December 31, 2019, $12.4 million and $13.1 million, respectively, of notes are related to Energenic; such notes are secured by Energenic's cogeneration assets for energy service projects, accrue interest at 7.5% and are to be repaid through 2025. Losses incurred in the current periods at Energenic are offset against the Notes Receivable – Affiliate balance as our investment in the Energenic affiliate has been reduced to zero as a result of prior period losses.

•As of September 30, 2020 and December 31, 2019, the remaining $2.5 million and $5.0 million, respectively, of these notes are unsecured and accrue interest at variable rates.

SJI holds significant variable interests in these entities but is not the primary beneficiary. Consequently, these entities are accounted for under the equity method because SJI does not have both (a) the power to direct the activities of the entity that most significantly impact the entity’s economic performance and (b) the obligation to absorb losses of the entity that could potentially be significant to the entity or the right to receive benefits from the entity that could potentially be significant to the entity. As of September 30, 2020 and December 31, 2019, SJI had a net asset of approximately $92.9 million and $87.1 million, respectively, included in Investment in Affiliates on the condensed consolidated balance sheets related to equity method investees. SJI’s maximum exposure to loss from these entities as of September 30, 2020 and December 31, 2019 is limited to its combined investments in these entities and the Notes Receivable-Affiliate in the aggregate amount of $107.8 million and $105.2 million, respectively.

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

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

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Summarized operating results of the discontinued operations for the three and nine months ended September 30, 2020 and 2019, were (in thousands, except per share amounts):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Loss before Income Taxes:
Sand Mining	$	3	$	(16)	$	(32)	$	(60)
Fuel Oil	(76)		(59)		(193)		(212)
Income Tax Benefits	15		16		47		56
Loss from Discontinued Operations — Net	$	(58)	$	(59)	$	(178)	$	(216)
Earnings Per Common Share from
Discontinued Operations — Net:
Basic and Diluted	$	—	$	—	$	—	$	—

SJG RELATED-PARTY TRANSACTIONS - There have been no significant changes in the nature of SJG’s related-party transactions since December 31, 2019. See Note 3 to the Financial Statements in Item 8 of SJI's and SJG’s Form 10-K for the year ended December 31, 2019 for a detailed description of the related parties and their associated transactions.

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Operating Revenues/Affiliates:
SJRG	$	595	$	1,092	$	2,192	$	3,518
Marina	—		82		60		290
Other	20		20		59		60
Total Operating Revenue/Affiliates	$	615	$	1,194	$	2,311	$	3,868

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Costs of Sales/Affiliates (Excluding depreciation and amortization)
SJRG*	$	1,808	$	2,326	$	3,404	$	8,908

Operations Expense/Affiliates:
SJI	$	5,909	$	5,087	$	17,463	$	15,507
SJIU	743		630		2,616		1,971
Millennium	814		794		2,461		2,118
Other	453		340		1,335		6,790
Total Operations Expense/Affiliates	$	7,919	$	6,851	$	23,875	$	26,386

*These costs are included in SJG's Cost of Sales on the condensed statements of income/(loss). As discussed in Note 1 to the Consolidated Financial Statements in Item 8 of SJI’s and SJG's Annual Report on Form 10-K for the year ended December 31, 2019, revenues and expenses related to the energy trading activities of the wholesale energy operations at SJRG are presented on a net basis in Operating Revenues – Nonutility on the condensed consolidated income statement.

4. COMMON STOCK:

The following shares were issued and outstanding for SJI:


			2020
Beginning Balance, January 1			92,394,155
New Issuances During the Period:
ATM Equity Offering			8,122,283
Stock-Based Compensation Plan			71,474
Ending Balance, September 30			100,587,912

The par value ($1.25 per share) of stock issued was recorded in Common Stock and the net excess over par value was recorded in Premium on Common Stock, which shows an increase on the condensed consolidated balance sheets from December 31, 2019 to September 30, 2020 primarily due to the issuance of shares under the ATM equity offering.

There were 2,339,139 shares of SJG's common stock (par value $2.50 per share) outstanding as of September 30, 2020. SJG did not issue any new shares during the period. SJIU owns all of the outstanding common stock of SJG.

ATM EQUITY OFFERING - In April 2020, SJI entered into an ATM Equity Offering Sales Agreement (the "Sales Agreement") to sell, from time to time, shares of the Company’s common stock, par value $1.25 per share, having an aggregate sale price up to $200.0 million, through an “at-the-market” equity offering program. Pursuant to the Sales Agreement, the shares of common stock were to be offered and sold through any of the named sales agents in negotiated transactions or transactions that are deemed to be “at-the-market” offerings. In June 2020, 8,122,283 shares were sold pursuant to the Sales Agreement at an average market price of approximately $24.62 for total net proceeds of $198.0 million after deducting commissions and other general & administrative expenses. These sales exhausted the shares that were available for sale under the Sales Agreement. The Company is using the net proceeds from this offering for general corporate purposes.

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CONVERTIBLE UNITS - In 2018, SJI issued and sold 5,750,000 Equity Units, initially in the form of Corporate Units, which included 750,000 Corporate Units pursuant to the underwriters’ option. Each Corporate Unit has a stated amount of $50 and is comprised of (a) a purchase contract obligating the holder to purchase from the Company, and for the Company to sell to the holder for a price in cash of $50, on the purchase contract settlement date, or April 15, 2021, subject to earlier termination or settlement, a certain number of shares of common stock; and (b) a 1/20, or 5%, undivided beneficial ownership interest in $1,000 principal amount of SJI’s 2018 Series A 3.70% Remarketable Junior Subordinated Notes due 2031. SJI will pay the holder quarterly contract adjustment payments at a rate of 3.55% per year on the stated amount of $50 per Equity Unit, in respect of each purchase contract, subject to the Company's right to defer these payments. The net proceeds, after amortization of the underwriting discounts, are recorded as Long-Term Debt on the condensed consolidated balance sheets.

The convertible units consisted of the following (in thousands):


	September 30, 2020		December 31, 2019
Principal amount:
Principal (A)	$	287,500	$	287,500
Unamortized debt discount and issuance costs (A)	7,323		7,737
Net carrying amount	$	280,177	$	279,763
Carrying amount of the equity component (B)	$	—	$	—

(A) Included in the condensed consolidated balance sheets within Long-Term Debt.

(B) There is currently no equity portion.

During both the three months ended September 30, 2020 and 2019, the Company recognized approximately $0.1 million of amortization of debt discount and issuance costs prior to capitalization of interest, and $2.7 million of coupon interest expense, all of which was included in Interest Charges on the condensed consolidated statements of income/(loss). During both the nine months ended September 30, 2020 and 2019, the Company recognized approximately $0.4 million of amortization of debt discount and issuance costs prior to capitalization of interest, and $8.0 million of coupon interest expense, all of which was included in Interest Charges on the condensed consolidated statements of income/(loss). The effective interest rate was 4.0%.

SJI's EPS — SJI's Basic EPS is based on the weighted-average number of common shares outstanding. The incremental shares required for inclusion in the denominator for the diluted EPS calculation were 124,705 and 116,904 for the nine months ended September 30, 2020 and 2019, respectively. For the three months ended September 30, 2020 and 2019, incremental shares of 141,062 and 129,979, respectively, were not included in the denominator for the diluted EPS calculation because they would have an antidilutive effect on EPS. These additional shares relate to SJI's restricted stock as discussed in Note 2, along with the impact of the Equity Units discussed above, accounted for under the treasury stock method.

DRP — SJI offers a DRP which allows participating shareholders to purchase shares of SJI common stock by automatic reinvestment of dividends or optional purchases. SJI currently purchases shares on the open market to fund share purchases by DRP participants, and as a result SJI did not raise any equity capital through the DRP in 2019 or the first nine months of 2020. SJI does not intend to issue equity capital via the DRP during the remainder of 2020.

ADDITIONAL INVESTMENT BY SHAREHOLDER - SJG received $100.0 million and $109.5 million in equity infusions from SJI during the three and nine months ended September 30, 2020, respectively. There was no equity infusion during the three and nine months ended September 30, 2019. Future equity contributions will occur on an as-needed basis.

5. FINANCIAL INSTRUMENTS:

RESTRICTED INVESTMENTS — SJI and SJG maintain margin accounts with certain counterparties to support their risk management activities associated with hedging commodities. The balances required to be held in these margin accounts increase as the net value of the outstanding energy-related contracts with the respective counterparties decrease.

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The following table provides SJI's (including SJG) and SJG's balances of Restricted Investments as well as presents a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that total to the amounts shown in the condensed consolidated statements of cash flows (in thousands):


	As of September 30, 2020
Balance Sheet Line Item	SJI		SJG
Cash and Cash Equivalents	$	10,103	$	1,528
Restricted Investments	199		199
Total cash, cash equivalents and restricted cash shown in the statement of cash flows	$	10,302	$	1,727


	As of December 31, 2019
Balance Sheet Line Item	SJI		SJG
Cash and Cash Equivalents	$	6,417	$	2,678
Restricted Investments	21,964		4,073
Total cash, cash equivalents and restricted cash shown in the statement of cash flows	$	28,381	$	6,751

The carrying amounts of the Restricted Investments for both SJI and SJG approximate their fair values at September 30, 2020 and December 31, 2019, which would be included in Level 1 of the fair value hierarchy (see Note 13).

ALLOWANCE FOR CREDIT LOSSES - Accounts receivable are recorded gross on the condensed consolidated balance sheets with allowance for credit losses shown as a separate line item titled Provision for Uncollectibles. A summary of changes in the allowance for credit losses is as follows (in thousands):


	Three Months Ended September 30, 2020		Nine Months Ended September 30, 2020
SJI (includes SJG and all other consolidated subsidiaries):
Balance at beginning of period	$	30,410	$	19,829
Provision for expected credit losses	5,416		19,994
Recoveries of accounts previously written off	126		688
Uncollectible accounts written off	(2,935)		(7,494)
Balance at end of period	$	33,017	$	33,017

SJG:
Balance at beginning of period	$	14,472	$	14,032
Provision for expected credit losses	4,783		8,255
Recoveries of accounts previously written off	4		295
Uncollectible accounts written off	(2,422)		(5,745)
Balance at end of period	$	16,837	$	16,837

As discussed in Note 8, as a result of a July 2, 2020 BPU Order, during the second quarter 2020, ETG and SJG deferred amounts of incremental costs related to the COVID-19 pandemic as regulatory assets. As of September 30, 2020, the amounts recorded within this regulatory asset related to the allowance for credit losses are approximately $9.3 million and $3.8 million for ETG and SJG, respectively, and are included in the provision for expected credit losses shown in the tables above.

NOTES RECEIVABLE-AFFILIATES - See Note 3.

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LONG-TERM RECEIVABLES - SJG provides financing to customers for the purpose of attracting conversions to natural gas heating systems from competing fuel sources. The terms of these loans call for customers to make monthly payments over periods ranging from five to ten years, with no interest. The carrying amounts of such loans were $2.8 million and $3.7 million as of September 30, 2020 and December 31, 2019, respectively. The current portion of these receivables is reflected in Accounts Receivable and the non-current portion is reflected in Contract Receivables on the condensed consolidated balance sheets. The carrying amounts noted above are net of unamortized discounts resulting from imputed interest in the amount of $0.4 million and $0.5 million as of September 30, 2020 and December 31, 2019, respectively. The annualized amortization to interest is not material to SJI’s or SJG's condensed consolidated financial statements. In addition, as part of the EET/EEP programs, SJG provides funding to customers to upgrade equipment for the purpose of promoting energy efficiency. The terms of these loans range from two to ten years. The carrying amounts of such loans were $42.8 million and $33.5 million as of September 30, 2020 and December 31, 2019, respectively. On the condensed consolidated balance sheets of SJI and SJG, the current portion of EET/EEP loans receivable totaled $5.9 million and $4.6 million and is reflected in Accounts Receivable as of September 30, 2020 and December 31, 2019, respectively, and the non-current portion totaled $36.9 million and $28.9 million and is reflected in Contract Receivables as of September 30, 2020 and December 31, 2019, respectively. Given the risk of uncollectibility is low due to the oversight and preapproval required by the BPU, no allowance for credit loss has been recognized. There have been no impacts to this risk of uncollectibility as a result of COVID-19.

The carrying amounts of these receivables approximate their fair value at September 30, 2020 and December 31, 2019, which would be included in Level 2 of the fair value hierarchy (see Note 13).

CREDIT RISK - As of September 30, 2020, SJI had approximately $5.7 million, or 12.2%, of the current and noncurrent Derivatives – Energy Related Assets transacted with two counterparties. These counterparties are investment-grade rated.

FINANCIAL INSTRUMENTS NOT CARRIED AT FAIR VALUE - The fair value of a financial instrument is the market price to sell an asset or transfer a liability at the measurement date. The carrying amounts of SJI's and SJG's financial instruments approximate their fair values at September 30, 2020 and December 31, 2019, except as noted below (in thousands):


	September 30, 2020		December 31, 2019
SJI (includes SJG and all consolidated entities)
Estimated fair values of long-term debt	$	2,836,407	$	2,734,745

Carrying amounts of long-term debt, including current maturities	$	2,674,441	$	2,537,995
Net of:
Unamortized debt issuance costs	$	29,168	$	25,547
Unamortized debt discounts	$	5,246	$	5,313

SJG
Estimated fair values of long-term debt	$	1,035,948	$	915,248

Carrying amounts of long-term debt, including current maturities	$	952,116	$	965,100
Net of:
Unamortized debt issuance costs	$	9,239	$	6,284

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

OTHER FINANCIAL INSTRUMENTS - The carrying amounts of SJI's and SJG's other financial instruments approximate their fair values at September 30, 2020 and December 31, 2019.

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6. SEGMENTS OF BUSINESS:

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

•SJG utility operations consist primarily of natural gas distribution to residential, commercial and industrial customers in southern New Jersey.

•ETG utility operations consist of natural gas distribution to residential, commercial and industrial customers in northern and central New Jersey.

•ELK utility operations consist of natural gas distribution to residential, commercial and industrial customers in Maryland. As discussed in Note 1, on July 31, 2020, SJI sold ELK to a third-party buyer.

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

•Retail electric operations at SJE consist of electricity acquisition and transportation to commercial, industrial and residential customers.

•On-site energy production consists of MTF and ACB, which were sold on February 18, 2020. This segment also includes other energy-related projects, including three legacy solar projects, one of which was sold during the three months ended March 31, 2020. Also included in this segment are the activities of ACLE, BCLE, SCLE and SXLE. Operations at BCLE, SCLE, and SXLE ceased during the second quarter of 2020. As of September 30, 2020, on-site energy production also includes newly acquired entities which own and operate solar-generation sites located in New Jersey, as well as the Catamaran joint venture, which owns Annadale. See Notes 1 and 17.

•Appliance service operations includes SJESP, which receives commissions on service contracts from a third party.

•Midstream was formed to invest in infrastructure and other midstream projects, including a current project to build a natural gas pipeline in Pennsylvania and New Jersey.

•Corporate & Services segment includes costs related to acquisitions and divestitures, along with other unallocated costs. Also included in this segment are the results of SJEI.

•Intersegment represents intercompany transactions among the above SJI consolidated entities.

SJI groups its utility businesses under its wholly-owned subsidiary SJIU. This group consists of gas utility operations of SJG and ETG and, until its sale, ELK. SJI groups its nonutility operations into separate categories: Energy Group, Energy Services, Midstream and Corporate & Services. Energy Group includes wholesale energy and retail electric operations. Energy Services includes on-site energy production and appliance service operations. The accounting policies of the segments are the same as those described in the summary of significant accounting policies.

Information about SJI’s operations in different reportable operating segments is presented below (in thousands). The results for AEP are included in the Corporate & Services segment from the acquisition date of August 31, 2019, and the results for EnerConnex are included in the Corporate & Services segment for all periods, based on the ownership interest levels applicable within each period (see Notes 1 and 17). Further, the results and balances for On-Site Energy Production are impacted by the sales of solar assets and the sale of MTF and ACB (see Note 1). The identifiable assets balance for On-Site Energy Production as of September 30, 2020 is also impacted by the newly acquired entities (see Notes 1 and 17).

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	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Operating Revenues:
SJI Utilities:
SJG Utility Operations	$	66,190	$	62,039	$	394,066	$	396,505
ETG Utility Operations	37,503		30,619		239,503		215,647
ELK Utility Operations	285		892		4,792		5,210
Subtotal SJI Utilities	103,978		93,550		638,361		617,362
Energy Group:
Wholesale Energy Operations	143,338		135,856		373,308		452,346

Retail Electric Operations	7,692		22,395		29,874		65,617
Subtotal Energy Group	151,030		158,251		403,182		517,963
Energy Services:
On-Site Energy Production	6,317		11,980		15,459		38,098
Appliance Service Operations	491		514		1,485		1,529
Subtotal Energy Services	6,808		12,494		16,944		39,627
Corporate and Services	11,488		10,252		38,116		31,438
Subtotal	273,304		274,547		1,096,603		1,206,390
Intersegment Sales	(11,755)		(13,344)		(40,978)		(40,955)
Total Operating Revenues	$	261,549	$	261,203	$	1,055,625	$	1,165,435

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	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Operating (Loss) Income:
SJI Utilities:
SJG Utility Operations	$	(6,080)	$	(8,319)	$	108,297	$	100,241
ETG Utility Operations	(3,163)		(5,112)		57,274		41,088
ELK Utility Operations	(374)		(197)		373		401
Subtotal SJI Utilities	(9,617)		(13,628)		165,944		141,730
Energy Group:
Wholesale Energy Operations	2,768		(8,371)		16,272		(13,263)

Retail Electric Operations	(842)		(3)		(2,512)		(3,972)
Subtotal Energy Group	1,926		(8,374)		13,760		(17,235)
Energy Services:
On-Site Energy Production	2,455		2,634		143		5,049
Appliance Service Operations	586		468		1,482		1,484
Subtotal Energy Services	3,041		3,102		1,625		6,533
Corporate and Services	(3,844)		(125)		(3,870)		(5,680)
Total Operating (Loss) Income	$	(8,494)	$	(19,025)	$	177,459	$	125,348

Depreciation and Amortization:
SJI Utilities:
SJG Utility Operations	$	25,762	$	23,564	$	76,216	$	69,349
ETG Utility Operations	10,391		7,461		30,370		20,932
ELK Utility Operations	52		158		354		383
Subtotal SJI Utilities	36,205		31,183		106,940		90,664
Energy Group:
Wholesale Energy Operations	14		22		44		70

Subtotal Energy Group	14		22		44		70
Energy Services:
On-Site Energy Production	30		1,248		36		3,756

Subtotal Energy Services	30		1,248		36		3,756
Corporate and Services	1,267		1,094		3,704		4,092
Total Depreciation and Amortization	$	37,516	$	33,547	$	110,724	$	98,582

Interest Charges:
SJI Utilities:
SJG Utility Operations	$	8,271	$	7,840	$	23,832	$	23,584
ETG Utility Operations	7,398		7,165		22,321		20,106
ELK Utility Operations	2		4		21		15
Subtotal SJI Utilities	15,671		15,009		46,174		43,705



On-Site Energy Production	277		2,097		2,974		6,520
Midstream	677		573		1,837		1,672
Corporate and Services	12,490		14,433		43,332		44,496
Subtotal	29,115		32,112		94,317		96,393
Intersegment Borrowings	(1,353)		(3,255)		(5,430)		(10,449)
Total Interest Charges	$	27,762	$	28,857	$	88,887	$	85,944

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	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Income Taxes:
SJI Utilities:
SJG Utility Operations	$	(3,293)	$	(3,747)	$	23,157	$	20,620
ETG Utility Operations	(2,475)		(2,065)		7,869		4,028
ELK Utility Operations	(4)		(54)		186		100
Subtotal SJI Utilities	(5,772)		(5,866)		31,212		24,748
Energy Group:
Wholesale Energy Operations	858		(2,130)		4,583		(3,088)

Retail Electric Operations	(233)		4		(478)		(814)
Subtotal Energy Group	625		(2,126)		4,105		(3,902)
Energy Services:
On-Site Energy Production	(11,191)		242		(10,897)		(115)
Appliance Service Operations	116		142		461		445
Subtotal Energy Services	(11,075)		384		(10,436)		330
Midstream	(58)		(18)		(174)		(83)
Corporate and Services	(3,187)		(3,299)		(10,982)		(11,715)
Total Income Taxes	$	(19,467)	$	(10,925)	$	13,725	$	9,378

Property Additions:
SJI Utilities:
SJG Utility Operations	$	73,481	$	73,059	$	181,440	$	195,621
ETG Utility Operations	45,452		50,426		149,578		142,388
ELK Utility Operations	112		468		971		2,096
Subtotal SJI Utilities	119,045		123,953		331,989		340,105
Energy Group:
Wholesale Energy Operations	2		1		2		1

Subtotal Energy Group	2		1		2		1
Energy Services:
On-Site Energy Production	59,866		—		62,751		164
Subtotal Energy Services	59,866		—		62,751		164
Midstream	29		16		115		35
Corporate and Services	715		368		2,076		954
Total Property Additions	$	179,657	$	124,338	$	396,933	$	341,259

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	September 30, 2020		December 31, 2019
Identifiable Assets:
SJI Utilities:
SJG Utility Operations	$	3,383,449	$	3,348,555
ETG Utility Operations	2,482,155		2,458,846
ELK Utility Operations	—		21,723
Subtotal SJI Utilities	5,865,604		5,829,124
Energy Group:
Wholesale Energy Operations	126,973		195,576

Retail Electric Operations	21,176		30,351
Subtotal Energy Group	148,149		225,927
Energy Services:
On-Site Energy Production	113,050		154,021

Subtotal Energy Services	113,050		154,021
Midstream	90,459		83,517
Discontinued Operations	1,790		1,766
Corporate and Services	249,943		403,170
Intersegment Assets	(160,072)		(332,185)
Total Identifiable Assets	$	6,308,923	$	6,365,340

7. RATES AND REGULATORY ACTIONS:

SJG and ETG are subject to the rules and regulations of the BPU. ELK is subject to the rules and regulations of the MPSC.

Except as described below, there have been no other significant regulatory actions or changes to the Utilities' rate structure since December 31, 2019. See Note 10 to the Consolidated Financial Statements in Item 8 of SJI's and SJG's Annual Report on Form 10-K for the year ended December 31, 2019.

SJG:

In the first quarter of 2020, the final rates were approved by the BPU on SJG's 2019-2020 annual BGSS, CIP and SBC/TIC filings. All were approved as previously requested. The BGSS and CIP approvals do not impact SJG's earnings. They represent changes in the cash requirements of SJG corresponding to cost changes and/or previous over/under recoveries from ratepayers associated with each respective mechanism.

In May 2020, the BPU issued an Order resolving SJG’s 2019 Compliance Filing and 2019 Tax Act Rider petition, with a revised Rider H credit rate effective June 1, 2020. The terms of settlement include the following:

•The “Unprotected” EDIT balance of approximately $44.7 million will be refunded to customers over a 5 year period through the approved rider;

•The net “Protected” EDIT regulatory liability of $149.4 million (regulatory liability of $181.0 million partially offset by a regulatory asset of $31.6 million) will be refunded to customers through a proposed base rate adjustment in SJG’s next base rate case.

In June 2020, SJG filed its annual EET rate adjustment petition, requesting a $5.9 million increase in revenues to continue recovering the costs of, and the allowed return on, investments associated with its EEPs. The matter is currently pending BPU approval.

In July 2020, SJG filed its annual SBC petition, requesting a $5.5 million increase in revenues. The SBC is comprised of three sub-components, consisting of the RAC, CLEP and TIC. This matter is currently pending BPU approval.

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In September 2020, SJG filed a petition seeking authorization to implement new EEPs and to recover costs associated with the EEPs through the existing cost recovery mechanism, the EET. SJG requested to implement the new EEPs commencing July 1, 2021. SJG’s petition includes a request to recover, in the first year, $6.3 million in revenues to continue recovering the costs of, and the allowed return on, investments associated with prior period EEPs, along with investments associated with the new EEPs. This matter is currently pending BPU approval.

In September 2020, the BPU approved the following:

•A $59.4 million decrease in BGSS annual revenues and a $27.4 million increase in CIP annual revenues, both effective October 1, 2020, on a provisional basis; these rate adjustments are associated with our June 2020 annual filings for the 2020-2021 BGSS/CIP year, which runs from October 1, 2020 through September 30, 2021. Our BGSS filing included consideration of $22.9 million of costs requested to be recovered over a two-year period related to a previous dispute on a long-term gas supply contract that was settled during 2019. The provisional rate adjustments effective October 1, 2020, include the temporary removal of these amounts to allow for a further review of these costs during the course of this proceeding which we expect to be completed during the second quarter of 2021.

•The settlement of SJG's rate case petition, resulting in an increase in annual revenues from base rates effective October 1, 2020 of $39.5 million, including an approved overall rate of return of 6.9%, with a return on equity of 9.6% and a common equity component of 54.0%. Also included was recovery of $10.1 million in costs related to a previous project to re-power the former BL England facility with natural gas (see Note 8). These costs are to be amortized over a five year period commencing October 1, 2020.

•An increase in annual revenues from base rates of $6.4 million to reflect the roll-in of $58.8 million of AIRP II in service investments for the period July 2019 through June 2020, effective October 1, 2020.

•An increase in annual revenues from base rates of $3.7 million to reflect the roll-in of $33.3 million of SHARP II in service investments for the period July 2019 through June 2020, effective October 1, 2020.

•The Statewide USF annual 2020-2021 budget for all the State’s gas utilities, which included a decrease of approximately $0.3 million in SJG’s USF recoveries, effective October 1, 2020.

•A rate adjustment to SJG’s Tax Act Rider to refund approximately $14.9 million related to SJG’s unprotected EDIT. Additionally, as part of the approved settlement in its base rate case, SJG will refund an additional $1.9 million associated with the accumulated balance of the amortization of the protected excess ADIT during the period January 1, 2018 through June 30, 2019. Effective October 1, 2020, this amount will be refunded to customers through the Tax Act Rider H over its remaining three-year term.

The BGSS, CIP and USF approvals discussed above do not impact SJG's earnings. They represent changes in the cash requirements of SJG corresponding to cost changes and/or previously over/under recoveries from ratepayers associated with each respective mechanism.

ETG:

In the first quarter of 2020, the final rates were approved by the BPU on ETG's 2019-2020 annual BGSS, RAC, EEP, WNC, CEP and OSMC filings, effective April 1, 2020. All were approved as requested with the exception of RAC (a final rate reflecting a $6.0 million increase in revenues compared to a request of $6.1 million) and EEP (a final rate reflecting a $0.9 million increase in revenues compared to a request of $1.0 million).

In February 2020, ETG entered into a Stipulation with the BPU and the New Jersey Division of Rate Counsel extending its EEP through June 2020 under the previously approved budget and from July 2020 through December 2021 at a total budget of approximately $4.2 million. The BPU issued an Order in February 2020 approving the Stipulation.

In April 2020, ETG submitted its annual filing, pursuant to the June 2019 BPU approval of the IIP. In July 2020, ETG submitted an updated filing, reflecting rider rates to increase revenues by $6.8 million to reflect the roll-in of $63.3 million of IIP investments. The BPU issued an Order in September 2020 approving the updated IIP rates effective October 1, 2020.

In June 2020, ETG submitted its annual BGSS filing. During discovery, ETG updated the rate for a revised request of a $21.1 million decrease in revenues. The BPU issued an Order in September 2020 approving the revised rate decrease on a provisional basis effective October 1, 2020. The matter is currently pending final BPU approval.

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In June 2020, ETG along with the other New Jersey gas utilities filed jointly for a statewide USF rate decrease and a statewide Lifeline rate increase with effective dates of October 1, 2020 resulting in a reduction in the combined rates. The proposed revenue decrease for ETG is approximately $0.3 million. The BPU issued an Order in September 2020 approving the USF and Lifeline rates effective October 1, 2020.

In July 2020, ETG filed its annual RAC rate adjustment petition, requesting a $3.2 million decrease in revenues related to the recovery of costs of remediation. This matter is currently pending BPU approval.

In July 2020, ETG filed its annual WNC/CEP/OSMC rate adjustment petition, requesting an $8.5 million increase in revenues to recover costs associated with these riders. The BPU issued an Order in September 2020 approving the rates on a provisional basis effective October 1, 2020. This matter is currently pending final BPU approval.

In July 2020, ETG filed its annual EEP rate adjustment petition, requesting a $0.2 million decrease in revenues related to the recovery of costs of, and the allowed return on, investments associated with its EEPs. This matter is currently pending BPU approval.

In September 2020, ETG filed to expand its EEPs for three years with proposed investments totaling approximately $100.0 million. ETG proposed a rate adjustment beginning in July 2021, which would initially increase annual revenues by $3.7 million. ETG also proposed to establish a CIP, similar to SJG’s CIP, which eliminates the link between usage and margin and includes a weather component. This matter is currently pending BPU approval.

The BGSS, USF, Lifeline, RAC, WNC, CEP and OSMC approvals discussed above do not impact ETG's earnings. They represent changes in the cash requirements of ETG corresponding to cost changes and/or previously over/under recoveries from ratepayers associated with each respective mechanism.

ELK:

As discussed in Note 1, in December 2019, the Company announced it had entered into an agreement to sell ELK to a third-party buyer. This transaction was approved by the MPSC on June 29, 2020. This transaction closed on July 31, 2020 (see Note 1).

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8. REGULATORY ASSETS AND REGULATORY LIABILITIES:

Except as described below, there have been no significant changes to the nature or balances of the Utilities' regulatory assets and liabilities since December 31, 2019, which are described in Note 11 to the Consolidated Financial Statements in Item 8 of SJI’s and SJG's Annual Report on Form 10-K for the year ended December 31, 2019.

The Utilities' Regulatory Assets as of September 30, 2020 and December 31, 2019 consisted of the following items (in thousands):


	September 30, 2020
	SJG		ETG		ELK		Total SJI
Environmental Remediation Costs:
Expended - Net	$	160,828	$	10,267	$	—	$	171,095
Liability for Future Expenditures	102,889		93,111		—		196,000
Insurance Recovery Receivables	—		(13,615)		—		(13,615)
Deferred ARO Costs	40,858		23,591		—		64,449
Deferred Pension Costs - Unrecognized Prior Service Cost	—		34,940		—		34,940
Deferred Pension and Other Postretirement Benefit Costs	72,010		1,825		—		73,835
Deferred Gas Costs - Net	19,222		—		—		19,222
CIP Receivable	16,242		—		—		16,242
SBC Receivable	2,665		—		—		2,665
Deferred Interest Rate Contracts	10,872		—		—		10,872
EET	16,810		—		—		16,810
Pipeline Supplier Service Charges	457		—		—		457
Pipeline Integrity Cost	5,837		—		—		5,837
AFUDC - Equity Related Deferrals	11,491		—		—		11,491
WNC	—		5,535		—		5,535
Other Regulatory Assets	25,889		18,000		—		43,889

Total Regulatory Assets	$	486,070	$	173,654	$	—	$	659,724

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	December 31, 2019
	SJG		ETG		ELK		Total SJI
Environmental Remediation Costs:
Expended - Net	$	156,279	$	16,955	$	—	$	173,234
Liability for Future Expenditures	131,262		101,083		—		232,345
Insurance Recovery Receivables	—		(20,423)		—		(20,423)
Deferred ARO Costs	36,515		18,108		—		54,623
Deferred Pension Costs - Unrecognized Prior Service Cost	—		37,378		—		37,378
Deferred Pension and Other Postretirement Benefit Costs	72,010		1,825		—		73,835
Deferred Gas Costs - Net	49,469		5,301		293		55,063

SBC Receivable	1,478		—		—		1,478
Deferred Interest Rate Contracts	7,856		—		—		7,856
EET	12,877		—		—		12,877
Pipeline Supplier Service Charges	525		—		—		525
Pipeline Integrity Cost	6,516		—		—		6,516
AFUDC - Equity Related Deferrals	10,712		—		—		10,712
WNC	—		—		231		231
Other Regulatory Assets	10,678		9,004		—		19,682

Total Regulatory Assets	$	496,177	$	169,231	$	524	$	665,932

Except where noted below, all regulatory assets are or are expected to be recovered through utility rate charges, as detailed in the following discussion. The Utilities are currently permitted to recover interest on Environmental Remediation Costs, SBC Receivable, EET and Pipeline Integrity Costs, while the other assets are being recovered without a return on investment.

ENVIRONMENTAL REMEDIATION COSTS - SJG and ETG have regulatory assets associated with environmental costs related to the cleanup of environmental sites. SJG has 12 sites where SJG or its predecessors previously operated gas manufacturing plants, while ETG is subject to environmental remediation liabilities associated with five former manufactured gas plant sites in New Jersey. "Environmental Remediation Cost: Expended - Net" represents what was actually spent to clean up the sites, less recoveries through the RAC and insurance carriers. These costs meet the deferral requirements of ASC 980, as the BPU allows SJG and ETG to recover such expenditures through the RAC. "Environmental Remediation Cost: Liability for Future Expenditures" relates to estimated future expenditures required to complete the remediation of these sites. SJG and ETG recorded this estimated amount as a regulatory asset with the corresponding current and noncurrent liabilities on the condensed consolidated balance sheets under the captions "Current Liabilities" (SJI and SJG), "Deferred Credits and Other Noncurrent Liabilities" (SJI) and "Regulatory and Other Noncurrent Liabilities" (SJG). The BPU allows SJG to recover the deferred costs over seven-year periods after they are incurred. Environmental remediation costs at ETG are recoverable from customers through the RAC approved by the BPU. "Insurance Recovery Receivables" represents the balance of an insurance settlement executed in the fourth quarter of 2019 with a third party. This settlement, which is expected to be received in installments through the end of 2021, will be returned to ETG's customers through the RAC. Of the original total of $20.4 million, $6.8 million was received by ETG in 2020.

DEFERRED GAS COSTS - NET - Over/under collections of gas costs are monitored through SJG's BGSS clause. Net under-collected gas costs are classified as a regulatory asset and net over-collected gas costs are classified as a regulatory liability. Derivative contracts used to hedge natural gas purchases are also included in the BGSS, subject to BPU approval (see Note 12). SJG's balance as of both September 30, 2020 and December 31, 2019 also includes $22.9 million of costs related to a previous pricing dispute on a long-term gas supply contract. We believe that the amount paid by SJG to the third party supplier to settle the pricing dispute reflects a gas cost that ultimately will be recovered from SJG's customers through adjusted rates through the BGSS clause and the matter is currently pending review by the BPU. The BGSS regulatory assets of SJI and SJG decreased from December 31, 2019 to September 30, 2020, primarily due to recoveries from customers exceeding the actual gas commodity costs, changes in valuations of hedged natural gas positions from prior periods and refunds from a third party gas supplier (see Note 1).

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DEFERRED ARO COSTS - The Utilities record AROs primarily related to the legal obligation to cut and cap gas distribution pipelines when taking those pipelines out of service. Deferred ARO costs represent the period to period passage of time (accretion) and the revision to cash flows originally estimated to settle the retirement obligation. The Deferred ARO costs regulatory asset increased from the prior year due to the revisions to the settlement timing, retirement costs and changes to inflation and discount rates used to measure the expected retirement costs. Corresponding changes are made to the ARO liability, thus having no impact on earnings.

CIP RECEIVABLE - The CIP tracking mechanism at SJG adjusts earnings when actual usage per customer experienced during the period varies from an established baseline usage per customer. Actual usage per customer was less than the established baseline during the first nine months of 2020, resulting in a regulatory asset at September 30, 2020 as compared to a regulatory liability at December 31, 2019. This is primarily the result of warmer than normal weather experienced in the region during the winter months.

WNC - The tariffs for ETG include a weather normalization clause that reduces customer bills when weather is colder than normal and increases customer bills when weather is warmer than normal. The overall change in ETG's weather normalization from a regulatory liability at December 31, 2019 to a regulatory asset at June 30, 2020 was due to timing of collections from customers and warmer than normal weather during the winter months.

OTHER REGULATORY ASSETS - Some of the assets included in Other Regulatory Assets are currently being recovered from ratepayers as approved by the BPU. Management believes the remaining deferred costs are probable of recovery from ratepayers through future utility rates. Included in Other Regulatory Assets for SJG is the impact of the ERIP on SJG employees, see Note 1 to the Consolidated Financial Statements in Item 8 of SJI’s and SJG's Annual Report on Form 10-K for the year ended December 31, 2019. The increase in Other Regulatory Assets for SJG is primarily due to a $10.1 million reclassification of costs from Utility Plant to Regulatory Assets on the condensed consolidated balance sheet related to a previous project to re-power the former BL England facility with natural gas. RC Cape May Holdings, LLC has communicated to SJG that it no longer intends to proceed with a project to re-power the former BL England facility with natural gas. As of March 2020, SJG had determined that the project under construction will be abandoned. SJG requested that the project costs spent to date be recovered as a regulatory asset within its rate case petition, which was approved by the BPU during the third quarter of 2020 (see Note 7).

On July 2, 2020, the BPU issued an Order authorizing New Jersey's regulated utilities to create a COVID-19-related regulatory asset by deferring on their books and records the prudently incurred incremental costs related to COVID-19 beginning on March 9, 2020 and continuing through September 30, 2021, or 60 days after the termination of the public health emergency, whichever is later. The Company will be required to file quarterly reports with the BPU, along with a petition of recovery of such incremental costs with the BPU by December 31, 2021 or within 60 days of the close of the tracking period, whichever is later. As of September 30, 2020, ETG and SJG deferred $9.3 million and $3.8 million, respectively, of incremental costs principally related to expected credit losses from uncollectibles as a result of the COVID-19 pandemic, specifically related to changes in payment patterns observed to date and consideration of macroeconomic factors. We have deemed these costs to be probable of recovery.

The Utilities Regulatory Liabilities as of September 30, 2020 and December 31, 2019 consisted of the following items (in thousands):


	September 30, 2020
	SJG		ETG		ELK		Total SJI
Excess Plant Removal Costs	$	12,849	$	37,648	$	—	$	50,497
Excess Deferred Taxes	240,453		114,839		—		355,292
Deferred Revenues - Net	—		15,106		—		15,106


Amounts to be Refunded to Customers	—		7,455		—		7,455
Other Regulatory Liabilities	—		589		—		589

Total Regulatory Liabilities	$	253,302	$	175,637	$	—	$	428,939

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	December 31, 2019
	SJG		ETG		ELK		Total SJI
Excess Plant Removal Costs	$	16,333	$	36,343	$	—	$	52,676
Excess Deferred Taxes	251,355		117,695		—		369,050
Deferred Revenues - Net	—		52		—		52
CIP Payable	6,794		—		—		6,794
WNC	—		2,684		—		2,684
Amounts to be Refunded to Customers	—		10,625		—		10,625
Other Regulatory Liabilities	—		1,037		—		1,037

Total Regulatory Liabilities	$	274,482	$	168,436	$	—	$	442,918

EXCESS DEFERRED TAXES - This liability is recognized as a result of Tax Reform enacted into law on December 22, 2017. The decrease in this liability from December 31, 2019 to September 30, 2020 is related to excess tax amounts returned to customers through customer billings. The Unprotected amount of excess deferred taxes will be returned to customers over a five year period. As part of the BPU approved settlement of its 2020 base rate case, SJG will amortize the Protected Excess ADIT liability and the Excess ADIT Asset NOL (see Note 7).

DEFERRED REVENUES - NET - Over/under collections of gas costs are monitored through SJG's and ETG's bill credit. Net under-collected gas costs are classified as a regulatory asset and net over-collected gas costs are classified as a regulatory liability. Derivative contracts used to hedge natural gas purchases are also included in the BGSS, subject to BPU approval. The regulatory liability as of September 30, 2020 is a result of over-collection and refunds from a third party gas supplier (see Note 1).

9. PENSION AND OTHER POSTRETIREMENT BENEFITS:

For the three and nine months ended September 30, 2020 and 2019, net periodic benefit cost related to the SJI employee and officer pension and other postretirement benefit plans consisted of the following components (in thousands):


	Pension Benefits
	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Service Cost	$	974	$	1,387	$	4,349	$	4,187
Interest Cost	3,862		4,307		11,388		12,971
Expected Return on Plan Assets	(5,569)		(5,077)		(16,473)		(15,213)
Amortizations:
Prior Service Cost	26		26		79		79
Actuarial Loss	2,647		2,398		8,077		7,195
Net Periodic Benefit Cost	1,940		3,041		7,420		9,219
Capitalized Benefit Cost	(410)		(454)		(1,470)		(1,423)
Deferred Benefit Cost	(377)		(516)		(1,193)		(1,710)
Total Net Periodic Benefit Expense	$	1,153	$	2,071	$	4,757	$	6,086

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	Other Postretirement Benefits
	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Service Cost	$	182	$	129	$	511	$	400
Interest Cost	560		729		1,775		2,163
Expected Return on Plan Assets	(1,345)		(1,147)		(4,036)		(3,428)
Amortizations:
Prior Service Cost	(180)		(144)		(468)		(432)
Actuarial Loss	255		292		640		876
Net Periodic Benefit Cost	(528)		(141)		(1,578)		(421)
Capitalized Benefit Cost	57		(115)		(157)		(270)
Deferred Benefit Cost	(90)		118		701		352
Total Net Periodic Benefit Expense	$	(561)	$	(138)	$	(1,034)	$	(339)

The Pension Benefits Net Periodic Benefit Cost incurred by SJG was approximately $1.6 million and $1.9 million of the totals presented in the table above for the three months ended September 30, 2020 and 2019, respectively, and $5.4 million and $6.3 million of the totals presented in the table above for the nine months ended September 30, 2020 and 2019, respectively. The weighted average expected long term rate of return on plan assets used to determine the net benefit cost was 7.25%.

The Other Postretirement Benefits Net Periodic Benefit Cost incurred by SJG was approximately $(0.1) million and $(0.1) million of the totals presented in the table above for the three months ended September 30, 2020 and 2019, respectively, and $(1.5) million and $(0.3) million of the totals presented in the table above for the nine months ended September 30, 2020 and 2019, respectively. The weighted average expected long term rate of return on plan assets used to determine the net benefit cost was 6.75%.

Capitalized benefit costs reflected in the table above relate to the Utilities' construction programs.

Companies with publicly traded equity securities that sponsor a postretirement benefit plan are required to fully recognize, as an asset or liability, the overfunded or underfunded status of its benefit plans and recognize changes in the funded status in the year in which the changes occur. Changes in funded status are generally reported in AOCL; however, since the Utilities recover all prudently incurred pension and postretirement benefit costs from their ratepayers, a significant portion of the changes resulting from the recording of additional liabilities under this requirement are reported as regulatory assets.

No contributions were made to the pension plans by either SJI or SJG during the nine months ended September 30, 2020 or 2019. SJI and SJG do not expect to make any contributions to the pension plans during the remainder of 2020; however, changes in future investment performance and discount rates may ultimately result in a contribution. Payments related to the unfunded SERP are expected to be approximately $3.7 million in 2020.

The plans include a qualified defined benefit, trusteed, pension plan covering most eligible employees. The qualified pension plan is funded in accordance with requirements of the ERISA. The Company also provides certain non-qualified defined benefit and defined contribution pension plans for a selected group of the Company's management and highly compensated employees. Benefits under these non-qualified pension plans are funded on a cash basis. In addition, the entities have a postretirement benefit plan, which provides certain medical care and life insurance benefits for eligible retired employees through a postretirement benefit plan.

See Note 12 to the Consolidated Financial Statements in Item 8 of SJI’s and SJG's Annual Report on Form 10-K for the year ended December 31, 2019 for additional information related to SJI’s and SJG's pension and other postretirement benefits.

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10. LINES OF CREDIT & SHORT-TERM BORROWINGS:

Credit facilities and available liquidity as of September 30, 2020 were as follows (in thousands):


Company	Total Facility		Usage			Available Liquidity		Expiration Date
SJI:
SJI Syndicated Revolving Credit Facility	$	500,000	$	199,300	(A)	$	300,700	August 2022


Term Loan Credit Agreement	150,000		150,000			—		March 2021

Total SJI	650,000		349,300			300,700

SJG:
Commercial Paper Program/Revolving Credit Facility	200,000		108,700		(B)	91,300		August 2022
Uncommitted Bank Line	10,000		—			10,000		September 2021 (D)

Total SJG	210,000		108,700			101,300

ETG/SJIU:
ETG/SJIU Revolving Credit Facility	200,000		150,400		(C)	49,600		April 2022

Total	$	1,060,000	$	608,400		$	451,600

(A) Includes letters of credit outstanding in the amount of $9.6 million, which is used to enable SJE to market retail electricity as well as for various construction and operating activities.

(B) Includes letters of credit outstanding in the amount of $0.8 million, which supports the remediation of environmental conditions at certain locations in SJG's service territory.

(D) SJG renewed this facility during the third quarter of 2020.

For SJI and SJG, the amount of usage shown in the table above, less the letters of credit noted in (A)-(C) above, equals the amounts recorded as Notes Payable on the respective condensed consolidated balance sheets as of September 30, 2020.

On March 26, 2020, SJI entered into an unsecured $150.0 million term loan agreement, which bears interest at variable rates. The maturity date of the term loan is March 25, 2021, and the loan is recorded in Notes Payable on the condensed consolidated balance sheets as of September 30, 2020. The proceeds of the loan were used for general corporate purposes.

See Note 14 for information related to amounts previously outstanding under revolving credit facilities and short-term loan arrangements.

SJI's Five Year Revolving Credit Agreement ("Credit Agreement") allows SJI to borrow in the form of revolving loans a total aggregate amount of $500.0 million. In addition, as part of the total $500.0 million extension of credit, the Credit Agreement provides for swingline loans (in an amount not to exceed an aggregate of $50.0 million) and letters of credit (in an amount not to exceed an aggregate of $200.0 million), each at the applicable interest rates specified in the Credit Agreement. Subject to certain conditions set forth in the Credit Agreement, the Company may increase the revolving credit facility up to a maximum aggregate amount of $100.0 million (for a total facility of up to $600.0 million), although no lender is obligated to increase its commitment.

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SJIU and ETG (as Borrowers) have a $200.0 million revolving credit agreement with several lenders. The revolving credit agreement provides for the extension of credit to the Borrowers in a total aggregate amount of $200.0 million, in the form of revolving loans up to a full amount of $200.0 million, swingline loans in an amount not to exceed an aggregate of $20.0 million and letters of credit in an amount not to exceed an aggregate of $50.0 million, each at the applicable interest rates specified in the revolving credit agreement. Subject to certain conditions set forth in the revolving credit agreement, the Borrowers may increase the revolving credit facility up to a maximum aggregate amount of $50.0 million (for a total revolving facility of up to $250.0 million). This facility contains one financial covenant, limiting the ratio of indebtedness to total capitalization (as defined in the credit agreement) of each Borrower to not more than 0.70 to 1, measured at the end of each fiscal quarter. SJIU and ETG were in compliance with this covenant at September 30, 2020.

The Utilities' (including SJG) facilities are restricted as to use and availability specifically to the respective Utilities; however, if necessary, the SJI facilities can also be used to support the liquidity needs of the Utilities. All committed facilities contain one financial covenant limiting the ratio of indebtedness to total capitalization of the applicable borrowers (as defined in the respective credit agreements), measured on a quarterly basis. SJI and the Utilities were in compliance with these covenants as of September 30, 2020. Borrowings under these credit facilities are at market rates.

The weighted average interest rate on these borrowings, which changes daily, were as follows:


	September 30, 2020		September 30, 2019
Weighted average interest rate on borrowings:
SJI (inclusive of SJG, ETG and SJIU)	1.26	%	3.00	%
SJG	0.23	%	2.39	%

Average borrowings and maximum amounts outstanding on these facilities were as follows (in thousands):


	Nine Months Ended September 30, 2020		Nine Months Ended September 30, 2019
Average borrowings outstanding, not including LOC:
SJI (inclusive of SJG, ETG and SJIU)	$	516.8	$	487.8
SJG	$	149.0	$	96.2

Maximum amounts outstanding:
SJI (inclusive of SJG, ETG and SJIU)	$	872.2	$	882.7
SJG	$	187.0	$	175.3

The SJI and the Utilities' (including SJG) principal credit facilities are provided by a syndicate of banks. The NPA for Senior Unsecured Notes issued by SJI, and the SJG credit facilities, contain a financial covenant limiting the ratio of indebtedness to total capitalization (as defined in the respective NPA or credit agreement) to not more than 0.70 to 1, measured at the end of each fiscal quarter. For SJI, the equity units are treated as equity (as opposed to how they are classified on the condensed consolidated balance sheet, as long-term debt) for purposes of the covenant calculation. SJI and the Utilities were in compliance with these covenants as of September 30, 2020.

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

11. COMMITMENTS AND CONTINGENCIES:

GUARANTEES — As of September 30, 2020, SJI had issued $10.5 million of parental guarantees on behalf of EnergyMark, an unconsolidated subsidiary. These guarantees generally expire within one year and were issued to enable the subsidiary to market retail natural gas.

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GAS SUPPLY CONTRACTS - In the normal course of business, SJG, SJRG and ETG have entered into long-term contracts for natural gas supplies, firm transportation and gas storage service. The transportation and storage service agreements with interstate pipeline suppliers were made under FERC-approved tariffs. SJG and ETG's cumulative obligation for gas supply-related demand charges and reservation fees paid to suppliers for these services averages approximately $6.0 million and $5.3 million per month, respectively, and is recovered on a current basis through the BGSS. SJRG's cumulative obligation for demand charges and reservation fees paid to suppliers for these services averages approximately $1.6 million per month. SJRG has also committed to purchase 738,250 dts/d of natural gas, from various suppliers, for terms ranging from 5 to 11 years at index-based prices.

ETG has an AMA with SJRG for transportation and storage capacity to meet natural gas demands. The AMA is in effect through March 31, 2022. It also requires SJRG to pay minimum annual fees of $4.25 million to ETG and includes tiered margin sharing levels between ETG and SJRG (see Note 1).

TSA - SJI had entered into a TSA with Southern Company Gas whereby the latter provided certain administrative and operational services. On March 16, 2020, the TSA between SJI and Southern Company Gas terminated. As of that date, Southern Company Gas no longer provides any administrative or operational services to ETG.

COLLECTIVE BARGAINING AGREEMENTS — Unionized personnel represent approximately 43% and 69% of SJI's and SJG's workforce at September 30, 2020, respectively. SJI has collective bargaining agreements with unions that represent these employees: IBEW Local 1293, IAM Local 76 and UWUA Local 424. SJG employees represented by the IBEW operate under a collective bargaining agreement that runs through February 2022. SJG's remaining unionized employees are represented by the IAM and operate under a collective bargaining agreement that runs through August 2021. ETG employees represented by the UWUA operate under a collective bargaining agreement that runs through November 2022.

STANDBY LETTERS OF CREDIT — See Note 10. In addition, SJG has provided $25.1 million of letters of credit under a separate facility outside of the revolving credit facility to support variable-rate demand bonds issued through the NJEDA to finance the expansion of SJG’s natural gas distribution system.

CONVERTIBLE UNITS - The Company has a contract obligating the holder of the units to purchase from the Company, and for the Company to sell to the holder for a price in cash of $50, a certain number of shares of common stock. See Note 4.

LITIGATION — SJI and SJG are subject to claims, actions and other legal proceedings arising in the ordinary course of business. Neither SJI nor SJG can make any assurance as to the outcome of any of these actions but, based on an analysis of these claims and consultation with outside counsel, we do not believe that any of these claims, other than described below, would be reasonably likely to have a material impact on the business or financial statements of SJI or SJG.

In August 2018, the State of New Jersey filed a civil enforcement action against SJG and several other current and former owners of certain property in Atlantic City, NJ alleging damage to the State's natural resources and seeking payment for damages to those natural resources, where SJG and its predecessors previously operated a manufactured gas plant. SJG is currently evaluating the merits of the State of New Jersey's allegations. At this time, SJG cannot reasonably estimate or provide an assessment of the claim or any assurance regarding its outcome.

Liabilities related to claims are accrued when the amount or range of amounts of probable settlement costs or other charges for these claims can be reasonably estimated. For matters other than the disputes noted above, SJI has accrued approximately $4.1 million and $3.1 million related to all claims in the aggregate as of September 30, 2020 and December 31, 2019, respectively, of which SJG has accrued approximately $1.1 million and $0.9 million as of September 30, 2020 and December 31, 2019, respectively.

ENVIRONMENTAL REMEDIATION COSTS — SJG incurred and recorded costs for environmental cleanup of 12 sites where SJG or its predecessors operated gas manufacturing plants. SJG stopped manufacturing gas in the 1950s. ETG is subject to environmental remediation liabilities associated with five former manufactured gas plant sites in New Jersey. These environmental remediation expenditures are recoverable from customers through rate mechanisms approved by the BPU (see Note 8). 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 (see Note 3). There have been no significant changes to the status of SJI’s environmental remediation efforts since December 31, 2019, as described in Note 15 to the Consolidated Financial Statements in Item 8 of SJI’s and SJG's Annual Report on Form 10-K for the year ended December 31, 2019.

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12. DERIVATIVE INSTRUMENTS:

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

As of September 30, 2020, SJI and SJG had outstanding derivative contracts as follows:


	SJI Consolidated	SJG
Derivative contracts intended to limit exposure to market risk to:
Expected future purchases of natural gas (in MMdts)	87.0	13.1
Expected future sales of natural gas (in MMdts)	101.5	0.7
Expected future purchases of electricity (in MMmWh)	0.1	—
Expected future sales of electricity (in MMmWh)	0.1	—

Basis and Index related net purchase (sale) contracts (in MMdts)	86.7	2.6

These contracts, which have not been designated as hedging instruments under GAAP, are measured at fair value and recorded in Derivatives - Energy Related Assets or Derivatives - Energy Related Liabilities on the condensed consolidated balance sheets of SJI and SJG. For SJE and SJRG contracts, the net unrealized pre-tax gains (losses) for these energy-related commodity contracts are included with realized gains (losses) in Operating Revenues – Nonutility on the condensed consolidated statements of income (loss) for SJI. These unrealized pre-tax (losses) were $(6.2) million for both the three months ended September 30, 2020 and 2019, and $(7.8) million and $(18.4) million for the nine months ended September 30, 2020 and 2019, respectively. For ETG's and SJG's contracts, the costs or benefits are recoverable through the BGSS clause, subject to BPU approval. As a result, the net unrealized pre-tax gains and losses for SJG and ETG energy-related commodity contracts are included with realized gains and losses in Regulatory Assets or Regulatory Liabilities on the condensed consolidated balance sheets of SJI (ETG and SJG) and SJG. As of September 30, 2020 and December 31, 2019, SJI had $11.4 million and $(4.0) million, respectively, and SJG had $5.7 million and $2.1 million, respectively, of unrealized gains (losses) included in its BGSS related to energy-related commodity contracts.

SJI, including SJG, has also entered into interest rate derivatives to mitigate exposure to increasing interest rates and the impact of those rates on cash flows of variable-rate debt. These interest rate derivatives are measured at fair value and recorded in Derivatives - Other on the condensed consolidated balance sheets. Any unrealized gains and losses on these derivatives are being recorded in earnings over the remaining life of the derivative.

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

As of September 30, 2020, SJI’s active interest rate swaps were as follows:


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

The unrealized gains and losses on interest rate derivatives that are not designated as cash flow hedges are included in Interest Charges in the condensed consolidated statements of income/(loss). However, for selected interest rate derivatives at SJG, management believes that, subject to BPU approval, the market value upon termination can be recovered in rates and, therefore, these unrealized losses have been included in Other Regulatory Assets in the condensed consolidated balance sheets.

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The fair values of all derivative instruments, as reflected in the condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019, are as follows (in thousands):


SJI (includes SJG and all other consolidated subsidiaries):
Derivatives not designated as hedging instruments under GAAP	September 30, 2020				December 31, 2019
	Assets		Liabilities		Assets		Liabilities
Energy-related commodity contracts:
Derivatives - Energy Related - Current	$	36,541	$	25,005	$	52,892	$	41,965
Derivatives - Energy Related - Non-Current	10,407		4,452		7,243		8,206
Interest rate contracts:
Derivatives - Other - Current	—		2,078		—		1,155
Derivatives - Other - Noncurrent	—		17,637		—		11,505
Total derivatives not designated as hedging instruments under GAAP	$	46,948	$	49,172	$	60,135	$	62,831

Total Derivatives	$	46,948	$	49,172	$	60,135	$	62,831


SJG:
Derivatives not designated as hedging instruments under GAAP	September 30, 2020				December 31, 2019
	Assets		Liabilities		Assets		Liabilities
Energy-related commodity contracts:
Derivatives – Energy Related – Current	$	6,060	$	817	$	16,904	$	14,671
Derivatives – Energy Related – Non-Current	425		—		5		95
Interest rate contracts:
Derivatives – Other - Current	—		709		—		488
Derivatives – Other - Noncurrent	—		10,163		—		7,368
Total derivatives not designated as hedging instruments under GAAP	$	6,485	$	11,689	$	16,909	$	22,622

Total Derivatives	$	6,485	$	11,689	$	16,909	$	22,622

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SJI and SJG enter into derivative contracts with counterparties, some of which are subject to master netting arrangements, which allow net settlements under certain conditions. These derivatives are presented at gross fair values on the condensed consolidated balance sheets. Information related to these offsetting arrangements were as follows (in thousands):


As of September 30, 2020
Description	Gross amounts of recognized assets/liabilities		Gross amount offset in the balance sheet		Net amounts of assets/liabilities in balance sheet		Gross amounts not offset in the balance sheet					Net amount
							Financial Instruments			Cash Collateral Posted/(Received)
SJI (includes SJG and all other consolidated subsidiaries):
Derivatives - Energy Related Assets	$	46,948	$	—	$	46,948	$	(24,937)	(A)	$	(3,706)	$	18,305
Derivatives - Energy Related Liabilities	$	(29,457)	$	—	$	(29,457)	$	24,937	(B)	$	—	$	(4,520)
Derivatives - Other	$	(19,715)	$	—	$	(19,715)	$	—		$	—	$	(19,715)
SJG:
Derivatives - Energy Related Assets	$	6,485	$	—	$	6,485	$	(338)	(A)	$	—	$	6,147
Derivatives - Energy Related Liabilities	$	(817)	$	—	$	(817)	$	338	(B)	$	—	$	(479)
Derivatives - Other	$	(10,872)	$	—	$	(10,872)	$	—		$	—	$	(10,872)


As of December 31, 2019
Description	Gross amounts of recognized assets/liabilities		Gross amount offset in the balance sheet		Net amounts of assets/liabilities in balance sheet		Gross amounts not offset in the balance sheet					Net amount
							Financial Instruments			Cash Collateral Posted/(Received)
SJI (includes SJG and all other consolidated subsidiaries):
Derivatives - Energy Related Assets	$	60,135	$	—	$	60,135	$	(32,185)	(A)	$	—	$	27,950
Derivatives - Energy Related Liabilities	$	(50,171)	$	—	$	(50,171)	$	32,185	(B)	$	12,878	$	(5,108)
Derivatives - Other	$	(12,660)	$	—	$	(12,660)	$	—		$	—	$	(12,660)
SJG:
Derivatives - Energy Related Assets	$	16,909	$	—	$	16,909	$	(11,860)	(A)	$	—	$	5,049
Derivatives - Energy Related Liabilities	$	(14,766)	$	—	$	(14,766)	$	11,860	(B)	$	2,706	$	(200)
Derivatives - Other	$	(7,856)	$	—	$	(7,856)	$	—		$	—	$	(7,856)

(A) The balances at September 30, 2020 and December 31, 2019 were related to derivative liabilities which can be net settled against derivative assets.

(B) The balances at September 30, 2020 and December 31, 2019 were related to derivative assets which can be net settled against derivative liabilities.

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The effect of derivative instruments on the condensed consolidated statements of income (loss) are as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
Derivatives in Cash Flow Hedging Relationships under GAAP	2020		2019		2020		2019
SJI (includes SJG and all other consolidated subsidiaries):
Interest Rate Contracts:
Losses reclassified from AOCL into income (a)	$	(12)	$	(12)	$	(35)	$	(35)

SJG:
Interest Rate Contracts:
Losses reclassified from AOCL into income (a)	$	(12)	$	(12)	$	(35)	$	(35)

(a) Included in Interest Charges


	Three Months Ended September 30,				Nine Months Ended September 30,
Derivatives Not Designated as Hedging Instruments under GAAP	2020		2019		2020		2019
SJI (includes SJG and all other consolidated subsidiaries):
Losses on energy-related commodity contracts (a)	$	(6,246)	$	(6,187)	$	(7,807)	$	(18,390)
Gains (Losses) on interest rate contracts (b)	342		(1,137)		(4,040)		(3,972)

Total	$	(5,904)	$	(7,324)	$	(11,847)	$	(22,362)

(a) Included in Operating Revenues - Nonutility

(b) Included in Interest Charges

Certain of SJI’s derivative instruments contain provisions that require immediate payment or demand immediate and ongoing collateralization on derivative instruments in net liability positions in the event of a material adverse change in the credit standing of SJI. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a liability position on September 30, 2020, is approximately $0.3 million. If the credit-risk-related contingent features underlying these agreements were triggered on September 30, 2020, SJI would have been required to settle the instruments immediately or post collateral to its counterparties of approximately $0.1 million after offsetting asset positions with the same counterparties under master netting arrangements.

13. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES:

GAAP establishes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques. The levels of the hierarchy are described below:

•Level 1: Observable inputs, such as quoted prices in active markets for identical assets or liabilities.

•Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

•Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.

Assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of financial assets and financial liabilities and their placement within the fair value hierarchy.

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For financial assets and financial liabilities measured at fair value on a recurring basis, information about the fair value measurements for each major category is as follows (in thousands):


As of September 30, 2020	Total		Level 1		Level 2		Level 3
SJI (includes SJG and all other consolidated subsidiaries):
Assets
Available-for-Sale Securities (A)	$	40	$	40	$	—	$	—
Derivatives – Energy Related Assets (B)	46,948		18,953		16,876		11,119
	$	46,988	$	18,993	$	16,876	$	11,119
SJG:
Assets
Derivatives – Energy Related Assets (B)	$	6,485	$	2,181	$	—	$	4,304
	$	6,485	$	2,181	$	—	$	4,304
SJI (includes SJG and all other consolidated subsidiaries):
Liabilities
Derivatives – Energy Related Liabilities (B)	$	29,457	$	8,393	$	16,354	$	4,710
Derivatives – Other (C)	19,715		—		19,715		—
	$	49,172	$	8,393	$	36,069	$	4,710
SJG:
Liabilities
Derivatives – Energy Related Liabilities (B)	$	817	$	338	$	479	$	—
Derivatives – Other (C)	10,872		—		10,872		—
	$	11,689	$	338	$	11,351	$	—


As of December 31, 2019	Total		Level 1		Level 2		Level 3
SJI (includes SJG and all other consolidated subsidiaries):
Assets
Available-for-Sale Securities (A)	$	40	$	40	$	—	$	—
Derivatives – Energy Related Assets (B)	60,135		16,931		17,841		25,363
	$	60,175	$	16,971	$	17,841	$	25,363
SJG:
Assets
Derivatives – Energy Related Assets (B)	$	16,909	$	11,860	$	—	$	5,049
	$	16,909	$	11,860	$	—	$	5,049

SJI (includes SJG and all other consolidated subsidiaries):
Liabilities
Derivatives – Energy Related Liabilities (B)	$	50,171	$	34,446	$	7,936	$	7,789
Derivatives – Other (C)	12,660		—		12,660		—
	$	62,831	$	34,446	$	20,596	$	7,789
SJG:
Liabilities
Derivatives – Energy Related Liabilities (B)	$	14,766	$	14,565	$	187	$	14
Derivatives – Other (C)	7,856		—		7,856		—
	$	22,622	$	14,565	$	8,043	$	14

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(A) Available-for-Sale Securities include securities that are traded in active markets and securities that are not traded publicly. The securities traded in active markets are valued using the quoted principal market close prices that are provided by the trustees and are categorized in Level 1 in the fair value hierarchy.

(B) Derivatives – Energy Related Assets and Liabilities are traded in both exchange-based and non-exchange-based markets. Exchange-based contracts are valued using unadjusted quoted market sources in active markets and are categorized in Level 1 in the fair value hierarchy - established by FASB ASC Topic 820 - “Fair Value Measurements and Disclosures.” Certain non-exchange-based contracts are valued using indicative price quotations available through brokers or over-the-counter, on-line exchanges and are categorized in Level 2. These price quotations reflect the average of the bid-ask mid-point prices and are obtained from sources that management believes provide the most liquid market. Management reviews and corroborates the price quotations with at least one additional source to ensure the prices are observable market information, which includes consideration of actual transaction volumes, market delivery points, bid-ask spreads and contract duration. Derivative instruments that are used to limit our exposure to changes in interest rates on variable-rate, long-term debt are valued using quoted prices on commonly quoted intervals, which are interpolated for periods different than the quoted intervals, as inputs to a market valuation model. Market inputs can generally be verified and model selection does not involve significant management judgment, as a result, these instruments are categorized in Level 2 in the fair value hierarchy. For non-exchange-based derivatives that trade in less liquid markets with limited pricing information, model inputs generally would include both observable and unobservable inputs. In instances where observable data is unavailable, management considers the assumptions that market participants would use in valuing the asset or liability. This includes assumptions about market risks such as liquidity, volatility and contract duration. Such instruments are categorized in Level 3 in the fair value hierarchy as the model inputs generally are not observable. Counterparty credit risk and the credit risk of SJI are incorporated and considered in the valuation of all derivative instruments as appropriate. The effect of counterparty credit risk and the credit risk of SJI on the derivative valuations is not significant.

Significant Unobservable Inputs - Management uses the discounted cash flow model to value Level 3 physical and financial forward contracts, which calculates mark-to-market valuations based on forward market prices, original transaction prices, volumes, risk-free rate of return and credit spreads. Inputs to the valuation model are reviewed and revised as needed, based on historical information, updated market data, market liquidity and relationships, and changes in third party pricing sources. The validity of the mark-to-market valuations and changes in these values from period to period are examined and qualified against historical expectations by the risk management function. If any discrepancies are identified during this process, the mark-to-market valuations or the market pricing information is evaluated further and adjusted, if necessary.

(C) Derivatives – Other are valued using quoted prices on commonly quoted intervals, which are interpolated for periods different than the quoted intervals, as inputs to a market valuation model. Market inputs can generally be verified and model selection does not involve significant management judgment.

The following table provides quantitative information regarding significant unobservable inputs in Level 3 fair value measurements (in thousands, except for ranges):

SJI (includes SJG and all other consolidated subsidiaries):

Type

Fair Value at September 30, 2020

Valuation Technique

Significant Unobservable Input

Range
[Weighted Average]

Assets

Liabilities

Forward Contract - Natural Gas

$10,403

$4,050

Discounted Cash Flow

Forward price (per dt)

$0.72 - $7.09 [$3.18]

(A)

Forward Contract - Electric

$716

$660

Discounted Cash Flow

Fixed electric load profile (on-peak)

40.34% - 100.00% [60.14%]

(B)

Fixed electric load profile (off-peak)

0.00% - 59.66% [39.86%]

(B)

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Type

Fair Value at December 31, 2019

Valuation Technique

Significant Unobservable Input

Range
[Weighted Average]

Assets

Liabilities

Forward Contract - Natural Gas

$21,645

$4,333

Discounted Cash Flow

Forward price (per dt)

$1.57 - $7.28 [$2.38]

(A)

Forward Contract - Electric

$3,718

$3,456

Discounted Cash Flow

Fixed electric load profile (on-peak)

0.00% - 100.00% [55.46%]

(B)

Fixed electric load profile (off-peak)

0.00% - 100.00% [44.54%]

(B)

SJG:

Type

Fair Value at September 30, 2020

Valuation Technique

Significant Unobservable Input

Range
[Weighted Average]

Assets

Liabilities

Forward Contract - Natural Gas

4,304

—

Discounted Cash Flow

Forward price (per dt)

$1.05 - $5.47 [$4.03]

(A)

Type

Fair Value at December 31, 2019

Valuation Technique

Significant Unobservable Input

Range
[Weighted Average]

Assets

Liabilities

Forward Contract - Natural Gas

5,049

Discounted Cash Flow

Forward price (per dt)

$1.85 - $3.61 [$3.02]

(A)

(A) Represents the range, along with the weighted average, of forward prices for the sale and purchase of natural gas.

(B) Represents the range, along with the weighted average, of the percentage of contracted usage that is loaded during on-peak hours versus off-peak.

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The changes in fair value measurements of Derivatives – Energy Related Assets and Liabilities, using significant unobservable inputs (Level 3), are as follows (in thousands):


	Three Months Ended September 30, 2020		Nine Months Ended September 30, 2020
SJI (includes SJG and all other consolidated subsidiaries):
Balance at beginning of period	$	12,251	$	17,574
Other Changes in Fair Value from Continuing and New Contracts, Net	(3,198)		3,819
Settlements	(2,644)		(14,984)

Balance at end of period	$	6,409	$	6,409

SJG:
Balance at beginning of period	$	4,365	$	5,035
Other Changes in Fair Value from Continuing and New Contracts, Net	(61)		4,304
Settlements	—		(5,035)

Balance at end of period	$	4,304	$	4,304


	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
SJI (includes SJG and all other consolidated subsidiaries):
Balance at beginning of period	$	9,959	$	16,061
Other Changes in Fair Value from Continuing and New Contracts, Net	6,046		10,331
Settlements	(4,144)		(14,531)

Balance at end of period	$	11,861	$	11,861

SJG:
Balance at beginning of period	$	1,708	$	4,928
Other Changes in Fair Value from Continuing and New Contracts, Net	6,533		8,241
Settlements	—		(4,928)

Balance at end of period	$	8,241	$	8,241

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14. LONG-TERM DEBT:

SJI and SJG had the following long-term debt-related activity during the nine months ended September 30, 2020:

On April 3, 2020, SJI entered into an unsecured $200.0 million term loan credit agreement, which bears interest at variable rates. The maturity of the term loan is October 31, 2021. Proceeds from the debt were used to pay off the following:

•$50.0 million outstanding on the SJI revolving credit facility, which was previously recorded in Notes Payable on the condensed consolidated balance sheets.

•$100.0 million SJI Term Loan, which was previously recorded in Notes Payable on the condensed consolidated balance sheets and due to mature in September 2020.

•$50.0 million SJI variable rate note, which was previously recorded in Current Portion of Long-Term Debt on the condensed consolidated balance sheets.

On April 16, 2020, SJG entered into a Note Purchase Agreement which provides for SJG to issue and sell its Senior Secured Notes, Series F, 2020 in the aggregate principal amount of $525.0 million in three Tranches, as follows: (a) Senior Secured Notes, Series F, 2020, Tranche A due April 16, 2030 in the aggregate principal amount of $150.0 million; (b) Senior Secured Notes, Series F, 2020, Tranche B due April 16, 2050 in the aggregate principal amount of $250.0 million; and (c) Senior Secured Notes, Series F, 2020, Tranche C due October 1, 2050 in the aggregate principal amount of $125.0 million. All of the Tranche A Notes and the Tranche B Notes were issued on April 16, 2020, and bear interest at 3.28% and 3.93%, respectively. The Tranche C Notes were issued on October 1, 2020, and bear interest at 3.98% (see Note 20).

On April 26, 2020, SJG used proceeds from Tranche A and B discussed above to pay off $400.0 million principal amount outstanding on its term loan credit agreement, which was previously recorded in Current Portion of Long-Term Debt on the condensed consolidated balance sheets. SJG intends to use the Tranche C proceeds discussed above to repay short-term indebtedness and for general corporate purposes.

On May 27, 2020, SJI entered into a Note Purchase Agreement which provided for the Company to issue an aggregate of $200.0 million of senior unsecured notes in two tranches, as follows: (a) Senior Notes, Series 2020A due July 30, 2027, in the aggregate principal amount of $75.0 million (the "Series 2020A Notes"); and (b) Senior Notes, Series 2020B due July 30, 2030, in the aggregate principal amount of $125.0 million (the "Series 2020B Notes"). The Company issued both tranches of the Notes on July 30, 2020. The Series 2020A Notes bear interest at 3.71% and the Series 2020B Notes bear interest at 3.91%. The proceeds from these issuances were used to pay off the unsecured $200.0 million term loan credit agreement issued in April 2020, which was paid off on July 31, 2020.

In September 2020, SJG paid off $10.0 million of the principal balance outstanding on its 3.00% MTNs.

15. ACCUMULATED OTHER COMPREHENSIVE LOSS:

The following table summarizes the changes in SJI's AOCL for the three and nine months ended September 30, 2020 (in thousands):


	Postretirement Liability Adjustment		Unrealized Gain (Loss) on Derivatives-Other (A)		Unrealized Gain (Loss) on Available-for-Sale Securities		Other Comprehensive Income (Loss) of Affiliated Companies		Total
Balance at July 1, 2020	$	(32,124)	$	(311)	$	(10)	$	(97)	$	(32,542)
Other comprehensive income before reclassifications	—		—		—		—		—
Amounts reclassified from AOCL	—		9		—		—		9
Net current period other comprehensive income	—		9		—		—		9
Balance at September 30, 2020	$	(32,124)	$	(302)	$	(10)	$	(97)	$	(32,533)

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	Postretirement Liability Adjustment		Unrealized Gain (Loss) on Derivatives-Other (A)		Unrealized Gain (Loss) on Available-for-Sale Securities		Other Comprehensive Income (Loss) of Affiliated Companies		Total
Balance at January 1, 2020	$	(32,124)	$	(327)	$	(10)	$	(97)	$	(32,558)
Other comprehensive income before reclassifications	—		—		—		—		—
Amounts reclassified from AOCL	—		25		—		—		25
Net current period other comprehensive income	—		25		—		—		25
Balance at September 30, 2020	$	(32,124)	$	(302)	$	(10)	$	(97)	$	(32,533)

(A) The affected line item for these reclassifications from AOCL into the condensed consolidated statements of income (loss) is Interest Charges. These amounts are net of tax of $(3) and $(10) for the three and nine months ended September 30, 2020, respectively, for which the affected line item in the condensed consolidated statements of income (loss) is Income Taxes.

The following table summarizes the changes in SJG's AOCL for the three and nine months ended September 30, 2020 (in thousands):


	Postretirement Liability Adjustment		Unrealized Gain (Loss) on Derivatives-Other (A)		Total
Balance at July 1, 2020	$	(27,454)	$	(405)	$	(27,859)
Other comprehensive loss before reclassifications	—		—		—
Amounts reclassified from AOCL	—		9		9
Net current period other comprehensive income	—		9		9
Balance at September 30, 2020	$	(27,454)	$	(396)	$	(27,850)


	Postretirement Liability Adjustment		Unrealized Gain (Loss) on Derivatives-Other (A)		Total
Balance at January 1, 2020	$	(27,454)	$	(421)	$	(27,875)
Other comprehensive loss before reclassifications	—		—		—
Amounts reclassified from AOCL	—		25		25
Net current period other comprehensive income (loss)	—		25		25
Balance at September 30, 2020	$	(27,454)	$	(396)	$	(27,850)

(A) The affected line item for these reclassifications from AOCL into the condensed statements of income (loss) is Interest Charges. These amounts are net of tax of $(3) and $(10) for the three and nine months ended September 30, 2020, respectively, for which the affected line item in the condensed statements of income (loss) is Income Taxes.

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16. REVENUE:

At contract inception, SJI and SJG assess the goods and services promised in all of its contracts with customers, and identify a performance obligation for each promise to transfer to a customer a distinct good or service.

Except as described below, along with the acquisitions and sales as noted in Note 1, there have been no significant changes to the nature of the Company's revenues since December 31, 2019, which are described in Note 19 to the Consolidated Financial Statements in Item 8 of SJI’s and SJG's Annual Report on Form 10-K for the year ended December 31, 2019. Revenues recorded for the newly acquired businesses (see Note 1) during the nine months ended September 30, 2020 are not material.

SJI and SJG disaggregate revenue from contracts with customers into customer type and product line. SJI and SJG have determined that disaggregating revenue into these categories achieves the disclosure objective in ASC 606 to depict how the nature, timing and uncertainty of revenue and cash flows are affected by economic factors. Further, disaggregating revenue into these categories is consistent with information regularly reviewed by the CODM in evaluating the financial performance of SJI's operating segments. SJG only operates in the SJG Utility Operations segment. See Note 6 for further information regarding SJI's operating segments.

Disaggregated revenues from contracts with customers, by both customer type and product line, are disclosed below, by operating segment (in thousands):


Three Months Ended September 30, 2020
	SJG Utility Operations		ETG Utility Operations		ELK Utility Operations		Wholesale Energy Operations		Retail Electric Operations		On-Site Energy Production		Appliance Service Operations		Corporate Services and Intersegment		Total
Customer Type:
Residential	$	40,900	$	20,974	$	77	$	—	$	—	$	—	$	491	$	—	$	62,442
Commercial & Industrial	24,625		16,998		185		197,580		4,814		6,317		—		(267)		250,252
OSS & Capacity Release	1,859		—		—		—		—		—		—		—		1,859
Other	381		191		23		—		—		—		—		—		595
	$	67,765	$	38,163	$	285	$	197,580	$	4,814	$	6,317	$	491	$	(267)	$	315,148
Product Line:
Gas	$	67,765	$	38,163	$	285	$	197,580	$	—	$	—	$	—	$	(595)	$	303,198
Electric	—		—		—		—		4,814		—		—		(324)		4,490
Solar	—		—		—		—		—		5,429		—		—		5,429

Landfills	—		—		—		—		—		888		—		—		888
Other	—		—		—		—		—		—		491		652		1,143
	$	67,765	$	38,163	$	285	$	197,580	$	4,814	$	6,317	$	491	$	(267)	$	315,148

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Nine Months Ended September 30, 2020
	SJG Utility Operations		ETG Utility Operations		ELK Utility Operations		Wholesale Energy Operations		Retail Electric Operations		On-Site Energy Production		Appliance Service Operations		Corporate Services and Intersegment		Total
Customer Type:
Residential	$	244,114	$	153,496	$	2,179	$	—	$	—	$	—	$	1,485	$	—	$	401,274
Commercial & Industrial	100,689		74,752		2,544		456,427		17,462		15,459		—		(2,862)		664,471
OSS & Capacity Release	5,931		—		—		—		—		—		—		—		5,931
Other	1,393		4,162		203		—		—		—		—		—		5,758
	$	352,127	$	232,410	$	4,926	$	456,427	$	17,462	$	15,459	$	1,485	$	(2,862)	$	1,077,434
Product Line:
Gas	$	352,127	$	232,410	$	4,926	$	456,427	$	—	$	—	$	—	$	(2,252)	$	1,043,638
Electric	—		—		—		—		17,462		—		—		(1,986)		15,476
Solar	—		—		—		—		—		8,725		—		—		8,725
CHP	—		—		—		—		—		3,502		—		—		3,502
Landfills	—		—		—		—		—		3,232		—		—		3,232
Other	—		—		—		—		—		—		1,485		1,376		2,861
	$	352,127	$	232,410	$	4,926	$	456,427	$	17,462	$	15,459	$	1,485	$	(2,862)	$	1,077,434


Three Months Ended September 30, 2019
	SJG Utility Operations		ETG Utility Operations		ELK Utility Operations		Wholesale Energy Operations		Retail Electric Operations		On-Site Energy Production		Appliance Service Operations		Corporate Services and Intersegment		Total
Customer Type:
Residential	$	31,256	$	16,092	$	243	$	—	$	4,205	$	—	$	514	$	—	$	52,310
Commercial & Industrial	21,164		12,799		629		158,244		10,275		11,980		—		(3,092)		211,999
OSS & Capacity Release	2,234		—		—		—		—		—		—		—		2,234
Other	544		1,733		23		—		—		—		—		—		2,300
	$	55,198	$	30,624	$	895	$	158,244	$	14,480	$	11,980	$	514	$	(3,092)	$	268,843
Product Line:
Gas	$	55,198	$	30,624	$	895	$	158,244	$	—	$	—	$	—	$	(1,173)	$	243,788
Electric	—		—		—		—		14,480		—		—		(2,184)		12,296
Solar	—		—		—		—		—		3,429		—		—		3,429
CHP	—		—		—		—		—		7,218		—		—		7,218
Landfills	—		—		—		—		—		1,333		—		—		1,333
Other	—		—		—		—		—		—		514		265		779
	$	55,198	$	30,624	$	895	$	158,244	$	14,480	$	11,980	$	514	$	(3,092)	$	268,843

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Nine Months Ended September 30, 2019
	SJG Utility Operations		ETG Utility Operations		ELK Utility Operations		Wholesale Energy Operations		Retail Electric Operations		On-Site Energy Production		Appliance Service Operations		Corporate Services and Intersegment		Total
Customer Type:
Residential	$	244,889	$	143,584	$	2,204	$	—	$	10,966	$	—	$	1,529	$	—	$	403,172
Commercial & Industrial	82,255		71,013		2,769		469,805		35,697		38,098		—		(9,517)		690,120
OSS & Capacity Release	6,248		—		—		—		—		—		—		—		6,248
Other	1,787		5,906		127		—		—		—		—		—		7,820
	$	335,179	$	220,503	$	5,100	$	469,805	$	46,663	$	38,098	$	1,529	$	(9,517)	$	1,107,360
Product Line:
Gas	$	335,179	$	220,503	$	5,100	$	469,805	$	—	$	—	$	—	$	(3,807)	$	1,026,780
Electric	—		—		—		—		46,663		—		—		(5,975)		40,688
Solar	—		—		—		—		—		12,443		—		—		12,443
CHP	—		—		—		—		—		21,371		—		—		21,371
Landfills	—		—		—		—		—		4,284		—		—		4,284
Other	—		—		—		—		—		—		1,529		265		1,794
	$	335,179	$	220,503	$	5,100	$	469,805	$	46,663	$	38,098	$	1,529	$	(9,517)	$	1,107,360

The SJG balance is a part of the SJG utility operating segment, and is before intercompany eliminations with other SJI entities. Revenues on the condensed consolidated statements of income/(loss) that are not with contracts with customers consist of (a) revenues from alternative revenue programs at the SJG, ETG and ELK utility operating segments (including CIP and WNC), (b) both utility and nonutility realized revenue from derivative contracts at the SJG and ETG utility, wholesale energy and retail electric operating segments, and (c) unrealized revenues from derivative contracts of the wholesale energy and retail electric operating segments (see Note 12).

The Company’s rate mechanisms that qualify as alternative revenue programs are described in Note 10 to the Consolidated Financial Statements in Item 8 of SJI’s and SJG's Annual Report on Form 10-K for the year ended December 31, 2019. These mechanisms are subject to compliance filings on at least an annual basis, and the tariff rate adjustments are designed to occur over this compliance period. These rate mechanisms satisfy the criteria in ASC 980-605-25-4, as (a) each mechanism is established by order of the BPU for SJG and ETG, and the MPSC for ELK; (b) the amounts recoverable under each program are determined by tracking and are probable of recovery; and (c) the adjustments to tariff rates are designed to recover from or refund to customers within a 24 month period. For each individual rate reconciling mechanism, operating revenues are recognized when allowable costs are greater than the amounts billed in the current period and are reduced when allowable costs are less than amounts billed in the current period. Total revenues arising from alternative revenue programs at SJI were $(6.4) million and $1.2 million for the three months ended September 30, 2020 and 2019, respectively, and $26.6 million and $22.5 million for the nine months ended September 30, 2020 and 2019, respectively. Total revenues arising from alternative revenue programs at SJG were $(5.8) million and $1.2 million for the three months ended September 30, 2020 and 2019, respectively, and $19.6 million and $27.2 million for the nine months ended September 30, 2020 and 2019, respectively. The SJI and SJG amounts for revenues arising from alternative revenue programs were negative during the three months ended September 30, 2020 as a result of ETG's WNC program and SJG's CIP program being in a net over-collected position during the period, which caused a net reduction in operating revenues as allowable costs were less than amounts billed.

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The following table provides information about SJI's and SJG's receivables (excluding SJG receivables from related parties) and unbilled revenue from contracts with customers (in thousands):


	Accounts Receivable (A)		Unbilled Revenue (B)
SJI (including SJG and all other consolidated subsidiaries):
Beginning balance as of January 1, 2020	$	253,661	$	84,821
Ending balance as of September 30, 2020	167,534		22,712
Increase (Decrease)	$	(86,127)	$	(62,109)

Beginning balance as of January 1, 2019	$	337,502	$	79,538
Ending balance as of September 30, 2019	179,108		18,714
Increase (Decrease)	$	(158,394)	$	(60,824)

SJG:
Beginning balance as of January 1, 2020	$	84,940	$	45,016
Ending balance as of September 30, 2020	62,447		9,985
Increase (Decrease)	$	(22,493)	$	(35,031)

Beginning balance as of January 1, 2019	$	101,572	$	43,271
Ending balance as of September 30, 2019	65,511		7,831
Increase (Decrease)	$	(36,061)	$	(35,440)

(A) Included in Accounts Receivable in the condensed consolidated balance sheets. A receivable is SJI's and SJG's right to consideration that is unconditional, as only the passage of time is required before payment is expected from the customer.

(B) Included in Unbilled Revenues in the condensed consolidated balance sheets. All unbilled revenue for SJI and SJG arises from contracts with customers. Unbilled revenue relates to SJI's and SJG's right to receive payment for commodity delivered but not yet billed. This represents contract assets that arise from contracts with customers, which is defined in ASC 606 as the right to payment in exchange for goods already transferred to a customer, excluding any amounts presented as a receivable. The unbilled revenue is transferred to accounts receivable when billing occurs and the rights to collection become unconditional.

17. ACQUISITIONS & BUSINESS COMBINATIONS:

There were no changes to the accounting policy with regards to business combinations described in Note 1 to the Consolidated Financial Statements in Item 8 of SJI’s and SJG's Annual Report on Form 10-K for the year ended December 31, 2019.

Catamaran/Annadale Acquisition

On August 12, 2020, SJI, through its wholly-owned subsidiary Marina, formed the Catamaran joint venture with a third party partner. Catamaran was formed for the purpose of developing, owning and operating renewable energy projects, and will support SJI's commitment to clean energy initiatives. On the same date, Catamaran purchased 100% ownership in Annadale, an entity that is constructing two fuel cell projects totaling 7.5 MW in Staten Island, New York. These fuel cell projects are expected to be operational and placed into service in the fourth quarter of 2020. Marina has a 93% ownership interest in Annadale, and as a result Marina fully consolidates the entity as Marina has the power to direct the activities of the entity that most significantly impact the entity’s economic performance.

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ASC Topic 805, “Business Combinations” states that a business is an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs, or other economic benefits directly to investors or other owners, members, or participants. As the acquisition did not meet the definition of a business combination under ASC 805, the Company accounted for the transaction as an asset acquisition. In an asset acquisition, goodwill is not recognized, but rather any excess consideration transferred over the fair value of the net assets acquired is allocated on a relative fair value basis to the identifiable net assets. The acquisition of Annadale included a land lease and working capital.

Marina recorded $58.5 million in Nonutility Property, Plant & Equipment on the condensed consolidated balance sheets as of September 30, 2020. Of this total, Marina invested a net amount of $54.3 million as of September 30, 2020. To account for the third party partner's interest in Annadale, Marina recorded $4.2 million of non-controlling interest in stockholder's equity on the condensed consolidated balance sheets as of September 30, 2020. The major depreciable assets of the Annadale Fuel Cell Project are the fuel cell modules, which will be depreciated over their estimated useful lives of 35 years. The land lease is being amortized over the lease term of 35 years.

As these projects are not yet placed into service, no revenues have been recorded, and expenses incurred in the Company's condensed consolidated statements of income for the three and nine months ended September 30, 2020, are not material.

EnerConnex Acquisition

On August 7, 2020, SJI, through its wholly-owned subsidiary SJEI, completed its acquisition of the remaining 75% of EnerConnex for total consideration of $7.5 million. This acquisition supports the Company's initiative to expand its energy consulting business.

The acquisition of EnerConnex was accounted for as a business combination using the acquisition method of accounting in accordance with GAAP. Under the acquisition method of accounting, the total estimated purchase price of an acquisition is allocated to the net assets based on their estimated fair values. EnerConnex does not have any regulated operations.

Prior to this transaction, SJEI previously had a 25% investment in EnerConnex that was accounted for under the equity method of accounting. As this was a business combination achieved in stages, an approximately $2.0 million (pre-tax) gain was recorded as a result of remeasuring the carrying value of the previously held equity interest in EnerConnex to its acquisition date fair value. This gain was recorded in Other Income on the condensed consolidated statements of income. The acquisition date fair value of the previously held equity interest was $2.5 million and was determined based on the cash consideration exchanged for the remaining 75% of EnerConnex. The total of the $7.5 million in cash consideration for the remaining 75%, the $2.5 million acquisition date fair value of the previously held interest, and $0.2 million in assumed liabilities served as the total allocable basis shown in the preliminary purchase price allocation below.

The Company has not finalized its valuation of certain assets and liabilities in connection with the acquisition of EnerConnex. As such, the estimated measurements recorded to date are subject to change. Any changes will be recorded as adjustments to the fair value of those assets and liabilities and residual amounts will be allocated to goodwill. The final valuation adjustments may also require adjustment to the consolidated statements of operations and cash flows. The final determination of these fair values will be completed as soon as possible but no later than one year from the acquisition date.

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The purchase price for the EnerConnex acquisition has been allocated, on a preliminary basis, to the assets acquired and liabilities assumed as of the acquisition date and is as follows:


(in thousands)	EnerConnex
Cash	$	415
Accounts Receivable	249
Identifiable Intangible Assets (A)	4,500
Goodwill	4,890
Other Noncurrent Assets	100
Total assets acquired	10,154
Accounts Payable	4
Other Current Liabilities	150
Total liabilities assumed	154
Total net assets acquired	$	10,000

(A) The identifiable intangible asset balances shown in the table above are related to customer relationships acquired in the transaction, and are included in Other Noncurrent Assets on the condensed consolidated balance sheets.

All assets and financial results of EnerConnex are included in the Corporate & Services segment. The amount of revenues and net income included in the Company's condensed consolidated statements of income for the three and nine months ended September 30, 2020 related to EnerConnex is not material. Our results would not have been materially different if this acquisition had occurred at the beginning of the periods presented herein. The amount of acquisition-related costs for EnerConnex was not material.

Solar Projects Acquisition

SJI, through its wholly-owned subsidiary Marina, completed its acquisition of ESNJ-AL-Somers Point LLC, ESNJ-AL-Hamilton Square LLC, and ESNJ-AL-Browns Mills LLC on June 30, 2020, and acquired ESNJ-AL-Woodbury LLC on August 21, 2020. These entities own newly operational solar-generation sites located in New Jersey, and were acquired for $3.8 million in total consideration. The total purchase price equaled the fair value of property, plant, and equipment that were acquired in the transactions. Costs related to these acquisitions were not material. The purchase of these entities is in support of the New Jersey Energy Master Plan.

All assets and financial results of these entities are included in the On-Site Energy Production segment. The amount of revenues and net income included in the Company's condensed consolidated statements of income for the three and nine months ended September 30, 2020 related to these entities is not material.

AEP Acquisition

On August 31, 2019, SJI, through its wholly-owned subsidiary SJEI, completed its acquisition of AEP for $4.0 million in total consideration, inclusive of certain working capital and other closing adjustments.

AEP does not have any regulated operations.

The Company has finalized its valuation of assets and liabilities in connection with the acquisition of AEP. There are no changes to the purchase price or the allocation disclosed in Note 20 to the Consolidated Financial Statements in Item 8 of SJI’s and SJG's Annual Report on Form 10-K for the year ended December 31, 2019. All assets and financial results of AEP are included in the Corporate & Services segment. The amount of revenues and net income included in the Company's condensed consolidated statements of income for the three and nine months ended September 30, 2020 related to AEP is not material. Our results would not have been materially different if this acquisition had occurred at the beginning of the prior periods presented herein. The amount of acquisition-related costs for AEP was not material.

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18. GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS:

GOODWILL - Goodwill represents future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Goodwill is initially measured at cost, being the excess of the aggregate of the consideration paid or transferred over the fair value of identifiable net assets acquired. Goodwill is not amortized, but instead is subject to impairment testing on an annual basis, and between annual tests whenever events or changes in circumstances indicate that the fair value of a reporting unit may be below its carrying amount.

The Company performs its annual goodwill impairment test in the fourth quarter of each fiscal year beginning with a qualitative assessment at the reporting unit level. The reporting unit level is identified by assessing whether the components of our operating segments constitute businesses for which discrete financial information is available, whether segment management regularly reviews the operating results of those components and whether the economic and regulatory characteristics are similar. Factors utilized in the qualitative analysis performed on goodwill in our reporting units include, among other things, macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, company specific operating results and other relevant entity-specific events affecting individual reporting units.

If sufficient qualitative factors exist, potential goodwill impairment is evaluated quantitatively. Potential impairment is identified by comparing the fair value of a reporting unit to the book value, including goodwill. The Company estimates the fair value of a reporting unit using a discounted cash flow analysis. Management also considers other methods, which includes a market multiples analysis. Determining the fair value of a reporting unit requires judgment and the use of significant estimates and assumptions. Such estimates and assumptions include, but are not limited to, forecasts of future operating results, discount and growth rates, capital expenditures, tax rates, and projected terminal values.

Changes in estimates or the application of alternative assumptions could produce significantly different results. If the fair value exceeds book value, goodwill of the reporting unit is not considered impaired. If the book value exceeds fair value, an impairment charge is recognized for the excess up until the amount of goodwill allocated to the reporting unit.

As a result of the COVID-19 pandemic and the resulting macroeconomic market conditions, the Company determined it necessary to perform a quantitative goodwill impairment analysis on the goodwill at the ETG reporting unit as of March 31, 2020. During the third quarter of 2020, due to a decline in market conditions for gas distributors and our performance relative to the overall sector, the Company determined it necessary to perform a quantitative goodwill impairment analysis on the goodwill at the ETG reporting unit as of September 30, 2020. There were no impairments recorded as a result of either interim impairment test. Should economic conditions deteriorate in future periods or remain depressed for a prolonged period of time, estimates of future cash flows and market valuation assumptions may not be sufficient to support the carrying value, requiring impairment charges in the future.

Total goodwill of $707.0 million and $702.1 million was recorded on the condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019, respectively. As of September 30, 2020, $700.2 million was included in the ETG Utility Operations segment and $6.8 million was included in the Corporate & Services segment. As of December 31, 2019, $700.2 million was included in the ETG Utility Operations segment and $1.9 million was included in the Corporate & Services segment.

The following table summarizes the changes in goodwill for the nine months ended September 30, 2020 (in thousands):


	2020
Beginning Balance, January 1	$	702,070
Goodwill from EnerConnex Acquisition (see Note 17)	4,890
Ending Balance, September 30	$	706,960

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IDENTIFIABLE INTANGIBLE ASSETS - The primary identifiable intangible assets of the Company are customer relationships obtained in the acquisitions of EnerConnex and AEP (see Note 17), along with the AMA (see Note 1). The Company determines the useful lives of identifiable intangible assets after considering the specific facts and circumstances related to each intangible asset. Considerations may include the contractual term of any agreement related to the asset, the historical performance of the asset, the Company's long-term strategy for using the asset, any laws or other local regulations which could impact the useful life of the asset, and other economic factors, including competition and specific market conditions. Intangible assets that are deemed to have definite lives (finite-lived intangible assets) are amortized, primarily on a straight-line basis, over their useful lives, generally ranging from 2 to 20 years.

SJI's identifiable intangible assets were as follows (in thousands):


	As of September 30, 2020
	Gross Cost		Accumulated Amortization		Identifiable Intangible Assets, Net
Identifiable intangible assets subject to amortization:
Customer Relationships	$	6,900	$	(223)	$	6,677
AMA	19,200		(11,520)		7,680
Total	$	26,100	$	(11,743)	$	14,357


	As of December 31, 2019
	Gross Cost		Accumulated Amortization		Identifiable Intangible Assets, Net
Identifiable intangible assets subject to amortization:
Customer Relationships	$	2,400	$	(53)	$	2,347
AMA	19,200		(7,680)		11,520
Total	$	21,600	$	(7,733)	$	13,867

The net identifiable intangible asset balances shown in the table above are included in Other Noncurrent Assets on the condensed consolidated balance sheets. The increase in the net identifiable intangible asset balance from the prior year is due to customer relationships recorded in connection with the EnerConnex acquisition during the third quarter of 2020, partially offset by amortization recorded during the first nine months of 2020.

Total SJI amortization expense related to identifiable intangible assets was $1.4 million and $1.5 million for the three months ended September 30, 2020 and 2019, respectively, and $4.0 million and $4.6 million for the nine months ended September 30, 2020 and 2019, respectively. No impairment charges were recorded on identifiable intangible assets during the three and nine months ended September 30, 2020 or 2019.

As of September 30, 2020, SJI's estimated amortization expense related to identifiable intangible assets for each of the five succeeding fiscal years is as follows (in thousands):


Year ended December 31,	SJI
2020 (remaining three months)	$	1,395
2021	$	5,580
2022	$	1,740
2023	$	460
2024	$	460

The decreases in estimated amortization expense in the table above are due to the AMA ceasing in March 2022 (see Note 1).

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19. LEASES:

Except as described below, there have been no significant changes to the nature of the Company's leases since December 31, 2019, which are described in Note 9 to the Consolidated Financial Statements in Item 8 of SJI’s and SJG's Annual Report on Form 10-K for the year ended December 31, 2019.

As part of the Annadale acquisition (see Note 17), a real estate lease was acquired resulting in the recognition of an ROU asset and lease liability upon acquisition of $3.1 million. This arrangement is classified as a finance lease and will be amortized over the lease term of 35 years. As of September 30, 2020, SJI recognized an ROU asset and a lease liability of $3.0 million and $3.1 million, respectively, for this lease. The remainder of SJI's and SJG's real estate leases, which are comprised primarily of office space and payment centers, are classified as operating leases and represent approximately 91% and 68%, respectively, of operating lease liabilities and generally have a lease term between 5 and 15 years.

Other operating leases primarily consist of fleet vehicles (SJI only), communication towers, and general office equipment, each with various lease terms ranging between 3 and 25 years. As of September 30, 2020 and December 31, 2019, the operating lease ROU asset was $1.6 million and $1.9 million, respectively, and the lease liability balance was $1.6 million and $1.9 million, respectively, at SJI. The ROU assets and lease liabilities at SJG were not material. SJI does not have any contracts where it is considered the lessor (see "MTF" below).

The maturity of the Company’s operating lease and finance lease liabilities are as follows (in thousands):


	As of September 30, 2020
	SJI Consolidated Operating Leases		SJI Consolidated Finance Leases		SJG Operating Leases
2020 (excluding the nine months ended September 30, 2020)	$	206	$	36	$	23
2021	534		145		39
2022	348		145		21
2023	190		145		19
2024	165		145		12
Thereafter	235		6,557		102
Total lease payments	1,678		7,173		216
Less imputed interest	109		4,122		28
Total lease liabilities	$	1,569	$	3,051	$	188
Included in the condensed consolidated balance sheet
Current lease liabilities (included in Other Current Liabilities)	$	581	$	—	$	49
Long-term lease liabilities (included in Other Noncurrent Liabilities)	988		3,051		139
Total lease liabilities	$	1,569	$	3,051	$	188

SJG does not have any finance leases.

The total operating lease costs, the components of finance lease costs, and variable lease costs for SJI were as follows (in thousands):

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	Three months ended September 30, 2020		Nine months ended September 30, 2020
SJI (includes SJG and all other consolidated subsidiaries):
Total operating lease cost	$	364	$	983
Finance Lease cost:
Amortization of ROU assets	10		10
Interest expense	18		18
Variable lease cost	190		491
Total lease cost	$	582	$	1,502


	Three months ended September 30, 2019		Nine months ended September 30, 2019
SJI (includes SJG and all other consolidated subsidiaries):
Total operating lease cost	$	717	$	2,317



Variable lease cost	270		1,070
Total lease cost	$	987	$	3,387

The total operating lease costs for SJG were not material. SJG does not have any finance lease costs or variable lease costs.

Short-term lease costs were not material for either SJI or SJG. Neither SJI nor SJG had any sublease income during the three and nine months ended September 30, 2020 and 2019.

Neither SJI nor SJG have leases with related parties or leveraged lease arrangements. There are no leases that have not yet commenced but that create significant rights and obligations.

The supplemental cash flow information related to leases for SJI (including SJG and all other consolidated subsidiaries) were as follows (in thousands):


	Three months ended September 30, 2020		Nine months ended September 30, 2020
Operating cash flows from operating leases	$	250	$	980


	Three months ended September 30, 2019		Nine months ended September 30, 2019
Operating cash flows from operating leases	$	430	$	1,230

Operating and financing cash flows from finance leases for SJI were not material for the three and nine months ended September 30, 2020. Operating cash flows from operating leases for SJG were not material for the three and nine months ended September 30, 2020.

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Supplemental Non-Cash Disclosures

The following table represents the weighted-average remaining lease term and weighted-average discount rate:


Weighted average remaining lease term						September 30, 2020
SJI (includes SJG and all other consolidated subsidiaries):
Operating lease						4.6 years
Finance lease						34.9 years
SJG:
Operating lease						9.5 years

Weighted average discount rate						September 30, 2020
SJI (includes SJG and all other consolidated subsidiaries):
Operating lease						3.1%
Finance lease						5.0%
SJG:
Operating lease						3.0%

MTF

As of December 31, 2019, Marina was considered to be the lessor of certain thermal energy generating property and equipment under an operating lease which was set to expire in May 2027. As of December 31, 2019, the carrying costs of this property and equipment under operating lease was $68.9 million (net of accumulated depreciation of $40.6 million), and is included in Assets Held for Sale in the condensed consolidated balance sheets. As discussed in Note 1, MTF was sold to a third party buyer in February 2020, and as a result, Marina no longer is the lessor of this property, and no longer has future rentals or commitments.

20. SUBSEQUENT EVENTS:

On October 1, 2020, SJG issued the Tranche C Notes related to its April 16, 2020 Note Purchase Agreement for an aggregate principal amount of $125.0 million. The notes bear interest at 3.98%. SJG intends to use these proceeds to repay short-term indebtedness and for general corporate purposes.

On October 16, 2020, SJI filed an amendment to its Certificate of Incorporation that increased the authorized number of shares of its common stock from 120,000,000 to 220,000,000 and the aggregate number of shares authorized to be issued by SJI from 122,500,000 to 222,500,000.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction

Management's Discussion and Analysis of Financial Condition and Results of Operations (Management's Discussion) analyzes the financial condition, results of operations and cash flows of SJI and its subsidiaries. It also includes management’s analysis of past financial results and potential factors that may affect future results, potential future risks and approaches that may be used to manage them. Except where the content clearly indicates otherwise, “SJI,” “we,” “us” or “our” refers to the holding company or the consolidated entity of SJI and all of its subsidiaries.

Management's Discussion is divided into the following two major sections:

•SJI - This section describes the financial condition and results of operations of SJI and its subsidiaries on a consolidated basis. It includes discussions of our regulated operations, including SJG, and our non-regulated operations.

•SJG - This section describes the financial condition and results of operations of SJG, a subsidiary of SJI and separate registrant, which comprises the SJG utility operations segment.

Both sections of Management's Discussion - SJI and SJG - are designed to provide an understanding of each company's respective operations and financial performance and should be read in conjunction with each other as well as in conjunction with the respective company's condensed consolidated financial statements and the combined Notes to Condensed Consolidated Financial Statements in this Quarterly Report as well as SJI’s and SJG's Annual Report on Form 10-K for the year ended December 31, 2019.

Unless otherwise noted, earnings per share amounts are presented on a diluted basis, and are based on weighted average common and common equivalent shares outstanding. SJI's and SJG's operations are seasonal and accordingly, operating results for the interim periods presented are not indicative of the results to be expected for the full fiscal year.

Forward-Looking Statements and Risk Factors — This Quarterly Report, including information incorporated by reference, contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995.

All statements other than statements of historical fact, including statements regarding guidance, industry prospects or future results of operations or financial position, expected sources of incremental margin, strategy, financing needs, future capital expenditures and the outcome or effect of ongoing litigation, are forward-looking. This Quarterly Report uses words such as "anticipate," "believe," "expect," "estimate," "forecast," "goal," "intend," "objective," "plan," "project," "seek," "strategy," "target," "will" and similar expressions to identify forward-looking statements. These forward-looking statements are based on the beliefs and assumptions of management at the time that these statements were prepared and are inherently uncertain. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. These risks and uncertainties include, but are not limited to, general economic conditions on an international, national, state and local level; weather conditions in SJI’s marketing areas; changes in commodity costs; changes in the availability of natural gas; “non-routine” or “extraordinary” disruptions in SJI’s distribution system; regulatory, legislative and court decisions; competition; the availability and cost of capital; costs and effects of legal proceedings and environmental liabilities; the failure of customers, suppliers or business partners to fulfill their contractual obligations; changes in business strategies; and public health crises and epidemics or pandemics, such as a novel coronavirus (COVID-19).

These risks and uncertainties, as well as other risks and uncertainties that could cause our actual results to differ materially from those expressed in the forward-looking statements, are described in greater detail under the heading “Item 1A. Risk Factors” in this Quarterly Report, SJI’s and SJG's Annual Report on Form 10-K for the year ended December 31, 2019 and in any other SEC filings made by SJI or SJG during 2019 and 2020 and prior to the filing of this Quarterly Report. No assurance can be given that any goal or plan set forth in any forward-looking statement can or will be achieved, and readers are cautioned not to place undue reliance on such statements, which speak only as of the date they are made. SJI and SJG undertake no obligation to revise or update any forward-looking statements, whether from new information, future events or otherwise, except required by law.

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Critical Accounting Policies — Estimates and Assumptions — Management must make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and related disclosures. Actual results could differ from those estimates. Certain types of transactions presented in our condensed consolidated financial statements require a significant amount of judgment and estimation. These relate to regulatory accounting, derivatives, environmental remediation costs, pension and other postretirement benefit costs, revenue recognition, goodwill, and evaluation of equity method investments for other-than-temporary impairment. A discussion of these estimates and assumptions may be found in SJI's and SJG's Annual Report on Form 10-K for the year ended December 31, 2019.

COVID-19 - In March 2020, the World Health Organization classified the outbreak of COVID-19 as a pandemic. The rapid spread has resulted in worldwide shutdowns and the halting of business and personal activity as governments around the world imposed regulations to control the spread of COVID-19. As a result, the global economy has been marked by significant slowdowns and uncertainty.

Our business operations continue to function effectively during the pandemic. We are continuously evaluating the global pandemic and are taking necessary steps to mitigate known risks. We continue to closely monitor developments related to the pandemic and will adjust our actions and operations as appropriate in order to continue to provide safe and reliable service to our customers and communities while keeping employees safe. Although the impact to the operations of SJI and SJG has been minimal to date as discussed below, given the pandemic remains prevalent and the situation is evolving, the future impact on the business of SJI and SJG besides what is noted below is unknown. SJI and SJG provide critical and essential services to our customers and the health and safety of our employees and customers is our first priority. SJI and SJG considered the impact of COVID-19 on the use of estimates and assumptions used for financial reporting and noted there were no material impacts on our results of operations for the three and nine months ended September 30, 2020, as operations and delivery of product to our customers has not been materially impacted. To date, SJI has not experienced significant reductions in sales volumes across our businesses, and we do not anticipate any significant reductions in sales volumes going forward, especially with the winter months approaching.

SJI has been actively addressing the COVID-19 pandemic and has established a task force comprised of members of management, with the mission of ensuring the safety of individuals (customers and employees), while continuing to perform our daily responsibilities in an efficient and safe manner. SJI is following the guidance from federal, state and local authorities to help safeguard the health, safety and well-being of its employees. To date, all of our employees are currently working. The task force identified which roles are essential (i.e. need to work in field/office to conduct daily activities) and non-essential (i.e. able to perform work from a remote location) and developed a plan for all employees in non-essential roles to work remotely from home while ensuring that the appropriate safety measures are in place for all employees in essential roles in the field/office. These plans remain in place, as all employees in non-essential roles continue to work remotely. For employees in essential roles, safety measures include additional personal protective equipment and adjusting shifts to reduce the number of workers in close contact. Given the additional safety measures in place, and the ability for employees in non-essential roles to work remotely, we have not had a material impact on our operations as a result of these human capital constraints, and we do not believe operations will be materially impacted going forward by human capital constraints.

In order to initiate the business continuity plan, the Company has incurred operating costs for emergency supplies, cleaning services, enabling technology and other specific needs during the pandemic. SJI has incurred costs during the nine months ended September 30, 2020 of $1.7 million, with $0.6 million being recorded as Property, Plant & Equipment on the condensed consolidated balance sheets, and the remaining $1.1million recorded as Operations Expense on the condensed consolidated statements of income/(loss). SJG has recorded $0.2 million of such costs, which are recorded as Property, Plant & Equipment on the condensed balance sheets. Going forward, we expect further expenses for the above mentioned items; however, we do not anticipate these expenses to be material.

The supply chain has not been materially impacted by COVID-19; this is because the Company has a large inventory of standard products such as pipe material. In addition, given that the products are considered essential products, factories are remaining open, therefore allowing materials to be replenished. The Company is actively managing the materials, supplies and contract services necessary for our operations, and does not expect a disruption to the Company's gas supply in the future.

Our infrastructure investment programs to replace and upgrade critical utility infrastructure continue to move forward. As a result of COVID-19, certain construction activity had been delayed due to some activity being ceased in accordance with directives from the Governor of New Jersey. Construction activity has since resumed given the directive from the Governor was lifted. Our infrastructure investment programs continue to move forward and we remain on track to achieve our capital spending projections in 2020; however, to the extent the pandemic worsens or a similar directive is put in place in the future for a long period of time, our capital projects could be significantly impacted.

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We have considered the impact of COVID-19 on the liquidity position of the Company, and note that it has remained stable throughout this uncertain period, and SJI's and SJG's ability to borrow has not been impacted to date. Further, SJI and SJG have successfully paid off and refinanced debt, and raised equity through the ATM offering, during the first nine months of 2020. In addition, SJI has continued to pay its quarterly dividend throughout 2020. See Liquidity and Capital resources section for detailed description of borrowings entered into during the period.

We considered the impact the pandemic has had on operating revenues, noting that SJI and SJG have not seen a significant reduction in revenues as a result of the pandemic. This is due to gas and electricity being considered an essential service and continuing to be delivered timely to customers, and no delays or operational shutdowns taking place to date. Given the performance obligation is satisfied at delivery, which matches the time when the Company is able to invoice the customer, the Company is confident in being able to meet its future performance obligations. To the extent that the pandemic does impact our ability to deliver in the future, operating revenues could be impacted.

All accounts receivables are carried at the amount owed by customers. The provision for uncollectible accounts is established based on expected credit losses. On July 2, 2020, the BPU issued an Order authorizing New Jersey's regulated utilities to create a COVID-19-related regulatory asset by deferring on their books and records the prudently incurred incremental costs related to COVID-19 beginning on March 9, 2020 and continuing through September 30, 2021, or 60 days after the termination of the public health emergency, whichever is later. The Company will be required to file quarterly reports with the BPU, along with a petition of recovery of such incremental costs with the BPU by December 31, 2021 or within 60 days of the close of the tracking period, whichever is later. During the three and nine months ended September 30, 2020, ETG deferred $0.3 million and $9.3 million, respectively, and SJG deferred $3.0 million and $3.8 million, respectively, of incremental costs principally related to expected credit losses from uncollectibles as a result of the COVID-19 pandemic, specifically related to changes in payment patterns observed to date and consideration of macroeconomic factors. We have deemed these costs to be probable of recovery (see Note 8 to the condensed consolidated financial statements). The Utilities have suspended disconnects for nonpayment by our customers, based on orders and requests from our various regulators. These suspensions will go through at least March 15, 2021 based on an executive order issued by the Governor of New Jersey, in which water, gas and electricity providers are barred from cutting services to New Jersey residents.

Given the impact that COVID-19 has had on the economy, on March 27, 2020 the President signed into law the CARES Act, an economic stimulus package in response to the COVID-19 global pandemic, as a way to provide relief to both businesses and individuals affected by the virus. The CARES Act contains several corporate tax provisions that could impact SJI and SJG, including making remaining alternative minimum tax credits immediately refundable, deferring payments on social security taxes for employees, and other employee retention credits. The Company does not currently expect the CARES Act, and these provisions, to have a material effect on current income tax expense or deferred tax assets/liabilities; however, we are currently evaluating the overall impact of the CARES Act and note that new or additional changes to regulations in the future could have a material impact.

As a result of the COVID-19 pandemic and the resulting macroeconomic market conditions, the Company determined it necessary to perform a quantitative goodwill impairment analysis on the goodwill at the ETG reporting unit as of March 31, 2020, and again as of September 30, 2020. There were no impairments recorded as a result of either interim impairment test. See "Goodwill" below, along with Note 18 to the condensed consolidated financial statements.

Additional information concerning the impact COVID-19 may have upon the Company in the future and results of operations can be found in Part II, Item 1A Risk Factors.

Business Combinations/Acquisitions - SJI has made the following acquisitions over the last two years:

On August 31, 2019, SJI, through its wholly-owned subsidiary SJEI, completed its acquisition of AEP.

SJI, through its wholly-owned subsidiary Marina, acquired ESNJ-AL-Somers Point LLC, ESNJ-AL-Hamilton Square LLC, and ESNJ-AL-Browns Mills LLC on June 30, 2020, and acquired ESNJ-AL-Woodbury LLC on August 21, 2020. These entities own newly operational solar-generation sites.

On August 7, 2020, SJI, through its wholly-owned subsidiary SJEI, completed its acquisition of the remaining 75% of EnerConnex. Prior to this transaction, SJEI had a 25% interest in EnerConnex.

On August 12, 2020, SJI, through its wholly-owned subsidiary Marina, formed the Catamaran joint venture with a third party partner. On the same date, Catamaran purchased 100% ownership in Annadale, an entity that is constructing two fuel cell projects in Staten Island, New York. Marina has a 93% ownership interest in Annadale.

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See detailed discussions concerning these acquisitions and their impact on SJI, including the accounting for business combinations, in Note 17 to the condensed consolidated financial statements.

New Accounting Pronouncements — See detailed discussions concerning New Accounting Pronouncements and their impact on SJI and SJG in Note 1 to the condensed consolidated financial statements.

Regulatory Actions — Other than the changes discussed in Note 7 to the condensed consolidated financial statements, there have been no significant regulatory actions since December 31, 2019. See detailed discussion concerning Regulatory Actions in Note 10 to the Consolidated Financial Statements in Item 8 of SJI’s and SJG's Annual Report on Form 10-K for the year ended December 31, 2019.

Environmental Remediation — There have been no significant changes to the status of SJI’s and SJG's environmental remediation efforts since December 31, 2019. See detailed discussion concerning Environmental Remediation Costs in Note 15 to the Consolidated Financial Statements in Item 8 of SJI’s and SJG's Annual Report on Form 10-K for the year ended December 31, 2019.

Impairment of Long-Lived Assets — Long-lived assets that are held and used are reviewed for impairment whenever events or changes in circumstances, such as significant adverse changes in regulation, business climate or market conditions, indicate carrying values may not be recoverable. Such reviews are performed in accordance with ASC 360. An impairment loss is indicated if the total future estimated undiscounted cash flows expected from an asset are less than its carrying value. An impairment charge is measured by the difference between an asset's carrying amount and fair value with the difference recorded within Impairment Charges on the condensed consolidated statements of income/(loss). Fair values can be determined by a variety of valuation methods, including third-party appraisals, sales prices of similar assets, and present value techniques. SJI and SJG determine the fair values by using an income approach by applying a discounted cash flow methodology to the future estimated cash flows, and include key inputs such as forecasted revenues, operating expenses and discount rates. No impairments were identified at SJI for the three and nine months ended September 30, 2020. An impairment charge of $1.3 million (pre-tax) was recorded within the on-site energy production segment at SJI for the three and nine months ended September 30, 2019. This impairment charge was related to the expected purchase price of one of the unsold solar sites being less than its carrying value. No impairments were identified at SJG for the three and nine months ended September 30, 2020 and 2019, respectively. See Note 1 to the condensed consolidated financial statements.

Goodwill - See discussion on Goodwill in Note 18 to the condensed consolidated financial statements, along with Note 21 to the Consolidated Financial Statements in Item 8 of SJI’s Annual Report on Form 10-K for the year ended December 31, 2019.

As discussed in Note 18 to the condensed consolidated financial statements, SJI monitors all relevant events and circumstances during the year to determine if an interim impairment test is required. Such events and circumstances include macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, company specific operating results and other relevant entity-specific events affecting individual reporting units. Subsequent to December 31, 2019, certain qualitative factors were present that required the Company to perform a quantitative assessment for goodwill impairment at March 31, 2020 related to the ETG reporting unit. The qualitative factors primarily included macroeconomic conditions related to COVID-19. During the third quarter of 2020, due to a decline in market conditions for gas distributors and our performance relative to the overall sector, the Company determined it necessary to perform a quantitative goodwill impairment analysis on the goodwill at the ETG reporting unit as of September 30, 2020. There were no impairments recorded as a result of either interim impairment test.

In preparing the goodwill impairment tests, the fair value of the reporting unit was calculated using a weighted combination of the income approach, which estimates fair value based on discounted cash flows, and the market approach, which estimates fair value based on market comparables within the utility and energy industries. Determining the fair value of a reporting unit requires judgment and the use of significant estimates and assumptions. Such estimates and assumptions include, but are not limited to, forecasts of future operating results capital expenditures, tax rates, and projected terminal values and assumptions related to discount and growth rates and implied market multiples for a selected group of peer companies. Based on the September 30, 2020 analysis, the fair value of the ETG reporting unit closely approached, but exceeded, its carrying amount. Should economic conditions deteriorate in future periods or remain depressed for a prolonged period of time, estimates of future cash flows and market valuation assumptions may not be sufficient to support the carrying value, requiring impairment charges in the future.

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Evaluation of Equity Method Investments for Other-Than-Temporary Impairment - Our evaluation of impairment of equity method investments when conditions exist that could indicate that the fair value of the investment is less than book value includes key inputs that involve significant management judgments and estimates, including projections of the investment's cash flows, selection of a discount rate and probability weighting of potential outcomes of legal proceedings and other available options. Our evaluation also considered the current economic conditions as a result of COVID-19, noting that the timelines, potential options and legal proceedings have not been impacted. However, the legal proceedings could have unfavorable outcomes, or there could be other future unfavorable developments, such as a reduced likelihood of success from development options and legal outcomes, estimated increases in construction costs, increases in the discount rate, or further significant delays, or PennEast could conclude that the project is not viable or does not go forward as actions progress. These could impact our conclusions with respect to other-than-temporary impairment and may require that we recognize an impairment charge of up to our recorded investment in the project, net of any cash and working capital. See detailed discussion in Note 3 to the condensed consolidated financial statements, along with Note 3 to the Consolidated Financial Statements in Item 8 of SJI’s and SJG's Annual Report on Form 10-K for the year ended December 31, 2019.

Operating Segments:

SJI operates in several different reportable operating segments. These segments are as follows:

•SJG utility operations consist primarily of natural gas distribution to residential, commercial and industrial customers in southern New Jersey.

▪ETG utility operations consist of natural gas distribution to residential, commercial and industrial customers in northern and central New Jersey.

•ELK utility operations consist of natural gas distribution to residential, commercial and industrial customers in Maryland. As discussed in Note 1 to the condensed consolidated financial statements, on July 31, 2020, SJI sold ELK to a third-party buyer.

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

•Retail electric operations at SJE consist of electricity acquisition and transportation to commercial, industrial and residential customers.

•Appliance service operations includes SJESP, which receives commissions on service contracts from a third party.

•Midstream was formed to invest in infrastructure and other midstream projects, including a current project to build a natural gas pipeline in Pennsylvania and New Jersey.

•Corporate & Services segment includes costs related to acquisitions and divestitures, along with other unallocated costs. Also included in this segment are the results of SJEI.

•Intersegment represents intercompany transactions among the above SJI consolidated entities.

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SOUTH JERSEY INDUSTRIES, INC.

RESULTS OF OPERATIONS:

Summary:

SJI's net income for the three months ended September 30, 2020 increased $24.4 million to a net loss of $10.4 million compared with the same period in 2019. SJI's income from continuing operations for the three months ended September 30, 2020 increased $24.4 million to a net loss of $10.3 million compared with the same period in 2019. The significant drivers for the overall change were as follows (all numbers in the bullet points below are presented after-tax):

•The income contribution from on-site energy production at Marina for the three months ended September 30, 2020 increased $13.3 million to $13.7 million compared with the same period in 2019, primarily due to ITC recorded on assets of recently acquired fuel cell (Annadale) and solar projects as discussed in Note 1 to the condensed consolidated financial statements, along with a reduction in operations expenses.

•The income contribution from the wholesale energy operations at SJRG for the three months ended September 30, 2020 increased $8.3 million to $2.3 million compared with the same period in 2019, primarily due to higher margins on daily energy trading activities.

•The income contribution from gas utility operations at SJG for the three months ended September 30, 2020 increased $2.1 million to a loss of $9.5 million compared with the same period in 2019, primarily due to customer growth, the roll-in to rates of infrastructure program investments, and decreases in operations expense. These were partially offset with increases in depreciation and maintenance expenses.

•The income contribution from the gas utility operations at ETG for the three months ended September 30, 2020 increased $1.3 million to a loss of $8.6 million compared with the same period in 2019, primarily due to positive margins due to favorable changes in base rates resulting from the completion of ETG's rate case in November 2019, along with customer growth. This was partially offset with higher operations and depreciation expenses.

SJI's net income for the nine months ended September 30, 2020 increased $50.6 million to $88.0 million compared with the same period in 2019. SJI's income from continuing operations for the nine months ended September 30, 2020 increased $50.5 million to $88.2 million compared with the same period in 2019. The significant drivers for the overall change were as follows (all numbers in the bullet points below are presented after-tax):

•The income contribution from the wholesale energy operations at SJRG for the nine months ended September 30, 2020 increased $21.1 million to $12.4 million compared with the same period in 2019, primarily due to higher margins on daily energy trading activities, along with a refund received from a third party supplier as discussed in Note 1 to the condensed consolidated financial statements. Also contributing to the increase was the change in unrealized gains and losses on forward financial contracts due to price volatility.

•The income contribution from on-site energy production at Marina for the nine months ended September 30, 2020 increased $11.3 million to $10.3 million, primarily due to ITC recorded on assets of recently acquired fuel cell (Annadale) and solar projects as discussed in Note 1 to the condensed consolidated financial statements.

•The income contribution from the gas utility operations at ETG for the nine months ended September 30, 2020 increased $10.2 million to $27.3 million compared with the same period in 2019, primarily due to positive margins due to favorable changes in base rates resulting from the completion of ETG's rate case in November 2019, along with customer growth and lower maintenance expenses. This was partially offset with higher operations and depreciation expenses.

•The income contribution from gas utility operations at SJG for the nine months ended September 30, 2020 increased $5.6 million to $64.7 million compared with the same period in 2019, primarily due to customer growth and the roll-in to rates of infrastructure program investments. SJG's utility margin increased from its CIP mechanism as discussed in "Utility Margin - SJG Utility Operations" below. These were partially offset with increases in depreciation and maintenance expenses, along with a one-time tax adjustment resulting from SJG's Stipulation of Settlement with the BPU as part of its recent rate case filing (see Note 7 to the condensed consolidated financial statements).

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•SJI incurred $1.8 million less severance and other employee separation costs during the nine months ended September 30, 2020 compared with the same period in 2019.

A significant portion of the volatility in operating results is due to the impact of the accounting methods associated with SJI’s derivative activities. SJI uses derivatives to limit its exposure to market risk on transactions to buy, sell, transport and store natural gas and to buy and sell retail electricity. SJI also uses derivatives to limit its exposure to increasing interest rates on variable-rate debt.

The types of transactions that typically cause the most significant volatility in operating results are as follows:

•The wholesale energy operations at SJRG purchases and holds natural gas in storage and maintains capacity on interstate pipelines to earn profit margins in the future. The wholesale energy operations utilize derivatives to mitigate price risk in order to substantially lock-in the profit margin that will ultimately be realized. However, both gas stored in inventory and pipeline capacity are not considered derivatives and are not subject to fair value accounting. Conversely, the derivatives used to reduce the risk associated with a change in the value of inventory and pipeline capacity are accounted for at fair value, with changes in fair value recorded in operating results in the period of change. As a result, earnings are subject to volatility as the market price of derivatives change, even when the underlying hedged value of inventory and pipeline capacity are unchanged. Additionally, volatility in earnings is created when realized gains and losses on derivatives used to mitigate commodity price risk on expected future purchases of gas injected into storage are recognized in earnings when the derivatives settle, but the cost of the related gas in storage is not recognized in earnings until the period of withdrawal. This volatility can be significant from period to period. Over time, gains or losses on the sale of gas in storage, as well as use of capacity, will be offset by losses or gains on the derivatives, resulting in the realization of the profit margin expected when the transactions were initiated.

•The retail electric operations at SJE use forward contracts to mitigate commodity price risk on fixed price electric contracts with customers. In accordance with GAAP, the forward contracts are recorded at fair value, with changes in fair value recorded in earnings in the period of change. Several related customer contracts are not considered derivatives and, therefore, are not recorded in earnings until the electricity is delivered. As a result, earnings are subject to volatility as the market price of the forward contracts change, even when the underlying hedged value of the customer contract is unchanged. Over time, gains or losses on the sale of the fixed price electric under contract will be offset by losses or gains on the forward contracts, resulting in the realization of the profit margin expected when the transactions were initiated.

As a result, management also uses the non-GAAP financial measures of Economic Earnings and Economic Earnings per share when evaluating its results of operations. These non-GAAP financial measures should not be considered as an alternative to GAAP measures, such as net income, operating income, earnings per share from continuing operations or any other GAAP measure of financial performance.

We define Economic Earnings as: Income from continuing operations, (i) less the change in unrealized gains and plus the change in unrealized losses on non-utility derivative transactions; and (ii) less the impact of transactions, contractual arrangements or other events where management believes period to period comparisons of SJI's operations could be difficult or potentially confusing. With respect to part (ii) of the definition of Economic Earnings, several items are excluded from Economic Earnings for the three and nine months ended September 30, 2020 and 2019, consisting of the impact of pricing disputes with third parties, impairment charges recorded on solar generating facilities, costs incurred and gains recognized related to the acquisitions of EnerConnex and Annadale (fuel cell projects), costs to prepare to exit the transaction service agreement (TSA), costs incurred and gains/losses recognized on sales of solar, MTF/ACB, and ELK, costs incurred to cease operations at three landfill gas-to-energy-production facilities, severance and other employee separation costs, and a one-time tax adjustment resulting from SJG's Stipulation of Settlement with the BPU. See (A)-(F) in the table below.

Economic Earnings is a significant financial measure used by our management to indicate the amount and timing of income from continuing operations that we expect to earn after taking into account the impact of derivative instruments on the related transactions, as well as the impact of contractual arrangements and other events that management believes make period to period comparisons of SJI's operations difficult or potentially confusing. Management uses Economic Earnings to manage its business and to determine such items as incentive/compensation arrangements and allocation of resources. Specifically regarding derivatives, we believe that this financial measure indicates to investors the profitability of the entire derivative-related transaction and not just the portion that is subject to mark-to-market valuation under GAAP. We believe that considering

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only the change in market value on the derivative side of the transaction can produce a false sense as to the ultimate profitability of the total transaction as no change in value is reflected for the non-derivative portion of the transaction.

Economic Earnings for the three months ended September 30, 2020 increased $21.5 million to a loss of $6.0 million compared with the same period in 2019. The significant drivers for the overall change were as follows (all numbers in the bullet points below are presented after-tax):

•The Economic Earnings contribution from on-site energy production at Marina for the three months ended September 30, 2020 increased $12.7 million to $13.8 million, primarily due to ITC recorded on assets of recently acquired fuel cell (Annadale) and solar projects as discussed in Note 1 to the condensed consolidated financial statements, along with a reduction in operations expenses.

•The Economic Earnings contribution from the wholesale energy operations at SJRG for the three months ended September 30, 2020 increased $8.1 million to $7.0 million compared with the same period in 2019, primarily due to higher margins on daily energy trading activities.

•The Economic Earnings contribution from gas utility operations at SJG for the three months ended September 30, 2020 increased $2.1 million to a loss of $9.5 million compared with the same period in 2019, primarily due to customer growth, the roll-in to rates of infrastructure program investments, and decreases in operations expense. These were partially offset with increases in depreciation and maintenance expenses.

•The Economic Earnings contribution from gas utility operations at ETG for the three months ended September 30, 2020 increased $1.3 million to a loss of $8.6 million compared with the same period in 2019, primarily due to positive margins due to favorable changes in base rates resulting from the completion of ETG's rate case in November 2019, along with customer growth. This was partially offset with higher operations and depreciation expenses.

Economic Earnings for the nine months ended September 30, 2020 increased $40.3 million to $100.0 million compared with the same period in 2019. The significant drivers for the overall change were as follows (all numbers in the bullet points below are presented after-tax):

•The Economic Earnings contribution from the wholesale energy operations at SJRG for the nine months ended September 30, 2020 increased $13.8 million to $18.0 million compared with the same period in 2019, primarily due to higher margins on daily energy trading activities, along with a refund received from a third party supplier as discussed in Note 1 to the condensed consolidated financial statements.

•The Economic Earnings contribution from on-site energy production at Marina for the nine months ended September 30, 2020 increased $12.9 million to $10.9 million, primarily due to ITC recorded on assets of recently acquired fuel cell (Annadale) and solar projects as discussed in Note 1 to the condensed consolidated financial statements.

•The Economic Earnings contribution from gas utility operations at ETG for the nine months ended September 30, 2020 increased $10.2 million to $27.3 million compared with the same period in 2019, primarily due to positive margins due to favorable changes in base rates resulting from the completion of ETG's rate case in November 2019, along with customer growth and lower maintenance expenses. This was partially offset with higher operations and depreciation expenses.

•The Economic Earnings contribution from gas utility operations at SJG for the nine months ended September 30, 2020 increased $6.8 million to $65.9 million compared with the same period in 2019, primarily due to customer growth and the roll-in to rates of infrastructure program investments. SJG's utility margin increased from its CIP mechanism as discussed in "Utility Margin - SJG Utility Operations" below. These were partially offset with increases in depreciation and maintenance expenses.

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The following table presents a reconciliation of SJI's income from continuing operations and earnings per share from continuing operations to Economic Earnings and Economic Earnings per share for the three and nine months ended September 30 (in thousands, except per share data):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
(Loss) Income from Continuing Operations	$	(10,344)	$	(34,746)	$	88,178	$	37,649
Minus/Plus:
Unrealized Mark-to-Market Losses on Derivatives	5,904		7,324		11,847		22,362
Loss on Property, Plant and Equipment (A)	—		1,296		—		1,296
Net Losses from a Legal Proceeding in a Pricing Dispute (B)	—		359		—		2,336
Acquisition/Sale Net Costs (Gains) (C)	(77)		540		1,241		703
Other Costs (D)	77		299		977		3,294
Income Taxes (E)	(1,564)		(2,605)		(3,484)		(7,957)
Additional Tax Adjustments (F)	—		—		1,214		—
Economic Earnings	$	(6,004)	$	(27,533)	$	99,973	$	59,683

(Loss) Earnings per Share from Continuing Operations	$	(0.10)	$	(0.38)	$	0.92	$	0.41
Minus/Plus:
Unrealized Mark-to-Market Losses on Derivatives	0.06		0.08		0.12		0.24
Loss on Property, Plant and Equipment (A)	—		0.02		—		0.02
Net Losses from a Legal Proceeding in a Pricing Dispute (B)	—		—		—		0.02
Acquisition/Sale Net Costs (Gains) (C)	—		0.01		0.01		0.01
Other Costs (D)	—		—		0.01		0.04
Income Taxes (E)	(0.02)		(0.03)		(0.03)		(0.09)
Additional Tax Adjustments (F)	—		—		0.01		—
Economic Earnings per Share	$	(0.06)	$	(0.30)	$	1.04	$	0.65

The following table presents a reconciliation of SJG's income from continuing operations to Economic Earnings for the three and nine months ended September 30 (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
(Loss) Income from Continuing Operations	$	(9,543)	$	(11,604)	$	64,657	$	59,104
Plus:
Additional Tax Adjustments (F)	—		—		1,214		—
Economic Earnings	$	(9,543)	$	(11,604)	$	65,871	$	59,104

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The effect of derivative instruments not designated as hedging instruments under GAAP in the condensed consolidated statements of income/(loss) (see Note 12 to the condensed consolidated financial statements), as compared to the Economic Earnings table above, is as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Losses on Energy Related Commodity Contracts	$	(6,246)	$	(6,187)	$	(7,807)	$	(18,390)
Gains (Losses) on Interest Rate Contracts	342		(1,137)		(4,040)		(3,972)
Total unrealized mark-to-market losses on derivatives	(5,904)		(7,324)		(11,847)		(22,362)
Loss on Property, Plant and Equipment (A)	—		(1,296)		—		(1,296)
Net Losses from a Legal Proceeding in a Pricing Dispute (B)	—		(359)		—		(2,336)
Acquisition/Sale Net (Costs) Gains (C)	77		(540)		(1,241)		(703)
Other Costs (D)	(77)		(299)		(977)		(3,294)
Income Taxes (E)	1,564		2,605		3,484		7,957
Additional Tax Adjustments (F)	—		—		(1,214)		—
Total reconciling items between (losses) income from continuing operations and economic earnings	$	(4,340)	$	(7,213)	$	(11,795)	$	(22,034)

(A) Represents impairment charges recorded on solar generating facilities in 2019, which were primarily driven by the expected purchase price of one of the unsold solar sites being less than its carrying value.

(B) Represents net losses, including interest, legal fees, and the realized difference in the market value of the commodity (including financial hedges), resulting from a ruling in a legal proceeding related to a pricing dispute between SJI and a gas supplier that began in October 2014.

•Costs incurred to acquire EnerConnex, Annadale, and four solar LLCs

•Gain recorded on the step-acquisition of EnerConnex

•Costs incurred and gains recognized on the sale of certain solar assets included in Assets Held for Sale in previous periods as well as MTF/ACB and ELK

•Costs incurred to prepare to exit the TSA

(D) Represents severance and other employee separation costs, along with costs incurred to cease operations at three landfill gas-to-energy production facilities.

(E) The income taxes on (A) through (D) above were determined using a combined average statutory tax rate for the three and nine months ended September 30, 2020 and 2019.

(F) Represents a one-time tax adjustment resulting from SJG's Stipulation of Settlement with the BPU, as part of its recent rate case filing.

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SJI Utilities:

SJG Utility Operations:

The following tables summarize the composition of SJG utility operations operating revenues and margin for the three and nine months ended September 30 (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Utility Operating Revenues:
Firm Sales -
Residential	$	35,711	$	30,267	$	252,114	$	237,372
Commercial	9,308		8,448		52,830		54,863
Industrial	218		352		1,797		2,887
Cogeneration & Electric Generation	1,186		1,899		2,226		2,870
Firm Transportation -
Residential	1,045		989		6,986		7,517
Commercial	5,115		4,682		26,492		26,635
Industrial	6,310		5,909		18,574		18,159
Cogeneration & Electric Generation	862		1,089		3,377		4,058

Total Firm Revenues	59,755		53,635		364,396		354,361

Interruptible Sales	1		—		16		62
Interruptible Transportation	207		241		823		881
Off-System Sales	5,214		6,292		24,748		35,838
Capacity Release	839		1,568		3,529		4,519
Other	174		303		554		844
	66,190		62,039		394,066		396,505
Less: Intercompany Sales	(595)		(1,174)		(2,252)		(3,808)
Total Utility Operating Revenues	65,595		60,865		391,814		392,697
Less:
Cost of Sales - Utility	20,575		19,268		126,655		140,802
Less: Intercompany Cost of Sales	(595)		(1,174)		(2,252)		(3,808)
Total Cost of Sales - Utility (Excluding Depreciation & Amortization) (A)	19,980		18,094		124,403		136,994
Less: Depreciation & Amortization (A)	25,600		23,410		75,710		68,894
Total GAAP Gross Margin	20,015		19,361		191,701		186,809
Add: Depreciation & Amortization (A)	25,600		23,410		75,710		68,894
Less: Conservation Recoveries (B)	978		1,290		7,853		10,648
Less: RAC Recoveries (B)	6,233		5,219		18,699		15,657
Less: EET Recoveries (B)	1,896		1,024		4,260		2,170
Less: Revenue Taxes	182		175		918		1,055
Utility Margin (C)	$	36,326	$	35,063	$	235,681	$	226,173

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	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Utility Margin:
Residential	$	25,109	$	20,432	$	144,977	$	147,244
Commercial and Industrial	13,695		12,559		60,771		64,381
Cogeneration and Electric Generation	1,120		1,223		3,471		3,491
Interruptible	8		19		41		62
Off-System Sales & Capacity Release	222		489		1,178		2,675
Other Revenues	457		469		1,118		1,256
Margin Before Weather Normalization & Decoupling	40,611		35,191		211,556		219,109
CIP Mechanism	(5,770)		(1,248)		19,593		4,008
EET Mechanism	1,485		1,120		4,532		3,056
Utility Margin (C)	$	36,326	$	35,063	$	235,681	$	226,173

(A) Does not include amortization of debt issuance costs that are recorded as Interest Charges on the condensed consolidated statements of income/(loss).

(B) Represents pass-through expenses for which there is a corresponding credit in operating revenues. Therefore, such recoveries have no impact on SJG's financial results.

(C) Utility Margin is a non-GAAP financial measure and is further defined under the caption "Utility Margin - SJG Utility Operations" below.

Operating Revenues - SJG Utility Operations

Revenues from the gas utility operations at SJG increased $4.2 million, or 6.7%, for the three months ended September 30, 2020 compared with the same period in 2019. Excluding intercompany transactions, revenues increased $4.7 million, or 7.8%, for the three months ended September 30, 2020 compared with the same period in 2019. The significant drivers for the overall change were as follows:

•Total firm revenue increased $6.1 million for the three months ended September 30, 2020 compared with the same period in 2019, primarily due to customer growth and an increase in base rates during the third quarter of 2020. While changes in gas costs and BGSS recoveries/refunds fluctuate from period to period, SJG does not profit from the sale of the commodity. Therefore, corresponding fluctuations in Operating Revenue or Cost of Sales have no impact on profitability, as further discussed below under the caption "Utility Margin."

•Partially offsetting these increases was OSS, which decreased $1.1 million for the three months ended September 30, 2020 compared with the same period in 2019, primarily due to decreased commodity costs as a result of lower cash market prices and lower demand. However, the impact of changes in OSS activity does not have a material impact on the earnings of SJG, as SJG is required to return 93% of the profits of such activity to its ratepayers. Earnings from OSS can be seen in the “Margin” table above.

Revenues from the gas utility operations at SJG decreased $2.4 million, or 0.6%, for the nine months ended September 30, 2020 compared with the same period in 2019. Excluding intercompany transactions, revenues decreased $0.9 million, or 0.2%, for the nine months ended September 30, 2020 compared with the same period in 2019. The significant drivers for the overall change were as follows:

•Total OSS decreased $11.1 million for the nine months ended September 30, 2020 compared with the same period in 2019 primarily due to lower commodity costs as a result of lower cash market prices and lower demand, along with warmer weather during the first quarter of 2020. However, the impact of changes in OSS do not have a material impact on the earnings of SJG as discussed above.

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•Partially offsetting these decreases was firm revenue, which increased $10.0 million for the nine months ended September 30, 2020 compared with the same period in 2019 primarily due to customer growth and a higher BGSS refund to customers in 2019 compared to 2020. Partially offsetting this increase was warmer weather during the first quarter of 2020. SJG does not profit from the sale of the commodity as discussed above.

Utility Margin - SJG Utility Operations

Management uses Utility Margin, a non-GAAP financial measure, when evaluating the operating results of SJG. Utility Margin is defined as natural gas revenues plus depreciation and amortization expenses, less natural gas costs, regulatory rider expenses and related volumetric and revenue-based energy taxes. Management believes that Utility Margin provides a more meaningful basis for evaluating utility operations than revenues since natural gas costs, regulatory rider expenses and related energy taxes are passed through to customers, and since depreciation and amortization expenses are considered to be administrative. Natural gas costs are charged to operating expenses on the basis of therm sales at the prices approved by the BPU through SJG’s BGSS clause. Non-GAAP financial measures are not in accordance with, or an alternative to, GAAP and should be considered in addition to, and not as a substitute for, the comparable GAAP measure.

Total Utility Margin increased $1.3 million, or 3.6%, and $9.5 million, or 4.2%, for the three and nine months ended September 30, 2020, respectively, compared with the same periods in 2019. The increase is primarily due to customer growth and the roll-in to rates of infrastructure program investments. Also contributing to SJG's Utility Margin is the CIP tracking mechanism, which adjusts earnings when actual usage per customer experienced during the period varies from an established baseline usage per customer. As reflected in the Utility Margin table above and the CIP table in SJG's Management Discussion section, changes year over year to the CIP mechanism are primarily due to variation in customer usage compared to the same period in 2019. Partially offsetting the nine month comparative period increases is warmer weather in the first three months of 2020 compared to the same period in the prior year.

ETG Utility Operations:

The following tables summarize the composition of regulated natural gas utility operations, operating revenues and margin at ETG for the three and nine months ended September 30 (in thousands, except for degree day data).


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Utility Operating Revenues:
Firm & Interruptible Sales -
Residential	$	20,388	$	15,950	$	157,263	$	139,343
Commercial & Industrial	8,233		6,713		44,606		44,158
Firm & Interruptible Transportation -
Residential	238		141		1,510		1,136
Commercial & Industrial	8,453		6,085		31,962		25,104
Other	191		1,730		4,162		5,906
Total Firm & Interruptible Revenues	37,503		30,619		239,503		215,647

Less: Total Cost of Sales - Utility (Excluding Depreciation & Amortization) (A)	9,142		8,069		83,186		92,131
Less: Depreciation & Amortization (A)	10,187		7,335		29,368		20,539
Total GAAP Gross Margin	18,174		15,215		126,949		102,977
Add: Depreciation & Amortization (A)	10,187		7,335		29,368		20,539
Less: Regulatory Rider Expenses (B)	2,012		1,357		11,060		4,816
Utility Margin (C)	$	26,349	$	21,193	$	145,257	$	118,700

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	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Utility Margin:
Residential	$	14,281	$	10,560	$	93,849	$	73,061
Commercial & Industrial	13,870		10,209		57,419		44,317
Regulatory Rider Expenses (B)	(1,802)		424		(6,011)		1,322
Utility Margin (C)	$	26,349	$	21,193	$	145,257	$	118,700

(A) Does not include amortization of debt issuance costs that are recorded as Interest Charges on the condensed consolidated statements of income (loss).

(B) Represents pass-through expenses for which there is a corresponding credit in operating revenues. Therefore, such recoveries have no impact on ETG's financial results.

(C) Utility Margin is a non-GAAP financial measure and is further defined under the caption "Utility Margin - SJG Utility Operations" above. The definition of Utility Margin is the same for each of the Utilities.

ETG's business consists of natural gas distribution to residential, commercial and industrial customers in northern and central New Jersey. ETG's operating revenues consist of firm sales and transportation, as well as interruptible sales and transportation. ETG does not have any off-system sales. The Utility Margin at ETG is considered a non-GAAP measure and calculated the same as SJG as discussed under "Utility Margin" above.

Revenues from the gas utility operations at ETG increased $6.9 million, or 22.5%, and $23.9 million, or 11.1%, for the three and nine months ended September 30, 2020, respectively, compared with the same periods in 2019. Utility Margin from the gas utility operations at ETG increased $5.2 million, or 24.3%, and $26.6 million, or 22.4%, for the three and nine months ended September 30, 2020, respectively, compared with the same periods in 2019. These increases in revenues and Utility Margin compared to the prior year periods are primarily due to favorable changes in base rates resulting from the completion of ETG's rate case in November 2019, along with customer growth.

ELK Utility Operations:

The activities of ELK utility operations are not material to SJI's financial results. On July 31, 2020, SJI, through its wholly-owned subsidiary SJIU, closed on its transaction to sell ELK to a third-party buyer. See Note 1 to the condensed consolidated financial statements.

Nonutility:

Operating Revenues - Energy Group

Combined revenues for Energy Group, net of intercompany transactions, decreased $5.7 million, or 3.6%, to $151.0 million, and decreased $111.3 million, or 21.7%, to $402.6 million for the three and nine months ended September 30, 2020, respectively, compared with the same periods in 2019. The significant drivers for the overall change were as follows:

•Revenues from retail electric operations at SJE, net of intercompany transactions, decreased $13.2 million to $7.7 million and decreased $32.2 million to $29.3 million, for the three and nine months ended September 30, 2020, respectively, compared with the same periods in 2019, primarily due to lower overall sales volumes as SJE chose not to renew several contracts that have expired over the last twelve months. Partially offsetting the nine month comparative period decrease was the change in unrealized gains and losses recorded on forward financial contracts due to price volatility, which is excluded for Economic Earnings and represented a total increase $3.0 million for the nine months ended September 30, 2020 compared with the same period in 2019.

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SJE uses forward financial contracts to mitigate commodity price risk on fixed price electric contracts. In accordance with GAAP, the forward financial contracts are recorded at fair value, with changes in fair value recorded in earnings in the period of change. The related customer contracts are not considered derivatives and, therefore, are not recorded in earnings until the electricity is delivered. As a result, earnings are subject to volatility as the market price of the forward financial contracts change, even when the underlying hedged value of the customer contract is unchanged. Over time, gains or losses on the sale of the fixed price electric under contract will be offset by losses or gains on the forward financial contracts, resulting in the realization of the profit margin expected when the transactions were initiated. The retail electric operations at SJE serve both fixed and market-priced customers.

•Revenues from wholesale energy operations at SJRG, net of intercompany transactions, increased $7.5 million to $143.3 million for the three months ended September 30, 2020 compared with the same period in 2019, primarily due to higher margins on daily energy trading activities, along with revenues earned on gas supply contracts with two electric generation facilities that began operating in 2020. These increases were partially offset by decreases in the average monthly NYMEX settle price.

•Revenues from wholesale energy operations at SJRG, net of intercompany transactions, decreased $79.1 million to $373.1 million for the nine months ended September 30, 2020 compared with the same period in 2019, primarily due to decreases in the average monthly NYMEX settle price, along with maintenance and scheduled outages at several electric generation facilities during the first quarter of 2020. These nine month comparative period decreases were partially offset by higher margins on daily energy trading activities, as well as revenues earned on gas supply contracts with two electric generation facilities that began operating in 2020. Also impacting the nine month comparative period revenues was the change in unrealized gains and losses recorded on forward financial contracts due to price volatility, which is excluded for Economic Earnings and represented a total increase of $7.6 million for the nine months ended September 30, 2020 compared with the same period in 2019.

As discussed in Note 1 to the condensed consolidated financial statements, revenues and expenses related to the energy trading activities of the wholesale energy operations at SJRG are presented on a net basis in Operating Revenues – Nonutility on the condensed consolidated statement of income (loss).

Operating Revenues - Energy Services

Combined revenues for Energy Services, net of intercompany transactions, decreased $4.8 million, or 39.7%, to $7.3 million, and decreased $20.9 million, or 55.1%, to $17.1 million for the three and nine months ended September 30, 2020, respectively, compared with the same periods in 2019. The significant drivers for the overall change were as follows:

•Revenues from on-site energy production at Marina, net of intercompany transactions, decreased $5.2 million to $6.1 million and decreased $22.0 million to $14.2 million for the three and nine months ended September 30, 2020, respectively, compared with the same periods in 2019, primarily due to lack of revenues from MTF and ACB subsequent to the sale that was completed February 18, 2020 (see Note 1 to the condensed consolidated financial statements).

•The change in revenues from appliance service operations at SJESP, net of intercompany transactions, was not significant.

Gross Margin - Energy Group & Energy Services

Gross margin for the Energy Group and Energy Services businesses is a GAAP measure and is defined as revenue less all costs that are directly related to the production, sale and delivery of SJI's products and services. These costs primarily include natural gas and electric commodity costs as well as certain payroll and related benefits. On the condensed consolidated statements of income/(loss), revenue is reflected in Operating Revenues - Nonutility and the costs are reflected in Cost of Sales - Nonutility. As discussed in Note 1 to the condensed consolidated financial statements, revenues and expenses related to the energy trading activities of the wholesale energy operations at SJRG are presented on a net basis in Operating Revenues - Nonutility on the condensed consolidated statements of income/(loss).

Gross margin is broken out between Energy Group and Energy Services, which are comprised of a group of segments as described in Note 6 to the condensed consolidated financial statements.

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Gross Margin - Energy Group

Combined gross margins for Energy Group increased $9.6 million to $4.5 million and increased $30.4 million to $23.7 million for the three and nine months ended September 30, 2020, respectively, compared with the same periods in 2019. The significant drivers for the overall change were as follows:

•Gross margin from the wholesale energy operations at SJRG increased $10.7 million to $4.8 million, and increased $29.1 million to $23.6 million for the three and nine months ended September 30, 2020, respectively, compared with the same periods in 2019, primarily due to higher margins on daily energy trading activities. Also contributing to the nine month comparative period increase was a refund received from a third party gas supplier as discussed in Note 1 to the condensed consolidated financial statements, as well as the change in unrealized gains and losses recorded on forward financial contracts due to price volatility, which is excluded for Economic Earnings and represented a total increase of $7.6 million for the nine months ended September 30, 2020, respectively, compared with the same period in 2019.

The wholesale energy operations at SJRG are expected to continue to add incremental margin from marketing and related opportunities in the Marcellus region, capitalizing on its established presence in the area. Future margins could fluctuate significantly due to the volatile nature of wholesale gas prices.

•Gross margin from SJE’s retail electric operations decreased $1.1 million to a loss of $0.3 million for the three months ended September 30, 2020 compared with the same period in 2019, primarily due to overall lower sales volumes as SJE chose not to renew several contracts that have expired over the last twelve months. Gross margin from SJE's retail electric operations increased $1.2 million to a loss of $0.1 million for the nine months ended September 30, 2020 compared with the same period in 2019 primarily due to the change in unrealized gains and losses recorded on forward financial contracts due to price volatility, which is excluded for Economic Earnings and represented a total increase of $3.0 million for the nine months ended September 30, 2020 compared with the same period in 2019. Partially offsetting this nine month comparative period increase is overall lower sales volumes as SJE did not renew several contracts that have expired over the last twelve months.

Gross Margin - Energy Services

Combined gross margins for Energy Services decreased $3.0 million to $7.0 million and decreased $15.8 million to $16.5 million for the three and nine months ended September 30, 2020, respectively, compared with the same periods in 2019. The significant drivers for the overall change were as follows:

•Gross margin from on-site energy production at Marina decreased $3.2 million to $6.1 million and decreased $16.6 million to $13.9 million for the three and nine months ended September 30, 2020, respectively, compared with the same periods in 2019, primarily due to lack of margin from MTF and ACB subsequent to the sale that was completed February 18, 2020 (see Note 1 to the condensed consolidated financial statements).

•The change in gross margin from appliance service operations at SJESP was not significant.

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Operating Expenses - All Segments:

A summary of net changes in operations expense for the three and nine months ended September 30, follows (in thousands):


	Three Months Ended September 30, 2020 vs. 2019		Nine Months Ended September 30, 2020 vs. 2019
SJI Utilities:
SJG Utility Operations	$	(1,092)	$	(1,406)
ETG Utility Operations	823		9,173
ELK Utility Operations	(125)		(230)
Subtotal SJI Utilities	(394)		7,537
Nonutility:
Energy Group:
Wholesale Energy Operations	(381)		(263)
Retail Electric Operations	(283)		(285)
Subtotal Energy Group	(664)		(548)
Energy Services:
On-Site Energy Production	(3,092)		(10,665)
Appliance Service Operations	(140)		(41)
Subtotal Energy Services	(3,232)		(10,706)
Midstream	84		312
Corporate & Services and Intercompany Eliminations	3,678		(1,545)
Total Operations Expense	$	(528)	$	(4,950)

Operations Expense

SJG utility operations expense decreased $1.1 million and $1.4 million for the three and nine months ended September 30, 2020, respectively, compared with the same periods in 2019. These decreases were primarily due to the operation of SJG’s CLEP and EEP, which experienced an aggregate net decrease. Such costs are recovered on a dollar-for-dollar basis; therefore, SJG experienced offsetting decreases in revenue during the three and nine months ended September 30, 2020, respectively, compared with the same periods in the prior year.

The change in ETG utility operations expense for the three months ended September 30, 2020 compared with the same period in 2019 was not significant. ETG utility operations expense increased $9.2 million for the nine months ended September 30, 2020 compared with the same period in 2019, primarily due to the operation of ETG's RAC, which experienced an aggregate net increase. Such costs are recovered on a dollar-for-dollar basis; therefore, ETG experienced an offsetting increase in revenue during the nine months ended September 30, 2020 compared with the same period in the prior year. Also contributing to the nine month comparative period increase was higher expenses in various areas, including those associated with corporate support, governance and compliance costs.

Combined operations expense for Energy Group and Energy Services decreased $3.9 million and $11.3 million for the three and nine months ended September 30, 2020, respectively, compared with the same periods in 2019, primarily due to the sale of MTF and ACB (see Note 1 to the condensed consolidated financial statements).

Operations expense for the Corporate & Services segment increased $3.7 million for the three months ended September 30, 2020 compared with the same period in 2019, primarily due to an increase in corporate salary and benefit costs and corporate consulting and other professional service expenses, along with an increase in operations expense at SJEI due to the acquisitions of AEP and EnerConnex (see Note 1 to the condensed consolidated financial statements) and intercompany eliminations. The Corporate & Services segment had a $1.5 million decrease in Operations Expense for the nine months ended September 30, 2020 compared with the same period in 2019, primarily due to less severance and other employee separation costs and less costs incurred to exit the TSA, which occurred in March 2020, along with intercompany eliminations. This nine month

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comparative period decrease was partially offset by an increase in operations expense at SJEI due to the acquisitions of AEP and EnerConnex (see Note 1 to the condensed consolidated financial statements).

Maintenance - The change in maintenance expense for the three and nine months ended September 30, 2020, respectively, compared with the same periods in 2019 was not significant.

Depreciation - Depreciation increased $3.0 million and $9.1 million for the three and nine months ended September 30, 2020, respectively, compared with the same periods in 2019, primarily due to increased investment in property, plant and equipment by the gas utility operations of SJG and ETG. This was partially offset by reduced depreciation expense at Marina as a result of the MTF & ACB sale (see Note 1 to the condensed consolidated financial statements).

Energy and Other Taxes - The change in energy and other taxes for the three and nine months ended September 30, 2020, respectively, compared with the same periods in 2019 was not significant.

Other Income and Expense - Other income and expense increased $4.5 million and $5.4 million for the three and nine months ended September 30, 2020, respectively, compared with the same periods in 2019, primarily due to the step acquisition gain recorded in connection with the EnerConnex acquisition (see Notes 1 and 17 to the condensed consolidated financial statements), along with higher investment performance and higher SJG AFUDC income.

Interest Charges – The change in interest charges for the three months ended September 30, 2020 compared with the same period in 2019 was not significant. Interest charges increased $2.9 million for the nine months ended September 30, 2020 compared with the same period in 2019, primarily due to interest incurred on higher amounts of long-term debt outstanding at SJI and SJG.

Income Taxes – Income tax benefit increased $8.5 million for the three months ended September 30, 2020 compared to the same period in 2019 primarily due to ITC recorded on the assets of recently acquired solar and fuel cell projects (see Note 1 to the condensed consolidated financial statements), partially offset by a lower loss before income taxes during the third quarter of 2020 compared to the prior year period. Income tax expense increased $4.3 million for the nine months ended September 30, 2020 compared with the same period in 2019, primarily due to the increase in income before income taxes in 2020 compared with the prior year, along with a one-time tax adjustment at SJG resulting from SJG's Stipulation of Settlement with the BPU as part of its recent rate case filing that occurred in the first quarter of 2020 (see Note 7 to the condensed consolidated financial statements). These were partially offset with the benefits from ITC recorded on the assets of recently acquired solar and fuel cell projects that had previously commenced construction (see Note 1 to the condensed consolidated financial statements).

Equity in Earnings of Affiliated Companies – The change in equity in earnings of affiliated companies for the three and nine months ended September 30, 2020, respectively, compared with the same periods in 2019 was not significant.

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LIQUIDITY AND CAPITAL RESOURCES:

Liquidity needs are driven by factors that include natural gas commodity prices; the impact of weather on customer bills; lags in fully collecting gas costs from customers under the BGSS charge and other regulatory clauses, settlement of legal matters, and environmental remediation expenditures through the RAC; working capital needs of SJI's energy trading and marketing activities; the timing of construction and remediation expenditures and related permanent financings; the timing of equity contributions to unconsolidated affiliates; mandated tax payment dates; both discretionary and required repayments of long-term debt; and the amounts and timing of dividend payments.

Cash flows for the period were the following (in thousands):


	Nine months ended September 30, 2020		Nine months ended September 30, 2019
Net Cash Provided by Operating Activities	$	254,200	$	121,416
Net Cash Used in Investing Activities	$	(297,319)	$	(327,481)
Net Cash Provided by Financing Activities	$	25,040	$	195,259

Cash Flows from Operating Activities — Liquidity needs are first met with net cash provided by operating activities. Net cash provided by operating activities varies from year-to-year primarily due to the impact of weather on customer demand and related gas purchases, customer usage factors related to conservation efforts and the price of the natural gas commodity, inventory utilization, and gas cost recoveries. Cash flows provided by operating activities in the first nine months of 2020 produced more net cash than the same period in 2019, primarily due to the following: (1) cash payments related to a legal proceeding of a pricing dispute which were paid during the third quarter of 2019 and did not recur in 2020; (2) a refund from a third party gas supplier that was received in July 2020 (see Note 1 to the condensed consolidated financial statements); (3) higher ETG revenues due to favorable changes in base rates resulting from the completion of ETG's rate case in November 2019 (see "ETG Utility Operations"); (4) higher margins and increased collections on daily energy trading activities at SJRG; and (5) customer growth and lower costs experienced at SJG for environmental remediation.

Cash Flows from Investing Activities — SJI has a continuing need for cash resources and capital, primarily to invest in new and replacement facilities and equipment. We estimate the cash outflows for investing activities, net of refinancings and returns/advances on investments from affiliates, for fiscal years 2020, 2021 and 2022 at SJI to be approximately $491.3 million, $777.3 million and $650.1 million, respectively. The high level of investing activities for 2020, 2021 and 2022 is due to the accelerated infrastructure investment programs and future capital expenditures at SJG and ETG, projected investment in PennEast in 2021 and 2022, and investments in future renewable energy projects. SJI expects to use short-term borrowings under lines of credit from commercial banks and a commercial paper program to finance these investing activities as incurred. From time to time, SJI may refinance the short-term debt with long-term debt.

Other significant investing activities of SJI during the first nine months of 2020 and 2019 were as follows:

•SJI received approximately $97.0 million from the sale of MTF and ACB during the nine months ended September 30, 2020.

•SJI received approximately $7.2 million and $26.4 million during the first nine months of 2020 and 2019, respectively, from the sale of certain solar assets.

•SJI received approximately $15.6 million during the three and nine months ended September 20, 2020 related to the sale of ELK.

•SJI paid approximately $10.9 million, net of cash acquired, for the acquisitions of EnerConnex and four solar LLC in 2020.

•SJI paid $54.3 million, net of cash acquired, to acquire a 93% ownership interest in Annadale.

•During the first nine months of 2019, SJI received $15.6 million as an adjustment to the purchase price related to the ETG/ELK Acquisition.

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•See Notes 1 and 17 to the consolidated financial statements for more information related to the acquisitions and sales made during the period.

Cash Flows from Financing Activities — Short-term borrowings from the commercial paper program and lines of credit from commercial banks are used to supplement cash flows from operations, to support working capital needs and to finance capital expenditures and acquisitions as incurred.

SJI supplements its operating cash flow, commercial paper program and credit lines with both debt and equity capital. Over the years, SJG has used long-term debt, primarily in the form of First Mortgage Bonds and Medium Term Notes, secured by the same pool of utility assets, to finance its long-term borrowing needs. These needs are primarily capital expenditures for property, plant and equipment.

Credit facilities and available liquidity as of September 30, 2020 were as follows (in thousands):


Company	Total Facility		Usage			Available Liquidity		Expiration Date
SJI:
SJI Syndicated Revolving Credit Facility	$	500,000	$	199,300	(A)	$	300,700	August 2022


Term Loan Credit Agreement	150,000		150,000			—		March 2021

Total SJI	650,000		349,300			300,700

SJG:
Commercial Paper Program/Revolving Credit Facility	200,000		108,700		(B)	91,300		August 2022
Uncommitted Bank Line	10,000		—			10,000		September 2021 (D)

Total SJG	210,000		108,700			101,300

ETG/SJIU:
ETG/SJIU Revolving Credit Facility	200,000		150,400		(C)	49,600		April 2022

Total	$	1,060,000	$	608,400		$	451,600

(A) Includes letters of credit outstanding in the amount of $9.6 million, which is used to enable SJE to market retail electricity as well as for various construction and operating activities.

(B) Includes letters of credit outstanding in the amount of $0.8 million, which supports the remediation of environmental conditions at certain locations in SJG's service territory.

(D) SJG renewed this facility during the third quarter of 2020.

Based upon the existing credit facilities and a regular dialogue with our banks, we believe there will continue to be sufficient credit available to meet our business’ future liquidity needs.

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The SJI and the Utilities principal credit facilities are provided by a syndicate of banks. The NPA for Senior Unsecured Notes issued by SJI, and the SJG credit facilities, contain a financial covenant limiting the ratio of indebtedness to total capitalization (as defined in the respective NPA or credit agreement) to not more than 0.70 to 1, measured at the end of each fiscal quarter. For SJI, the equity units are treated as equity (as opposed to how they are classified on the condensed consolidated balance sheet, as long-term debt) for purposes of the covenant calculation. SJI and the Utilities were in compliance with these covenants as of September 30, 2020.

For additional information regarding the terms of the credit facilities as well as weighted average interest rates, average borrowings outstanding and maximum amounts outstanding under these credit facilities see Note 10 to the condensed consolidated financial statements.

2020 Activity:

Debt Issuances/Paydowns

•$50.0 million outstanding on the SJI revolving credit facility, which was previously recorded in Notes Payable on the condensed consolidated balance sheets.

•$100.0 million SJI Term Loan, which was previously recorded in Notes Payable on the condensed consolidated balance sheets and due to mature in September 2020.

•$50.0 million SJI variable rate note, which was previously recorded in current portion of long-term debt on the condensed consolidated balance sheets.

On April 16, 2020, SJG entered into a NPA which provides for SJG to issue and sell its Senior Secured Notes, Series F, 2020 in the aggregate principal amount of $525.0 million in three Tranches, as follows: (a) Senior Secured Notes, Series F, 2020, Tranche A due April 16, 2030 in the aggregate principal amount of $150.0 million; (b) Senior Secured Notes, Series F, 2020, Tranche B due April 16, 2050 in the aggregate principal amount of $250.0 million; and (c) Senior Secured Notes, Series F, 2020, Tranche C due October 1, 2050 in the aggregate principal amount of $125.0 million. All of the Tranche A Notes and the Tranche B Notes were issued on April 16, 2020, and bear interest at 3.28% and 3.93%, respectively. The Tranche C Notes were issued on October 1, 2020 and bear interest at 3.98%. See Note 20 to the condensed consolidated financial statements.

On April 26, 2020, SJG used proceeds from Tranche A and B discussed above to pay off $400.0 million principal amount outstanding on its term loan credit agreement, which was previously recorded in current portion of long-term debt on the condensed consolidated balance sheets. SJG intends to use the Tranche C proceeds discussed above to repay short-term indebtedness and for general corporate purposes.

On May 27, 2020, SJI entered into a NPA which provides for the Company to issue an aggregate of $200.0 million of senior unsecured notes in two tranches, as follows: (a) Senior Notes, Series 2020A due July 30, 2027, in the aggregate principal amount of $75.0 million (the "Series 2020A Notes"); and (b) Senior Notes, Series 2020B due July 30, 2030, in the aggregate principal amount of $125.0 million (the "Series 2020B Notes"). The Company issued both tranches of the Notes on July 30, 2020. The Series 2020A Notes bear interest at 3.71% and the Series 2020B Notes bear interest at 3.91%. The proceeds from these issuances were used to pay off the unsecured $200.0 million term loan credit agreement issued in April 2020, which was paid off on July 31, 2020.

In September 2020, SJG paid off $10.0 million of the principal balance outstanding on its 3.00% MTNs.

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Equity Activity

In April 2020, SJI entered into an ATM Equity Offering Sales Agreement (the "Sales Agreement") to sell, from time to time, shares of the Company’s common stock, par value $1.25 per share, having an aggregate sale price up to $200.0 million, through an “at-the-market” equity offering program. Pursuant to the Sales Agreement, the shares of common stock were to be offered and sold through any of the named sales agents in negotiated transactions or transactions that are deemed to be “at-the-market” offerings. In June 2020, 8,122,283 shares were sold pursuant to the Sales Agreement at an average market price of approximately $24.62 for total net proceeds of $198.0 million after deducting commissions and other general & administrative expenses. These sales exhausted the shares that were available for sale under the Sales Agreement. The Company is using the net proceeds from this offering for general corporate purposes.

2019 Activity:

On January 15, 2019, SJI settled its equity forward sale agreement by physically delivering the remaining 6,779,661 shares of common stock and receiving net cash proceeds of approximately $189.0 million. The forward price used to determine cash proceeds received by SJI at settlement was calculated based on the initial forward sale price, as adjusted for underwriting fees, interest rate adjustments as specified in the equity forward agreement and any dividends paid on our common stock during the forward period.

During the nine months ended September 30, 2019, the following debt issuances/paydowns occurred:

•SJI offered and sold $200.0 million aggregate principal amount of the Company's 5.625% Junior Subordinated Notes due 2079. The total net cash proceeds, inclusive of a debt discount of $5.3 million, were $194.7 million.

•ETG entered into a Bond Purchase Agreement which provided for the issuance of a series of first mortgage bonds in an aggregate principal amount of $145.0 million, in four Tranches, as follows: (a) 2.84% First Mortgage Bonds, Series 2019A-1, due September 27, 2029 in the aggregate principal amount of $40.0 million, which were issued on September 27, 2019; (b) 2.84% First Mortgage Bonds, Series 2019A-2, due October 29, 2029 in the aggregate principal amount of $35.0 million; (c) 2.94% First Mortgage Bonds, Series 2019A-3, due November 26, 2031 in the aggregate principal amount of $25.0 million; and (d) 2.94% First Mortgage Bonds, Series 2019A-4, due December 27, 2031 in the aggregate principal amount of $45.0 million. Tranches (b), (c), and (d) were all issued during the fourth quarter of 2019.

•SJI repaid $475.0 million aggregate principal amount of Floating Rate Senior Notes, Series 2018D.

•SJI paid off $60.0 million principal amount outstanding on its 3.30% Senior Notes, Series 2014A-1, due June 26, 2019, and paid off $40.0 million principal amount outstanding on its Floating Rate Senior Notes, Series 2014B-1, due June 26, 2019.

•SJI paid off the $30.0 million principal amount outstanding on its 3.30% Senior Notes, Series 2014A-2, due August 15, 2019.

•SJI paid off the $50.0 million principal amount outstanding on its 3.30% Senior Notes, Series 2014A-3, due September 26, 2019, and paid off the $60.0 million principal amount outstanding on its Floating Rate Senior Notes, Series 2014B-2, due September 26, 2019.

•SJG paid off the $10.0 million principal amount outstanding on its 5.587% First Mortgage Bond due August 1, 2019.

•SJG issued $10.0 million of debt by drawing on its $400.0 million term loan credit agreement.

Current Portion of Long-Term Debt & Short-Term Borrowings - See Note 1 to the condensed consolidated financial statements.

DRP - See Note 4 to the condensed consolidated financial statements.

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SJI’s capital structure was as follows:


	As of September 30, 2020		As of December 31, 2019
Equity	33.3	%	29.6	%
Long-Term Debt	54.5	%	52.8	%
Short-Term Debt	12.2	%	17.6	%
Total	100.0	%	100.0	%

SJI has paid dividends on its common stock for 69 consecutive years and has increased that dividend each year for the last 21 years. SJI’s current long-term goals are to grow the dividend at a rate consistent with earnings growth over the long term, subject to the approval of its Board of Directors, with a targeted payout ratio of between 55% and 65% of Economic Earnings. In setting the dividend rate, the Board of Directors of SJI considers future earnings expectations, payout ratio, and dividend yield relative to those at peer companies, as well as returns available on other income-oriented investments. However, there can be no assurance that SJI will be able to continue to increase the dividend, meet the targeted payout ratio or pay a dividend at all in the future.

COMMITMENTS AND CONTINGENCIES:

Environmental Remediation - Costs for remediation projects, net of recoveries from ratepayers, for the first nine months of 2020 and 2019 amounted to net cash outflows of $17.2 million and $35.7 million, respectively. Total net cash outflows for remediation projects are expected to be $26.1 million, $42.3 million and $62.1 million for 2020, 2021 and 2022, respectively. As discussed in Notes 10 and 15 to the Consolidated Financial Statements in Item 8 of SJI’s and SJG's 10-K for the year ended December 31, 2019, certain environmental costs are subject to recovery from ratepayers.

Standby Letters of Credit - See Notes 10 and 11 to the condensed consolidated financial statements.

Contractual Obligations - There were no significant changes to SJI’s contractual obligations described in Note 15 to the Consolidated Financial Statements in Item 8 of SJI’s and SJG's Annual Report on Form 10-K for the year ended December 31, 2019, except for the following:

•RC Cape May Holdings, LLC has communicated to SJG that it no longer intends to proceed with a project to re-power the former BL England facility with natural gas. As of March 2020, SJG had determined that the project under construction will be abandoned. SJG requested that the project costs spent to date of $10.1 million be recovered as a regulatory asset within its March 2020 rate case petition filed with the BPU. As such, the amount has been reclassified from Utility Plant and is presented as a Regulatory Asset within the condensed consolidated balance sheets at September 30, 2020. During the third quarter of 2020, the BPU approved the recovery of these project costs over a five-year period. See Notes 7 and 8 to the condensed consolidated financial statements.

•Both SJI and SJG entered into agreements to issue or pay off short-term and long-term debt. See "Cash Flows from Financing Activities" above, along with Notes 10 and 14 to the condensed consolidated financial statements.

Off-Balance Sheet Arrangements – An off-balance sheet arrangement is any contractual arrangement involving an unconsolidated entity under which SJI has either made guarantees, or has certain other interests or obligations.

See "Guarantees" in Note 11 to the condensed consolidated financial statements for more detail.

Notes Receivable-Affiliates - See Note 3 to the condensed consolidated financial statements.

Litigation — SJI and SJG are subject to claims, actions and other legal proceedings arising in the ordinary course of business. See Note 11 to the condensed consolidated financial statements for more detail on these claims.

PennEast - See Note 3 to the condensed consolidated financial statements.

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SOUTH JERSEY GAS COMPANY

This section of Management’s Discussion focuses on SJG for the reported periods. In many cases, explanations and disclosures for both SJI and SJG are substantially the same or specific disclosures for SJG are included in the Management's Discussion for SJI.

RESULTS OF OPERATIONS:

The results of operations for the SJG utility operations are described in detail above; therefore, this section primarily focuses on statistical information and other information that is not discussed in the results of operations under South Jersey Industries, Inc. Refer to the section entitled “Results of Operations - SJG Utility Operations” for a detailed discussion of the results of operations for SJG.

The following table summarizes the composition of selected gas utility throughput for the three and nine month periods ended September 30, (in thousands):


	Three Months Ended September 30,		Nine Months Ended September 30,
	2020	2019	2020	2019
Utility Throughput – dts:
Firm Sales -
Residential	2,004	1,429	15,983	16,937
Commercial	732	627	4,003	4,614
Industrial	11	37	139	296
Cogeneration & Electric Generation	399	588	608	727
Firm Transportation -
Residential	79	63	689	814
Commercial	746	654	4,077	4,327
Industrial	2,235	2,161	7,201	7,141
Cogeneration & Electric Generation	1,361	1,523	2,800	3,890

Total Firm Throughput	7,567	7,082	35,500	38,746

Interruptible Sales	—	—	1	6
Interruptible Transportation	170	216	686	763
Off-System Sales	2,199	2,547	8,931	10,088
Capacity Release	20,570	27,988	59,360	70,222

Total Throughput - Utility	30,506	37,833	104,478	119,825

Throughput – Gas Utility Operations - Total gas throughput decreased 7.3 MMdts and 15.3 MMdts for the three and nine months ended September 30, 2020, respectively, compared with the same periods in 2019, primarily due to volume decreases in OSS and Capacity Release resulting from lower demand and warmer weather.

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CIP - The effects of the CIP on SJG's net income and the associated weather comparisons are as follows (dollars in millions):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net Income Impact:
CIP – Weather Related	$	—	$	—	$	11.0	$	5.0
CIP – Usage Related	(4.2)		(0.9)		3.2		(2.1)
Total Net Income Impact	$	(4.2)	$	(0.9)	$	14.2	$	2.9

Weather Compared to 20-Year Average	19.6% Colder		48.4% Colder		12.6% Warmer		269.6% Colder
Weather Compared to Prior Year	72.9% Colder		62.0% Colder		5.1% Warmer		4.3% Warmer

Operating Revenues & Margin - See SJI's Management Discussion section above.

Operating Expenses - A summary of changes in operating expenses for SJG is as follows (in thousands):


	Three Months Ended September 30, 2020 vs. 2019	Nine Months Ended September 30, 2020 vs. 2019
Operations	(1,092)	$	(1,406)
Maintenance	721	$	2,630
Depreciation	941	$	2,851
Energy and Other Taxes	35	$	(423)

Operations - See SJI's Management Discussion section above.

Maintenance - Maintenance expense increased $0.7 million and $2.6 million for the three and nine months ended September 30, 2020, respectively, compared with the same periods in 2019, primarily due to an increase in RAC amortization expense resulting from increased environmental expenditures.

Depreciation - Depreciation expense increased $0.9 million and $2.9 million for the three and nine months ended September 30, 2020, respectively, compared with the same periods in 2019, primarily due to New Jersey's infrastructure improvement efforts, which included the approval of SJG's AIRP and SHARP, in addition to significant investment in new technology systems.

Energy and Other Taxes - The change in energy and other taxes for the three and nine months ended September 30, 2020, respectively, compared with the same periods in 2019 was not significant.

Other Income and Expense - Other Income and Expense increased $0.7 million for the three months ended September 30, 2020 compared with the same period in 2019, primarily due to higher investment performance and higher AFUDC income. The change in other income and expense for the nine months ended September 30, 2020 compared with the same period in 2019 was not significant.

Interest Charges – The change in interest charges for the three and nine months ended September 30, 2020, respectively, compared with the same periods in 2019 was not significant.

Income Taxes – Income tax expense generally fluctuates as income before taxes changes. Minor variations will occur period to period as a result of effective tax rate adjustments. Also, during the first quarter of 2020, SJG recorded $1.2 million in tax expense related to a one-time tax adjustment resulting from its Stipulation of Settlement with the BPU, as part of its recent rate case filing (see Note 7 to the condensed consolidated financial statements).

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LIQUIDITY AND CAPITAL RESOURCES:

Liquidity and capital resources for SJG are substantially covered in the Management’s Discussion of SJI (except for the items and transactions that relate to SJI and its nonutility subsidiaries). Those explanations are incorporated by reference into this discussion.

Liquidity needs for SJG are driven by factors that include natural gas commodity prices; the impact of weather on customer bills; lags in fully collecting gas costs from customers under the BGSS charge, settlement of legal matters, and environmental remediation expenditures through the RAC; the timing of construction and remediation expenditures and related permanent financings; mandated tax payment dates; both discretionary and required repayments of long-term debt; and the amounts and timing of dividend payments.

Cash flows for the period were the following (in thousands):


	Nine months ended September 30, 2020		Nine months ended September 30, 2019
Net Cash Provided by Operating Activities	$	158,813	$	114,482
Net Cash Used in Investing Activities	(196,503)		(182,001)
Net Cash Provided by Financing Activities	32,666		67,688

Cash Flows from Operating Activities - Liquidity needs are first met with net cash provided by operating activities. Net cash provided by operating activities varies from year-to-year primarily due to the impact of weather on customer demand and related gas purchases, customer usage factors related to conversion efforts and the price of the natural gas commodity, inventory utilization, and gas cost recoveries. Cash flows provided by operating activities in the first nine months of 2020 produced more net cash than the same period in 2019, primarily due to a cash payment related to a legal proceeding of a pricing dispute which was paid during the third quarter of 2019 and did not recur in 2020, along with customer growth and lower costs for environmental remediation.

Cash Flows from Investing Activities - SJG has a continuing need for cash resources for capital expenditures, primarily to invest in new and replacement facilities and equipment. SJG estimates the net cash outflows for capital expenditures for fiscal years 2020, 2021 and 2022 to be approximately $283.3 million, $320.2 million and $327.1 million, respectively. For capital expenditures, including those under the AIRP and SHARP, SJG expects to use short-term borrowings under both its commercial paper program and lines of credit from commercial banks to finance capital expenditures as incurred. From time to time, SJG may refinance the short-term debt incurred to support capital expenditures with long-term debt.

Cash Flows from Financing Activities - SJG supplements its operating cash flow and credit lines with both debt and equity capital. Over the years, SJG has used long-term debt, primarily in the form of First Mortgage Bonds and Medium Term Notes, secured by the same pool of utility assets, to finance its long-term borrowing needs. These needs are primarily capital expenditures for property, plant and equipment.

See SJI's Management Discussion section above.

SJI contributed equity infusions of $100.0 million and $109.5 million to SJG during the three and nine months ended September 30, 2020, respectively. There were no equity infusions during the three and nine months ended September 30, 2019.

SJG’s capital structure was as follows:


	As of September 30, 2020		As of December 31, 2019
Common Equity	54.4	%	49.0	%
Long-Term Debt	41.0	%	43.3	%
Short-Term Debt	4.6	%	7.7	%

Total	100.0	%	100.0	%

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COMMITMENTS AND CONTINGENCIES:

Costs for remediation projects, net of recoveries from ratepayers, for the first nine months of 2020 and 2019 amounted to net cash outflows of $23.8 million and $29.6 million, respectively. Total net cash outflows for remediation projects are expected to be $20.2 million, $22.1 million and $30.2 million for 2020, 2021 and 2022, respectively. As discussed in Notes 10 and 15 to the Consolidated Financial Statements in Item 8 of SJI’s and SJG's 10-K for the year ended December 31, 2019, certain environmental costs are subject to recovery from ratepayers.

SJG has certain commitments for both pipeline capacity and gas supply for which SJG pays fees regardless of usage. Those commitments, as of September 30, 2020, averaged $71.8 million annually and totaled $384.4 million over the contracts’ lives. Approximately 33% of the financial commitments under these contracts expire during the next five years. SJG expects to renew each of these contracts under renewal provisions as provided in each contract. SJG recovers all such prudently incurred fees through rates via the BGSS.

Pending Litigation - See SJG's disclosure in the Commitments and Contingencies section of SJI's Management Discussion above.

Contractual Cash Obligations – There were no significant changes to SJG's contractual obligations described in Note 15 to the Consolidated Financial Statements in Item 8 of SJI’s and SJG's Annual Report on Form 10-K for the year ended December 31, 2019, other than the BL England facility (see SJI's Management Discussion section above).

Off-Balance Sheet Arrangements - SJG has no off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

SJI:

Commodity Market Risks — Certain SJI subsidiaries, including SJG, are involved in buying, selling, transporting and storing natural gas, and buying and selling retail electricity, for their own accounts as well as managing these activities for third parties. These subsidiaries are subject to market risk on expected future purchases and sales due to commodity price fluctuations. To hedge against this risk, SJI enters into a variety of physical and financial transactions including forward contracts, swaps, futures and options agreements. To manage these transactions, SJI has a well-defined risk management policy approved by SJI's Board of Directors that includes volumetric and monetary limits. Management reviews reports detailing activity daily. Generally, the derivative activities described above are entered into for risk management purposes.

As part of its gas purchasing strategy, SJG and ETG use financial contracts to hedge against forward price risk. These contracts are recoverable through SJG's and ETG's BGSS, subject to BPU approval.

SJRG manages risk for its own portfolio by entering into the types of transactions noted above. The retail electric operations of SJE use forward physical and financial contracts to mitigate commodity price risk on fixed price electric contracts. It is management's policy, to the extent practical, within predetermined risk management policy guidelines, to have limited unmatched positions on a deal or portfolio basis while conducting these activities. As a result of holding open positions to a minimal level, the economic impact of changes in value of a particular transaction is substantially offset by an opposite change in the related hedge transaction.

SJI has entered into certain contracts to buy, sell, and transport natural gas and to buy and sell retail electricity. SJI recorded net pre-tax unrealized (losses) of $(6.2) million for both the three months ended September 30, 2020 and 2019, and $(7.8) million and $(18.4) million for the nine months ended September 30, 2020 and 2019, respectively, which are included with realized (losses) in Operating Revenues - Nonutility on the condensed consolidated statements of income (loss).

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The fair value and maturity of these energy-related contracts determined under the mark-to-market method as of September 30, 2020 is as follows (in thousands):


Assets
Source of Fair Value	Maturity < 1 Year		Maturity 1 -3 Years		Maturity Beyond 3 Years		Total
Prices actively quoted	$	14,341	$	4,544	$	68	$	18,953
Prices provided by other external sources	12,937		3,401		538		16,876
Prices based on internal models or other valuation methods	9,263		1,554		302		11,119

Total	$	36,541	$	9,499	$	908	$	46,948

Liabilities
Source of Fair Value	Maturity <1 Year		Maturity 1 -3 Years		Maturity Beyond 3 Years		Total
Prices actively quoted	$	7,902	$	345	$	146	$	8,393
Prices provided by other external sources	13,053		2,749		552		16,354
Prices based on internal models or other valuation methods	4,050		652		8		4,710

Total	$	25,005	$	3,746	$	706	$	29,457

•NYMEX is the primary national commodities exchange on which natural gas is traded. Volumes of our NYMEX contracts included in the table above under "Prices actively quoted" are 43.3 MMdts with a weighted average settlement price of $2.58 per dt.

•Basis represents the differential to the NYMEX natural gas futures contract for delivering gas to a specific location. Volumes of our basis contracts, along with volumes of our discounted index related purchase and sales contracts, included in the table above under "Prices provided by other external sources" and "Prices based on internal models or other valuation methods" are 86.7 MMdts with a weighted average settlement price of $(0.18) per dt.

•Fixed Price Gas Daily represents the price of a NYMEX natural gas futures contract adjusted for the difference in price for delivering the gas at another location. Volumes of our Fixed Price Gas Daily contracts included in the table above under "Prices provided by other external sources" are 57.8 MMdts with a weighted average settlement price of $2.34 per dt.

•Volumes of electric included in the table above under "Prices based on internal models or other valuation methods" are not material.

A reconciliation of SJI’s estimated net fair value of energy-related derivatives follows (in thousands):


Net Derivatives — Energy Related Assets, January 1, 2020	$	9,964
Contracts Settled During the Nine Months Ended September 30, 2020, Net	(8,624)
Other Changes in Fair Value from Continuing and New Contracts, Net	16,151

Net Derivatives — Energy Related Assets, September 30, 2020	$	17,491

Interest Rate Risk — Our exposure to interest-rate risk relates to short-term and long-term variable-rate borrowings. Variable-rate debt outstanding, including short-term and long-term debt, at September 30, 2020 was $641.9 million and averaged $943.5 million during the first nine months of 2020. A hypothetical 100 basis point (1%) increase in interest rates on our average variable-rate debt outstanding would result in a $7.0 million increase in our annual interest expense, net of tax. The 100 basis point increase was chosen for illustrative purposes, as it provides a simple basis for calculating the impact of interest rate changes under a variety of interest rate scenarios. Over the past five years, the change in basis points (b.p.) of our average monthly interest rates from the beginning to end of each year was as follows: 2019 - 64 b.p. decrease; 2018 - 91 b.p. increase; 2017 - 82 b.p. increase; 2016 - 47 b.p. increase; and 2015 - 14 b.p. increase. At September 30, 2020, our average interest rate on variable-rate debt was 1.95%.

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We typically issue long-term debt either at fixed rates or use interest rate derivatives to limit our exposure to changes in interest rates on variable rate, long-term debt. As of September 30, 2020, the interest costs on $2.7 billion of our long-term debt (including current portion) was either at a fixed rate or hedged via an interest rate derivative.

As of September 30, 2020, SJI’s active interest rate swaps were as follows:


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

Credit Risk - As of September 30, 2020, SJI had approximately $5.7 million, or 12.2%, of the current and noncurrent Derivatives – Energy Related Assets transacted with two counterparties. These counterparties are investment-grade rated.

As of September 30, 2020, SJRG had $45.5 million of Accounts Receivable under sales contracts. Of that total, 21.2% were with regulated utilities or companies rated investment-grade or guaranteed by an investment-grade-rated parent or were with companies where we have a collateral arrangement or insurance coverage. The remainder of the Accounts Receivable were within approved credit limits.

SJG:

The fair value and maturity of SJG's energy trading and hedging contracts determined using mark-to-market accounting as of September 30, 2020 are as follows (in thousands):


Assets
Source of Fair Value	Maturity < 1 Year		Maturity 1 - 3 Years		Total
Prices actively quoted	$	1,756	$	425	$	2,181
Prices provided by other external sources	—		—		—
Prices based on internal models or other valuable methods	4,304		—		4,304

Total	$	6,060	$	425	$	6,485


Liabilities
	Maturity		Maturity
Source of Fair Value	< 1 Year		1 - 3 Years		Total
Prices actively quoted	$	338	$	—	$	338
Prices provided by other external sources	479		—		479
Prices based on internal models or other valuable methods	—		—		—

Total	$	817	$	—	$	817

Contracted volumes of SJG's NYMEX contracts are 12.4 MMdts with a weighted-average settlement price of $2.70 per dt. Contracted volumes of SJG's Basis contracts are 2.6 MMdts with a weighted-average settlement price of $0.48 per dt.

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A reconciliation of SJG's estimated net fair value of energy-related derivatives follows (in thousands):


Net Derivatives — Energy Related Assets, January 1, 2020	$	2,143
Contracts Settled During the Nine Months ended September 30, 2020, Net	(2,390)
Other Changes in Fair Value from Continuing and New Contracts, Net	5,915
Net Derivatives — Energy Related Assets, September 30, 2020	$	5,668

Interest Rate Risk - SJG's exposure to interest rate risk relates primarily to variable-rate borrowings. Variable-rate debt, including both short-term and long-term debt outstanding at September 30, 2020, was $107.9 million and averaged $316.4 million during the first nine months of 2020. A hypothetical 100 basis point (1%) increase in interest rates on SJG's average variable-rate debt outstanding would result in a $2.3 million increase in SJG's annual interest expense, net of tax. The 100 basis point increase was chosen for illustrative purposes, as it provides a simple basis for calculating the impact of interest rate changes under a variety of interest rate scenarios. Over the past five years, the change in basis points (b.p.) of SJG's average monthly interest rates from the beginning to end of each year was as follows: 2019 - 73 b.p. decrease; 2018 - 91 b.p. increase; 2017 - 91 b.p. increase; 2016 - 19 b.p. increase; and 2015 - 20 b.p. increase. As of September 30, 2020, SJG's average interest rate on variable-rate debt was 1.30%.

SJG typically issues long-term debt either at fixed rates or uses interest rate derivatives to limit exposure to changes in interest rates on variable-rate, long-term debt. As of September 30, 2020, the interest costs on $961.4 million of long-term debt (including current portion) was either at a fixed-rate or hedged via an interest rate derivative.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The management of each of SJI and SJG, with the participation of their respective principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of SJI’s and SJG's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2020. Based on that evaluation, the principal executive officer and principal financial officer of each of SJI and SJG concluded that, as of September 30, 2020, the disclosure controls and procedures employed at SJI and SJG, respectively, were effective.

Changes in Internal Control Over Financial Reporting

There was no change in SJI’s or SJG's internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act, during the quarter ended September 30, 2020, that has materially affected, or is reasonably likely to materially affect, SJI’s and SJG's internal control over financial reporting.

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PART II — OTHER INFORMATION

Item l. Legal Proceedings

Information required by this Item for SJI and SJG is incorporated by reference to Part I, Item 1, Note 11, Litigation.

Item 1A. Risk Factors

Other than described below, there have been no material changes in the risk factors for SJI or SJG from those disclosed in Item 1A of SJI’s and SJG's Annual Reports on Form 10-K for the year ended December 31, 2019.

Public health crises and epidemics or pandemics, such as a novel coronavirus, could materially and adversely affect our business, operations and financial condition. Our business could be materially and adversely affected by a public health crisis or the widespread outbreak of contagious disease, such as the recent outbreak of respiratory illness caused by a novel coronavirus (COVID-19), which has been declared a pandemic by the World Health Organization in March 2020. The continued spread of COVID-19 across the world has led to disruption and volatility in the global capital markets, which increases the cost of capital and adversely impacts access to capital. Additionally, our reliance on third-party suppliers, contractors, service providers, and commodity markets exposes us to the possibility of delay or interruption of our operations. For the duration of the outbreak of COVID-19, legislative and government action limits our ability to collect on overdue accounts, and prohibits us from shutting off services, which may cause a decrease in our cash flows or net income. These suspensions of shut downs of service for non-payment will be in place through at least March 15, 2021 based on an executive order issued by the Governor of New Jersey, in which water, gas and electricity providers are barred from cutting services to New Jersey residents. We have been executing our business continuity plans since the outbreak of COVID-19 and are closely monitoring potential impacts due to COVID-19 pandemic responses at the state and federal level. As expected, we have incurred operating costs for emergency supplies, cleaning services, enabling technology and other specific needs during this crisis which have traditionally been recognized as prudent expenditures by our regulators. The effects of the pandemic also may have a material adverse impact on our ability to collect accounts receivable as customers face higher liquidity and solvency risks, and also considering the inability to shut down services as noted above. Currently, the impact of the pandemic to the collectability of our accounts receivable is an unknown and continues to be monitored, but such receivables have traditionally been included in rate recovery. Our infrastructure investment programs continue to move forward, and construction activity that was delayed in accordance with directives from the Governor of New Jersey have since continued; however, to the extent the pandemic worsens or a similar directive is put in place in the future for a long period of time, our capital projects could be significantly impacted. It is impossible to predict the effect of the continued spread of the coronavirus in the communities we service. Should the coronavirus continue to spread or not be contained, our business, financial condition and results of operations could be materially impacted, including impairment of goodwill or access to capital markets, which in turn may have a negative effect on the market price of our common stock.

Renewable energy projects at Marina receive significant benefit from tax and regulatory incentives. A significant portion of the expected return on investment of these renewable energy projects such as Annadale (fuel cell) and solar is dependent upon federal investment tax credits (ITCs) and the future market for renewable energy credits (RECs). The benefits from ITCs are typically available when the project is placed in service while the benefits from RECs are produced during the entire life of the project. As a result, earnings from existing projects would be adversely affected without a liquid REC market. In addition, the return on investment from new projects may not be as attractive if ITCs are not available and/or a liquid REC market ceases to exist. Therefore, these projects are exposed to the risk that favorable tax and regulatory incentives expire or are adversely modified.

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Item 6. Exhibits

(a) Exhibits


Exhibit No.						Description





3.1(i)						Amendment to SJI By-Laws effective August 14, 2020 (incorporated by reference from Exhibit 3.1 of Form 8-K of SJI as filed August 18, 2020).

3.1(ii)						SJI Amendment to Certificate of Incorporation effective October 16, 2020 (incorporated by reference from Exhibit 3.1 of Form 8-K of SJI as filed October 20, 2020).

31.1						Certification of SJI's Principal Executive Officer Pursuant to Rule 13a-14(a) of the Exchange Act.

31.2						Certification of SJI's Principal Financial Officer Pursuant to Rule 13a-14(a) of the Exchange Act.

31.3						Certification of SJG's Principal Executive Officer Pursuant to Rule 13a-14(a) of the Exchange Act.

31.4						Certification of SJG's Principal Financial Officer Pursuant to Rule 13a-14(a) of the Exchange Act.

32.1						Certification of SJI's Principal Executive Officer Pursuant to Rule 13a-14(b) of the Exchange Act as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code).

32.2						Certification of SJI's Principal Financial Officer Pursuant to Rule 13a-14(b) of the Exchange Act as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code).

32.3						Certification of SJG's Principal Executive Officer Pursuant to Rule 13a-14(b) of the Exchange Act as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code).

32.4						Certification of SJG's Principal Financial Officer Pursuant to Rule 13a-14(b) of the Exchange Act as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code).







101						The following financial statements from South Jersey Industries, Inc.’s Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2020, filed with the Securities and Exchange Commission on November 4, 2020 formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Statements of Income/(Loss); (ii) the Condensed Consolidated Statements of Comprehensive Income/(Loss); (iii) the Condensed Consolidated Statements of Cash Flows; (iv) the Condensed Consolidated Balance Sheets; (v) the Condensed Consolidated Statements of Equity; and (vi) the Notes to Condensed Consolidated Financial Statements. The following financial statements from South Jersey Gas’ Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2020, filed with the Securities and Exchange Commission on November 4, 2020 formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Condensed Statements of Income; (ii) the Condensed Statements of Comprehensive Income; (iii) the Condensed Statements of Cash Flows; (iv) the Condensed Balance Sheets; and (v) the Condensed Statements of Equity.

104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		SOUTH JERSEY INDUSTRIES, INC.




Dated:	November 4, 2020	By:	/s/ Steven R. Cocchi
			Steven R. Cocchi
			Senior Vice President & Chief Financial Officer
			(Principal Financial Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		SOUTH JERSEY GAS COMPANY




Dated:	November 4, 2020	By:	/s/ Steven R. Cocchi
			Steven R. Cocchi
			Chief Financial Officer
			(Principal Financial Officer)

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