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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number 000-22211
SOUTH JERSEY GAS COMPANY
(Exact name of registrant as specified in its charter)
New Jersey 21-0398330
(State of incorporation) (IRS employer identification no.)
1 South Jersey Plaza, Folsom, NJ 08037
(Address of principal executive offices, including zip code)
(609) 561-9000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of May 1, 2003 there were 2,339,139 shares of the registrant's common stock
outstanding. All common shares are owned by South Jersey Industries, Inc., the
parent company of South Jersey Gas Company.
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- Cover -
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements -- See Pages 3 through 12
SJG-2
SOUTH JERSEY GAS COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In Thousands Except for Per Share Data)
Three Months Ended
March 31,
------------------------------------------------
2003 2002
--------------------- ---------------------
Operating Revenues $ 239,936 $ 154,183
--------------------- ---------------------
Operating Expenses:
Gas Purchased for Resale 178,865 99,433
Utility Operations 10,492 9,621
Maintenance 1,457 1,417
Depreciation 5,787 5,477
Energy and Other Taxes 5,028 3,783
--------------------- ---------------------
Total Operating Expenses 201,629 119,731
--------------------- ---------------------
Operating Income 38,307 34,452
Other Income and Expense (118) (115)
Interest Charges 4,020 4,504
Preferred Dividend Requirements 764 765
--------------------- ---------------------
Income Before Income Taxes 33,405 29,068
Income Taxes 13,971 12,129
--------------------- ---------------------
Net Income Applicable to Common Stock $ 19,434 $ 16,939
===================== =====================
Average Shares of Common Stock Outstanding 2,339 2,339
Earnings Per Common Share $ 8.31 $ 7.24
===================== =====================
Dividends Declared Per Common Share $ 0.00 $ 1.95
===================== =====================
<FN>
The accompanying footnotes are an integral part of the financial statements.
</FN>
SJG-3
SOUTH JERSEY GAS COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
Unaudited
March 31, December 31,
--------------------------------------- ------------------
2003 2002 2002
------------------ ------------------ ------------------
ASSETS
Property, Plant and Equipment:
Utility Plant, at original cost $ 857,218 $ 812,198 $ 846,865
Accumulated Depreciation (241,346) (225,475) (236,813)
------------------ ------------------ ------------------
Property, Plant and Equipment - Net 615,872 586,723 610,052
------------------ ------------------ ------------------
Available-for-Sale Securities 3,331 3,074 3,407
------------------ ------------------ ------------------
Current Assets:
Cash and Cash Equivalents 7,122 11,258 3,580
Accounts Receivable 111,737 66,889 61,845
Unbilled Revenues 18,043 23,079 27,570
Provision for Uncollectibles (3,248) (1,618) (2,816)
Natural Gas in Storage, average cost 10,230 33,334 40,769
Materials and Supplies, average cost 3,677 3,442 4,157
Prepaid Taxes - - 2,440
Other Prepayments and Current Assets 2,916 2,616 3,435
------------------ ------------------ ------------------
Total Current Assets 150,477 139,000 140,980
------------------ ------------------ ------------------
Regulatory Assets:
Environmental Remediation Costs:
Expended - Net 3,656 11,259 6,470
Liability for Future Expenditures 48,211 48,790 48,211
Gross Receipts and Franchise Taxes 1,700 2,143 1,811
Income Taxes - Flowthrough Depreciation 8,352 9,330 8,597
Deferred Fuel Cost - Net 17,964 19,433 31,594
Deferred Postretirement Benefit Costs 3,685 4,063 3,780
Other Regulatory Assets 6,854 3,627 6,450
------------------ ------------------ ------------------
Total Regulatory Assets 90,422 98,645 106,913
------------------ ------------------ ------------------
Other Non-Current Assets:
Unamortized Debt Discount and Expense 5,563 5,814 5,660
Accounts Receivable - Merchandise 2,223 588 1,776
Other 4,390 3,116 5,538
------------------ ------------------ ------------------
Total Other Non-Current Assets 12,176 9,518 12,974
------------------ ------------------ ------------------
Total Assets $ 872,278 $ 836,960 $ 874,326
================== ================== ==================
<FN>
The accompanying footnotes are an integral part of the financial statements.
</FN>
SJG-4
SOUTH JERSEY GAS COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
Unaudited
March 31, December 31,
--------------------------------------- ------------------
2003 2002 2002
------------------ ------------------ ------------------
Capitalization and Liabilities
Common Equity:
Common Stock, Par Value $2.50 per share:
Authorized - 4,000,000 shares
Outstanding - 2,339,139 shares $ 5,848 $ 5,848 $ 5,848
Other Paid-In Capital and Premium on Common Stock 135,317 132,817 135,317
Accumulated Other Comprehensive Loss (8,646) (1,939) (8,689)
Retained Earnings 101,182 81,645 81,748
------------------ ------------------ ------------------
Total Common Equity 233,701 218,371 214,224
------------------ ------------------ ------------------
Preferred Stock and Securities:
Redeemable Cumulative Preferred - Par Value $100 per share,
Authorized 41,966 shares, Outstanding 16,904 shares 8% Series 1,690 1,690 1,690
Company-Guaranteed Mandatorily Redeemable Preferred
Securities of Subsidiary Trust, Par Value $25 per share,
1,400,000 shares Authorized and Outstanding 35,000 35,000 35,000
------------------ ------------------ ------------------
Total Preferred Stock and Securities 36,690 36,690 36,690
------------------ ------------------ ------------------
Long-Term Debt 193,016 222,060 199,016
------------------ ------------------ ------------------
Total Capitalization 463,407 477,121 449,930
------------------ ------------------ ------------------
Current Liabilities:
Notes Payable 85,600 88,200 153,900
Current Maturities of Long-Term Debt 10,696 9,733 10,696
Accounts Payable 75,074 32,442 43,066
Deferred Income Taxes - Net 17,168 23,005 19,844
Customer Deposits 7,284 6,364 6,924
Environmental Remediation Costs 4,852 11,052 4,852
Taxes Accrued 25,159 17,346 4,212
Derivatives - - 142
Interest Accrued and Other Current Liabilities 7,043 11,760 8,106
------------------ ------------------ ------------------
Total Current Liabilities 232,876 199,902 251,742
------------------ ------------------ ------------------
Deferred Credits and Other Non-Current Liabilities:
Deferred Income Taxes - Net 101,395 88,465 98,537
Environmental Remediation Costs 43,359 37,738 43,359
Pension and Other Postretirement Benefits 15,235 18,495 14,205
Investment Tax Credits 3,732 4,079 3,819
Other 12,274 11,160 12,734
------------------ ------------------ ------------------
Total Deferred Credits and Other Non-Current Liabilities 175,995 159,937 172,654
------------------ ------------------ ------------------
Total Capitalization and Liabilities $ 872,278 $ 836,960 $ 874,326
================== ================== ==================
<FN>
The accompanying footnotes are an integral part of the financial statements.
</FN>
SJG-5
SOUTH JERSEY GAS COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In Thousands)
Three Months Ended
March 31,
----------------------------------------------
2003 2002
---------------------- ---------------------
Cash Flows from Operating Activities:
Net Income Applicable to Common Stock $ 19,434 $ 16,939
Adjustments to Reconcile Net Income to Cash Flows
Provided by Operating Activities:
Depreciation and Amortization 6,371 6,087
Provision for Losses on Accounts Receivable 489 671
Revenues and Fuel Costs Deferred - Net 13,630 19,435
Deferred and Non-Current Income Taxes and Credits - Net 264 1,855
Environmental Remediation Costs - Net 2,814 1,572
Changes in:
Accounts Receivable (40,422) (19,587)
Inventories 31,019 26,820
Prepayments and Other Current Assets 519 183
Prepaid and Accrued Taxes - Net 23,387 19,092
Accounts Payable and Other Accrued Liabilities 31,305 4,447
Other - Net 910 278
---------------------- ---------------------
Net Cash Provided by Operating Activities 89,720 77,792
---------------------- ---------------------
Cash Flows from Investing Activities:
Capital Expenditures, Cost of Removal and Salvage (11,825) (9,747)
---------------------- ---------------------
Net Cash Used in Investing Activities (11,825) (9,747)
---------------------- ---------------------
Cash Flows from Financing Activities:
Net Borrowing from (Repayments of) Lines of Credit (68,300) (47,300)
Principal Repayments of Long-Term Debt (6,000) (8,187)
Dividends on Common Stock - (4,550)
Payments for Issuance of Long-Term Debt (53) (26)
---------------------- ---------------------
Net Cash Used in Financing Activities (74,353) (60,063)
---------------------- ---------------------
Net Increase in Cash and Cash Equivalents 3,542 7,982
Cash and Cash Equivalents at Beginning of Year 3,580 3,276
---------------------- ---------------------
Cash and Cash Equivalents at End of Year $ 7,122 $ 11,258
====================== =====================
<FN>
The accompanying footnotes are an integral part of the financial statements.
</FN>
SJG-6
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1. Significant Accounting Practices:
The Entity - The condensed consolidated financial statements include
the accounts of South Jersey Gas Company (SJG) and its wholly owned statutory
trust subsidiary, SJG Capital Trust. We eliminated all significant intercompany
accounts and transactions. SJG reclassified some previously reported amounts to
conform with current year classifications. In our opinion, the condensed
consolidated financial statements reflect all adjustments needed to fairly
present SJG's financial position and operating results at the dates and for the
periods presented. Our business is subject to seasonal fluctuations and,
accordingly, this interim financial information should not be the basis for
estimating the full year's operating results. These financial statements should
be read in conjunction with SJG's 2002 Form 10K and annual certified financial
statements.
South Jersey Industries, Inc. (SJI) owns all of the outstanding common
stock of SJG.
Equity Investments - We classify equity investments purchased as
long-term investments as Available-for-Sale Securities on our condensed
consolidated balance sheets and carry them at their estimated fair value with
any changes in unrealized gains or losses included in Other Comprehensive
Income.
Estimates and Assumptions - We prepare our financial statements to
conform with generally accepted accounting principles. Management makes
estimates and assumptions that affect the amounts reported in the financial
statements and related disclosures. Therefore, actual results could differ from
those estimates.
Regulation - SJG is subject to the rules and regulations of the New
Jersey Board of Public Utilities (BPU). We maintain our accounts according to
the BPU's prescribed Uniform System of Accounts (See Note 2). SJG follows the
accounting for regulated enterprises prescribed by the Financial Accounting
Standards Board (FASB) Statement No. 71, "Accounting for the Effects of Certain
Types of Regulation." In general, Statement No. 71 allows deferral of certain
costs and creation of certain obligations when it is probable that such items
will be recovered from or refunded to customers in future periods.
Derivative Instruments and Hedge Accounting - Effective January 1,
2001, SJG adopted FASB Statement No. 133, "Accounting for Derivative Instruments
and Hedging Activities," as amended. This statement establishes accounting and
reporting standards for derivative instruments, including those embedded in
other contracts, and for hedging activities. It requires that all derivatives,
whether designated as hedging relationships or not, must be recorded on the
balance sheet at fair value. If the derivative is designated as a fair value
hedge, we recognize the changes in the fair value of the derivative and of the
hedged item attributable to the hedged risk in earnings. If the derivative is
designated as a cash flow hedge, we record the effective portion of changes in
the fair value of the derivative in Other Comprehensive Income and recognize it
SJG-7
in the income statement when the hedged item affects earnings. We recognize
ineffective portions of changes in the fair value of cash flow hedges in
earnings.
In April 2002, we entered into two interest rate swap contracts that
effectively fixed the interest rate at 3.57% through March 15, 2003 on $40.0
million of our debt outstanding under bank lines. The swap contracts expired as
scheduled and borrowings under our bank lines are currently unhedged.
We have also identified other financial instruments that qualify as
derivatives. Management believes, however, based on its interpretation of
guidance issued, that as these derivative contracts relate to the purchase and
sale of natural gas, they qualify for the normal purchases and normal sales
exception and, therefore, are not required to be marked to market.
New Accounting Pronouncements - In January 2003, we adopted FASB
Statement No. 143, "Accounting for Asset Retirement Obligations," which
establishes accounting and reporting standards for legal obligations associated
with the retirement of tangible long-lived assets and the associated asset
retirement costs. We have certain easements and right-of-way agreements that
qualify as legal obligations under Statement No. 143. However, it is our intent
to maintain these agreements in perpetuity; therefore, no change in our current
accounting practices is required at this time.
We recover certain asset retirement costs through rates charged to
customers as an approved component of depreciation expense. When we retire
depreciable properties, we charge the original cost thereof, plus cost of
removal less salvage, to accumulated depreciation. As of March 31, 2003, we had
accrued amounts in excess of actual removal costs incurred totaling $42.5
million which is included in Utility Plant Accumulated Depreciation. The
adoption of this statement did not materially affect our financial condition or
results of operations.
In December 2002, the FASB issued Statement No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure," which was effective for
our 2002 annual financial statements and subsequent interim financial reporting.
This statement provides alternate methods of transitioning for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, it requires prominent disclosures about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. SJG's policy is to account for this compensation using
the intrinsic value method. The provisions of this statement currently have no
impact on our financial statements.
Note 2. Regulatory Actions:
In January 1997, the BPU granted SJG a 9.62% rate of return on rate
base, which included an 11.25% return on common equity. Additionally, our
threshold for sharing pre-tax margins generated by interruptible and off-system
sales and transportation increased. Currently, SJG keeps 100% of pre-tax margins
up to the threshold level of $7.8 million. The next $750,000 is credited to
customers through the Basic Gas Supply Service ("BGSS") charge. Thereafter, SJG
keeps 20% of the pre-tax margins as we have historically.
SJG-8
Effective January 10, 2000, the BPU approved full unbundling of SJG's
system. This allows all natural gas consumers to select their natural gas
commodity supplier. As of March 31, 2003, 92,897 of SJG's residential customers
were purchasing their gas commodity from someone other than SJG. Customers
choosing to purchase natural gas from providers other than the utility are
charged for the cost of gas by the marketer, not the utility. The resulting
decrease in SJG's revenues is offset by a corresponding decrease in gas costs.
While customer choice can reduce utility revenues, it does not negatively affect
SJG's net income or financial condition. The BPU continues to allow for full
recovery of natural gas costs through the BGSS as well as other costs of
service, including deferred costs, through tariffs.
In November 2001, SJG filed for a $2.7 million rate increase to recover
the cash related to a 3-year net deficiency in the Temperature Adjustment Clause
(TAC). Additionally, in September 2002, SJG filed for an $8.6 million rate
increase to recover the cash related to a TAC deficiency resulting from
warmer-than-normal weather for the 2001-2002 winter. As a result of the
colder-than-normal 2002-2003 winter, the cumulative TAC deficiency has decreased
to $7.5 million as of March 31, 2003.
Also in November 2001, SJG filed for a $17.6 million reduction to the
Levelized Gas Adjustment Clause (LGAC) The LGAC was the predecessor clause to
the BGSS. The BPU approved the LGAC reduction effective December 1, 2001 and
concurrently approved recovery of SJG's October 31, 2001 underrecovered gas cost
balance. As a result, SJG began recovering $48.9 million over three years plus
interest accrued since April 1, 2001. We are also recovering interest for the
3-year amortization period at a rate of 5.75%. As of March 31, 2003, the
remaining deferred underrecovered balance totaled $25.2 million.
During 2002, the BPU convened a gas policy group to address Basic Gas
Supply Service (BGSS), which is the gas supply service being provided by the
natural gas utility. On December 18, 2002, the BPU approved the proposed BGSS
price structure which was submitted by the gas policy group. The BGSS approved
price structure replaced the Levelized Gas Adjustment Clause (LGAC) pricing
structure that was in place prior to March 2003. The LGAC was structured to
reset gas charges to consumers once per year. The BGSS permits multiple resets
each year. With the implementation of BGSS in March 2003, customers are able to
make more informed decisions about choosing an alternate supplier by having a
utility price structure that more currently reflects market conditions. Further,
BGSS provides SJG with more pricing flexibility, through automatic rate changes
under certain conditions and under certain limitations, resulting in the
reduction of over/under-recoveries. LGAC related mechanisms, such as deferred
accounting treatment, the sharing of pre-tax margins generated by interruptible
and off-system sales and transportation, and the allowance for full recovery of
natural gas costs, remain in place under BGSS.
In September 2002, SJG filed with the BPU to maintain its current BGSS
rate through October 2003. However, due to recent price increases in the
wholesale market, in February 2003 SJG filed an amendment to the September 2002
filing. The filing proposed an $11.6 million increase to SJG's annual gas costs
revenues.
SJG-9
In August 2002, SJG filed for a Societal Benefits Clause (SBC) rate
increase. The SBC recovers costs related to BPU mandated programs, including
environmental remediation costs that are recovered through SJG's Remediation
Adjustment Clause (RAC); energy efficiency and renewable energy program costs
that are recovered through SJG's New Jersey Clean Energy Programs; consumer
education program costs; and low income program costs. If approved, the rate
increase filed would provide for an annual recovery level of $13.7 million,
representing an annual increase of approximately $7.0 million over the $6.7
million recovery currently included in rates.
Also in August 2002, SJG filed a petition with the BPU to transfer its
appliance service business from the regulated utility into a newly created
unregulated company. As filed, the newly created company would have the
flexibility to be more responsive to competition and customer needs by expanding
and modifying its service offerings in an unregulated environment.
Note 3. Regulatory Assets and Liabilities:
All significant regulatory assets are separately identified on the
condensed consolidated balance sheets under the caption Regulatory Assets. Each
item that is separately identified is being recovered through utility rate
charges without a return on investments over the following periods:
Years Remaining
Regulatory Asset As of March 31, 2003
---------------- --------------------
Environmental Remediation Costs:
Expended - Net 7
Liability for Future Expenditures Not Applicable
Gross Receipts and Franchise Taxes 3.8
Income Taxes - Flowthrough Depreciation 8.5
Deferred Fuel Costs - Net Various
Deferred Postretirement Benefit Costs 9.7
The majority of the assets reflected under the caption Other Regulatory
Assets are currently subject to filings with the BPU requesting recovery.
Management believes that all such deferred costs are probable of recovery from
ratepayers through future utility rates.
In addition, we had one significant regulatory liability for
overcollected taxes totaling $3.3 million and $2.1 million, including interest,
as of March 31, 2003 and 2002, respectively. We included these amounts in the
caption Other under the heading Deferred Credits and Other Non-Current
Liabilities and they are subject to being returned to ratepayers in future rate
proceedings.
SJG-10
Note 4. Retained Earnings:
Restrictions exist under various loan agreements regarding the amount
of cash dividends or other distributions that we may pay on our common stock.
SJG's retained earnings, which are free of these restrictions, were
approximately $99.6 million as of March 31, 2003.
Note 5. Comprehensive Income:
The components of comprehensive income for the three months ended March
31 are as follows (in thousands):
2003 2002
--------- ---------
Net Income Applicable to Common Stock $ 19,434 $ 16,939
Other Comprehensive Loss:
Change in Fair Value of Derivatives - Net * 84 -
Change in Fair Value of Investments - Net * (40) -
--------- ---------
Total Other Comprehensive Income 44 -
--------- ---------
Comprehensive Income $ 19,478 $ 16,939
========= =========
* Determined using an effective tax rate of 40.85%.
Note 6. Commitments and Contingencies:
Construction and Environmental Commitments - Our estimated net cost of
construction and environmental remediation programs for 2003 totals $55.2
million. Commitments were made regarding some of these programs.
Pending Litigation - We are subject to claims arising in the ordinary
course of business and other legal proceedings. We accrue liabilities related to
these claims when we can determine the amount or range of amounts of likely
settlement costs for those claims. We also maintain insurance and record
probable insurance recoveries relating to outstanding claims. Management does
not currently anticipate the disposition of any known claims to have a material
adverse effect on SJG's financial position, results of operations or liquidity.
Environmental Remediation Costs - We incurred and recorded costs for
environmental clean up of sites where the Company or its predecessors operated
gas manufacturing plants. We stopped manufacturing gas in the 1950s.
We successfully entered into settlements with all of our historic
comprehensive general liability carriers regarding the environmental remediation
expenditures at our sites. Also, we have purchased a Cleanup Cost Cap Insurance
Policy limiting the amount of remediation expenditures that we will be required
to make at 11 of our sites. This Policy will be in force until 2024 at 10 sites
SJG-11
and until 2029 at one site. The following minimum future cost estimate was not
reduced by projected insurance recoveries from the Cleanup Cost Cap Insurance
Policy.
Since the early 1980s, we accrued environmental remediation costs of
$131.4 million, of which $83.2 million has been spent as of March 31, 2003. With
the assistance of a consulting firm, we estimate that future costs to clean up
our sites will range from $48.2 million to $143.9 million. We recorded the lower
end of this range as a liability. It is reflected on the 2003 condensed
consolidated balance sheet under the captions Current Liabilities and Deferred
Credits and Other Non-Current Liabilities. Recorded amounts include estimated
costs based on projected investigation and remediation work plans using existing
technologies. Actual costs could differ from the estimates due to the long-term
nature of the projects, changing technology, government regulations and
site-specific requirements.
We have two regulatory assets associated with environmental costs. The
first asset is titled Environmental Remediation Cost: Expended - Net. These
expenditures represent what was actually spent to clean up former gas
manufacturing plant sites. These costs meet the requirements of FASB Statement
No. 71. The BPU allows us to recover expenditures through the RAC.
The other asset titled Environmental Remediation Cost: Liability for
Future Expenditures relates to estimated future expenditures determined under
the guidance of FASB Statement No. 5, "Accounting for Contingencies." We
recorded this amount, which relates to former manufactured gas plant sites, as a
deferred debit with the corresponding amount reflected on the condensed
consolidated balance sheets under the captions, Current Liabilities and Deferred
Credits and Other Non-Current Liabilities. The deferred debit is a regulatory
asset under Statement No. 71. The BPU's intent, evidenced by current practice,
is to allow us to recover the deferred costs after they are spent over 7-year
periods.
As of March 31, 2003, we reflected the unamortized remediation costs of
$3.7 million on the condensed consolidated balance sheet under the caption
Regulatory Assets. Since implementing the RAC in 1992, we have recovered $37.4
million through rates.
SJG-12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
South Jersey Gas Company (SJG) is a regulated natural gas utility. SJG
distributed natural gas in the seven southernmost counties of New Jersey to
298,767 customers at March 31, 2003 compared with 290,604 customers at March 31,
2002. SJG also:
* sells natural gas and pipeline transportation capacity (off-system
sales) on a wholesale basis to various customers on the interstate
pipeline system;
* transports natural gas purchased directly from producers or suppliers
for its own sales and for some of its customers; and
* services appliances via the sale of appliance warranty programs, as
well as on a time and materials basis.
Estimates and Assumptions
As described in the footnotes to our condensed consolidated financial
statements, management must make estimates and assumptions that affect the
amounts reported in the financial statements and related disclosures. Actual
results could differ from those estimates. Two types of transactions presented
in our consolidated financial statements require a significant amount of
judgment and estimation. These relate to regulatory assets and environmental
remediation costs.
The New Jersey Board of Public Utilities (BPU) has reviewed and
approved most of the items shown as regulatory assets through specific orders.
Other items represent costs that were not yet approved by the BPU for recovery,
but are the subject of current or future filings. In recording these costs as
regulatory assets, management believes the costs are probable of recovery under
existing rate-making concepts that are embodied in current rate orders received
by SJG. However, ultimate recovery is subject to BPU approval.
An outside consulting firm assists us in estimating future costs for
environmental remediation activities. We estimate future costs based on
projected investigation and work plans using existing technologies. Developing a
single reliable estimation point is not feasible because of the amount of
uncertainty involved in the nature of projected remediation efforts and the long
period over which remediation efforts will continue. Therefore, we estimate the
range of future costs at $48.2 million to $143.9 million. In preparing financial
statements, SJG records liabilities for future costs using the lower end of the
range. We update estimates each year to take into account past efforts, changes
in work plans and remediation technologies.
SJG-13
Revenue Recognition
SJG bills customers monthly for gas delivered and recognizes those
revenues during the month. For SJG retail customers we do not bill at the end of
each month; we make an accrual to recognize revenues for gas delivered from the
date of the last bill to the end of the month. We bill customers at rates
approved by the BPU.
We defer and recognize revenues related to SJG's appliance warranty
contracts over the full 12-month term of the contract as earned.
The BPU allows SJG to recover the excess cost of gas sold over the cost
included in base rates through the Basic Gas Supply Service (BGSS) price
structure (formerly known as the Levelized Gas Adjustment Clause). SJG defers
over/under-recoveries of gas costs and includes them in subsequent adjustments
to the BGSS rate or other similar rate recovery mechanism. These adjustments can
result in over/under-recoveries of gas costs being included in rates during
future periods. As a result of these deferrals, utility revenue recognition does
not directly translate to profitability. While we realize profits on gas sales
during the month of providing the utility service, significant shifts in revenue
recognition may result from the various recovery clauses approved by the BPU
(See Regulatory Matters) without shifting profits between periods.
New Accounting Pronouncements
Statement No. 143, "Accounting for Asset Retirement Obligations," which
was adopted in 2003, establishes accounting and reporting standards for legal
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. We have certain easements and right-of-way
agreements that qualify as legal obligations under Statement No. 143. However,
we intend to maintain such agreements in perpetuity; therefore, no change in our
current accounting practices is required at this time.
SJG recovers certain asset retirement costs through rates charged to
customers as an approved component of depreciation expense. When we retire
depreciable properties, we charge the original cost thereof, plus cost of
removal less salvage, to accumulated depreciation. As of March 31, 2003, SJG had
accrued amounts in excess of actual removal costs incurred totaling $42.5
million which is included in utility plant accumulated depreciation. We do not
expect the adoption of this statement to materially affect SJG's financial
condition or results of operations.
In December 2002, the FASB issued Statement No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure," which is effective for
SJG's 2002 annual financial statements and subsequent interim financial
reporting. This statement provides alternate methods of transitioning for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, it requires prominent disclosures about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. The provisions of this statement currently have
no impact on SJG's financial statements.
SJG-14
Forward-Looking Statements
This report contains certain forward-looking statements concerning
projected financial and operating performance, future plans and courses of
action and future economic conditions. All statements in this report other than
statements of historical fact are forward-looking statements. These
forward-looking statements are made based upon management's expectations and
beliefs concerning future events impacting the company and involve a number of
risks and uncertainties. We caution that forward-looking statements are not
guarantees and actual results could differ materially from those expressed or
implied in the forward-looking statements. Also, in making forward-looking
statements, we assume no duty to update these statements should expectations
change or actual results and events differ from current expectations.
A number of factors could cause our actual results to differ materially
from those anticipated including, but not limited to, the following: general
economic conditions on an international, national, state and local level;
weather conditions in our marketing areas; changes in commodity costs; changes
in the availability of natural gas; regulatory and court decisions; competition
in our utility and nonutility activities; the availability and cost of capital;
costs and effects of legal proceedings and environmental liabilities; the
failure of customers or suppliers to fulfill their contractual obligations; and
changes in business strategies.
Mandatorily Redeemable Preferred Securities
SJG's statutory trust subsidiary, SJG Capital Trust, currently has $35
million of 8.35% SJG-Guaranteed Mandatorily Redeemable Preferred Securities
outstanding. SJG may redeem these securities at a price equal to 100% of the
principal amount at any time. The securities currently trade on the New York
Stock Exchange under the symbol SJI.T.
Customer Choice Legislation
All residential natural gas customers in New Jersey can choose their
gas supplier under the terms of the Electric Discount and Energy Competition Act
of 1999. As of March 31, 2003, 92,897 SJG residential customers chose a natural
gas commodity supplier other than the utility. This number increased from 52,802
at March 31, 2002 as marketers were able to offer natural gas at prices
competitive with those available under regulated utility tariffs. Customers
purchasing natural gas from providers other than the utility are charged for gas
costs by the marketer, not the utility. The resulting decrease in SJG's revenues
is offset by a corresponding decrease in SJG's gas costs. While customer choice
can reduce utility revenues, it does not negatively affect SJG's net income or
financial condition. The Board of Public Utilities continues to allow for full
recovery of natural gas costs through the Basic Gas Supply Service as well as
other costs of service including deferred costs, through tariffs.
SJG-15
Temperature Adjustment Clause
SJG's Board of Public Utilities approved Temperature Adjustment Clause
(TAC) had the following impacts on 2003 and 2002 first quarter net earnings:
2003 2002
----------- -----------
TAC Adjustment (Decrease) Increase to
Net Income ($ in thousands)
Quarter Ended 3/31 $ (1,400) $ 3,000
The clause is designed to mitigate the effect of variations in heating
season temperatures from historical norms for both SJG and its customers. While
the revenue and income impacts of TAC adjustments are recorded as incurred, cash
inflows or outflows directly attributable to TAC adjustments generally do not
begin until the next TAC year. Each TAC year begins October 1.
Operating Revenues
Revenues increased $85.8 million in the first quarter of 2003 compared
with the prior year period. The increase was primarily due to three factors.
First, weather in the first quarter of 2003 was 27.7% colder than the prior year
period. Second, off-system sales revenues increased due to higher prices for
natural gas sold and slightly higher unit sales volume in 2003 than in the prior
year. Third, SJG's total customers increased from 290,604 as of March 31, 2002
to 298,767 as of March 31, 2003. Partially offsetting the effect of these
factors was a 76% increase in the number of residential customers purchasing
their gas from a source other than the utility. The decline in customers who
purchased their natural gas from the utility directly impacted utility revenues.
However, since gas costs are passed on directly to customers without any profit
margin added by SJG, the increased customer usage of gas marketers did not
impact SJG's profitability.
As a result of SJG's Temperature Adjustment Clause, revenues from
utility ratepayers are closely tied to 20-year normal temperatures calculated
under the clause and not actual temperatures. While the clause significantly
reduces fluctuations in revenues related to temperature, as a general rule,
revenues continue to be positively impacted by colder weather and negatively
impacted by warmer weather. Weather in the first quarter of 2003 was 27.7%
colder than in 2002 and 6.3% colder for the year than the 20-year TAC average.
The following is a comparison of operating revenue and throughput for
the three month period ended March 31, 2003 vs. the same period ended March 31,
2002.
SJG-16
March 31,
2003 2002
------------- -------------
Operating Revenues (Thousands):
Firm
Residential $ 89,308 $ 76,099
Commercial 27,430 22,544
Industrial 2,367 1,709
Cogeneration & Electric Generation 1,322 616
Firm Transportation 28,060 14,264
------------- -------------
Total Firm Operating Revenues 148,487 115,232
------------- -------------
Interruptible 491 239
Interruptible Transportation 195 475
Off-System 88,730 35,753
Capacity Release & Storage 1,303 1,694
Other 730 790
------------- -------------
Total Operating Revenues $ 239,936 $ 154,183
============= =============
Throughput (MMcf):
Firm
Residential 8,055 7,142
Commercial 2,729 2,334
Industrial 105 91
Cogeneration & Electric Generation 108 87
Firm Transportation 11,063 7,483
------------- -------------
Total Firm Throughput 22,060 17,137
Interruptible 36 48
Interruptible Transportation 411 957
Off-System 11,730 11,303
Capacity Release & Storage 5,993 6,646
------------- -------------
Total Throughput 40,230 36,091
============= =============
Total gas throughput increased 11.5% to 40.2 billion cubic feet (Bcf)
in the first quarter of 2003. The higher throughput was primarily due to colder
temperatures experienced in 2003. The increase in firm transportation throughput
reflected the increasing number of households purchasing their gas from
suppliers other than SJG.
SJG-17
Gas Purchased for Resale
Gas purchased for resale increased $79.4 million for the first quarter
of 2003 compared with the same period in 2002 due principally to a 29% increase
in firm gas sales volume and higher gas costs for off-system sales. Colder
weather was the main cause of the increase in firm gas sales volume; however,
this was partially offset by the migration of firm gas sales customers to
transportation service. SJG's gas cost during the first quarter of 2003 averaged
$6.80 per decatherm (dt) compared with $4.56/dt in 2002. . Unlike gas costs
associated with off-system sales, changes in the unit cost of gas sold to
utility ratepayers do not directly affect cost of gas sold. We defer and address
fluctuations in gas costs to ratepayers not reflected in current rates in future
periods under a BPU-approved Basic Gas Supply Service price structure, formerly
known as the Levelized Gas Adjustment Clause. Gas supply sources include
contract and open-market purchases. SJG secures and maintains its own gas
supplies to serve its sales customers. We do not anticipate any difficulty
renewing or replacing expiring contracts under substantially similar terms and
conditions.
Utility Operations
A summary of net changes in operations (in thousands):
Three Months Ended
March 31,
2003 vs. 2002
------------------
Other Production Expense $ 23
Transmission 31
Distribution 221
Customer Accounts and Services (127)
Sales (2)
Administration and General 725
-----------
Total Operations $ 871
===========
Distribution expenses increased 11.5% in the first quarter of 2003
compared with the same period in 2002. This was primarily due to severe weather
conditions experienced during the first quarter of 2003 that resulted in a
significant increase in overtime hours. The weather created operating issues
that ranged from snow removal, to water intrusion in gas lines in oceanfront
communities, to higher shut-off for non-payment activity.
Customer Accounts and Services expenses includes bad debt expense from
customer account write-offs. The collectibility of delinquent customer accounts
is generally determined during the winter season following the one where the
customer's account became delinquent - as temperatures drop, many customers with
delinquent balances will begin making payments in order to have their heat
restored. As the 2001-2002 winter season was one of the warmest winters on
record, many of our customers with delinquent balances from the prior winter did
not make payments to have their heat restored as would normally be expected. As
such, our bad debt expense was unusually high during the first quarter of 2002.
However, as the 2002-2003 winter season was colder-than-normal, customers with
delinquent balances from the year before did make payments as expected to have
their heat restored. This resulted in a much lower bad debt expense in the first
quarter of 2003, as compared with 2002.
SJG-18
Administrative and General (A&G) expenses increased in the first
quarter of 2003 compared with the same period in 2002 because of increasing
healthcare, pension and insurance costs.
Other Operating Expenses
A summary of principal changes in other operating expenses (in
thousands):
Three Months Ended
March 31,
2003 vs. 2002
------------------
Maintenance $ 40
Depreciation 310
Energy and Other Taxes 1,246
Depreciation was higher due to our increased investment in property,
plant and equipment. Changes in Energy and Other Taxes relate primarily to
changes in volumes of gas sold and transported.
Interest Charges
Interest charges decreased in the first quarter of 2003 compared with
the prior year period due primarily to reductions in short-term rates on line of
credit borrowings and the refunding of higher priced, fixed rate, long-term debt
with lower cost, floating rate, short-term debt. We expect to refinance these
refundings during 2003 with long-term debt issuances under our Medium-Term Note
Program at significantly lower interest rates compared to the previous long-term
interest rate. We have incurred debt primarily to expand and upgrade SJG's gas
transmission and distribution system and to support seasonal working capital
needs related to gas inventories and customer receivables.
Net Income Applicable to Common Stock
The details affecting the changes in net income and earnings per share
are discussed under the appropriate captions above.
Regulatory Matters and Rate Actions
In January 1997, the BPU granted SJG a 9.62% rate of return on rate
base, which included an 11.25% return on common equity. Additionally, our
threshold for sharing pre-tax margins generated by interruptible and off-system
SJG-19
sales and transportation increased. Currently, SJG keeps 100% of pre-tax margins
up to the threshold level of $7.8 million. The next $750,000 is credited to
customers through the Basic Gas Supply Service ("BGSS") charge. Thereafter, SJG
keeps 20% of the pre-tax margins as we have historically.
Effective January 10, 2000, the BPU approved full unbundling of SJG's
system. This allows all natural gas consumers to select their natural gas
commodity supplier. As of March 31, 2003, 92,897 of SJG's residential customers
were purchasing their gas commodity from someone other than SJG. Customers
choosing to purchase natural gas from providers other than the utility are
charged for the cost of gas by the marketer, not the utility. The resulting
decrease in SJG's revenues is offset by a corresponding decrease in gas costs.
While customer choice can reduce utility revenues, it does not negatively affect
SJG's net income or financial condition. The BPU continues to allow for full
recovery of natural gas costs through the BGSS as well as other costs of
service, including deferred costs, through tariffs.
In November 2001, SJG filed for a $2.7 million rate increase to recover
the cash related to a 3-year net deficiency in the Temperature Adjustment Clause
(TAC). Additionally, in September 2002, SJG filed for an $8.6 million rate
increase to recover the cash related to a TAC deficiency resulting from
warmer-than-normal weather for the 2001-2002 winter. As a result of the
colder-than-normal 2002-2003 winter, the cumulative TAC deficiency has decreased
to $7.5 million as of March 31, 2003.
Also in November 2001, SJG filed for a $17.6 million reduction to the
Levelized Gas Adjustment Clause (LGAC) The LGAC was the predecessor clause to
the BGSS. The BPU approved the LGAC reduction effective December 1, 2001 and
concurrently approved recovery of SJG's October 31, 2001 underrecovered gas cost
balance. As a result, SJG began recovering $48.9 million over three years plus
interest accrued since April 1, 2001. We are also recovering interest for the
3-year amortization period at a rate of 5.75%. As of March 31, 2003, the
remaining deferred underrecovered balance totaled $25.2 million.
During 2002, the BPU convened a gas policy group to address Basic Gas
Supply Service (BGSS), which is the gas supply service being provided by the
natural gas utility. On December 18, 2002, the BPU approved the proposed BGSS
price structure which was submitted by the gas policy group. The BGSS approved
price structure replaced the Levelized Gas Adjustment Clause (LGAC) pricing
structure that was in place prior to March 2003. The LGAC was structured to
reset gas charges to consumers once per year. The BGSS permits multiple resets
each year. With the implementation of BGSS in March 2003, customers are able to
make more informed decisions about choosing an alternate supplier by having a
utility price structure that more currently reflects market conditions. Further,
BGSS provides SJG with more pricing flexibility, through automatic rate changes
under certain conditions and under certain limitations, resulting in the
reduction of over/under-recoveries. LGAC related mechanisms, such as deferred
accounting treatment, the sharing of pre-tax margins generated by interruptible
and off-system sales and transportation, and the allowance for full recovery of
natural gas costs, remain in place under BGSS.
SJG-20
In September 2002, SJG filed with the BPU to maintain its current BGSS
rate through October 2003. However, due to recent price increases in the
wholesale market, in February 2003 SJG filed an amendment to the September 2002
filing. The filing proposed an $11.6 million increase to SJG's annual gas costs
revenues, and was approved by the BPU in April 2003.
In August 2002, SJG filed for a Societal Benefits Clause (SBC) rate
increase. The SBC recovers costs related to BPU mandated programs, including
environmental remediation costs that are recovered through SJG's Remediation
Adjustment Clause (RAC); energy efficiency and renewable energy program costs
that are recovered through SJG's New Jersey Clean Energy Programs; consumer
education program costs; and low income program costs. If approved, the rate
increase filed would provide for an annual recovery level of $13.7 million,
representing an annual increase of approximately $7.0 million over the $6.7
million recovery currently included in rates.
Also in August 2002, SJG filed a petition with the BPU to transfer its
appliance service business from the regulated utility into a newly created
unregulated company. As filed, the newly created company would have the
flexibility to be more responsive to competition and customer needs by expanding
and modifying its service offerings in an unregulated environment.
Filings and petitions described above are still pending unless
otherwise indicated.
Liquidity and Capital Resources
Liquidity needs at SJG are driven by factors that include natural gas
commodity prices; the impact of weather on customer bills; lags in fully
collecting gas costs from customers under the Basic Gas Supply Service charge;
the timing of construction and remediation expenditures and related permanent
financings; mandated tax payment dates; and both discretionary and required
repayments of long-term debt.
Lines of credit available to SJG totaled $157.0 million at March 31,
2003, of which $85.6 million was used. All but $10 million of these lines are
available through five commercial banks on an uncommitted basis. The banks and
SJG review and renew the lines annually. The $10 million line is extended on a
committed basis, maturing May 2003, by a sixth commercial bank. SJG has
long-standing relationships with all of these banks and we believe, based upon
ongoing dialogue, that there will continue to be sufficient credit available to
meet our business' future liquidity needs.
SJG supplements its operating cash flow and credit lines with both debt
and equity capital. Over the years, SJG has used long-term debt, primarily in
the form of First Mortgage Bonds, to finance its long-term needs. These needs
are primarily capital expenditures for property, plant and equipment. Since
1998, SJG has financed these needs via a Medium Term Note (MTN) program, secured
in similar fashion to the First Mortgage Bonds. SJG's registration of a new $150
million MTN program with the Securities and Exchange Commission became effective
in December 2002. This program replaces a previous $100 million, 3-year MTN
program that was fully used in 2001. Current maturities on long-term debt over
SJG-21
the next five years are as follows: $10.7 million per year in 2003 through 2005;
$9.0 million in 2006; and $8.4 million in 2007.
Capital Expenditures, Commitments and Contingencies
Capital Expenditures
SJG has a continuing need for cash resources and capital, primarily to
invest in new and replacement facilities and equipment and for environmental
remediation costs. Net construction and remediation expenditures for the first
quarter of 2003 amounted to $9.0 million. We estimate the net costs for 2003,
2004 and 2005 at approximately $56.3 million, $62.0 million and $54.2 million,
respectively.
Commitments and Contingencies
SJG has certain commitments for both pipeline capacity and gas supply
for which it pays fees regardless of usage. Those commitments as of March 31,
2003 average $44.1 million annually and total $292.6 million over the contracts'
lives. Approximately 15% of the financial commitment under these contracts
expires during the next five years. We expect to renew each of these contracts
under renewal provisions as provided in each contract. SJG recovers all
prudently incurred fees through rates via the BGSS.
Ratio of Earnings to Fixed Charges
The company's ratio of earnings to fixed charges for each of the
periods indicated is as follows:
Twelve Months
Ended
March 31, Year Ended December 31,
--------- ----------------------------------------------
2003 2002 2001 2000 1999 1998
---- ---- ---- ---- ---- ----
3.2x 2.9x 2.6x 2.6x 2.5x 2.2x
SJG-22
The ratio of earnings to fixed charges represents, on a pre-tax basis,
the number of times earnings covers fixed charges. Earnings consist of net
income, to which has been added fixed charges and taxes based on income of the
company before discontinued operations. Fixed charges consist of interest
charges and preferred securities dividend requirements and an interest factor in
rentals.
Item 3. Quantitative and Qualitative Disclosures About
Market Risks of the Company
Commodity Market Risks
SJG is a regulated utility. As such, we recover gas commodity costs
under the Basic Gas Supply Service charge that is part of our tariff. While SJG
is protected from gas cost fluctuations by the clause, we do utilize forward
contracts to shield our customers from gas cost fluctuations.
Interest Rate Risk
Our exposure to interest rate risk relates primarily to short-term,
variable rate borrowings. Our short-term, variable rate debt outstanding at
March 31, 2003 was $85.6 million and averaged $117.9 million for the first
quarter. A hypothetical 100 basis point (1%) increase in interest rates on our
average variable rate debt outstanding would result in a $696,000 increase in
our interest expense net of tax on an annual basis. The 100 basis point increase
was chosen for illustrative purposes, as it provides a simple basis for
calculating the impact of interest rate changes under a variety of interest rate
scenarios. Over the last five years, the change in basis points (b.p.) of our
average monthly interest rates from the beginning to end of each year was as
follows: 2002 - 74 b.p. decrease; 2001 - 383 b.p. decrease; 2000 - 83 b.p.
increase; 1999 - 81 b.p. increase; and 1998 - 38 b.p. decrease. For March 2003,
our average interest rate on variable rate debt was 2.13%.
To reduce exposure to an interest rate increase on our variable rate
debt, SJG entered into two interest rate swap agreements. The swaps fixed the
rate on $40 million of variable rate debt from April 2002 to March 2003 at
3.57%. The swap contracts expired as scheduled in March and borrowings under our
bank lines are currently unhedged. SJG primarily issues long-term debt at fixed
rates and, consequently, interest expense is not significantly impacted by
changes in market interest rates. SJG prepaid, at par, $3.0 million of 8.6%
debenture notes in February 2003. We also redeemed an additional $5.1 million
of 10.25% first mortgage bonds prior to scheduled maturity in May 2003. SJG
paid a premium of $110,000 to bondholders in conjunction with that redemption.
SJG-23
Item 4. Controls and Procedures
SJG management, including the Chief Executive Officer and Chief
Financial Officer, has conducted an evaluation of the effectiveness of
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based
on that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the disclosure controls and procedures are effective in ensuring
that all material information required to be filed in this quarterly report has
been made known to them in a timely fashion. There have been no significant
changes in internal controls, or in factors that could significantly affect
internal controls, subsequent to the date the Chief Executive Officer and Chief
Financial Officer completed their evaluation.
SJG-24
PART II -- OTHER INFORMATION
Item l. Legal Proceedings
Information required by this Item is incorporated by reference to Part
I, Item 1, Note 6, beginning on page 11.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
99.1 Certification pursuant to 18 U.S.C. Section
99.2 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
(b) Form 8-K
None.
SJG-25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTH JERSEY GAS COMPANY
(Registrant)
Dated: May 14, 2003 By: /s/ Charles Biscieglia
-------------------------------
Charles Biscieglia
Chief Executive Officer
Dated: May 14, 2003 By: /s/ David A. Kindlick
-------------------------------
David A. Kindlick
Executive Vice President & Chief
Financial Officer
CERTIFICATIONS
I, Charles Biscieglia, certify that:
1. I have reviewed this quarterly report on Form 10-Q of South Jersey Gas
Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
SJG-26
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 14, 2003 /s/ Charles Biscieglia
--------------------------------------------
Charles Biscieglia
Chief Executive Officer
I, David A. Kindlick, certify that:
1. I have reviewed this quarterly report on Form 10-Q of South Jersey Gas
Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
SJG-27
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 14, 2003 /s/ David A. Kindlick
---------------------------------------------
David A. Kindlick
Executive Vice President and Chief
Financial Officer
SJG-28