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UNITED STATES 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 February 2, 2004, was 27,450,758.

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INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS

     Certain statements contained in this report are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include, 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 sites and recovery of related costs, and the impact of changes in market prices of commodities. Forward-looking statements can also be identified by the use of forward-looking terminology such as “may,” “intend,” “expect,” or “continue” or comparable terminology and are made based upon management’s expectations and beliefs concerning future developments and their potential effect upon New Jersey Resources (NJR). There can be no assurance that future developments will be in accordance with management’s expectations or that the effect of future developments on NJR will be those anticipated by management.

     NJR cautions readers that the assumptions that form the basis for forward-looking statements, including those regarding financial results and capital requirements for fiscal 2004 and thereafter, include many factors that are beyond NJR’s ability to control or estimate precisely, such as estimates of future market conditions, the behavior of other market participants and changes in the debt and equity capital markets. Among the factors that could cause actual results to differ materially from estimates reflected in such forward-looking statements are weather and economic conditions, demographic changes in the New Jersey Natural Gas (NJNG) 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 disallowance of recovery of environmental remediation expenditures and other regulatory changes. NJR 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, 2003, balance sheet data is derived from the audited financial statements of New Jersey Resources (NJR or the Company). These financial statements should be read in conjunction with the financial statements and the notes thereto included in NJR’s 2003 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 NJR’s utility and wholesale energy services operations, in addition to other factors, the financial results for the interim periods presented are not indicative of the results to be expected for the entire year.

2. Principles of Consolidation

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

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

3. New Accounting Standards

     In December 2003, the Financial Accounting Standards Board (FASB) revised 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. NJR has completed its assessment of FIN 46 and has determined that it does not have any VIEs.

     In December 2003, the FASB revised Statement of Financial Accounting Standards (SFAS) No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits (SFAS 132).” SFAS 132 revises employers’ disclosures about pension and other postretirement benefit plans. NJR has complied with the guidelines of SFAS 132 as they relate to the interim period disclosures (See Note 9. – Employee Benefit Plans).

     In July 2003, the Emerging Issues Task Force (EITF) issued EITF No. 03-11, “Reporting Realized Gains and Losses on Derivative Instruments That are Subject to FASB Statement No. 133 and Not Held for Trading Purposes.” EITF No. 03-11 clarifies the income statement presentation for derivative contracts not held for trading purposes. NJR has completed its assessment of EITF No. 03-11 and has determined that it will not have an impact on its financial condition, results of operations or cash flows.

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4. Capitalized and Deferred Interest

     NJR’s capitalized interest totaled $91,000 and $81,000 for the three months ended December 31, 2003 and 2002, respectively, at average interest rates of 1.52 percent and 1.81 percent, respectively. These amounts are included in construction work in progress, a component of Utility plant on the Consolidated Balance Sheets and reflected in the Consolidated Statements of Income as a reduction to Interest charges, net. NJNG does not capitalize a cost of equity for its utility plant construction activities.

     Pursuant to a New Jersey Board of Public Utilities (BPU) order, NJNG is permitted to recover carrying costs on uncollected balances related to underrecovered natural gas costs incurred through October 31, 2001, and its manufactured gas plant (MGP) remediation expenditures. (See Note 5d. – MGP Remediation). Accordingly, Other income included $743,000 and $525,000 of deferred interest related to remediation and underrecovered gas costs for the three months ended December 31, 2003 and 2002, respectively.

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 the restructuring of 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 and expand an incentive for residential and small commercial customers to switch to transportation service. As required by EDECA, NJNG restructured its rates to segregate its Basic Gas Supply Service (BGSS), the component of rates whereby NJNG provides the commodity and capacity to the customer, and delivery (i.e., transportation) prices.

     In June 2001, the BPU initiated a proceeding regarding the provision of BGSS. In July 2001, NJNG submitted a BGSS proposal that provides for 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. On October 22, 2003, the BPU approved a stipulation whereby the parties agreed to develop a commodity pooling program, which is related to NJNG’s 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 utilities and their affiliates offering unregulated retail services do not have any unfair competitive advantage over nonaffiliated providers of similar retail services. In June 2002, the BPU initiated a compliance audit of NJNG. 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. Approval of the audit by the BPU is pending.

b. BGSS

     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-

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implementing basis on December 1 and February 1. Such increases are subject to subsequent BPU review and approval.

     On February 6, 2003, NJNG received approval for a 6 percent price increase effective immediately, and on August 18, 2003, NJNG received approval for an 8.7 percent price increase effective September 1, 2003. These increases became final in January 2004.

     On December 30, 2003, NJNG filed supporting documentation for a 5 percent self-implementing price increase that became effective on February 1, 2004. The increase was necessary due primarily to higher wholesale commodity costs and is subject to refund with interest.

     During fiscal 2002, NJNG received a 10.8 percent price decrease effective December 1, 2001, and a 3 percent price decrease effective February 6, 2002, reflecting lower projected wholesale natural gas costs.

     NJNG is eligible to receive incentives for reducing BGSS costs through a series of margin-sharing programs that include off-system sales, capacity release, portfolio-enhancing and financial risk management programs. On October 22, 2003, the BPU approved an agreement whereby the existing margin sharing between customers and shareowners for off-system sales, capacity release and financial risk management transactions was extended through October 31, 2006. 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 sharing treatment between customers and shareowners through April 30, 2004, for transactions entered into on or before December 31, 2002. This BPU action also provided for the parties to evaluate the appropriateness of a new capacity reliability incentive for the BPU’s consideration by October 1, 2004. 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.

     The BPU also approved a new pilot storage incentive program that will share gains and losses on an 80/20 percent basis between customers and shareowners, respectively. This 1-year program will measure the difference between the actual cost of natural gas in storage and a benchmark applicable to the April-through-October injection season.

c. Other Adjustment Clauses

     On October 22, 2003, the BPU approved NJNG’s request to update factors used in its weather-normalization clause (WNC), which is designed to stabilize year-to-year fluctuations that may result from changing weather patterns on both NJNG’s gross margin and customers’ bills. Consumption factors had not been adjusted to reflect NJNG’s growth and actual customer base since the settlement of its last base rate case nearly a decade ago. Updating the consumption factors results in the WNC being more reflective of actual weather.

     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 limited-income customers. Eligible customers will receive a credit toward their utility bill. The credits applied to eligible customers will be recovered through a USF rider. NJNG will recover carrying costs on deferred USF balances.

     NJNG has proposed a Smart Growth pilot program for Asbury Park and Long Branch, New Jersey, which 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

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a current return on and return of any capital invested in this program. NJNG estimates that it would invest approximately $14 million under this program. The BPU is currently reviewing this proposal.

     NJNG is also involved in various proceedings associated with several other adjustment clauses, which in NJNG’s opinion will not have a material adverse impact on its financial condition or results of operations.

d. 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 been operating under 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 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, Jersey Central Power & Light Company (JCP&L), now owned by FirstEnergy Corporation, 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 JCP&L is responsible for the remaining eight sites. Also in September 2000, NJNG purchased a 20-year cost-containment insurance policy for the two sites. NJNG continues to participate in the investigation and remedial action and bear the cost related to the one MGP site that was not subject to the original cost-sharing agreement.

     In June 1992, the BPU approved a remediation rider through which NJNG, may, subject to BPU approval, recover its remediation expenditures, including carrying costs, over rolling 7-year periods. NJNG is currently recovering remediation expenditures incurred through June 30, 1998. In September 1999 and January 2001, NJNG filed for recovery of remediation expenditures, including carrying costs, incurred in the years ended June 30, 1999 and 2000, respectively. In March 2003, NJNG filed testimony for recovery of remediation expenditures, including carrying costs, for the 2-year period ending June 30, 2002. The BPU is currently reviewing these three filings, seeking total recovery of $55 million 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 December 31, 2003, $46.2 million of previously incurred remediation costs, net of recoveries from customers and insurance proceeds received and anticipated, are included in Regulatory assets on the Consolidated Balance Sheet (See Note 12. – Commitments and Contingent Liabilities).

     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 ending October 2004. NJNG has now dismissed or reached a settlement with all of its insurance carriers. NJNG continues to pursue its claim

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against Kaiser-Nelson for environmental damages caused by Kaiser-Nelson’s decommissioning of structures at several MGP sites. Formal mediation was held in January 2004, which was unsuccessful. As a result, a trial is currently scheduled for March 15, 2004. No assurance can be given as to the ultimate resolution of this matter.

e. Long Branch MGP Site Litigation

     Since July 2003, a total of 303 complaints have been filed in the Superior Court of New Jersey, Monmouth County Law Division, Docket No. MON-L-2883-03, against NJNG, NJR and JCP&L alleging, among other things, personal injuries, wrongful death, survivorship actions, and property damage stemming from the operation and remediation of the former MGP site in Long Branch, New Jersey. The relief sought, which has yet to be quantified by plaintiffs, includes compensatory damages, the establishment of a medical monitoring fund, disgorgement of alleged profits, cost of cleanup and remediation, natural resource damages, and punitive damages.

     JCP&L has made a demand upon NJNG for indemnification as a result of the September 2000 agreement between it and NJNG, whereby NJNG assumed responsibility for the Long Branch site. NJNG has agreed to honor the terms of the indemnity agreement. NJNG and NJR have answered all of the complaints. In February 2004, the complaints were designated as a mass tort for centralized case management purposes and transferred from the Superior Court of New Jersey, Monmouth County Law Division to the Bergen County Law Division.

     The Company’s insurance carriers have been notified of the claims, and its insurer, under an Environmental Response, Compensation and Liability Policy, has agreed to provide a defense and certain coverage, subject to a reservation of rights regarding certain allegations in the complaints.

     The Company believes that it is not liable under the allegations of the complaints, and further believes that any liability that could possibly be assessed against it, with the exception of liability for punitive damages, would be recoverable through insurance or may be recoverable through the remediation rider. 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.

f. 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

     In accordance with SFAS No. 128, “Earnings Per Share” (EPS), 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 549,972 and 341,459 for the three months ended December 31, 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.

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     In October 2002, NJR adopted the fair value method of recording stock-based compensation under SFAS 123. NJR 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. In December 2002, the FASB issued SFAS 148, which provides implementation guidance for the adoption of SFAS 123. NJR has complied with the guidelines of SFAS 148 with respect to the adoption and disclosure of SFAS 123. 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.”

7. Construction Fund and Long-Term Debt

     In December 2003, NJR entered into a $200 million committed credit facility with several banks, which replaced a $180 million credit facility. This facility consists of $120 million with a 364-day term and an $80 million revolving credit facility with a 3-year term expiring January 2006. The NJR facility is used to finance its unregulated operations. NJNG, nor the results of its operations, are obligated or pledged to support the NJR facility.

     In December 2003, NJNG entered into a $225 million credit facility with several banks, which replaced a $200 million credit facility. This facility consists of $175 million with a 364-day term and a $50 million revolving credit facility with a 3-year term expiring January 2006. The NJNG facility is used to primarily 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, $15 million and $20 million of commercial paper borrowings are included in Long-term debt on the Consolidated Balance Sheets at September 30, 2003, and December 31, 2002, respectively. No commercial paper borrowings are included in Long-term debt on the Consolidated Balance Sheets at December 31, 2003.

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     NJNG enters into loan agreements with the New Jersey Economic Development Authority (EDA) under which the EDA issues tax-exempt bonds to the public, and the proceeds are loaned to NJNG. To secure its loans from the EDA, NJNG issues First Mortgage Bonds to the EDA with interest rates and maturity dates identical to the EDA Bonds. In July 2002, the EDA approved $12 million of new funds to finance construction in NJNG’s northern division in Morris County over three years. In September 2003, the BPU approved NJNG’s petition to issue up to $112 million of First Mortgage Bonds, Private Placement Bonds, EDA loan agreements, or Medium-Term Notes over the next three years. In December 2003, NJNG entered into a loan agreement whereby the EDA loaned NJNG the proceeds from its $12 million, 5% Natural Gas Facilities Revenue Bonds, which NJNG deposited into a construction fund. NJNG issued and delivered to the EDA like amounts of its 5% Series HH First Mortgage Bonds, due December 2038, and immediately drew down $4.2 million from the construction fund.

     In July 2002, NJNG entered into interest-rate caps of $97.1 million, 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 outstanding tax-exempt EDA Bonds, the proceeds of which were loaned to NJNG. The interest-rate caps are treated as cash flow hedges with changes in fair value accounted for in Other comprehensive income.

     In December 2003 and 2002, NJNG received $3.9 million and $5.3 million in connection with the sale-leaseback of its vintage 2003 and 2002 meters, respectively. NJNG has the ability to continue the sale-leaseback meter program on an annual basis.

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8. Segment Reporting

     The Natural Gas Distribution segment consists of regulated natural gas 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 consists of appliance and installation services, commercial real estate development, investment and other corporate activities.

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

NJR’s assets for the various business segments are detailed below:

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9. Employee Benefit Plans

Pension Plans

     NJR has two trusteed, noncontributory defined benefit retirement plans covering regular represented and nonrepresented employees with more than one year of service. All represented employees of NJRHS hired on or after October 1, 2000, are covered by an enhanced defined contribution plan instead of the defined benefit plan. Defined benefit plan benefits are based on years of service and average compensation during the highest 60 consecutive months of employment.

     The components of the qualified plans net pension cost were as follows:

     NJR does not have any minimum funding requirements in fiscal 2004. If market performance is less than anticipated, additional funding may be required.

Other Postretirement Benefits

     NJR provides postretirement medical and life insurance benefits to employees who meet the eligibility requirements.

     Effective October 1, 1998, the BPU approved the recovery of $4.9 million of deferred costs over 15 years, which is included in Regulatory assets on the Consolidated Balance Sheets.

     The components of the net Other Postretirement Benefits (OPEB) cost are as follows:

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     For the 3-month period ended December 31, 2003, $1.2 million of contributions have been made to the OPEB plan. NJR anticipates contributing an additional $2.1 million during the remainder of fiscal 2004. If market performance is less than anticipated, additional funding may be required.

10. Investments

     In July 2001, NJR entered into a 5-year, zero-premium collar to hedge cash flows associated with the forecasted sale of 100,000 shares of its investment in Capstone Turbine Corporation. 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. NJR accounts for the transaction as a cash flow hedge, with changes in fair value accounted for as Other comprehensive income. Other comprehensive income for the three months ended December 31, 2003, included a $1,000 unrealized gain related to this collar. Through December 31, 2003, Accumulated other comprehensive income included a $752,000 unrealized gain related to this collar.

11. Comprehensive Income

     The amounts included in Accumulated other comprehensive income related to natural gas instruments, which have been designated cash flow hedges, will reduce or increase natural gas costs as the underlying physical transaction impacts earnings. Based on the amount recorded in Accumulated other comprehensive income at December 31, 2003, $3.2 million is expected to be recorded as a decrease to natural gas costs for the remainder of fiscal 2004. For the three months ended December 31, 2003 and 2002, $10.9 million was credited and $1.4 million was charged to natural gas costs, respectively. These cash flow hedges cover various periods of time ranging from January 2004 to October 2010.

12. Commitments and Contingent Liabilities

     NJNG is involved with environmental investigations and remedial actions at certain MGP sites (See Note 5d. – MGP Remediation and Note 5e. – Long Branch MGP Site Litigation). In September 2003, with the assistance of an outside consulting firm, NJNG updated an environmental review of the MGP sites, including a review of their potential liability for investigation and remedial action. Based on this review, NJNG estimates that, exclusive of any insurance recoveries, total future expenditures to remediate and monitor the three MGP sites it is responsible for will range from $108.8 million to $146.3 million. NJNG’s estimate of these liabilities is based upon currently available facts, existing technology and presently enacted laws and regulations. However, actual costs may differ 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 $108.8 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, the ultimate ability of other responsible parties to pay and any insurance recoveries. NJNG will continue to seek recovery of such costs through its remediation rider. If any future regulatory position indicates that the recovery of such costs is not probable, the related cost would be charged to income.

     NJRES is the marketing agent for the Stagecoach storage project. Stagecoach is a high-injection/high-withdrawal facility in New York with 12 billion cubic feet (Bcf) of working natural gas capacity connected to the Tennessee Gas Pipeline.

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     NJRES’ marketing and management agreement ends March 31, 2012, subject to termination rights. During this period, NJRES 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 must notify NJRES of its intent to sell services under the aforementioned contract by November 30 of the prior annual period. Stagecoach did not notify NJRES of its intent to sell services for the annual period ended March 31, 2005. Therefore, NJRES has no purchase obligation related to this period. NJRES has reached 1- to 5-year agreements with Stagecoach customers with varying expiration dates, the last of which is August 31, 2008. The value of these services totals 74 percent, 57 percent and 50 percent of NJR’s potential purchase obligation for the annual periods ended March 31, 2006 through 2008, respectively.

     In August 2002, NJNG, in connection with its system requirements, entered into 2-year agreements for Stagecoach storage and transportation services ending July 31, 2004. In January 2004, NJNG extended its agreements with Stagecoach through March 31, 2008. These agreements were awarded pursuant to an open bid process.

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

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

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13. Regulatory Assets & Liabilities

     At December 31, 2003, September 30, 2003, and December 31, 2002, respectively, NJR had the following Regulatory assets on the Consolidated Balance Sheets:

(1)		Recoverable, subject to BPU approval, without interest except for $13.9 million that is recoverable with interest.
(2)		Recoverable, subject to BPU approval, with interest over rolling 7-year periods. See Note 5. – Legal and Regulatory Proceedings.
(3)		Estimated future expenditures not yet recovered through a rate order.
(4)		Recoverable/refundable, subject to BPU approval, through a specific rate order.
(5)		Recoverable, subject to BPU approval, through BGSS.

     If there are changes in regulatory positions that indicate the recovery of regulatory assets is not probable, the related cost would be charged to income.