SOUTH JERSEY INDUSTRIES INC - Quarter Report: 2021 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, 2021


☐			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	SJIV	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, 2021 was 112,448,495 shares. South Jersey Gas Company common stock ($2.50 par value) outstanding as of November 1, 2021 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 an indirect wholly-owned subsidiary of SJI 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 (Loss)/Income	8
	Condensed Consolidated Statements of Comprehensive (Loss)/Income	9
	Condensed Consolidated Statements of Cash Flows	10
	Condensed Consolidated Balance Sheets	11
	Condensed Consolidated Statements of Changes in Equity	13

	South Jersey Gas Company
	Condensed Statements of Income	15
	Condensed Statements of Comprehensive Income	16
	Condensed Statements of Cash Flows	17
	Condensed Balance Sheets	18
	Condensed Statements of Changes in Equity	20

	Notes to Unaudited Condensed Consolidated Financial Statements	21
	South Jersey Industries, Inc. and South Jersey Gas Company - Combined
	Note 1. Summary of Significant Accounting Policies	21
	Note 2. Stock-Based Compensation Plan	27
	Note 3. Affiliations, Discontinued Operations and Related-Party Transactions	29
	Note 4. Common Stock	32
	Note 5. Financial Instruments	35
	Note 6. Segments of Business	37
	Note 7. Rates and Regulatory Actions	41
	Note 8. Regulatory Assets & Regulatory Liabilities	43
	Note 9. Pension and Other Postretirement Benefits	46
	Note 10. Lines of Credit & Short-Term Borrowings	47
	Note 11. Commitments and Contingencies	48
	Note 12. Derivative Instruments	49
	Note 13. Fair Value of Financial Assets and Financial Liabilities	53
	Note 14. Long-Term Debt	57
	Note 15. Revenue	59
	Note 16. Acquisitions & Business Combinations	62
	Note 17. Goodwill and Identifiable Intangible Assets	62
	Note 18. Subsequent Events	64
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	65
	South Jersey Industries, Inc.	68
	South Jersey Gas Company	85
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	88
Item 4.	Controls and Procedures	91
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	92
Item 1A.	Risk Factors	92
Item 6.	Exhibits	93
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

Bronx Midco			Bronx Midco, LLC
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

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FERC			Federal Energy Regulatory Commission

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

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			Noncontrolling 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
REV			REV LNG, LLC
RNG			Renewable Natural Gas
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

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SJIU			SJI Utilities, Inc.
SJRG			South Jersey Resources Group, LLC
SRECs			Solar Renewable Energy Credits
SXLE			SX Landfill Energy, LLC
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
UTUA			Uniform Transitional Utility Assessment
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 (loss)/income, statements of comprehensive (loss)/income, 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 (LOSS)/INCOME (UNAUDITED)

(In Thousands, Except for Per Share Data)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Operating Revenues:
Utility	$	106,123	$	103,383	$	653,009	$	636,110
Nonutility	259,508		158,166		698,750		419,515
Total Operating Revenues	365,631		261,549		1,351,759		1,055,625
Operating Expenses:
Cost of Sales - (Excluding depreciation and amortization)
- Utility	24,128		29,277		183,927		210,167
- Nonutility	264,237		146,752		677,507		379,583
Operations and Maintenance	61,198		63,307		194,182		197,311
Depreciation	33,081		27,977		97,924		81,877
Energy and Other Taxes	(8,040)		2,730		(1,245)		9,228

Total Operating Expenses	374,604		270,043		1,152,295		878,166
Operating (Loss) Income	(8,973)		(8,494)		199,464		177,459

Other Income and Expense	2,225		5,143		7,885		7,621
Interest Charges	(31,468)		(27,762)		(94,112)		(88,887)
(Loss) Income Before Income Taxes	(38,216)		(31,113)		113,237		96,193
Income Taxes	11,727		19,467		(25,340)		(13,725)
Equity in Earnings (Loss) of Affiliated Companies	659		1,302		(81,589)		5,710
(Loss) Income from Continuing Operations	(25,830)		(10,344)		6,308		88,178
Loss from Discontinued Operations - (Net of tax benefit)	(127)		(58)		(278)		(178)
Net (Loss) Income	(25,957)		(10,402)		6,030		88,000
Less: Income Attributable to Noncontrolling Interest	173		—		390		—
Net (Loss) Income Attributable to South Jersey Industries, Inc.	$	(26,130)	$	(10,402)	$	5,640	$	88,000

Basic (Loss) Earnings Per Common Share:
Continuing Operations	$	(0.23)	$	(0.10)	$	0.06	$	0.92
Discontinued Operations	—		—		—		—
Net (Loss) Income	(0.23)		(0.10)		0.06		0.92
Less: Income Attributable to Noncontrolling Interest	—		—		—		—
Net (Loss) Income Attributable to South Jersey Industries, Inc.	$	(0.23)	$	(0.10)	$	0.06	$	0.92

Average Shares of Common Stock Outstanding - Basic	112,448		100,587		108,108		95,599

Diluted (Loss) Earnings Per Common Share:
Continuing Operations	$	(0.23)	$	(0.10)	$	0.06	$	0.92
Discontinued Operations	—		—		—		—
Net (Loss) Income	(0.23)		(0.10)		0.06		0.92
Less: Income Attributable to Noncontrolling Interest	—		—		—		—
Net (Loss) Income Attributable to South Jersey Industries, Inc.	$	(0.23)	$	(0.10)	$	0.06	$	0.92

Average Shares of Common Stock Outstanding - Diluted	112,448		100,587		109,589		95,724

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 (LOSS)/INCOME (UNAUDITED)

(In Thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net (Loss) Income	$	(25,957)	$	(10,402)	$	6,030	$	88,000

Other Comprehensive (Loss) Income, Net of Tax:

Reclassification of Unrealized Gain on Derivatives - Other to Net (Loss) Income, net of tax of $(3), $(3), $(10) and $(10), respectively	9		9		25		25

Other Comprehensive Income - Net of Tax	9		9		25		25

Comprehensive (Loss) Income	(25,948)		(10,393)		6,055		88,025
Less: Comprehensive Income Attributable to Noncontrolling Interest	173		—		390		—
Comprehensive (Loss) Income Attributable to South Jersey Industries, Inc.	$	(26,121)	$	(10,393)	$	5,665	$	88,025

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,
	2021		2020






























Net Cash Provided by Operating Activities	$	273,927	$	254,200

Cash Flows from Investing Activities:
Capital Expenditures	(373,516)		(344,828)
Cash Paid for Acquisitions, Net of Cash Acquired	—		(10,932)
Proceeds from Business Dispositions and Sale of Property, Plant & Equipment	—		119,948
Investment in Contract Receivables	(16,429)		(18,787)
Proceeds from Contract Receivables	10,494		10,457

Investment in Affiliates	(13,155)		(1,353)
Advances to Affiliates	(26,615)		—
Net Repayment of Notes Receivable - Affiliates	—		2,504
Acquisition/Divestiture Working Capital Settlement	(267)		—
Investment in Subsidiary, Net of Cash Acquired	(14,683)		(54,328)

Net Cash Used in Investing Activities	(434,171)		(297,319)

Cash Flows from Financing Activities:
Net Repayments of Short-Term Credit Facilities	(453,900)		(251,700)
Proceeds from Issuance of Long-Term Debt	460,000		800,000
Principal Repayments of Long-Term Debt	(110,000)		(660,000)
Payments for Issuance of Long-Term Debt	(16,304)		(6,810)
Dividends on Common Stock	(64,460)		(54,553)
Proceeds from Sale of Common Stock	329,772		200,000
Payments for the Issuance of Common Stock	(2,318)		(1,897)
Capital Contributions of Noncontrolling Interest in Subsidiary	1,072		—

Net Cash Provided by Financing Activities	143,862		25,040

Net Decrease in Cash, Cash Equivalents and Restricted Cash	(16,382)		(18,079)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period	41,831		28,381

Cash, Cash Equivalents and Restricted Cash at End of Period	$	25,449	$	10,302

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, 2021		December 31, 2020
Assets
Property, Plant and Equipment:
Utility Plant, at original cost	$	5,566,423	$	5,265,661
Accumulated Depreciation	(970,861)		(914,122)
Nonutility Property and Equipment, at cost	183,294		147,764
Accumulated Depreciation	(37,427)		(35,069)

Property, Plant and Equipment - Net	4,741,429		4,464,234

Investments:
Available-for-Sale Securities	32		32
Restricted	34		7,786
Investment in Affiliates	36,157		106,230

Total Investments	36,223		114,048

Current Assets:
Cash and Cash Equivalents	25,415		34,045
Accounts Receivable	272,286		278,723
Unbilled Revenues	26,783		85,423
Provision for Uncollectibles	(43,065)		(30,582)
Notes Receivable - Affiliate	4,340		2,847
Natural Gas in Storage, average cost	65,325		39,440
Materials and Supplies, average cost	1,066		2,561
Prepaid Taxes	47,505		23,851
Derivatives - Energy Related Assets	141,690		41,439

Other Prepayments and Current Assets	30,311		29,081

Total Current Assets	571,656		506,828

Regulatory and Other Noncurrent Assets:
Regulatory Assets	669,487		673,992
Derivatives - Energy Related Assets	37,307		6,935
Notes Receivable - Affiliate	54,956		31,073
Contract Receivables	47,127		41,428
Goodwill	706,960		706,960
Other	158,866		143,650

Total Regulatory and Other Noncurrent Assets	1,674,703		1,604,038

Total Assets	7,024,011		$	6,689,148

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, 2021		December 31, 2020
Capitalization and Liabilities
Equity:
Common Stock	$	140,561	$	125,740
Premium on Common Stock	1,463,655		1,218,000
Treasury Stock (at par)	(280)		(321)
Accumulated Other Comprehensive Loss	(38,191)		(38,216)
Retained Earnings	262,842		355,678
Total South Jersey Industries, Inc. Equity	1,828,587		1,660,881
Noncontrolling Interest	7,457		5,995
Total Equity	1,836,044		1,666,876

Long-Term Debt	3,195,869		2,776,400

Total Capitalization	5,031,913		4,443,276

Current Liabilities:
Notes Payable	142,500		596,400
Current Portion of Long-Term Debt	66,076		142,801
Accounts Payable	300,955		256,589
Customer Deposits and Credit Balances	37,833		35,899
Environmental Remediation Costs	41,150		45,265
Taxes Accrued	5,471		6,025
Derivatives - Energy Related Liabilities	106,244		27,006
Deferred Contract Revenues	764		479
Derivatives - Other Current	560		659
Dividends Payable	34,016		—
Interest Accrued	36,442		21,140
Pension Benefits	3,704		3,704
Other Current Liabilities	43,065		27,665

Total Current Liabilities	818,780		1,163,632

Deferred Credits and Other Noncurrent Liabilities:
Deferred Income Taxes - Net	173,242		149,534
Pension and Other Postretirement Benefits	128,984		135,023
Environmental Remediation Costs	131,124		148,310
Asset Retirement Obligations	205,355		202,092
Derivatives - Energy Related Liabilities	25,124		4,947
Derivatives - Other Noncurrent	7,467		9,279
Regulatory Liabilities	418,422		420,577
Other	83,600		12,478

Total Deferred Credits and Other Noncurrent Liabilities	1,173,318		1,082,240

Commitments and Contingencies (Note 11)

Total Capitalization and Liabilities	$	7,024,011	$	6,689,148

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		Total South Jersey Industries, Inc. Equity		NCI		Total Equity

Balance at January 1, 2021	$	125,740	$	1,218,000	$	(321)	$	(38,216)	$	355,678	$	1,660,881	$	5,995	$	1,666,876
Net Income	—		—		—		—		128,598		128,598		129		128,727
Other Comprehensive Income, Net of Tax	—		—		—		8		—		8		—		8
Common Stock Issued or Granted Through Equity Offering or Stock Plans	2,475		37,771		57		—		—		40,303		—		40,303
Contract Liability Adjustment (see Note 4)	—		(62,219)		—		—		—		(62,219)		—		(62,219)
Cash Dividends Declared - Common Stock ($0.303 per share)	—		—		—		—		(30,453)		(30,453)		—		(30,453)
Balance at March 31, 2021	$	128,215	$	1,193,552	$	(264)	$	(38,208)	$	453,823	$	1,737,118	$	6,124	$	1,743,242

Net (Loss)/Income	—		—		—		—		(96,828)		(96,828)		88		(96,740)
Other Comprehensive Income, Net of Tax	—		—		—		8		—		8		—		8
Common Stock Issued or Granted Through Equity Offering or Stock Plans	12,342		276,029		(4)		—		—		288,367		—		288,367
Contract Liability Adjustment (see Note 4)	—		(7,259)		—		—		—		(7,259)		—		(7,259)
Cash Dividends Declared - Common Stock ($0.303 per share)	—		—		—		—		(34,007)		(34,007)		—		(34,007)
Capital Contributions of Noncontrolling Interest in Subsidiary	—		—		—		—		—		—		1,213		1,213
Balance at June 30, 2021	$	140,557	$	1,462,322	$	(268)	$	(38,200)	$	322,988	$	1,887,399	$	7,425	$	1,894,824
Net (Loss)/Income	—		—		—		—		(26,130)		(26,130)		173		(25,957)
Other Comprehensive Income, Net of Tax	—		—		—		9		—		9		—		9
Common Stock Issued or Granted Through Equity Offering or Stock Plans	4		1,333		(12)		—		—		1,325		—		1,325
Cash Dividends Declared - Common Stock ($0.303 per share)	—		—		—		—		(34,016)		(34,016)		—		(34,016)
Capital Contributions of Non-Controlling Interest in Subsidiary	—		—		—		—		—		—		(141)		(141)
Balance at September 30, 2021	$	140,561	$	1,463,655	$	(280)	$	(38,191)	$	262,842	$	1,828,587	$	7,457	$	1,836,044

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

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 Equity Offering or 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

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

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SOUTH JERSEY GAS COMPANY

CONDENSED STATEMENTS OF (LOSS)/INCOME (UNAUDITED)

(In Thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,

	2021		2020		2021		2020
Operating Revenues	$	69,958	$	66,190	$	412,572	$	394,066

Operating Expenses:
Cost of Sales (Excluding depreciation and amortization)	16,630		20,575		109,878		126,655
Operations and Maintenance	33,922		33,162		105,729		104,197
Depreciation	20,222		17,339		59,787		51,038
Energy and Other Taxes	1,145		1,194		3,828		3,879

Total Operating Expenses	71,919		72,270		279,222		285,769

Operating (Loss) Income	(1,961)		(6,080)		133,350		108,297

Other Income and Expense	1,245		1,515		4,346		3,349

Interest Charges	(9,444)		(8,271)		(28,782)		(23,832)

(Loss) Income Before Income Taxes	(10,160)		(12,836)		108,914		87,814

Income Taxes	2,460		3,293		(26,683)		(23,157)

Net (Loss) Income	$	(7,700)	$	(9,543)	$	82,231	$	64,657

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

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SOUTH JERSEY GAS COMPANY

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

(In Thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,

	2021		2020		2021		2020
Net (Loss) Income	$	(7,700)	$	(9,543)	$	82,231	$	64,657

Other Comprehensive Income - Net of Tax:

Reclassification of Unrealized Gain on Derivatives - Other to Net Income, net of tax of $(3), $(3), $(10) and $(10), respectively	9		9		25		25

Other Comprehensive Income - Net of Tax	9		9		25		25

Comprehensive (Loss) Income	$	(7,691)	$	(9,534)	$	82,256	$	64,682

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,

	2021		2020






















Net Cash Provided by Operating Activities	177,812		158,813

Cash Flows from Investing Activities:
Capital Expenditures	(188,869)		(188,173)
Investment in Contract Receivables	(16,429)		(18,787)
Proceeds from Contract Receivables	10,494		10,457

Net Cash Used in Investing Activities	(194,804)		(196,503)

Cash Flows from Financing Activities:
Net Borrowings from (Repayments of) Short-Term Credit Facilities	33,500		(63,400)
Proceeds from Issuance of Long-Term Debt	—		400,000
Principal Repayments of Long-Term Debt	(20,000)		(410,000)
Payments for Issuance of Long-Term Debt	(912)		(3,434)
Additional Investment by Shareholder	—		109,500

Net Cash Provided by Financing Activities	12,588		32,666

Net Decrease in Cash, Cash Equivalents and Restricted Cash	(4,404)		(5,024)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period	6,424		6,751

Cash, Cash Equivalents and Restricted Cash at End of Period	$	2,020	$	1,727

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, 2021		December 31, 2020
Assets
Property, Plant and Equipment:
Utility Plant, at original cost	$	3,557,492	$	3,387,831
Accumulated Depreciation	(648,065)		(606,925)

Property, Plant and Equipment - Net	2,909,427		2,780,906

Investments:
Restricted Investments	34		4,826

Total Investments	34		4,826

Current Assets:
Cash and Cash Equivalents	1,986		1,598
Accounts Receivable	83,031		88,657
Accounts Receivable - Related Parties	1,852		3,989
Unbilled Revenues	8,288		46,837
Provision for Uncollectibles	(23,874)		(17,359)
Natural Gas in Storage, average cost	22,880		14,050
Materials and Supplies, average cost	619		619
Prepaid Taxes	25,120		19,522
Derivatives - Energy Related Assets	30,758		4,053
Other Prepayments and Current Assets	17,400		12,710

Total Current Assets	168,060		174,676

Regulatory and Other Noncurrent Assets:
Regulatory Assets	480,084		495,084
Contract Receivables	47,127		41,428
Derivatives - Energy Related Assets	1,458		87
Other	30,856		25,258

Total Regulatory and Other Noncurrent Assets	559,525		561,857

Total Assets	$	3,637,046	$	3,522,265

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, 2021		December 31, 2020
Capitalization and Liabilities
Equity:
Common Stock	$	5,848	$	5,848
Other Paid-In Capital and Premium on Common Stock	465,244		465,244
Accumulated Other Comprehensive Loss	(31,581)		(31,606)
Retained Earnings	946,471		864,240

Total Equity	1,385,982		1,303,726

Long-Term Debt	1,018,467		1,016,280

Total Capitalization	2,404,449		2,320,006

Current Liabilities:
Notes Payable	81,000		47,500
Current Portion of Long-Term Debt	31,084		52,809
Accounts Payable - Commodity	28,456		22,199
Accounts Payable - Other	39,759		44,186
Accounts Payable - Related Parties	6,812		11,049
Derivatives - Energy Related Liabilities	2,834		2,868
Derivatives - Other Current	560		659
Customer Deposits and Credit Balances	23,676		23,637
Environmental Remediation Costs	26,120		23,067
Taxes Accrued	3,627		3,942
Pension Benefits	3,669		3,669
Interest Accrued	13,459		10,961
Other Current Liabilities	7,235		7,798

Total Current Liabilities	268,291		254,344

Regulatory and Other Noncurrent Liabilities:
Regulatory Liabilities	223,180		245,360
Deferred Income Taxes - Net	427,297		403,609
Environmental Remediation Costs	68,089		78,176
Asset Retirement Obligations	92,075		89,252
Pension and Other Postretirement Benefits	118,302		116,973
Derivatives - Energy Related Liabilities	—		190
Derivatives - Other Noncurrent	7,467		9,279
Other	27,896		5,076

Total Regulatory and Other Noncurrent Liabilities	964,306		947,915

Commitments and Contingencies (Note 11)

Total Capitalization and Liabilities	$	3,637,046	$	3,522,265

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

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SOUTH JERSEY GAS COMPANY

CONDENSED 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, 2021	$	5,848	$	465,244	$	(31,606)	$	864,240	$	1,303,726
Net Income	—		—		—		83,618		83,618
Other Comprehensive Income, Net of Tax	—		—		8		—		8
Balance at March 31, 2021	5,848		465,244		(31,598)		947,858		1,387,352

Net Income	—		—		—		6,313		6,313
Other Comprehensive Income, Net of Tax	—		—		8		—		8

Balance at June 30, 2021	$	5,848	$	465,244	$	(31,590)	$	954,171	$	1,393,673
Net Loss	—		—		—		(7,700)		(7,700)
Other Comprehensive Income, Net of Tax	—		—		9		—		9

Balance at September 30, 2021	$	5,848	$	465,244	$	(31,581)	$	946,471	$	1,385,982



	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

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 "Sale of 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. Marina includes the Catamaran joint venture that was entered into in August 2020, which owns Annadale and Bronx Midco, operators of fuel cell projects in New York. Marina, through Catamaran, owns 93% and 92% of Annadale and Bronx Midco, respectively, and records the remaining ownership percentages as noncontrolling interest in the condensed consolidated financial statements. Previously, Marina also included MTF and ACB, which were sold to a third-party buyer in February 2020 (see "Sale of MTF & ACB" below), and a solar project that was sold in March 2020 (see "Sale of Solar Assets" below). The principal wholly-owned subsidiaries of Marina are:

•ACLE, BCLE, SCLE and SXLE, which own and operate landfill gas-to-energy production facilities in Atlantic, Burlington, Salem and Sussex Counties, respectively, located in New Jersey. These landfill gas-to-energy production facilities have all ceased operations after receiving approval from their respective local governmental authorities to do so. ACLE ceased operations on September 30, 2021, while BCLE, SCLE and SXLE ceased operations on June 1, 2020.

•Entities which own and operate rooftop solar generation sites, located in New Jersey, including projects that were acquired in 2021 as discussed under "ITC" below.

▪SJESP receives commissions on appliance 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 that matches end users with suppliers for the procurement of natural gas and electricity.

•EnerConnex, an aggregator, broker and consultant in the retail and wholesale energy markets 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, of which SJEI previously held a 25% interest.

•SJI Renewable Energy Ventures, LLC and SJI RNG Devco, LLC, which hold our equity interest in REV and our renewable natural gas development rights in certain dairy farms, respectively.

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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. 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 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, 2020. There were no significant changes in or changes in the application of the Company’s significant or critical accounting policies or estimation procedures for the three and nine months ended September 30, 2021 as compared with the significant accounting policies described in the Company’s audited consolidated financial statements for the year ended December 31, 2020, except for the identification of our segments as discussed in Note 6.

Certain prior years' data presented in the financial statements and footnotes have been reclassified to conform to the current year presentation. These reclassifications had no impact on the Company's results of operations, financial position or cash flows.

ESTIMATES AND ASSUMPTIONS - The condensed consolidated financial statements were prepared to conform with GAAP, which requires management to make 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, legal contingencies, pension and other postretirement benefit costs, revenue recognition, goodwill, evaluation of equity method investments for other-than-temporary impairment, and allowance for credit losses. Estimates may be subject to future uncertainties, including the continued evolution of the COVID-19 pandemic and its impact on our operations and economic conditions, which could affect the fair value of the ETG reporting unit and its goodwill balance (see Note 17), as well as the allowance for credit losses and the total impact and potential recovery of incremental costs associated with COVID-19 (see Notes 5 and 8).

ACQUISITIONS - Catamaran and a third party formed Bronx Midco, of which Catamaran owns 99%. On June 9, 2021, Bronx Midco purchased a fuel cell project in Bronx, NY, of which Marina, through its ownership in Catamaran, has a 92% ownership interest. See Note 16. For further discussion on prior acquisitions, refer to Note 1 "Summary of Significant Accounting Policies" of SJI's Annual Report on Form 10-K for the year ended December 31, 2020.

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 were eligible for a 30% ITC if they commenced construction in 2019, 26% for projects that commence construction in 2020-2022, 22% for projects that commence construction in 2023, and 10% for projects that commence construction thereafter. During the three and nine months ended September 30, 2021, Marina recognized $2.3 million and $2.7 million, respectively, of ITC on recently acquired solar projects that will commence operations during the fourth quarter of 2021. During the three and nine months ended September 30, 2020, Marina recognized $12.0 million of ITC on solar and fuel cell projects.

SALE OF SOLAR ASSETS - On June 27, 2018, the Company, through its wholly-owned subsidiary, Marina, entered into a series of agreements whereby Marina agreed to sell its then-existing portfolio of solar energy projects (for this section, the "Projects"), along with the assets comprising the Projects. These sales occurred during 2018-2020, including one Project sold during the first quarter of 2020 for total consideration of $7.2 million. In connection with this transaction, Marina is leasing back from the buyer certain of the Projects that have not yet passed the fifth anniversary of their placed-in-service dates for U.S. federal income tax purposes. The leaseback runs from the date each such Project was acquired by the buyer until the later of the first anniversary of the applicable acquisition date and the fifth anniversary of the applicable placed-in-service date of the Project. As of September 30, 2021, there are ten such Projects being leased back from the buyer through the end of 2021, which is the fifth anniversary of their placed-in-service date. The results of these Projects being leased back are not material.

SALE OF MTF & ACB - On February 18, 2020, the Company sold MTF and ACB to a third-party buyer for a final sales price of $97.0 million, including working capital.

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SALE OF ELK - On July 31, 2020, the Company sold ELK to a third-party buyer. Total consideration received in 2020 was approximately $15.6 million. The working capital settlement finalized in the first quarter of 2021 was not material.

IMPAIRMENT OF LONG-LIVED ASSETS - See Note 1 to the Consolidated Financial Statements under "Impairment of Long-Lived Assets" in Item 8 of the Form 10-K for the year ended December 31, 2020 for additional information regarding the Company's policy on impairments of long-lived assets. No impairments of long-lived assets were identified at SJI or SJG for the three and nine months ended September 30, 2021 and 2020, respectively.

See discussion of impairment considerations related to goodwill and other intangible assets in Note 17.

REGULATION - The Utilities are subject to the rules and regulations of the BPU. See Note 7 for a discussion of the Utilities' rate structure and regulatory actions. The Utilities maintain their accounts according to the BPU's prescribed Uniform System of Accounts. The Utilities follow the accounting for regulated enterprises prescribed by ASC 980, Regulated Operations, which 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 more information related to regulatory assets and liabilities.

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 15. 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, and operating revenues for SJRG include realized and unrealized gains and losses on energy-related derivative instruments. SJRG presents revenues and expenses related to its energy trading activities on a net basis in operating revenues. This net presentation has no effect on operating income or net income. The Company recognizes revenues on commissions received related to SJESP appliance service contracts from a third party, along with AEP and EnerConnex energy procurement service contracts from a third party, on a monthly basis as the commissions are earned. Marina recognizes revenue for renewable energy projects when output is generated and delivered to the customer, and when renewable energy credits have been transferred to the third party at an agreed upon price.

SJI and SJG have not seen a significant reduction in revenues as a result of the COVID-19 pandemic. This is due to the delivery of gas and electricity being considered an essential service, with delivery to customers continuing in a timely manner with no delays or operational shutdowns taking place to date. To the extent that the pandemic does impact our ability to deliver in the future, operating revenues could be impacted. Currently, the impact of the pandemic on the collectability of our accounts receivable continues to be monitored, but such receivables have traditionally been included in rate recovery (see Note 8).

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. Certain deferred income taxes are recorded with offsetting regulatory assets or liabilities by the Company to recognize that income taxes will be recovered or refunded through future rates.

A valuation allowance is recorded when it is more likely than not that any of SJI's or SJG's deferred tax assets will not be realized. During the nine months ended September 30, 2021, SJI recorded a valuation allowance of $14.2 million against the federal deferred tax asset related to the capital loss that resulted from the other-than-temporary impairment charge taken on the Company's investment in PennEast (see Note 3). SJG believes that they will generate sufficient future taxable income to realize the income tax benefits related to their net deferred tax assets.

The Company evaluates certain tax benefits that have been recorded in the financial statements for uncertainties. During the nine months ended September 30, 2021, SJG recorded a reserve of $13.9 million for a portion of tax benefits related to tax positions taken in prior years. The reserve is recorded in Other Noncurrent Liabilities in the condensed consolidated balance sheets as of September 30, 2021. The amount of income taxes we pay is subject to ongoing audits by federal and state tax authorities, which could result in proposed assessments. Future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period any assessments are determined or resolved or as such statutory audit periods are closed. We are not aware of any other matters that would result in significant changes to the amount of unrecognized income tax benefits reflected on the condensed consolidated balance sheet as of September 30, 2021.

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TAX SETTLEMENT - In August 2021, ETG recognized a gain of $11.0 million from a UTUA settlement agreement with the New Jersey Division of Taxation. The gain is presented within Energy and Other Taxes in the SJI Condensed Consolidated Statements of (Loss)/Income.

GOODWILL - See Note 17.

LEASES - As part of the acquisition of the Bronx Midco fuel cell project (see Note 16), a land lease was acquired resulting in the recognition of an ROU asset and a lease liability upon acquisition each of $6.6 million, which are recorded in Other Noncurrent Assets and Other Current/Noncurrent Liabilities, respectively, on the condensed consolidated balance sheets as of September 30, 2021. This arrangement is classified as an operating lease with the lease cost associated with this lease recognized on a straight-line basis over the lease term of 35 years.

Also, as part of the acquisition of solar projects discussed under "ITC" above, a land lease was acquired resulting in the recognition of an ROU asset and a lease liability upon acquisition each of $2.6 million, which are recorded in Nonutility Property and Equipment and Long-Term Debt, respectively, on the condensed consolidated balance sheets as of September 30, 2021. This arrangement is classified as a finance lease, which will result in the recognition of interest expense on the lease liability per the effective interest model and amortization of the ROU asset on a straight-line basis over the 20-year lease term.

On July 1, 2021, SJG (the lessor) and SJI (the lessee) entered into an intercompany lease agreement for the Company's corporate headquarters in Folsom, NJ. This arrangement is classified as an operating lease with the rent income and the rent expense associated with this lease recognized on a straight-line basis over the lease term. The rent income and rent expense for SJG and SJI, respectively, for the three and nine months ended September 30, 2021 was $0.4 million. The rent income and rent expense as well as certain other balances related to this lease were eliminated in the Company’s condensed consolidated financial statements. Rent income of $0.4 million was recorded by SJG on the condensed statements of income for the three and nine months ended September 30, 2021.

There have been no other significant changes to the nature or balances of the Company's leases since December 31, 2020, which are described in Notes 1 and 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, 2020.

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 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

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

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

Prospective

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

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Standards Not Yet Effective:

Standard

Description

Date of Adoption

Application

Effect on the Financial Statements of SJI and SJG

ASU 2020-04:

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

ASU 2021-01: Reference Rate Reform (Topic 848)

The amendments in ASU 2020-04 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.

The amendments in ASU 2021-01 clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to changes in the interest rates used for margining, discounting, or contract price alignment for derivative instruments that are being implemented as part of the market-wide transition to new reference rates (commonly referred to as the "discounting transition").

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, including forming an implementation team that is evaluating the impact of the guidance on our current contracts. Management is also evaluating timing of adoption.

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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

ASU 2021-08: Business Combinations (ASC 805): Accounting for Contract Assets and Contract Liabilities From Contracts With Customers

The new standard requires an acquirer to account for revenue contracts acquired in a business combination in accordance with ASC 606 as if it had originated the contracts. The acquirer may assess how the acquiree applied ASC 606 to determine what to record for the acquired contracts. The standard also provides practical expedients for acquirers when recognizing and measuring acquired contract assets and contract liabilities from a business combination.

January 1, 2023; early adoption is permitted, including adoption in an interim period

Prospectively to business combinations occurring on or after the effective date of the amendments

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

2. STOCK-BASED COMPENSATION PLAN:

Under SJI's Omnibus Equity Compensation Plan (Plan), shares may be issued to SJI’s officers (Officers), non-employee directors (Directors) and other key employees. 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. 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, 2021 and September 30, 2020, SJI granted a total of 243,540 and 225,278 restricted shares, respectively, to Officers and other key employees under the Plan. No options were granted or outstanding during the nine months ended September 30, 2021 and 2020. No stock appreciation rights have been issued under the Plan.

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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 market 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 goals to measure performance. Performance targets include pre-defined CEGR for SJI. As EGR-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, 2021 and September 30, 2020, SJI granted 54,419 and 38,456 restricted shares, respectively, to its 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 at September 30, 2021, 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 -	2019 - TSR	32,292	$	32.88	23.2	%	2.40	%
	2019 - CEGR, Time	69,265	$	31.38	N/A		N/A
	2020 - TSR	38,813	$	25.51	34.8	%	0.21	%
	2020 - CEGR, Time	123,686	$	25.19	N/A		N/A
	2021 - TSR	42,716	$	28.11	39.9	%	0.27	%
	2021 - CEGR, Time	186,746	$	25.33	N/A		N/A

Directors -	2021	54,419	$	24.75	N/A		N/A

Expected volatility is based on the actual volatility of SJI’s share price over the preceding three-year period as of the valuation date. The risk-free interest rate is based on the zero-coupon U.S. Treasury Bond, with a term equal to the three-year term of the Officers’ and other key employees’ restricted shares. As notional dividend equivalents are credited to the holders during the three-year service period, no reduction to the fair value of the award is required. As the Directors’ restricted stock awards contain no performance conditions and dividends are paid or credited to the holder during the twelve month 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, 2021 and 2020 (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Officers & Key Employees	$	1,123	$	1,220	$	3,804	$	3,671
Directors	317		302		561		899
Total Cost	1,440		1,522		4,365		4,570

Capitalized	(33)		(12)		(101)		(35)
Net Expense	$	1,407	$	1,510	$	4,264	$	4,535

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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, 2021, there was $7.6 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 1.7 years.

The following table summarizes information regarding restricted stock award activity for SJI during the nine months ended September 30, 2021, excluding accrued dividend equivalents:


	Officers and Other Key Employees	Directors	Weighted Average Fair Value
Nonvested Shares Outstanding, January 1, 2021	449,786	38,456	$	28.88
Granted	243,540	54,419	$	25.66
Cancelled/Forfeited	(27,790)	—	$	25.72
Vested	(172,019)	(38,456)	$	30.37
Nonvested Shares Outstanding, September 30, 2021	493,517	54,419	$	26.71

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.

During the nine months ended September 30, 2021, SJI issued 146,270 shares to its Officers and other key employees at a market value of $3.6 million. During the nine months ended September 30, 2020, SJI issued 72,470 shares at a market value of $2.1 million. These issued shares include shares deferred for payout in prior periods.

SJI also issued 38,456 and 30,961 service-based award shares to its Directors at a market value of $1.2 million and $0.8 million during the nine months ended September 30, 2021 and September 30, 2020, respectively.

SJG - Officers and other key employees of SJG participate in the stock-based compensation plans of SJI. During the nine months ended September 30, 2021 and 2020, SJG Officers and other key employees were granted 23,010 and 7,902 shares of SJI restricted stock, respectively, which had an immaterial impact to SJG's financial statements for both periods.

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. The following events have occurred with respect to PennEast:

•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 FERC issue an order interpreting the Natural Gas Act’s eminent domain authority. On the same day, PennEast filed an amendment with the 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 the FERC of the phased approach and receipt of any remaining governmental and regulatory permits.

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•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, the 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, 2020.

•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.

•On December 9, 2020 the Solicitor General filed a brief supporting PennEast's petition for a Writ of Certiorari.

•On December 23, 2020 the NJ Attorney General filed a brief with the Supreme Court in response to the brief of the Solicitor General.

•On February 3, 2021, the Supreme Court granted PennEast's petition for a Writ of Certiorari.

•On June 29, 2021, the Supreme Court ruled that PennEast can sue New Jersey to secure key land-use rights for the project.

•On September 27, 2021, the PennEast partners announced that further development of the project is no longer supported.

Despite the favorable outcome from the Supreme Court, PennEast continued to experience regulatory and legal challenges resulting in continued delays preventing the commencement of construction and commercial operation of the project. As a result, the Company evaluated its investment in PennEast for an other-than-temporary impairment as of June 30, 2021. Our impairment assessment used a discounted cash flow income approach, including consideration of the severity and duration of any decline in fair value of our investment in the project. Our significant estimates and assumptions included development options and the likelihoods of success of such options, potential regulatory and legal outcomes, construction costs, timing of in-service dates, revenues (including forecasted volumes and rates), and discount rates. The Company estimated the fair value of its investment in PennEast using probability weighted scenarios assigned to discounted future cash flows. Based upon this analysis, in the second quarter of 2021, the Company recognized an other-than-temporary impairment charge of $87.4 million, which is recorded in Equity in (Losses) Earnings from Affiliates in the condensed consolidated statements of (loss)/income for the nine months ended September 30, 2021. After this charge, the Company’s investment in PennEast totaled $8.0 million as of September 30, 2021 as compared to $91.3 million as of December 31, 2020. The impairment did not result in a tax benefit during the nine months ended September 30, 2021, as a valuation allowance had been established for the federal deferred tax asset related to the capital loss (see Note 1).

In September 2021, the PennEast partners, following extensive evaluation and discussion, determined that further development of the project is no longer supported, and thus all further development of the project has ceased. Given that construction of the pipeline will not continue, the Company re-evaluated its investment for an additional other-than temporary impairment as of September 30, 2021. It was determined that no additional impairment was needed as the current value of the investment noted above represents the best estimate of the salvage value of the remaining assets of the project. It is possible that future developments could impact the fair value and could result in the recognition of additional impairment charges.

Summarized financial information for PennEast as derived from its unaudited condensed financial statements is below (in thousands):


	Nine Months Ended September 30,
	2021		2020
Revenues	$	—	$	—
Gross Profit	$	—	$	—
(Loss) Income from Continuing Operations	$	(414,593)	$	26,375
Net (Loss) Income	$	(414,593)	$	26,375
Net (Loss) Income Attributable to South Jersey Industries, Inc.	$	(82,919)	$	5,275

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.

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Potato Creek - SJEX and a joint venture partner formed Potato Creek, in which SJEX 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 $5.0 million and $1.8 million for the three months ended September 30, 2021 and 2020, respectively, and $15.9 million and $10.4 million for the nine months ended September 30, 2021 and 2020, respectively.

REV - SJI Renewable Energy Ventures, LLC has a 35% equity interest in REV, an LNG distributor and developer of LNG and RNG assets and projects.

AFFILIATE TRANSACTIONS - SJI made net investments in and net advances to unconsolidated affiliates of $39.8 million for the nine months ended September 30, 2021, and received net repayments from unconsolidated affiliates of $1.2 million for the nine months ended September 30, 2020.

As of September 30, 2021 and December 31, 2020, the outstanding balance of Notes Receivable – Affiliate was $59.3 million and $33.9 million, respectively. These Notes Receivable-Affiliates balances are comprised of:

•As of September 30, 2021 and December 31, 2020, $11.4 million and $12.1 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. Current losses 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 previous losses.

•As of September 30, 2021 and December 31, 2020, $44.0 million and $19.3 million, respectively, of the notes related to REV, which accrue interest at variable rates.

•As of September 30, 2021 and December 31, 2020, $3.9 million and $2.5 million, respectively, of unsecured notes which 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, 2021 and December 31, 2020, SJI had a net asset of approximately $36.2 million and $106.2 million, respectively, included in Investment in Affiliates on the condensed consolidated balance sheets related to equity method investees; the decrease from prior year is due to the impairment charge related to PennEast noted above. SJI’s maximum exposure to loss from these entities as of September 30, 2021 and December 31, 2020 is limited to its combined investments in these entities and the Notes Receivable-Affiliate in the aggregate amount of $95.5 million and $140.1 million, respectively.

DISCONTINUED OPERATIONS - There have been no significant changes to the nature or balances of SJI's discontinued operations since December 31, 2020, which are defined and described in 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, 2020.

SJG RELATED-PARTY TRANSACTIONS - There have been no significant changes in the nature of SJG’s related-party transactions since December 31, 2020, other than an intercompany lease agreement between SJG and SJI for the Company's corporate headquarters in Folsom, NJ (see Note 1). See Note 3 to the Financial Statements in Item 8 of SJI's and SJG’s Annual Report on Form 10-K for the year ended December 31, 2020 for a description of related parties and associated transactions.

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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,
	2021		2020		2021		2020
Operating Revenues/Affiliates:
SJRG	$	907	$	595	$	7,662	$	2,192
Marina	—		—		—		60
Other	21		20		62		59
Total Operating Revenue/Affiliates	$	928	$	615	$	7,724	$	2,311

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,
	2021		2020		2021		2020
Costs of Sales/Affiliates (Excluding depreciation and amortization)
SJRG	$	954	$	1,808	$	4,924	$	3,404

Operations Expense/Affiliates:
SJI (parent company only)	$	5,832	$	5,909	$	17,082	$	17,463
SJIU	1,045		743		2,957		2,616
Millennium	857		814		2,598		2,461
Other	18		453		163		1,335
Total Operations Expense/Affiliates	$	7,752	$	7,919	$	22,800	$	23,875

4. COMMON STOCK:

The following shares were issued and outstanding for SJI:


			2021
Beginning Balance, January 1			100,591,940
New Issuances During the Period:
Public Equity Offering			11,694,984
Stock-Based Compensation Plan			161,571
Ending Balance, September 30			112,448,495

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.

There were 2,339,139 shares of SJG's common stock (par value $2.50 per share) outstanding as of September 30, 2021. SJG did not issue any new shares during the period. SJIU owns all of the outstanding common stock of SJG.

COMMON STOCK PUBLIC OFFERING -

•On March 22, 2021, SJI offered 10,250,000 shares of its common stock, par value $1.25 per share, at a public offering price of $22.25 per share. Of the offered shares, 362,359 shares were issued at closing. The remaining 9,887,641 shares of common stock ("Forward Shares") are to be sold by Bank of America, N.A., as forward seller, pursuant to a forward sale agreement. The Company received no proceeds from the sale of the Forward Shares in the first nine months of 2021. SJI has an option to settle the forward sale agreement by delivering newly issued shares of SJI

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common stock and receive proceeds, subject to certain adjustments, from the sale of those shares, assuming one or more future physical settlements of the forward sale agreement, no later than March 2022. SJI may also choose to settle the forward sale contract with a cash payment, or multiple cash payments, no later than March 2022. In the event SJI elects to settle all or a portion of the forward sale contract with a cash payment, no additional shares of SJI common stock would be issued under the forward sale contract for the portions that were cash settled.

•On March 25, 2021, 1,537,500 shares pursuant to the underwriters’ option as part of the underwriting agreement for the above offering of shares were issued at the same public offering price of $22.25.

•The issuance of a total 1,899,859 shares in March 2021 resulted in gross proceeds of $42.3 million, with net proceeds, after deducting underwriting discounts and commissions as well as legal fees, totaling $40.6 million.

EQUITY UNITS PUBLIC OFFERING -

•On March 22, 2021, SJI issued and sold 6,000,000 Equity Units, initially consisting of Corporate Units ("2021 Corporate Units"). Each 2021 Corporate Unit has a stated amount of $50 and is comprised of (a) a purchase contract obligating the holder to purchase from the Company for a price in cash of $50, on the purchase contract settlement date, or April 1, 2024, 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 the Company’s 2021 Series B 1.65% Remarketable Junior Subordinated Notes due 2029 (for this section, the “Notes”). In addition to interest payable under the Notes, holders of the 2021 Corporate Units will be entitled to receive quarterly contract adjustment payments at a rate of 7.10% per year on the stated amount of $50 per 2021 Corporate Unit, subject to the Company’s right to defer such contract adjustment payments. No deferral period will extend beyond the purchase contract settlement date. The contract adjustment payments are payable quarterly on January 1, April 1, July 1 and October 1 of each year. The contract adjustment payments will be subordinated to all of the Company's existing and future “Priority Indebtedness” and will be structurally subordinated to all liabilities of our subsidiaries. The present value of the contract adjustment payments due through April 1, 2024 are initially charged to Shareholders’ Equity, with an offsetting credit to Other Current and Noncurrent Liabilities on the condensed consolidated balance sheet. These liabilities are accreted over the life of the purchase contract by interest charges to the condensed consolidated income statement based on a constant rate calculation. Subsequent contract adjustment payments reduce this liability. This offering resulted in gross proceeds of approximately $300.0 million, with net proceeds, after deducting underwriting discounts and commissions, of $291.0 million. As of September 30, 2021, the net proceeds, after amortization of the underwriting discounts, are recorded as Long-Term Debt on the condensed consolidated balance sheets.

•On April 1, 2021, the underwriters purchased an additional 700,000 Equity Units as part of their option under the above offering to purchase an additional 900,000 Equity Units. Gross proceeds were approximately $35.0 million, with net proceeds, after deducting underwriting discounts and commissions, of approximately $34.0 million. As of September 30, 2021, the net proceeds, after amortization of the underwriting discounts, are recorded as Long-Term Debt on the condensed consolidated balance sheets.

CONVERTIBLE UNITS -

•In 2018, SJI issued and sold 5,750,000 Equity Units, initially in the form of Corporate Units ("2018 Corporate Units"), which included 750,000 of 2018 Corporate Units pursuant to the underwriters’ option. Each 2018 Corporate Unit had a stated amount of $50 and was 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 (the "Series A Junior Subordinated Notes"). SJI paid 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, were recorded as Long-Term Debt on the condensed consolidated balance sheets.

•On March 25, 2021, the Company finalized the remarketing of the $287.5 million of Series A Junior Subordinated Notes. The interest rate on the Series A Junior Subordinated Notes has been reset to 5.020% per year, and this reset rate became effective on April 15, 2021 (see below). Interest on the Series A Junior Subordinated Notes will be payable semi-annually on April 15 and October 15, commencing on April 15, 2021, and at maturity. As a result, these

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notes continue to be recorded as Long-Term Debt on the condensed consolidated balance sheets as of September 30, 2021.

•On April 1, 2021, the Company announced the settlement rate for the stock purchase contracts that are components of the 2018 Corporate Units with holders of the 2018 Corporate Units to receive 1.7035 shares of SJI common stock for each stock purchase contract that they hold, with cash to be paid in lieu of any fractional shares. The settlement rate was set to be based upon the original settlement rate of 1.6949 shares, as adjusted for certain corporate events since original issuance. Consequently, on April 15, 2021, each holder of the 2018 Corporate Units on that date, following payment of $50.00 for each unit held, received 1.7035 shares of the Company’s common stock for each such unit. As a result of settlement of the outstanding stock purchase contracts, on April 15, 2021, the Company received approximately $287.5 million in exchange for approximately 9.8 million shares of common stock. Additionally, each 2018 Corporate Unit holder of record on April 1, 2021, received the final quarterly cash distribution of $0.90625 per 2018 Corporate Unit and received any remaining amounts from the treasury portfolio that was purchased in connection with the remarketing described above, as well as any earnings from the reinvestment of that treasury portfolio when it matured.

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


	September 30, 2021		December 31, 2020
Principal amount:	2021 Series B Remarketable Junior Subordinated Notes due 2029			2018 Series A Remarketable Junior Notes due 2031
Principal (A)	$	335,000		$	287,500
Unamortized debt discount and issuance costs (A)	9,418			7,181
Net carrying amount	$	325,582		$	280,319
Carrying amount of the equity component (B)	$	—		$	—

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

(B) There is no equity portion as of September 30, 2021 and December 31, 2020 for these Notes.

During the three months ended September 30, 2021 and 2020, the Company recognized $5.0 million and $2.7 million, respectively, of coupon interest expense, and during the nine months ended September 30, 2021 and 2020, the Company recognized $12.8 million and $8.0 million, respectively, of coupon interest expense, all of which was included in Interest Charges on the condensed consolidated statements of (loss)/income. During those periods, the amortization of debt discount and issuance costs was not material. As of September 30, 2021, the effective interest rate was 2.1% on the 2021 Notes and 5.0% on the 2018 Notes.

SJI's EPS — SJI's basic EPS is based on the weighted-average number of common shares outstanding. SJI's diluted EPS includes consideration of the effect of SJI's restricted stock as discussed in Note 2, along with the impact of the Forward Shares, Equity Units and Convertible Units discussed above, accounted for under the treasury stock method. For the nine months ended September 30, 2021 and 2020, the shares required for inclusion in the denominator for the diluted EPS calculation were 1,481,770 and 124,705, respectively. For the three months ended September 30, 2021 and 2020, shares of 1,469,623 and 141,062, respectively, were not included in the denominator for the diluted EPS calculation because they would have had an antidilutive effect on EPS.

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 first nine months of 2021.

RETAINED EARNINGS — The Utilities are limited by their regulatory authorities on the amount of cash dividends or other distributions they are able to transfer to their parent, specifically if such dividends or other distributions could impact their capital structure. In addition, SJG's First Mortgage Indentures contain a restriction regarding the amount of cash dividends or other distributions that they may pay. As of September 30, 2021, this loan restriction does not affect the amount that may be distributed from SJG's retained earnings.

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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 were no equity infusions during the three and nine months ended September 30, 2021. 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.

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, 2021
Balance Sheet Line Item	SJI		SJG
Cash and Cash Equivalents	$	25,415	$	1,986
Restricted Investments	34		34
Total cash, cash equivalents and restricted cash shown in the statement of cash flows	$	25,449	$	2,020


	As of December 31, 2020
Balance Sheet Line Item	SJI		SJG
Cash and Cash Equivalents	$	34,045	$	1,598
Restricted Investments	7,786		4,826
Total cash, cash equivalents and restricted cash shown in the statement of cash flows	$	41,831	$	6,424

The carrying amounts of the Restricted Investments for both SJI and SJG approximate their fair values at September 30, 2021 and December 31, 2020, 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 for the three and nine months ended September 30, 2021 is as follows (in thousands):

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	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
SJI (includes SJG and all other consolidated subsidiaries):
Balance at beginning of period	$	42,233	$	30,410	$	30,582	$	19,829
Provision for expected credit losses	2,375		5,416		7,621		19,994
Regulated assets (a)	(293)		—		8,982		—
Recoveries of accounts previously written off	414		126		772		688
Uncollectible accounts written off	(1,664)		(2,935)		(4,892)		(7,494)
Balance at end of period	$	43,065	$	33,017	$	43,065	$	33,017

SJG:
Balance at beginning of period	$	21,706	$	14,472	$	17,359	$	14,032
Provision for expected credit losses	1,411		4,783		5,529		8,255
Regulated assets (a)	1,059		—		3,030		—
Recoveries of accounts previously written off	400		4		503		295
Uncollectible accounts written off	(702)		(2,422)		(2,547)		(5,745)
Balance at end of period	$	23,874	$	16,837	$	23,874	$	16,837

(a) Deferral of incremental costs related to the COVID-19 pandemic as a regulatory asset, resulting from a July 2, 2020 BPU Order (see Note 8). ETG’s incremental costs were lower during the third quarter 2021 resulting from lower allowance for credit losses due to seasonality, resulting in the negative balance for SJI during the three months ended September 30, 2021.

NOTES RECEIVABLE-AFFILIATES - The carrying amounts of the Note Receivable-Affiliates balances approximate their fair values at September 30, 2021 and December 31, 2020, which would be included in Level 2 of the fair value hierarchy. See Note 3 for information about these balances and Note 13 for information about the fair value hierarchy.

CONTRACT 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 $1.8 million and $2.5 million as of September 30, 2021 and December 31, 2020, 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. The amount of such discounts and the annualized amortization to interest is not material to SJI's or SJG's consolidated financial statements.

In addition, as part of the EET program, 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 $53.0 million and $46.4 million as of September 30, 2021 and December 31, 2020, respectively. On the condensed consolidated balance sheets of SJI and SJG, the current portion of EET loans receivable totaled $7.1 million and $6.4 million as of September 30, 2021 and December 31, 2020, respectively, and is reflected in Accounts Receivable; and the non-current portion totaled $45.9 million and $40.0 million as of September 30, 2021 and December 31, 2020, respectively, and is reflected in Contract Receivables.

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 on the above-mentioned receivables. There have been no material 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, 2021 and December 31, 2020, which would be included in Level 2 of the fair value hierarchy (see Note 13).

CREDIT RISK - As of September 30, 2021, SJI had approximately $10.5 million, or 5.9%, of the current and noncurrent Derivatives – Energy Related Assets transacted with one counterparty. This counterparty is investment-grade rated.

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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, 2021 and December 31, 2020, except as noted below (in thousands):


	September 30, 2021		December 31, 2020
SJI (includes SJG and all consolidated entities)
Estimated fair values of long-term debt	$	3,604,517	$	3,152,224

Carrying amounts of long-term debt, including current maturities (A)	$	3,261,945	$	2,919,201
Net of:
Unamortized debt issuance costs	$	39,465	$	29,574
Unamortized debt discounts	$	5,157	$	5,224

SJG
Estimated fair values of long-term debt	$	1,171,515	$	1,197,052

Carrying amounts of long-term debt, including current maturities	$	1,049,551	$	1,069,089
Net of:
Unamortized debt issuance costs	$	8,895	$	9,357

(A) SJI Long-Term Debt on the consolidated balance sheet as of September 30, 2021 and December 31, 2020 includes $5.6 million and $3.1 million of finance leases, respectively.

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).

6. SEGMENTS OF BUSINESS:

ASC 280, Segment Reporting, establishes standards for reporting information about operating segments and requires that a public business enterprise report financial and descriptive information about its reportable operating segments. Operating segments are defined as components of an enterprise for which separate financial information is available that is regularly evaluated by the CODM in deciding how to allocate resources and in assessing performance.

Beginning with the first quarter of 2021, our internal management reporting, specifically around our nonutility businesses, changed primarily due to recent acquisitions and divestitures, and new product lines entered into. These were primarily within the fuel cell, solar, RNG, and retail businesses. Refer to Item 1, along with 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, 2020 for information about these acquisitions and divestitures.

As a result of these changes in our businesses, the Company realigned its operating segments. The realigned segments reflect the financial information regularly evaluated by the CODM, which for SJI is the Company's Chief Executive Officer.

The operating 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. On July 31, 2020, SJI sold ELK to a third-party buyer.

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

•Retail services operations includes the activities of SJE, SJESP and SJEI, as well as our equity interest in Millennium.

•Renewables consists of:

◦The Catamaran joint venture, which owns Annadale and Bronx Midco.

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◦Solar-generation sites located in New Jersey, and three legacy solar projects, one of which was sold during the first quarter of 2020.

◦The activities of ACLE, BCLE, SCLE and SXLE, which have all ceased operations (see Note 1).

◦MTF and ACB, which were sold in the first quarter of 2020.

•Decarbonization consists of

◦SJI Renewables Energy Ventures, LLC, which includes our equity interest in REV, which is included in Equity in (Loss)/Earnings of Affiliated Companies on the condensed consolidated statements of (loss)/income.

◦SJI RNG Devco, LLC, which includes the renewable natural gas development rights in certain dairy farms; the operating results from this entity are not material at this time.

•Midstream invests in infrastructure and other midstream projects, including an investment in PennEast (see Note 3).

•Corporate & Services segment includes costs related to financing, acquisitions and divestitures, and other unallocated costs. 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 Management; Energy Production; Midstream; and Corporate & Services. Energy Management includes wholesale energy and retail services. Energy Production includes renewables and decarbonization. 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). All prior periods were revised to conform to the new segment alignment noted above.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Operating Revenues:
SJI Utilities:
SJG Utility Operations	$	69,958	$	66,190	$	412,572	$	394,066
ETG Utility Operations	37,072		37,503		248,098		239,503
ELK Utility Operations	—		285		—		4,792
Subtotal SJI Utilities	107,030		103,978		660,670		638,361
Energy Management:
Wholesale Energy Operations	247,402		143,338		669,067		373,308
Retail Services	5,360		8,836		13,382		32,735

Subtotal Energy Management	252,762		152,174		682,449		406,043
Energy Production:
Renewables	7,352		6,317		17,980		15,459


Subtotal Energy Production	7,352		6,317		17,980		15,459
Corporate and Services	13,577		10,835		39,416		36,740
Subtotal	380,721		273,304		1,400,515		1,096,603
Intersegment Sales	(15,090)		(11,755)		(48,756)		(40,978)
Total Operating Revenues	$	365,631	$	261,549	$	1,351,759	$	1,055,625

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	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Operating (Loss) Income:
SJI Utilities:
SJG Utility Operations	$	(1,961)	$	(6,080)	$	133,350	$	108,297
ETG Utility Operations	5,634		(3,163)		66,521		57,274
ELK Utility Operations	—		(374)		—		373
Subtotal SJI Utilities	3,673		(9,617)		199,871		165,944
Energy Management:
Wholesale Energy Operations	(15,534)		2,768		(5,393)		16,272

Retail Services	849		(1,573)		763		(2,238)
Subtotal Energy Management	(14,685)		1,195		(4,630)		14,034
Energy Production:
Renewables	1,787		2,455		4,920		143
Decarbonization	(63)		—		(71)		—

Subtotal Energy Production	1,724		2,455		4,849		143
Corporate and Services	315		(2,527)		(626)		(2,662)
Total Operating (Loss) Income	$	(8,973)	$	(8,494)	$	199,464	$	177,459

Depreciation and Amortization:
SJI Utilities:
SJG Utility Operations	$	30,252	$	25,762	$	89,786	$	76,216
ETG Utility Operations	14,665		10,391		53,657		30,370
ELK Utility Operations	—		52		—		354
Subtotal SJI Utilities	44,917		36,205		143,443		106,940
Energy Management:
Wholesale Energy Operations	25		14		69		44
Retail Services	117		—		353		—

Subtotal Energy Management	142		14		422		44
Energy Production:
Renewables	1,172		30		3,573		36


Subtotal Energy Production	1,172		30		3,573		36
Corporate and Services	1,858		1,267		4,271		3,704
Total Depreciation and Amortization	$	48,089	$	37,516	$	151,709	$	110,724

Interest Charges:
SJI Utilities:
SJG Utility Operations	$	9,444	$	8,271	$	28,782	$	23,832
ETG Utility Operations	8,651		7,398		25,098		22,321
ELK Utility Operations	—		2		—		21
Subtotal SJI Utilities	18,095		15,671		53,880		46,174
Energy Management:

Retail Services	36		—		135		—
Subtotal Energy Management	36		—		135		—
Energy Production:
Renewables	1,078		277		3,491		2,974
Decarbonization	286		—		853		—

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Subtotal Energy Production:	1,364		277		4,344		2,974
Midstream	322		677		1,627		1,837
Corporate and Services	13,406		12,490		39,744		43,332
Subtotal	33,223		29,115		99,730		94,317
Intersegment Borrowings	(1,755)		(1,353)		(5,618)		(5,430)
Total Interest Charges	$	31,468	$	27,762	$	94,112	$	88,887


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Income Taxes:
SJI Utilities:
SJG Utility Operations	$	(2,460)	$	(3,293)	$	26,683	$	23,157
ETG Utility Operations	132		(2,475)		11,320		7,869
ELK Utility Operations	—		(4)		—		186
Subtotal SJI Utilities	(2,328)		(5,772)		38,003		31,212
Energy Management:
Wholesale Energy Operations	(4,043)		858		(907)		4,583
Retail Services	248		40		542		168

Subtotal Energy Management	(3,795)		898		(365)		4,751
Energy Production:
Renewables	(2,134)		(11,191)		(2,301)		(10,897)
Decarbonization	205		—		329		—

Subtotal Energy Production	(1,929)		(11,191)		(1,972)		(10,897)
Midstream	(107)		(58)		(197)		(174)
Corporate and Services	(3,568)		(3,344)		(10,129)		(11,167)
Total Income Taxes	$	(11,727)	$	(19,467)	$	25,340	$	13,725

Property Additions:
SJI Utilities:
SJG Utility Operations	$	64,988	$	73,481	$	186,948	$	181,440
ETG Utility Operations	58,923		45,452		158,953		149,578
ELK Utility Operations	—		112		—		971
Subtotal SJI Utilities	123,911		119,045		345,901		331,989
Energy Management:
Wholesale Energy Operations	4		2		6		2

Subtotal Energy Management	4		2		6		2
Energy Production:
Renewables	6,471		59,866		24,458		62,751
Decarbonization	8,140		—		10,014		—
Subtotal Energy Production	14,611		59,866		34,472		62,751
Midstream	11		29		19		115
Corporate and Services	747		715		3,105		2,076
Total Property Additions	$	139,284	$	179,657	$	383,503	$	396,933

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	September 30, 2021		December 31, 2020
Identifiable Assets:
SJI Utilities:
SJG Utility Operations	$	3,637,046	$	3,522,265
ETG Utility Operations	2,717,842		2,561,067

Subtotal SJI Utilities	6,354,888		6,083,332
Energy Management:
Wholesale Energy Operations	272,955		195,882

Retail Services	26,581		29,687
Subtotal Energy Management	299,536		225,569
Energy Production:
Renewables	164,486		153,018
Decarbonization	89,910		40,482

Subtotal Energy Production	254,396		193,500
Midstream	8,795		92,208
Discontinued Operations	1,811		1,775
Corporate and Services	320,268		318,095
Intersegment Assets	(215,683)		(225,331)
Total Identifiable Assets	$	7,024,011	$	6,689,148

7. RATES AND REGULATORY ACTIONS:

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

Except as described below, there have been no significant regulatory actions or changes to the Utilities' rate structures since December 31, 2020. 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, 2020.

SJG:

Periodic Rate Mechanisms:

In January 2021, the BPU approved SJG’s request from its June 2020 filing for an increase in its EET rate. The approval reflected a $5.9 million increase in revenues, effective February 1, 2021.

In March 2021, the BPU approved and made final the credit rate proposed in SJG’s September 2020 filing associated with Tax Reform, which was already in effect on a provisional basis. It is anticipated that the approved rate will result in SJG returning approximately $14.9 million in excess deferred income tax to its ratepayers.

In April 2021, the BPU approved the stipulation resolving SJG's July 2020 Compliance Filing for its SBC (this rider to SJG's tariff adjusts SJG's rates related to RAC, CLEP & USF). All rate changes were approved as requested, and the stipulated rates reflect a $5.5 million increase in revenues. The approved stipulation also contains authority to defer costs related to Natural Resource Defense claims, plus carrying costs.

In April 2021, the BPU also approved a stipulation for expansion of SJG's EEP program for three years, effective July 1, 2021, authorizing a total budget of $133.3 million which would initially increase annual revenue by $5.4 million.

In May 2021, the BPU approved the final rates for SJG’s 2020-2021 BGSS and CIP filings, which were previously in effect on a provisional basis. The provisional BGSS rate was increased, effective June 1, 2021, to include recovery over a two-year period of $22.9 million of costs related to a previous pricing dispute on a long-term gas supply contract (see Note 8). The provisional CIP rate was approved as a final rate.

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In September 2021, the BPU approved SJG's request from its April 2021 SHARP II filing to increase base rates. The increase, effective October 1, 2021, allows for the recovery of $2.2 million in annual revenue requirement on $22.6 million of SHARP II investment placed in service during the period July 1, 2020 to June 30, 2021.

In September 2021, the BPU approved a statewide USF rate increase and no change to the current statewide Lifeline rate, each with effective dates of October 1, 2021, resulting in an increase to the combined rates. SJG's portion of the proposed revenue increase is approximately $3.8 million.

The following activity is currently pending BPU approval:

•SJG submitted a request to implement an IIP and associated cost recovery mechanism of a five-year $742.5 million program that commenced June 2021.

•SJG submitted its annual BGSS/CIP filing. For the BGSS component, SJG requested a $59.5 million increase in gas cost recoveries for the period October 1, 2021 through September 30, 2022. For the CIP component, SJG requested a $15.3 million increase in revenues for the period October 1, 2021 through September 30, 2022.

•SJG filed its annual AIRP II filing, seeking recovery of an annual revenue requirement of $5.7 million on AIRP II investments placed into service during the period July 1, 2020 to September 30, 2021, totaling $58.7 million. The filing seeks approval to recover these investments through a base rate adjustment effective January 1, 2022.

•SJG submitted its annual filing associated with Tax Reform, which proposed an $11.6 million refund to customers through the Rider H credit rate for the period of October 1, 2021 through September 30, 2022.

•SJG filed its annual EET filing, seeking to recover $12.8 million in revenue during the period October 1, 2021 to September 30, 2022.

•SJG submitted its annual SBC and TIC filing, seeking to recover $0.9 million in revenue during the period of November 2021 to October 2022.

ETG:

In the first quarter of 2021, final rates were approved by the BPU for ETG's 2020-2021 WNC and CEP filings, effective February 27, 2021, which were already in effect on a provisional basis. The BPU also approved the requested RAC rate reflecting a $3.2 million decrease in revenues related to the recovery of costs of remediation, effective April 1, 2021.

In April 2021, the BPU approved the stipulation for ETG's new EEP program to expand its EEPs for three years effective July 1, 2021 authorizing a total budget of $83.4 million which would initially increase annual revenues by $2.8 million. This new EEP program will replace the one currently in effect. In April 2021, the BPU also approved the stipulation to establish a CIP similar to SJG's CIP, which eliminates the link between usage and margin and includes a weather-related component. The CIP will become effective July 1, 2021.

In June 2021, the BPU approved the final rate for ETG’s 2020-2021 BGSS filing, effective July 1, 2021, which was already in effect on a provisional basis. The BPU also approved a stipulation to resolve ETG’s annual EEP filing from July 2020. The approval reflected a $0.5 million decrease in revenues, also effective July 1, 2021.

In September 2021, the BPU approved a statewide USF rate increase and no change to the current statewide Lifeline rate, each with effective dates as of October 1, 2021, resulting in an increase in the combined rates. ETG's portion of the proposed revenue increase is approximately $3.5 million.

In September 2021, the BPU approved the increases to IIP rates effective October 1, 2021. The approval reflected an increase to annual revenues by approximately $7.1 million to reflect the roll-in of approximately $63.8 million of IIP investments placed in service from July 1, 2020 through June 30, 2021.

In September 2021, the BPU approved provisional rates for ETG's WNC and CEP filings submitted in July 2021, effective October 1, 2021. The net effect of these approvals was an increase of $5.3 million in revenues.

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The following activity is currently pending BPU approval:

•ETG submitted its annual BGSS filing, requesting a $14.0 million increase in gas cost recoveries for the period October 1, 2021 through September 30, 2022.

•ETG submitted its annual RAC filing, requesting a $7.9 million decrease in revenues related to the recovery of remediation costs, with an effective date of October 1, 2021.

•ETG submitted its annual filing for its legacy EEP program, requesting a $1.6 million decrease in revenues, with an effective date of October 1, 2021

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, 2020, 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, 2020.

The Utilities' Regulatory Assets as of September 30, 2021 and December 31, 2020 consisted of the following items (in thousands):


	September 30, 2021
	SJG		ETG		Total SJI
Environmental Remediation Costs:
Expended - Net	$	153,080	$	13,909	$	166,989
Liability for Future Expenditures	100,209		77,565		177,774
Insurance Recovery Receivables	—		(6,807)		(6,807)
Deferred ARO Costs	46,412		30,807		77,219
Deferred Pension Costs - Unrecognized Prior Service Cost	—		31,692		31,692
Deferred Pension and Other Postretirement Benefit Costs	77,426		8,466		85,892
Deferred Gas Costs - Net	20,301		—		20,301
CIP Receivable	6,827		—		6,827
SBC Receivable (excluding RAC)	5,018		—		5,018
Deferred Interest Rate Contracts	8,027		—		8,027
EET/EEP	17,764		5,472		23,236
Pipeline Supplier Service Charges	365		—		365
Pipeline Integrity Cost	6,612		—		6,612
AFUDC - Equity Related Deferrals	12,155		—		12,155
WNC	—		5,497		5,497
Other Regulatory Assets	25,888		22,802		48,690
Total Regulatory Assets	$	480,084	$	189,403	$	669,487

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	December 31, 2020
	SJG		ETG		Total SJI
Environmental Remediation Costs:
Expended - Net	$	157,340	$	5,196	$	162,536
Liability for Future Expenditures	101,243		91,837		193,080
Insurance Recovery Receivables	—		(6,807)		(6,807)
Deferred ARO Costs	42,365		25,453		67,818
Deferred Pension Costs - Unrecognized Prior Service Cost	—		33,898		33,898
Deferred Pension and Other Postretirement Benefit Costs	77,426		8,466		85,892
Deferred Gas Costs - Net	19,178		—		19,178
CIP Receivable	21,013		—		21,013
SBC Receivable (excluding RAC)	3,453		—		3,453
Deferred Interest Rate Contracts	9,938		—		9,938
EET/EEP	18,725		3,062		21,787
Pipeline Supplier Service Charges	434		—		434
Pipeline Integrity Cost	6,091		—		6,091
AFUDC - Equity Related Deferrals	11,822		—		11,822
WNC	—		7,444		7,444
Other Regulatory Assets	26,056		10,359		36,415

Total Regulatory Assets	$	495,084	$	178,908	$	673,992

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 as discussed in Note 15 of SJI's and SJG's Annual Report on Form 10-K for the year ended December 31, 2020. The BPU allows SJG and ETG to recover the deferred costs not recovered from insurance carriers through their RAC mechanisms over seven-year periods after the costs are incurred.

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 of originally estimated cash flows to settle the retirement obligation. The increase from December 31, 2020 to September 30, 2021 is due to retirement costs, inflation and discount rates used to measure the expected retirement costs. There is no impact on earnings as a result of these changes.

DEFERRED GAS COSTS - NET - Over/under collections of gas costs are monitored through SJG's and ETG's BGSS clause. SJG's balance as of December 31, 2020 included $22.9 million of costs related to a previous pricing dispute on a long-term gas supply contract. As of June 1, 2021, SJG has begun to recover these costs from its customers through the BGSS clause. SJG’s deferred gas costs-net are currently in an under-collected position, resulting in a regulatory asset. ETG's deferred gas costs-net are over-recovered at September 30, 2021, resulting in a regulatory liability.

CIP RECEIVABLE - The CIP tracking mechanism at SJG adjusts earnings when the actual usage per customer experienced during the period varies from an established baseline usage per customer. Actual usage per customer was more than the established baseline during the first nine months of 2021, resulting in a reduction of the regulatory asset at September 30, 2021 as compared to December 31, 2020. This is primarily the result of colder than normal weather experienced in the region.

OTHER REGULATORY ASSETS - The increase from December 31, 2020 to September 30, 2021 is primarily related to incremental costs incurred related to the impacts to our business from the COVID-19 pandemic. 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. On September 14, 2021, the BPU extended this period to December 31, 2022. The Company is required to file quarterly reports with the BPU,

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along with a petition of recovery of such incremental costs with the BPU by December 31, 2022 or within 60 days of the close of the tracking period, whichever is later. As of September 30, 2021 and December 31, 2020, ETG deferred $12.3 million and $5.8 million, respectively, and SJG deferred $7.6 million and $4.7 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, 2021 and December 31, 2020 consisted of the following items (in thousands):


	September 30, 2021
	SJG		ETG		Total SJI
Excess Plant Removal Costs	$	12,160	$	33,992	$	46,152
Excess Deferred Taxes	211,020		111,724		322,744
Deferred Gas Costs - Net	—		44,482		44,482


Amounts to be Refunded to Customers	—		3,379		3,379
Other Regulatory Liabilities	—		1,665		1,665
Total Regulatory Liabilities	$	223,180	$	195,242	$	418,422


	December 31, 2020
	SJG		ETG		Total SJI
Excess Plant Removal Costs	$	12,666	$	37,953	$	50,619
Excess Deferred Taxes	232,694		113,888		346,582
Deferred Gas Costs - Net	—		15,322		15,322


Amounts to be Refunded to Customers	—		6,969		6,969
Other Regulatory Liabilities	—		1,085		1,085

Total Regulatory Liabilities	$	245,360	$	175,217	$	420,577

EXCESS DEFERRED TAXES - This liability is recognized as a result of Tax Reform enacted into law on December 22, 2017. The decrease in these liabilities for SJI and SJG from December 31, 2020 to September 30, 2021 is related to excess tax amounts returned to customers through customer billings. See Note 10 of SJI's and SJG's Annual Report on Form 10-K for the year ended December 31, 2020.

DEFERRED GAS COSTS - NET - Over/under collections of gas costs are monitored through ETG's BGSS mechanism. Net under collected gas costs are classified as a regulatory asset and net over collected gas costs are classified as a regulatory liability. Derivative contracts used to hedge natural gas purchase are also included in the BGSS, subject to BPU approval. The increase from December 31, 2020 to September 30, 2021 is primarily driven by the change in the value of the energy related derivative contracts.

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9. PENSION AND OTHER POSTRETIREMENT BENEFITS:

For the three and nine months ended September 30, 2021 and 2020, 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,
	2021		2020		2021		2020
Service Cost	$	1,519	$	974	$	4,701	$	4,349
Interest Cost	3,404		3,862		9,876		11,388
Expected Return on Plan Assets	(6,154)		(5,569)		(17,821)		(16,473)
Amortizations:
Prior Service Cost	25		26		73		79
Actuarial Loss	3,325		2,647		9,713		8,077
Net Periodic Benefit Cost	2,119		1,940		6,542		7,420
Capitalized Benefit Cost	(577)		(410)		(1,708)		(1,470)
Deferred Benefit Cost	(339)		(377)		(971)		(1,193)
Total Net Periodic Benefit Expense	$	1,203	$	1,153	$	3,863	$	4,757


	Other Postretirement Benefits
	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Service Cost	$	212	$	182	$	638	$	511
Interest Cost	475		560		1,424		1,775
Expected Return on Plan Assets	(1,436)		(1,345)		(4,308)		(4,036)
Amortizations:
Prior Service Cost	(156)		(180)		(468)		(468)
Actuarial Loss	273		255		817		640
Net Periodic Benefit Cost	(632)		(528)		(1,897)		(1,578)
Capitalized Benefit Cost	(108)		57		(320)		(157)
Deferred Benefit Cost	337		(90)		1,010		701
Total Net Periodic Benefit Expense	$	(403)	$	(561)	$	(1,207)	$	(1,034)

The Pension Benefits Net Periodic Benefit Cost incurred by SJG was approximately $1.6 million of the totals presented in the table above for both the three months ended September 30, 2021 and 2020, and $4.7 million and $5.4 million of the totals presented in the table above for the nine months ended September 30, 2021 and 2020, 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 $(0.6) million and $(0.1) million of the totals presented in the table above for the three months ended September 30, 2021 and 2020, respectively, and $(1.6) million and $(1.5) million of the totals presented in the table above for the nine months ended September 30, 2021 and 2020, 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.

No contributions were made to the pension plans by either SJI or SJG during the nine months ended September 30, 2021 or 2020. Future pension contributions by SJI cannot be determined at this time. Payments related to the unfunded SERP for SJG are expected to be approximately $3.7 million in 2021.

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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, 2020 for additional information related to SJI’s and SJG's pension and other postretirement benefits.

10. LINES OF CREDIT & SHORT-TERM BORROWINGS:

Credit facilities and available liquidity as of September 30, 2021 were as follows (in thousands):


Company	Total Facility		Usage			Available Liquidity		Expiration Date
SJI:
SJI Syndicated Revolving Credit Facility	$	500,000	$	61,300	(A)	$	438,700	September 2026




SJG:
Commercial Paper Program/Revolving Credit Facility	250,000		82,900		(B)	167,100		September 2026

ETG:
ETG Revolving Credit Facility	250,000		11,000		(C)	239,000		September 2026

Total	$	1,000,000	$	155,200		$	844,800

(A) Includes letters of credit outstanding in the amount of $9.8 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 $1.9 million, which supports the remediation of environmental conditions at certain locations in SJG's service territory.

For SJI and SJG, the amount of usage shown in the table above, less the letters of credit noted in (A)-(C) for SJI and (B) for SJG above, equals the amounts recorded as Notes Payable on the respective condensed consolidated balance sheets as of September 30, 2021.

During the first quarter of 2021, SJI paid off its $150.0 million term loan agreement at maturity.

On September 1, 2021, SJI, SJG and ETG (collectively, the "Borrowers") entered into an unsecured, five-year master revolving credit facility (the "Credit Facility") with a syndicate of banks, which expires on September 1, 2026, unless earlier terminated or extended in accordance with its terms.

The Credit Facility provides for maximum borrowings in a total aggregate amount of $1.0 billion, including the issuance of swingline loans (in an amount not to exceed an aggregate of $100.0 million) and letters of credit (in an amount not to exceed an aggregate of $350.0 million, of which $50.0 million has been initially committed by various lenders), each at the applicable interest rates specified in the Credit Facility. The Borrowers each have access to a portion of the facility (a “Sublimit”) under which it can borrow, with the Sublimits of SJI, SJG and ETG initially being $500.0 million, $250.0 million and $250.0 million, respectively. The Sublimits may be changed from time to time at the request of the Borrowers, but with maximum and minimum Sublimits, which are subject to change upon certain events, including if the amount of available credit is increased. Borrowings under the Credit Facility are at market rates.

Subject to certain conditions set forth in the Credit Facility, the Borrowers may increase the amount of the borrowings available under the Credit Facility by up to a maximum aggregate amount of $250.0 million (for a total facility of up to $1.25 billion), although no lender is obligated to increase its commitment.

The Credit Facility contains customary representations, warranties and covenants, including a financial covenant limiting the ratio of Indebtedness of each Borrower and its subsidiaries on a consolidated basis to Consolidated Total Capitalization of each Borrower of not more than 0.70 to 1.0 (as such terms are defined in the Credit Facility). SJI, SJG and ETG were all in compliance with these covenants as of September 30, 2021.

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In connection with entry into the Credit Facility, the following revolving credit facilities were terminated effective September 1, 2021: (a) SJI's credit agreement, dated as of August 7, 2017, which provided for a revolving credit facility of up to $500.0 million; (b) SJG's credit agreement, dated as of August 14, 2017, which provided for a revolving credit facility of up to $200.0 million; and (c) ETG's credit agreement, dated as of June 29, 2018, which provided for a revolving credit facility of up to $200.0 million.

SJG has a commercial paper program under which it may issue short-term, unsecured promissory notes to qualified investors up to a maximum aggregate amount outstanding at any time of $250.0 million. The notes have fixed maturities which may vary by note, but cannot exceed 270 days from the date of issue. Proceeds from the notes are used for general corporate purposes. SJG's commercial paper program is backstopped by its Sublimit allocation of the SJI Credit Facility of $250.0 million. The principal amount of borrowings outstanding under the commercial paper program and the Sublimit allocation credit facility cannot exceed an aggregate of $250.0 million.

Although there can be no assurance, management believes that actions presently being taken to pay off or refinance the short-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.

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


	September 30, 2021		September 30, 2020
Weighted average interest rate on borrowings:
SJI (inclusive of SJG, ETG and SJIU)	0.69	%	1.26	%
SJG	0.18	%	0.23	%

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Average borrowings outstanding, not including LOC:
SJI (inclusive of all subsidiaries' facilities)	$	83,500	$	359,600	$	169,000	$	516,800
SJG	$	47,000	$	154,400	$	24,200	$	149,000

Maximum amounts outstanding, not including LOC:
SJI (inclusive of all subsidiaries' facilities)	$	159,800	$	546,700	$	452,900	$	872,200
SJG	$	87,300	$	187,000	$	87,300	$	187,000

11. COMMITMENTS AND CONTINGENCIES:

Except as described below, there have been no significant changes to the Company's commitments and contingencies since December 31, 2020, which are 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, 2020.

GUARANTEES — As of September 30, 2021, 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.

AFFILIATE LOANS - SJI has provided $44.0 million and $19.3 million in capital contribution loans to REV, which are recorded in Notes Receivable - Affiliates on the condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020, respectively (see Note 3). The amount of capital contribution loans may be amended upward from time to time at the sole discretion of SJI.

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LONG-TERM DEBT - As discussed in Note 14, ETG issued three tranches of Series 2020A-2 Bonds, that are part of the November 2020 BPA, on June 15, 2021.

AMA - 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.

COLLECTIVE BARGAINING AGREEMENTS — As of September 30, 2021, SJI and its subsidiaries employed 1,167 employees compared with 1,130 employees as of December 31, 2020. As of September 30, 2021, 289 of the total number of employees were represented by labor unions at SJG, and 163 were represented by a labor union at ETG. As of December 31, 2020, 303 of the total number of employees were represented by labor unions at SJG, and 167 were represented by a labor union at ETG. 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 Local 76 and operate under a collective bargaining agreement that was finalized with the IAM Local 76 during the third quarter 2021 and now runs through August 2025. ETG employees represented by the UWUA operate under a collective bargaining agreement that runs through November 2022.

EQUITY AND CONVERTIBLE UNITS - The Company has a contract obligating the holder of the Equity 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. In April 2021, a similar contract related to SJI's Convertible Units was settled. 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. 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.

In August 2018, the State of New Jersey filed a civil enforcement action in the New Jersey Superior Court, Atlantic County, 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. Assessment of the nature and extent of the alleged damages requires substantial analysis from multiple experts. To date, discovery has not yet taken place and there is limited precedent on a number of the legal matters involved. As a result, SJG is currently evaluating the merits of the State of New Jersey’s allegations. All parties have agreed to and begun mediation efforts. SJG intends to vigorously defend itself in this matter, however, an adverse outcome in the litigation could have a material impact on SJI's and SJG's results of operations, financial condition and liquidity. SJG recorded a liability based on its best-estimate of the probable outcome of this matter as of September 30, 2021. This manufactured gas plant site has been fully remediated.

SJI has accrued approximately $13.6 million and $4.1 million related to all claims in the aggregate as of September 30, 2021 and December 31, 2020, respectively, of which SJG has accrued approximately $10.3 million and $1.2 million as of September 30, 2021 and December 31, 2020, respectively.

ENVIRONMENTAL REMEDIATION COSTS — Except as noted under "Litigation" above, there have been no significant changes to the status of SJI’s environmental remediation efforts since December 31, 2020, 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, 2020.

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.

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As of September 30, 2021, 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)	72.8	12.5
Expected future sales of natural gas (in MMdts)	116.8	0.4



Basis and Index related net purchase contracts (in MMdts)	82.6	1.3

The expected future purchases and sales of electricity are not material.

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 (loss)/income for SJI. These unrealized pre-tax (losses) were $(19.8) million and $(6.2) million for the three months ended September 30, 2021 and 2020, respectively, and $(35.1) million and $(7.8) million for the nine months ended September 30, 2021 and 2020, 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 (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, 2021 and December 31, 2020, SJI had $68.2 million and $2.4 million, respectively, and SJG had $29.4 million and $1.1 million, respectively, of unrealized gains included in its BGSS related to energy-related commodity contracts.

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

As of September 30, 2021, SJG’s active interest rate swaps were as follows:


Notional Amount		Fixed Interest Rate	Start Date	Maturity
$	12,500,000	3.530%	12/1/2006	2/1/2036
$	12,500,000	3.430%	12/1/2006	2/1/2036

For the unrealized gains and losses on 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 gains (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, 2021 and December 31, 2020, are as follows (in thousands):


SJI (includes SJG and all other consolidated subsidiaries):
Derivatives not designated as hedging instruments under GAAP	September 30, 2021				December 31, 2020
	Assets		Liabilities		Assets		Liabilities
Energy-related commodity contracts:
Derivatives - Energy Related - Current	$	141,690	$	106,244	$	41,439	$	27,006
Derivatives - Energy Related - Non-Current	37,307		25,124		6,935		4,947
Interest rate contracts:
Derivatives - Other - Current	—		560		—		659
Derivatives - Other - Noncurrent	—		7,467		—		9,279
Total derivatives not designated as hedging instruments under GAAP	$	178,997	$	139,395	$	48,374	$	41,891

Total Derivatives	$	178,997	$	139,395	$	48,374	$	41,891


SJG:
Derivatives not designated as hedging instruments under GAAP	September 30, 2021				December 31, 2020
	Assets		Liabilities		Assets		Liabilities
Energy-related commodity contracts:
Derivatives – Energy Related – Current	$	30,758	$	2,834	$	4,053	$	2,868
Derivatives – Energy Related – Non-Current	1,458		—		87		190
Interest rate contracts:
Derivatives – Other - Current	—		560		—		659
Derivatives – Other - Noncurrent	—		7,467		—		9,279
Total derivatives not designated as hedging instruments under GAAP	$	32,216	$	10,861	$	4,140	$	12,996

Total Derivatives	$	32,216	$	10,861	$	4,140	$	12,996

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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, 2021
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	$	178,997	$	—	$	178,997	$	(86,407)	(A)	$	(45,782)	$	46,808
Derivatives - Energy Related Liabilities	$	(131,368)	$	—	$	(131,368)	$	86,407	(B)	$	—	$	(44,961)
Derivatives - Other	$	(8,027)	$	—	$	(8,027)	$	—		$	—	$	(8,027)
SJG:
Derivatives - Energy Related Assets	$	32,216	$	—	$	32,216	$	(1,025)	(A)	$	(13,661)	$	17,530
Derivatives - Energy Related Liabilities	$	(2,834)	$	—	$	(2,834)	$	1,025	(B)	$	—	$	(1,809)
Derivatives - Other	$	(8,027)	$	—	$	(8,027)	$	—		$	—	$	(8,027)


As of December 31, 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	$	48,374	$	—	$	48,374	$	(24,027)	(A)	$	—	$	24,347
Derivatives - Energy Related Liabilities	$	(31,953)	$	—	$	(31,953)	$	24,027	(B)	$	2,176	$	(5,750)
Derivatives - Other	$	(9,938)	$	—	$	(9,938)	$	—		$	—	$	(9,938)
SJG:
Derivatives - Energy Related Assets	$	4,140	$	—	$	4,140	$	(716)	(A)	$	—	$	3,424
Derivatives - Energy Related Liabilities	$	(3,058)	$	—	$	(3,058)	$	716	(B)	$	2,176	$	(166)
Derivatives - Other	$	(9,938)	$	—	$	(9,938)	$	—		$	—	$	(9,938)

(A) The balances at September 30, 2021 and December 31, 2020 were related to derivative liabilities which can be net settled against derivative assets.

(B) The balances at September 30, 2021 and December 31, 2020 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 (loss)/income are as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
Derivatives Previously in Cash Flow Hedging Relationships under GAAP	2021		2020		2021		2020
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	2021		2020		2021		2020
SJI (no balances for SJG; includes all other consolidated subsidiaries):
Losses on energy-related commodity contracts (a)	$	(19,815)	$	(6,246)	$	(35,089)	$	(7,807)
Gains (Losses) on interest rate contracts (b)	—		342		—		(4,040)

Total	$	(19,815)	$	(5,904)	$	(35,089)	$	(11,847)

(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, 2021 is not material. The amount SJI would have been required to pay to settle the instruments immediately or post collateral to its counterparties if the credit-risk-related contingent features underlying these agreements were triggered on September 30, 2021 after offsetting asset positions with the same counterparties under master netting arrangements, is also not material.

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, 2021	Total		Level 1		Level 2		Level 3
SJI (includes SJG and all other consolidated subsidiaries):
Assets
Available-for-Sale Securities (A)	$	32	$	32	$	—	$	—
Derivatives – Energy Related Assets (B)	178,997		112,683		55,409		10,905
	$	179,029	$	112,715	$	55,409	$	10,905
SJG:
Assets
Derivatives – Energy Related Assets (B)	$	32,216	$	21,020	$	3,938	$	7,258
	$	32,216	$	21,020	$	3,938	$	7,258
SJI (includes SJG and all other consolidated subsidiaries):
Liabilities
Derivatives – Energy Related Liabilities (B)	$	131,368	$	39,306	$	71,031	$	21,031
Derivatives – Other (C)	8,027		—		8,027		—
	$	139,395	$	39,306	$	79,058	$	21,031
SJG:
Liabilities
Derivatives – Energy Related Liabilities (B)	$	2,834	$	1,025	$	1,668	$	141
Derivatives – Other (C)	8,027		—		8,027		—
	$	10,861	$	1,025	$	9,695	$	141


As of December 31, 2020	Total		Level 1		Level 2		Level 3
SJI (includes SJG and all other consolidated subsidiaries):
Assets
Available-for-Sale Securities (A)	$	32	$	32	$	—	$	—
Derivatives – Energy Related Assets (B)	48,374		11,447		23,527		13,400
	$	48,406	$	11,479	$	23,527	$	13,400
SJG:
Assets
Derivatives – Energy Related Assets (B)	$	4,140	$	715	$	32	$	3,393
	$	4,140	$	715	$	32	$	3,393

SJI (includes SJG and all other consolidated subsidiaries):
Liabilities
Derivatives – Energy Related Liabilities (B)	$	31,953	$	8,605	$	20,954	$	2,394
Derivatives – Other (C)	9,938		—		9,938		—
	$	41,891	$	8,605	$	30,892	$	2,394
SJG:
Liabilities
Derivatives – Energy Related Liabilities (B)	$	3,058	$	2,891	$	159	$	8
Derivatives – Other (C)	9,938		—		9,938		—
	$	12,996	$	2,891	$	10,097	$	8

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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.

(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. 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. 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.

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 – 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.

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, 2021

Valuation Technique

Significant Unobservable Input

Range
[Weighted Average]

Assets

Liabilities

Forward Contract - Natural Gas

$10,729

$20,745

Discounted Cash Flow

Forward price (per dt)

$1.85 - $12.31 [$5.12]

(A)

Forward Contract - Electric

$176

$286

Discounted Cash Flow

Fixed electric load profile (on-peak)

45.16% - 100.00% [93.20%]

(B)

Fixed electric load profile (off-peak)

0.00% - 54.84% [6.80%]

(B)

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Type

Fair Value at December 31, 2020

Valuation Technique

Significant Unobservable Input

Range
[Weighted Average]

Assets

Liabilities

Forward Contract - Natural Gas

$12,824

$1,764

Discounted Cash Flow

Forward price (per dt)

$1.44 - $6.77 [$2.67]

(A)

Forward Contract - Electric

$576

$630

Discounted Cash Flow

Fixed electric load profile (on-peak)

40.34% - 100.00% [65.69%]

(B)

Fixed electric load profile (off-peak)

0.00% - 59.66% [34.31%]

(B)

SJG:

Type

Fair Value at September 30, 2021

Valuation Technique

Significant Unobservable Input

Range
[Weighted Average]

Assets

Liabilities

Forward Contract - Natural Gas

7,258

141

Discounted Cash Flow

Forward price (per dt)

$4.51 - $9.97 [$7.49]

(A)

Type

Fair Value at December 31, 2020

Valuation Technique

Significant Unobservable Input

Range
[Weighted Average]

Assets

Liabilities

Forward Contract - Natural Gas

3,393

Discounted Cash Flow

Forward price (per dt)

$2.48 - $3.63 [$3.16]

(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, 2021		Nine Months Ended September 30, 2021
SJI (includes SJG and all other consolidated subsidiaries):
Balance at beginning of period	$	4,956	$	11,006
Other Changes in Fair Value from Continuing and New Contracts, Net	(13,860)		(12,547)
Settlements	(1,222)		(8,585)

Balance at end of period	$	(10,126)	$	(10,126)

SJG:
Balance at beginning of period	$	4,721	$	3,385
Other Changes in Fair Value from Continuing and New Contracts, Net	2,396		7,117
Settlements	—		(3,385)

Balance at end of period	$	7,117	$	7,117


	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

14. LONG-TERM DEBT:

SJI and SJG had the following long-term debt-related activity during the nine months ended September 30, 2021:

As discussed in Note 4, in March 2021, SJI completed a public offering of Equity Units for gross proceeds of $300.0 million, with net proceeds, after deducting underwriting discounts and commissions, of $291.0 million. On April 1, 2021, additional proceeds were received as the underwriters exercised their option to purchase additional Equity Units. Gross proceeds were approximately $35.0 million, with net proceeds, after deducting underwriting discounts and commissions, of $34.0 million. As of September 30, 2021, these Equity Units were not converted into equity; as such, the net proceeds, after amortization of the underwriting discounts and commissions, are recorded as Long-Term Debt on the condensed consolidated balance sheets.

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In March 2021, the Company finalized the remarketing of the $287.5 million of Series A Junior Subordinated Notes.

In March 2021, SJG paid $2.5 million of 4.84% MTNs due annually beginning March 2021.

In April 2021, SJI repaid the $90.0 million principal amount outstanding on its 3.43% Series 2018-A Notes at maturity.

In June 2021, SJG paid $7.5 million of 4.93% MTNs due annually beginning June 2021.

In June 2021, ETG issued an aggregate principal amount of $125.0 million of first mortgage bonds (the “Series 2020A-2 Bonds”), in three Tranches, as follows: (a) 2.26% First Mortgage Bonds, Series 2020A-2, Tranche A due June 15, 2031 in the aggregate principal amount of $50.0 million, (b) 3.08% First Mortgage Bonds, Series 2020A-2, Tranche B due June 15, 2041 in the aggregate principal amount of $25.0 million, and (c) 3.36% First Mortgage Bonds, Series 2020A-2, Tranche C due June 15, 2051 in the aggregate principal amount of $50.0 million. The Series 2020A-2 Bonds were issued pursuant to a Bond Purchase Agreement, dated as of November 10, 2020, which provided for ETG to issue a series of first mortgage bonds in an aggregate principal amount of $250.0 million, in five Tranches, two Tranches of which were issued prior to December 31, 2020 as further described in Note 14 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, 2020. The proceeds from the sale of the Series 2020A-2 Bonds will be used for general corporate purposes.

In September 2021, SJG paid $10.0 million of 3.00% MTNs due annually beginning September 2020.

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15. REVENUE:

There have been no significant changes to the nature of the Company's revenues or the revenue recognition policies and practices of the Company since December 31, 2020, 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, 2020.

Disaggregated revenues from contracts with customers are disclosed below, by operating segment (in thousands). The presentation of disaggregated revenues for the prior periods has been revised to conform to the realignment of our operating segments as discussed in Note 6.


	Three Months Ended September 30, 2021
	SJG Utility Operations		ETG Utility Operations		Wholesale Energy Operations		Retail Services		Renewables		Corporate Services and Intersegment		Total
Customer Type:
Residential	$	33,075	$	18,993	$	—	$	488	$	—	$	—	$	52,556
Commercial & Industrial	27,538		18,269		406,985		2,846		7,352		(1,333)		461,657
OSS & Capacity Release	2,504		—		—		—		—		—		2,504
Other	668		376		—		1,502		—		(180)		2,366
	$	63,785	$	37,638	$	406,985	$	4,836	$	7,352	$	(1,513)	$	519,083
Product/Service Line:
Gas	$	63,785	$	37,638	$	406,985	$	—	$	—	$	(1,294)	$	507,114
Electric	—		—		—		2,846		—		(39)		2,807
Solar	—		—		—		—		1,961		—		1,961

Landfills	—		—		—		—		328		—		328
Fuel Cells	—		—		—		—		5,063		—		5,063
Other	—		—		—		1,990		—		(180)		1,810
	$	63,785	$	37,638	$	406,985	$	4,836	$	7,352	$	(1,513)	$	519,083


	Nine Months Ended September 30, 2021
	SJG Utility Operations		ETG Utility Operations		Wholesale Energy Operations		Retail Services		Renewables		Corporate Services and Intersegment		Total
Customer Type:
Residential	$	250,697	$	156,254			$	1,482	$	—	$	—	$	408,433
Commercial & Industrial	119,565		89,464		1,032,181		6,409		17,980		(8,955)		1,256,644
OSS & Capacity Release	7,053		—		—		—		—		—		7,053
Other	2,086		748		—		3,469		—		(385)		5,918
	$	379,401	$	246,466	$	1,032,181	$	11,360	$	17,980	$	(9,340)	$	1,678,048
Product/Service Line:
Gas	$	379,401	$	246,466	$	1,032,181	$	—	$	—	$	(8,790)	$	1,649,258
Electric	—		—		—		6,409		—		(165)		6,244
Solar	—		—		—		—		4,776		—		4,776
CHP	—		—		—		—		—		—		—
Landfills	—		—		—		—		1,037		—		1,037
Fuel Cells	—		—		—		—		12,167		—		12,167
Other	—		—		—		4,951		—		(385)		4,566
	$	379,401	$	246,466	$	1,032,181	$	11,360	$	17,980	$	(9,340)	$	1,678,048

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	Three Months Ended September 30, 2020
	SJG Utility Operations		ETG Utility Operations		ELK Utility Operations		Wholesale Energy Operations		Retail Services		Renewables		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		5,466		6,317		(919)		250,252
OSS & Capacity Release	1,859		—		—		—				—		—		1,859
Other	381		191		23		—		—		—		—		595
	$	67,765	$	38,163	$	285	$	197,580	$	5,957	$	6,317	$	(919)	$	315,148
Product/Service Line:
Gas	$	67,765	$	38,163	$	285	$	197,580	$	—	$	—	$	(595)	$	303,198
Electric	—		—		—		—		4,814		—		(324)		4,490
Solar	—		—		—		—		—		5,429		—		5,429
CHP	—		—		—		—		—		—		—		—
Landfills	—		—		—		—		—		888		—		888
Other	—		—		—		—		1,143		—		—		1,143
	$	67,765	$	38,163	$	285	$	197,580	$	5,957	$	6,317	$	(919)	$	315,148


	Nine Months Ended September 30, 2020
	SJG Utility Operations		ETG Utility Operations		ELK Utility Operations		Wholesale Energy Operations		Retail Services		Renewables		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		18,838		15,459		(4,238)		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	$	20,323	$	15,459	$	(4,238)	$	1,077,434
Product/ Service 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	—		—		—		—		2,861		—		—		2,861
	$	352,127	$	232,410	$	4,926	$	456,427	$	20,323	$	15,459	$	(4,238)	$	1,077,434

The SJG balance is a part of the SJG Utility Operations segment, and is before intercompany eliminations with other SJI entities.

Revenues on the condensed consolidated statements of (loss)/income that are not with contracts with customers consist of (a) revenues from alternative revenue programs at the SJG and ETG 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 Operations and Retail Services operating segments, and (c) unrealized revenues from derivative contracts of the Wholesale Energy Operations and Retail Services operating segments.

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The Utilities' 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, 2020. 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; (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 $0.4 million and $(6.4) million for the three months ended September 30, 2021 and 2020, respectively, and $2.5 million and $26.6 million for the nine months ended September 30, 2021 and 2020, respectively. Total revenues arising from alternative revenue programs at SJG were $1.0 million and $(5.8) million for the three months ended September 30, 2021 and 2020, respectively, and $0.9 million and $19.6 million for the nine months ended September 30, 2021 and 2020, respectively.

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, 2021	$	278,723	$	85,423
Ending balance as of September 30, 2021	272,286		26,783
Increase (Decrease)	$	(6,437)	$	(58,640)

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)

SJG:
Beginning balance as of January 1, 2021	$	88,657	$	46,837
Ending balance as of September 30, 2021	83,031		8,288
Increase (Decrease)	$	(5,626)	$	(38,549)

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)

(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.

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16. ACQUISITIONS & BUSINESS COMBINATIONS:

Catamaran and a third party formed Bronx Midco, of which Catamaran owns 99%. On June 9, 2021, Bronx Midco purchased a fuel cell project totaling 5 MW in Bronx, New York that is in the process of being constructed. Marina, through its ownership in Catamaran, has a 92% ownership interest in Bronx Midco, and, as a result, Marina consolidates the entity as Marina has the power to direct the activities of the entity that most significantly impact the entity’s economic performance.

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 fuel cell project includes a land lease and working capital.

The total cost of the fuel cell project is $60.1 million, of which the partners have paid $16.6 million as of September 30, 2021. Of this total, Marina invested $15.3 million as of September 30, 2021. To account for the third party partner's interest in Bronx Midco, Marina recorded $1.3 million of non-controlling interest in stockholders' equity on the condensed consolidated balance sheets as of September 30, 2021. The major depreciable assets of the Bronx Midco Fuel Cell Project are the fuel cell modules, which will be depreciated over their estimated useful lives of 35 years once placed in service. The lease cost associated with the land lease is being recognized on a straight-line basis over the lease term of 35 years.

As this project is not yet placed into service, no revenues have been recorded, and expenses incurred in the Company's condensed consolidated statements of (loss)/income for the three and nine months ended September 30, 2021, are not material. While this project is eligible for ITC, no ITC has been recorded for the three and nine months ended September 30, 2021 as the project is still in the early stages of construction.

Notes 1 and 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, 2020 describe the asset acquisitions and business combinations that occurred in 2020, which include Catamaran/Annadale, EnerConnex, solar projects and RNG dairy farm development rights. The purchase price allocation for EnerConnex was finalized during the nine months ended September 30, 2021, with no changes to the assets acquired and liabilities assumed as reported on the condensed consolidated balance sheet as of December 31, 2020.

17. 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 as of October 1 of each fiscal year and on an interim basis as events and changes in circumstances occur that could be an indication of a potential impairment, including, but not limited to, a significant change in operating performance, the business climate, legal or regulatory factors, or a planned sale or disposition of a significant portion of the business.

The Company's impairment evaluations begin 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.

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If sufficient qualitative factors exist, potential goodwill impairment is evaluated quantitatively by comparing the fair value of a reporting unit to the book value, including goodwill. For each reporting unit, the Company estimates the fair value of a reporting unit using a discounted cash flow analysis (an income approach) and, for certain reporting units, management also considers other methods, which include a market multiples analysis, and performs a weighted combination of the income approach and the market approach. 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, projected terminal values and, in the cases where market multiples analysis is utilized, implied market multiples for a selected group of peer companies.

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. Changes in estimates or the application of alternative assumptions could produce significantly different results.

The Company determined that, as of September 30, 2021, there were not indicators of impairment of the goodwill associated with its reporting units, and as such did not perform a quantitative analysis. The qualitative factors analyzed as described above also included macroeconomic conditions related to the COVID-19 pandemic. There were no impairments recorded for the three and nine months ended September 30, 2021 and 2020. Should economic conditions deteriorate in future periods or become 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.

As of both September 30, 2021 and December 31, 2020, SJI had $707.0 million of goodwill, including $700.2 million in the ETG Utility Operations segment and $6.8 million included in the Retail Services segment.

IDENTIFIABLE INTANGIBLE ASSETS - The primary identifiable intangible assets of the Company are customer relationships, interconnection and power purchase agreements at Annadale (collectively "Annadale intangible assets"), and an AMA. 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, 2021
	Gross Cost		Accumulated Amortization		Identifiable Intangible Assets, Net
Identifiable intangible assets subject to amortization:
Customer Relationships	$	8,818	$	(652)	$	8,166
AMA	$	19,200	$	(16,640)	$	2,560
Annadale Intangible Assets	$	4,220	$	(215)	$	4,005
Total	$	32,238	$	(17,507)	$	14,731


	As of December 31, 2020
	Gross Cost		Accumulated Amortization		Identifiable Intangible Assets, Net
Identifiable intangible assets subject to amortization:
Customer Relationships	$	6,900	$	(338)	$	6,562
AMA	$	19,200	$	(12,800)	$	6,400
Annadale Intangible Assets	$	4,318	$	(22)	$	4,296
Total	$	30,418	$	(13,160)	$	17,258

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The net identifiable intangible asset balances shown in the table above are included in Other Noncurrent Assets on the condensed consolidated balance sheets.

Total SJI amortization expense related to identifiable intangible assets was $1.5 million and $1.4 million for the three months ended September 30, 2021 and 2020, respectively, and $4.4 million and $4.0 million for the nine months ended September 30, 2021 and 2020, respectively. No impairment charges were recorded on identifiable intangible assets during the three and nine months ended September 30, 2021 or 2020.

As of September 30, 2021, 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
2021 (remaining three months)	$	1,493
2022	$	2,136
2023	$	856
2024	$	856
2025	$	856

18. SUBSEQUENT EVENTS:

Events occurring subsequent to September 30, 2021 have been evaluated through the date the financial statements were available to be issued. Management has concluded that there are no events requiring adjustment to, or disclosure in, the financial statements for SJI or SJG.

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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, 2020.

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 are intended 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; cybersecurity incidents and related disruptions; 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 the 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, 2020 and in any other SEC filings made by SJI or SJG during 2020 and 2021 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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COVID-19 - Except as noted below, the impact of COVID-19 on the financial results of the Company has not been material for the three and nine months ended September 30, 2021 and 2020, respectively. For additional information related to COVID-19 and its impacts, see the "COVID-19" section of Item 7 "Management Discussion & Analysis of Financial Condition and Results of Operations" of SJI's Annual Report on Form 10-K for the year ended December 31, 2020.

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. On September 14, 2021, the BPU extended this period to December 31, 2022. The Company is required to file quarterly reports with the BPU, along with a petition for recovery of such incremental costs with the BPU by December 31, 2022 or within 60 days of the close of the tracking period, whichever is later. As of September 30, 2021 and December 31, 2020, ETG deferred $12.3 million and $5.8 million, respectively, and SJG deferred $7.6 million and $4.7 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 continued the suspension of disconnects for nonpayment by our customers, 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. On June 14, 2021, the Governor ended the shutoff moratorium effective July 1, 2021, but established a grace period that runs through the end of 2021; during the grace period, disconnections for residential customers for nonpayment are prohibited.

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, income taxes and evaluation of equity method investments for other-than-temporary impairment. A discussion of these estimates and assumptions may be found in Item 7 in SJI's and SJG's Annual Report on Form 10-K for the year ended December 31, 2020.

Regulatory Actions — Other than the changes discussed in Note 7 to the condensed consolidated financial statements, there have been no significant regulatory actions since those discussed 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, 2020.

Goodwill - See discussion on Goodwill in Note 17 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, 2020.

As discussed in Note 17 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. The Company determined that, as of September 30, 2021, there were not indicators of impairment of the goodwill associated with its reporting units, and as such did not perform a quantitative analysis. Should economic conditions deteriorate in future periods or become 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 of goodwill, requiring impairment charges in the future.

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.

See 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, 2020 related to our investment in PennEast. Despite the favorable outcome from the Supreme Court, PennEast continued to experience regulatory and legal challenges resulting in continued delays preventing the commencement of construction and commercial operation of the project. As a result, the Company evaluated its investment in PennEast for an other-than-temporary impairment as of June 30, 2021. Our impairment assessment used a discounted cash flow income approach, including consideration of the severity and duration of any decline in fair value of our investment in the project. Our significant estimates and assumptions included development options and the likelihoods of success of such options, potential regulatory and legal outcomes, construction costs,

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timing of in-service dates, revenues (including forecasted volumes and rates), and discount rates. The Company estimated the fair value of its investment in PennEast using probability weighted scenarios assigned to discounted future cash flows.

Based upon this analysis, the Company recognized an other-than-temporary impairment charge of $87.4 million, which is recorded in Equity in (Losses) Earnings from Affiliates in the condensed consolidated statements of (loss)/income for the nine months ended September 30, 2021. After taking this charge, the Company’s investment in PennEast totaled $8.0 million as of September 30, 2021 as compared to $91.3 million as of December 31, 2020.

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

Operating Segments:

Beginning with the first quarter of 2021, our internal management reporting, specifically around our nonutility businesses, changed primarily due to recent acquisitions and divestitures, and new product lines entered into. These were primarily within the fuel cell, solar, RNG, and retail businesses. As a result of these changes in our businesses, the Company realigned its operating segments. The realigned segments reflect the financial information regularly evaluated by the CODM, which for SJI is the Company's Chief Executive Officer. The operating 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. On July 31, 2020, SJI sold ELK to a third-party buyer.

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

•Retail services operations includes the activities of SJE, SJESP and SJEI, as well as our equity interest in Millennium.

•Renewables consists of:

◦The Catamaran joint venture, which owns Annadale and Bronx Midco.

◦Solar-generation sites located in New Jersey, and three legacy solar projects, one of which was sold during the first quarter of 2020.

◦The activities of ACLE, BCLE, SCLE and SXLE, which have all ceased operations (see Note 1).

◦MTF and ACB, which were sold in the first quarter of 2020.

•Decarbonization consists of

◦SJI RNG Devco, LLC, which includes the renewable natural gas development rights in certain dairy farms; the operating results from this entity are not material at this time.

•Midstream invests in infrastructure and other midstream projects, including an investment in PennEast (see Note 3).

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SOUTH JERSEY INDUSTRIES, INC.

RESULTS OF OPERATIONS:

Summary:

SJI's net income for the three months ended September 30, 2021 decreased $15.6 million to a net loss of $26.0 million compared with the same period in 2020. SJI's income from continuing operations for the three months ended September 30, 2021 decreased $15.5 million to a loss of $25.8 million compared with the same period in 2020. 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 wholesale energy operations at SJRG for the three months ended September 30, 2021 decreased $13.2 million to a loss of $10.8 million compared with the same period in 2020, primarily due to the change in unrealized gains and losses recorded on forward financial contracts due to price volatility, along with lower margins on daily energy trading activities.

•The income contribution from the renewables operating segment for the three months ended September 30, 2021 decreased $10.8 million to $2.9 million compared with the same period in 2020, primarily due to less ITC recorded compared to the prior year (see Note 1 to the condensed consolidated financial statements), partially offset with the results from the Annadale fuel cell project, which was placed into service during the fourth quarter of 2020.

•The income contribution from Midstream for the three months ended September 30, 2021 decreased $1.4 million to a loss of $0.3 million compared with the same period in 2020, primarily due to the development of the PennEast project no longer being supported (see Note 3 to the condensed consolidated financial statements).

•The income contribution from the gas utility operations at ETG for the three months ended September 30, 2021 increased $7.0 million to a loss of $1.7 million compared with the same period in 2020, primarily due to a gain recorded from a UTUA settlement agreement with the New Jersey Division of Taxation (see Note 1 to the condensed consolidated financial statements), partially offset with higher operations and depreciation expenses.

•The income contribution from the gas utility operations at SJG for the three months ended September 30, 2021 increased $1.8 million to a loss of $7.7 million compared with the same period in 2020, primarily due to favorable changes in base rates resulting from the completion of SJG's rate case in September 2020, along with the roll-in of infrastructure programs and customer growth. Also contributing was the margin impact of SJG's CIP mechanism as discussed in "Utility Margin - SJG Utility Operations" below. These increases were partially offset by higher depreciation expenses.

•The income contribution from the decarbonization segment increased $0.5 million to $0.5 million due to the Company's 35% equity interest in REV, which was acquired in December 2020.

SJI's net income for the nine months ended September 30, 2021 decreased $82.0 million to net income of $6.0 million compared with the same period in 2020. SJI's income from continuing operations for the nine months ended September 30, 2021 decreased $81.9 million to income of $6.3 million compared with the same period in 2020. 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 Midstream for the nine months ended September 30, 2021 decreased $88.7 million to a loss of $85.4 million compared with the same period in 2020, primarily due to an other-than-temporary impairment charge on the Company's equity method investment in PennEast recorded during the second quarter of 2021 and the development of the PennEast project no longer being supported (see Note 3 to the condensed consolidated financial statements).

•The income contribution from wholesale energy operations at SJRG for the nine months ended September 30, 2021 decreased $15.1 million to a loss of $2.7 million compared with the same period in 2020, primarily due to the change in unrealized gains and losses on forward financial contracts due to price volatility. This was partially offset by higher margins from colder weather experienced in the first and second quarters of 2021.

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•The income contribution from the renewables operating segment for the nine months ended September 30, 2021 decreased $6.5 million to $3.7 million compared with the same period in 2020, primarily due to less ITC recorded compared to the prior year (see Note 1 to the condensed consolidated financial statements), partially offset with the results from the Annadale fuel cell project, which was placed into service during the fourth quarter of 2020.

•The income contribution from the gas utility operations at SJG for the nine months ended September 30, 2021 increased $17.6 million to $82.2 million compared with the same period in 2020, primarily due to favorable changes in base rates resulting from the completion of SJG's rate case in September 2020, along with the roll-in of infrastructure programs and customer growth. This was partially offset by the margin impact of SJG's CIP mechanism as discussed in "Utility Margin - SJG Utility Operations" below, along with higher depreciation expenses.

•The income contribution from gas utility operations at ETG for the nine months ended September 30, 2021 increased $6.0 million to $33.3 million compared with the same period in 2020, primarily due to a gain recorded from a UTUA settlement agreement with the New Jersey Division of Taxation (see Note 1 to the condensed consolidated financial statements) and customer growth, partially offset with higher operations and depreciation expenses.

•SJI incurred $3.2 million in costs related to its interest rate swaps during the nine months ended September 30, 2020 that did not recur in 2021 after the swaps were terminated during the fourth quarter of 2020.

•The income contribution from the decarbonization segment increased $0.9 million to $0.9 million due to the Company's 35% equity interest in REV, which was acquired in December 2020.

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 previously used 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:

•SJRG purchases and holds natural gas in storage and maintains capacity on interstate pipelines to earn profit margins in the future. SJRG utilizes 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.

•SJE uses 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.

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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; (ii) less income and plus losses attributable to noncontrolling interest; and (iii) 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 (iii) of the definition of Economic Earnings, items excluded from Economic Earnings for the three and nine months ended September 30, 2021 and 2020, are described in (A)-(E) 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 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, 2021 decreased $12.8 million to a loss of $18.8 million compared with the same period in 2020. 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 renewables operating segment for the three months ended September 30, 2021 decreased $10.4 million to $3.4 million compared with the same period in 2020, primarily due to less ITC recorded compared to the prior year (see Note 1 to the condensed consolidated financial statements), partially offset with the results from the Annadale fuel cell project, which was placed into service during the fourth quarter of 2020.

•The Economic Earnings contribution from wholesale energy operations at SJRG for the three months ended September 30, 2021 decreased $3.4 million to $3.6 million compared with the same period in 2020, primarily due to lower margins on daily energy trading activities.

•The Economic Earnings contribution from Midstream for the three months ended September 30, 2021 decreased $1.4 million to a loss of $0.3 million compared with the same period in 2020, primarily due to the development of the PennEast project no longer being supported (see Note 3 to the condensed consolidated financial statements).

•The Economic Earnings contribution from gas utility operations at ETG for the three months ended September 30, 2021 decreased $0.9 million to a loss of $9.5 million compared with the same period in 2020, primarily due to higher operations and depreciation expenses.

•The Economic Earnings contribution from gas utility operations at SJG for the three months ended September 30, 2021 increased $1.8 million to a loss of $7.7 million compared with the same period in 2020, primarily due to favorable changes in base rates resulting from the completion of SJG's rate case in September 2020, along with the roll-in of infrastructure programs and customer growth. Also contributing was the margin impact of SJG's CIP mechanism as discussed in "Utility Margin - SJG Utility Operations" below. These increases were partially offset by higher depreciation expenses.

•The Economic Earnings contribution from the decarbonization segment increased $0.5 million to $0.5 million due to the Company's 35% equity interest in REV, which was acquired in December 2020.

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Economic Earnings for the nine months ended September 30, 2021 increased $12.1 million to $112.1 million compared with the same period in 2020. 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 gas utility operations at SJG for the nine months ended September 30, 2021 increased $16.4 million to $82.2 million compared with the same period in 2020, primarily due to favorable changes in base rates resulting from the completion of SJG's rate case in September 2020, along with the roll-in of infrastructure programs and customer growth. This was partially offset by the margin impact of SJG's CIP mechanism as discussed in "Utility Margin - SJG Utility Operations" below, along with higher depreciation expenses.

•The Economic Earnings contribution from wholesale energy operations at SJRG for the nine months ended September 30, 2021 for the nine months ended September 30, 2021 increased $5.0 million to $23.0 million compared with the same period in 2020, primarily due to higher margins from colder weather experienced in the first and second quarters of 2021.

•The Economic Earnings contribution from the decarbonization segment increased $0.9 million to $0.9 million due to the Company's 35% equity interest in REV, which was acquired in December 2020.

•The Economic Earnings contribution from the renewables operating segment for the nine months ended September 30, 2021 decreased $6.9 million to $4.0 million compared with the same period in 2020, primarily due to less ITC recorded compared to the prior year (see Note 1 to the condensed consolidated financial statements), partially offset with the results from the Annadale fuel cell project, which was placed into service during the fourth quarter of 2020.

•The Economic Earnings contribution from gas utility operations at ETG for the nine months ended September 30, 2021 decreased $1.9 million to $25.4 million compared with the same period in 2020, primarily due to higher operations and depreciation expenses, partially offset by customer growth.

•The Economic Earnings contribution from Midstream for the nine months ended September 30, 2021 decreased $1.3 million to $1.9 million compared with the same period in 2020, primarily due to the development of the PennEast project no longer being supported (see Note 3 to the condensed consolidated financial statements).

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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,
	2021		2020		2021		2020
(Loss) Income from Continuing Operations	$	(25,830)	$	(10,344)	$	6,308	$	88,178
Minus/Plus:
Unrealized Mark-to-Market Losses on Derivatives	19,815		5,904		35,089		11,847
Income Attributable to Noncontrolling Interest	(238)		—		(540)		—
Impairment of Equity Method Investment (A)	—		—		87,370		—
Acquisition/Sale Net Costs (B)	924		(77)		1,602		1,241
Other Costs (C)	(10,960)		77		(10,960)		977
Income Taxes (D)	(2,519)		(1,564)		(20,971)		(3,484)
Additional Tax Adjustments (E)	—		—		14,176		1,214
Economic Earnings	$	(18,808)	$	(6,004)	$	112,074	$	99,973

(Loss) Earnings per Share from Continuing Operations	$	(0.23)	$	(0.10)	$	0.06	$	0.92
Minus/Plus:
Unrealized Mark-to-Market Losses on Derivatives	0.17		0.06		0.32		0.12
Income Attributable to Noncontrolling Interest	—		—		(0.01)		—
Impairment of Equity Method Investment (A)	—		—		0.80		—
Acquisition/Sale Net Costs (B)	0.01		—		0.01		0.01
Other Costs (C)	(0.10)		—		(0.10)		0.01
Income Taxes (D)	(0.02)		(0.02)		(0.19)		(0.03)
Additional Tax Adjustments (E)	—		—		0.13		0.01
Economic Earnings per Share	$	(0.17)	$	(0.06)	$	1.02	$	1.04

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,
	2021		2020		2021		2020
(Loss) Income from Continuing Operations	$	(7,700)	$	(9,543)	$	82,231	$	64,657
Plus:
Additional Tax Adjustments (E)	—		—		—		1,214
Economic Earnings	$	(7,700)	$	(9,543)	$	82,231	$	65,871

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Losses on Energy Related Commodity Contracts	$	(19,815)	$	(6,246)	$	(35,089)	$	(7,807)
Gains (Losses) on Interest Rate Contracts	—		342		—		(4,040)
Total unrealized mark-to-market losses on derivatives	(19,815)		(5,904)		(35,089)		(11,847)
Income Attributable to Noncontrolling Interest	238		—		540		—
Impairment of Equity Method Investment (A)	—		—		(87,370)		—
Acquisition/Sale Net Costs (B)	(924)		77		(1,602)		(1,241)
Other Costs (C)	10,960		(77)		10,960		(977)
Income Taxes (D)	2,519		1,564		20,971		3,484
Additional Tax Adjustments (E)	—		—		(14,176)		(1,214)
Total reconciling items between losses from continuing operations and economic earnings	$	(7,022)	$	(4,340)	$	(105,766)	$	(11,795)

(A) Represents an other-than-temporary impairment charge on the Company’s equity method investment in PennEast. See Note 3 to the condensed consolidated financial statements.

(B) Represents costs incurred in 2021 to finalize the transactions related to acquiring Bronx Midco and solar projects and costs incurred to cease operations at ACLE, along with the final working capital payment on the sale of ELK, which was finalized during the first quarter of 2021. Also represents items recognized during 2020 such as costs incurred to prepare to exit the TSA, costs incurred to acquire EnerConnex and Annadale, and gains/losses recognized and costs incurred on the sale of solar assets as well as MTF/ACB.

(C) For 2021, includes a gain recognized by ETG from a UTUA settlement agreement (see Note 1 to the condensed consolidated financial statements). For 2020, represents severance and other employee separation costs.

(D) The income taxes were determined using a combined average statutory tax rate.

(E) Represents additional tax adjustments, primarily including a federal deferred tax asset valuation allowance at SJI related to the impairment charge described in (A), and a one-time tax adjustment in 2020 resulting from the BPU's approval of a stipulation for SJG.

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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,
	2021		2020		2021		2020
Utility Operating Revenues:
Firm Sales -
Residential	$	32,750	$	35,711	$	243,945	$	252,114
Commercial	10,753		9,308		56,904		52,830
Industrial	231		218		2,411		1,797
Cogeneration & Electric Generation	2,126		1,186		3,444		2,226
Firm Transportation -
Residential	1,002		1,045		7,410		6,986
Commercial	5,945		5,115		30,962		26,492
Industrial	7,758		6,310		22,222		18,574
Cogeneration & Electric Generation	1,060		862		3,849		3,377

Total Firm Revenues	61,625		59,755		371,147		364,396

Interruptible Sales	40		1		185		16
Interruptible Transportation	370		207		1,153		823
Off-System Sales	7,169		5,214		37,189		24,748
Capacity Release	496		839		2,150		3,529
Other	258		174		748		554
	69,958		66,190		412,572		394,066
Less: Intercompany Sales	(907)		(595)		(7,662)		(2,252)
Total Utility Operating Revenues	69,051		65,595		404,910		391,814
Less:
Cost of Sales - Utility	16,630		20,575		109,878		126,655
Less: Intercompany Cost of Sales	(907)		(595)		(7,662)		(2,252)
Total Cost of Sales - Utility (Excluding Depreciation & Amortization) (A)	15,723		19,980		102,216		124,403
Less: Depreciation & Amortization (A)	30,083		25,600		89,279		75,710
Total GAAP Gross Margin	23,245		20,015		213,415		191,701
Add: Depreciation & Amortization (A)	30,083		25,600		89,279		75,710
Less: Conservation Recoveries (B)	1,587		978		7,803		7,853
Less: RAC Recoveries (B)	6,965		6,233		20,893		18,699
Less: EET Recoveries (B)	1,190		1,896		3,528		4,260
Less: Revenue Taxes	279		182		1,045		918
Utility Margin (C)	$	43,307	$	36,326	$	269,425	$	235,681

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	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Utility Margin:
Residential	$	23,630	$	25,109	$	181,330	$	144,977
Commercial and Industrial	15,111		13,695		76,233		60,771
Cogeneration and Electric Generation	1,136		1,120		3,558		3,471
Interruptible	15		8		94		41
Off-System Sales & Capacity Release	237		222		1,170		1,178
Other Revenues	523		457		1,502		1,118
Margin Before Weather Normalization & Decoupling	40,652		40,611		263,887		211,556
CIP Mechanism	1,011		(5,770)		885		19,593
EET Mechanism	1,644		1,485		4,653		4,532
Utility Margin (C)	$	43,307	$	36,326	$	269,425	$	235,681

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

(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 $3.8 million, or 5.7%, for the three months ended September 30, 2021 compared with the same period in 2020. Excluding intercompany transactions, revenues increased $3.5 million, or 5.3%, for the nine months ended September 30, 2021 compared with the same period in 2020. The significant drivers for the overall change were as follows:

•Total firm revenue increased $1.9 million for the three months ended September 30, 2021 compared with the same period in 2020, primarily due to higher base rates effective October 1, 2020, along with customer growth, partially offset with decreased revenue related to SJG's BGSS. 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."

•OSS increased $2.0 million for the three months ended September 30, 2021 compared with the same period in 2020, primarily due to higher commodity costs. 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 increased $18.5 million, or 4.7%, for the nine months ended September 30, 2021 compared with the same period in 2020. Excluding intercompany transactions, revenues increased $13.1 million, or 3.3%, for the nine months ended September 30, 2021 compared with the same period in 2020. The significant drivers for the overall change were as follows:

•OSS increased $12.4 million for the nine months ended September 30, 2021 compared with the same period in 2020, primarily due to higher commodity costs, along with colder weather during the first quarter of 2021. However, the impact of changes in OSS activity does not have a material impact on the earnings of SJG as discussed above.

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•Firm revenue increased $6.8 million for the nine months ended September 30, 2021 compared with the same period in 2020 primarily due to higher base rates along with customer growth in 2021 compared to 2020. Partially offsetting this increase was the decreased revenue related to BGSS. 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 $7.0 million, or 19.2%, and increased $33.7 million, or 14.3%, for the three and nine months ended September 30, 2021, respectively, compared with the same periods in 2020. The increases are primarily due to favorable changes in base rates resulting from the completion of SJG's rate case in September 2020, along with the roll-in of infrastructure programs and customer growth. The change in revenues from SJG's BGSS clause had no impact to SJG's Utility Margin as discussed under "Operating Revenues - SJG Utility Operations" above. Also contributing to the three and nine month changes in 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 2020.

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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):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Utility Operating Revenues:
Firm & Interruptible Sales -
Residential	$	18,060	$	20,388	$	155,593	$	157,263
Commercial & Industrial	9,408		8,233		54,498		44,606
Firm & Interruptible Transportation -
Residential	225		238		1,588		1,510
Commercial & Industrial	9,006		8,453		35,698		31,962
Other	373		191		721		4,162
Total Firm & Interruptible Revenues	37,072		37,503		248,098		239,503

Less: Total Cost of Sales - Utility (Excluding Depreciation & Amortization) (A)	8,406		9,142		81,711		83,186
Less: Depreciation & Amortization (A)	14,557		10,187		53,369		29,368
Total GAAP Gross Margin	14,109		18,174		113,018		126,949
Add: Depreciation & Amortization (A)	14,557		10,187		53,369		29,368
Less: Regulatory Rider Expenses (B)	2,280		2,012		16,872		11,060
Utility Margin (C)	$	26,386	$	26,349	$	149,515	$	145,257


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Utility Margin:
Residential	$	13,634	$	14,281	$	101,168	$	93,849
Commercial & Industrial	14,623		13,870		64,396		57,419
Regulatory Rider Expenses (B)	(1,871)		(1,802)		(16,049)		(6,011)
Utility Margin (C)	$	26,386	$	26,349	$	149,515	$	145,257

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

(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.

The change in Revenues and Utility Margin from the gas utility operations at ETG for the three months ended September 30, 2021 compared with the same period in 2020 was not significant. Revenues from the gas utility operations at ETG increased $8.6 million, or 3.6%, and Utility Margin from the gas utility operations at ETG increased $4.3 million, or 2.9% for the nine months ended September 30, 2021 compared with the same period in 2020. These increases in revenues and Utility Margin are primarily due to customer growth and colder weather during the first quarter of 2021.

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Nonutility:

Operating Revenues - Energy Management

Combined revenues for Energy Management, net of intercompany transactions, increased $100.2 million, or 65.9%, to $252.2 million and increased $275.6 million, or 68.0%, to $680.9 million for the three and nine months ended September 30, 2021, respectively, compared with the same periods in 2020. The significant drivers for the overall change were as follows:

•Revenues from wholesale energy operations at SJRG, net of intercompany transactions, increased $103.6 million to $246.9 million and increased $294.6 million to $667.7 million for the three and nine months ended September 30, 2021, respectively, compared with the same periods in 2020 primarily due to revenues earned on gas supply contracts and increases in the average monthly NYMEX settle price. Also contributing to the nine month comparative period increase was colder weather experienced in the first quarter of 2021. Partially offsetting these comparative period increases was the change in unrealized gains and losses recorded on forward financial contracts due to price volatility, which is excluded from Economic Earnings and represented a total decrease of $13.5 million and $27.4 million for the three and nine months ended September 30, 2021, respectively, compared with the same periods in 2020.

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 (loss)/income.

•Revenues from retail services, net of intercompany transactions, decreased $3.5 million to $5.2 million and decreased $19.0 million to $13.0 million for the three and nine months ended September 30, 2021, respectively, compared with the same periods in 2020 primarily due to lower overall sales volumes as SJE chose not to renew several contracts that have expired over the last twelve months. This was partially offset with revenues earned at EnerConnex, which became a wholly-owned subsidiary in the second half of 2020.

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.

Operating Revenues - Energy Production

Combined revenues for Energy Production, net of intercompany transactions, increased $1.2 million, or 18.9%, to $7.3 million and increased $3.6 million, or 25.3%, to $17.8 million for the three and nine months ended September 30, 2021, respectively, compared with the same periods in 2020, primarily due to revenues earned on the Annadale fuel cell facility. Partially offsetting the nine month comparative period increase was 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).

Gross Margin - Energy Management & Energy Production

Gross margin for the Energy Management and Energy Production 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 (loss)/income, 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 (loss)/income.

Gross margin is broken out between Energy Management and Energy Production, 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 Management

Combined gross margins for Energy Management decreased $16.5 million to a loss of $11.1 million and decreased $20.4 million to $6.0 million for the three and nine months ended September 30, 2021, respectively, compared with the same periods in 2020. The significant drivers for the overall change were as follows:

•Gross margin from the wholesale energy operations at SJRG decreased $17.9 million to a loss of $13.2 million, and decreased $22.1 million to $1.5 million for the three and nine months ended September 30, 2021, respectively, compared with the same periods in 2020, 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 decrease of $13.5 million and $27.4 million for the three and nine months ended September 30, 2021, respectively, compared with the same periods in 2020. Also contributing to these comparative period decreases were lower margins on daily energy trading activities during the third quarter of 2021. Partially offsetting the nine month comparative period decrease were higher margins in the first quarter of 2021 due to colder weather.

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 retail services increased $1.3 million to $2.0 million, and increased $1.7 million to $4.3 million for the three and nine months ended September 30, 2021, respectively, compared with the same periods in 2020, primarily due to margin earned on EnerConnex, which was acquired in the second half of 2020.

Gross Margin - Energy Production

Combined gross margins for Energy Production increased $0.4 million to $6.4 million and increased $1.6 million to $15.5 million for the three and nine months ended September 30, 2021, respectively, compared with the same periods in 2020, primarily due to margins earned on the Annadale fuel cell facility in the three and nine months ended September 30, 2021. Partially offsetting the nine month comparative period increase was 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).

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Operating Expenses - All Segments:

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


	Three Months Ended September 30, 2021 vs. 2020		Nine Months Ended September 30, 2021 vs. 2020
SJI Utilities:
SJG Utility Operations	$	760	$	1,532
ETG Utility Operations	1,212		7,157
ELK Utility Operations	(422)		(1,393)
Subtotal SJI Utilities	1,550		7,296
Nonutility:
Energy Management:
Wholesale Energy Operations	394		(384)
Retail Services	(1,072)		(1,299)
Subtotal Energy Management	(678)		(1,683)
Energy Production:
Renewables	(107)		(6,513)
Decarbonization	64		72
Subtotal Energy Production	(43)		(6,441)
Midstream	(18)		(193)
Corporate & Services and Intercompany Eliminations	(2,920)		(2,108)
Total Operations and Maintenance Expense	$	(2,109)	$	(3,129)

Operations & Maintenance

ETG utility operations and maintenance expense increased $1.2 million and $7.2 million for the three and nine months ended September 30, 2021, respectively, compared with the same periods in 2020, 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 three and nine months ended September 30, 2021 compared with the same periods in the prior year.

Operations and Maintenance expense for Energy Production decreased $6.4 million for the nine months ended September 30, 2021, compared with the same period in 2020, primarily due to the sale of MTF and ACB in February 2020 along with the shutdown of the BCLE, SCLE, and SXLE landfill facilities during June 2020.

Operations and Maintenance expense for the Corporate & Services segment, after intercompany eliminations, decreased $2.9 million and $2.1 million for the three and nine months ended September 30, 2021, respectively, compared with the same periods in 2020, primarily due to expenses incurred in 2020 related to the acquisitions of Catamaran, Annadale, and EnerConnex that did not recur in 2021.

The change in operations and maintenance expense for all other segments, including SJG utility operations, for the three and nine months ended September 30, 2021 compared with the same periods in 2020 was not significant.

Depreciation - Depreciation increased $5.1 million and $16.0 million for the three and nine months ended September 30, 2021, respectively, compared with the same periods in 2020, primarily due to increased investment in property, plant and equipment by the gas utility operations of SJG and ETG, along with an increase in renewables segment depreciation related to assets at the Annadale fuel cell facility and rooftop solar generation sites.

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Energy and Other Taxes - Energy and Other Taxes decreased $10.8 million and $10.5 million for the three and nine months ended September 30, 2021 compared with the same periods in 2020, primarily due to a gain of $11.0 million recognized by ETG from a UTUA settlement agreement with the New Jersey Division of Taxation (see Note 1 to the condensed consolidated financial statements).

Other Income and Expense - Other income and Expense decreased $2.9 million for the three months ended September 30, 2021 compared with the same period in 2020, primarily due to a step acquisition gain recorded in connection with the EnerConnex acquisition in 2020 that did not recur in 2021. Other income and expense increased $0.3 million for the nine months ended September 30, 2021, respectively, compared with the same period in 2020, as the decrease noted above was offset with higher investment performance as the first quarter of 2020 saw weaker market conditions from the beginning of the COVID-19 pandemic, along with higher SJG AFUDC income.

Interest Charges – Interest charges increased $3.7 million and $5.2 million for the three and nine months ended September 30, 2021, respectively, compared with the same periods in 2020 primarily due to debt issuances that occurred in 2021. See Note 14 to the condensed consolidated financial statements.

Income Taxes – Income tax benefit decreased $7.7 million for the three months ended September 30, 2021compared with the same period in 2020. Income tax expense increased $11.6 million for the nine months ended September 30, 2021 compared with the same period in 2020. Both comparative period changes were impacted by less ITC recorded in 2021 compared to 2020 (see Note 1 to the condensed consolidated financial statements) The impairment charge recorded in the nine months ended September 30, 2021 related to our investment in PennEast (see Note 3 to the condensed consolidated financial statements) did not result in a tax benefit during this period as a valuation allowance had been established for the federal deferred tax asset related to the capital loss.

Equity in Earnings (Loss) of Affiliated Companies – The change in equity in earnings (loss) of affiliated companies for the three months ended September 30, 2021 compared with the same period in 2020 was not significant. Equity in earnings (loss) of affiliated companies decreased $87.3 million for the nine months ended September 30, 2021, compared with the same period in 2020 primarily due to an other-than-temporary impairment charge on the Company’s equity method investment in PennEast. See Note 3 to the condensed consolidated financial statements.

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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, 2021		Nine months ended September 30, 2020
Net Cash Provided by Operating Activities	$	273,927	$	254,200
Net Cash Used in Investing Activities	$	(434,171)	$	(297,319)
Net Cash Provided by Financing Activities	$	143,862	$	25,040

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 2021 produced more net cash than the same period in 2020, primarily due to the following: (1) SJG revenues due to favorable changes in base rates resulting from the completion of SJG's rate case in September 2020; (2) higher margins and increased collections on daily energy trading activities at SJRG; and (3) customer growth at the Utilities.

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 2021, 2022 and 2023 at SJI to be approximately $613.1 million, $800.9 million and $747.4 million, respectively. The high level of investing activities for 2021, 2022 and 2023 is due to the accelerated infrastructure investment programs and future capital expenditures at SJG and ETG, and investments in future renewable energy projects including efforts to meet our decarbonization goals, which were announced in April 2021 targeting 70% reduction in emissions by 2030 and 100% by 2040, with at least 25% of capital spending annually in support of sustainability investments. 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 2021 and 2020 were as follows:

•SJI invested a net amount of $15.3 million as of September 30, 2021 in Bronx Midco (see Note 16 to the condensed consolidated financial statements).

•SJI made net investments in and net advances to unconsolidated affiliates of $39.8 million for the nine months ended September 30, 2021, and received net repayments from unconsolidated affiliates of $1.2 million for the nine months ended September 30, 2020. See Note 3 to the condensed consolidated financial statements.

•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 from the sale of certain solar assets during the nine months ended September 30, 2020.

•SJI received approximately $15.6 million during the nine months ended September 30, 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 LLCs in 2020.

•SJI paid $54.3 million, net of cash acquired, during the nine months ended September 30, 2020, to acquire a 93% ownership interest in Annadale.

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.

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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, 2021 were as follows (in thousands):


Company	Total Facility		Usage			Available Liquidity		Expiration Date
SJI:
SJI Syndicated Revolving Credit Facility	$	500,000	$	61,300	(A)	$	438,700	September 2026




SJG:
Commercial Paper Program/Revolving Credit Facility	250,000		82,900		(B)	167,100		September 2026

ETG:
ETG Revolving Credit Facility	250,000		11,000		(C)	239,000		September 2026

Total	$	1,000,000	$	155,200		$	844,800

(A) Includes letters of credit outstanding in the amount of $9.8 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 $1.9 million, which supports the remediation of environmental conditions at certain locations in SJG's service territory.

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.

The Credit Facility contains customary representations, warranties and covenants, including a financial covenant limiting the ratio of Indebtedness of each Borrower and its subsidiaries on a consolidated basis to Consolidated Total Capitalization of not more than 0.70 to 1.0 (as such terms are defined in the Credit Facility). SJI, SJG and ETG were all in compliance with these covenants as of September 30, 2021.

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.

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2021 Activity:

On March 22, 2021, SJI offered 10,250,000 shares of its common stock, par value $1.25 per share, at a public offering price of $22.25 per share. Of the offered shares, 362,359 shares were issued at closing. The remaining 9,887,641 shares of common stock ("Forward Shares") are to be sold by Bank of America, N.A., as forward seller, pursuant to a forward sale agreement. On March 25, 2021, 1,537,500 shares pursuant to the underwriters’ option as part of the underwriting agreement for the above offering of shares were issued at the same public offering price of $22.25. The total share issuance of 1,899,859 resulted in gross proceeds of $42.3 million, with net proceeds, after deducting underwriting discounts and commissions as well as legal fees, totaling $40.6 million.

On March 22, 2021, SJI issued and sold 6,000,000 Equity Units, initially consisting of Corporate Units, which resulted in gross proceeds of approximately $300.0 million, with net proceeds, after deducting underwriting discounts and commissions, of $291.0 million. On April 1, 2021, the underwriters purchased an additional 700,000 Equity Units, resulting in gross proceeds totaling $35.0 million, with net proceeds, after deducting underwriting discounts and commissions, totaling $34.0 million. The total net proceeds, after amortization of the underwriting discounts, are recorded as Long-Term Debt on the condensed consolidated balance sheets.

On March 25, 2021, the Company finalized the remarketing of the $287.5 million of Series A Junior Subordinated Notes.

On April 15, 2021, as a result of settlement of outstanding stock purchase contracts associated with the 2018 Corporate Units, the Company received approximately $287.5 million in exchange for approximately 9.8 million shares of common stock.

For more information on the above activity, see Notes 4 and 14 to the condensed consolidated financial statements.

In March 2021, SJI paid off its $150.0 million term loan agreement at maturity.

In March 2021, SJG paid $2.5 million of 4.84% MTNs due annually beginning March 2021.

In April 2021, SJI repaid the $90.0 million principal amount outstanding on its 3.43% Series 2018-A Notes at maturity.

In June 2021, SJG paid $7.5 million of 4.93% MTNs due annually beginning June 2021.

In June 2021, ETG issued an aggregate principal amount of $125.0 million of first mortgage bonds in three Tranches. See Note 14 to the condensed consolidated financial statements.

In September 2021, SJG paid $10.0 million of 3.00% MTNs due annually beginning September 2020.

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

SJI’s capital structure was as follows:


	As of September 30, 2021		As of December 31, 2020
Equity	35.0	%	32.2	%
Long-Term Debt	62.2	%	56.4	%
Short-Term Debt	2.8	%	11.4	%
Total	100.0	%	100.0	%

During the nine months ended September 30, 2021 and 2020, SJI declared quarterly dividends to its common shareholders, which were paid in the months of April, July and October for both 2021 and 2020. SJI has a long history of paying dividends on its common stock and has increased its dividend every year since 1999. 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 long-term 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.

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COMMITMENTS AND CONTINGENCIES:

Environmental Remediation - Total net cash outflows for remediation projects are expected to be $43.0 million, $58.7 million and $61.5 million for 2021, 2022 and 2023, 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, 2020, certain environmental costs are subject to recovery from ratepayers.

Affiliate Loans - See Note 3 to the condensed consolidated financial statements.

Convertible Units, Equity Units and Forward Shares - See Note 4 to the condensed consolidated financial statements.

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, 2020, except for the Equity Units and the debt issuances as discussed in Notes 4 and 14 to the condensed consolidated financial statements, respectively.

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.

Pending 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 those described in Note 11 to the condensed consolidated financial statements, are reasonably likely to have a material impact on the business or financial statements of SJI or SJG. 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.

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 above under "Results of Operations - SJG Utility Operations" 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.

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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,
	2021	2020	2021	2020
Utility Throughput – dts:
Firm Sales -
Residential	1,435	2,004	17,474	15,983
Commercial	622	732	4,392	4,003
Industrial	5	11	180	139
Cogeneration & Electric Generation	434	399	684	608
Firm Transportation -
Residential	50	79	676	689
Commercial	682	746	4,428	4,077
Industrial	2,348	2,235	7,569	7,201
Cogeneration & Electric Generation	1,181	1,361	2,864	2,800

Total Firm Throughput	6,757	7,567	38,267	35,500

Interruptible Sales		—	8	1
Interruptible Transportation	246	170	839	686
Off-System Sales	1,322	2,199	9,387	8,931
Capacity Release	20,267	20,570	49,989	59,360

Total Throughput - Utility	28,592	30,506	98,490	104,478

Throughput – Gas Utility Operations - Total gas throughput decreased 1.9 MMdts and 6.0 MMdts for the three and nine months ended September 30, 2021, respectively, compared with the same periods in 2020, primarily due to volume decreases in Capacity Release resulting from lower demand.

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,
	2021		2020		2021		2020
Net Income Impact:
CIP – Weather Related	$	—	$	—	$	5.5	$	11.0
CIP – Usage Related	0.7		(4.2)		(4.9)		3.2
Total Net Income Impact	$	0.7	$	(4.2)	$	0.6	$	14.2

Weather Compared to 20-Year Average	70.4% Colder		19.6% Colder		5.1% Warmer		12.6% Warmer
Weather Compared to Prior Year	64.0% Warmer		72.9% Colder		5.4% Colder		5.1% Warmer

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

Operations & Maintenance Expense - See SJI's Management Discussion section above.

Depreciation - Depreciation expense increased $2.9 million and $8.7 million for the three and nine months ended September 30, 2021, respectively, compared with the same periods in 2020, 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.

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Energy and Other Taxes - The change in energy and other taxes for the three and nine months ended September 30, 2021 compared with the same periods in 2020 was not significant.

Other Income and Expense - The change in other income and expense for the three and nine months ended September 30, 2021 compared with the same periods in 2020 was not significant.

Interest Charges – Interest Charges increased $1.2 million and $5.0 million for the three and nine months ended September 30, 2021, respectively, compared with the same periods in 2020 primarily due to higher amounts of long-term debt from issuances that occurred in 2020.

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 the BPU's approval of a stipulation for SJG.

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, 2021		Nine months ended September 30, 2020
Net Cash Provided by Operating Activities	$	177,812	$	158,813
Net Cash Used in Investing Activities	$	(194,804)	$	(196,503)
Net Cash Provided by Financing Activities	$	12,588	$	32,666

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 2021 produced more net cash than the same period in 2020, primarily due to higher revenues due to favorable changes in base rates resulting from the completion of SJG's rate case in September 2020, along with customer growth.

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 2021, 2022 and 2023 to be approximately $248.9 million, $263.9 million and $334.8 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.

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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 were no equity infusions during the three and nine months ended September 30, 2021. Future equity contributions will occur on an as-needed basis.

SJG’s capital structure was as follows:


	As of September 30, 2021		As of December 31, 2020
Common Equity	55.1	%	53.8	%
Long-Term Debt	41.7	%	44.2	%
Short-Term Debt	3.2	%	2.0	%

Total	100.0	%	100.0	%

COMMITMENTS AND CONTINGENCIES:

Total net cash outflows for remediation projects are expected to be $36.7 million, $44.7 million and $43.6 million for 2021, 2022 and 2023, 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, 2020, 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, 2021, averaged $81.1 million annually and totaled $365.3 million over the contracts’ lives. Approximately 35% 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.

Litigation - See 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, 2020.

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

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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 $(19.8) million and $(6.2) million for the three months ended September 30, 2021 and 2020, respectively, and $(35.1) million and $(7.8) million for the nine months ended September 30, 2021 and 2020, respectively, which are included with realized (losses) in Operating Revenues - Nonutility on the condensed consolidated statements of (loss)/income.

The fair value and maturity of these energy-related contracts determined under the mark-to-market method as of September 30, 2021 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	$	91,415	$	19,849	$	1,419	$	112,683
Prices provided by other external sources	40,334		13,634		1,441		55,409
Prices based on internal models or other valuation methods	9,941		807		157		10,905

Total	$	141,690	$	34,290	$	3,017	$	178,997

Liabilities
Source of Fair Value	Maturity <1 Year		Maturity 1 -3 Years		Maturity Beyond 3 Years		Total
Prices actively quoted	$	38,632	$	673	$	1	$	39,306
Prices provided by other external sources	52,590		17,275		1,166		71,031
Prices based on internal models or other valuation methods	15,022		5,616		393		21,031

Total	$	106,244	$	23,564	$	1,560	$	131,368

•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 42.4 MMdts with a weighted average settlement price of $3.05 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 82.6 MMdts with a weighted average settlement price of $1.02 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 86.4 MMdts with a weighted average settlement price of $4.36 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, 2021	$	16,421
Contracts Settled During the Nine Months Ended September 30, 2021, Net	(10,665)
Other Changes in Fair Value from Continuing and New Contracts, Net	41,873

Net Derivatives — Energy Related Assets, September 30, 2021	$	47,629

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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, 2021 was $167.4 million and averaged $240.2 million during the first nine months of 2021. A hypothetical 100 basis point (1%) increase in interest rates on our average variable-rate debt outstanding would result in a $1.8 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: 2020 - 152 b.p. decrease; 2019 - 64 b.p. decrease; 2018 - 91 b.p. increase; 2017 - 82 b.p. increase; and 2016 - 47 b.p. increase. At September 30, 2021, our average interest rate on variable-rate debt was 0.87%.

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, 2021, the interest costs on $3.3 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, 2021, SJI’s active interest rate swaps were as follows, which all relate to SJG:


Notional Amount		Fixed Interest Rate	Start Date	Maturity



$	12,500,000	3.530%	12/1/2006	2/1/2036
$	12,500,000	3.430%	12/1/2006	2/1/2036

Credit Risk - As of September 30, 2021, SJI had approximately $10.5 million, or 5.9%, of the current and noncurrent Derivatives – Energy Related Assets transacted with one counterparty. This counterparty is investment-grade rated.

As of September 30, 2021, SJRG had $116.7 million of Accounts Receivable under sales contracts. Of that total, 28.0% 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, 2021 are as follows (in thousands):


Assets
Source of Fair Value	Maturity < 1 Year		Maturity 1 - 3 Years		Total
Prices actively quoted	$	19,562	$	1,458	$	21,020
Prices provided by other external sources	3,938		—		3,938
Prices based on internal models or other valuable methods	7,258		—		7,258

Total	$	30,758	$	1,458	$	32,216


Liabilities
	Maturity		Maturity
Source of Fair Value	< 1 Year		1 - 3 Years		Total
Prices actively quoted	$	1,025	$	—	$	1,025
Prices provided by other external sources	1,668		—		1,668
Prices based on internal models or other valuable methods	141		—		141

Total	$	2,834	$	—	$	2,834

Contracted volumes of SJG's NYMEX contracts are 12.1 MMdts with a weighted-average settlement price of $3.34 per dt. Contracted volumes of SJG's Basis contracts are 1.3 MMdts with a weighted-average settlement price of $3.25 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, 2021	$	1,082
Contracts Settled During the Nine Months ended September 30, 2021, Net	(927)
Other Changes in Fair Value from Continuing and New Contracts, Net	29,227
Net Derivatives — Energy Related Assets, September 30, 2021	$	29,382

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, 2021, was $105.9 million and averaged $48.0 million during the first nine months of 2021. A hypothetical 100 basis point (1%) increase in interest rates on SJG's average variable-rate debt outstanding would result in a $0.3 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: 2020 - 220 b.p. decrease; 2019 - 73 b.p. decrease; 2018 - 91 b.p. increase; 2017 - 91 b.p. increase; and 2016 - 19 b.p. increase. As of September 30, 2021, SJG's average interest rate on variable-rate debt was 0.10%.

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, 2021, the interest costs on $1.1 billion of long-term debt (including current portion) was either at a fixed-rate or hedged via an interest rate derivative.

SJG's interest rate swaps are the same as SJI's as shown above.

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, 2021. Based on that evaluation, the principal executive officer and principal financial officer of each of SJI and SJG concluded that, as of September 30, 2021, 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, 2021, 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

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 Report on Form 10-K for the year ended December 31, 2020 and from those disclosed in Quarterly Reports for the periods ending March 31, 2021 and June 30, 2021.

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Item 6. Exhibits

(a) Exhibits


Exhibit No.						Description

































10.1						Five-Year Revolving Credit Agreement, dated as of September 1, 2021, among SJI, SJG and ETG, the several lenders from time to time party thereto and Wells Fargo Bank, National Association, as Administrative Agent. (incorporated by reference from Exhibit 10.1 of Form 8-K of SJI filed as of September 3, 2021).



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).

99.1						Fourth Amendment to the Note Purchase Agreement dated as of June 28, 2012, by and among South Jersey Industries, Inc. and the institutions signatory thereto, dated as of August 31, 2021 (incorporated by reference from Exhibit 99.1 of Form 8-K of SJI filed as of September 3, 2021).

99.2						Fourth Amendment to the Note Purchase Agreement dated as of August 16, 2017, by and among South Jersey Industries, Inc. and the institutions signatory thereto, dated as of August 31, 2021 (incorporated by reference from Exhibit 99.2 of Form 8-K of SJI filed as of September 3, 2021).

99.3						Third Amendment to the Note Purchase Agreement dated as of April 25, 2018, by and among South Jersey Industries, Inc. and the institutions signatory thereto, dated as of August 31, 2021 (incorporated by reference from Exhibit 99.3 of Form 8-K of SJI filed as of September 3, 2021).

99.4						First Amendment to the Note Purchase Agreement dated as of May 27, 2020, by and among South Jersey Industries, Inc. and the institutions signatory thereto, dated as of August 31, 2021 (incorporated by reference from Exhibit 99.4 of Form 8-K of SJI filed as of September 3, 2021).

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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, 2021, filed with the Securities and Exchange Commission on November 4, 2021 formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Statements of (Loss)/Income; (ii) the Condensed Consolidated Statements of Comprehensive (Loss)/Income; (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, 2021, filed with the Securities and Exchange Commission on November 4, 2021 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, 2021	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, 2021	By:	/s/ Steven R. Cocchi
			Steven R. Cocchi
			Chief Financial Officer
			(Principal Financial Officer)