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SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

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

NEW JERSEY RESOURCES CORPORATION

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.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

The number of shares outstanding of $2.50 par value Common Stock as of July 31, 2003 was 27,202,388.

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INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS

     Certain statements contained in this report including, without limitation, those with respect to expected disposition of legal and regulatory proceedings, exposure under the Stagecoach agreement, expected capital expenditures, external financing requirements, the impact of changes in market rates of interest, matters relating to remediation of manufactured gas plant (MGP) sites and recovery of related costs, and the impact of changes in market prices of commodities are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can also be identified by the use of forward-looking terminology such as “may,” “intend,” “expect,” “continue,” or comparable terminology and are made based upon the Company’s expectations and beliefs concerning future developments and their potential effect upon the Company. There can be no assurance that future developments will be in accordance with Company expectations or that the effect of future developments on the Company will be those anticipated by management.

     The Company wishes to caution readers that the assumptions that form the basis for forward-looking statements with respect to, or that may impact earnings for, fiscal 2003 and thereafter include many factors that are beyond the Company’s ability to control or estimate precisely, such as estimates of future market conditions, the behavior of other market participants and changes in interest rates. Among the factors that could cause actual results to differ materially from estimates reflected in such forward-looking statements are weather conditions and economic conditions, demographic changes in NJNG’s service territory, fluctuations in energy commodity prices, energy conversion activity and other marketing efforts, the conservation efforts of NJNG’s customers, the pace of deregulation of retail gas markets, access to adequate supplies of natural gas, the regulatory and pricing policies of federal and state regulatory agencies, changes due to legislation at the federal and state level, the continued recoverability of environmental remediation expenditures, and other regulatory and economic policy changes.

     While the Company periodically reassesses material trends and uncertainties affecting the Company’s results of operations and financial condition in connection with its preparation of management’s discussion and analysis of results of operations and financial condition contained in its quarterly and annual reports, the Company does not, by including this statement, assume any obligation to review or revise any particular forward-looking statement referenced herein in light of future events.

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PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)

See Notes to Consolidated Financial Statements

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CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

See Notes to Consolidated Financial Statements

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CONSOLIDATED BALANCE SHEETS

ASSETS

See Notes to Consolidated Financial Statements

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CONSOLIDATED BALANCE SHEETS

CAPITALIZATION AND LIABILITIES

See Notes to Consolidated Financial Statements

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

See Notes to Consolidated Financial Statements

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. General

     The financial statements have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). The September 30, 2002 balance sheet data is derived from the audited financial statements of New Jersey Resources Corporation (NJR or the Company). These financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company’s 2002 Annual Report on Form 10-K.

     In the opinion of management, the information furnished reflects all adjustments necessary for a fair statement of the results of the interim periods. Because of the seasonal nature of the Company’s utility operations and NJR Energy Services Company (Energy Services) operations, and other factors, the results of operations for the interim periods presented are not indicative of the results to be expected for the entire year.

     Certain reclassifications have been made of previously reported amounts to conform to current year classifications.

2. New Accounting Standards

     In May 2003, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equities.” The statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim reporting period after June 15, 2003. The statement requires an issuer to classify a financial instrument as a liability (or an asset in some circumstances) because that financial instrument embodies an obligation of the issuer. These obligations include, but are not limited too, mandatorily redeemable stock, obligations to repurchase company shares, and other obligations payable in company stock. The Company has completed its assessment of the effect of the pronouncement and has determined that none of its financial instruments contain obligations payable in Company stock and, therefore, the adoption of SFAS No. 150 will not have an impact on its financial condition, results of operations or cash flows.

     In April 2003, the FASB issued SFAS No.149, “Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities.” (SFAS 149). SFAS 149 is generally effective for contracts entered into or modified after June 30, 2003. This amendment, among other things, further defines SFAS No. 133, “Accounting For Derivative Instruments and Hedging Activities,” as amended (SFAS 133) and clarifies several implementation issues. The Company is currently assessing the impact of the pronouncement. In Management’s opinion, the adoption of SFAS No. 149 will not have a material adverse effect on its financial condition, results of operations or cash flows.

     In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure” (SFAS 148), an amendment of FASB Statement No. 123. SFAS 148 provides implementation guidance for the adoption of SFAS No. 123, “Accounting for Stock-Based Compensation,” (SFAS 123), which the Company adopted as of October 1, 2002. The Company has complied with the guidelines of SFAS 148 with respect to the adoption and disclosure of SFAS 123 (See Note 6. – Earnings Per Share (EPS)).

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     The Company completed its assessment of SFAS No. 143, “Accounting for Asset Retirement Obligations” (SFAS 143), which became effective October 1, 2002. SFAS 143 addresses the accounting and reporting for legal obligations associated with the retirement of tangible long-lived assets, and the associated asset retirement costs. Based on its analysis, the Company determined that it has no such legal obligations. However, as of June 30, 2003, September 30, 2002, and June 30, 2002, the Company had asset retirement costs recovered through rates in excess of actual costs incurred totaling $71.5 million, $67.8 million, and $67.0 million, respectively, which are included in Accumulated depreciation on the Consolidated Balance Sheets in accordance with SFAS No. 71 “Accounting for the Effects of Certain Types of Regulation.”

     In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46), which clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements.” This Interpretation provides guidance on the identification and consolidation of variable interest entities (VIEs), whereby consolidation is achieved through means other than through control. The Company has completed an analysis of FIN 46 and has determined that there are no VIEs requiring consolidation.

     In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” (FIN 45). FIN 45 clarifies the requirements of SFAS No. 5, “Accounting for Contingencies” (SFAS 5), related to a guarantor’s accounting for, and disclosures of, the issuance of certain types of guarantees (see Note 11. – Commitments and Contingent Liabilities). The Company has completed an analysis of FIN 45 and has determined that there were no guarantees for unrelated third parties. NJR has issued parental guarantees for certain transactions entered into by Energy Services. As of June 30, 2003, there were parental guarantees covering approximately $186 million of firm commitments not yet reflected in accounts payable on the Consolidated Balance Sheet.

3. Principles of Consolidation

     The consolidated financial statements include the accounts of the Company and its subsidiaries, New Jersey Natural Gas Company (NJNG), Energy Services, NJR Retail Holdings Corporation (Retail Holdings), NJR Capital Services Corporation (Capital) and NJR Service Corporation. Significant intercompany transactions and accounts have been eliminated.

     The Retail and Other segment include Retail Holdings and its wholly owned subsidiary, NJR Home Services Company (Home Services). Home Services has a wholly owned subsidiary, NJR Plumbing Services Company. Retail and Other also includes Capital and its wholly owned subsidiaries, Commercial Realty & Resources Corp. (CR&R), NJR Investment Company and NJR Energy Corporation (NJR Energy).

4. Capitalized and Deferred Interest

     The Company’s capitalized interest totaled $66,000 and $55,000 for the three months ended June 30, 2003 and 2002, respectively, and $212,000 and $283,000 for the nine months ended June 30, 2003 and 2002, respectively, at the following average interest rates 1.35 percent, 1.84 percent, 1.58 percent and 2.37 percent, respectively. These amounts are included in construction work in progress and are reflected in the Income Statement as a reduction to interest expense, net. NJNG does not capitalize a cost of equity for its utility plant construction activities.

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     Pursuant to a New Jersey Board of Public Utilities (BPU) order, NJNG’s carrying costs are recoverable on uncollected balances related to underrecovered gas costs through October 31, 2001 and its MGP remediation expenditures (see Note 5c. – Manufactured Gas Plant Remediation). Accordingly, Other income included deferred interest of $536,000 and $685,000 for the three months ended June 30, 2003 and 2002, respectively, and $1.6 million and $2.2 million for the nine months ended June 30, 2003 and 2002, respectively, for carrying costs related to remediation and underrecovered gas costs.

5. Legal and Regulatory Proceedings

a. Energy Deregulation Legislation

     In February 1999, the Electric Discount and Energy Competition Act (EDECA), which provides the framework for restructuring New Jersey’s energy market, became law. In March 2001, the BPU issued a written order that approved a stipulation among various parties to fully open NJNG’s residential markets to competition, restructure its rates to segregate its Basic Gas Supply Service (BGSS), the component of rates whereby NJNG provides the commodity to the customer, and delivery (i.e., transportation) prices as required by EDECA and expand an incentive for residential and small commercial customers to switch to transportation service.

     In June 2001, the BPU initiated a proceeding regarding the provision of BGSS. In July 2001, NJNG submitted a BGSS proposal that provides additional customer choices, including various pricing options. In January 2002, the BPU issued an order, which stated that BGSS could be provided by suppliers other than the state’s natural gas utilities, but BGSS should be provided by the state’s natural gas utilities until further BPU action. The parties are currently discussing NJNG’s July 2001 proposal.

     The BPU is required to audit the state’s energy utilities competitive services business every two years. The primary purpose of the audit is to ensure that NJNG and its affiliates offering unregulated retail services do not have any unfair competitive advantage over non-affiliated providers of similar retail services. In June 2002, the BPU initiated a compliance audit. In March 2003, an independent consulting firm, engaged by the BPU, completed its audit of NJNG. The audit report found that NJNG and its affiliates do not have an unfair competitive advantage over other competitive service providers. It also confirmed that NJNG has established and maintained effective accounting, functional and management separation between itself and its affiliates. The audit has been submitted to the BPU for approval.

b. BGSS and Other Adjustment Clauses

     On October 17, 2002, NJNG filed a request with the BPU for a 3 percent BGSS price increase reflecting higher projected wholesale natural gas costs, to be effective December 1, 2002 and the opportunity for an additional adjustment in February 2003 to address potential changes in market conditions. The filing also requested an extension of the BGSS margin-sharing incentives. In lieu of the December price change, NJNG updated the BGSS request in January 2003 to seek a 6 percent price increase, effective February 1, 2003. On February 5, 2003, NJNG received a provisional 6 percent price increase subject to refund with interest. The parties to the BGSS proceeding continue to review the filing to extend the BGSS incentives beyond October 31, 2003. The BPU is expected to issue a final order on these matters by October 31, 2003.

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     NJNG is eligible to receive incentives for reducing BGSS costs through a series of margin-sharing programs that include off-system sales, capacity release, and portfolio-enhancing programs. On October 30, 2002, the BPU approved an agreement whereby the existing 85/15 margin sharing between customers and shareowners for off-system sales, capacity release and financial risk management transactions was extended through October 31, 2003. As part of this agreement, the portfolio-enhancing programs, which include an incentive for the permanent reduction of the cost of capacity, continued to receive 60/40 sharing treatment between customers and shareowners for transactions completed on or before December 31, 2002. Any new transactions under the portfolio-enhancing programs that became effective after January 1, 2003, are not eligible for margin sharing. NJNG believes that the elimination of the portfolio-enhancing program will not have a material effect on its financial position, results of operations or cash flows. NJNG also believes as part of the BGSS proceeding discussed above, that it can replace these programs with new incentive-based programs that will not have a material effect on its financial position, results of operations or cash flows. However, no assurance can be given as to the ultimate resolution of these matters.

     On January 6, 2003, the BPU approved a statewide BGSS agreement requiring all New Jersey natural gas utilities to make an annual filing by June 1 for review of BGSS and a potential price change to be effective October 1. After proper notice and BPU action on the June filing, the agreement allows natural gas utilities to increase residential and small commercial customer BGSS prices up to 5 percent on a self-implementing basis on December 1 and February 1. On May 1, 2003, NJNG submitted its annual BGSS filing, seeking an 8.8 percent increase reflecting higher wholesale natural gas costs. The BPU is expected to rule on this filing in August, with a likely effective date of September 1, 2003.

     In March 2003, the BPU approved a permanent statewide Universal Service Fund (USF) program effective July 1, 2003. The USF program was established for all natural gas and electric utilities in New Jersey for the benefit of low-income customers. Eligible customers will receive a credit toward their utility bill. The administrative cost of the program together with the credits applied to eligible customers will be recovered through a USF Rider. NJNG would recover carrying costs on deferred USF balances, if any.

     NJNG is also involved in various proceedings associated with several other adjustment clauses (e.g., Transportation Initiation Clause (TIC) and New Jersey Clean Energy Program, formerly known as Comprehensive Resource Analysis), which in NJNG’s opinion will not have a material adverse effect on its financial condition or results of operations.

     NJNG has proposed a Smart Growth pilot program for Asbury Park and Long Branch that would invest new capital in the infrastructure of these cities. NJNG’s proposal features a recovery mechanism referred to as the Targeted Revitalization Infrastructure Program (TRIP), which would provide a current return on and return any capital invested in this program. NJNG estimates that it will invest approximately $14 million in Asbury Park and Long Branch under this program. The BPU is currently reviewing this proposal.

     In June 2003, the BPU approved a 10-year transportation agreement between NJNG and Ocean Peaking Power, LLC to provide transportation service to a new natural gas-fired electric generation plant adjacent to its existing cogeneration plant in Lakewood, N.J. NJNG’s transportation agreement with Ocean Peaking Power, LLC, which became effective June 1, 2003, will benefit customers by providing additional credits against natural gas costs, with sales principally made during non-peak times. Gross

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margins from these sales over the first four years will be shared with customers and NJNG on a 50/50 basis.

c. Manufactured Gas Plant (MGP) Remediation

     NJNG has identified 11 former MGP sites, dating back to the late 1800s and early 1900s, which contain contaminated residues from the former gas manufacturing operations. Ten of the 11 sites in question were acquired by NJNG in 1952. Gas manufacturing operations ceased at these sites at least by the mid-1950s and, in some cases, had been discontinued many years earlier. All of the former gas manufacturing facilities were subsequently dismantled by NJNG or the previous owners. Since October 1989, NJNG has entered into Administrative Consent Orders or Memoranda of Agreement with the New Jersey Department of Environmental Protection (NJDEP) covering all 11 sites. These orders and agreements establish the procedures to be followed by NJNG in developing a final remedial cleanup plan for each site. NJNG is currently involved in administrative proceedings with the NJDEP with respect to the plant sites in question, and is participating in various studies and investigations by outside consultants to determine the nature and extent of any such contaminated residues and to develop appropriate programs of remedial action, where warranted.

     Until September 2000, most of the cost of such studies and investigations had been shared under an agreement with the former owner and operator of 10 of the MGP sites. In September 2000, a revised agreement was executed pursuant to which NJNG is responsible for two of the sites, while the former owner is responsible for the remaining eight sites. Also in September 2000, NJNG purchased a 20-year cost-containment insurance policy for its two remaining sites. NJNG continues to participate in the investigation and remedial action for the MGP site that was not subject to the original cost-sharing agreement. In June 1992, the BPU approved a Remediation Rider through which NJNG recovers its remediation expenses over a 7-year period. NJNG is currently recovering its remediation expenditures incurred through June 30, 1998. Costs incurred subsequent to June 30, 1998, including carrying costs on deferred expenditures, will be recovered over rolling seven-year periods, subject to BPU approval In September 1999 and January 2001, NJNG filed for recovery of remediation expenditures incurred in the years ended June 30, 1999 and 2000, respectively. In March 2003, NJNG filed testimony for recovery of remediation expenditures for the 2-year period ending June 30, 2002. The BPU is currently reviewing these three filings and, while NJNG believes that all costs are probable of recovery, no assurance can be given as to the ultimate resolution of this matter. As of June 30, 2003, $123.4 million of previously incurred and accrued remediation and carrying costs, net of recoveries from customers and insurance, is included in Regulatory assets on the Consolidated Balance Sheet.

     In March 1995, NJNG instituted an action for declaratory relief against 24 separate insurance companies in the Superior Court of New Jersey, Docket No. OCM-L-859-95. These insurance carriers provided comprehensive general liability coverage to NJNG from 1951 through 1985. The complaint was amended in July 1996 to name Kaiser-Nelson Steel and Salvage Company (Kaiser-Nelson) and its successors as additional defendants. In September 2001, NJNG reached a favorable settlement with the insurance carrier that provided the majority of NJNG’s coverage. This settlement involves a significant cash payment to NJNG that will be paid in four installments. NJNG has now dismissed or reached a settlement with all of its insurance carriers. NJNG continues to pursue its claim against Kaiser-Nelson for environmental damages caused by Kaiser-Nelson’s decommissioning of structures at several MGP sites. The trial has been postponed pending resolution of various pretrial motions. No assurance can be given as to the ultimate resolution of this matter.

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d. Long Branch MGP Site Litigation

     On July 1, 2003, 124 complaints were filed in the Superior Court of New Jersey, Monmouth County Law Division, Docket No. MON-L-2883-03, against NJNG and the Company, among others, alleging personal injuries stemming from the operation and remediation of the former MGP site in Long Branch, N.J. The relief sought, which has yet to be quantified by plaintiffs, includes compensatory damages, the establishment of a medical monitoring fund, disgorgement of profits, cost of cleanup and remediation, and punitive damages.

     The former owner, which is a co-defendant, has made a demand on NJNG for indemnification as a result of an agreement entered between NJNG and the co-defendant, whereby NJNG assumed responsibility for the Long Branch site.

     The Company’s insurance carriers have been notified of the claim. One of the insurance carriers has advised the Company that it will provide legal defense coverage, subject to a reservation of rights regarding certain allegations in the complaints.

     The Company believes that liabilities incurred or associated with this matter, excluding intentional acts and punitive damages if any, are recoverable either through insurance or may be recoverable through the Remediation Rider (see note 5c. Manufactured Gas Plant (MGP) Remediation) however, no assurance can be given as to the ultimate resolution of this matter or the impact on the Company’s financial condition, results of operations or cash flows.

e. Various

     The Company is party to various other claims, legal actions and complaints arising in the ordinary course of business. In the Company’s opinion, the ultimate disposition of these matters will not have a material adverse effect on its financial condition, results of operations or cash flows.

6. Earnings Per Share (EPS)

     In accordance with SFAS No. 128 “Earnings Per Share,” which established standards for computing and presenting basic and diluted EPS, the incremental shares required for inclusion in the denominator for the diluted EPS calculation were 484,607 and 317,872 for the three months ended June 30, 2003 and 2002, respectively, and 406,803 and 310,050 for the nine months ended June 30, 2003 and 2002, respectively. These shares relate to stock options and restricted stock and were calculated using the treasury stock method. The numerator for each applicable basic and diluted EPS calculation was net income.

     In October 2002, the Company adopted the fair value method of recording stock-based compensation under SFAS 123. The Company adopted the prospective application of SFAS 123 for options granted after October 1, 2002, the cost of which will be expensed through the income statement based on the fair value of the award at the grant date. The following is a reconciliation of the As Reported and Pro Forma net income for options granted prior to October 1, 2002, which are accounted for under Accounting Principles Board Opinion No. 25 “Accounting for Stock Issued to Employees.”

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7. Construction Fund and Long-Term Debt

     In December 2002, the Company entered into $380 million of committed credit facilities with several banks, which replaced $335 million of credit agreements. The NJR portion of the facility consists of $100 million with a 364-day term and an $80 million revolving credit facility with a 3-year term expiring January 2006. The NJNG portion of the facility consists of $150 million with a 364-day term and a $50 million revolving credit facility with a 3-year term expiring January 2006. The NJR facilities are used to finance unregulated operations. NJNG’s facilities are used to support its commercial paper borrowings. Consistent with NJNG’s intent to maintain a portion of its commercial paper borrowings on a long-term basis, and as supported by its long-term revolving credit facility, $30 million, $25 million and $50 million of commercial paper borrowings are included in Long-term debt on the Consolidated Balance Sheets at June 30, 2003, September 30, 2002 and June 30, 2002, respectively.

     In July 2002, the New Jersey Economic Development Authority (EDA) approved $12 million of new funds to finance construction over the next three years in NJNG’s northern division. In March 2003, NJNG filed a petition with the BPU for authority to issue and deliver First Mortgage Bonds, Private Placement Bonds or Medium Term Notes in the principal amount up to $100 million over the next three years. NJNG expects BPU action on the filing by September 30, 2003. Subsequent to BPU and final EDA approval, NJNG expects to enter into a loan agreement whereby the EDA would loan NJNG the

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proceeds from its $12 million Natural Gas Facilities Revenue Bonds, which NJNG would deposit into a construction fund. NJNG expects to then immediately draw down $4 million from the construction fund.

     In July 2002, NJNG entered into $97.1 million of interest-rate caps with several banks at a rate of 3.25 percent, expiring in July 2004. These caps are designed to limit NJNG’s variable rate debt exposure for all of its outstanding tax exempt EDA Bonds. The Company accounts for the interest-rate caps as a cash flow hedge with changes in fair value accounted for in Other comprehensive income.

     In fiscal 2002, NJNG entered into an agreement with a financing company whereby NJNG received $20.6 million related to the sale-leaseback of a portion of its meters. In December 2002, NJNG received $5.3 million under this agreement in connection with the sale-leaseback of its vintage 2001 meters. NJNG has the ability to continue the sale-leaseback meter program on an annual basis.

     In December 2002, NJNG’s $25 million, 7.5 percent Series V First Mortgage Bonds matured.

8. Segment Reporting

     The Natural Gas Distribution segment consists of regulated energy and off-system and capacity management operations. The Energy Services segment consists of unregulated fuel and capacity management and wholesale marketing operations. The Retail and Other segment consist of service, sales and installation of appliances, commercial real estate development, investment and other corporate activities.

*     Consists of transactions between subsidiaries that are eliminated in consolidation.

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     The assets of each of the Company’s various business segments are detailed below:

9. Investments

     Included in Equity investments on the Consolidated Balance Sheet is the Company’s less-than-1-percent ownership interest in the Capstone Turbine Corporation (Capstone), a developer of microturbines. In July 2001, the Company entered into a 5-year zero-premium collar to hedge changes in the future cash flows associated with the sale of 100,000 shares of its investment in Capstone at the settlement date in 2006. The collar consists of a purchased put option with a strike price of $9.97 per share and a sold call option with a strike price of $24.16 per share for 100,000 shares. The Company accounts for the transaction as a cash flow hedge with changes in fair value accounted for in Other comprehensive income. The change in Other comprehensive income for the nine months ended June 30, 2003, was a $14,000 unrealized loss related to this collar. Through June 30, 2003, Accumulated other comprehensive income includes an $827,000 unrealized gain related to this collar. In July 2002, the Company sold all of its unhedged Capstone shares and realized an after-tax loss of $449,000.

10. Comprehensive Income

     The amounts included in Other comprehensive income related to natural gas instruments, which have been designated cash flow hedges, will reduce or increase gas costs as the underlying physical transaction occurs. Based on the amount recorded in Accumulated other comprehensive income at June 30, 2003, $10.4 million is expected to be recorded as a decrease to gas costs for the remainder of fiscal 2003. For the three months ended June 30, 2003 and 2002, $8.3 million and $1.5 million was credited to gas costs, respectively, and for the nine months ended June 30, 2003 and 2002, $46 million was charged and $32.8 million was credited to gas costs, respectively. These cash flow hedges cover various periods of time ranging from August 2003 to October 2010.

11. Commitments and Contingent Liabilities

     NJNG is involved with environmental investigations and remedial actions at certain MGP sites (see Note 5c. – Manufactured Gas Plant (MGP) Remediation and Note 5d. – Long Branch MGP Site Litigation). In July 2002, with the assistance of an outside consulting firm, NJNG updated an environmental review of the sites, including evaluating its potential liability for investigation and remedial action. On the basis of such review, NJNG estimates that, exclusive of any insurance recoveries, total future expenditures to remediate and monitor known MGP sites will range from $65.8 million to $83.3 million. NJNG’s estimate of these liabilities is based upon currently available facts, existing technology

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and presently enacted laws and regulations. However, actual costs may differ materially from these estimates. Where available information is sufficient to estimate the amount of the liability, it is NJNG’s policy to accrue the full amount of such estimate. Where the information is sufficient only to establish a range of probable liability and no point within the range is more likely than any other, it is NJNG’s policy to accrue the lower end of the range. Accordingly, NJNG has recorded an MGP remediation liability and a corresponding Regulatory asset of $65.8 million on the Consolidated Balance Sheet. The actual costs to be incurred by NJNG are dependent upon several factors, including final determination of remedial action, changing technologies and governmental regulations, and the ultimate ability of other responsible parties to pay. NJNG believes all such costs are recoverable through a Remediation Rider, however, no assurance can be given as to the ultimate resolution of this matter.

     Energy Services has entered into a marketing and management agreement for the Stagecoach storage project. Stagecoach is a high-injection/high-withdrawal facility in New York with 12 billion cubic feet (Bcf) of working gas capacity and interstate pipeline connections to the Northeast markets. Stagecoach received Federal Energy Regulatory Commission (FERC) certification for full operations in June 2002.

     Energy Services is the agent for marketing Stagecoach services for a 10-year period, subject to termination rights, ending March 31, 2012. During this period, Energy Services has agreed to arrange contracts for, or purchase at fixed prices, sufficient services to provide Stagecoach with revenues of approximately $22 million annually from April 1, 2003, to March 31, 2012. Stagecoach can require Energy Services to make the foregoing purchases only if Stagecoach is capable of providing the underlying services and must notify Energy Services of its intent to sell services under the aforementioned contract by November 30 of the prior annual period. Energy Services believes that the price at which it would be required to purchase these services is currently below market. Stagecoach did not notify Energy Services of its intent to sell services for the annual period ended March 31, 2004. Therefore, Energy Services has no purchase obligation related to this period. Energy Services has reached 1- to 5-year agreements with Stagecoach customers with varying expiration dates, the last of which is March 31, 2008. The value of these services total 69 percent and 15 percent of the Company’s potential purchase obligation for the annual periods ended March 31, 2005 and 2006, respectively.

     In August 2002, NJNG, in connection with its system requirements, was awarded 2-year agreements for Stagecoach storage and transportation services ending July 31, 2004. These agreements were awarded pursuant to an open bid process.

     Due to the price levels of the potential purchase obligations to Energy Services, as compared with current market prices, and the current and expected level of contracts, the Company does not currently believe that the potential purchase obligation in the Stagecoach agreement will result in any material future losses.

     Under the Stagecoach agreement, Energy Services is also required to provide and maintain 2 Bcf of firm base gas at the Stagecoach facility for the term of the agreement.

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12. Regulatory Assets

     At June 30, 2003, September 30, 2002, and June 30, 2002, respectively, the Company had the following regulatory assets on the Consolidated Balance Sheets: