<PAGE>
FILE NO. 0-22211
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10
AMENDMENT NO. 2 TO
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934
South Jersey Gas Company
----------------------------------------
Exact name of registrant as
specified in its
certificate of incorporation
New Jersey
----------------------------------------
State or Other Jurisdiction
of Incorporation or
Organization
21-0398330
----------------------------------------
(I.R.S. Employer
Identification No.)
Number One South Jersey Plaza, Route 54
Folsom, New Jersey 08037
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (609)561-9000
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
(Name of each exchange on
(Title of each class which each class is to be
to be so registered) registered)
- --------------------------------------- -------------------------------------
NONE
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
(Title of Class)
Common Stock, par value $2.50 per share
(voluntary filing)
<PAGE>
Item 1. Business.
South Jersey Gas Company, ("SJG"), a New Jersey corporation, is an
operating public utility company engaged in the purchase, transmission and sale
of natural gas for residential, commercial and industrial use in an area of
approximately 2,500 square miles in the southern part of New Jersey. SJG also
makes off-system sales of natural gas on a wholesale basis to various customers
on the interstate pipeline system and transports natural gas purchased directly
from producers or suppliers by some of its customers. SJG is the principal
subsidiary of South Jersey Industries, Inc. ("SJI"), a New Jersey corporation.
SJG's service territory includes 112 municipalities throughout Atlantic,
Cape May, Cumberland and Salem Counties and portions of Burlington, Camden and
Gloucester Counties, with an estimated permanent population of 1.1 million.
SJG serves 253,874 residential, commercial and industrial customers (at
December 31, 1996) in southern New Jersey. Gas sales and transportation for
1996 amounted to approximately 66,814,000 Mcf (thousand cubic feet), of which
approximately 51,203,000 Mcf was firm sales and transportation, 7,040,000 Mcf
was interruptible sales and transportation and 8,571,000 Mcf was off-system
sales. The breakdown of firm sales includes 42.4% residential, 19.8%
commercial, 10.1% cogeneration and electric generation, 2.4% industrial and
25.3% transportation. At year-end 1996, SJG served 236,008 residential
customers, 17,492 commercial customers and 374 industrial customers. This
includes 1996 net additions of 5,562 residential customers and 313 commercial
customers and a decrease of 23 industrial customers.
Under an agreement with Atlantic Electric, an electric utility serving
southern New Jersey, SJG supplies natural gas to several combustion turbine
facilities. This gas service is provided under the terms of a firm electric
service tariff approved by the New Jersey Board of Public Utilities (the "BPU")
on a demand/commodity basis. In 1996, 1.6 Bcf (billion cubic feet) was
delivered under this agreement.
SJG serviced eight cogeneration facilities in 1996. Combined sales and
transportation of natural gas to such customers amounted to approximately 9.2
Bcf in 1996.
SJG makes wholesale gas sales for resale to gas marketers for ultimate
delivery to end users. These "off-system" sales are made possible through the
issuance by the Federal Energy Regulatory Commission ("FERC") of Orders No. 547
and 636. Order No. 547 issued a blanket certificate of public convenience and
necessity authorizing all parties, which are not interstate pipelines, to make
FERC jurisdictional gas sales for resale at negotiated rates, while Order No.
636 allowed SJG to deliver gas
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at delivery points on the interstate pipeline system other than its own city
gate stations and release excess pipeline capacity to third parties. During
1996, off-system sales amounted to 8.6 Bcf. Also in 1996, SJG released 20.0 Bcf
of its firm interstate pipeline capacity to third parties.
Supplies of natural gas available to SJG that are in excess of the quantity
required by those customers who use gas as their sole source of fuel (firm
customers) make possible the sale of gas on an interruptible basis to commercial
and industrial customers whose equipment is capable of using natural gas or
other fuels, such as fuel oil and propane. The term "interruptible" is used in
the sense that deliveries of natural gas may be terminated by SJG at any time if
this action is necessary to meet the needs of higher priority customers as
described in SJG's tariffs. Usage by interruptible customers, including off-
system customers, in 1996 amounted to approximately 15.6 Bcf (approximately 23.4
percent of the total volume of gas delivered).
No material part of SJG business is dependent upon a single customer or a
few customers.
Service Territory
The majority of the SJG residential customers reside in the northern and
western portions of its service territory in Burlington, Camden, Salem and
Gloucester counties. A majority of new customers reside in this section of the
service territory, which includes the residential suburbs of Wilmington and
Philadelphia. The franchise area to the east is centered on Atlantic City and
the neighboring resort communities in Atlantic and Cape May counties, which
experience large population increases in the summer months. The impact of the
casino gaming industry on the Atlantic City area has resulted in the creation of
new jobs and the expansion of the residential and commercial infrastructure
necessary to support a developing year-round economy. Atlantic City is
experiencing a second wave of development as a result of casino gaming. The
centerpiece of this development is the new $254 million multi-purpose convention
center, accompanied with a planned billion dollar hotel and entertainment
complex. These facilities will be used to attract large conventions as well as
making Atlantic City into a family resort on a year-round basis. The convention
center is expected to be in operation in the spring of 1997.
Manufacturers or processors of sand, glass, farm products, paints,
chemicals and petroleum products are located in the western and southern sectors
of the service territory. New commercial establishments and high technology
industrial parks and complexes are part of the economic growth of this area.
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SJG's service area includes parts of the Pinelands region, a largely
undeveloped area in the heart of southern New Jersey. Future construction in
this area is expected to be limited by statute and by a master plan adopted by
the New Jersey Pinelands Commission; however, in terms of potential growth,
significant portions of SJG's service area are not affected by these
limitations.
Rates and Regulation
As a public utility, SJG is subject to regulation by the BPU. Additionally,
the Natural Gas Policy Act, which was enacted in November 1978, contains
provisions for Federal regulation of certain aspects of SJG's business. SJG is
affected by Federal regulation with respect to transportation and pricing
policies applicable to its pipeline capacity from Transcontinental Gas Pipeline
Corporation ("Transco"), SJG's major supplier, Columbia Gas Transmission
Corporation ("Columbia"), CNG Transmission Corporation ("CNG") and Equitrans,
Inc. ("Equitrans"), since such services are provided under rates and terms
established under the jurisdiction of the FERC.
Retail sales by SJG are made under rate schedules within a tariff filed
with and subject to the jurisdiction of the BPU. These rate schedules provide
primarily for either block rates or demand/commodity rate structures. The
tariff contains provisions permitting SJG to pass on to customers increases and
decreases in the cost of purchased gas supplies. The tariff also contains
provisions permitting the recovery of environmental remediation costs associated
with former manufactured gas plant sites and for the adjustment of revenues due
to the impact of temperature fluctuations as prescribed in SJG's tariff.
In April 1997, SJG will initiate its BPU approved pilot program to give
residential customers a choice of gas supplier. The program will be open to the
first 10,000 residential customers who apply for this service and is designed to
run until June 30, 1998, or later if approved by the BPU. Under the applicable
rate schedule, amounts billed to participants in the program will be reduced for
cost of gas charges and applicable gross receipts taxes. This decrease in
revenues will be offset by a corresponding decrease in SJG's gas costs and taxes
under SJG's BPU-approved fuel clause. Accordingly, SJG believes that the program
will not affect its net income, financial condition or margins. In addition,
because the program affects only 4% of SJG's residential customers, and not all
of those customers may elect to purchase gas from other suppliers, SJG believes
that any reduction in revenue will not be material.
Revenue requirements for ratemaking purposes are established on the basis
of firm and interruptible sales projections. On January 27, 1997, the BPU
granted SJG a rate increase of $6.0 million based on an overall rate of return
of 9.62% including an 11.25% return on equity. The majority of this increase
will come from residential and small commercial customers. As part of this rate
increase, SJG is allowed to retain the first $5.0 million of pre-tax margins
generated by interruptible and off-system sales and transportation and 20% of
pre-tax margins generated by such sales above that level. In 1997 and 1998,
this $5.0 million threshold will be increased by the annual revenue requirement
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associated with specified major construction projects. These sharing formula
improvements are expected to result in additional rate relief of approximately
$1.4 million in 1997 and $1.8 million in 1998. In 1997, SJG will file to
recover additional post-retirement benefit costs of approximately $1.1 million
annually. This recovery is expected to begin in 1998. In addition, part of the
increase will be recovered from customers through new service fees which charge
specific customers for costs which they cause SJG to incur. In addition to the
rate increase, the BPU approved a revenue reduction in SJG's Temperature
Adjustment Clause, a mechanism designed to reduce the impact of extreme
fluctuations in temperature on SJG and its customers. For the period ended May
31, 1996, weather in SJG's service area was significantly colder than the 20-
year average, resulting in a $2.5 million credit due to customers' bills which
is reflected in the 1996 results of operations.
On December 14, 1994, the BPU granted SJG a rate increase of $12.1 million
based on a 9.51 percent return on rate base, which included an 11.5 percent
return on equity. Nearly the entire increase came from the residential,
commercial and small industrial customer classes. In addition, SJG was allowed
to retain the first $4.0 million of combined pre-tax interruptible and off-
system margins and 20 percent of margins above that level.
In 1996, SJG made no public announcement of, or otherwise made public
information about, a new product or industry segment that would require the
investment of a material amount of the assets of SJG or which otherwise was
material.
Raw Materials
Supply Contracts and Storage
- ----------------------------
SJG has direct connections to two interstate pipeline companies, Transco
and Columbia. It also secures firm transportation and other long term services
from four additional pipelines upstream of the Transco and Columbia systems.
They include: Columbia Gulf Transmission Company ("Columbia Gulf"), CNG, Texas
Gas Transmission Corporation ("Texas Gas") and Equitrans. Services provided by
these upstream pipelines are utilized to deliver gas into either the Transco or
Columbia systems for ultimate delivery to SJG. Services provided by all of the
above mentioned pipelines are subject to changes as directed by FERC Order No.
636.
Transco
- -------
Transco is SJG's largest supplier of long term gas transmission services.
These services include five (5) year-round and one (1) seasonal firm
transportation ("FT") service
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arrangement. When combined, these services enable SJG to purchase from third
parties and have delivered to its city gate stations by Transco, a total of
163,741 Thousand Cubic Feet of gas per day ("Mcf/d"). The terms of the year-
round agreements extend for various periods from 2002 to 2010 while the term of
the seasonal agreement extends to 2011.
SJG also has seven (7) long-term gas storage service agreements with
Transco that when combined are capable of storing approximately 10.1 Bcf.
Through these services, SJG can inject gas into storage during periods of low
demand and withdraw gas at a rate of up to 86,972 Mcf per day during periods of
high demand. The terms of the storage service agreements extend for various
periods from 1998 to 2008.
Transco renders a merchant service to SJG under its Rate Schedule FS
(defined below). Williams Energy Services Company ("WESCO"), an affiliate of
Transco, has assumed Transco's natural gas merchant function under which the
maximum purchase quantity amounts to 51,769 Mcf per day. FS is a no-notice
swing service which allows SJG to take between zero and its full contract
quantities (51,769 Mcf/d) on any day of the year. This flexibility enables SJG
to respond to changes in its requirements for gas due to weather and market
conditions. The initial term of the FS agreement extends through March 31,
2001.
In addition to FS service, SJG has also secured a second merchant service
from Transco under Transco's Rate Schedule NS. NS is a service that requires
scheduling 24 hours before the date of actual gas flow and has minimum monthly
take provisions (as compared to FS service which requires no advance scheduling
or minimum take). NS service is also provided by WESCO acting as agent for
Transco. Under this service, SJG can purchase up to 30,000 Mcf per day of NS gas
with 24 hours advance notice. The term of the NS agreement extends though March
31, 2001.
SJG has a long term gas purchase agreement with Vastar Gas Marketing
("Vastar") which provides for the delivery of up to 14,618 Mcf/d to SJG's
service area on a year round basis by way of Transco FT service. The initial
term of the gas purchase agreement with Vastar extends through March 31, 2000.
SJG also has a winter season firm transportation service on the Transco
system which is available for the period December 1 through the last day of
February of each year. SJG's maximum entitlement under this service is 2,900
Mcf/d. SJG has contracted with Amerada Hess Corporation ("Hess") to provide the
gas supply to fill this transportation capacity during each winter season
through October 31, 2007.
SJG may deliver up to 24,700 Mcf per day of gas under a firm transportation
agreement as part of Transco's Texas Gas-CNG-Transco FT project. This project
was developed to provide additional firm pipeline capacity which would deliver
gas to the U.S. Northeast via a bundled service provided by Transco under its
Rate Schedule FT-NT. SJG has also contracted with Hess for a
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15 year gas supply service to fill this capacity which extends through October
31, 2007.
CNG
- ---
SJG has entered into separate gas sales and capacity management agreements
with CNG Energy Services Corporation ("CNGES"), a non-jurisdictional affiliate
of CNG, through which SJG has assigned to CNGES its pipeline FT and storage
entitlements on the CNG system to provide SJG with up to 9,662 Mcf per day of
gas during the period November 16 through March 31 of each year.
Columbia
- --------
SJG has three (3) firm transportation agreements with Columbia which, when
combined, provide for 43,500 Mcf/d of firm deliverability.
SJG has four long term gas purchase agreements, for periods ranging from
1999 to 2003, with major non-jurisdictional producer/suppliers for gas delivered
into the Columbia pipeline system which, in aggregate, provide SJG with up to
43,500 Mcf/d via the Columbia pipe line system during the winter season. Such
agreements also provide for delivery in non-winter months at lower quantities.
SJG also subscribes to a firm storage service from Columbia, to March 31,
2009, which provides a maximum withdrawal quantity of 19,807 Mcf/d during the
winter season with an associated 1,121,095 Mcf of storage capacity.
As part of addressing future winter season requirements, SJG has entered
into an agreement with Columbia to subscribe to an incremental 31,296 Mcf per
day of storage deliverability with an additional 2,234,482 Mcf of storage
capacity to begin in November 1998. The term of the agreement expires October
31, 2013. The FERC has recently approved Columbia's arrangements to provide such
services subject to review of environmental issues.
Equitrans
- ---------
SJG has a long term storage service provided by Equitrans, to April 1,
2002, under which up to 500,000 Mcf of gas may be stored during the summer
season and up to 4,783 Mcf/d may be withdrawn during the winter season. The gas
is delivered to SJG under firm transportation agreements with Equitrans, CNG and
Transco.
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Supplemental Gas Supplies
- -------------------------
SJG has a long term liquefied natural gas ("LNG")purchase agreement with
Distrigas of Massachusetts Corporation ("DOMAC") which extends through October
31, 2000. For the 1996-97 contract year, SJG's annual contract quantity under
the DOMAC agreement is 186,047 Mcf. LNG purchases from DOMAC are transported to
SJG's LNG storage facility in McKee City, New Jersey via over-the-road
trucks.
SJG operates peaking service facilities which can store and vaporize both
LNG and propane for injection into its distribution system. Peaking service is a
supply of natural or manufactured gas for distribution systems from an auxiliary
source during periods of maximum demand when primary gas supply sources may not
be adequate. SJG's LNG facility has a storage capacity equivalent to 404,000 Mcf
of natural gas and has an installed capacity to vaporize up to 90,000 Mcf of LNG
per day for injection into its distribution system.
SJG also maintains three propane-air plants that are located in McKee City,
Middle Township and Ocean City, New Jersey. The combined maximum storage
capacity of these plants is 450,000 gallons of liquefied propane or the
equivalent of approximately 33,834 Mcf of natural gas.
SJG also operates a high pressure pipe storage field at its McKee City
facility which is capable of storing 12,000 Mcf of gas and injecting up to
10,000 Mcf of gas per day into SJG's distribution system.
SJG has a LNG peaking service agreement with the Philadelphia Gas Works
("PGW") which provides up to 250,000 Mcf per year of peaking service gas on a
firm basis at a rate of up to 25,000 Mcf per day when taken as vapor and
delivered through the Transco pipeline system or up to twelve truckloads per day
(approximately 10,200 Mcf) when taken as liquid and trucked to SJG's LNG storage
facility in McKee City, NJ. The initial term of this agreement extends through
the 1997-98 winter season, however it may be extended by mutual agreement of the
parties.
Peak-Day Supply
- ---------------
SJG plans for a winter season peak-day demand on the basis of an average
daily temperature of 2 degrees F. Gas demand on such a design day was estimated
for the 1996-97 winter season to be 386,585 Mcf versus a design day supply of
416,922 Mcf. On January 19, 1994, SJG experienced its highest peak-day demand of
370,582 Mcf with an average temperature of 2.68 degrees F. In 1996, SJG
experienced a high peak-day demand of 325,463 Mcf with an average temperature of
12.0 degrees F.
Gas Prices
During 1996, SJG purchased and had delivered to it approximately 50.6 Bcf
of natural gas for distribution to its
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customers. Of this total, 34.3 Bcf was transported on the Transco pipeline
system and 16.3 Bcf was transported on the Columbia pipeline system.
SJG's average commodity cost of gas purchased in 1996 was $2.93 per Mcf.
Patents and Franchises
SJG holds nonexclusive franchises granted by municipalities in the seven-
county area of southern New Jersey that it serves. No other natural gas public
utility presently serves the territory covered by SJG's franchises. Otherwise,
patents, trademarks, licenses, franchises and concessions are not material to
the business of SJG or any of its subsidiaries.
Seasonal Aspects
SJG experiences seasonal fluctuations in sales when selling natural gas for
heating purposes. SJG meets this seasonal fluctuation in demand from its firm
customers by buying and storing gas during the summer months, and by drawing
from storage and purchasing supplemental supplies during the heating season. As
a result of this seasonality, SJG experiences reductions of revenues and net
income during the second and third quarters of the year.
Working Capital Practices
As previously indicated under Seasonal Aspects, SJG buys and stores natural
gas during the summer months. These purchases are financed by short-term loans
which are substantially paid down during the winter months when gas revenues are
higher. Reference is also made to "Liquidity" on pages 16 and 17.
Customers
No material part of SJG's business or that of any of its subsidiaries is
dependent upon a single customer or a few customers, the loss of which would
have a material adverse effect on any such business.
Backlog
Backlog is not material to an understanding of SJG's business or that of
any of its subsidiaries.
Government Contracts
No material portion of the business of SJG or any of its subsidiaries is
subject to renegotiation of profits or
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termination of contracts or subcontracts at the election of any government.
Competition
SJG franchises are non-exclusive. However, currently no other utility is
providing retail gas distribution services within its territory. SJG does not
expect any other utilities to do so in the foreseeable future because of the
extensive investment required for utility plant and related costs. SJG competes
with oil, propane and electricity suppliers for residential, commercial and
industrial users. The market for natural gas sales is subject to competition as
a result of deregulation. SJG has enhanced its competition position while
maintaining its margins through its initiative in obtaining an unbundled tariff
which isolates the variable cost of the gas commodity component within SJG's
rate structure. Under this tariff, substantially all of SJG's profits are
derived from the transportation rather than the sale of the commodity since SJG
does not generally add a profit mark-up to the cost of the commodity. Therefore,
SJG is able to offer its commercial and industrial customers flexibility
regarding choice of gas supply while SJG continues to recover its cost of
service and fixed gas costs while providing and charging for transportation
service. As noted above, in April 1997 SJG will initiate its BPU-approved pilot
program to give certain of its residential customers a choice of gas suppliers.
(See Rates And Regulation above.) In all of these respects, SJG has been a
--------------------
leader in addressing the changing marketplace while maintaining its focus on
being a low-cost provider of natural gas and energy services.
Research
During the last three fiscal years, SJG did not engage in research
activities to any material extent.
Environmental Matters
Environmental Remediation Costs - SJG has incurred and recorded certain
-------------------------------
costs for environmental remediation of sites where SJG or predecessor companies
operated gas manufacturing plants. Manufactured gas operations were terminated
at all SJG sites more than 30 years ago.
Since the early 1980s, SJG has recorded environmental remediation costs of
$70.8 million, of which $29.1 million has been expended as of December 31, 1996.
SJG, with the assistance of an outside consulting firm, estimates that total
future expenditures to remediate the sites will range from $41.7 million to
$150.2 million. The lower end of this range has been recorded as a liability
and is reflected on the balance sheet under the captions "Current Liabilities"
and "Deferred Credits and Other Non-Current Liabilities". Recorded
environmental remediation costs do not directly affect earnings because those
costs are deferred and, when expended, recovered through rates over 7-year
amortization periods. Amounts accrued for future expenditures have not been
adjusted for future insurance recoveries, which management is pursuing. SJG has
received $4.2 million of insurance recoveries as of December 31, 1996. These
proceeds were first used to offset legal fees incurred in connection with those
recoveries and the excess was used to reduce the balance of deferred
environmental remediation costs. Recorded amounts include estimated costs to be
incurred based on projected investigation and remediation work plans using
existing technologies. Actual expenditures could differ from the estimates due
to the long-term nature of the projects and
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changing technology, government regulations and site specific requirements.
SJG has established a regulatory asset for these costs and is recovering
amounts expended over 7-year amortization periods, as authorized by the BPU. As
of December 31, 1996, SJG has unamortized remediation expenditures of $15.6
million which are reflected on the balance sheet under the caption "Deferred
Debits". Since BPU approval of the RAC mechanism in August 1992, SJG has
recovered $9.3 million through rates as of December 31, 1996.
Employees
SJG had a total of 674 employees as of December 31, 1996.
Financial Information About Foreign and Domestic Operations and Export Sales
SJG has no foreign operations and export sales have not been a significant
part of SJG's business.
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Item 2. Financial Information.
<TABLE>
<CAPTION>
FIVE-YEAR SUMMARY OF SELECTED
FINANCIAL DATA Year Ended December 31
(In Thousands Where Applicable) -----------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING DATA 1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- ----------
Operating Revenues:
Utility...................................... $ 252,146 $ 274,497 $ 308,253 $ 279,764 $ 327,317
Other........................................ 3,112 3,084 3,206 2,955 3,018
---------- ---------- ---------- ---------- ----------
Total Operating Revenues........................ 255,258 277,581 311,459 282,719 330,335
---------- ---------- ---------- ---------- ----------
Total Operating Expenses........................ 225,639 248,026 283,456 247,281 291,486
---------- ---------- ---------- ---------- ----------
Operating Income................................ 29,619 29,555 28,003 35,438 38,849
---------- ---------- ---------- ---------- ----------
Interest Charges:...............................
Long-Term Debt............................... 9,696 10,771 11,471 14,490 13,636
Other-Net.................................... 4,344 3,165 3,057 4,957 5,824
---------- ---------- ---------- ---------- ----------
Total Interest Charges (1)...................... 14,040 13,936 14,528 19,447 19,460
---------- ---------- ---------- ---------- ----------
Customer Refund Obligation, net of Taxes........ (2,275)
---------- ---------- ---------- ---------- ----------
Income before Cumulative Effect of a Change in
Accounting Principle............................ 15,579 15,619 11,200 15,991 19,389
Change in Accounting Principle (2).............. 1,235
---------- ---------- ---------- ---------- ----------
Income before Preferred Stock Dividend
Requirements.................................... 15,579 16,854 11,200 15,991 19,389
Preferred Stock Dividends....................... 192 187 183 178 174
---------- ---------- ---------- ---------- ----------
Net Income Applicable to Common Stock........... $ 15,387 $ 16,667 $ 11,017 $ 15,813 $ 19,215
========== ========== ========== ========== ==========
Average Shares of Common Stock Outstanding...... 2,339,139 2,339,139 2,339,139 2,339,139 2,339,139
Earnings Per Common Share....................... $6.58 $7.13 $4.71 $6.76 $8.21
========== ========== ========== ========== ==========
Dividends Paid Per Common Share................. $5.228 $1.069 $5.787 $6.840 $6.437
========== ========== ========== ========== ==========
<CAPTION>
BALANCE SHEET DATA At December 31,
------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Property, Plant and Equipment - Net............. 329,849 351,844 375,093 396,770 421,622
Total Current Assets............................ 54,729 64,426 64,978 79,338 85,650
Accounts Receivable - Merchandise............... 2,736 2,221 2,015 2,305 1,999
Total Deferred Debits........................... 28,863 64,293 67,901 71,537 90,655
Total Assets.................................... $416,177 $482,784 $509,987 $549,950 $599,926
</TABLE>
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<TABLE>
<CAPTION>
At December 31,
------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Retained Earnings............. 35,905 50,071 47,551 47,364 51,522
Total Preferred Stock......... 2,674 2,584 2,494 2,404 2,314
Long-Term Debt, Net of 102,794 130,446 138,594 156,784 149,736
Current Maturities...........
Current Maturities of 5,697 5,570 6,852 11,811 6,603
Long-Term Debt...............
Interest and Other Accrued 4,624 4,990 4,829 5,631 2,161
Liabilities..................
Total Deferred Credits........ 70,907 92,073 110,271 114,647 132,474
Total Liabilities............. 310,556 363,087 382,900 417,140 463,048
</TABLE>
(1) Includes credits for allowance for funds used during construction.
(2) Represents the cumulative effect of change in accounting principle for
Income Taxes.
Management's Discussion and Analysis of Results of Operations and Financial
Condition
Overview
SJG is a natural gas distribution company serving 253,874 customers at
December 31, 1996, compared with 248,022 customers at December 31, 1995.
Seasonal aspects affect reported revenues, inventories, receivables, operating
expenses and cash flows, which are usually greater during the first and fourth
quarters of the year.
Competition
- -----------
SJG franchises are non-exclusive. However, currently no other utility is
providing retail gas distribution services within its territory. SJG does not
expect any other utilities to do so in the foreseeable future because of the
extensive investment required for utility plant and related costs. SJG competes
with oil, propane and electricity suppliers for residential, commercial and
industrial users. The market for natural gas sales is subject to competition as
a result of deregulation. SJG has enhanced its competition position while
maintaining its margins through its initiative in obtaining an unbundled tariff
which isolates the variable cost of the gas commodity component within SJG's
rate structure. Under this tariff, substantially all of SJG's profits are
derived from the transportation rather than the sale of the commodity since SJG
does not generally add a profit mark-up to the cost of the commodity. Therefore,
SJG is able to offer its commercial and industrial customers flexibility
regarding choice of gas supply while SJG continues to recover its cost of
service and fixed gas costs while providing and charging for transportation
service. As noted above, in April 1997 SJG will initiate its BPU-approved pilot
program to give certain of its residential customers a choice of gas suppliers.
(See Rates And Regulation above.) In all of these respects, SJG has been a
--------------------
leader in addressing the changing marketplace while maintaining its focus on
being a low-cost provider of natural gas and energy services.
Energy Adjustment Clauses
- -------------------------
SJG's tariff includes a Levelized Gas Adjustment Clause ("LGAC"), a
Temperature Adjustment Clause ("TAC") and a Remediation Adjustment Clause
("RAC"). Such clauses are designed to permit adjustments for changes in gas
supply costs, reduce the impact of extreme fluctuations in temperatures on SJG
and its customers, and recover costs incurred in the remediation of former gas
manufacturing plants. The BPU approved LGAC and RAC
13
<PAGE>
adjustments do not directly affect earnings because revenues are adjusted to
match costs. The Company's base rates are designed based on twenty-year normal
temperatures. When actual temperatures are colder than the twenty-year average,
the Company sells more gas than was anticipated generating higher revenues and
net income. Conversely, when actual temperatures are warmer than normal, the
Company sells less gas and revenues and net income are lower than projected.
The TAC dampens the effect of these peaks and valleys (and thus moderates
the effect of weather extremes on SJG's revenues) by giving customers a credit
against higher usage in colder weather and giving SJG a surcharge on lower usage
in warmer weather. TAC adjustments therefore affect revenue, income and cash
flows.
Results of Operations
Operating Revenues
- ------------------
In 1996, revenues increased $47.6 million over 1995. Revenues decreased
$28.7 million when comparing 1995 with 1994. In 1996, the revenue increase is
principally due to greater firm sales resulting from weather which was 6.4
percent colder than 1995 and a net increase of approximately 5,900 customers.
Total sales margin (revenues less cost of gas, gross receipts and income taxes)
increased in 1996 principally due to the increased firm revenues and other
increased revenues, including off-system sales and capacity release revenues.
While the amount of off-system unit sales decreased in 1996, those sales had a
positive impact on total sales margin principally because SJG was able to take
advantage of relatively rapid increases in the market price of natural gas,
permitting SJG to charge higher prices for gas it had purchased earlier when
prevailing prices were lower. Utility revenues decreased in 1995 principally due
to lower off-system gas sales, firm transportation and electric utility gas
sales. The earnings impact of decreased sales volumes was more than offset by
capacity release revenues which do not have an offsetting commodity cost, rate
relief approved in December 1994 (See Regulatory Matters) and an increase of
------------------
6,600 customers. Rate relief resulted in additional revenues of approximately
$12.3 million in 1995. In addition, 1994 included a customer refund obligation
which reduced net income by approximately $(2.3) million
The following is a summary of changes in operating revenue and throughput
by major category for the years ended December 31, 1996 and 1995 compared with
the preceding year.
<TABLE>
<CAPTION>
1996 vs. 1995 1995 vs. 1994
------------- -------------
<S> <C> <C>
Operating Revenues (Thousands):
Firm
Residential $25,953 ($137)
Commercial 12,620 (3,713)
Industrial 1,526 (2,335)
Cogeneration & Electric Generation 448 (3,576)
Firm Transportation (3,457) (4,162)
------------- -------------
Total Firm 37,090 (13,923)
Interruptible 470 176
Interruptible Transportation (148) (207)
Off-System 7,876 (17,801)
Capacity Release & Storage 975 3,372
Other 1,352 (357)
------------- -------------
Total Operating Revenues $47,615 ($28,740)
============= =============
Throughput (MMcf):
Firm
Residential 2,126 30
Commercial 1,172 (331)
Industrial 222 (348)
Cogeneration & Electric Generation 320 (524)
Firm Transportation (1,448) 16
------------- -------------
Total Firm Throughput 2,392 (1,157)
Interruptible (225) 33
Interruptible Transportation (466) 464
Off-System (1,019) (7,250)
Capacity Release & Storage (455) 25,869
------------- -------------
Total Throughput 227 17,959
============= =============
</TABLE>
Gas Purchased for Resale
- ------------------------
Gas purchased for resale increased $39.9 million in 1996 compared with 1995
and decreased by $41.5 million in 1995 compared with 1994. Sources of gas supply
include both contract and open-market purchases. The principal causes are based
on price and volume changes as described under Operating Revenues. SJG is
------------------
responsible for securing and maintaining its own gas supplies to serve its
customers.
SJG has entered into long-term contracts for natural gas supplies, firm
transportation, and firm gas storage service. The earliest expiration of any of
these contracts is 1998. All of the transportation and storage service
agreements between SJG and its interstate pipeline suppliers are provided under
tariffs approved
14
<PAGE>
by the Federal Energy Regulatory Commission. SJG's cumulative obligation for
demand charges for all of these services is approximately $5.3 million per month
which is recovered on a current basis through its LGAC.
Operation and Maintenance
- -------------------------
A summary of net changes for the years ended December 31, 1996 and 1995
compared with the year preceding is as follows (in thousands):
<TABLE>
<CAPTION>
1996 vs. 1995 1995 vs. 1994
------------- -------------
<S> <C> <C>
Other Production Expense $ 171 $ (2)
Transmission 83 (32)
Distribution 474 15
Customer Accounts and Services 186 573
Sales (32) (36)
Administration and General (994) 2,930
Other (244) 17
------- -------
$ (356) $3,465
======= =======
</TABLE>
Distribution costs increased in 1996 principally due to greater
distribution main markout and leak survey activities. The 1996 reduction in
administrative and general costs was principally due to decreased data
processing, employee welfare and regulatory costs. Increased administrative and
general expense for 1995 was principally due to higher labor, employee welfare
and regulatory costs. The increase in employee welfare costs was principally
related to the recording of approximately $1.2 million of additional post-
retirement benefit costs other than pension. However, this cost is offset by
revenues as provided in SJG's 1994 rate increase (See Regulatory Matters).
------------------
Other Operating Expenses
- ------------------------
A summary of principal changes in other expenses for the years ended
December 31, 1996 and 1995 compared with the preceding year is as follows (in
thousands):
<TABLE>
<CAPTION>
1996 vs. 1995 1995 vs. 1994
------------- --------------
<S> <C> <C>
Depreciation 1,019 1,016
Federal Income Taxes - Net 1,349 2,172
Gross Receipts & Franchise
and Other Taxes 2,290 (1,321)
</TABLE>
Depreciation is higher in 1996 and 1995 principally due to increased
investment in property, plant and equipment by SJG.
15
<PAGE>
Federal Income Tax changes reflect the impact of changes in pre-tax income. The
changes in Gross Receipts & Franchise Taxes in 1996 and 1995 are due to changes
in volumes of gas sold, which are subject to those taxes.
In December 1994, the BPU ordered a $3.5 million customer refund which
resulted in an unfavorable impact of $2.3 million, net of taxes. Customers
received this refund through the 1994-1995 LGAC.
Interest and Other Charges
- --------------------------
Interest charges increased slightly in 1996 compared with 1995. The
increase is principally due to the effects of higher levels of short-term debt
outstanding, partially offset by lower levels of long-term debt outstanding and
LGAC overcollections. Interest charges increased by $4.9 million in 1995
compared with 1994, principally due to increased levels of long-term debt,
higher interest rates and levels of LGAC overcollections.
Net Income Applicable to Common Stock
- -------------------------------------
Net income (in thousands) and earnings per common share reflect the
following changes:
1996 vs. 1995 1995 vs. 1994
------------- -------------
Net Income Increase $3,402 $4,796
======= =======
Earnings per Share Increase $1.45 $2.05
======= =======
The details affecting the increase in net income and earnings per share are
discussed under the appropriate captions above.
Liquidity
- ---------
The seasonal nature of gas operations, the timing of construction and
remediation expenditures and related permanent financing, as well as mandated
tax and sinking fund payment dates require large short-term cash requirements.
These are generally met by cash from operations and short-term lines of credit.
SJG maintains short-term lines of credit with a number of banks, aggregating
$133.0 million at December 31, 1996. The credit lines are uncommitted and
unsecured with interest rates below the prime rate.
Depreciation and Amortization are non-cash charges to income and do not
-----------------------------
impact cash flow. Increases in depreciation cost reflect the effect of additions
to fixed assets.
16
<PAGE>
Increases in Revenues and Fuel Costs Deferred - Net reflect the impact of
--------------------------------------
overcollection of fuel costs or the recovery of previously deferred fuel costs.
Decreases reflect the impact of payments or credits to customers for amounts
previously overcollected or the undercollection of fuel costs resulting from
increases in natural gas costs.
Increases in Deferred and Non-Current Federal Income Taxes and Credits -
-----------------------------------------------------------
Net represent the excess of taxes accrued over amounts paid. Decreases reflect
- ---
the impact of taxes paid in excess of amounts accrued. Generally, deferred
income taxes related to deferred fuel costs will be paid in the next year.
Changes in Environmental Remediation Costs - Net represent the difference
-------------------------------------
between amounts collected under the RAC and through insurance recoveries, and
remediation expenditures.
Changes in Accounts Receivable are generally weather and price related.
-------------------
Increases generate cash flows when collected in subsequent periods.
Changes in Inventory reflect the impact of seasonal requirements,
---------
temperature and price changes.
Changes in Gross Receipts & Franchise Taxes reflect the impact of the
--------------------------------
excess of taxes paid over taxes accrued. However, there are significant timing
differences in cash flows during the year since SJG must pay the full year's tax
on April 1 of each year and amortize any prepaid tax over the remainder of the
year, on the basis of gas volumes sold. SJG uses short-term borrowings to make
these tax payments and, accordingly, this results in a temporary increase in the
short-term debt level. The carrying costs for these timing differences are
recognized in base utility rates.
Changes in Accounts Payable and Other Current Liabilities reflect the
----------------------------------------------
impact of timing differences between the accrual and payment of costs.
Regulatory Matters
On December 14, 1994, the BPU granted SJG a rate increase of $12.1 million
based on a 9.51 percent return on rate base, which included an 11.5 percent
return on equity. Nearly the entire increase came from the residential,
commercial and small industrial customer classes. In addition, SJG was allowed
to retain the first $4.0 million of combined pre-tax interruptible and off-
system margins and 20 percent of margins above that level.
On January 27, 1997, the BPU granted SJG a rate increase of $6.0 million
based on a rate of return of 9.62 percent including
17
<PAGE>
an 11.25 percent return on equity. As part of this rate increase, SJG is allowed
to retain the first $5.0 million of combined pre-tax margins generated by
interruptible and off-system sales and 20 percent of pre-tax margins generated
by sales above that level. In 1997 and 1998, this $5.0 million threshold will be
increased by the annual revenue requirement associated with completed major
construction projects. These sharing formula improvements are projected to
result in additional rate relief of approximately $1.4 million in 1997 and $1.8
million beginning in 1998. In 1997, SJG will file to recover additional post-
retirement benefit costs of approximately $1.1 million annually. This recovery
is expected to begin in 1998.
Rates of return are calculated by weighting SJG's individual capital cost
rates by the proportion of each respective type of capital. This requires the
selection of appropriate capital structure ratios and a determination of the
cost rate for each capital component which are determined in each rate
proceeding.
In setting a rate of return, the BPU must provide a utility and its
investors with a return that is commensurate with the risk to which the invested
capital is exposed so that the utility has access to the capital required to
meet its public service responsibility.
Also on January 27, 1997, the BPU approved SJG's request for a $2.5 million
revenue reduction through the TAC, which is the standard BPU procedure used to
credit customers with excess revenues, previously collected from customers,
which were in excess of allowed revenues determined under the TAC. See Energy
----------
Adjustment Clauses. This revenue reduction reflects the normal operation of the
- ------------------
TAC, as does the BPU's confirmation of the decrease.
In April 1996, SJG received BPU approval to increase its rates to recover
approximately $8.0 million of increased natural gas costs through the LGAC.
The adoption of FASB No. 109, "Accounting for Income Taxes" in 1993
primarily resulted in the creation of a regulatory asset and a deferred income
tax liability. As a result of positions taken in the 1994 rate case, the
amortization of the asset is being recovered through rates over an 18-year
period which began in December 1994. Also, FASB No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions", adopted by SJG in
1993, requires an accrual basis of accounting for retiree benefit payments
during the years of employment. SJG has elected to recognize the unfunded
transition obligation over a 20-year period which began in 1993. SJG had
previously recovered these costs through rates on a pay-as-you-go basis. A
December 1994 BPU order provided for partial recovery of costs associated with
FASB No. 106 and prescribes continued deferral of unrecovered costs. SJG was
initially seeking recovery of this asset in its current rate proceedings;
however, the BPU initiated a generic proceeding to address the recovery of these
costs by all utilities in the State. Also, beginning in 1995, an external trust
was established for the purpose of contributing costs recovered from ratepayers
resulting from a settlement with the BPU. Rate recovery in excess of SJG's pay-
as-you-go requirement is contributed to the trust and, therefore, provides no
operating benefit to SJG except to the extent that trust income would reduce
future net periodic cost. Contributions to the trust amounted to $2.1 million in
both 1996 and 1995. The balance of the regulatory asset amounted to $5.2 million
at December 31, 1996.
SJG has incurred and recorded certain costs for environmental remediation
of sites where SJG or predecessor companies operated gas manufacturing plants.
Manufactured gas operations were terminated at all SJG sites more than 30 years
ago.
Since the early 1980s, SJG recorded environmental remediation costs of
$70.8 million, of which $29.1 million has
18
<PAGE>
been expended as of December 31, 1996. SJG, with the assistance of an outside
consulting firm, estimates that total future expenditures to remediate the sites
will range from $41.7 million to $150.2 million. The lower end of this range
has been recorded as a liability and is reflected on the balance sheet under the
captions "Current Liabilities" and "Deferred Credits and Other Non-Current
Liabilities." Recorded environmental remediation costs do not directly affect
earnings because those costs are deferred and, when expended, recovered through
rates over 7-year amortization periods. Amounts accrued for future expenditures
have not been adjusted for future insurance recoveries, which management is
pursuing. SJG has received $4.2 million of insurance recoveries as of December
31, 1996. These proceeds were first used to offset legal fees incurred in
connection with those recoveries and the excess was used to reduce the balance
of deferred environmental remediation costs. Recorded amounts include estimated
costs to be incurred based on projected investigation and remediation work plans
using existing technologies. Actual expenditures could differ from the
estimates due to the long-term nature of the projects and changing technology,
government regulations and site specific requirements.
The Company has two regulatory assets associated with environmental cost.
The first regulatory asset is titled "Environmental Remediation Cost: Expended
- - Net". These expenditures represent actual cost incurred to remediate former
gas manufacturing plant sites. These costs meet the requirements of FAS 71
"Accounting for the Effects of Certain Types of Regulation". The BPU has allowed
recovery of these expenditures through July 1995 and a petition to recover these
costs through July 1996 is pending before the BPU.
The other regulatory asset titled "Environmental Remediation Cost:
Liability for Future Expenditures" relates to estimated future expenditures
determined under the guidance of FAS 5 "Accounting for Contingencies". This
amount, which relates to former manufactured gas plant sites has been recorded
as a deferred debit with the corresponding amount reflected in Current
Liabilities and Deferred Credits and Other Non-Current Liabilities, as
appropriate. The deferred debit is a regulatory asset under FAS 71 because the
BPU's intent, as evidenced by its current practice, is to provide recovery
sufficient in amount to recover the deferred costs after they have been
expended.
SJG has established a regulatory asset for these costs and is recovering
amounts expended over 7-year amortization periods, as authorized by the BPU. As
a result of the seven year recovery mechanism, SJG does not expense
environmental costs for former gas manufacturing sites when incurred and defers
costs to be recovered. Such deferral is disclosed on the Balance Sheet under the
caption "Deferred Debits". SJG makes annual filings with the BPU to recover
these costs in rates. The BPU has consistently allowed the full recovery over
such seven-year periods, and SJG believes the BPU will continue to do so. As of
December 31, 1996, SJG has unamortized remediation expenditures of $15.6 million
which are reflected on the balance sheet under the caption "Deferred Debits."
Since BPU approval of the RAC mechanism in August 1992, SJG has recovered $9.3
million through rates as of December 31, 1996.
SJG is subject to claims which arise in the ordinary course of its business
and other legal proceedings. A group of Atlantic City casinos filed a petition
with the BPU on January 16, 1996, alleging overcharges of over $10.0 million,
including interest. Management believes that charges to the casinos were based
on applicable tariffs and that the casinos were not qualified under less
expensive rate schedules, as claimed. Management believes that the ultimate
impact of these actions will not materially affect SJG's financial position or
results of operations.
Capital Resources
SJG has a continuing need for cash resources and capital, primarily to
invest in new and replacement facilities and equipment for the remediation of
former coal gas manufacturing sites. Total construction and remediation
expenditures for 1997 are estimated at $57.7 million. 1998 and 1999 costs are
estimated at approximately $65.0 million and $58.9 million, respectively. These
investments are expected to be funded from several sources, which may include
cash generated by operations, temporary use of short-term debt, sale of first
mortgage bonds, sale of preferred stock and capital leases. SJG's specific
19
<PAGE>
financing plans for 1997 include an expected equity investment of approximately
$25.6 million from SJI.
In January 1996, SJG redeemed a total of $5,258,000 of its 8-1/4% Series
First Mortgage Bonds maturing in 1996 and 1998. In April 1996, SJG redeemed the
remaining balance of its 9.2% Series First Mortgage Bonds due 1998, amounting to
$2,667,000. In January 1995, SJG issued $30.0 million of 8.6% Debenture Notes
maturing February 1, 2010.
Inflation
The ratemaking process provides that only the original cost of utility
plant is recoverable in revenues as depreciation. Therefore, the excess cost of
utility plant, stated in terms of current cost over the original cost of utility
plant, is not presently recoverable. While the ratemaking process gives no
recognition to the current cost of replacing utility plant, based on past
practices, SJG believes it will be allowed to earn on the increased cost of its
net investment as replacement of facilities actually occurs.
Summary
The company is confident it will have sufficient cash flow to meet its
operating, capital and dividend needs and is taking and will take such actions
necessary to employ its resources effectively.
Item 3. Properties.
The principal property of SJG consists of its gas transmission and
distribution systems that include mains, service connections and meters. The
transmission facilities carry the gas from the connections with Transco and
Columbia to SJG's distribution systems for delivery to customers. As of
December 31, 1996, there were approximately 343 miles of mains in the
transmission systems and 4,598 miles of mains in the distribution systems.
SJG owns office and service buildings, including its corporate
headquarters, at eight locations in the territory, a liquefied natural gas
storage and vaporization facility, and three propane-air vaporization plants.
As of December 31, 1996, the SJG utility plant had a gross book value of
$579,304,259 and a net book value, after accumulated depreciation, of
$421,621,668. In 1996, $39,385,175 was spent on additions to utility plant and
there were retirements of property having an aggregate gross book cost of
20
<PAGE>
$2,730,526. Construction expenditures for 1997 are currently expected to
approximate $48.3 million.
Virtually all of the SJG transmission pipeline, distribution mains and
service connections are in streets or highways or on the property of others. The
SJG transmission and distribution systems are maintained under franchises or
permits or rights-of-way, many of which are perpetual. The SJG properties
(other than property specifically excluded) are subject to a lien of mortgage
under which its first mortgage bonds are outstanding. Such properties are well-
maintained and in good operating condition.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
All issued and outstanding Common Stock of SJG is owned by South Jersey
Industries, Inc.
Item 5. Directors and Officers.
William F. Ryan is Chairman of the Board, President and Chief Executive
Officer of SJI. Has been a director since 1977. Age 62. Chairman of SJI's
Executive Committee. President of SJI since 1980, Chief Executive Officer since
1981 and Chairman of the Board since 1995; President of SJG since 1977, Chief
Executive Officer of SJG since 1981 and Chairman of the Board of SJG since April
1989; Chairman of the Board and Chief Executive Officer of Energy & Minerals,
Inc. ("EMI") since 1981; Chairman and Chief Executive Officer of R&T Group, Inc.
("R&T") since October 1989; director of South Jersey Energy Company ("Energy
Company") since 1973; director of New Jersey Manufacturers Insurance Company and
New Jersey Re-Insurance Company of West Trenton, NJ. (Each of EMI, R&T and
Energy Company are wholly-owned subsidiaries of SJI.)
Frank L. Bradley, Jr. has been a director since 1986. Age 71. Chairman of
SJG's and member of SJI's Executive Committees and member of SJG's and SJI's
Compensation/Pension Committees. Retired; formerly Chairman, President and CEO
(1988-1992), Chairman (1980-1988), of Stone & Webster Management Consultants,
Inc., New York, NY.
Anthony G. Dickson has been a director since 1995. Age 48. Member of SJG's
and SJI's Audit Committees and Management Development Committees and member of
SJI's Environmental Committee. President (1991 to date), Vice President (1984-
1991), of New Jersey Manufacturers Insurance Company and New Jersey Re-Insurance
Company, West Trenton, NJ; director of CoreStates New Jersey National Bank and
New Jersey National Corporation, Pennington, NJ; director of New Jersey State
Safety Council, Cranford, NJ; director Alliance of American Insurers,
Schaumburg, IL; trustee, Rider University.
21
<PAGE>
Richard L. Dunham has been a director since 1984. Age 67. Member of SJG's
and SJI's Executive Committees and Chairman of SJG's and SJI's
Compensation/Pension Committees. Retired;formerly Chairman (1988-1995),
President (1980-1988), of Zinder Companies, Inc. and affiliated companies,
economic and regulatory consulting firms, Washington, DC; Member (1986-1995) of
Advisory Council of Gas Research Institute, Chicago, Il; Former Chairman (1975-
1977) of the Federal Power Commission (now FERC), Washington, DC.
Peter M. Mitchell, Ph.D. has been a director since 1981. Age 62. Member of
SJG's and SJI's Executive Committees, Compensation/Pension Committees and
Management Development Committees. President Massachusetts Maritime Academy,
Buzzards Bay, MA (1994 to date); Vice Chancellor (1983-1994), Higher Education
Coordinating Council, formerly the Board of Regents of Higher Education, Boston,
MA; director, Banc Boston, Regional Board, Boston, MA.
Jackson Neall has been a director since 1990. Age 71. Member of SJG's
and SJI's Audit Committees and Management Development Committees. Retired;
former Real estate appraiser (1977-1992); registered builder (1989-1992); former
President of South Jersey Fuel, Inc.; director of Shore Memorial Hospital;
Chairman (1989 to date) of Shore Properties, Inc., Somers Point, NJ.
Shirli M. Vioni, Ph.D. has been a director since 1983. Age 56. Chairman of
SJG's and member of SJI's Audit Committees and Chairman of SJG's and SJI's
Management Development Committees. Superintendent, Oberlin City Schools (1994-
1996), Oberlin, OH; President, Billings-Vioni Management Associates (1990-1994),
Columbus OH, a human resource consulting firm; Director, Corporate Human
Resource Development (1987-1990), of Honeywell, Inc., Minneapolis, MN.
Executive Officers (Other Than Directors) of the Registrant
<TABLE>
<CAPTION>
Name Age Positions with SJG
---------------------------------------------------------
<S> <C> <C>
George L. Baulig 55 Secretary
Charles Biscieglia 52 Executive Vice
President, Chief
Operating Officer
Gerald S. Levitt 53 Executive Vice
President, Chief
Staff Officer
Albert V. Ruggiero 48 Vice President
William J. Smethurst, Jr. 50 Vice President and
Treasurer
</TABLE>
There is no family relationship among the officers of the registrant.
22
<PAGE>
George L. Baulig was elected Assistant Secretary of SJG and SJI from
September 1973 to May 1975 and Assistant Vice President of SJG from May 1975 to
May 1980. Effective May 1, 1980, he was elected Assistant Secretary and
Assistant Treasurer of SJG and SJI. Effective November 1, 1980, Mr. Baulig was
elected Secretary and Assistant Treasurer of SJI, SJG and EMI. Mr. Baulig also
serves as Secretary of R&T and SJE, effective October 1989 to date. He was
elected Secretary of SJG, effective April 18, 1996.
Charles Biscieglia was elected Assistant Vice President of SJG effective
May 1, 1981, Vice President effective November 1, 1983, Senior Vice President
effective May 1, 1987 and Executive Vice President, Chief Operating Officer
effective May 1, 1991.
Gerald S. Levitt was elected Vice President of SJI and Senior Vice
President of SJG effective November 1, 1983. He has served as Chief Financial
Officer of SJI since October 1, 1989. He was elected Executive Vice President
of SJG on November 1, 1986. Mr. Levitt was Vice President of EMI from November
1983 to November 1986. Mr. Levitt was also a member of the Board of Directors
of Morie Company from November 1986 to December 1995.
Albert V. Ruggiero was elected Vice President of SJG effective October 1,
1989.
William J. Smethurst, Jr. was elected Assistant Secretary and Assistant
Treasurer of SJG, EMI and SJI effective November 1, 1981, Treasurer and
Assistant Secretary of SJG effective November 1, 1983, Controller and Assistant
Secretary of SJG effective April 1, 1988 and Vice President, Treasurer and
Assistant Secretary of SJG effective April 23, 1992.
Executive officers of SJG are elected annually and serve at the pleasure of
the Board of Directors.
23
<PAGE>
Item 6. Executive Compensation.
EXECUTIVE COMPENSATION
Summary Compensation Table (1)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Annual Compensation
----------------------------
(a) (b) (c) (d) (e) (i)
Other All Other
Name and Principal Annual Compen-
Position Compen- sation
Year Salary Bonus sation(1) (3)(4)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
William F. Ryan, 1996 $405,000 - $13,903 $19,586
Chairman,
President and CEO
(2)
Gerald S. Levitt, 1996 167,000 - 872 9,555
Executive Vice
President and CSO
(2)
Charles 1996 159,500 - 359 9,504
Biscieglia,
Executive Vice
President, Chief
Operating Officer
Albert V. 1996 114,000 - - 4,212
Ruggiero, Vice
President
George L. Baulig, 1996 110,000 - - 7,030
Secretary (2)
- --------------------------------------------------------------------------------
</TABLE>
Footnotes to Summary Compensation Table
(1) Columns (f) (g) and (h) have been omitted from the table because no
long term compensation was awarded to, earned by or paid to the named executives
for any year covered by the table.
(2) Compensation is paid to the named executive officers in consideration
for services rendered for both SJG and SJI.
(3) The Internal Revenue Code limits the contributions that may be made by
or on behalf of an individual under defined contribution plans such as SJI's
Thrift Plan. SJI has adopted a policy of currently reimbursing its executive
officers with the
24
<PAGE>
amount of SJI contributions that may not be made because of this limitation
(including the tax liability incurred by the additional income). Pursuant to
this policy, Messrs. Ryan, Levitt, and Biscieglia were paid $13,903, $872 and
$359, respectively, in 1996, which amounts are included in column (e) of the
Summary Compensation Table.
(4) Column (i) includes Employer Contributions to Thrift Plan, income value
of group life insurance and increase in vested benefit level of deferred
compensation contract. 1996 values for these items are:
<TABLE>
<CAPTION>
Ryan Levitt Biscieglia Ruggiero Baulig
----- ------ ---------- -------- ------
<S> <C> <C> <C> <C> <C>
Thrift Plan $4,500 $4,500 $4,785 $3,420 $3,300
Group Life 9,547 1,930 1,834 792 1,248
Insurance
Deferred 5,539 3,125 2,885 - 2,482
Compensation
</TABLE>
Aggregated Option Exercises in Last Fiscal
Year and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of SJI
Securities Value
Underlying of Unexercised
Unexercised In-The-Money
Shares of Options at SJI Options at
SJI Acquired Value Fiscal Year-End Fiscal Year-End
Name on Exercise Realized All Exercisable All Exercisable
<S> <C> <C> <C> <C>
William F. Ryan - - 15,300 $99,187
Gerald S. Levitt 3,330 $19,298 - -
Charles Biscieglia 2,550 14,141 4,000 -
Albert V. Ruggiero - - 1,520 7,363
George L. Baulig - - 1,530 9,919
</TABLE>
In 1987, SJI adopted a stock option and stock appreciation rights plan for
its and its subsidiaries, officers and other key employees. Of the 304,475
options authorized, 87,750 options have been awarded. 53,780 of these awarded
options have been exercised.
SJI has employment agreements with certain officers of SJG, including
Messrs. Ryan, Levitt, Biscieglia, Ruggiero, Smethurst and Baulig. Each agreement
with officers other than Messrs. Ryan and Levitt is for a three-year
25
<PAGE>
period ending September 30, 1999, and provides for a base salary that will be
reviewed periodically, but will be not less than was being paid at the beginning
of the period. If a change of control (as defined in the agreement) occurs
during the period of the agreement, the agreement is automatically extended for
three years from the date the change of control occurs. If, during the extended
term of the agreement, the officer's employment is terminated for other than
cause, or he resigns after there has been a significant adverse change in his
employment arrangements, he is entitled to a severance payment equal to
300% of his average annual compensation during the preceding five calendar
years. If the officer's employment agreement is terminated for other than cause
without a change in control, he is entitled to a severance payment equal to 150%
of his average annual compensation during the preceding five calendar years.
The term of the three-year agreement with Mr. Levitt ends December 31, 1998. The
agreement with Mr. Ryan, which is for a five year term ending July 31, 1999,
provides a base salary of $375,000 to be reviewed annually. Mr. Ryan and his
spouse are entitled to the continuation of certain medical benefits after his
employment ends. The agreement may be terminated by SJI only for cause, death,
disability or retirement. Mr. Ryan may terminate the agreement if SJI makes
certain specified adverse changes in his employment arrangements such as
reducing his salary (other than in connection with company-wide reductions
applicable the companies' executives generally). If Mr. Ryan elects to terminate
the agreement and the adverse change has occurred after a change in control of
SJI, Mr. Ryan is entitled to a severance payment equal to 300% of his average
annual compensation during the three years preceding his termination. If Mr.
Ryan elects to terminate the agreement under these circumstances, except that
there has not been a change of control of SJI, Mr. Ryan is entitled to receive a
termination payment of $974,000. As part of these overall arrangements, Mr. Ryan
agreed to a five year contract term in order to address SJI's concern that he
remain available as chief executive officer to age 65, even though his
retirement benefit will be fully vested before that date.
Pension Plans For Executives
The following table illustrates the current retirement benefits under the
salaried employee pension plan, and the supplemental executive retirement plan,
assuming the executive was born in 1935 and retires at the normal retirement age
of 62.
26
<PAGE>
<TABLE>
<CAPTION>
Years of Service
Remuneration 15 20 25 30 35
40
- ------------ ---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$125,000 $ 23,518 $ 34,556 $ 47,056 $ 59,556 $ 59,556 $ 59,556
150,000 29,556 44,556 59,556 74,556 74,556 74,556
175,000 37,056 54,556 72,056 89,556 89,556 89,566
200,000 44,556 64,556 84,556 104,556 104,556 104,556
225,000 52,056 74,556 97,056 119,556 119,556 119,556
250,000 59,556 84,556 109,556 134,556 134,556 134,556
300,000 74,556 104,556 134,556 164,556 164,556 164,556
400,000 104,556 144,556 184,556 224,556 224,556 224,556
450,000 119,556 164,556 209,556 254,556 254,556 254,556
500,000 134,556 184,556 234,556 284,556 284,556 284,556
</TABLE>
As employees, the executive officers of SJI and its subsidiaries are
eligible for benefits under a tax-qualified pension plan for salaried employees
provided by SJI. Compensation considered under the pension plan consists of base
salary only, which in the case of the executive officers is equal to the cash
compensation reported in column (c) of the Summary Compensation Table.
Employees do not make contributions to the plan, and the employer
contributions (which are based on aggregate actuarial calculations without
individual allocation) are held and invested by insurance companies of
recognized standing until they are used to provide retirement benefits. Under
certain circumstances, early retirement with reduced annual benefits is
permitted (but not before age 55). Executive officers who are 50 years of age or
older are also covered by an unfunded supplemental retirement plan that is
designed in general to provide the officer with a minimum retirement benefit
from the salaried employee pension plan, the basic Social Security benefit and
the supplemental plan that aggregates 2% of average final five years salary (as
defined in the plan), for each year of service. Pursuant to Mr. Ryan's
agreement, he will retire at age 65 with 33 years of service and his retirement
benefit under the supplemental plan will be based on the average of his final
three years salary. Assuming continued employment and retirement at age 62,
Messrs. Biscieglia, Levitt, Ruggiero and Baulig will have, respectively, 38, 24,
21 and 44 years of credited service. No credit is provided under the
supplemental plan for more than 30 years of service.
COMPENSATION OF OUTSIDE DIRECTORS
- ---------------------------------
Directors of SJI who are not officers of SJI and who are not members of the
Executive Committee of the Board are paid an annual retainer of $7,500 plus 50
shares of restricted stock and fees of $950 per meeting for each meeting of the
Boards of SJI, SJG, EMI, R&T and Energy, respectively, that they attend, except
that the maximum fee paid to any person for attendance at one or more meetings
of these Boards held on the same day is $950. Members of the Executive Committee
of the Board who are not
27
<PAGE>
officers of SJI are paid an annual retainer of $10,000 plus 50 shares of common
stock and receive the same attendance fees as the other non-officer directors.
SJI has established a policy to recognize exceptional service to SJI beyond that
service normally provided by a board member. In 1996 no payments were made under
this policy. Directors who are also officers of SJI receive no compensation
other than their regular compensation. Members of all the Committees of SJI or
of a subsidiary are paid $475 for each meeting of those Committees that they
attend if the meeting is held on the same day as a Board meeting or $950 if the
meeting is held on any other day. Chairmen of each of those committees are paid
an additional $200 for each meeting of their Committee that they attend. In 1996
SJI established a Restricted Stock Program for Directors which is intended to
provide directors with a form of compensation that will, in a tangible way, more
closely align their personal interests with the financial interests of SJI's
shareholders. Initial grants were made to each incumbent director who has not
attained seventy years of age. Subsequent grants will be in the amount of 50
shares per year. SJI has established a plan whereby directors may elect to defer
the receipt of fees until a specified date or until retirement from the Board.
The deferred amount, together with interest, may be paid in a lump sum or in
equal annual installments, as the director elects.
Item 7. Certain Relationships and Related Transactions.
SJG and other subsidiaries of SJI have maintained banking relationships for a
number of years with The Farmers and Merchants National Bank of Bridgeton, of
which Mr. McCormick, a director of SJI, is Chairman, and a director, and expect
to continue such relationships. The highest aggregate indebtedness of SJG and
other subsidiaries of SJI to that bank during 1996 was $7,000,000 and the amount
of such indebtedness at December 31, 1996 was $5,000,000. Loans made to SJG and
other subsidiaries by that bank are made on terms that are usual and customary
at the time they are made. During 1996, SJI and its subsidiaries paid $412,580
in legal fees and expenses to the law firm of which Mr. Ryan's son-in-law,
Michael J. Fitzgerald, is a member. Mr. Ryan is a director of SJI. During 1996
SJG paid $255,139 for purchases of pipe and fittings from Seashore Supply
Company of which Mr. Raring, a director of SJI, is President. SJG believes such
amount is no more than it would have paid to an unaffilliated third-party.
Item 8. Legal Proceedings.
SJG and SJI are subject to claims which arise in the ordinary course of its
business and other legal proceedings. Included therewith, a group of Atlantic
City casinos have filed a petition with the BPU alleging overcharges of over $10
million, including interest. Management of SJG believes that any pending
28
<PAGE>
or potential legal proceedings will not materially affect its operations or
consolidated financial position. On January 27, 1997, the BPU granted SJG a
rate increase of $6.0 million based on an overall return of 9.62% including an
11.25% return on equity.
Item 9. Market Price of and Dividends on the Registrant's Common Equity and
Related Stockholder Matters.
There is no market for SJG's Common Stock. SJI owns all of the issued
and outstanding Common Stock of SJG. From time to time, at the discretion of
the Board of Directors of SJG, SJG pays dividends to SJI out of retained
earnings
Item 10. Recent Sales of Unregistered Securities.
$30,000,000 aggregate principal amount of Debenture Notes, 8.60% Series,
Due February 1, 2010 (the "Notes") were issued on January 31, 1995. The Notes
were sold in a private transaction to Prudential Securities Incorporated by
competitive bid. The Notes were later resold to qualified purchasers pursuant
to Rule 144A under the Securities Act of 1933, as amended (the "Securities
Act"). The aggregate offering price of the Notes was $29,472,300 in cash,
representing 98.241% of the face amount of the Notes. The Notes were offered
and sold pursuant to Section 4(2) of the Securities Act, being a transaction by
an issuer not involving any public offering. Solicitations to bid for the Notes
were sent to five bidders.
Item 11. Description of Registrant's Securities to be Registered.
Subject to certain rights of preferred shareholders at law and with
regard to certain corporate actions, holders of Common Stock shall posses
exclusively full voting power for the election of directors and for all other
purposes. Holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of the stockholders, including the election of
directors. SJG's Restated Certificate of Incorporation provides for cumulative
voting for the election of directors. Subject to preferential rights of any
shares of preferred stock which may be issued, the holders of Common Stock are
be entitled to such dividends as may be declared from time to time by the Board
of Directors from funds legally available therefor, and are entitled to receive
pro rata all assets of SJG available for distribution to such holders upon
liquidation. No holder of shares of Common Stock shall be entitled as of right
to subscribe for, purchase, or receive any part of any new or additional issue
of any stock of SJG of any class, series or kind, whatsoever, or any bonds,
debentures, or other securities convertible into any such stock, provided
however, that SJG shall not, without first offering the same to the holders of
Common Stock then
29
<PAGE>
outstanding, issue for cash any shares of Common Stock or securities convertible
into Common Stock unless such shares of Common Stock or convertible securities
are offered publicly or would not exceed 5% of the sum of the number of shares
Common Stock outstanding plus the number of shares of Common Stock issuable upon
conversion of all convertible securities, immediately after such offering.
Item 12. Indemnification of Directors and Officers.
Under Section 14A:3-5 of the New Jersey Business Corporation Act, SJG:
(1) has power to indemnify each director and officer of SJG (as
well as its employees and agents) against expenses and liabilities in
connection with any proceeding involving him by reason of his being or
having been such director or officer, other than a proceeding by or in the
right of SJG, if (a) such director of officer acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests
of SJG, and (b) with respect to any criminal proceeding, such director or
officer had no reasonable cause to believe his conduct was unlawful;
(2) has power to indemnify each director and officer of SJG against
expenses in connection with any proceeding by or in the right of SJG to
procure a judgment in its favor which involves such director or officer by
reason of his being or having been such director or officer, if he acted in
good faith and in a manner he reasonably believed to be in or not opposed
to the best interest of SJG; however, in such proceeding no indemnification
may be provided in respect to any claim, issue or matter as to which such
director or officer shall have been adjudged to be liable to SJG, unless
and only to the extent that the court determines that the director or
officer is fairly and reasonably entitled to indemnity for such expenses as
the court shall deem proper;
(3) must indemnify each director and officer against expenses to
the extent that he has been successful on the merits or otherwise in any
proceeding referred to in (1) and (2) above or in defense of any claim,
issue or matter therein; and
(4) has power to purchase and maintain insurance on behalf of a
director or officer against any expenses incurred in any proceeding and any
liabilities asserted against him by reason of his being or having been a
director or officer, whether or not SJG would have the power to indemnify
him against such expenses and liabilities under the statute.
30
<PAGE>
As used in the statute, "expenses" means reasonable costs,
disbursements and counsel fees, "liabilities" means amounts paid or
incurred in satisfaction of settlements, judgments, fines and penalties,
and "proceedings" means any pending, threatened or completed civil,
criminal, administrative or arbitrative action, suit or proceeding, and any
appeal therein and any inquiry or investigation which could lead to such
action, suit or proceeding.
Indemnification may be awarded by a court under (1) or (2) as well as
under (3) above, notwithstanding a prior determination by SJG that the
director or officer has not met the applicable standard of conduct.
Indemnification under the statute does not exclude any other rights to
which a director or officer may be entitled under a certificate of
incorporation, by-law, or otherwise.
Article VII of SJG's Bylaws provides, in pertinent part, as follows:
(1) SJG shall indemnify any corporate agent against his expenses and
liabilities in connection with any proceedings involving the corporate
agent by reason of his being or having been such a corporate agent to the
extent that (a) such corporate agent is not otherwise indemnified; and (b)
the power to do so has been or may be granted by statute; and for this
purpose the Board of Directors of SJG may, and on request of any such
corporate agent shall be required to, determine in each case whether or not
the applicable standards in any such statute have been met, or such
determination shall be made by independent legal counsel if the Board so
directs or if the Board is not empowered by statute to make such
determination;
(2) to the extent that the power to do so has been or may be granted
by statute, SJG shall pay expenses incurred by a corporate agent in
connection with a proceeding in advance of the final disposition of the
proceeding upon receipt of an undertaking by or on behalf of such corporate
agent to repay such amount unless it shall ultimately be determined that he
is entitled to be indemnified as provided by statute;
(3) the indemnification provided in SJG's Bylaws shall not be
exclusive of any other rights to which a corporate agent may be entitled,
both as to any action in his official capacity or as to any action in
another capacity while holding such office, and shall inure to the benefits
of the heirs, executors, or administrators of any such corporate agent; and
31
<PAGE>
(4) the Board of Directors of SJG shall have the power to (a) purchase
and maintain, at SJG's expense, insurance on behalf of SJG and on behalf of
others to the extent that power to do so has been or may be granted by
statute and (b) give other indemnification to the extent permitted by law.
SJI maintains and pays all premiums on directors and officers
liability insurance policies on behalf of its subsidiaries, including SJG
with a liability limit of $25,000,000.
Item 13. Financial Statements and Supplementary Data.
The Financial Statements required by this item are filed as part of this
Form 10. See Index to Financial Statement Information at page F-1 of this
Form 10. The Supplementary Data is not applicable.
Item 14. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
Item 15. Financial Statements and Exhibits.
(a) List separately all financial statements filed as part of the
Registration Statement.
The financial statements and notes to financial statements together
with the report thereon of Deloitte & Touche LLP, dated February 19,
1997.
(All Schedules are omitted because the information called for is
included in the financial statements filed or because they are not
applicable or are required.)
(b) Furnish the exhibits required by Item 601 of Regulation S-K (Exhibit
Number is in Accordance with the Exhibit Table in Item 601 of
Regulation S-K)
* - previously filed.
32
<PAGE>
<TABLE>
<CAPTION>
Exhibit Incorporated by Reference From
Number Exhibit Reference Document
<S> <C> <C> <C>
(3)(a) Certificate of Incorporation
of SJG*
(3)(b) Bylaws of SJG*
(4)(a) Form of Stock Certificate
for common stock*
(4)(b)(i) First Mortgage Indenture (4)(b)(i) Form 10-K of
dated October 1, 1947. SJI for 1987
(1-6364)
(4)(b)(ii) Form of South Jersey Gas (4)(b)(vii) Form 10-K of
Company First Mortgage SJI for 1980
Bond, 8-1/4% Series due 1996. (1-6364)
(4)(b)(iii) Form of South Jersey Gas (4)(b)(viii) Form 10-K of
Company First Mortgage SJI for 1980
Bond, 8-1/4% Series due 1998. (1-6364)
(4)(b)(iv) Twelfth Supplemental Inden- 5(b) Form S-7 of
ture, dated as of June 1, SJI (2-68038)
1980.
(4)(b)(v) Fifteenth Supplemental (4)(b)(xiii) Form 10-K of
Indenture, dated July SJI for 1986
1, 1986, 9.2% Series (1-6364)
due 1998.
(4)(b)(vi) Sixteenth Supplemental (4)(b)(xv) Form 10-Q of
Indenture dated as of SJI for
April 1, 1988, 10-1/4% quarter ended
Series due 2008. March 31,
1988 (1-6364)
(4)(b)(vii) Seventeenth Supplemental (4)(b)(xv) Form 10-K of
Indenture dated as of SJI for 1989
May 1, 1989. (1-6364)
(4)(b)(viii) Eighteenth Supplemental (4)(e) Form S-3 of
Indenture, dated as of SJI(33-36581)
March 1, 1990.
(4)(b)(ix) Nineteenth Supplemental (4)(b)(xvii) Form 10-K of
Indenture, dated as of SJI for 1992
April 1, 1992. (1-6364)
(4)(b)(x) Twentieth Supplemental (4)(b)(xviii) Form 10-K of
Indenture, dated as of SJI for 1993
June 1, 1993. (1-6364)
(4)(c) Indenture dated as of (4)(c) Form 10-K of
January 31, 1995; 8.60% SJI for 1994
Debenture Notes due (1-6364)
February 1, 2010
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Exhibit Incorporated by Reference From
Number Exhibit Reference Document
<S> <C> <C> <C>
(9) None
(10)(a) Gas storage agreement (GSS) (10)(d) Form 10-K of
between South Jersey Gas SJI for 1993
Company and Transco, (1-6364)
dated October 1, 1993.
(10)(b) Gas storage agreement (S-2) (5)(h) Form S-7 of
between South Jersey Gas SJI (2-56223)
Company and Transco,
dated December 16, 1953.
(10)(c) Gas storage agreement (LG-A) (5)(f) Form S-7 of
between South Jersey Gas SJI (2-56223)
Company and Transco,
dated June 3, 1974.
(10)(d) Gas storage agreement (WSS) (10)(h) Form 10-K of
between South Jersey Gas SJI for 1991
Company and Transco, dated (1-6364)
August 1, 1991.
(10)(e)(i) Gas storage agreement (LSS) (10)(i) Form 10-K of
between South Jersey Gas SJI for 1993
Company and Transco, (1-6364)
dated October 1, 1993.
(10)(e)(ii) Gas storage agreement (10)(i)(a) Form 10-K of
(SS-1) between South Jersey SJI for 1988
Gas Company and Transco, (1-6364)
dated May 10, 1987 (effective
April 1, 1988).
(10)(e)(iii) Gas storage agreement (10)(i)(b) Form 10-K of
(ESS) between South Jersey SJI for 1993
Gas Company and Transco, (1-6364)
dated November 1, 1993.
(10)(e)(iv) Gas transportation service (10)(i)(c) Form 10-K of
agreement between South SJI for 1989
Jersey Gas Company and (1-6364)
Transco, dated April 1, 1986.
(10)(e)(v) Service agreement (FS) (10)(i)(e) Form 10-K of
between South Jersey Gas SJI for 1991
Company and Transco, dated (1-6364)
August 1, 1991.
(10)(e)(vi) Service agreement (FT) (10)(i)(f) Form 10-K of
between South Jersey Gas SJI for 1991
Company and Transco, dated (1-6364)
February 1, 1992.
(10)(e)(vii) Service agreement (10)(i)(g) Form 10-K of
(Incremental FT) SJI for 1991
between South Jersey Gas (1-6364)
Company and Transco,
dated August 1, 1991.
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Exhibit Incorporated by Reference From
Number Exhibit Reference Document
<S> <C> <C> <C>
(10)(e)(viii) Gas storage agreement (SS-2) (10)(i)(i) Form 10-K of
between South Jersey Gas SJI for 1991
company and Transco, dated (1-6364)
July 25, 1990.
(10)(e)(ix) Gas Transportation (10)(i)(j) Form 10-K of
Service Agreement between SJI for 1993
South Jersey Gas Company (1-6364)
and Transco, dated
December 20, 1991.
(10)(e)(x) Amendment to Gas (10)(i)(k) Form 10-K of
Transportation Agreement, SJI for 1993
dated December 20, 1991 (1-6364)
between South Jersey Gas
Company and Transco, dated
October 5, 1993.
(10)(f) Gas Transportation Service (10)(j)(a) Form 10-K of
Agreement (FTS) between SJI for 1989
South Jersey Gas Company (1-6364)
and Equitable Gas Company,
dated November 1, 1986.
(10)(g)(i) Gas Transportation Service (10)(k)(h) Form 10-K of
Agreement (TF) between SJI for 1993
South Jersey Gas Company (1-6364)
CNG Transmission Corporation
dated October 1, 1993.
(10)(g)(ii) Gas purchase agreement (10)(k)(i) Form 10-K of
between South Jersey Gas SJI for 1989
Company and ARCO Gas Market- (1-6364)
ing, Inc., dated March 5,
1990.
(10)(g)(iii) Gas Transportation (10)(k)(k) Form 10-K of
Service Agreement (FTS SJI for 1993
1) between South Jersey (1-6364)
Gas Company and Columbia Gulf
Transmission Company, dated
November 1, 1993.
(10)(g)(iv) Assignment Agreement (10)(k)(i) Form 10-K of
capacity and service SJI for 1993
rights (FTS-2) between South (1-6364)
Jersey Gas Company and Columbia
Gulf Transmission Company,
dated November 1, 1993.
(10)(g)(v) FTS Service Agreement (10)(k)(m) Form 10-K of
No. 39556 between South SJI for 1993
Jersey Gas Company and (1-6364)
Columbia Gas Transmission
Corporation, dated
November 1, 1993.
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Exhibit Incorporated by Reference From
Number Exhibit Reference Document
<S> <C> <C> <C>
(10)(g)(vi) FTS Service Agreement (10)(k)(n) Form 10-K of
No. 38099 between South SJI for 1993
Jersey Gas Company and (1-6364)
Columbia Gas Transmission
Corporation, dated
November 1, 1993.
(10)(g)(vii) NTS Service Agreement (10)(k)(o) Form 10-K of
No. 39305 between South SJI for 1993
Jersey Gas Company and (1-6364)
Columbia Gas Transmission
Corporation, dated
November 1, 1993.
(10)(g)(viii) FSS Service Agreement (10)(k)(p) Form 10-K of
No. 38130 between South SJI for 1993
Jersey Gas Company and (1-6364)
Columbia Gas Transmission
Corporation, dated
November 1, 1993.
(10)(g)(ix) SST Service Agreement (10)(k)(q) Form 10-K of
No. 38086 between South SJI for 1993
Jersey Gas Company and (1-6364)
Columbia Gas Transmission
Corporation, dated
November 1, 1993.
(10)(g)(x) NS (Negotiated Sales) (10)(k)(r) Form 10-K of
Service Agreement dated SJI for 1994
December 1, 1994 between (1-6364)
South Jersey Gas Company
and Transco Gas Marketing
Company as agent for
Transcontinental Gas Pipe
Line
(10)(h)(i) Deferred Payment Plan for (10)(l) Form 10-K of
Directors of South Jersey SJI for 1994
Industries, Inc., South (1-6364)
Jersey Gas Company, Energy
& Minerals, Inc., R&T Group,
Inc. and South Jersey Energy
Company as amended and
restated October 21, 1994
(10)(h)(ii) Form of Deferred Compen- (10)(j)(a) Form 10-K of
sation Agreement between SJI for 1980
the Company and/or a sub- (1-6364)
sidiary and eleven of its
officers.
(10)(h)(iii) Schedule of Deferred (10)(l)(b) Form 10-K of
Compensation Agreements. SJI for 1992
(1-6364)
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Exhibit Incorporated by Reference From
Number Exhibit Reference Document
<S> <C> <C> <C>
(10)(h)(iv) Supplemental Executive (10)(l)(c) Form 10-K of
Retirement Program, as SJI for 1992
amended and restated ef- (1-6364)
fective September 1, 1991,
and form of Agreement
between certain Company
or subsidiary Company
officers
(10)(h)(v) Form of Officer Employment (10)(l)(d) Form 10-K of
Agreement between certain SJI for 1994
officers and either the (1-6364)
Company or its Subsidiaries
(10)(h)(vi) Schedule of Officer (10)(l)(e) Form 10-K of
Employment Agreements SJI for 1994
(1-6364)
(10)(h)(vii) Officer Severance Benefit (10)(l)(g) Form 10-K of
Program for all officers SJI for 1985
(1-6364)
(10)(h)(viii) Discretionary Incentive (10(l)(h) Form 10-K of
Bonus Program for all SJI for 1985
officers and management (1-6364)
employees
(10)(h)(ix) The 1987 Stock Option and (10)(l)(i) Form 10-K of
Stock Appreciation Rights SJI for 1987
Plan including Form of (1-6364)
Agreement
(10)(i) Retirement Plan for (10)(p) Form 10-K of
Non-employee Members of SJI for 1988
the Board of Directors (1-6364)
(10)(j) Executive Employment (10)(q) Form 10-K of
Agreement dated SJI for 1994
June 17, 1994 between (1-6364)
the Company and William
F. Ryan, President and
Chief Executive Officer
(11) Not Applicable
(12) Not Applicable
(16) Not Applicable
(21) Subsidiaries of the
Registrant: None.
(24) Not applicable.
(27) Financial Data Schedule*
(99) None
</TABLE>
37
<PAGE>
South Jersey Gas Company
------------------------
Index to Financial Statement Information
Independent Auditors' Report............................................. F-2
Balance Sheet as of December 31, 1996 and 1995........................... F-3
Statements of Income and Retained Earnings for the Years Ended
December 31, 1996, 1995 and 1994....................................... F-5
Statements of Cash Flows for the Years Ended December 31, 1996,
1995, 1994............................................................. F-6
Notes to Financial Statements............................................ F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholder and Board of Directors of
South Jersey Gas Company:
We have audited the balance sheet of South Jersey Gas Company as of
December 31, 1996 and 1995 and the related statements of income and retained
earnings and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of South Jersey Gas Company as of December 31,
1996 and 1995, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Philadelphia, PA 19103-3984
February 19, 1997
F-2
<PAGE>
SOUTH JERSEY GAS COMPANY
BALANCE SHEET
(In Thousands)
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
ASSETS
PROPERTY, PLANT AND EQUIPMENT: (Notes 1, 3 & 7)
Utility Plant, at original cost . . . . . . . . . . . . . $ 577,304 $ 540,649
Accumulated Depreciation. . . . . . . . . . . . . . . . (157,682) (145,954)
Gas Plant Acquisition Adjustment - Net. . . . . . . . . . 2,000 2,075
Property, Plant and Equipment - Net. . . . . . . . 421,622 396,770
CURRENT ASSETS:
Cash & Cash Equivalents (Notes 1 & 9) . . . . . . . . . . 7,469 2,193
Accounts Receivable:
Customers (Note 3). . . . . . . . . . . . . . . . . . . 28,733 25,454
Unbilled Revenues (Note 1). . . . . . . . . . . . . . . 17,855 20,860
Merchandise . . . . . . . . . . . . . . . . . . . . . . 2,260 2,433
Other . . . . . . . . . . . . . . . . . . . . . . . . . 508 4,869
Provision for Uncollectibles. . . . . . . . . . . . . . (1,032) (737)
Natural Gas in Storage, average cost. . . . . . . . . . . 22,638 14,763
Materials and Supplies, average cost. . . . . . . . . . . 4,055 3,842
Prepaid Gross Receipts and Franchise Taxes (Notes 2 & 6). 1,602 3,649
Prepayments and Other . . . . . . . . . . . . . . . . . . 1,562 2,012
Total Current Assets . . . . . . . . . . . . . . . 85,650 79,338
ACCOUNTS RECEIVABLE - Merchandise. . . . . . . . . . . . . . 1,999 2,305
DEFERRED DEBITS:
Environmental Remediation Costs: (Note 12)
Expended - Net. . . . . . . . . . . . . . . . . . . . . 15,566 11,773
Liability for Future Expenditures . . . . . . . . . . . 41,700 24,823
Gross Receipts and Franchise Taxes (Note 6) . . . . . . . 4,468 4,868
Income Taxes - Flowthrough Depreciation (Note 6). . . . . 14,977 15,955
Deferred Postretirement Benefit Costs (Notes 2 & 11). . . 5,153 4,726
Deferred Fuel Costs . . . . . . . . . . . . . . . . . . . 404 0
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 8,387 9,392
Total Deferred Debits. . . . . . . . . . . . . . . 90,655 71,537
TOTAL . . . . . . . . . . . . . . . . . . . . $ 599,926 $ 549,950
</TABLE>
The accompanying notes to the financial statements are an integral part
of these statements.
F-3
<PAGE>
SOUTH JERSEY GAS COMPANY
BALANCE SHEET
(In Thousands Except for Share Data)
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
SHAREHOLDER'S EQUITY AND LIABILITIES
COMMON EQUITY: (Notes 10 & 13)
Common Stock, Par Value $2.50 a share:
Authorized - 4,000,000 shares
Outstanding - 2,339,139 shares . . . . . . . . . . . . $ 5,848 $ 5,848
Other Paid-In Capital and Premium on
Common Stock . . . . . . . . . . . . . . . . . . . . . 77,194 77,194
Retained Earnings . . . . . . . . . . . . . . . . . . . . 51,522 47,364
Total Common Equity. . . . . . . . . . . . . . . . 134,564 130,406
REDEEMABLE CUMULATIVE PREFERRED STOCK: (Note 4)
Par Value $100 a share,
Authorized 48,204 and 49,104 shares, respectively
Outstanding:
Series A, 4.70% - 3,900 and 4,800 shares. . . . . . . 390 480
Series B, 8.00% - 19,242 shares. . . . . . . . . . . . 1,924 1,924
Total Preferred Stock. . . . . . . . . . . . . . . 2,314 2,404
LONG-TERM DEBT (Notes 7 & 8) . . . . . . . . . . . . . . . . 149,736 156,784
CURRENT LIABILITIES:
Notes Payable to Banks. . . . . . . . . . . . . . . . . . 108,300 76,300
Current Maturities of Long-Term Debt (Note 7) . . . . . . 6,603 11,811
Accounts Payable (Note 3) . . . . . . . . . . . . . . . . 48,347 39,235
Customer Deposits . . . . . . . . . . . . . . . . . . . . 6,050 5,707
Environmental Remediation Costs (Note 12) . . . . . . . . 9,377 7,025
Interest and Other Accrued Current Liabilities. . . . . . 2,161 5,631
Total Current Liabilities. . . . . . . . . . . . . 180,838 145,709
DEFERRED CREDITS AND OTHER NON-CURRENT LIABILITIES:
Deferred Income Taxes - Net (Notes 5 & 6) . . . . . . . . 78,415 68,010
Investment Tax Credits (Note 6) . . . . . . . . . . . . . 6,025 6,417
Deferred Revenues: (Note 1) 0 7,315
Pension and Other Postretirement Benefits (Note 11) . . . 9,551 8,366
Environmental Remediation Costs (Note 12) . . . . . . . . 32,323 17,798
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 6,160 6,741
Total Deferred Credits
and Other Non-Current Liabilities. . . . . . . . 132,474 114,647
COMMITMENTS AND CONTINGENCIES (Note 12)
TOTAL . . . . . . . . . . . . . . . . . . . . $ 599,926 $ 549,950
</TABLE>
The accompanying notes to the financial statements are an integral part
of these statements.
F-4
<PAGE>
SOUTH JERSEY GAS COMPANY
STATEMENTS OF INCOME AND RETAINED EARNINGS
(In Thousands Except for Share Data)
<TABLE>
<CAPTION>
Year Ended
December 31,
1996 1995 1994
<S> <C> <C> <C>
OPERATING REVENUES:
Utility (Notes 1 & 3) . . . . . . . . . . . . . . . $ 327,317 $ 279,764 $ 308,253
Other . . . . . . . . . . . . . . . . . . . . . . . 3,018 2,955 3,206
Total Operating Revenues . . . . . . . . . . . . 330,335 282,719 311,459
OPERATING EXPENSES:
Gas Purchased for Resale. . . . . . . . . . . . . . 186,141 146,238 187,745
Operation - Utility . . . . . . . . . . . . . . . . 38,413 38,772 35,393
- Other . . . . . . . . . . . . . . . . . 2,240 2,484 2,467
Maintenance . . . . . . . . . . . . . . . . . . . . 5,405 5,158 5,089
Depreciation (Note 1) . . . . . . . . . . . . . . . 14,839 13,820 12,804
Federal Income Taxes (Notes 1 & 5). . . . . . . . . 640 5,238 8,833
Deferred and Non-current Federal
Income Taxes (Credits) (Notes 1 & 5) . . . . . . . 10,379 4,430 (1,350)
Investment Tax Credit Deferred - Net (Note 6) . . . (392) (390) (377)
Gross Receipts and Franchise Taxes (Note 6) . . . . 31,419 29,115 30,376
Other Taxes . . . . . . . . . . . . . . . . . . . . 2,402 2,416 2,476
Total Operating Expenses . . . . . . . . . . . . 291,486 247,281 283,456
OPERATING INCOME . . . . . . . . . . . . . . . . . . . 38,849 35,438 28,003
INTEREST CHARGES (Note 1). . . . . . . . . . . . . . . 19,460 19,447 14,528
CUSTOMER REFUND OBLIGATION - NET (Notes 2 & 5) . . . . 0 0 2,275
INCOME BEFORE PREFERRED STOCK DIVIDEND REQUIREMENTS. . 19,389 15,991 11,200
PREFERRED STOCK DIVIDEND REQUIREMENTS. . . . . . . . . 174 178 183
NET INCOME APPLICABLE TO COMMON STOCK. . . . . . . . . 19,215 15,813 11,017
RETAINED EARNINGS AT BEGINNING OF YEAR . . . . . . . . 47,364 47,551 50,071
TOTAL. . . . . . . . . . . . . . . . . . . . . . 66,579 63,364 61,088
COMMON STOCK DIVIDENDS DECLARED. . . . . . . . . . . . 15,057 16,000 13,537
RETAINED EARNINGS AT END OF YEAR (Note 10) . . . . . . $ 51,522 $ 47,364 $ 47,551
AVERAGE SHARES OF COMMON STOCK OUTSTANDING . . . . . . 2,339,139 2,339,139 2,339,139
EARNINGS PER COMMON SHARE. . . . . . . . . . . . . . . $ 8.21 $ 6.76 $ 4.71
DIVIDENDS PAID PER COMMON SHARE. . . . . . . . . . . . $ 6.437 $ 6.840 $ 5.787
</TABLE>
The accompanying notes to the financial statements are an integral part
of these statements.
F-5
<PAGE>
SOUTH JERSEY GAS COMPANY
STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Year Ended
December 31,
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income Applicable to Common Stock. . . . . . . . .$ 19,215 $ 15,813 $ 11,017
Adjustments to Reconcile Net Income to Cash Flows
Provided by Operating Activities:
Depreciation and Amortization. . . . . . . . . . . . 17,540 16,672 14,741
Provision for Losses on Accounts Receivable. . . . . 1,615 1,275 1,166
Revenues and Fuel Costs Deferred - Net . . . . . . . (7,719) (5,523) 18,183
Deferred and Non-Current Federal Income Taxes
and Credits - Net . . . . . . . . . . . . . . . . . 9,987 4,040 (1,727)
Environmental Remediation Costs - Net. . . . . . . . (3,793) 1,588 609
Changes in:
Accounts Receivable. . . . . . . . . . . . . . . . 2,940 (15,046) 809
Inventories. . . . . . . . . . . . . . . . . . . . (8,088) 2,423 (5,754)
Prepayments and Other Current Assets . . . . . . . 450 (394) 3,380
Accounts Payable and Other Accrued Liabilities . . 5,985 8,910 4,411
Prepaid Gross Receipts and Franchise Taxes - Net . 2,047 (3,845) (13,276)
Other - Net. . . . . . . . . . . . . . . . . . . . . 871 4,875 (2,140)
Net Cash Provided by Operating Activities. . . . . . . 41,050 30,788 31,419
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures, Cost of Removal & Salvage. . . . (40,371) (40,978) (36,119)
Net Cash Used in Investing Activities. . . . . . . . . (40,371) (40,978) (36,119)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Borrowings from (Repayments of) Lines of Credit. . 32,000 (3,900) (950)
Principal Repayments of Long-Term Debt . . . . . . . . (12,256) (6,851) (5,570)
Dividends on Common Stock. . . . . . . . . . . . . . . (15,057) (16,000) (13,537)
Repurchase of Preferred Stock. . . . . . . . . . . . . (90) (90) (90)
Proceeds from Sale of Long-Term Debt . . . . . . . . . 0 30,000 15,000
Additional Investment by Shareholder . . . . . . . . . 0 6,000 10,000
Net Cash Provided by Financing Activities. . . . . . . 4,597 9,159 4,853
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . 5,276 (1,031) 153
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . 2,193 3,224 3,071
CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . .$ 7,469 $ 2,193 $ 3,224
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest (Net of Amounts Applicable to LGAC
Overcollections and Amounts Capitalized). . . . .$ 19,985 $ 16,632 $ 15,427
Income Taxes (Net of Refunds). . . . . . . . . . .$ 1,733 $ 5,976 $ 4,023
</TABLE>
The accompanying notes to the financial statements are an integral part
of these statements.
F-6
<PAGE>
SOUTH JERSEY GAS COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Entity - These financial statements present the accounts of
South Jersey Gas Company (SJG). SJG has no subsidiaries. South
Jersey Industries, Inc. (Industries) owns all of the outstanding common
stock of SJG. Certain reclassifications have been made of previously
reported amounts to conform with classifications used in the current year.
Estimates and Assumptions - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and related disclosures. Therefore,
actual results could differ from those estimates.
Regulation - SJG is subject to the rules and regulations of the New
Jersey Board of Public Utilities (BPU) and maintains its accounts in
accordance with the prescribed Uniform System of Accounts of that Board
(See Notes 2 & 13).
Utility Revenues - SJG bills most of its customers on a monthly cycle
basis, although certain commercial and industrial customers are billed at
or near the end of each month. An accrual is made to recognize the unbilled
revenues from the date of the last bill to the end of period.
In accordance with a BPU order, SJG is allowed to recover the excess
cost of gas sold over the cost included in base rates through the Levelized
Gas Adjustment Clause (LGAC). This collection is made on a forecasted basis
upon BPU order. Under-recoveries and over-recoveries of gas costs are
deferred and included in the determination of the following year's LGAC.
Interest is paid on overcollected LGAC balances based on SJG's return on
rate base as determined in its base rate proceedings.
SJG's tariff also includes a Temperature Adjustment Clause (TAC) and a
Remediation Adjustment Clause (RAC). These clauses are designed to reduce
the impact of extreme fluctuations in temperatures on SJG and its
customers, and recover costs incurred in the remediation of former gas
manufacturing plants, respectively. TAC adjustments affect revenue, income
and cash flows since extremely cold weather can generate credits to
customers, while extremely warm weather during the winter season can result
in additional billings to customers (See Note 13). RAC adjustments do not
directly affect earnings because costs are deferred and recovered through
rates over 7-year amortization periods (See Note 12).
Property, Plant & Equipment - Utility plant is stated at original cost
as defined for regulatory purposes.
F-7
<PAGE>
SOUTH JERSEY GAS COMPANY
NOTES TO FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
The cost of additions, replacements and renewals of property is charged to
the appropriate plant account.
Utility plant by major classes as December 31, 1996 and 1995 is as follows
(in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Utility Plant:
Production Plant $ 996 $ 993
Storage Plant 8,092 7,979
Transmission Plant 61,169 59,102
Distribution Plant 477,968 445,305
General Plant 25,142 24,578
Intangible Plant 181 181
-------- --------
Utility Plant in Service 573,548 538,138
Construction Work in Progress 2,434 1,189
Gas Stored - Base Gas 1,322 1,322
-------- --------
Total Utility Plant $577,304 $540,649
======== ========
</TABLE>
Depreciation and Amortization - Depreciation of gas utility plant is
provided on a straight-line basis over the estimated remaining lives of the
various classes of property. These estimates are periodically reviewed and
adjustments are made as required after BPU approval. The composite rate per
annum for all depreciable utility property was approximately 2.8% in 1996,
1995 and 1994. Generally, with the exception of extraordinary retirements,
accumulated depreciation is charged with the cost of depreciable utility
property retired, together with removal costs less salvage. The gas plant
acquisition adjustment is being amortized on a straight-line basis over a
40-year period. The unamortized balance amounting to $2.0 million at
December 31, 1996 is not included in rate base.
New Accounting Pronouncement - In March 1995, the Financial Accounting
Standards Board (FASB) issued FASB No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". SJG
adopted this statement in 1996. It requires that long-lived assets be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The
adoption of FASB No. 121 had no impact on the financial statements.
Federal Income Taxes - Deferred Income Taxes are provided for
temporary differences between book and taxable income (See Notes 5 & 6).
Statements of Cash Flows - For purposes of reporting cash flows, all
highly liquid investments with original maturities of three months or less
are considered cash equivalents.
2. RECENT REGULATORY ACTIONS:
On December 14, 1994, the BPU granted SJG a rate increase of $12.1
million based on a 9.51% rate of return on rate base, which included an
11.5% return on equity. Nearly the entire amount of the increase comes from
the residential, commercial and small industrial customer classes. In
addition, SJG is allowed to retain the first $4.0 million of pre-tax
interruptible and off-system margins combined and 20% of margins above that
level. As part of the tariff changes approved, SJG also implemented tariffs
which give large industrial and commercial customers more opportunities to
manage their own gas supplies. These changes do not have a negative impact
on SJG's net income.
F-8
<PAGE>
SOUTH JERSEY GAS COMPANY
NOTES TO FINANCIAL STATEMENTS
(Continued)
2. RECENT REGULATORY ACTIONS: (Continued)
In December 1994, the BPU ordered a $3.5 million customer refund which
resulted in an unfavorable impact of $2.3 million (net of taxes), or $0.97
per share, in 1994 net income. This refund was part of a global settlement
which expedited the resolution of a series of matters pending before the
BPU, including SJG's 1994 rate case and 1993-1994 LGAC. Customers received
the $3.5 million refund through the 1994-1995 LGAC.
On April 10, 1996, SJG received approval from the BPU to increase its
rates by approximately $8.0 million, or 2.9%, through its LGAC. The primary
reason for the LGAC increase was higher natural gas costs incurred by the
Company during November and December 1995 due to weather that was colder
than normal. The BPU also approved an agreement among the parties to the
case that the renegotiations of its gas supply agreements were reasonable
and that the parties will not challenge the reasonableness or prudence of
the agreements as originally made or as renegotiated.
On June 20, 1996, SJG received approval from the BPU to recover
environmental remediation costs incurred during the two-year period ended
July 31, 1995 totaling $1.5 million, net of insurance recoveries (See
Note 12).
On September 6, 1996, SJG made its annual LGAC and TAC filings with
the BPU. SJG proposed a decrease to the LGAC of $1.4 million. In addition,
a credit resulting from the TAC of $2.5 million was filed and, on January
27, 1997, the BPU approved a revenue reduction for this credit (See Note
13). Also filed with the BPU on September 6, 1996, was an update to SJG's
RAC which proposed an increase of approximately $655,000.
3. RELATED PARTY TRANSACTIONS:
SJG has contracted with R & T Group, Inc., a wholly owned subsidiary
of Industries, for general utility construction and environmental
remediation services costing approximately $7,257,800, $6,852,700 and
$6,187,200 for the years ended December 31, 1996, 1995 and 1994,
respectively. The amount payable to R & T Group, Inc. relating to these
services was $1,445,100 and $902,700 at December 31, 1996 and 1995,
respectively.
SJG engages in sales of natural gas for resale pursuant to Section
284.402 of the Regulations of the Federal Energy Regulatory Commission
which included sales to South Jersey Energy Company (SJE) and South Jersey
Fuel Company (SJF), affiliates by common ownership of Industries. Sales to
SJE approximated $339,700, $2,365,400 and $13,311,200 for the years ended
December 31, 1996, 1995 and 1994, respectively. The amount due from SJE
relating to these sales was $771,800
F-9
<PAGE>
SOUTH JERSEY GAS COMPANY
NOTES TO FINANCIAL STATEMENTS
(Continued)
3. RELATED PARTY TRANSACTIONS: (Continued)
at December 31, 1995. SJG began engaging in sales with SJF during December
1995. Such sales approximated $663,800 and $25,000 for the years ended
December 31, 1996 and 1995, respectively.
4. REDEEMABLE CUMULATIVE PREFERRED STOCK:
The shares of Cumulative Preferred Stock, Series A and Series B, are
redeemable at the option of SJG in whole or in part, plus accrued
dividends, at a premium of 1.5% of par value on the Series A shares and at
par value on the Series B shares.
SJG is required to offer annually to purchase 900 and 1,500 shares of
its Cumulative Preferred Stock, Series A and Series B, respectively, at par
value, plus accrued dividends.
If preferred stock dividends are in arrears, no dividends may be
declared or paid, or other distribution made on the Common Stock of SJG. If
four or more quarterly dividends are in arrears, the Preferred Shareholders
may elect a majority of SJG's Directors.
5. FEDERAL INCOME TAXES:
SJG is included in the consolidated Federal Income tax return filed by
Industries. The actual taxes, including credits, are allocated by
Industries to its subsidiaries generally on a separate return basis. Income
tax expense applicable to operations differs from the tax that would have
resulted by applying the statutory rate to income from operations before
Federal Income Tax for the following reasons (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Tax at Statutory Rate $10,506 $ 8,844 $ 7,203
Increase (Decrease)
Resulting from:
Amortization of Investment
Tax Credits (ITC) (392) (390) (377)
Liberalized Depreciation
Under Book Depreciation
on Utility Plant 664 664 264
Other - Net (151) 160 16
Subtotal 10,627 9,278 7,106
Tax on Customer
Refund Obligation 0 0 (1,225)
Net Federal Income Taxes $10,627 $ 9,278 $ 5,881
======= ======= =======
</TABLE>
F-10
<PAGE>
SOUTH JERSEY GAS COMPANY
NOTES TO FINANCIAL STATEMENTS
(Continued)
5. FEDERAL INCOME TAXES: (Continued)
The provision for Federal Income Taxes is comprised of the following
(in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current $ 640 $ 5,238 $ 8,833
Deferred:
Excess of Tax Depreciation
Over Book Depreciation - Net 4,608 4,262 3,787
Deferred Fuel Costs 3,340 1,380 (5,536)
Environmental Remediation
Costs - Net 1,214 (556) (207)
Amortization of Gross
Receipts Taxes (140) (136) (136)
Alternative Minimum Tax 1,929 0 380
Other - Net (572) (520) 362
Total Deferred 10,379 4,430 (1,350)
ITC (392) (390) (377)
Tax on Customer Refund
Obligation 0 0 (1,225)
Net Federal Income Taxes $10,627 $ 9,278 $ 5,881
======= ======= =======
</TABLE>
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of SJG's net deferred tax liability at December 31,
1996 and 1995, are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred Tax Liabilities:
Tax Depreciation over
Book Depreciation $60,123 $57,071
Difference between Book and
Tax Basis of Property 5,215 4,756
Deferred Fuel Costs 4,720 1,380
Deferred Regulatory Costs 1,189 1,335
Environmental Remediation Costs 5,332 4,118
Excess Protected 3,550 3,632
</TABLE>
F-11
<PAGE>
SOUTH JERSEY GAS COMPANY
NOTES TO FINANCIAL STATEMENTS
(Continued)
5. FEDERAL INCOME TAXES: (Continued)
<TABLE>
<S> <C> <C>
Gross Receipts Taxes 1,564 1,704
Other 1,984 2,214
Total Deferred
Tax Liabilities 83,677 76,210
Deferred Tax Assets:
Alternative Minimum Tax 694 3,192
ITC Basis Gross Up 3,207 3,409
Other 1,361 1,599
Total Deferred Tax Assets 5,262 8,200
Net Deferred Tax Liability $78,415 $68,010
======= =======
</TABLE>
As of December 31, 1996 and 1995, income taxes due from Industries
were approximately $2,387,700 and $491,000, respectively.
6. DEFERRED DEBITS AND CREDITS - FEDERAL AND OTHER TAXES:
The primary asset created as a result of adopting FASB No. 109,
"Accounting for Income Taxes", was income taxes - flowthrough depreciation
in the amount of $17.6 million as of January 1, 1993. This amount
represented the recording of the net tax effect of excess liberalized
depreciation over book depreciation on utility plant because of temporary
differences for which, prior to FASB No. 109, deferred taxes had not
previously been provided. These tax benefits were previously flowed through
in rates. As a result of positions taken in the 1994 rate case, the
amortization of the asset is being recovered through rates over an 18-year
period which began in December 1994.
The ITC attributable to SJG were deferred and continue to be amortized
at the annual rate of 3%, which approximates the life of the related
assets.
Effective March 1, 1978, SJG began and continued to accrue through
1991 for Gross Receipts and Franchise Taxes (GRAFT) on current revenues
rather than on the previous basis of prior period revenues. The one-time
increase resulting from this change has been deferred and is being
amortized on a straight-line basis to operations over a 30-year period. In
June 1991, New Jersey adopted GRAFT legislation
F-12
<PAGE>
SOUTH JERSEY GAS COMPANY
NOTES TO FINANCIAL STATEMENTS
(Continued)
6. DEFERRED DEBITS AND CREDITS - FEDERAL AND OTHER TAXES:
(Continued)
accelerating tax payments, the carrying costs on which are being recovered
from ratepayers. The legislation also changed the basis to gas volumes
rather than percentage of revenue.
7. LONG-TERM DEBT: (A)
<TABLE>
<CAPTION>
Principal Outstanding
December 31,
(In Thousands)
1996 1995
<S> <C> <C>
First Mortgage Bonds: (B)
8 1/4% Series due 1996 (C). . . . $ 0 $ 1,998
8 1/4% Series due 1998 (C). . . . 0 3,260
9.2% Series due 1998 (D). . . . 0 2,667
8.19% Series due 2007. . . . . . 25,000 25,000
10 1/4% Series due 2008. . . . . . 25,000 25,000
9% Series due 2010. . . . . . 30,625 32,813
6.95% Series due 2013. . . . . . 35,000 35,000
Unsecured Notes:
Term Note, 8.47% due 2001 (E). . . 10,714 12,857
Debenture Notes, 8.6% due 2010 . . 30,000 30,000
Total Long-Term Debt Outstanding . . 156,339 168,595
Less Current Maturities. . . . . . . 6,603 11,811
Long-Term Debt . . . . . . . . . . . $149,736 $156,784
======== ========
</TABLE>
(A) Long-Term Debt Maturities and Sinking Fund Requirements for the
succeeding five years as of December 31, 1996, are as follows: 1997,
$6,603,357; 1998, $8,876,357; 1999, $8,876,357; 2000, $8,876,357; and
2001, $11,876,358.
(B) SJG's First Mortgage dated October 1, 1947, as supplemented, securing
the First Mortgage Bonds constitutes a direct first mortgage lien on
substantially all utility plant. The First Mortgage Bonds also require
an annual replacement fund, which may be met by the deposit of cash
funds with the Trustee or by the utilization of bondable property
additions at 166.67% of cash requirements. SJG expects to continue
to satisfy this requirement with property additions in each of the
next five years.
(C) On January 31, 1996, SJG redeemed $1,998,000 of its 8 1/4% Series
First Mortgage Bonds due 1996, without premium, and $3,260,000 of its
8 1/4% Series First Mortgage Bonds due 1998, with a premium of
$22,168.
F-13
<PAGE>
SOUTH JERSEY GAS COMPANY
NOTES TO FINANCIAL STATEMENTS
(Continued)
7. LONG-TERM DEBT: (Continued)
(D) On April 1, 1996, SJG redeemed $2,666,668 of its 9.2% Series First
Mortgage Bonds due 1998, with a premium of $62,874.
(E) An additional $5,000,000 revolving credit facility is available under
the terms of this agreement.
8. FINANCIAL INSTRUMENTS:
Long-Term Debt - The fair values of SJG's long-term debt, including
current maturities, as of December 31, 1996 and 1995, are estimated to be
$166.6 million and $189.1 million, respectively, (carrying amounts $156.3
million and $168.6 million, respectively). They are estimated based on the
interest rates available to SJG at each respective balance sheet date for
debt with similar terms and remaining maturities. SJG retires higher cost
debt whenever it is cost effective to do so within the constraints of the
respective debt covenants.
Other Financial Instruments - The carrying amounts of SJG's other
financial instruments approximate their fair values at December 31, 1996
and 1995, respectively.
9. UNUSED LINES OF CREDIT AND COMPENSATING BALANCES:
Unused lines of credit available at December 31, 1996 were
$24,700,000. Borrowings under these lines of credit are at market rates
which approximated 5.85% and 6.0% at December 31, 1996 and 1995,
respectively. Demand deposits are maintained with lending banks on an
informal basis and do not constitute compensating balances.
10. SHAREHOLDER'S EQUITY:
SJG is restricted under its First Mortgage Indenture, as supplemented,
as to the amount of cash dividends or other distributions that may be paid
on its common stock. SJG had retained earnings free of such restriction of
approximately $49,511,200 at December 31, 1996.
On February 28, 1995 and July 29, 1994, SJG received $6.0 million and
$10.0 million, respectively, as contributions of capital from Industries.
Contributions of capital are credited to Other Paid-In Capital and Premium
on Common Stock. There have been no other changes in Common Stock or Other
Paid-In Capital and Premium on Common Stock during 1996, 1995 and 1994.
F-14
<PAGE>
SOUTH JERSEY GAS COMPANY
NOTES TO FINANCIAL STATEMENTS
(Continued)
11. RETIREMENT BENEFIT PLANS:
Pensions - SJG has defined benefit retirement plans that provides
annuity payments to substantially all full-time regular employees upon
retirement. SJG pays the entire cost of the plans. Approximately 60% of the
plans' assets are invested in securities which provide for fixed income and
a return of principal. The remaining assets are invested in professionally
managed common stock portfolios. Net periodic pension cost, including the
amortization of the cost of past service benefits over a period of
approximately 30 years, included the following components (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Service cost - benefits
earned during the period $ 1,589 $ 1,443 $ 1,432
Interest cost on projected
benefit obligation 2,839 2,610 2,392
Actual return on
plan assets (2,782) (2,669) (950)
Net amortization
and deferral 458 575 (1,093)
Net periodic pension cost $ 2,104 $ 1,959 $ 1,781
======= ======= =======
<CAPTION>
Assumptions as of December 31 were:
<S> <C> <C> <C>
Discount rate 7.5% 7.5% 7.5%
Rate of increase in
compensation levels 4.6% 4.6% 4.6%
Expected long-term rate
of return on assets 8.5% 8.5% 8.5%
</TABLE>
The following table sets forth the plans' funded status at
December 31, 1996 and 1995.
Actuarial present value of benefit obligations (in thousands):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Vested benefit obligation $(35,094) $(32,837)
======== ========
Accumulated benefit obligation $(35,379) $(33,043)
======== ========
Projected benefit obligation $(45,002) $(41,802)
Plan assets at fair value 36,326 33,257
Projected benefit obligation
in excess of plan assets (8,676) (8,545)
</TABLE>
F-15
<PAGE>
SOUTH JERSEY GAS COMPANY
NOTES TO FINANCIAL STATEMENTS
(Continued)
11. RETIREMENT BENEFIT PLANS: (Continued)
<TABLE>
<S> <C> <C>
Unrecognized net loss 4,226 4,085
Prior service cost not yet
recognized in net periodic
pension cost 1,612 1,756
Unrecognized net obligation
at January 1 609 697
Pension liability recognized in
the balance sheet $ (2,229) $ (2,007)
======== ========
</TABLE>
Postretirement Benefits Other Than Pensions - SJG provides
postretirement health care and life insurance benefits to certain retired
employees. Effective January 1, 1993, SJG adopted FASB No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions". This statement
requires SJG to accrue the estimated cost of retiree benefit payments
during the years the employee provides services. SJG previously expensed
the cost of these benefits, which are principally health care, on a
pay-as-you-go (PAYGO) basis. SJG has elected to recognize the unfunded
transition obligation over a period of 20 years.
SJG has previously recovered these costs on a PAYGO basis through its
rates. As part of SJG's 1994 base rate case settlement, SJG was granted
full recovery of the current service cost component of the annual cost in
addition to continued recovery of PAYGO costs. The BPU also approved
recovery of previously deferred 1993 and 1994 service costs over a 5-year
period beginning in December 1994. Beginning in 1995, an external trust was
established to fund a portion of the obligation recovered from ratepayers
as a part of the BPU settlement. Gross contributions to this trust totaled
$2.1 million in both 1996 and 1995. However, due to the timing of 1995
contributions, the return stated in the table below does not reflect a full
year's return. SJG is also authorized to continue recording a regulatory
asset for the amount by which the cost exceeds the current level recovered
in rates. The recovery of this regulatory asset, which amounted to
approximately $5.2 million at December 31, 1996, is being addressed in
SJG's current base rate case proceeding and a BPU generic proceeding. It is
expected that the regulatory asset will be recovered from ratepayers (See
Note 13).
Net postretirement benefit cost for 1996, 1995 and 1994 consisted of
the following components (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Service cost - benefits
earned during the period $ 883 $ 841 $ 798
Actual return on plan assets (164) (26) 0
</TABLE>
F-16
<PAGE>
SOUTH JERSEY GAS COMPANY
NOTES TO FINANCIAL STATEMENTS
(Continued)
11. RETIREMENT BENEFIT PLANS: (Continued)
<TABLE>
<S> <C> <C> <C>
Interest cost on accumulated
postretirement benefit
obligation 1,381 1,287 1,190
Amortization of transition
obligation 779 779 779
Subtotal 2,879 2,881 2,767
Other Adjustments 0 (2,630) 655
Net postretirement
benefit costs as
reported in the
financial statements $ 2,879 $ 251 $ 3,422
======= ======= =======
</TABLE>
The amounts expensed in 1996, 1995 and 1994 were $1.6 million, $1.6
million and $0.5 million, respectively.
The following table sets forth the life and health care plans' funded
status at December 31, 1996 and 1995.
Actuarial present value of accumulated postretirement benefit obligations
(in thousands):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Retirees $ (4,739) $ (4,590)
Other active plan participants (16,163) (14,820)
Accumulated postretirement
benefit obligation (20,902) (19,410)
Fair value of plan assets 2,835 1,433
Accumulated postretirement
benefit obligation in
excess of plan assets (18,067) (17,977)
Unrecognized net loss/(gain) 75 (45)
Unrecognized transition obligation 12,471 13,250
Postretirement benefit liability
recognized in the balance sheet $ (5,521) $ (4,772)
======== ========
</TABLE>
In 1995, SJG recalculated the net postretirement benefit cost and
present value of accumulated postretirement benefit for the years 1994 and
1993 utilizing assumptions based on corrected data. The effects of the
recalculation were recorded in 1995 since the changes did not materially
affect previously reported net income or retained earnings.
F-17
<PAGE>
SOUTH JERSEY GAS COMPANY
NOTES TO FINANCIAL STATEMENTS
(Continued)
11. RETIREMENT BENEFIT PLANS: (Continued)
The assumed health care cost trend rates used in measuring the
accumulated postretirement benefit obligation as of December 31, 1996 are
as follows: Medical and Drug - 7.55% for participants age 65 or older and
10.55% for participants under age 65 in 1996, both grading to 5.75% in
2008. Dental - 7.69% in 1996, grading to 5.75% in 2003. If the health care
cost trend rate assumptions were increased by 1%, the accumulated
postretirement benefit obligation as of December 31, 1996, would be
increased by $2.9 million. The effect of this change on the sum of the
service cost and interest cost would be an increase of $0.4 million. An
assumed discount rate of 7.5% and an expected return on plan assets of
8.5% were used in determining the accumulated postretirement benefit
obligation as of December 31, 1996 and 1995.
12. COMMITMENTS AND CONTINGENCIES:
Construction Commitments - The estimated cost of construction and
environmental remediation programs of SJG for the year 1997 aggregates
$57.7 million and, in connection therewith, certain commitments have been
made.
Gas Supply Contracts - SJG, in the normal course of conducting
business, has entered into long-term contracts for natural gas supplies,
firm transportation, and firm gas storage service. The earliest expiration
of any of the gas supply contracts is 1998. All of the transportation and
storage service agreements between SJG and its interstate pipeline
suppliers are provided under Federal Energy Regulatory Commission (FERC)
approved tariffs. SJG's cumulative obligation for demand charges paid to
its suppliers for all of these services is approximately $5.3 million per
month which is recovered on a current basis through the LGAC.
Pending Litigation - The Company is subject to claims which arise in
the ordinary course of its business and other legal proceedings. A group of
Atlantic City casinos filed a petition with the BPU on January 16, 1996,
alleging overcharges of over $10.0 million including interest. Management
believes that the ultimate liability with respect to these actions will not
materially affect SJG's financial position or results of operations.
Environmental Remediation Costs - SJG has incurred and recorded
certain costs for environmental remediation of sites where SJG or
predecessor companies operated gas manufacturing plants. Manufactured gas
operations were terminated at all SJG sites more than 30 years ago.
F-18
<PAGE>
SOUTH JERSEY GAS COMPANY
NOTES TO FINANCIAL STATEMENTS
(Continued)
12. COMMITMENTS AND CONTINGENCIES: (Continued)
Since the early 1980s, SJG has recorded environmental remediation
costs of $70.8 million, of which $29.1 million has been expended as of
December 31, 1996. SJG, with the assistance of an outside consulting firm,
estimates that total future expenditures to remediate the sites will range
from $41.7 million to $150.2 million. The lower end of this range has been
recorded as a liability and is reflected on the balance sheet under the
captions "Current Liabilities" and "Deferred Credits and Other Non-Current
Liabilities". Recorded environmental remediation costs do not directly
affect earnings because those costs are deferred and, when expended,
recovered through rates over 7-year amortization periods. Amounts accrued
for future expenditures have not been adjusted for future insurance
recoveries, which management is pursuing. SJG has received $4.2 million of
insurance recoveries as of December 31, 1996. These proceeds were first
used to offset legal fees incurred in connection with those recoveries and
the excess was used to reduce the balance of deferred environmental
remediation costs. Recorded amounts include estimated costs to be incurred
based on projected investigation and remediation work plans using existing
technologies. Actual expenditures could differ from the estimates due to
the long-term nature of the projects and changing technology, government
regulations and site specific requirements.
SJG has established a regulatory asset for these costs and is
recovering amounts expended over 7-year amortization periods, as authorized
by the BPU. As of December 31, 1996, SJG has unamortized remediation
expenditures of $15.6 million which are reflected on the balance sheet
under the caption "Deferred Debits". Since BPU approval of the RAC
mechanism in August 1992, SJG has recovered $9.3 million through rates as
of December 31, 1996.
13. SUBSEQUENT EVENTS:
On January 27, 1997, the BPU granted SJG a rate increase of $6.0
million based on a 9.62% rate of return on rate base, which included an
11.25% return on equity. The majority of this increase will come from
residential and small commercial customers. As part of this rate
increase, SJG now retains the first $5.0 million of pre-tax margins
generated by interruptible and off-system sales and transportation, as
well as 20% of pre-tax margins above that level. In 1997 and 1998, this
$5.0 million threshold will be increased by the annual revenue
requirement associated with specified major construction projects. In
1997, SJG will file to recover additional postretirement benefit costs of
approximately $1.1 million annually. This recovery is expected to begin
in 1998 (See Note 11).
F-19
<PAGE>
SOUTH JERSEY GAS COMPANY
NOTES TO FINANCIAL STATEMENTS
(Continued)
13. SUBSEQUENT EVENTS: (Continued)
As part of the tariff changes approved, SJG further expanded the
choices available to commercial and industrial customers. During 1997, SJG
will also implement a firm transportation pilot program for up to 10,000
residential customers. This program will have no impact on net income.
In addition to the rate increase, the BPU approved a revenue reduction
in SJG's Temperature Adjustment Clause, a mechanism designed to reduce the
impact of extreme fluctuations in temperature on SJG and its customers. For
the period ended May 31, 1996, weather in SJG's service area was
significantly colder than the 20-year average resulting in a $2.5 million
credit due to customers' bills which is already reflected in the 1996
results of operations.
F-20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this Amendment No. 1 to Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized.
South Jersey Gas Company
-------------------------------
(Registrant)
Date: April 25, 1997 By: /s/ George L. Baulig
---------------- ----------------------------------
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit Page
Number ------
<S> <C> <C>
(3)(a) Certificate of Incorporation
of SJG (filed herewith).
(3)(b) Bylaws of SJG (filed
herewith).
(4)(a) Form of Stock Certificate
for common stock (filed
herewith).
(4)(b)(i) First Mortgage Indenture *
dated October 1, 1947.
(4)(b)(ii) Form of South Jersey Gas *
Company First Mortgage
Bond, 8-1/4% Series due 1996.
(4)(b)(iii) Form of South Jersey Gas *
Company First Mortgage
Bond, 8-1/4% Series due 1998.
(4)(b)(iv) Twelfth Supplemental Inden- *
ture, dated as of June 1,
1980.
(4)(b)(v) Fifteenth Supplemental *
Indenture, dated July
1, 1986, 9.2% Series
due 1998.
(4)(b)(vi) Sixteenth Supplemental *
Indenture dated as of
April 1, 1988, 10-1/4%
Series due 2008.
(4)(b)(vii) Seventeenth Supplemental *
Indenture dated as of
May 1, 1989.
(4)(b)(viii) Eighteenth Supplemental *
Indenture, dated as of
March 1, 1990.
(4)(b)(ix) Nineteenth Supplemental *
Indenture, dated as of
April 1, 1992.
(4)(b)(x) Twentieth Supplemental *
Indenture, dated as of
June 1, 1993.
(4)(c) Indenture dated as of *
January 31, 1995; 8.60%
Debenture Notes due
February 1, 2010
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Page
Number ----
<S> <C> <C>
(3)(a) Certificate of Incorporation
of SJG. **
(3)(b) Bylaws of SJG. **
(4)(a) Form of Stock Certificate
for common stock. **
(4)(b)(i) First Mortgage Indenture
dated October 1, 1947. *
(4)(b)(ii) Form of South Jersey Gas
Company First Mortgage
Bond, 8-1/4% Series due 1996. *
(4)(b)(iii) Form of South Jersey Gas
Company First Mortgage
Bond, 8-1/4% Series due 1998. *
(4)(b)(iv) Twelfth Supplemental Inden-
ture, dated as of June 1,
1980. *
(4)(b)(v) Fifteenth Supplemental
Indenture, dated July
1, 1986, 9.2% Series
due 1998. *
(4)(b)(vi) Sixteenth Supplemental
Indenture dated as of
April 1, 1988, 10-1/4%
Series due 2008. *
(4)(b)(vii) Seventeenth Supplemental
Indenture dated as of
May 1, 1989. *
(4)(b)(viii) Eighteenth Supplemental
Indenture, dated as of
March 1, 1990. *
(4)(b)(ix) Nineteenth Supplemental
Indenture, dated as of
April 1, 1992. *
(4)(b)(x) Twentieth Supplemental
Indenture, dated as of
June 1, 1993. *
(4)(c) Indenture dated as of
January 31, 1995; 8.60%
Debenture Notes due
February 1, 2010 *
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Exhibit Page
Number ----
<S> <C> <C>
(9) None
(10)(a) Gas storage agreement (GSS) *
between South Jersey Gas
Company and Transco,
dated October 1, 1993.
(10)(b) Gas storage agreement (S-2) *
between South Jersey Gas
Company and Transco,
dated December 16, 1953.
(10)(c) Gas storage agreement (LG-A) *
between South Jersey Gas
Company and Transco,
dated June 3, 1974.
(10)(d) Gas storage agreement (WSS) *
between South Jersey Gas
Company and Transco, dated
August 1, 1991.
(10)(e)(i) Gas storage agreement (LSS) *
between South Jersey Gas
Company and Transco,
dated October 1, 1993.
(10)(e)(ii) Gas storage agreement *
(SS-1) between South Jersey
Gas Company and Transco,
dated May 10, 1987 (effective
April 1, 1988).
(10)(e)(iii) Gas storage agreement *
(ESS) between South Jersey
Gas Company and Transco,
dated November 1, 1993.
(10)(e)(iv) Gas transportation service *
agreement between South
Jersey Gas Company and
Transco, dated April 1, 1986.
(10)(e)(v) Service agreement (FS) *
between South Jersey Gas
Company and Transco, dated
August 1, 1991.
(10)(e)(vi) Service agreement (FT) *
between South Jersey Gas
Company and Transco, dated
February 1, 1992.
(10)(e)(vii) Service agreement *
(Incremental FT)
between South Jersey Gas
Company and Transco,
dated August 1, 1991.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Page
Number ----
<S> <C> <C>
(10)(e)(viii) Gas storage agreement (SS-2) *
between South Jersey Gas
company and Transco, dated
July 25, 1990.
(10)(e)(ix) Gas Transportation *
Service Agreement between
South Jersey Gas Company
and Transco, dated
December 20, 1991.
(10)(e)(x) Amendment to Gas *
Transportation Agreement,
dated December 20, 1991
between South Jersey Gas
Company and Transco, dated
October 5, 1993.
(10)(f) Gas Transportation Service *
Agreement (FTS) between
South Jersey Gas Company
and Equitable Gas Company,
dated November 1, 1986.
(10)(g)(i) Gas Transportation Service *
Agreement (TF) between
South Jersey Gas Company
CNG Transmission Corporation
dated October 1, 1993.
(10)(g)(ii) Gas purchase agreement *
between South Jersey Gas
Company and ARCO Gas Market-
ing, Inc., dated March 5,
1990.
(10)(g)(iii) Gas Transportation *
Service Agreement (FTS
1) between South Jersey
Gas Company and Columbia Gulf
Transmission Company, dated
November 1, 1993.
(10)(g)(iv) Assignment Agreement *
capacity and service
rights (FTS-2) between South
Jersey Gas Company and Columb
Gulf Transmission Company,
dated November 1, 1993.
(10)(g)(v) FTS Service Agreement *
No. 39556 between South
Jersey Gas Company and
Columbia Gas Transmission
Corporation, dated
November 1, 1993.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Page
----
<S> <C> <C>
(10)(g)(vi) FTS Service Agreement *
No. 38099 between South
Jersey Gas Company and
Columbia Gas Transmission
Corporation, dated
November 1, 1993.
(10)(g)(vii) NTS Service Agreement *
No. 39305 between South
Jersey Gas Company and
Columbia Gas Transmission
Corporation, dated
November 1, 1993.
(10)(g)(viii) FSS Service Agreement *
No. 38130 between South
Jersey Gas Company and
Columbia Gas Transmission
Corporation, dated
November 1, 1993.
(10)(g)(ix) SST Service Agreement *
No. 38086 between South
Jersey Gas Company and
Columbia Gas Transmission
Corporation, dated
November 1, 1993.
(10)(g)(x) NS (Negotiated Sales) *
Service Agreement dated
December 1, 1994 between
South Jersey Gas Company
and Transco Gas Marketing
Company as agent for
Transcontinental Gas Pipe
Line
(10)(h)(i) Deferred Payment Plan for *
Directors of South Jersey
Industries, Inc., South
Jersey Gas Company, Energy
& Minerals, Inc., R&T Group
Inc. and South Jersey Energ
Company as amended and
restated October 21, 1994
(10)(h)(ii) Form of Deferred Compen- *
sation Agreement between
the Company and/or a sub-
sidiary and eleven of its
officers.
(10)(h)(iii) Schedule of Deferred *
Compensation Agreements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Page
Number ----
<S> <C> <C>
(10)(h)(iv) Supplemental Executive *
Retirement Program, as
amended and restated ef-
fective September 1, 1991,
and form of Agreement
between certain Company
or subsidiary Company
officers
(10)(h)(v) Form of Officer Employment *
Agreement between certain
officers and either the
Company or its Subsidiaries
(10)(h)(vi) Schedule of Officer *
Employment Agreements
(10)(h)(vii) Officer Severance Benefit *
Program for all officers
(10)(h)(viii) Discretionary Incentive *
Bonus Program for all
officers and management
employees
(10)(h)(ix) The 1987 Stock Option and *
Stock Appreciation Rights
Plan including Form of
Agreement
(10)(i) Retirement Plan for *
Non-employee Members of
the Board of Directors
(10)(j) Executive Employment *
Agreement dated
June 17, 1994 between
the Company and William
F. Ryan, President and
Chief Executive Officer
(11) Not Applicable *
(12) Not Applicable *
(16) Not Applicable *
(21) Subsidiaries of the *
Registrant: None.
(24) Not applicable. *
(27) Financial Data Schedule **
(Submitted only in electronic
format to the Securities
and Exchange Commission)
(99) None
** Previously filed
* Not Applicable
</TABLE>
