Forward-Looking Statements and Risk Factors - Certain statements contained in this Quarterly Report may qualify as "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact included in this Report should be considered forward-looking statements made in good faith and are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Words such as "anticipate", "believe", "expect", "estimate", "forecast", "goal", "intend", "objective", "plan", "project", "seek", "strategy" and similar expressions are intended to identify forward-looking statements. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the statements. These risks and uncertainties include, but are 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; "non-routine" or "extraordinary" disruptions in our distribution system; regulatory, legislative and court decisions; competition; the availability and cost of capital; costs and effects of legal proceedings and environmental liabilities; the failure of customers, suppliers or business partners to fulfill their contractual obligations; and changes in business strategies.

A discussion of these and other risks and uncertainties may be found in the Company's Annual Report on Form 10-K for the year ended December 31, 2008 and in other filings made by us with the Securities and Exchange Commission. These cautionary statements should not be construed by you to be exhaustive and they are made only as of the date of this Quarterly Report on Form 10-Q, or in any document incorporated by reference, at the date of such document. While SJI believes these forward-looking statements to be reasonable, there can be no assurance that they will approximate actual experience or that the expectations derived from them will be realized. Further, SJI undertakes no obligation to update or revise any of its forward-looking statements, whether as a result of new information, future events or otherwise.

Critical Accounting Policies - Estimates and Assumptions - Management must make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and related disclosures. Actual results could differ from those estimates. Five types of transactions presented in our condensed consolidated financial statements require a significant amount of judgment and estimation. These relate to regulatory accounting, derivatives, environmental remediation costs, pension and other postretirement employee benefit costs, and revenue recognition. A discussion of these estimates and assumptions may be found in our Form 10-K for the year ended December 31, 2008.

New Accounting Pronouncements - See detailed discussions concerning New Accounting Pronouncements and their impact on SJI in Note 1 to the condensed consolidated financial statements.

Regulatory Actions -Other than the changes discussed in Note 7 to the condensed consolidated financial statements, there have been no significant regulatory actions since December 31, 2008. See detailed discussion concerning Regulatory Actions in Note 9 to the Consolidated Financial Statements in Item 8 of SJI's Annual Report on Form 10-K as of December 31, 2008.

Environmental Remediation -Other than the changes discussed in Note 12 to the condensed consolidated financial statements, there have been no significant changes to the status of the Company's environmental remediation efforts since December 31, 2008. See detailed discussion concerning Environmental Remediation in Note 14 to the Consolidated Financial Statements in Item 8 of SJI's Annual Report on Form 10-K as of December 31, 2008.

SJI operates in several different reportable operating segments. Gas Utility Operations (SJG) consists primarily of natural gas distribution to residential, commercial and industrial customers. Wholesale Gas Operations include SJRG's activities. SJE is involved in both retail gas and retail electric activities. Retail Gas and Other Operations include natural gas acquisition and transportation service business lines. Retail Electric Operations consist of electricity acquisition and transportation to commercial and industrial customers. On-Site Energy Production consists of Marina's thermal energy facility and other energy-related projects. Appliance Service Operations includes SJESP's servicing of appliances via the sale of appliance service programs as well as on a time and materials basis, and the installation of residential and small commercial HVAC systems.

A significant portion of the volatility in operating results is due to the impact of the accounting methods associated with SJRG's storage activities. SJRG purchases and holds natural gas in storage to earn a profit margin from its ultimate sale in the future. SJRG uses derivatives to mitigate commodity price risk in order to substantially lock-in the profit margin that will ultimately be realized. However, gas stored in inventory is accounted for at the lower of average cost or market; the derivatives used to reduce the risk associated with a change in the value of the inventory are accounted for at fair value, with changes in fair value recorded in operating results in the period of change. As a result, earnings are subject to volatility as the market prices of derivatives change, even when the underlying hedged value of the inventory is unchanged. This volatility can be significant from period to period. Over time, gains or losses on the sale of gas in storage will be offset by losses or gains on the derivatives, resulting in the realization of the profit margin expected when the transactions were initiated.

Net Income (Loss) attributable to SJI for the three months ended September 30, 2009 decreased $45.7 million, or 104% to $(1.9) million compared to the three months ended September 30, 2008. Net Income for the nine months ended September 30, 2009 decreased $20.5 million, or 37% to $34.7 million compared to the nine months ended September 30, 2008. This decrease is primarily due to the change in unrealized gains and losses on derivatives used by SJRG and SJE to mitigate commodity price risk, as discussed above. These changes are also discussed in more detail below.

                                    SJI - 37
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The following tables summarize the composition of selected SJG data for the
three and nine months ended September 30 (in thousands, except for degree day
data):

                                       Three Months Ended          Nine Months Ended
                                          September 30,              September 30,
                                        2009          2008         2009          2008
Utility Throughput - dth:
Firm Sales -
Residential                               1,706        1,559        16,070       14,490
Commercial                                  673          652         4,319        4,065
Industrial                                   26           13           231          103
Cogeneration & Electric Generation          176          156           278          528
Firm Transportation -
Residential                                 139          136         1,410        1,351
Commercial                                  647          598         4,132        3,927
Industrial                                2,906        3,095         8,875        9,542
Cogeneration & Electric Generation          799        1,115         1,518        2,040

Total Firm Throughput                     7,072        7,324        36,833       36,046

Interruptible Sales                           -            1             4           28
Interruptible Transportation                492          509         1,700        2,034
Off-System                                  544        1,458         4,309        7,330
Capacity Release                         10,560       20,196        28,023       47,253

Total Throughput - Utility               18,668       29,488        70,869       92,691



                                              Three Months Ended           Nine Months Ended
                                                September 30,                September 30,
                                              2009          2008          2009          2008
Utility Operating Revenues:
Firm Sales -
Residential                                $   33,929     $  26,587     $ 243,212     $ 214,098
Commercial                                      9,129         9,650        53,663        53,449
Industrial                                        309           874         2,637         6,051
Cogeneration & Electric Generation              1,267         2,166         2,312         7,453
Firm Transportation -
Residential                                     1,090         1,081         7,413         7,161
Commercial                                      2,449         2,124        13,435        12,532
Industrial                                      3,638         2,974        10,841         9,247
Cogeneration & Electric Generation                681           599         1,474         1,356

Total Firm Revenues                            52,492        46,055       334,987       311,347

Interruptible Sales                               (16 )          22            79           304
Interruptible Transportation                      465           334         1,551         1,301
Off-System                                      1,904        14,403        23,154        72,989
Capacity Release                                1,171         3,512         3,594         9,265
Other                                             289           237           888           832
                                               56,305        64,563       364,253       396,038
Less: Intercompany Sales                         (347 )        (876 )      (3,731 )      (2,776 )
Total Utility Operating Revenues               55,958        63,687       360,522       393,262

Less:
Cost of Sales                                  31,377        40,324       223,876       261,604
Conservation Recoveries*                        1,247         1,116         6,636         6,149
RAC Recoveries*                                 1,210           695         3,627         2,084
EET Recoveries*                                    81             -            81             -
Revenue Taxes                                     923           871         6,264         5,913
Utility Margin                             $   21,120     $  20,681     $ 120,038     $ 117,512

Margin:
Residential                                $   12,699     $  12,094     $  74,836     $  69,230
Commercial and Industrial                       6,325         6,185        28,779        27,334
Cogeneration and Electric Generation              875           641         1,750         1,540
Interruptible                                       8            11            96            92
Off-system & Capacity Release                     208           572         1,108         2,160
Other Revenues                                    859         1,085         2,075         1,868
Margin Before Weather Normalization &
Decoupling                                     20,974        20,588       108,644       102,224
CIRT Mechanism                                    551             -           926             -
CIP Mechanism                                    (409 )          93        10,464        15,288
EET Mechanism                                       4             -             4             -
Utility Margin                             $   21,120     $  20,681     $ 120,038     $ 117,512

Degree Days:                                       34            18         3,033         2,753

*Represents revenues for which there is a corresponding charge in operating expenses. Therefore, such recoveries have no impact on our financial results.

Throughput - Total gas throughput decreased 10.8 MMdts, or 36.7%, for the three months ended September 30, 2009, compared with the same period in 2008, and 21.8 MMdts, or 23.5%, for the nine months ended September 30, 2009, compared with the same period in 2008. Off-System sales (OSS) and capacity release volume decreased substantially as SJG's portfolio of assets available for such activities has been reduced under the Conservation Incentive Program, as discussed under "Rates and Regulation" in Item 7 of SJI's Annual Report on Form 10-K as of December 31, 2008. As the majority of profits from OSS and capacity release are returned to the ratepayers via a BPU-approved sharing formula, the decrease in such activities had a negligible impact on SJG earnings as reflected in the margin table above. Firm throughput increased in the residential market, primarily on a year-to-date basis, as a result of 10.2% colder weather, as reflected by the degree day data in the table above, and the addition of 3,672 residential customers during the 12-month period ended September 30, 2009. Changes in throughput in other customer categories were not significant.

                                    SJI - 39
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Conservation Incentive Program (CIP) - The effects of the CIP on SJG's net
income for the three and nine months ended September 30, 2009 and 2008 and the
associated weather comparisons were as follows ($'s in millions):

                                                    Three Months Ended                      Nine Months Ended
                                                      September 30,                           September 30,
                                                2009                  2008              2009                2008
Net Income Benefit:
CIP - Weather Related                      $             -       $            -     $        (0.1 )     $         1.6
CIP - Usage Related                                   (0.2 )                0.1               6.3                 7.4
Total Net Income Benefit                   $          (0.2 )     $          0.1     $         6.2       $         9.0

Weather Compared to 20-Year Average        30.5% warmer          62.5% warmer       0.2% colder         9.0% warmer
Weather Compared to Prior Year             85.3% colder          14.3% warmer       10.2% colder        7.8% warmer

Operating Revenues - Utility - Revenues decreased $7.7 million, or 12.1%, during the three months ended September 30, 2009 compared to the same period in the prior year. This was the result of a substantial decrease in off-system sales (OSS) and capacity release revenue, which decreased by $12.5 million and $2.3 million, respectively, during the third quarter of 2009 versus 2008 before eliminating intercompany transactions. These decreases were primarily related to a reduction in SJG's portfolio of assets available for such activities under the provisions of the CIP during 2008, as noted above under "Throughput," and a significant decrease in the average cost per unit sold during 2009. As a result of steady declines in the cost of natural gas prices during 2009, OSS unit sales prices had dropped from an average of $9.88 per decatherm (Dt) during the third quarter of 2008 to only $3.50 per Dt during the third quarter of 2009. As reflected in the margin table above, the impact of lower OSS and Capacity Release did not have a material impact on the earnings of the Company, as SJG is required to share 85% of the profits of such activity with the ratepayers. The decreases noted above were partially offset by higher revenue from firm customers in the third quarter of 2009 as a result of colder weather during the month of September 2009, compared with last September, and the addition of 3,890 customers over the last twelve months. Further adding to revenue during the third quarter of 2009 was the recognition of $5.7 million of revenue under the Basic Gas Supply Service (BGSS) clause that had previously been deferred. While changes in gas costs and BGSS recoveries may fluctuate from period to period, SJG does not profit from the sale of the commodity. Therefore, corresponding fluctuations in Operating Revenue - Utility or Cost of Sales - Utility have no impact on Company profitability, as further discussed under Margin (pre-tax) - Utility.

Revenues decreased $32.7 million, or 8.3%, during the nine months ended September 30, 2009 compared to the same period in the prior year. This decrease was the result of a substantial decrease in off-system sales (OSS) and capacity release revenue, which decreased by $49.8 million and $5.7 million, respectively, during the first nine months of 2009 versus 2008 before eliminating intercompany transactions. These decreases were partially offset by several factors including higher firm sales resulting from 10.2% colder weather during the first nine months of 2009, the addition of 3,890 customers over the last twelve months, and a higher Basic Gas Supply Service (BGSS) rate in effect during the period. During the nine months ended September 30, 2009, the BGSS rate was 11.1% higher than the rate in effect during the same time last year and resulted in an additional $25.3 million of revenue over the prior year. This increase was necessary to fully recover higher gas costs incurred through most of 2008. However, as SJG does not profit from the sale of the commodity, the BGSS rate increase did not have an impact on Company profitability.

Operating Revenues - Nonutility - Combined revenues for SJI's nonutility businesses, net of intercompany transactions, decreased by $75.6 million and $37.8 million, or 51.5% and 12.6% in the three and nine months ended September 30, 2009, respectively, compared with the same periods in 2008.

SJE's revenues from retail gas, net of intercompany transactions, decreased by $16.7 million and $55.2 million, or 45.2% and 40.8% for the three and nine months ended September 30, 2009, respectively, compared with the same periods in 2008. These decreases were due mainly to a 66.9% and 60.0% decrease in the average monthly NYMEX settle price during the three and nine months ended September 30, 2009, respectively, compared with the same periods in 2008. The majority of SJE's natural gas customer contracts are market-priced. In addition, as of September 30, 2009, SJE was serving 9,184 residential customers compared with 11,181 as of September 30, 2008. Market conditions continue to make it difficult to be competitive in this market. SJE's commercial customer count also declined from 1,316 as of September 30, 2008 to 895 as of September 30, 2009, driven mainly by the expiration of a large municipal contract early in the fourth quarter of 2008. We continue to focus our marketing efforts on the pursuit of non-heat-sensitive commercial customers in an effort to mitigate price volatility and weather risk.

SJE's revenues from retail electricity, net of intercompany transactions, increased $22.1 million and $25.2 million for the three and nine months ended September 30, 2009, respectively, compared with the same periods in 2008. Excluding the impact of the net change in unrealized losses recorded on forward financial contracts due to price volatility of $0.9 million and $12.5 million for the three and nine months ended September 30, 2009, respectively, SJE's revenues from retail electricity increased $23.0 million and $37.7 million or 209.6% and 99.1%, respectively. These increases were mainly due to the impact of SJE being the successful bidder on a contract to supply retail electricity to over 400 school districts located throughout the state of New Jersey beginning in April 2009. Partially offsetting this was a 61.8% and 56.8% decrease in the average monthly Locational Marginal Price (LMP) per megawatt hour for the three and nine months ended September 30, 2009, respectively, compared with the same periods in 2008. Excluding the school district contract, essentially all of SJE's retail electric customer contracts are market-priced.

SJRG's revenues, net of intercompany transactions, decreased $75.5 million and increased $2.2 million for the three and nine months ended September 30, 2009, respectively, compared with the same periods in 2008. Excluding the impact of the net change in unrealized gains/losses recorded on forward financial contracts due to price volatility of $69.3 million and $1.4 million, respectively. SJRG's revenues decreased $6.2 million and increased $3.6 million for the three and nine months ended September 30, 2009, respectively, compared to the same periods of 2008. A summary of SJRG's revenue for the three and nine months ended September 30 is as follows (in millions):

                                 Three Months Ended                           Nine Months Ended
                                    September 30,                               September 30,
                          2009          2008         Change          2009           2008          Change
SJRG Revenue            $     4.3     $    79.8     $   (75.5 )    $    78.1      $    75.9     $      2.2
Add: Unrealized
Losses (Subtract:
Unrealized Gains)            (2.4 )       (71.7 )        69.3           (0.6 )         (2.0 )          1.4
SJRG Revenue,
Excluding Unrealized
Losses (Gains)          $     1.9     $     8.1     $    (6.2 )    $    77.5      $    73.9     $      3.6

The decrease in revenues for the three months ended September 30, 2009 compared with the same period of 2008 is mainly attributable to the timing of realized storage hedge gains and losses. See Gross Margin - Nonutility. The increase in revenues for the nine months ended September 30, 2009 compared with the same period of 2008 is mainly attributable to a 29.9% increase in sales of storage volumes. As discussed in Note 1 to the Consolidated Financial Statements in Item 8 of SJI's Annual Report on Form 10-K as of December 31, 2008, revenues and expenses related to the energy trading activities of SJRG are presented on a net basis in Operating Revenues - Nonutility.

Revenues for Marina decreased $4.6 million and $8.9 million or 32.5% and 23.9% for the three and nine months ended September 30, 2009, respectively, compared with the same periods in 2008 due mainly to lower sales rates for chilled and hot water. Lower sales rates were driven by lower underlying commodity prices. Volumetric hot water production decreased 3.4% and chilled water production increased 4.7% in the three months ended September 30, 2009 compared with the same period in 2008, respectively. Hot water production increased 6.5% and chilled water production increased 1.1% in the nine months ended September 30, 2009 compared with the same period in 2008, respectively. Additional production was mainly attributable to the opening of Borgata's new Water Club tower in June 2008. This was offset by lower demand, particularly for chilled water, at Borgata's other facilities mainly driven by the impact of current economic conditions on resort occupancy and significantly cooler temperatures in the summer of 2009 compared with 2008.

Revenues for SJESP decreased $0.9 million for both the three and nine months ended September 30, 2009, or 18.2% and 6.1%, respectively, compared with the same periods in 2008. Time and materials and installation revenues were negatively impacted by current depressed economic conditions.

Margin (pre-tax) - Utility- SJG's margin is defined as natural gas revenues less natural gas costs; volumetric and revenue based energy taxes; and regulatory rider expenses. We believe that margin provides a more meaningful basis for evaluating utility operations than revenues since natural gas costs, energy taxes and regulatory rider expenses are passed through to customers, and therefore, have no effect on margin. Natural gas costs are charged to operating expenses on the basis of therm sales at the prices approved by the New Jersey Board of Public Utilities through the BGSS tariff.

Total margin increased $0.4 million, or 2.1%, for the three months ended September 30, 2009 compared with the same period in 2008 due to customer additions, as noted above, and profits earned through SJG's Capital Investment Recovery Tracker (CIRT). As discussed in Note 7 to the condensed consolidated financial statements, the CIRT was approved by the BPU in April 2009. The CIRT allows SJG to accelerate certain capital spending and also earn a return of, and a return on, investment at the time the investment is made. The CIRT added $0.6 million of pre-tax margin in the third quarter of 2009. Partially offsetting these increases were lower margins from OSS and capacity release resulting from decreased volumes as discussed above under "Throughput" and "Operating Revenues".

Total margin increased $2.5 million, or 2.1%, for the nine months ended September 30, 2009 compared with the same period in 2008 primarily due to customer additions, and increased earnings from the CIRT as noted above. Partially offsetting these increases were lower margins from OSS and capacity release as noted above. The CIP protected $10.5 million of pre-tax margin in the first nine months of 2009 that would have been lost due to lower customer usage, compared to $15.3 million in the same period last year. Of these amounts, $(0.2) million and $2.7 million were related to weather variations and $10.7 million and $12.6 million were related to other customer usage variations in 2009 and 2008, respectively.

Gross Margin - Nonutility - Gross margin for the nonutility businesses is defined as revenue less all costs that are directly related to the production, selling and delivery of the company's products and services. These costs primarily include natural gas and electric commodity costs as well as certain payroll and related benefits. On the statements of condensed consolidated income, revenue is reflected in Operating Revenues - Nonutility and the costs are reflected in Cost of Sales - Nonutility.

As discussed in Note 1 to the Consolidated Financial Statements in Item 8 of SJI's Annual Report on Form 10-K as of December 31, 2008, revenues and expenses related to the energy trading activities of SJRG are presented on a net basis in Operating Revenues - Nonutility.

For the three and nine months ended September 30, 2009 combined gross margins for the nonutility businesses, net of intercompany transactions, decreased $77.4 million and $34.1 million, respectively, compared with the same periods in 2008. This decrease is primarily due to the following:

† Gross margin for SJRG decreased $72.9 million and $16.2 million for the three and nine months ended September 30, 2009 compared with the same periods in 2008. Excluding the impact of the net change in unrealized gains and losses recorded on forward financial contracts as discussed above, gross margin for . . .