South Jersey Energy Co. Reports Higher Economic Earnings

South Jersey Energy Company recorded economic earnings of $1 million for the quarter ending September 30, 2011, up from $400,000 a year ago, parent South Jersey Industries reported yesterday.

The growth was attributed to growth in electric customers, as well as lower capacity costs and transmission rates. Economic earnings exclude certain hedging impacts.

For the first nine months of 2011, South Jersey Energy Company recorded economic earnings of $2.9 million, versus $2.8 million a year ago.

South Jersey Energy Company was serving 7,363 retail gas customers as of September 30, 2011, versus 7,790 as of June 30, 2011 and 8,619 a year ago.

Residential retail gas customers were 5,731 as of June 30, 2011, down from 6,190 as of June 30, 2011, and 7,649 a year ago. Commercial & Large Volume customers were 1,632, up from 1,600 as of June 30, 2011, and 970 year ago.

Regarding South Jersey Energy Company's retail gas business, SJI reiterated that, "[m]arket conditions continue to make it difficult to be competitive in the residential and small commercial markets."

As indicated in the customer counts, South Jersey Energy Company continues to focus marketing efforts on the pursuit of non-heat-sensitive commercial customers in an effort to mitigate price volatility and weather risk.

Residential retail gas volumes for the quarter were 31,207 dekatherms, versus 42,057 dekatherms a year ago. Commercial & Large Volume throughput for the quarter was 4,099,763 dekatherms, versus 3,986,300 dekatherms a year ago.

South Jersey Energy Company's retail electric revenue, excluding unrealized losses and gains, was $51.9 million for the quarter, versus $51.0 million a year ago. The increase was due to a 16.5% increase in volumes which was mostly offset by a 16.3% decrease in the average monthly Locational Marginal Price (LMP) per megawatt-hour.

Gross margin from South Jersey Energy Company's retail gas sales was essentially unchanged for the three months ended September 30, 2011, versus the year-ago, after excluding the change in unrealized gains and losses recorded on forward financial contracts. Retail gas gross margin as a percentage of Operating Revenues decreased 0.2 percentage points for the three months ended September 30, 2011, compared with the same period in 2010, as the marketer replaced several high-margin customers with lower margin load.

Gross margin from South Jersey Energy Company's retail electricity sales, excluding the impact of the net change in unrealized gains and losses recorded on forward financial contracts, increased $1.6 million in the three months ended September 30, 2011 compared to the year-ago. Excluding the impact of the unrealized gains/losses, retail electric gross margin as a percentage of Operating Revenues increased 3.0 percentage points for the three months ended September 30, 2011 compared with the same period of 2010.

The increase was due mainly to lower capacity and network services costs and the cost differential of incremental summer load. The incremental summer load impact is due to the third quarter usage of the large number of schools which are part of a bid won in April 2009. The schools aggregation is a fixed-price full requirements contract. At the time South Jersey Energy Co. entered into this contract, it purchased a fixed price supply contract based on historical usage information contained in the bid. During the third quarter of 2010, the schools used significantly more electricity than forecast and South Jersey Energy Co. was required to purchase those incremental volumes at market prices that were higher than the original purchase price, causing the company to recognize significantly lower margins. In the third quarter of 2011, the schools' consumption was only slightly higher than forecast, and South Jersey Energy Co. purchased those incremental volumes at market prices that were much closer to the original purchase price.

On a GAAP basis, the income contribution from South Jersey Energy Co. for the three months ended September 30, 2011 increased $4.1 million to a net loss of $0.6 million due primarily to the change in unrealized gains and losses on forward financial contracts used to mitigate price risk.