NEW JERSEY RESOURCES CORP (Form: 10-Q, Received: 05/07/2014 16:08:26)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2014

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934



FOR THE TRANSITION PERIOD FROM TO

Commission file number 1‑8359

NEW JERSEY RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)

New Jersey		22‑2376465
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

1415 Wyckoff Road, Wall, New Jersey 07719		732‑938‑1480
(Address of principal executive offices)		(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12 (b) of the Act:
Common Stock ‑ $2.50 Par Value		New York Stock Exchange
(Title of each class)		(Name of each exchange on which registered)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes: x No: o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes: x No: o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b‑2 of the Exchange Act.



Large accelerated filer: x	Accelerated filer: o	Non-accelerated filer: o	Smaller reporting company : o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes: o No: x

The number of shares outstanding of $2.50 par value Common Stock as of May 2, 2014 was 42,136,052 .

New Jersey Resources Corporation

TABLE OF CONTENTS



			Page
Glossary of Terms			1
Information Concerning Forward-Looking Statements			3
PART I. FINANCIAL INFORMATION
	ITEM 1.	Unaudited Condensed Consolidated Financial Statements	4
		Notes to Unaudited Condensed Consolidated Financial Statements	8
		Note 1. Nature of the Business	8
		Note 2. Summary of Significant Accounting Policies	8
		Note 3. Regulation	10
		Note 4. Derivative Instruments	11
		Note 5. Fair Value	16
		Note 6. Investments in Equity Investees	18
		Note 7. Earnings Per Share	18
		Note 8. Common Stock Equity	19
		Note 9. Debt	20
		Note 10. Employee Benefit Plans	21
		Note 11. Income Taxes	21
		Note 12. Commitments and Contingent Liabilities	22
		Note 13. Business Segment and Other Operations Data	23
		Note 14. Related Party Transactions	27
	ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	27
	ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	53
	ITEM 4.	Controls and Procedures	55
PART II. OTHER INFORMATION
	ITEM 1.	Legal Proceedings	55
	ITEM 1A.	Risk Factors	55
	ITEM 2.	Unregistered Sale of Equity Securities and Use of Proceeds	55
	ITEM 6.	Exhibits	56
		Signatures	57

GLOSSARY OF KEY TERMS



AFUDC	Allowance for Funds Used During Construction
AIP	Accelerated Infrastructure Program
ASC	Accounting Standards Codification
ASU	Accounting Standards Update
Bcf	Billion Cubic Feet
BGSS	Basic Gas Supply Service
BPU	New Jersey Board of Public Utilities
CIP	Conservation Incentive Program
CME	Chicago Mercantile Exchange
CR&R	Commercial Realty & Resources Corp.
Dodd-Frank Act	Dodd-Frank Wall Street Reform and Consumer Protection Act
DRP	NJR Direct Stock Purchase and Dividend Reinvestment Plan
EDA	New Jersey Economic Development Authority
EDA Bonds	Collectively, Series 2011A, Series 2011B and Series 2011C Bonds issued by the EDA
FASB	Financial Accounting Standards Board
FCM	Futures Commission Merchant
FERC	Federal Energy Regulatory Commission
FMB	First Mortgage Bonds
FRM	Financial Risk Management
GAAP	Generally Accepted Accounting Principles of the United States
ICE	Intercontinental Exchange
Iroquois	Iroquois Gas Transmission L.P.
ISDA	The International Swaps and Derivatives Association
ITC	Investment Tax Credit
JPMC Facility	NJNG's $100 million, four-year credit facility with JPMorgan Chase Bank, N.A. expiring in August 2015
JPMC Term Loan	NJR's $100 million, one-year term loan credit agreement with JPMorgan Chase Bank, N.A. expiring in September 2014
LNG	Liquefied Natural Gas
MetLife	Metropolitan Life Insurance Company
MetLife Facility	NJR's unsecured, uncommitted $100 million private placement shelf note agreement with MetLife, Inc.
MGP	Manufactured Gas Plant
MMBtu	Million Metric British Thermal Unit
Moody's	Moody's Investors Service, Inc.
MW	Megawatts
MWh	Megawatt Hour
NAESB	The North American Energy Standards Board
NJR Credit Facility	NJR's $425 million unsecured committed credit facility expiring in August 2017
NFE	Net Financial Earnings
NGV	Natural Gas Vehicles
NJ RISE	New Jersey Reinvestment in System Enhancement
NJCEP	New Jersey's Clean Energy Program
NJDEP	New Jersey Department of Environmental Protection
NJNG	New Jersey Natural Gas Company
NJNG Credit Facility	The $250 million unsecured committed credit facility expiring in August 2014



NPNS	Normal Purchase/Normal Sale
NJR or The Company	New Jersey Resources Corporation
NJR Energy	NJR Energy Corporation
NJR Midstream	NJR Midstream Holdings Corporation
NJR Service	NJR Service Corporation
NJRCEV	NJR Clean Energy Ventures Corporation
NJRES	NJR Energy Services Company
NJRHS	NJR Home Services Company
Non-GAAP	Not in accordance with Generally Accepted Accounting Principles of the United States
NYMEX	New York Mercantile Exchange
O&M	Operating and Maintenance
OCI	Other Comprehensive Income
OPEB	Other Postemployment Benefit Plans
PIM	Pipeline Integrity Management
Prudential	Prudential Investment Management, Inc.
Prudential Facility	NJR's unsecured, uncommitted $75 million private placement shelf note agreement with Prudential
PTC	Production Tax Credit
RA	Remediation Adjustment
Retail and Other	Retail and Other Operations
Retail Holdings	NJR Retail Holdings Corporation
S&P	Standard & Poor's Financial Services LLC
SAFE	Safety Acceleration and Facility Enhancement
Sarbanes-Oxley	Sarbanes-Oxley Act of 2002
SAVEGREEN	The SAVEGREEN Project®
SBC	Societal Benefits Clause
SEC	Securities and Exchange Commission
SREC	Solar Renewable Energy Certificate
Steckman Ridge	Collectively, Steckman Ridge GP, LLC and Steckman Ridge, LP
Superstorm Sandy	Post-Tropical Cyclone Sandy
The Exchange Act	The Securities Exchange Act of 1934, as amended
U.S.	The United States of America
USF	Universal Service Fund
VRDN	Variable Rate Demand Notes

New Jersey Resources Corporation

INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS

Certain statements contained in this report, including, without limitation, statements as to management expectations and beliefs presented in Part I, Item 2. “Management's Discussion and Analysis of Financial Condition and Results of Operations,” Part I, Item 3. “Quantitative and Qualitative Disclosures about Market Risk,” Part II, Item I. “Legal Proceedings” and in the notes to the financial statements 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 “anticipate,” “estimate,” “may,” “intend,” “expect,” “believe,” “will” “plan,” “should,” or “continue” or comparable terminology and are made based upon management's current expectations and beliefs as of this date concerning future developments and their potential effect upon the Company. There can be no assurance that future developments will be in accordance with management's expectations or that the effect of future developments on the Company will be those anticipated by management.

The Company cautions readers that the assumptions that form the basis for forward-looking statements regarding customer growth, customer usage, qualifications for ITCs, PTCs and SRECs, financial condition, results of operations, cash flows, capital requirements, future capital expenditures, market risk and other matters for fiscal 2014 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 the debt and equity capital markets. The factors that could cause actual results to differ materially from NJR's expectations include, but are not limited to, those discussed in Item 1A. Risk Factors of NJR's Annual Report on Form 10-K for the year ended September 30, 2013 , as well as the following:


•	weather and economic conditions;


•	demographic changes in the NJNG service territory and their effect on NJNG's customer growth;


•	volatility of natural gas and other commodity prices and their impact on NJNG customer usage, NJNG's BGSS incentive programs, NJRES operations and on the Company's risk management efforts;


•	changes in rating agency requirements and/or credit ratings and their effect on availability and cost of capital to the Company;


•	the impact of volatility in the credit markets on our access to capital;


•	the ability to comply with debt covenants;


•	the impact to the asset values and resulting higher costs and funding obligations of NJR's pension and postemployment benefit plans as a result of potential downturns in the financial markets, lower discount rates or impacts associated with the Patient Protection and Affordable Care Act;


•	accounting effects and other risks associated with hedging activities and use of derivatives contracts;


•	commercial and wholesale credit risks, including the availability of creditworthy customers and counterparties, liquidity in the wholesale energy trading market;


•	regulatory approval of NJNG's planned infrastructure programs:


•	the ability to obtain governmental approvals and/or financing for the construction, development and operation of certain non-regulated energy investments;


•	risks associated with the management of the Company's joint ventures and partnerships;

•

risks associated with our investments in distributed power projects and our investment in an on-shore wind developer, including the availability of regulatory and tax incentives, logistical risks and potential delays related to construction, permitting, regulatory approvals and electric grid interconnection, the availability of viable projects, NJR's eligibility for ITCs and PTCs, the future market for SRECs and operational risks related to projects in service;


•	timing of qualifying for ITCs due to delays or failures to complete planned solar energy projects and the resulting effect on our effective tax rate and earnings;


•	the level and rate at which NJNG's costs and expenses (including those related to restoration efforts resulting from Post Tropical Cyclone Sandy, commonly referred to as Superstorm Sandy ) are incurred and the extent to which they are allowed to be recovered from customers through the regulatory process;


•	access to adequate supplies of natural gas and dependence on third-party storage and transportation facilities for natural gas supply;


•	operating risks incidental to handling, storing, transporting and providing customers with natural gas;


•	risks related to our employee workforce, including a work stoppage;


•	the regulatory and pricing policies of federal and state regulatory agencies;


•	the possible expiration of the NJNG CIP;


•	the costs of compliance with the proposed regulatory framework for over-the-counter derivatives;


•	the costs of compliance with present and future environmental laws, including potential climate change-related legislation;


•	risks related to changes in accounting standards;


•	the impact of a disallowance of recovery of environmental-related expenditures and other regulatory changes;


•	environmental-related and other litigation and other uncertainties;


•	risks related to cyber-attack or failure of information technology systems; and


•	the impact of natural disasters, terrorist activities, and other extreme events on our operations and customers, including any impacts to utility gross margin and restoration costs.

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.

New Jersey Resources Corporation

Part I

ITEM 1. FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)



	Three Months Ended				Six Months Ended
	March 31,				March 31,
(Thousands, except per share data)	2014		2013		2014		2013
OPERATING REVENUES
Utility	$	394,528	$	351,750	$	627,997	$	570,599
Nonutility	1,185,041		609,135		1,829,977		1,126,305
Total operating revenues	1,579,569		960,885		2,457,974		1,696,904
OPERATING EXPENSES
Gas purchases:
Utility	147,946		189,040		259,148		300,361
Nonutility	1,047,870		611,567		1,711,400		1,066,994
Operation and maintenance	61,273		43,067		103,296		83,137
Regulatory rider expenses	38,211		23,774		58,043		37,756
Depreciation and amortization	12,828		11,721		25,394		23,024
Energy and other taxes	24,429		24,747		41,457		41,472
Total operating expenses	1,332,557		903,916		2,198,738		1,552,744
OPERATING INCOME	247,012		56,969		259,236		144,160
Other income	712		2,781		1,839		3,046
Interest expense, net of capitalized interest	6,306		5,746		12,601		11,571
INCOME BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF AFFILIATES	241,418		54,004		248,474		135,635
Income tax provision	71,680		12,065		73,185		36,045
Equity in earnings of affiliates	3,233		3,530		5,375		6,085
NET INCOME	$	172,971	$	45,469	$	180,664	$	105,675

EARNINGS PER COMMON SHARE
BASIC	$4.11		$1.09		$4.30		$2.53
DILUTED	$4.07		$1.08		$4.26		$2.52
DIVIDENDS PER COMMON SHARE	$0.42		$0.40		$0.84		$0.80
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC	42,079		41,789		42,050		41,742
DILUTED	42,457		41,972		42,428		41,925

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)



	Three Months Ended						Six Months Ended
	March 31,						March 31,
(Thousands)	2014			2013			2014			2013
Net income	$	172,971		$	45,469		$	180,664		$	105,675
Other comprehensive income, net of tax
Unrealized gain (loss) on available for sale securities, net of tax of $(11), $(447), $203, and $(226), respectively	$	15		$	647		(295		)	327
Net unrealized (loss) on derivatives, net of tax of $89, $4, $109, and $10, respectively	(152		)	(7		)	(186		)	(17		)
Adjustment to postemployment benefit obligation, net of tax of $(112), $(202), $(223) and $(405), respectively	161			296			322			709
Other comprehensive income (loss)	$	24		$	936		(159		)	1,019
Comprehensive income	$	172,995		$	46,405		$	180,505		$	106,694

See Notes to Unaudited Condensed Consolidated Financial Statements

New Jersey Resources Corporation

Part I

ITEM 1. FINANCIAL STATEMENTS (Continued)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)



	Six Months Ended
	March 31,
(Thousands)	2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	180,664		$	105,675
Adjustments to reconcile net income to cash flows from operating activities:
Unrealized loss on derivative instruments	52,394			20,466
Depreciation and amortization	25,394			23,024
Allowance for equity used during construction	(603		)	(1,333		)
Allowance for bad debt expense	1,205			1,341
Deferred income taxes	22,970			14,639
Manufactured gas plant remediation costs	(1,845		)	(3,254		)
Equity in earnings of equity investees, net of distributions received	1,626			1,835
Cost of removal - asset retirement obligations	(164		)	(137		)
Contributions to postemployment benefit plans	(2,348		)	(23,102		)
Changes in:
Components of working capital	96,040			(44,510		)
Other noncurrent assets	6,038			5,198
Other noncurrent liabilities	2,071			8,539
Cash flows from operating activities	383,442			108,381
CASH FLOWS (USED IN) INVESTING ACTIVITIES
Expenditures for
Utility plant	(59,971		)	(51,376		)
Solar and wind equipment	(45,403		)	(24,865		)
Real estate properties and other	(477		)	(298		)
Cost of removal	(10,914		)	(14,323		)
Distribution from equity investees in excess of equity in earnings	464			648
Proceeds from sale of asset	6,000			—
Withdrawal from restricted cash construction fund	85			—
Cash flows (used in) investing activities	(110,216		)	(90,214		)
CASH FLOWS (USED IN) FINANCING ACTIVITIES
Proceeds from issuance of common stock	7,757			6,922
Tax benefit from stock options exercised	94			79
Proceeds from sale-leaseback transaction	7,576			7,076
Proceeds from long-term debt	125,000			—
Payments of long-term debt	(65,017		)	(3,833		)
Purchases of treasury stock	(4,387		)	(1,311		)
Payments of common stock dividends	(35,264		)	(33,913		)
Net (payments)/proceeds from short-term debt	(302,400		)	8,300
Cash flows (used in) financing activities	(266,641		)	(16,680		)
Change in cash and cash equivalents	6,585			1,487
Cash and cash equivalents at beginning of period	2,969			4,509
Cash and cash equivalents at end of period	$	9,554		$	5,996
CHANGES IN COMPONENTS OF WORKING CAPITAL
Receivables	$	(294,939	)	$	(245,241	)
Inventories	178,955			92,822
Recovery of gas costs	6,866			(542		)
Gas purchases payable	138,044			88,263
Prepaid and accrued taxes	67,164			46,900
Accounts payable and other	3,992			(5,070		)
Restricted broker margin accounts	(21,329		)	(10,196		)
Customers' credit balances and deposits	(8,819		)	(30,579		)
Other current assets	26,106			19,133
Total	$	96,040		$	(44,510	)
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid for:
Interest (net of amounts capitalized)	$	11,221		$	10,207
Income taxes	$	8,648		$	4,111
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES
Accrued capital expenditures	$	1,347		$	(9,463	)

See Notes to Unaudited Condensed Consolidated Financial Statements

New Jersey Resources Corporation

Part I

ITEM 1. FINANCIAL STATEMENTS (Continued)

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

ASSETS



(Thousands)	March 31, 2014			September 30, 2013
PROPERTY, PLANT AND EQUIPMENT
Utility plant, at cost	$	1,726,124		$	1,681,585
Construction work in progress	135,721			114,961
Solar equipment, real estate properties and other, at cost	269,613			249,516
Construction work in progress	36,172			9,093
Total property, plant and equipment	2,167,630			2,055,155
Accumulated depreciation and amortization, utility plant	(395,457		)	(383,895		)
Accumulated depreciation and amortization, solar equipment, real estate properties and other	(33,728		)	(28,144		)
Property, plant and equipment, net	1,738,445			1,643,116
CURRENT ASSETS
Cash and cash equivalents	9,554			2,969
Customer accounts receivable
Billed	487,941			240,281
Unbilled revenues	53,664			7,429
Allowance for doubtful accounts	(5,491		)	(5,330		)
Regulatory assets	18,970			34,372
Gas in storage, at average cost	139,021			314,477
Materials and supplies, at average cost	10,835			14,334
Prepaid and accrued taxes	431			42,645
Asset held for sale	—			5,428
Derivatives, at fair value	45,182			53,327
Restricted broker margin accounts	38,490			6,581
Deferred taxes	11,859			8,432
Other	25,603			20,953
Total current assets	836,059			745,898
NONCURRENT ASSETS
Investments in equity investees	160,228			161,591
Prepaid pension asset	6,126			6,287
Regulatory assets	368,319			402,202
Derivatives, at fair value	2,270			2,761
Other	49,763			42,928
Total noncurrent assets	586,706			615,769
Total assets	$	3,161,210		$	3,004,783

See Notes to Unaudited Condensed Consolidated Financial Statements

New Jersey Resources Corporation

Part I

ITEM 1. FINANCIAL STATEMENTS (Continued)

CAPITALIZATION AND LIABILITIES



(Thousands)	March 31, 2014			September 30, 2013
CAPITALIZATION
Common stock, $2.50 par value; authorized 75,000,000 shares; outstanding March 31, 2014-42,074,766; September 30, 2013-41,961,534	$	112,706		$	112,563
Premium on common stock	303,107			300,196
Accumulated other comprehensive (loss), net of tax	(1,780		)	(1,621		)
Treasury stock at cost and other; shares March 31, 2014-3,007,914; September 30, 2013-3,060,356	(125,085		)	(128,638		)
Retained earnings	750,234			604,884
Common stock equity	1,039,182			887,384
Long-term debt	628,490			512,886
Total capitalization	1,667,672			1,400,270
CURRENT LIABILITIES
Current maturities of long-term debt	21,526			68,643
Short-term debt	63,200			365,600
Gas purchases payable	392,857			254,813
Accounts payable and other	65,263			60,342
Dividends payable	17,665			17,624
Deferred and accrued taxes	26,914			4,040
Regulatory liabilities	20,360			1,456
New Jersey clean energy program	5,979			14,532
Derivatives, at fair value	71,223			40,390
Broker margin accounts	10,573			—
Customers' credit balances and deposits	15,574			24,393
Total current liabilities	711,134			851,833
NONCURRENT LIABILITIES
Deferred income taxes	401,537			372,773
Deferred investment tax credits	5,423			5,584
Deferred revenue	4,402			4,763
Derivatives, at fair value	5,192			2,458
Manufactured gas plant remediation	183,600			183,600
Postemployment employee benefit liability	68,494			67,897
Regulatory liabilities	76,857			79,647
Asset retirement obligation	29,534			28,711
Other	7,365			7,247
Total noncurrent liabilities	782,404			752,680
Commitments and contingent liabilities (Note 12)
Total capitalization and liabilities	$	3,161,210		$	3,004,783

See Notes to Unaudited Condensed Consolidated Financial Statements

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.	NATURE OF THE BUSINESS

New Jersey Resources Corporation provides regulated gas distribution services and operates certain non-regulated businesses primarily through the following subsidiaries:

New Jersey Natural Gas Company provides natural gas utility service to approximately 503,700 retail customers in central and northern New Jersey and is subject to rate regulation by the BPU. NJNG comprises the Natural Gas Distribution segment;

NJR Energy Services Company comprises the Energy Services segment that maintains and transacts around a portfolio of natural gas storage and transportation positions and provides wholesale energy and energy management services;

NJR Clean Energy Ventures, the company’s unregulated distributed power subsidiary, comprises the Clean Energy Ventures segment and reports the results of operations and assets related to the Company's capital investments in distributed power projects, including commercial and residential solar projects and on-shore wind investments;

NJR Midstream Holdings Corporation primarily invests in energy-related ventures through its subsidiaries, NJR Steckman Ridge Storage Company, which holds the Company's 50 percent combined interest in Steckman Ridge and NJNR Pipeline Company, which holds the Company's 5.53 percent ownership interest in Iroquois Gas Transmission L.P. Steckman Ridge and Iroquois comprise the Midstream segment. On November 7, 2013 , NJR Energy Holdings Corporation changed its name to NJR Midstream Holdings Corporation ; and

NJR Retail Holdings Corporation has two principal subsidiaries, NJR Home Services Company and Commercial Realty & Resources Corporation. Retail Holdings and NJR Energy Corporation are included in Retail and Other operations.


2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying Unaudited Condensed Consolidated Financial Statements have been prepared by NJR in accordance with the rules and regulations of the Securities and Exchange Commission and ASC 270. The September 30, 2013 , Balance Sheet data is derived from the audited financial statements of the Company. These Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and the notes thereto included in NJR's 2013 Annual Report on Form 10-K.

The Unaudited Condensed Consolidated Financial Statements include the accounts of NJR and its subsidiaries. In the opinion of management, the accompanying Unaudited Condensed Consolidated Financial Statements reflect all adjustments necessary, for a fair presentation of the results of the interim periods presented. These adjustments are of a normal and recurring nature. 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 that are to be expected for the fiscal year ended September 30, 2014 .

Intercompany transactions and accounts have been eliminated.

Gas in Storage

The following table summarizes gas in storage, at average cost by company as of:



	March 31, 2014				September 30, 2013
($ in thousands)	Gas in Storage			Bcf	Gas in Storage			Bcf
NJNG		$	12,582	2.1		$	104,979	20.4
NJRES		126,439		23.2		209,498		62.3
Total		$	139,021	25.3		$	314,477	82.7

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Available for Sale Securities

Included in other noncurrent assets on the Unaudited Condensed Consolidated Balance Sheets are certain investments in equity securities of a publicly traded energy company that have a fair value of $11.2 million and $11.7 million as of March 31, 2014 and September 30, 2013 , respectively. Total unrealized gains associated with these equity securities, which are included as a part of accumulated other comprehensive income, a component of common stock equity, were $8.6 million ( $5.1 million , after tax) and $9.1 million ( $5.4 million , after tax) as of March 31, 2014 and September 30, 2013 , respectively. Reclassifications of realized gains out of other comprehensive income into income are determined based on average cost.

Sale of Asset

On October 22, 2013 , CR&R sold approximately 25.4 acres of undeveloped land located in Monmouth County with a net book value of $5.4 million for $6 million , generating a pre-tax gain after closing costs of $313,000 , which was recognized in other income on the Unaudited Condensed Consolidated Statements of Operations.

Customer Accounts Receivable

Customer accounts receivable include outstanding billings from the following subsidiaries as of:



(Thousands)	March 31, 2014				September 30, 2013
NJRES	$	328,544	67	%	$	194,263	81	%
NJNG ⁽¹⁾	156,272		32		43,045		18
NJRCEV	565		—		293		—
NJRHS and other	2,560		1		2,680		1
Total	$	487,941	100	%	$	240,281	100	%


(1)	Does not include unbilled revenues of $53.7 million and $7.4 million as of March 31, 2014 and September 30, 2013 , respectively.

Loan Receivable

NJNG provides interest-free loans, with terms ranging from two to ten years, to customers that elect to purchase and install certain energy efficient equipment in accordance with its BPU-approved SAVEGREEN program. The loans are recognized at net present value on the Unaudited Condensed Consolidated Balance Sheets. The Company has recorded $3 million and $1.9 million in other current assets and $21.9 million and $14.3 million in other noncurrent assets as of March 31, 2014 and September 30, 2013 , respectively, on the Unaudited Condensed Consolidated Balance Sheets.

NJR's policy is to establish an allowance for doubtful accounts when loan balances are outstanding for more than 60 days. As of March 31, 2014 and September 30, 2013 , there was no allowance for doubtful accounts established.

Recent Updates to the Accounting Standards Codification

In December 2011, the FASB issued ASU No. 2011-11, an amendment to ASC Topic 210, Balance Sheet , requiring additional disclosures about the effect of an entity's rights of setoff and related master netting arrangements to its financial statements. ASU 2013-01, issued in January 2013, further clarified that the amended guidance was applicable to certain financial and derivative instruments. The Company applied the provisions of the amended guidance retrospectively effective October 1, 2013. The guidance did not impact the Company's financial position, results of operations or cash flows, however, it required additional disclosures that are included in Note 4. Derivative Instruments .

In July 2013, the FASB issued ASU No. 2013-11, an amendment to ASC Topic 740, Income Taxes , which clarifies financial statement presentation for unrecognized tax benefits. The ASU requires that an unrecognized tax benefit, or portion thereof, shall be presented in the balance sheet as a reduction to a deferred tax asset for a net operating loss carryforward, similar tax loss or a tax credit carryforward. To the extent such a deferred tax asset is not available or the company does not intend to use it to settle any additional taxes that would result from the disallowance of a tax position, the related unrecognized tax benefit will be presented as a liability in the financial statements. The amended guidance will become effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The Company will apply the provisions of the new guidance at the effective date, if applicable, on a prospective basis.

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


3.	REGULATION

NJNG is subject to cost-based regulation, therefore, it is permitted to recover authorized operating expenses and earn a reasonable return on its utility investment based on the BPU's approval, in accordance with accounting guidance applicable to regulated operations. The impact of the ratemaking process and decisions authorized by the BPU allows NJNG to capitalize or defer certain costs that are expected to be recovered from its customers as regulatory assets and to recognize certain obligations representing amounts that are probable future expenditures as regulatory liabilities.

Regulatory assets and liabilities included on the Unaudited Condensed Consolidated Balance Sheets are comprised of the following:



(Thousands)	March 31, 2014		September 30, 2013
Regulatory assets-current
Conservation Incentive Program	$	—	$	18,887
Underrecovered gas costs	12,991		953
New Jersey Clean Energy Program	5,979		14,532
Total current	$	18,970	$	34,372
Regulatory assets-noncurrent
Environmental remediation costs
Expended, net of recoveries	$	32,661	$	46,968
Liability for future expenditures	183,600		183,600
Deferred income taxes	10,718		10,718
Derivatives at fair value, net	—		19
SAVEGREEN	23,988		30,004
Postemployment and other benefit costs	98,029		101,415
Deferred Superstorm Sandy costs	15,207		14,822
Other	4,116		14,656
Total noncurrent	$	368,319	$	402,202
Regulatory liability-current
Conservation Incentive Program	$	5,964	$	—
Derivatives at fair value, net	14,396		1,456
Total current	$	20,360	$	1,456
Regulatory liabilities-noncurrent
Cost of removal obligation	$	75,327	$	79,315
Other	1,530		332
Total noncurrent	$	76,857	$	79,647

NJNG's recovery of costs is facilitated through its base tariff rates, BGSS and other regulatory tariff riders. As recovery of regulatory assets is subject to BPU approval, if there are any changes in regulatory positions that indicate recovery is not probable, the related cost would be charged to income in the period of such determination.

Recent regulatory filings and/or actions include the following:


•	On September 18, 2013 , the BPU approved NJNG's filing to reduce the USF recovery rate resulting in a .5 percent decrease for the average residential heating customer effective October 1, 2013 .


•	On October 16, 2013 , the BPU provisionally approved NJNG's filing to maintain its current BGSS rate along with reductions to its CIP factors effective November 1, 2013 which resulted in a 1 percent reduction to an average residential heat customer's bill.


•	On November 21, 2013 , NJNG notified the BPU of its intent to reduce its BGSS rate, effective December 1, 2013 , resulting in a 6 percent decrease to the average residential heating customer bill.

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


•	On November 22, 2013 , the BPU provisionally approved a Stipulation of Settlement for SBC factors that included recovery of MGP expenditures through June 30, 2013 and a .2 percent reduction to the average residential heat customer related to the SBC RA factor to recover $18.7 million annually, and a 1.9 percent increase related to its NJCEP factor, effective December 1, 2013 .


•	On December 18, 2013 , the BPU approved a gas service agreement which will allow NJNG to provide transportation service to Red Oak Power, LLC, an electric generation facility, through September 2022 .

•

On April 23, 2014, the BPU approved a petition filed by NJNG requesting authorization over a three -year period to issue up to $300 million of medium-term notes with a maturity of not more than 30 years , renew its revolving credit facility expiring August 2014 for up to five years , enter into interest rate risk management transactions related to debt securities and redeem, refinance or defease any of NJNG’s outstanding long-term debt securities.


4.	DERIVATIVE INSTRUMENTS

The Company is subject to commodity price risk due to fluctuations in the market price of natural gas, SREC, and electricity prices. To manage this risk, the Company enters into a variety of derivative instruments including, but not limited to, futures contracts, physical forward contracts, financial options and swaps to economically hedge the commodity price risk associated with its existing and anticipated commitments to purchase and sell natural gas, SRECs, and electricity. In addition, the Company may utilize foreign currency derivatives as cash flow hedges of Canadian dollar denominated gas purchases. These contracts, with a few exceptions as described below, are accounted for as derivatives. Accordingly, all of the financial and certain of the Company's physical derivative instruments are recorded at fair value on the Unaudited Condensed Consolidated Balance Sheets. For a more detailed discussion of the Company's fair value measurement policies and level disclosures associated with the NJR's derivative instruments, see Note 5. Fair Value .

Since the Company chooses not to designate its financial commodity and physical forward commodity derivatives as accounting hedges or to elect NPNS as appropriate, changes in the fair value of these derivative instruments are recorded as a component of gas purchases or operating revenues, as appropriate for NJRES, on the Unaudited Condensed Consolidated Statements of Operations as unrealized gains or (losses). For NJRES at settlement, realized gains and (losses) on all financial derivative instruments are recognized as a component of gas purchases and realized gains and (losses) on all physical derivatives follow the presentation of the related unrealized gains and (losses) as a component of either gas purchases or operating revenues.

NJRES also enters into natural gas transactions in Canada and, consequently, is exposed to fluctuations in the value of Canadian currency relative to the US dollar. NJRES utilizes foreign currency derivatives to lock in the currency translation rate associated with natural gas transactions denominated in Canadian currency. The derivatives may include currency forwards, futures, or swaps and are accounted for as derivatives. These derivatives are being used to hedge future forecasted cash payments associated with transportation and storage contracts along with purchases of natural gas. The Company has designated these foreign currency derivatives as cash flow hedges of that exposure, and expects the hedge relationship to be highly effective throughout the term. Since NJRES designates its foreign exchange contracts as cash flow hedges, changes in fair value of the effective portion of the hedge are recorded in OCI. When the foreign exchange contracts are settled and the related purchases are recognized in income, realized gains and (losses) are recognized in gas purchases on the Unaudited Condensed Consolidated Statements of Operations.

As a result of NJRES entering into transactions to borrow gas, commonly referred to as “park and loans,” an embedded derivative is created related to differences between the fair value of the amount borrowed and the fair value of the amount that may ultimately be repaid, based on changes in forward natural gas prices during the contract term. This embedded derivative is accounted for as a forward sale in the month in which the repayment of the borrowed gas is expected to occur, and is considered a derivative transaction that is recorded at fair value on the Unaudited Condensed Consolidated Balance Sheets, with changes in value recognized in current period earnings.

Changes in fair value of NJNG's financial derivative instruments are recorded as a component of regulatory assets or liabilities on the Unaudited Condensed Consolidated Balance Sheets, as NJNG has received regulatory approval to defer and to recover these amounts through future BGSS rates as an increase or decrease to the cost of natural gas in NJNG's tariff for gas service.

The Company elects NPNS accounting treatment on all physical commodity contracts at NJNG. These contracts are accounted for on an accrual basis. Accordingly, gains or (losses) are recognized in regulatory assets or liabilities on the Unaudited Condensed Consolidated Balance Sheets when the contract settles and the natural gas is delivered.

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NJRCEV hedges certain of its expected production of SRECs through forward sale contracts. The Company intends to physically deliver the SRECs upon settlement and therefore applies NPNS accounting treatment to the contracts. NJRCEV recognizes revenue for SRECs upon transfer of the certificate.

Fair Value of Derivatives

The following table reflects the fair value of NJR's derivative assets and liabilities recognized on the Unaudited Condensed Consolidated Balance Sheets as of:



			Fair Value
			March 31, 2014						September 30, 2013
(Thousands)	Balance Sheet Location	Asset Derivatives			Liability Derivatives			Asset Derivatives			Liability Derivatives
Derivatives designated as hedging instruments:
NJRES:
Foreign currency contracts	Derivatives - current		$	—		$	277		$	16		$	3
	Derivatives - noncurrent		—			7			—			2
Fair value of derivatives designated as hedging instruments			$	—		$	284		$	16		$	5

Derivatives not designated as hedging instruments:
NJNG:
Financial derivative contracts	Derivatives - current		$	15,387		$	998		$	3,502		$	2,045
	Derivatives - noncurrent		—			—			121			140
NJRES:
Physical forward commodity contracts	Derivatives - current		5,634			35,568			11,282			14,573
	Derivatives - noncurrent		197			111			541			22
Financial derivative contracts	Derivatives - current		24,161			34,380			38,527			23,769
	Derivatives - noncurrent		2,073			5,074			2,099			2,294
Fair value of derivatives not designated as hedging instruments			$	47,452		$	76,131		$	56,072		$	42,843
Total fair value of derivatives			$	47,452		$	76,415		$	56,088		$	42,848

At March 31, 2014 , the gross notional amount of the foreign currency transactions was approximately $6.9 million , and ineffectiveness in the hedge relationship is immaterial to the financial results of NJR.

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Offsetting of Derivatives

NJR transacts under master netting arrangements or similar agreements that allow it to offset derivative assets and liabilities with the same counterparty, however NJR's policy is to present its derivative assets and liabilities on a gross basis in the Unaudited Condensed Consolidated Balance Sheets. The tables below summarize the reported gross amounts, the amounts that NJR has the right to offset but elects not to, financial collateral, as well as the net amounts NJR could present in the Unaudited Condensed Consolidated Balance Sheets but elects not to.



(Thousands)	Amounts Presented in Balance Sheets ⁽¹⁾			Offsetting Derivative Instruments ⁽²⁾				Financial Collateral Received/Pledged ⁽³⁾				Net Amounts ⁽⁴⁾
As of March 31, 2014:
Derivative assets:
NJRES
Physical forward commodity contracts		$	5,831		$	(2,190	)		$	—			$	3,641
Financial commodity contracts		26,234			(26,234		)		—				—
Foreign currency contracts		—			—				—				—
Total NJRES		$	32,065		$	(28,424	)		$	—			$	3,641
NJNG
Financial commodity contracts		$	15,387		$	(998	)		$	(10,772	)		$	3,617
Derivative liabilities:
NJRES
Physical forward commodity contracts		$	35,679		$	(2,371	)		$	(500	)		$	32,808
Financial commodity contracts		39,454			(26,233		)		(13,221		)		—
Foreign currency contracts		284			—				—				284
Total NJRES		$	75,417		$	(28,604	)		$	(13,721	)		$	33,092
NJNG
Financial commodity contracts		$	998		$	(998	)		$	—			$	—

As of September 30, 2013:
Derivative assets:
NJRES
Physical forward commodity contracts		$	11,823		$	(3,549	)		$	(100	)		$	8,174
Financial commodity contracts		40,626			(26,063		)		6,870				21,433
Foreign currency contracts		16			(5		)		—				11
Total NJRES		$	52,465		$	(29,617	)		$	6,770			$	29,618
NJNG
Financial commodity contracts		$	3,623		$	(2,185	)		$	214			$	1,652
Derivative liabilities:
NJRES
Physical forward commodity contracts		$	14,595		$	(3,549	)		$	(500	)		$	10,546
Financial commodity contracts		26,063			(26,063		)		—				—
Foreign currency contracts		5			(5		)		—				—
Total NJRES		$	40,663		$	(29,617	)		$	(500	)		$	10,546
NJNG
Financial commodity contracts		$	2,185		$	(2,185	)		$	—			$	—


(1)	Derivative assets and liabilities are presented on a gross basis in the balance sheet as the Company does not elect balance sheet offsetting under ASC 210-20.


(2)	Offsetting derivative instruments include: transactions with NAESB netting election, transactions held by FCM's with net margining and transactions with ISDA netting.


(3)	Financial collateral includes cash balances at FCM's as well as cash received from or pledged to other counterparties.


(4)	Net amounts represent presentation of derivative assets and liabilities if the Company were to elect balance sheet offsetting under ASC 210-20.

NJRES utilizes financial derivatives to economically hedge the gross margin associated with the purchase of physical gas for injection into storage and the subsequent sale of physical gas at a later date. The gains or (losses) on the financial transactions that are economic hedges of the cost of the purchased gas are recognized prior to the gains or (losses) on the physical transaction,

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

which are recognized in earnings when the natural gas is sold. Therefore, mismatches between the timing of the recognition of realized gains or (losses) on the financial derivative instruments and gains or (losses) associated with the actual sale of the natural gas that is being economically hedged along with fair value changes in derivative instruments creates volatility in the results of NJRES, although the Company's intended economic results relating to the entire transaction are unaffected.

The following table reflects the effect of derivative instruments on the Unaudited Condensed Consolidated Statements of Operations as of:



(Thousands)	Location of gain (loss) recognized in income on derivatives	Amount of gain (loss) recognized in income on derivatives
		Three Months Ended						Six Months Ended
		March 31,						March 31,
Derivatives not designated as hedging instruments:		2014			2013			2014			2013
NJRES:
Physical commodity contracts	Operating revenues	$	(57,916	)	$	(2,224	)	$	(57,998	)	$	(7,859	)
Physical commodity contracts	Gas purchases	(54,481		)	2,762			(79,474		)	2,556
Financial derivative contracts	Gas purchases	(101,629		)	(30,669		)	(141,699		)	(1,467		)
Total unrealized and realized (losses)		$	(214,026	)	$	(30,131	)	$	(279,171	)	$	(6,770	)

Not included in the previous table, are gains associated with NJNG's financial derivatives that totaled $6.2 million and $12.4 million for the three months ended March 31, 2014 and 2013 , respectively, and gains that totaled $12.8 million and $6.2 million for the six months ended March 31, 2014 and 2013 , respectively. These derivatives are part of NJNG's risk management activities that relate to its natural gas purchases and BGSS incentive programs. As these transactions are entered into pursuant to and recoverable through regulatory riders, any changes in the value of NJNG's financial derivatives are deferred in regulatory assets or liabilities resulting in no impact to earnings.

As previously noted, NJRES designates its foreign exchange contracts as cash flow hedges, therefore, changes in fair value of the effective portion of the hedges are recorded in OCI and, upon settlement of the contracts, realized gains and (losses) are reclassified from OCI to gas purchases on the Unaudited Condensed Consolidated Statements of Operations. The following tables reflect the effect of derivative instruments designated as cash flow hedges on OCI as of March 31 :



(Thousands)	Amount of Gain or (Loss) Recognized in OCI on Derivatives (Effective Portion)					Amount of Gain or (Loss) Reclassified from OCI into Income (Effective Portion)					Amount of Gain or (Loss) Recognized on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
	Three Months Ended					Three Months Ended					Three Months Ended
	March 31,					March 31,					March 31,
Derivatives in cash flow hedging relationships:	2014			2013		2014		2013			2014		2013
Foreign currency contracts	$	(309	)	$	24	$	68	$	(35	)	$	—	$	—



(Thousands)	Amount of Gain or (Loss) Recognized in OCI on Derivatives (Effective Portion) ⁽¹⁾						Amount of Gain or (Loss) Reclassified from OCI into Income (Effective Portion)				Amount of Gain or (Loss) Recognized on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
	Six Months Ended						Six Months Ended				Six Months Ended
	March 31,						March 31,				March 31,
Derivatives in cash flow hedging relationships:	2014			2013			2014		2013		2014		2013
Foreign currency contracts	$	(460	)	$	(71	)	$	165	$	44	$	—	$	—


(1)	The settlement of foreign currency transactions over the next twelve months is expected to result in the reclassification of $277,000 from OCI into earnings. The maximum tenor is April 2015 .

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NJNG and NJRES had the following outstanding long (short) derivatives as of:



		Volume (Bcf)
		March 31, 2014		September 30, 2013
NJNG	Futures	27.5		22.6
NJRES	Futures	(20.9	)	(64.2	)
	Options	—		1.5
	Physical	31.0		7.3

Broker Margin

Generally, exchange-traded futures contracts require posted collateral, referred to as margin, usually in the form of cash. The amount of margin required is comprised of a fixed initial amount based on the contract and a variable amount based on market price movements from the initial trade price. The Company maintains separate broker margin accounts for NJNG and NJRES. The balances by company, are as follows:



(Thousands)	Balance Sheet Location	March 31, 2014			September 30, 2013
NJNG	Broker margin - Current assets	$	—		$	213
NJNG	Broker margin - Current (liabilities)	$	(10,573	)	$	—
NJRES	Broker margin - Current assets	$	38,490		$	6,368

Wholesale Credit Risk

NJNG and NJRES are exposed to credit risk as a result of their wholesale marketing activities. In addition, NJRCEV engages in SREC sales. As a result of the inherent volatility in the prices of natural gas commodities, derivatives and SRECs, the market value of contractual positions with individual counterparties could exceed established credit limits or collateral provided by those counterparties. If a counterparty failed to perform the obligations under its contract (e.g., failed to deliver or pay for natural gas), then the Company could sustain a loss.

NJR monitors and manages the credit risk of its wholesale marketing operations through credit policies and procedures that management believes reduce overall credit risk. These policies include a review and evaluation of current and prospective counterparties' financial statements and/or credit ratings, daily monitoring of counterparties' credit limits and exposure, daily communication with traders regarding credit status and the use of credit mitigation measures, such as collateral requirements and netting agreements. Examples of collateral include letters of credit and cash received for either prepayment or margin deposit. Collateral may be requested due to NJR's election not to extend credit or because exposure exceeds defined thresholds. Most of NJR's wholesale marketing contracts contain standard netting provisions. These contracts include those governed by ISDA and the NAESB. The netting provisions refer to payment netting, whereby receivables and payables with the same counterparty are offset and the resulting net amount is paid to the party to which it is due.

The following is a summary of gross credit exposures grouped by investment and noninvestment grade counterparties, as of March 31, 2014 . Internally-rated exposure applies to counterparties that are not rated by S&P or Moody's. In these cases, the Company's or guarantor's financial statements are reviewed, and similar methodologies and ratios used by S&P and/or Moody's are applied to arrive at a substitute rating. Gross credit exposure is defined as the unrealized fair value of physical and financial derivative commodity contracts, plus any outstanding wholesale receivable for the value of natural gas delivered and/or financial derivative commodity contract that has settled for which payment has not yet been received. The amounts presented below have not been reduced by any collateral received or netting and exclude accounts receivable for NJNG retail natural gas sales and services.



(Thousands)	Gross Credit Exposure
Investment grade		$	299,185
Noninvestment grade		6,104
Internally rated investment grade		43,953
Internally rated noninvestment grade		27,356
Total		$	376,598

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Conversely, certain of NJNG's and NJRES' derivative instruments are linked to agreements containing provisions that would require cash collateral payments from the Company if certain events occur. These provisions vary based upon the terms in individual counterparty agreements and can result in cash payments if NJNG's credit rating were to fall below its current level. NJNG's credit rating, with respect to S&P, reflects the overall corporate credit profile of NJR. Specifically, most, but not all, of these additional payments will be triggered if NJNG's debt is downgraded by the major credit agencies, regardless of investment grade status. In addition, some of these agreements include threshold amounts that would result in additional collateral payments if the values of derivative liabilities were to exceed the maximum values provided for in relevant counterparty agreements. Other provisions include payment features that are not specifically linked to ratings, but are based on certain financial metrics.

Collateral amounts associated with any of these conditions are determined based on a sliding scale and are contingent upon the degree to which the Company's credit rating and/or financial metrics deteriorate, and the extent to which liability amounts exceed applicable threshold limits. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a liability position on March 31, 2014 and September 30, 2013 , was $200,000 and $2 million , respectively, for which the Company had not posted collateral. If all thresholds related to the credit-risk-related contingent features underlying these agreements had been invoked on March 31, 2014 and September 30, 2013 , the Company would have been required to post an additional $200,000 and $1.1 million , respectively, to its counterparties. These amounts differ from the respective net derivative liabilities reflected on the Unaudited Condensed Consolidated Balance Sheets because the agreements also include clauses, commonly known as “Rights of Offset,” that would permit the Company to offset its derivative assets against its derivative liabilities for determining additional collateral to be posted, as previously discussed.


5.	FAIR VALUE

Fair Value of Assets and Liabilities

The fair value of cash and temporary investments, commercial paper and borrowings under revolving credit facilities are estimated to equal their carrying amounts due to the short maturity of those instruments. Non-current loan receivables are recorded based on what the company expects to receive, which approximates fair value. The Company regularly evaluates the credit quality and collection profile of its customers to approximate fair value.

The estimated fair value of long-term debt, including current maturities and excluding capital leases, is as follows:



(Thousands)	March 31, 2014		September 30, 2013
Carrying value	$	594,845	$	529,845
Fair market value	$	622,213	$	556,518

NJR utilizes a discounted cash flow method to determine the fair value of its debt. Inputs include observable municipal and corporate yields, as appropriate for the maturity of the specific issue and the Company's credit rating. As of March 31, 2014 , NJR discloses its debt within Level 2 of the fair value hierarchy.

Fair Value Hierarchy

NJR applies fair value measurement guidance to its financial assets and liabilities, as appropriate, which include financial derivatives and physical commodity contracts qualifying as derivatives, available for sale securities and other financial assets and liabilities. In addition, authoritative accounting literature prescribes the use of a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based on the source of the data used to develop the price inputs. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to inputs that are based on unobservable market data and include the following:

Level 1

Unadjusted quoted prices for identical assets or liabilities in active markets. NJR's Level 1 assets and liabilities include exchange traded futures and options contracts, listed equities, and money market funds. Exchange traded futures and options contracts include all energy contracts traded on the NYMEX/CME and ICE that NJR refers internally to as basis swaps, fixed swaps, futures and options that are cleared through a FCM.

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Level 2

Other significant observable inputs such as interest rates or price data, including both commodity and basis pricing that is observed either directly or indirectly from publications or pricing services. NJR's Level 2 assets and liabilities include over-the-counter physical forward commodity contracts and swap contracts or derivatives that are initially valued using observable quotes and are subsequently adjusted to include time value, credit risk or estimated transport pricing components for which no basis price is available. Level 2 financial derivatives consist of transactions with non-FCM counterparties (basis swaps, fixed swaps and/or options). For some physical commodity contracts the Company utilizes transportation tariff rates that are publicly available and that it considers to be observable inputs that are equivalent to market data received from an independent source. There are no significant judgments or adjustments applied to the transportation tariff inputs and no market perspective is required. Even if the transportation tariff input was considered to be a “model”, it would still be considered to be a Level 2 input as:

1) The data is widely accepted and public

2) The data is non-proprietary and sourced from an independent third party

3) The data is observable and published

These additional adjustments are generally not considered to be significant to the ultimate recognized values.


Level 3	Inputs derived from a significant amount of unobservable market data; these include NJR's best estimate of fair value and are derived primarily through the use of internal valuation methodologies.

Assets and liabilities measured at fair value on a recurring basis are summarized as follows:



	Quoted Prices in Active Markets for Identical Assets			Significant Other Observable Inputs			Significant Unobservable Inputs
(Thousands)	(Level 1)			(Level 2)			(Level 3)			Total
As of March 31, 2014:
Assets:
Physical forward commodity contracts		$	—		$	5,832		$	—	$	5,832
Financial derivative contracts - natural gas		41,620			—			—		41,620
Financial derivative contracts - foreign exchange		—			—			—		—
Available for sale equity securities - energy industry ⁽¹⁾		11,218			—			—		11,218
Other ⁽²⁾		1,263			—			—		1,263
Total assets at fair value		$	54,101		$	5,832		$	—	$	59,933
Liabilities:
Physical forward commodity contracts		$	—		$	35,680		$	—	$	35,680
Financial derivative contracts - natural gas		40,451			—			—		40,451
Financial derivative contracts - foreign exchange		—			284			—		284
Total liabilities at fair value		$	40,451		$	35,964		$	—	$	76,415
As of September 30, 2013:
Assets:
Physical forward commodity contracts		$	—		$	11,823		$	—	$	11,823
Financial derivative contracts - natural gas		44,249			—			—		44,249
Financial derivative contracts - foreign exchange		—			16			—		16
Available for sale equity securities - energy industry ⁽¹⁾		11,716			—			—		11,716
Other ⁽²⁾		1,129			—			—		1,129
Total assets at fair value		$	57,094		$	11,839		$	—	$	68,933
Liabilities:
Physical forward commodity contracts		$	—		$	14,595		$	—	$	14,595
Financial derivative contracts - natural gas		28,248			—			—		28,248
Financial derivative contracts - foreign exchange		—			5			—		5
Total liabilities at fair value		$	28,248		$	14,600		$	—	$	42,848


(1)	Included in Other noncurrent assets on the Unaudited Condensed Consolidated Balance Sheets.


(2)	Includes various money market funds.

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


6.	INVESTMENTS IN EQUITY INVESTEES

Investment in equity investees includes NJR's equity method and cost method investments.

Equity Method Investments



(Thousands)	March 31, 2014		September 30, 2013
Steckman Ridge	$	129,171	$	129,707
Iroquois	23,166		23,084
Total	$	152,337	$	152,791

As of March 31, 2014 , the investment in Steckman Ridge includes loans with a total outstanding principal balance of $70.4 million . The loans accrue interest at a variable rate that resets quarterly and are due October 1, 2023.

NJRES and NJNG have entered into transportation, storage and park and loan agreements with Steckman Ridge and Iroquois. See Note 14. Related Party Transactions for more information on these intercompany transactions.

Cost Method Investments

During the fourth quarter of fiscal 2012, NJR invested $8.8 million in OwnEnergy, a developer of on-shore wind projects, for an 18.7 percent ownership interest and the right, but not the obligation, to purchase certain qualified projects. This investment is accounted for in accordance with the cost method of accounting.

O n October 11, 2013 , NJRCEV acquired the development rights of the Two Dot wind project in Montana, which is its first onshore wind project. NJRCEV expects to invest approximately $22 million to construct the 9.7 MW wind project, which NJRCEV expects to be operational in the third quarter of fiscal 2014. In the second quarter of 2014, NJRCEV acquired the development rights to its second wind project, a $42 million , 20 MW wind farm currently under construction in Carroll County, Iowa, which NJRCEV expects to be operational in the second quarter of fiscal 2015.


7.	EARNINGS PER SHARE

The following table presents the calculation of the Company's basic and diluted earnings per share for:



	Three Months Ended				Six Months Ended
	March 31,				March 31,
(Thousands, except per share amounts)	2014		2013		2014		2013
Net income	$	172,971	$	45,469	$	180,664	$	105,675
Basic earnings per share
Weighted average shares of common stock outstanding-basic	42,079		41,789		42,050		41,742
Basic earnings per common share	$4.11		$1.09		$4.30		$2.53
Diluted earnings per share
Weighted average shares of common stock outstanding-basic	42,079		41,789		42,050		41,742
Incremental shares ⁽¹⁾	378		183		378		183
Weighted average shares of common stock outstanding-diluted	42,457		41,972		42,428		41,925
Diluted earnings per common share ⁽²⁾	$4.07		$1.08		$4.26		$2.52


(1)	Incremental shares consist of stock options, stock awards and performance units.


(2)	There were no anti-dilutive shares excluded from the calculation of diluted earnings per share for the three and six months ended March 31, 2014 and 2013 .

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


8.	COMMON STOCK EQUITY

Changes in common stock equity during the six months ended March 31, 2014 , are as follows:



(Thousands)	Number of Shares		Common Stock		Premium on Common Stock		Accumulated Other Comprehensive (Loss) Income				Treasury Stock And Other			Retained Earnings			Total
Balance as of September 30, 2013	41,962		$	112,563	$	300,196		$	(1,621	)	$	(128,638	)	$	604,884		$	887,384
Net income														180,664			180,664
Other comprehensive (loss)								(159		)							(159		)
Common stock issued under stock plans	224		143		2,817						6,741						9,701
Tax benefits from stock plans					94												94
Cash dividend declared ($.84 per share)														(35,314		)	(35,314		)
Treasury stock and other	(111	)									(3,188		)				(3,188		)
Balance as of March 31, 2014	42,075		$	112,706	$	303,107		$	(1,780	)	$	(125,085	)	$	750,234		$	1,039,182

Accumulated Other Comprehensive Income

The following table presents the changes in the components of accumulated other comprehensive income, net of related tax effects:



(Thousands)	Available for Sale Securities			Cash Flow Hedges				Postemployment Benefit Obligation				Total
Balance as of September 30, 2013	$	5,400		$	12			$	(7,033	)		$	(1,621	)
Other comprehensive income, net of tax
Other comprehensive (loss), before reclassifications, net of tax of $203, $169, $-, $372	(295		)	(291		)		—				(586		)
Amounts reclassified from accumulated other comprehensive income, net of tax of $-, $(60), $(223), $(283)	—			105			⁽¹⁾	322			⁽²⁾	427
Net current-period other comprehensive (loss) income, net of tax of $203, $109, $(223), $89	(295		)	(186		)		322				(159		)
Balance as of March 31, 2014	$	5,105		$	(174	)		$	(6,711	)		$	(1,780	)

Balance as of September 30, 2012	$	4,921		$	51			$	(15,743	)		$	(10,771	)
Other comprehensive income, net of tax
Other comprehensive income, before reclassifications, net of tax of $(226), $26, $-, $(200)	327			(45		)		—				282
Amounts reclassified from accumulated other comprehensive income, net of tax of $-, $(16) $(406), $(422)	—			28			⁽¹⁾	709			⁽²⁾	737
Net current-period other comprehensive income, net of tax of $(226), $10, $(406), $(622)	327			(17		)		709				1,019
Balance as of March 31, 2013	$	5,248		$	34			$	(15,034	)		$	(9,752	)


(1)	Consists of realized losses related to foreign currency derivatives, which are reclassified to gas purchases in the Unaudited Condensed Consolidated Statements of Operations.


(2)	Included in the computation of net periodic pension cost, a component of operations and maintenance expense in the Unaudited Condensed Consolidated Statements of Operations.

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


9.	DEBT

NJR and NJNG finance working capital requirements and capital expenditures through the issuance of various short-term debt and long-term financing arrangements, including a commercial paper program, committed unsecured credit facilities and private placement debt shelf facilities. Amounts available under credit facilities are reduced by bank or commercial paper borrowings, as applicable, and any outstanding letters of credit. Neither NJNG nor the results of its operations are obligated or pledged to support the NJR credit or debt shelf facilities.

Credit Facilities

On January 24, 2014, NJR entered into an agreement for a $50 million unsecured committed credit line. The credit line was put in place primarily to provide additional working capital to NJRES to meet any potential margin calls that may arise in NJRES’ normal course of business. Effective January 31, 2014 , NJR utilized the accordion option available under the NJR Credit Facility to increase the amount of credit available from $325 million to $425 million and the additional credit line was thereby terminated on the same date.

A summary of NJR's credit facility and NJNG's commercial paper program and credit facility are as follows:



(Thousands)	March 31, 2014			September 30, 2013			Expiration Dates
NJR
Bank revolving credit facility ⁽¹⁾	$	425,000		$	325,000		August 2017
Notes outstanding at end of period	$	15,200		$	97,000
Weighted average interest rate at end of period	1.15		%	1.00		%
Amount available at end of period ⁽²⁾	$	384,459		$	210,110
Bank term loan ⁽³⁾	$	100,000		$	100,000		September 2014
Loan outstanding at end of period	$	—		$	100,000
Weighted average interest rate at end of period	—		%	0.74		%
Amount available at end of period	$	100,000		$	—
Bank letter of credit facility ^{(3) (4)}	$	10,000		$	10,000		June 2014
NJNG
Bank credit facility dedicated to EDA Bonds ^{(1) (4)}	$	100,000		$	100,000		August 2015
Bank revolving credit facility ⁽¹⁾	$	250,000		$	250,000		August 2014
Commercial paper outstanding at end of period	$	48,000		$	168,600
Weighted average interest rate at end of period	0.12		%	0.13		%
Amount available at end of period ⁽⁵⁾	$	201,269		$	81,400


(1)	Committed credit facilities, which require commitment fees on the unused amounts.


(2)	Letters of credit outstanding total $25.3 million and $17.9 million as of March 31, 2014 and September 30, 2013 , respectively, which reduces amount available by the same amount.


(3)	Uncommitted.


(4)	There were no borrowings outstanding as of March 31, 2014 and September 30, 2013 , respectively.


(5)	Letters of credit outstanding total $731,000 and $266,000 as of March 31, 2014 and September 30, 2013 , respectively, which reduces the amount available by the same amount.

NJR Long-term Debt

On May 12, 2011 , NJR entered into an unsecured, uncommitted $100 million private placement shelf note agreement allowing NJR to issue senior notes during a two -year issuance period, which expired on May 10, 2013 . As of March 31, 2014 , NJR had two series of notes outstanding under this agreement, $25 million at 1.94 percent , which will mature on September 15, 2015 and $25 million at 2.51 percent , which will mature on September 15, 2018 .

On June 30, 2011 , NJR entered into an unsecured, uncommitted $75 million private placement shelf note agreement allowing NJR to issue senior notes during a three -year issuance period ending June 30, 2014 . As of March 31, 2014 , NJR had $50 million at 3.25 percent outstanding, which will mature on September 17, 2022 , under this agreement.

On September 26, 2013 , NJR entered into an unsecured, uncommitted $100 million private placement shelf note agreement allowing NJR to issue senior notes during a three -year issuance period ending September 26, 2016 . As of March 31, 2014 , $100 million remains available for borrowing under this facility.

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NJNG Long-term Debt

On March 13, 2014 , NJNG issued $70 million of 3.58 percent senior notes due March 13, 2024 , and $55 million of 4.61 percent senior notes due March 13, 2044 , secured by FMB in the private placement market pursuant to a note purchase agreement entered into on February 7, 2014. The proceeds were used to pay down short-term debt and redeem its $60 million , 4.77 percent private placement bonds.

During the second quarter of fiscal 2014, management decided to redeem the $12 million , 5 percent Series HH bonds, which were callable as of December 1, 2013 . On April 10, 2014 , NJNG provided notice to bond holders that the bonds will be redeemed on May 27, 2014 . As of March 31, 2014 , the bonds have been reclassified to current maturities of long-term debt on the Unaudited Condensed Consolidated Balance Sheets.

NJNG received $7.6 million and $7.1 million in December 2013 and 2012 , respectively, in connection with the sale-leaseback of its natural gas meters. NJNG records a capital lease obligation that is paid over the term of the lease and has the option to purchase the meters back at fair value upon expiration of the lease.


10.	EMPLOYEE BENEFIT PLANS

Pension and Other Postemployment Benefit Plans

The components of the net periodic cost for pension benefits, including the Company's Pension Equalization Plan, and OPEB costs (principally health care and life insurance) for employees and covered dependents were as follows:



	Pension												OPEB
	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
	March 31,						March 31,						March 31,						March 31,
(Thousands)	2014			2013			2014			2013			2014			2013			2014			2013
Service cost	$	1,536		$	1,718		$	3,072		$	3,436		$	981		$	1,171		$	1,962		$	2,342
Interest cost	2,517			2,235			5,033			4,470			1,433			1,287			2,866			2,574
Expected return on plan assets	(3,869		)	(3,706		)	(7,738		)	(7,412		)	(1,043		)	(913		)	(2,087		)	(1,826		)
Recognized actuarial loss	1,399			1,911			2,798			3,822			625			964			1,250			1,928
Prior service cost amortization	28			27			56			54			(89		)	7			(178		)	14
Recognized net initial obligation	—			—			—			—			2			(89		)	5			(178		)
Net periodic benefit cost	$	1,611		$	2,185		$	3,221		$	4,370		$	1,909		$	2,427		$	3,818		$	4,854

The Company does not expect to be required to make additional contributions to fund the pension plans over the next three fiscal years based on current actuarial assumptions; however, funding requirements are uncertain and can depend significantly on changes in actuarial assumptions, returns on plan assets, interest rates and changes in the demographics of eligible employees and covered dependents. In addition, as in the past, the Company may elect to make contributions in excess of the minimum required amount to the plans. NJR made a discretionary contribution of $20 million to the pension plans during fiscal 2013 . There have been no discretionary contributions made during the six months ended March 31, 2014 .


11.	INCOME TAXES

NJR evaluates its tax positions to determine the appropriate accounting and recognition of potential future obligations associated with unrecognized tax benefits. During the six months ended March 31, 2014 and 2013 , based on its analysis, the Company determined that there was no need to recognize any liabilities associated with uncertain tax positions.

The effective tax rates for the six months ended March 31, 2014 and 2013 , are 28.8 percent and 25.4 percent , respectively. The increased tax rate is due primarily to a significant year over year increase in the forecasted pre-tax income. This increase is partially offset by the impact of increased forecasted ITCs, net of deferred taxes, and PTCs of $18.9 million and $13.4 million for the fiscal years ended September 30, 2014 and 2013 , respectively.

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

To calculate the estimated annual effective tax rate, NJR considers solar and wind projects that are probable of being completed and placed in service during the current fiscal year based on the best information available at each reporting period. The estimate includes an assessment of various factors, such as board of director approval, status of contractual agreements, permitting, regulatory approval and interconnection. Adjustments to the effective tax rate and management's estimates will occur as information and assumptions change.

As of March 31, 2014 , the Company has state income tax net operating losses of approximately $125.3 million , which generally have a life of 20 years. The Company has recorded a deferred state tax asset of approximately $7.3 million on the Unaudited Condensed Consolidated Balance Sheets, reflecting the tax benefit associated with the loss carryforwards. In addition, as of March 31, 2014 , the Company has recorded a valuation allowance of $229,000 because it believes that it is more likely than not that the deferred tax assets related to CR&R and NJR will expire unused. As of September 30, 2013 , the Company had a state income tax net operating losses of approximately $104.4 million , a deferred state tax asset of approximately $6.1 million and a valuation allowance of $262,000 .

As of September 30, 2013 , the Company had an ITC carryforward of approximately $40 million , which has a life of 20 years. The Company expects to utilize the entire carryforward.


12.	COMMITMENTS AND CONTINGENT LIABILITIES

Cash Commitments

NJNG has entered into long-term contracts, expiring at various dates through August 2030 , for the supply, storage and delivery of natural gas. These contracts include current annual fixed charges of approximately $95.1 million at current contract rates and volumes, which are recoverable through BGSS.

For the purpose of securing storage and pipeline capacity, NJRES enters into storage and pipeline capacity contracts, which require the payment of certain demand charges by NJRES to maintain the ability to access such natural gas storage or pipeline capacity, during a fixed time period, which generally ranges from one to ten years. Demand charges are established by storage and pipeline operators and regulated by the FERC. These demand charges represent commitments to pay storage providers or pipeline companies for the right to store and transport natural gas utilizing their respective assets.

Commitments as of March 31, 2014 , for natural gas purchases and future demand fees for the next five fiscal year periods are as follows:



(Thousands)	2014		2015		2016		2017		2018		Thereafter
NJRES:
Natural gas purchases	$	320,608	$	99,106	$	15,452	$	—	$	—	$	—
Storage demand fees	15,571		20,773		9,931		5,425		3,318		4,000
Pipeline demand fees	35,978		43,174		33,561		18,307		12,548		7,175
Sub-total NJRES	$	372,157	$	163,053	$	58,944	$	23,732	$	15,866	$	11,175
NJNG:
Natural gas purchases	$	55,132	$	107,920	$	6,522	$	113	$	—	$	—
Storage demand fees	12,995		20,611		13,285		10,883		9,299		13,948
Pipeline demand fees	32,139		74,142		43,312		34,247		33,978		194,675
Sub-total NJNG	$	100,266	$	202,673	$	63,119	$	45,243	$	43,277	$	208,623
Total ⁽¹⁾	$	472,423	$	365,726	$	122,063	$	68,975	$	59,143	$	219,798


(1)	Does not include amounts related to intercompany asset management agreements between NJRES and NJNG.

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Legal Proceedings

Manufactured Gas Plant Remediation

NJNG is responsible for the remedial cleanup of five MGP sites, dating back to gas operations in the late 1800s and early 1900s that contain contaminated residues from former gas manufacturing operations. NJNG is currently involved in administrative proceedings with the NJDEP, as well as 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, under Administrative Consent Orders or Memoranda of Agreement with the NJDEP.

NJNG may, subject to BPU approval, recover its remediation expenditures, including carrying costs, over rolling seven-year periods pursuant to a RA approved by the BPU. In July 2013 , NJNG requested approval of its MGP expenditures incurred through June 2013 as well as a reduction in the SBC RA factor to recover $18.7 million annually. The petition was provisionally approved by the BPU on November 22, 2013 . As of March 31, 2014 , $32.7 million of previously incurred remediation costs, net of recoveries from customers and insurance proceeds, are included in regulatory assets on the Unaudited Condensed Consolidated Balance Sheets.

NJNG periodically, and at least annually, performs an environmental review of the MGP sites, including a review of potential liability for investigation and remedial action. NJNG estimated at the time of the review that total future expenditures to remediate and monitor the five MGP sites for which it is responsible, including potential liabilities for Natural Resource Damages that might be brought by the NJDEP for alleged injury to groundwater or other natural resources concerning these sites, will range from approximately $159.8 million to $261.2 million . NJNG's estimate of these liabilities is based upon known facts, existing technology and enacted laws and regulations in place when the review was completed. Where it is probable that costs will be incurred, and the information is sufficient to establish a range of possible liability, NJNG accrues the best estimated amount in the range. If no point within the range is more likely than the other, it is NJNG's policy to accrue the lower end of the range. Accordingly, as of March 31, 2014 , NJNG recorded an MGP remediation liability and a corresponding regulatory asset of $183.6 million on the Unaudited Condensed Consolidated Balance Sheets, based on the best estimate. 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 MGP-related costs through the RA. If any future regulatory position indicates that the recovery of such costs is not probable, the related non-recoverable costs would be charged to income in the period of such determination. However, because recovery of such costs is subject to BPU approval, there can be no assurance as to the ultimate recovery through the RA or the impact on the Company's results of operations, financial position or cash flows, which could be material.

General

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 effect on its financial condition, results of operations or cash flows.


13.	BUSINESS SEGMENT AND OTHER OPERATIONS DATA

NJR organizes its businesses based on its products and services as well as regulatory environment. As a result, the Company manages the businesses through the following reportable segments and other operations: the Natural Gas Distribution segment consists of regulated energy and off-system, capacity and storage management operations; the Energy Services segment consists of unregulated wholesale energy operations; the Clean Energy Ventures segment consists of capital investments in distributed power projects; the Midstream segment consists of NJR's investments in natural gas transportation and storage facilities; the Retail and Other operations consist of heating, cooling and water appliance installation and services, commercial real estate development, other investments and general corporate activities.

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Information related to the Company's various business segments and other operations is detailed below:



	Three Months Ended						Six Months Ended
	March 31,						March 31,
(Thousands)	2014			2013			2014			2013
Operating revenues
Natural Gas Distribution
External customers	$	394,528		$	351,750		$	627,997		$	570,599
Energy Services
External customers ⁽¹⁾	1,173,835			599,362			1,807,526			1,102,997
Intercompany	67,749			4,444			71,767			4,551
Clean Energy Ventures
External customers	2,679			1,440			4,852			4,619
Subtotal	1,638,791			956,996			2,512,142			1,682,766
Retail and Other
External customers	8,527			8,334			17,599			18,689
Intercompany	297			186			499			449
Eliminations	(68,046		)	(4,631		)	(72,266		)	(5,000		)
Total	$	1,579,569		$	960,885		$	2,457,974		$	1,696,904
Depreciation and amortization
Natural Gas Distribution	$	9,972		$	9,399		$	19,807		$	18,676
Energy Services	13			11			25			22
Clean Energy Ventures	2,635			2,104			5,146			3,935
Midstream	2			1			3			3
Subtotal	12,622			11,515			24,981			22,636
Retail and Other	208			199			415			390
Eliminations	(2		)	7			(2		)	(2		)
Total	$	12,828		$	11,721		$	25,394		$	23,024
Interest income ⁽²⁾
Natural Gas Distribution	$	181		$	146		$	442		$	313
Midstream	270			263			538			534
Subtotal	451			409			980			847
Retail and Other	—			1			—			2
Eliminations	(235		)	(218		)	(468		)	(450		)
Total	$	216		$	192		$	512		$	399


(1)	Includes sales to Canada, which accounted for 4 percent and 6.9 percent of total operating revenues during the six months ended March 31, 2014 and 2013 , respectively .


(2)	Included in other income on the Unaudited Condensed Consolidated Statements of Operations.

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



	Three Months Ended						Six Months Ended
	March 31,						March 31,
(Thousands)	2014			2013			2014			2013
Interest expense, net of capitalized interest
Natural Gas Distribution	$	3,888		$	3,549		$	7,872		$	7,133
Energy Services	661			640			1,277			1,208
Clean Energy Ventures	1,249			822			2,435			1,605
Midstream	377			476			775			1,067
Subtotal	6,175			5,487			12,359			11,013
Retail and Other	131			259			242			558
Total	$	6,306		$	5,746		$	12,601		$	11,571
Income tax provision (benefit)
Natural Gas Distribution	$	23,725		$	22,794		$	37,908		$	37,301
Energy Services	64,345			(5,203		)	53,072			10,961
Clean Energy Ventures	(17,388		)	(6,457		)	(19,432		)	(14,226		)
Midstream	1,573			1,619			2,569			2,862
Subtotal	72,255			12,753			74,117			36,898
Retail and Other	(1,129		)	(906		)	(1,320		)	(1,029		)
Eliminations	554			218			388			176
Total	$	71,680		$	12,065		$	73,185		$	36,045
Equity in earnings of affiliates
Midstream	$	4,141		$	4,469		$	7,083		$	7,960
Eliminations	(908		)	(939		)	(1,708		)	(1,875		)
Total	$	3,233		$	3,530		$	5,375		$	6,085
Net financial earnings (loss)
Natural Gas Distribution	$	47,043		$	45,917		$	74,682		$	71,409
Energy Services	91,407			16,368			98,781			19,382
Clean Energy Ventures	12,807			5,154			16,421			10,459
Midstream	2,254			2,274			3,688			4,059
Subtotal	153,511			69,713			193,572			105,309
Retail and Other	(1,576		)	(1,037		)	(1,777		)	(1,131		)
Eliminations	(15		)	(12		)	(15		)	(21		)
Total	$	151,920		$	68,664		$	191,780		$	104,157
Capital expenditures
Natural Gas Distribution	$	35,484		$	31,554		$	70,885		$	65,699
Clean Energy Ventures	20,486			9,545			45,403			24,865
Subtotal	55,970			41,099			116,288			90,564
Retail and Other	272			144			477			298
Total	$	56,242		$	41,243		$	116,765		$	90,862

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The chief operating decision maker of the Company is the Chief Executive Officer who uses NFE as a measure of profit or loss in measuring the results of the Company's segments and operations. A reconciliation of consolidated NFE to consolidated net income is as follows:



	Three Months Ended						Six Months Ended
	March 31,						March 31,
(Thousands)	2014			2013			2014			2013
Consolidated net financial earnings	$	151,920		$	68,664		$	191,780		$	104,157
Less:
Unrealized (gain) loss from derivative instruments and related transactions ⁽¹⁾	(13,256		)	38,800			52,395			20,466
Effects of economic hedging related to natural gas inventory	(18,668		)	(2,117		)	(41,548		)	(22,865		)
Tax adjustments	10,873			(13,488		)	269			881
Consolidated net income	$	172,971		$	45,469		$	180,664		$	105,675


(1)	Excludes unrealized losses related to an intercompany transaction between NJNG and NJRES that have been eliminated in consolidation of approximately $(957,000) and $(377,000) for the three months ended and $(672,000) and $(310,000) for the six months ended March 31, 2014 and 2013 , respectively.

The Company uses derivative instruments as economic hedges of purchases and sales of physical gas inventory. For GAAP purposes, these derivatives are recorded at fair value and related changes in fair value are included in reported earnings. Revenues and cost of gas related to physical gas flow is recognized as the gas is delivered to customers. Consequently, there is a mismatch in the timing of earnings recognition between the economic hedges and physical gas flows. Timing differences occur in two ways:


•	Unrealized gains and losses on derivatives are recognized in reported earnings in periods prior to physical gas inventory flows; and


•	Unrealized gains and losses of prior periods are reclassified as realized gains and losses when derivatives are settled in the same period as physical gas inventory movements occur.

NFE is a measure of the earnings based on eliminating these timing differences, to effectively match the earnings effects of the economic hedges with the physical sale of gas. Consequently, to reconcile between GAAP and NFE, current period unrealized gains and losses on the derivatives are excluded from NFE as a reconciling item. Additionally, realized derivative gains and losses are also included in current period net income. However, NFE includes only realized gains and losses related to natural gas sold out of inventory, effectively matching the full earnings effects of the derivatives with realized margins on physical gas flows. NJR also calculates a quarterly tax adjustment based on an estimated annual effective tax rate for NFE purposes.

The Company's assets for the various business segments and business operations are detailed below:



(Thousands)	March 31, 2014			September 30, 2013
Assets at end of period:
Natural Gas Distribution	$	2,157,317		$	2,094,940
Energy Services	546,010			468,096
Clean Energy Ventures	312,258			253,663
Midstream	153,050			153,536
Subtotal	3,168,635			2,970,235
Retail and Other	89,810			85,293
Intercompany assets ⁽¹⁾	(97,235		)	(50,745		)
Total	$	3,161,210		$	3,004,783


(1)	Consists of transactions between subsidiaries that are eliminated and reclassified in consolidation.

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


14.	RELATED PARTY TRANSACTIONS

NJRES may periodically enter into storage or park and loan agreements with its affiliated FERC-regulated natural gas storage facility, Steckman Ridge, or transportation agreements with its affiliated FERC-regulated interstate pipeline, Iroquois. As of March 31, 2014 , NJRES has entered into storage and park and loan transactions with Steckman Ridge for varying terms, all of which expire in March 2015 . Additionally, NJRES has transportation capacity with Iroquois that expires in March 2019 . Demand fees, net of eliminations, associated with both Steckman Ridge and Iroquois were $1.5 million and $3.2 million during the six months ended March 31, 2014 and 2013 , respectively. As of March 31, 2014 , NJRES had demand fees payable of $166,000 and $403,000 to Steckman Ridge and Iroquois, respectively, which are included in gas purchases payable. As of September 30, 2013 , fees payable to Steckman Ridge and Iroquois, were $159,000 and $390,000 , respectively.

In January 2010 , NJNG entered into a 10 -year agreement effective April 1, 2010 , for 3 Bcf of firm storage capacity with Steckman Ridge. Under the terms of the agreement, NJNG incurs demand fees, at market rates, of approximately $9.3 million annually, a portion of which is eliminated in consolidation. These fees are recoverable through NJNG's BGSS mechanism and are included in regulatory assets. Additionally, NJNG has transportation capacity with Iroquois that expires by January 2019 . Demand fees, net of eliminations, associated with both Steckman Ridge and Iroquois were $4.8 million and $2.7 million during the six months ended March 31, 2014 and 2013 , respectively. NJNG had demand fees payable to Steckman Ridge in the amount of $776,000 as of March 31, 2014 and $775,000 as of September 30, 2013 . NJNG had fees payable to Iroquois of $62,000 and $61,000 as of March 31, 2014 and September 30, 2013 , respectively.

In December 2009 , NJNG and NJRES entered into an asset management agreement that began in January 2010 and ends in March 2015 . Under the terms of this agreement, NJNG released certain transportation and storage contracts to NJRES for the entire term of the agreement. NJNG also sold approximately 1 Bcf of natural gas in storage at cost to NJRES. In return, NJNG has the option to purchase index priced gas from NJRES at NJNG's city gate and other delivery locations to maintain operational reliability. In September 2010 , NJNG and NJRES entered into an asset management agreement that began in November 2010 and ends October 2014 , whereby NJNG released additional transportation contracts to NJRES for the entire term of the agreement and has the option to purchase index priced gas from NJRES at NJNG's city gate. In March 2014 , NJNG and NJRES entered into an another asset management agreement that began in April 2014 and ends March 2016 , whereby NJNG released additional transportation contracts to NJRES for the entire term of the agreement and has the option to purchase index priced gas from NJRES at NJNG's city gate.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS

Critical Accounting Policies

A summary of NJR's critical accounting policies is included in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of its Annual Report on Form 10-K for the period ended September 30, 2013 . NJR's critical accounting policies have not changed from those reported in the 2013 Annual Report on Form 10-K.

Recently Issued Accounting Standards

Refer to Note 2. Summary of Significant Accounting Policies for discussion of recently issued accounting standards.

Management's Overview

Consolidated

NJR is an energy services holding company providing retail natural gas service in New Jersey and wholesale natural gas and related energy services to customers primarily in the U.S. and Canada, through two of its subsidiaries, NJNG and NJRES. In addition, NJR invests in distributed power projects, midstream assets and provides various repair, sales and installations services. A more detailed description of NJR's organizational structure can be found in Item 1. Business of NJR's 2013 Annual Report on Form 10-K.

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Business Segments

NJR has four primary business segments as presented in the chart below:

In addition to the business segments above, NJR has other non-utility operations that either provide corporate support services or do not meet management's criteria to be treated as a separate business segment. These operations, which comprise Retail and Other, include: appliance repair services, sales and installations at NJRHS; energy-related ventures at NJR Energy and commercial real estate holdings at CR&R.

A summary of the company's consolidated results is as follows:



	Three Months Ended						Six Months Ended
	March 31,						March 31,
(Thousands)	2014		2013		% change		2014		2013		% change
Operating revenues	$	1,579,569	$	960,885	64.4	%	$	2,457,974	$	1,696,904	44.9	%
Gas purchases	$	1,195,816	$	800,607	49.4	%	$	1,970,548	$	1,367,355	44.1	%

The primary drivers of the changes noted above, which are described in more detail in the individual segment discussions, are as follows:

Operating revenues and gas purchases increased during the three and six months ended March 31, 2014 , compared with the three and six months ended March 31, 2013 , due primarily to:


•	increased sales volumes at NJRES due to increased demand for natural gas in regions affected by the extreme cold weather, coupled with higher average commodity prices ; and


•	an increase in firm sales at NJNG as a result of colder weather, customer growth, coupled with higher off-system sales, partially offset by lower BGSS rates.

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Net income (loss) by business segment and operations are as follows:



	Three Months Ended										Six Months Ended
	March 31,										March 31,
(Thousands)	2014					2013					2014					2013
Net income (loss)
Natural Gas Distribution	$	47,043		27	%	$	45,917		101	%	$	74,682		41	%	$	71,409		68	%
Energy Services	110,636			64		(7,204		)	(16	)	91,250			51		20,590			19
Clean Energy Ventures	13,672			8		5,154			11		12,164			7		10,459			10
Midstream	2,254			1		2,274			5		3,688			2		4,059			4
Retail and Other	(1,576		)	(1	)	(1,037		)	(2	)	(1,777		)	(1	)	(1,131		)	(1	)
Eliminations ⁽¹⁾	942			1		365			1		657			—		289			—
Total	$	172,971		100	%	$	45,469		100	%	$	180,664		100	%	$	105,675		100	%


(1)	Consists of transactions between subsidiaries that are eliminated in consolidation .

The increase in net income during the three and six months ended March 31, 2014 , compared with the three and six months ended March 31, 2013 was primarily driven by:


•	an increase at NJRES due primarily to higher gross margin due to increased demand caused by the extreme cold weather, coupled with higher average commodity prices ; and


•	an increase at NJNG due primarily to higher gross margin related to customer growth and infrastructure investments .

Assets by business segment and operations are as follows:



(Thousands)	March 31, 2014					September 30, 2013
Assets
Natural Gas Distribution	$	2,157,317		68	%	$	2,094,940		70	%
Energy Services	546,010			17		468,096			16
Clean Energy Ventures	312,258			10		253,663			8
Midstream	153,050			5		153,536			5
Retail and Other	89,810			3		85,293			3
Intercompany assets ⁽¹⁾	(97,235		)	(3	)	(50,745		)	(2	)
Total	$	3,161,210		100	%	$	3,004,783		100	%


(1)	Consists of transactions between subsidiaries that are eliminated in consolidation.

The increase in assets during the six months ended March 31, 2014 , included additional utility plant expenditures at our Natural Gas Distribution segment and solar and wind expenditures at Clean Energy Ventures. In addition, higher commodity prices and sales volumes contributed to the increase in accounts receivable at Energy Services during the six months ended March 31, 2014 .

Management of the Company uses NFE, a non-GAAP financial measure, when evaluating its operating results of its Energy Services segment related to financial derivative instruments that have settled and are designed to economically hedge natural gas still in inventory. NFE is a measure of the earnings based on eliminating timing differences surrounding the recognition of certain gains or losses to effectively match the earnings effects of the economic hedges with the physical sale of gas and, therefore, eliminates the impact of volatility to GAAP earnings associated with the derivative instruments. NJR also calculates a quarterly tax adjustment based on an estimated annual effective tax rate for NFE purposes. Any resulting quarterly tax adjustments are applied to its Clean Energy Ventures segment, as such adjustments relate to tax credits generated by NJRCEV. Non-GAAP financial measures are not in accordance with, or an alternative to GAAP, and should be considered in addition to, and not as a substitute for the comparable GAAP measure.

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

The following is a reconciliation of consolidated net income, the most directly comparable GAAP measure, to NFE:



	Three Months Ended						Six Months Ended
	March 31,						March 31,
($ in Thousands)	2014			2013			2014			2013
Net income	$	172,971		$	45,469		$	180,664		$	105,675
Add:
Unrealized (gain) loss on derivative instruments and related transactions	(13,256		)	38,800			52,395			20,466
Effects of economic hedging related to natural gas inventory	(18,668		)	(2,117		)	(41,548		)	(22,865		)
Tax adjustments	10,873			(13,488		)	269			881
Net financial earnings	$	151,920		$	68,664		$	191,780		$	104,157

NFE by business segment and other operations, discussed in more detail within the operating results sections of each segment, is summarized as follows:



	Three Months Ended										Six Months Ended
	March 31,										March 31,
($ in Thousands)	2014					2013					2014					2013
Net financial earnings (loss)
Natural Gas Distribution	$	47,043		31	%	$	45,917		67	%	$	74,682		39	%	$	71,409		68	%
Energy Services	91,407			60		16,368			24		98,781			51		19,382			19
Clean Energy Ventures	12,807			8		5,154			8		16,421			9		10,459			10
Midstream	2,254			2		2,274			3		3,688			2		4,059			4
Retail and Other	(1,576		)	(1	)	(1,037		)	(2	)	(1,777		)	(1	)	(1,131		)	(1	)
Eliminations ⁽¹⁾	(15		)	—		(12		)	—		(15		)	—		(21		)	—
Total	$	151,920		100	%	$	68,664		100	%	$	191,780		100	%	$	104,157		100	%


(1)	Consists of transactions between subsidiaries that are eliminated in consolidation .

The increase in NFE during the three and six months ended March 31, 2014 , compared with the three and six months ended March 31, 2013 was primarily driven by:


•	an increase at NJRES due primarily to higher gross margin due to increased demand caused by the extreme cold weather, coupled with higher prices ; and


•	an increase at NJNG due primarily to higher gross margin related to customer growth and infrastructure investments .

Natural Gas Distribution Segment

Overview

NJNG, a natural gas utility that provides regulated retail natural gas service in central and northern New Jersey and also participates in the off-system sales and capacity release markets, comprises our natural gas distribution segment. As a regulated company, NJNG is required to recognize the impact of regulatory decisions on its financial statements. See Note 3. Regulation in the accompanying Unaudited Condensed Consolidated Financial Statements for a more detailed discussion on regulatory actions, including filings related to programs and associated expenditures as well as rate requests related to recovery of costs.

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Our Natural Gas Distribution segment has approximately 503,700 residential and commercial customers in its service territory. The business is subject to various risks, such as those associated with adverse economic conditions, that can negatively impact customer growth, operating and financing costs, fluctuations in commodity prices and customer conservation efforts, which can impact customer usage, certain regulatory actions, environmental remediation and severe weather conditions. It is often difficult to predict the impact of events or trends associated with these risks.

In addition, NJNG's business is seasonal by nature, as weather conditions directly influence the volume of natural gas delivered. Specifically, customer demand substantially increases during the winter months when natural gas is used for heating purposes. As a result, NJNG receives most of its gas distribution revenues during the first and second fiscal quarters and is subject to variations in earnings and working capital during the year.

NJNG's operations are managed with the goal of providing safe and reliable service, growing its customer base, diversifying its margin, promoting clean energy programs and mitigating the risks discussed above, through several key initiatives including:


•	Earning a reasonable rate of return on the investments in its natural gas distribution and transmission systems, as well as timely recovery of all prudently incurred costs in order to provide safe and reliable service throughout NJNG's territory:

- NJNG is required by the BPU to file a base rate case no later than November 15, 2015 ;


•	Continuing to invest in the safety and integrity of its infrastructure;


•	Managing its new customer growth rate, which NJNG expects to be approximately 1.5 percent annually over the next two years;


•	Maintaining a collaborative relationship with the BPU on regulatory initiatives, including:

- planning and authorization of infrastructure investments;

- pursuing rate and regulatory strategies to stabilize and decouple margin, including the continuation of CIP;

- utilizing BGSS incentive programs through BPU-approved mechanisms to reduce gas costs and generate earnings;

- administration and promotion of NJNG's BPU-approved SAVEGREEN project;


•	Managing the volatility of wholesale natural gas prices through a hedging program designed to keep customers' BGSS rates as stable as possible; and


•	Working to manage expectations related to its financial obligations associated with its MGP sites.

Superstorm Sandy

In October 2012, high winds, heavy rainfall and the related flooding associated with Superstorm Sandy caused significant damage to portions of NJNG's distribution system. As a result, NJNG curtailed the natural gas infrastructure in certain areas of its service territory that were most heavily damaged, affecting approximately 30,100 of NJNG's customers. As of March 31, 2014 , gas service has been restored to approximately 75 percent of those customers. Total capital expenditures associated with the restoration of the affected portions of distribution system were $30.8 million , including $4.7 million during the six months ended March 31, 2014 . In addition, NJNG expects to spend approximately $5.3 million and $5.2 million during fiscal 2014 and 2015 , respectively. NJNG filed a petition with the BPU in November 2012 , requesting deferral accounting for uninsured incremental O&M costs associated with Superstorm Sandy restoration efforts. NJNG requested that the review of and the appropriate recovery period for such deferred expenses be addressed in NJNG's next base rate case to be filed no later than November 15, 2015 . As of March 31, 2014 and September 30, 2013 , NJNG had $15.2 million and $14.8 million , respectively, of deferred O&M costs in regulatory assets on the Unaudited Condensed Consolidated Balance Sheets related to the restoration of its infrastructure. In addition, as a result of the disruption of service to these customers, NJNG lost approximately $4.9 million and $7.1 million in operating revenue and $1.7 million and $2.6 million in utility gross margin, during the six months ended March 31, 2014 and 2013 , respectively.

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Infrastructure projects

NJNG has significant annual capital expenditures associated with the management of its natural gas distribution and transmission system, including new utility plant for customer growth and its associated PIM and infrastructure programs.

AIP and SAFE

NJNG has implemented BPU-approved infrastructure projects that are designed to enhance the reliability of NJNG's gas distribution system, including AIP and SAFE. The AIP projects were completed in October 2012. To date, NJNG has received regulatory approval to recover approximately $15.4 million annually through its base tariff rates.

In October 2012 , the BPU approved a stipulation allowing NJNG to implement the SAFE program whereby NJNG is replacing portions of its gas distribution unprotected steel and cast iron infrastructure over a four year period. NJNG will seek to recover $130 million , plus a weighted average cost of capital of 6.9 percent , with a return on equity of 9.75 percent , in its next base rate case to be filed no later than November 15, 2015 .

NGV Advantage

In June 2012 , the BPU approved a pilot program for NJNG to invest up to $10 million to build NGV refueling stations in Monmouth, Ocean and Morris counties. As of March 31, 2014 , NJNG has begun development of three NGV stations. On April 23, 2014, the BPU approved NJNG's request to include a cost recovery filing to the BPU in its next base rate case to be filed no later than November 15, 2015 . In addition, the NJBPU approved a deferred accounting methodology related to the NGV investment costs consistent with NJNG’s SAFE Program. The NGV program was authorized by the BPU to earn an overall weighted average cost of capital of 7.1 percent , including a return on equity of 10.3 percent . A portion of the proceeds from the utilization of the compressed natural gas equipment, along with any available federal and state incentives, will be credited back to ratepayers to help offset the cost of this investment.

NJ RISE

NJNG filed a petition with the BPU in September 2013 , seeking approval of NJ RISE, which consists of six capital projects totaling $102.5 million , excluding AFUDC, for gas distribution storm hardening and mitigation projects, along with associated O&M expenses. The submission was made in response to a March 2013 BPU order, initiating a proceeding to investigate prudent, cost efficient and effective opportunities to protect New Jersey’s utility infrastructure from future major storm events. These system enhancements are intended to minimize service impacts during extreme weather events to customers that live in the most storm prone areas of NJNG's service territory. In the filing, NJNG seeks to recover the capital costs associated with NJ RISE through an annual adjustment to its base rate.

Other projects

NJNG is exploring other system enhancements that are designed to support improved reliability in the southern portion of its service territory, referred to as the Southern Reliability Link, as well as to reduce costs associated with the filling of LNG tanks, referred to as Liquefaction.

Below is a summary of estimated capital expenditures for the next two fiscal years:



(Millions)	2014		2015
Customer growth	$	24.7	$	25.6
System maintenance and other	64.2		55.7
AIP/SAFE	31.6		33.7
Superstorm Sandy	5.3		5.2
NGV Advantage	9.0		—
NJ RISE	4.6		13.0
Liquefaction/LNG	16.0		16.3
Southern Reliability	2.3		12.3
Total	$	157.7	$	161.8

Estimated capital expenditures are reviewed on a regular basis and may vary based on the ongoing effects of regulatory oversight, environmental regulations, unforeseen events and the ability to access capital.

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Customer growth

In conducting NJNG's business, management focuses on factors it believes may have significant influence on its future financial results. NJNG's policy is to work with all stakeholders, including customers, regulators and policymakers, to achieve favorable results. These factors include the rate of NJNG's customer growth in its service territory, which can be influenced by political and regulatory policies, the delivered cost of natural gas compared with competing fuels, interest rates and general economic and business conditions.

During the six months ended March 31, 2014 and 2013 , respectively, NJNG added 3,658 and 3,697 new customers and converted 348 and 328 existing customers to natural gas heat and other services. This customer growth represents an estimated increase of approximately $2.3 million annually to utility gross margin assuming normal weather and usage. In addition, NJNG currently expects to add approximately 14,000 to 16,000 new customers during the two-year period of fiscal 2014 and 2015 . Based on information from municipalities and developers, as well as external industry analysts and management's experience, NJNG estimates that approximately 50 percent of the growth will come from new construction markets and 50 percent from customer conversions to natural gas from other fuel sources. This growth would increase utility gross margin under NJNG's base rates by approximately $4 million annually, as calculated under NJNG's CIP tariff. See the Natural Gas Distribution Results of Operations section of Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations for a definition and further discussion of utility gross margin .

SAVEGREEN

SAVEGREEN conducts home energy audits and provides various grants, incentives and financing alternatives, that are designed to encourage the installation of high efficiency heating and cooling equipment and other energy efficiency upgrades. Depending on the specific incentive or approval, NJNG recovers costs associated with the programs over a two to ten-year period through a tariff rider mechanism. The recovery includes a weighted average cost of capital that ranges from 6.9 percent , with a return on equity of 9.75 percent , to 7.76 percent , with a return on equity of 10.3 percent .

In June 2013 , the BPU approved NJNG's 2012 request to extend and expand the current SAVEGREEN program through June 2015 , with certain modifications, resulting in grants, incentives and financing investments of more than $85 million over a two year period, earning a weighted average return of 6.9 percent . Since inception, the BPU has approved total SAVEGREEN investments of approximately $149.5 million , of which, $78 million in grants, rebates and loans has been provided to customers, with a total annual recovery of approximately $20 million .

Conservation Incentive Program

The CIP eliminates the disincentive to promote conservation and energy efficiency and facilitates normalizing NJNG's utility gross margin for variances not only due to weather but also for other factors affecting customer usage. In March 2013 , NJNG and South Jersey Gas Company filed a joint petition with the BPU requesting the continuation of the CIP with certain modifications. The discovery phase is complete and since no BPU Order on that petition has been issued as of September 2013 , the CIP program will continue for up to one additional year or until such an Order is issued, whichever is earlier. The Parties are currently discussing settlement alternatives at this time. NJNG's total utility firm gross margin includes the following adjustments related to the CIP mechanism:



	Three Months Ended					Six Months Ended
	March 31,					March 31,
(Thousands)	2014			2013		2014			2013
Weather ⁽¹⁾	$	(11,793	)	$	390	$	(11,712	)	$	3,622
Usage	1,266			2,525		3,606			6,386
Total	$	(10,527	)	$	2,915	$	(8,106	)	$	10,008


(1)	Compared with the 20-year average, weather was 17.5 percent and 1.8 percent colder -than-normal during the three months ended March 31, 2014 and 2013 , respectively, and 11.5 percent colder -than-normal and .6 percent warmer -than-normal during the six months ended March 31, 2014 and 2013 , respectively.

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Commodity prices

Our Natural Gas Distribution segment is affected by the price of natural gas, which can have a significant impact on our cash flows, short-term financing costs, gas costs recovered from customers, NJNG's ability to collect accounts receivable, which impacts our bad debt expense, and our ability to maintain a competitive advantage over other fuel sources. Natural gas commodity prices may experience high volatility as indicated by NYMEX settlement prices, which serve as a market indicator, as shown below for the 12 month periods ending March 31, 2014 and 2013 :

As of March 31, 2014 , forward natural gas prices for the next 12 months on the NYMEX, which serve as a forward-looking market indicator, averaged $4.46 per MMBtu.

A more detailed discussion of the impacts of the price of natural gas to operating revenues, gas purchases and cash flows can be found in the Results of Operations and Cash Flow sections of Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

BGSS

Recovery of natural gas costs

NJNG's cost of gas is passed through to our customers, without markup, by applying NJNG's authorized BGSS tariff rate to actual therms delivered. There is no utility gross margin associated with BGSS costs; therefore, changes in such costs do not impact NJNG's earnings. NJNG monitors its actual gas costs in comparison to its tariff rates to manage its cash flows associated with its allowed recovery of gas costs, which is facilitated through BPU-approved deferred accounting and the BGSS pricing mechanism. Accordingly, NJNG occasionally adjusts its periodic BGSS rates or can issue credits or refunds, as appropriate, f or its residential and small commercial customers when the commodity cost varies from the existing BGSS rate. BGSS rates for its large commercial customers are adjusted monthly based on NYMEX prices.

In May 2013 , NJNG notified the BPU of its intent to reduce its BGSS rate effective June 1, 2013 , resulting in a 5.2 percent decrease to the average residential heating customer bill and again on November 21, 2013 , effective December 1, 2013 , resulting in a 6 percent decrease to the average residential heating customer bill. Refer to Note 3. Regulation in the accompanying Unaudited Condensed Consolidated Financial Statements, for a discussion of BGSS rate actions .

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

BGSS Incentive Programs

NJNG is eligible to receive financial incentives through October 2015 , for reducing BGSS costs through a series of utility gross margin-sharing programs that include off-system sales, capacity release, storage incentive and FRM programs that are designed to encourage better utilization and hedging of its natural gas supply, transportation and storage assets. Depending on the program, NJNG shares 80 or 85 percent of utility gross margin generated by these programs with firm customers. NJNG is also permitted to propose a process to re-evaluate and discuss alternative incentive programs annually, should performance of the existing incentives or market conditions warrant.

Utility gross margin from incentive programs was $4.5 million and $4.1 million during the six months ended March 31, 2014 and 2013 , respectively. A more detailed discussion of the impacts to margin can be found in the Results of Operations section of Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .

Hedging

In order to provide price stability to its natural gas supply portfolio, NJNG employs a hedging strategy with the goal of having at least 75 percent of the Company's projected winter gas purchase volumes hedged by each November 1 and at least 25 percent of the gas purchase requirements hedged for the following April through March period. This is accomplished with the use of a variety of financial instruments including futures, swaps and options used in conjunction with commodity and/or weather-related hedging activity.

Environmental remediation

NJNG is responsible for the environmental remediation of five MGP sites, which contain contaminated residues from former gas manufacturing operations that ceased at these sites by the mid-1950s and, in some cases, had been discontinued many years earlier. Actual MGP remediation costs may vary from management's estimates due to the developing nature of remediation requirements, regulatory decisions by the NJDEP and related litigation. NJNG reviews these costs at the end of each fiscal year and adjusts its liability and corresponding regulatory asset as necessary to reflect its expected future remediation obligation. Accordingly, as of March 31, 2014 , NJNG recognized a regulatory asset and an obligation of $183.6 million .

NJNG is currently authorized to recover remediation costs of approximately $18.7 million annually, based on expenditures incurred through June 2013 .

Interest Rate Risk

Due to the capital-intensive nature of NJNG's operations and the seasonal nature of its working capital requirements, significant changes in interest rates can also impact NJNG's results. A more detailed discussion can be found in the Liquidity and Capital Resources and Cash Flow sections of Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .

Operating Results

Utility Gross Margin

NJNG's utility gross margin is a non-GAAP financial measure defined as natural gas revenues less natural gas purchases, sales tax, and regulatory rider expenses, and may not be comparable to the definition of gross margin used by others in the natural gas distribution business and other industries. Management believes that utility gross margin provides a more meaningful basis than revenue for evaluating utility operations since natural gas costs, sales tax and regulatory rider expenses are included in operating revenue and passed through to customers and, therefore, have no effect on utility gross margin. Non-GAAP financial measures are not in accordance with, or an alternative to GAAP, and should be considered in addition to, and not as a substitute for the comparable GAAP measure.

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

NJNG's operating results are as follows:



	Three Months Ended				Six Months Ended
	March 31,				March 31,
(Thousands)	2014		2013		2014		2013
Utility gross margin
Operating revenues	$	394,528	$	351,750	$	627,997	$	570,599
Less:
Gas purchases	218,065		194,926		333,609		307,087
Energy and other taxes	22,297		22,515		36,926		36,767
Regulatory rider expense	38,211		23,774		58,043		37,756
Total utility gross margin	115,955		110,535		199,419		188,989
Operation and maintenance expenses	30,699		28,705		57,951		53,896
Depreciation and amortization	9,972		9,399		19,807		18,676
Other taxes not reflected in utility gross margin	1,232		1,076		2,306		2,318
Operating income	74,052		71,355		119,355		114,099
Other income	604		905		1,107		1,744
Interest expense, net of capitalized interest	3,888		3,549		7,872		7,133
Income tax provision	23,725		22,794		37,908		37,301
Net income	$	47,043	$	45,917	$	74,682	$	71,409

Operating revenues increased by $42.8 million , or 12.2 percent , and gas purchases increased by $23.1 million , or 11.9 percent , respectively, during the three months ended March 31, 2014 , compared with the three months ended March 31, 2013 . During the six months ended March 31, 2014 , operating revenues increased by $57.4 million , or 10.1 percent , and gas purchases increased by $26.5 million , or 8.6 percent , respectively, during the six months ended March 31, 2014 , compared with the six months ended March 31, 2013 . A description of the factors contributing to the increases (decreases) in operating revenues and gas purchases are as follows:



	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2014 v. 2013						2014 v. 2013
(Millions)	Operating revenue			Gas purchases			Operating revenue			Gas purchases
Firm sales	$	44.3		$	21.8		$	59.3		$	30.8
Average BGSS rates ⁽¹⁾	(26.9		)	(25.2		)	(39.9		)	(37.3		)
Off-system sales	26.6			26.2			35.1			34.4
CIP adjustments	(13.4		)	—			(18.1		)	—
SAVEGREEN	7.2			—			11.3			—
AIP	3.5			—			5.6			—
Other	1.5			0.3			4.1			(1.4		)
Total increase	$	42.8		$	23.1		$	57.4		$	26.5


(1)	Operating revenue includes changes in sales tax of $(1.7) million during the three months ended March 31, 2014 , compared with the three months ended March 31, 2013 , and $(2.6) million during the six months ended March 31, 2014 , compared with the six months ended March 31, 2013 .

An increase in usage related primarily to weather being 15.2 percent colder and 11.8 percent colder during the three and six months ended March 31, 2014 , respectively, compared with the three and six months ended March 31, 2013 , contributed to increases in operating revenues and gas purchases associated with firm sales. The increase was also due to higher off-system sales revenue due primarily to a 123.3 percent increase in the average price of gas sold, offset by a 33.4 percent reduction in volumes during the three months ended March 31, 2014 , compared with the three months ended March 31, 2013 , and a 60.4 percent increase in the average price of gas sold, offset by a 14.2 percent reduction in volumes during the six months ended March 31, 2014 , compared with the six months ended March 31, 2013 . These increases were partially offset by lower BGSS rates during the current period along with a decrease in CIP adjustments of $15.3 million related to weather and $2.8 million related to usage. Other includes changes in Superstorm Sandy impact and rider rates, including those related to NJCEP and other programs.

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

The following provides more information on the components of utility gross margin and associated throughput (Bcf) of natural gas delivered to customers:



	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2014			2013			2014			2013
($ in thousands)	Margin		Bcf	Margin		Bcf	Margin		Bcf	Margin		Bcf
Utility gross margin/throughput
Residential	$	73,038	22.5	$	70,786	19.5	$	123,598	35.0	$	119,121	30.7
Commercial, industrial and other	17,428		4.2	16,932		3.7	30,428		6.6	29,652		5.9
Firm transportation	23,352		8.6	20,721		7.1	40,673		13.6	35,895		11.4
Total utility firm gross margin/throughput	113,818		35.3	108,439		30.3	194,699		55.2	184,668		48.0
BGSS incentive programs	2,043		34.4	2,004		40.0	4,499		70.2	4,118		72.3
Interruptible	94		1.7	92		2.0	221		3.3	203		4.9
Total utility gross margin/throughput	$	115,955	71.4	$	110,535	72.3	$	199,419	128.7	$	188,989	125.2

Utility Firm Gross Margin

Utility firm gross margin is earned from residential and commercial customers who receive natural gas service from NJNG through either sales tariffs, which include a commodity and delivery component, or transportation tariffs, which include a delivery component only.

A description of the factors contributing to the increases in utility firm gross margin are as follows:



	Three Months Ended			Six Months Ended
	March 31,			March 31,
(Thousands)	2014 v. 2013			2014 v. 2013
AIP		$	3,114		$	5,239
Customer impact		1,759			3,838
SAVEGREEN		506			954
Total increase		$	5,379		$	10,031

The increase in utility firm gross margin during the three and six months ended March 31, 2014 , compared with the three and six months ended March 31, 2013 , was due primarily to increases in revenue related to infrastructure investments, customer growth and the effects of Superstorm Sandy.

The increase in firm transportation margin is due primarily to transfers of customers from residential and commercial sales as a result of increased marketing activity by third party natural gas providers in NJNG's distribution territory. The transfer of customers has no impact on NJNG's total utility firm gross margin since distribution tariff rates are the same for these customer classes.

NJNG's total customers include the following:



	March 31, 2014	March 31, 2013
Firm customers
Residential	411,993	411,470
Commercial, industrial & other	25,977	26,251
Residential transport	54,684	51,013
Commercial transport	10,941	10,125
Total firm customers	503,595	498,859
Other	84	74
Total customers	503,679	498,933

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

NJNG added 3,658 and 3,697 new customers and converted 348 and 328 existing customers to natural gas heat and other services during the six months ended March 31, 2014 and 2013 , respectively. This customer growth represents an estimated annual increase of approximately .5 Bcf in sales to firm customers, assuming normal weather and usage, which would contribute approximately $2.3 million annually to utility gross margin.

BGSS Incentive Programs

A description of the factors contributing to the increases (decreases) in utility gross margin generated by NJNG's BGSS incentive programs are as follows:



	Three Months Ended				Six Months Ended
	March 31,				March 31,
(Thousands)	2014 v. 2013				2014 v. 2013
Off-system sales		$	363			$	630
Capacity release		(50		)		(55		)
Storage		(140		)		(63		)
FRM		(134		)		(131		)
Total increase		$	39			$	381

The increase during the three and six months ended March 31, 2014 , compared with the three and six months ended March 31, 2013 , was due primarily to extreme cold weather resulting in an increase in market area volatility , which contributed to increased margins in off-system sales.

Operation and Maintenance Expense

A summary and description of the factors contributing to the increases (decreases) in O&M are as follows:



	Three Months Ended				Six Months Ended
	March 31,				March 31,
(Thousands)	2014 v. 2013				2014 v. 2013
Compensation and benefits		$	1,861			$	3,452
Shared corporate costs		579				786
Other		(446		)		(183		)
Total increase		$	1,994			$	4,055

The increase in O&M during the three and six months ended March 31, 2014 , compared with the three and six months ended March 31, 2013 , was to due primarily to an increase in compensation and benefits. The increase in compensation and benefits was driven primarily by higher labor costs related to additional complement and overtime , partially offset by lower pension benefit costs due to an increase in the discount rate .

Depreciation Expense

Depreciation expense increased $573,000 and $1.1 million during the three and six months ended March 31, 2014 as a result of additional utility plant being placed into service.

Operating Income

Operating income increased $2.7 million and $5.3 million , during the three and six months ended March 31, 2014 , respectively, compared with the three and six months ended March 31, 2013 , due primarily to the increase in total utility gross margin of $5.4 million and $10.4 million , partially offset by increases in O&M and depreciation expense, as previously discussed.

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Net Income

Net income increased $1.1 million or 2.5 percent , to $47 million during the three months ended March 31, 2014 , compared with the three months ended March 31, 2013 , and $3.3 million , or 4.6 percent , to $74.7 million during the six months ended March 31, 2014 compared with the six months ended March 31, 2013 , due primarily to the increase in operating income as previously discussed, partially offset by an increase in the income tax provision due to higher earnings and an increase in interest expense associated with new long-term debt issued in April 2013 .

Energy Services Segment

Overview

NJRES is a non-regulated natural gas marketer and is principally engaged in the optimization of natural gas storage and transportation assets. The market areas in which it operates include the Gulf Coast, Mid-Continent, Appalachian, Northeastern and Western regions in the U.S., as well as Canada.

NJRES focuses on creating value from its natural gas assets, which are typically amassed through contractual rights to natural gas transportation and storage capacity within the regions that encompass its market area. Through the use of its capacity contracts, NJRES is able to take advantage of pricing differences between geographic locations, commonly referred to as “locational spreads” or “basis spreads,” and pricing differences across time horizons, commonly referred to as “time spreads.” To capture these price differences, NJRES may enter into contracts for the future delivery and sales of physical natural gas and simultaneously enters into financial derivative contracts to establish an initial financial margin for each of its forecasted physical commodity transactions. Financial instruments are utilized to economically hedge natural gas inventory placed into storage that will be sold at a later date, all of which were contemplated as part of an entire forecasted transaction. The financial derivative contracts serve to protect the cash flows of the transaction from volatility in commodity prices and can include futures, options, and swap contracts, which are all predominantly actively quoted on the CME/NYMEX. Typically, periods of greater price volatility provide NJRES with additional arbitrage opportunities to generate margin by improving the respective time or locational spreads on a forward basis.

Predominantly all of NJRES' physical purchases and sales of natural gas result in the physical delivery of natural gas. NJRES accounts for its physical commodity contracts and its financial derivative instruments at fair value on the Unaudited Condensed Consolidated Balance Sheets. Changes in the fair value of these contracts are included in earnings as a component of operating revenue or gas purchases, as appropriate, on the Unaudited Condensed Consolidated Statements of Operations.Volatility in reported net income at NJRES can occur over periods of time due to changes in the fair value of derivatives, as well as timing differences related to certain transactions. Unrealized gains and losses can fluctuate as a result of changes in the price of natural gas from the original hedge price compared with the market price of natural gas at each reporting date. Volatility in earnings also occurs as a result of timing differences between the settlement of financial derivatives and the sale of the corresponding physical natural gas that was economically hedged. When a financial instrument settles and the natural gas is placed in inventory, the realized gains and losses associated with the financial instrument are recognized in earnings. However, the gains and losses associated with the economically hedged natural gas are not recognized in earnings until the natural gas inventory is sold, at which time NJRES will realize the entire margin on the transaction.

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Operating Results

NJRES' financial results are summarized as follows:



	Three Months Ended					Six Months Ended
	March 31,					March 31,
(Thousands)	2014		2013			2014		2013
Operating revenues	$	1,241,584	$	603,806		$	1,879,293	$	1,107,548
Gas purchases (including demand charges) ⁽¹⁾	1,048,158		611,878			1,711,945		1,067,632
Gross margin	193,426		(8,072		)	167,348		39,916
Operation and maintenance expenses	17,374		3,380			20,959		6,595
Depreciation and amortization	13		11			25		22
Other taxes	397		304			765		540
Operating income (loss)	175,642		(11,767		)	145,599		32,759
Other income	—		—			—		—
Interest expense, net	661		640			1,277		1,208
Income tax provision (benefit)	64,345		(5,203		)	53,072		10,961
Net income (loss)	$	110,636	$	(7,204	)	$	91,250	$	20,590


(1)	Costs associated with pipeline and storage capacity that are expensed over the term of the related contracts, which generally varies from less than one year to ten years.

As of March 31, 2014 , NJRES' portfolio of financial derivative instruments was comprised of:


•	20.9 Bcf of net short futures contracts

As of March 31, 2013 , NJRES' portfolio of financial derivative instruments was comprised of:


•	1.5 Bcf of net long futures contracts .

Operating Revenues and Gas Purchases

During the three and six months ended March 31, 2014 , operating revenues increased $637.8 million and $771.7 million , respectively, and gas purchases increased $436.3 million and $644.3 million , respectively, due primarily to the sustained extreme cold weather across the U.S., especially in the Midwest, which contributed to an increase in natural gas demand and market volatility resulting in opportunities for NJRES to effectively utilize its strategically located assets across North America.

Gross Margin

Gross margin during the three months ended March 31, 2014 , was higher by approximately $201.5 million compared with the three months ended March 31, 2013 , due primarily to the increased prices and volumes discussed above, as well as an increase of $51.1 million in unrealized gains and an increase of $16.6 million in realized gains as a result of timing differences in the settlement of certain economic hedges, which are described further below.

Gross margin during the six months ended March 31, 2014 , was $127.4 million higher compared with the six months ended March 31, 2013 , due primarily to the increased prices and volumes discussed above, as well as an increase of $18.7 million as a result of timing differences in the settlement of certain economic hedges, which are described further below, partially offset by an increase of $32.5 million in unrealized losses.

Operation and Maintenance Expense

O&M increased $14 million and $14.4 million during the three and six months ended March 31, 2014 , compared with the three and six months ended March 31, 2013 , due primarily to increases in incentive costs.

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Non-GAAP Financial Measures

Management of the Company uses non-GAAP financial measures, noted as “financial margin” and “NFE,” when evaluating the operating results of NJRES. Financial margin and NFE are measures of margin and earnings based on eliminating timing differences associated with certain derivative instruments, as discussed above. Management views these measures as more representative of the overall expected economic result and uses these measures to compare NJRES' results against established benchmarks and earnings targets as these measures eliminate the impact of volatility to GAAP earnings as a result of timing differences associated with these derivative instruments. To the extent that there are unanticipated changes in the markets or to the effectiveness of the economic hedges, NJRES' non-GAAP results can differ from what was originally planned at the beginning of the transaction. Non-GAAP financial measures are not in accordance with, or an alternative to GAAP, and should be considered in addition to, and not as a substitute for the comparable GAAP measure.

When NJRES reconciles the most directly comparable GAAP measure to both financial margin and NFE, current period unrealized gains and losses on the derivatives are excluded as a reconciling item. Financial margin and NFE also exclude the effects of economic hedging of the value of our natural gas in storage and, therefore, only include realized gains and losses related to natural gas sold out of inventory, effectively matching the full earnings effects of the derivatives with realized margins on the related physical gas flows.

Financial Margin

The following table is a computation of NJRES' financial margin:



	Three Months Ended						Six Months Ended
	March 31,						March 31,
(Thousands)	2014			2013			2014			2013
Operating revenues	$	1,241,584		$	603,806		$	1,879,293		$	1,107,548
Less: Gas purchases	1,048,158			611,878			1,711,945			1,067,632
Add:
Unrealized (gain) loss on derivative instruments and related transactions	(11,743		)	39,396			53,458			20,955
Effects of economic hedging related to natural gas inventory	(18,668		)	(2,117		)	(41,548		)	(22,865		)
Financial margin	$	163,015		$	29,207		$	179,258		$	38,006

A reconciliation of operating income, the closest GAAP financial measurement, to NJRES' financial margin is as follows:



	Three Months Ended						Six Months Ended
	March 31,						March 31,
(Thousands)	2014			2013			2014			2013
Operating income (loss)	$	175,642		$	(11,767	)	$	145,599		$	32,759
Add:
Operation and maintenance expenses	17,374			3,380			20,959			6,595
Depreciation and amortization	13			11			25			22
Other taxes	397			304			765			540
Subtotal - Gross margin	193,426			(8,072		)	167,348			39,916
Add:
Unrealized (gain) loss on derivative instruments and related transactions	(11,743		)	39,396			53,458			20,955
Effects of economic hedging related to natural gas inventory	(18,668		)	(2,117		)	(41,548		)	(22,865		)
Financial margin	$	163,015		$	29,207		$	179,258		$	38,006

Financial margin increased $133.8 million and $141.3 million during the three and six months ended March 31, 2014 , compared with the three and six months ended March 31, 2013 , due primarily to the sustained extreme cold weather across the U.S., especially in the Midwest, which contributed to an increase in natural gas demand and market volatility resulting in opportunities for NJRES to effectively utilize its strategically located assets across North America to generate additional financial margin.

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Net Financial Earnings

A reconciliation of NJRES' net income (loss), the most directly comparable GAAP financial measurement to NFE is as follows:



	Three Months Ended						Six Months Ended
	March 31,						March 31,
(Thousands)	2014			2013			2014			2013
Net income (loss)	$	110,636		$	(7,204	)	$	91,250		$	20,590
Add:
Unrealized (gain) loss on derivative instruments and related transactions	(11,743		)	39,396			53,458			20,955
Effects of economic hedging related to natural gas inventory	(18,668		)	(2,117		)	(41,548		)	(22,865		)
Tax adjustments	11,182			(13,707		)	(4,379		)	702
Net financial earnings	$	91,407		$	16,368		$	98,781		$	19,382

NFE increased $75 million and $79.4 million during the three and six months ended March 31, 2014 , compared with the three and six months ended March 31, 2013 , due primarily to the increased financial margin as previously discussed.

Future results are subject to NJRES' ability to maintain and expand its wholesale marketing activities and are contingent upon many other factors, including an adequate number of appropriate counterparties, volatility in the natural gas market, availability of storage arbitrage opportunities, sufficient liquidity in the energy trading market, supply and demand for natural gas and continued access to liquidity in the capital markets.

Clean Energy Ventures Segment

Overview

Our Clean Energy Ventures segment actively pursues opportunities in the solar renewable energy markets and has entered into various agreements to install solar equipment involving net-metered residential and commercial projects, as well as grid-connected projects. Currently, projects that are placed in service up through December 31, 2016, qualify for a 30 percent federal ITC. Solar projects placed in service and related ITC eligible expenditures for the three months ended March 31, are as follows:



	Three Months Ended
	March 31,
($ in Thousands)	2014					2013
Placed in service	Projects	MW	ITC Eligible Costs			Projects	MW	ITC Eligible Costs
Net-metered:
Commercial	—	—	$	5	⁽¹⁾	—	—	$	22	⁽¹⁾
Residential	292	3.5	7,994			191	1.6	5,301
Grid-connected	—	—	3		⁽¹⁾	—	—	10		⁽¹⁾
Total placed in service	292	3.5	$	8,002		191	1.6	$	5,333


(1)	During the three months ended March 31, 2014 and 2013 , ITC eligible costs include additional costs from projects that were placed in service during the six months ended March 31, 2014 and 2013 .

Solar projects placed in service and related ITC eligible expenditures for the six months ended March 31, are as follows:



	Six Months Ended
	March 31,
($ in Thousands)	2014				2013
Placed in service	Projects	MW	ITC Eligible Costs		Projects	MW	ITC Eligible Costs
Net-metered:
Commercial	1	0.3	$	993	1	2.4	$	6,613
Residential	467	5.1	13,855		294	2.4	8,268
Grid-connected	1	1.4	4,749		1	6.7	19,296
Total placed in service	469	6.8	$	19,597	296	11.5	$	34,177

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Since its inception, Clean Energy Ventures has placed a total of 62.8 MW of solar assets into service and has 25.3 commercial and .3 residential MW under construction as of March 31, 2014 . The Company estimates solar-related capital expenditures in fiscal 2014 to be between $75 million and $85 million .

Once projects commence operations or are connected to the grid, for each MWh of electricity produced, an SREC is created. An SREC represents the renewable attributes of the solar-electricity generated and is sold by NJRCEV to counterparties, including certain electric utilities that need to comply with the solar carve-out of New Jersey's renewable portfolio standards.

NJRCEV has 16,828 and 14,079 SRECs in inventory as of March 31, 2014 and 2013 , respectively. Other SREC activity consisted of the following:



	Three Months Ended		Six Months Ended
	March 31,		March 31,
	2014	2013	2014	2013
SRECs generated	10,996	8,422	26,155	18,083
SRECs sold	11,314	7,362	20,678	32,362

As part of its solar investment program, NJRCEV operates a residential solar program, The Sunlight Advantage®, that provides qualifying homeowners the opportunity to have a solar system installed on their home with no installation or maintenance expenses. NJRCEV owns, operates and maintains the system over the life of the contract in exchange for monthly payments.

Clean Energy Ventures also has the option to acquire small to mid-size wind projects that fit its investment profile through its 18.7 percent ownership interest in OwnEnergy, a developer of onshore wind projects. On October 11, 2013 , NJRCEV acquired the development rights of the Two Dot wind project in Montana, which is its first onshore wind project. NJRCEV expects to invest approximately $22 million to construct the 9.7 MW wind project. The project is expected to be operational in the second half of fiscal 2014 . On February 14, 2014, NJRCEV acquired the development rights to a wind project in Carroll County, Iowa and will invest approximately $42 million on the project. NJRCEV expects to complete the 20 MW project in fiscal 2015 . Both wind projects are eligible for a per-kilowatt-hour PTC for a 10-year period following commencement of operation and have 25-year power purchase agreements in place, through which all energy and renewable attributes will be sold to the applicable electric utility.

Clean Energy Ventures' investments are subject to a variety of factors, such as timing of construction schedules, the permitting and regulatory process, delays related to electric grid interconnection, which can affect our ability to commence operations on a timely basis or, at all, economic trends, the ability to access capital or allocation of capital to other investments or business opportunities and other unforeseen events. Solar projects not placed in service, as originally planned prior to the end of a reporting period, would result in a failure to qualify for ITCs and changes in SREC values and could have a significant adverse impact on that period's earnings. In addition, since the primary contributors toward the value of qualifying distributed power projects are tax incentives and SRECs, changes in the federal statutes related to the ITC or PTC or in the markets surrounding renewable energy credits, which can be traded or sold to load serving entities that need to comply with state renewable energy standards, could also significantly affect earnings.

Operating Results

The financial results of NJRCEV are summarized as follows:



	Three Months Ended						Six Months Ended
	March 31,						March 31,
(Thousands)	2014			2013			2014			2013
Operating revenues	$	2,679		$	1,440		$	4,852		$	4,619
Operation and maintenance expenses	2,434			1,705			4,531			3,974
Depreciation and amortization	2,635			2,104			5,146			3,935
Other taxes	77			58			148			60
Operating (loss)	(2,467		)	(2,427		)	(4,973		)	(3,350		)
Other income	—			1,946			140			1,188
Interest expense, net	1,249			822			2,435			1,605
Income tax (benefit)	(17,388		)	(6,457		)	(19,432		)	(14,226		)
Net income	$	13,672		$	5,154		$	12,164		$	10,459

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Operating revenues consist of the following:



	Three Months Ended				Six Months Ended
	March 31,				March 31,
(Thousands)	2014		2013		2014		2013
SREC sales	$	1,664	$	947	$	3,098	$	3,859
Electricity sales	449		237		701		369
Sunlight Advantage	566		256		1,053		391
Total operating revenues	$	2,679	$	1,440	$	4,852	$	4,619

NJRCEV hedges a portion of its expected SREC production through forward sale contracts. As of March 31, 2014 , NJRCEV has hedged approximately 54.3 percent of its SREC inventory and projected SREC production related to its existing commercial assets for energy years 2014 through 2016 . Energy years are compliance periods for New Jersey's renewable portfolio standard that run from June 1 to May 31.

Operation and Maintenance Expense

O&M increased by $729,000 and $557,000 during the three and six months ended March 31, 2014 , respectively, as compared with the three and six months ended March 31, 2013 , due primarily to increased consulting, software maintenance and administrative costs relating to solar project support for projects placed in service, as well as additional support for wind projects under construction.

Depreciation Expense

Depreciation expense increased $531,000 and $1.2 million during the three and six months ended March 31, 2014 , respectively, as compared with the three and six months ended March 31, 2013 , as a result of additional solar projects being placed into service.

Income Tax Benefit

NJR’s effective tax rate is significantly impacted by the amount of tax credits forecast to be earned during the fiscal year. GAAP requires NJR to estimate its annual effective tax rate and use this rate to calculate its year-to-date tax provision. Based on projects completed in the first and second quarters and NJRCEV’s forecast of projects to be completed for the balance of the fiscal year, NJR’s estimated annual effective tax rate is 28.8 percent . Accordingly, $15.9 million related to tax credits, net of deferred taxes, were recognized during the three months ended March 31, 2014 , compared with $6 million , net of deferred taxes, recognized during the three months ended March 31, 2013 and $16.5 million related to tax credits, net of deferred taxes, were recognized during the six months ended March 31, 2014 , compared with $12.8 million , net of deferred taxes, recognized during the six months ended March 31, 2013 .

Net Income

Net income increased $8.5 million during the three months ended March 31, 2014 compared with the three months ended March 31, 2013 and increased $1.7 million during the six months ended March 31, 2014 , compared with the six months ended March 31, 2013 , due primarily to increased ITCs and revenue, partially offset by increased depreciation, interest and O&M expenses, as well as a decrease in other income. The decrease in other income was due primarily to the settlement of a legal claim, as well as insurance recoveries, partially offset by asset disposals related to Superstorm Sandy during the six months ended March 31, 2013 , which did not recur during the six months ended March 31, 2014 .

Non-GAAP Financial Measures

Management of the Company uses non-GAAP financial measures, noted as “NFE,” when evaluating the operating results of Clean Energy Ventures. For NFE purposes an annual estimated effective tax rate is calculated and any necessary quarterly tax adjustment is applied to NJRCEV, as such adjustment is related to tax credits generated by NJRCEV. Accordingly, for NFE purposes, the effective tax rate for fiscal 2014 is estimated at 27.6 percent . Since the effective tax rate is based on certain forecasted assumptions, including estimates surrounding completion of projects, the rate and resulting NFE are subject to change.

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Non-GAAP financial measures are not in accordance with, or an alternative to GAAP, and should be considered in addition to, and not as a substitute for the comparable GAAP measure. A reconciliation of NJRCEV's net (loss) income, the most directly comparable GAAP financial measurement to NFE is as follows:



	Three Months Ended					Six Months Ended
	March 31,					March 31,
(Thousands)	2014			2013		2014		2013
Net income	$	13,672		$	5,154	$	12,164	$	10,459
Add:
Tax adjustments	(865		)	—		4,257		—
Net financial earnings	$	12,807		$	5,154	$	16,421	$	10,459

Midstream Segment

Overview

Our Midstream segment invests in natural gas assets, such as natural gas transportation and storage facilities. NJR believes that acquiring, owning and developing these midstream assets, which operate under a tariff structure that has either regulated or market-based rates, can provide a growth opportunity for the Company. To that end, NJR has a 50 percent ownership interest in Steckman Ridge, a storage facility that operates under market-based rates as well as a 5.53 percent ownership interest in Iroquois, a natural gas pipeline operating with regulated rates. NJR is pursuing other potential opportunities that meet its investment and development criteria.

As of March 31, 2014 , NJR's net investments in Steckman Ridge and Iroquois were $129.2 million and $23.2 million , respectively.

Operating Results

The financial results of Midstream are summarized as follows:



	Three Months Ended				Six Months Ended
	March 31,				March 31,
(Thousands)	2014		2013		2014		2013
Equity in earnings of affiliates	$	4,141	$	4,469	$	7,083	$	7,960
Operation and maintenance expenses	$	168	$	278	$	514	$	418
Interest expense, net	$	107	$	213	$	237	$	533
Income tax provision	$	1,573	$	1,618	$	2,569	$	2,862
Net income	$	2,254	$	2,274	$	3,688	$	4,059

Equity in earnings, which is driven primarily by storage revenues generated by Steckman Ridge and transportation revenues generated by Iroquois, is as follows:



	Three Months Ended				Six Months Ended
	March 31,				March 31,
(Thousands)	2014		2013		2014		2013
Steckman Ridge	$	2,231	$	2,287	$	4,236	$	4,602
Iroquois	1,910		2,182		2,847		3,358
Total equity in earnings	$	4,141	$	4,469	$	7,083	$	7,960

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Retail and Other Operations

Overview

The financial results of Retail and Other consist primarily of the operating results of NJRHS, CR&R, and NJR Energy. NJRHS provides service, sales and installation of appliances to approximately 119,000 service contract customers and has been focused on growing its installation business and expanding its service contract customer base. CR&R seeks additional opportunities to enhance the value of its building and undeveloped land. NJR Energy invests in other energy-related ventures. Retail and Other also includes organizational expenses incurred at NJR.

Operating Results

The consolidated financial results of Retail and Other are summarized as follows:



	Three Months Ended						Six Months Ended
	March 31,						March 31,
(Thousands)	2014			2013			2014			2013
Operating revenues	$	8,824		$	8,520		$	18,098		$	19,138
Operation and maintenance expenses	$	10,875		$	9,181		$	19,820		$	18,678
Net (loss)	$	(1,576	)	$	(1,037	)	$	(1,777	)	$	(1,131	)

Operating revenues increased $304,000 during the three months ended March 31, 2014 compared to the three months ended March 31, 2013 due primarily to a lease buyout at CR&R and increased installations at NJRHS. Operating revenues decreased $1 million during the six months ended March 31, 2014 compared with the six months ended March 31, 2013 , due primarily to an increase in the demand for equipment installations following Superstorm Sandy, which generated higher revenue in fiscal 2013 .

O&M increased $1.7 million during the three months ended March 31, 2014 compared to the three months ended March 31, 2013 and increased $1.1 million during the six months ended March 31, 2014 , compared with the six months ended March 31, 2013 , due primarily to higher incentives, partially offset by lower equipment costs, corresponding to the decrease in installations, as discussed above for the six months ended March 31, 2014 .

Net loss increased $539,000 during the three months ended March 31, 2014 compared to the three months ended March 31, 2013 due primarily to increased O&M, as previously discussed, partially offset by increased revenues. Net loss increased $646,000 during the six months ended March 31, 2014 , compared with the six months ended March 31, 2013 , due primarily to decreased revenues, as discussed above, as well as increased O&M, partially offset by a gain after closing costs of $186,000 during the six months ended March 31, 2014 associated with the sale of 25.4 acres of undeveloped land at CR&R.

Liquidity and Capital Resources

NJR's objective is to maintain an efficient consolidated capital structure that accommodates the different characteristics of each business segment and business operations and provides adequate financial flexibility for accessing capital markets as required.

NJR's consolidated capital structure was as follows:



	March 31, 2014		September 30, 2013
Common stock equity	59	%	48	%
Long-term debt	36		28
Short-term debt	5		24
Total	100	%	100	%

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Common Stock Equity

NJR satisfies its external common equity requirements, if any, through issuances of its common stock, including the proceeds from stock issuances under its DRP and proceeds from the exercise of options issued under the Company's long-term incentive program. The DRP allows NJR, at its option, to use treasury shares or newly issued shares to raise capital. NJR raised approximately $23.8 million of equity through the DRP during fiscal 2013 , by issuing 571,000 new shares. NJR also raised $7.4 million and $6.7 million of equity through the DRP, by issuing 163,000 and 157,000 shares of treasury stock, during the six months ended March 31, 2014 and 2013 , respectively.

In 1996, the Board of Directors authorized the Company to implement a share repurchase program, which has been expanded seven times since the inception of the program. In July 2013 , the Board of Directors approved an increase in the number of shares of NJR common stock authorized for repurchase under NJR's Share Repurchase Plan by one million shares to a total of 9.75 million shares. As of March 31, 2014 , the Company repurchased a total of approximately 8.2 million of the authorized shares. There were 97,600 shares repurchased during the six months ended March 31, 2014 .

Debt

NJR and its unregulated subsidiaries generally rely on cash flows generated from operating activities and the utilization of committed credit facilities to provide liquidity to meet working capital and short-term debt financing requirements, while NJNG also relies on the issuance of commercial paper for short-term funding. NJR and NJNG periodically access the capital markets to fund long-life assets through the issuance of long-term debt securities.

NJR believes that its existing borrowing availability and cash flow from operations will be sufficient to satisfy its and its subsidiaries' working capital, capital expenditures and dividend requirements for the next 12 months. NJR, NJNG, NJRCEV and NJRES currently anticipate that each of their financing requirements for the next 12 months will be met primarily through the issuance of short and long-term debt, meter sale-leasebacks and proceeds from the Company's DRP.

NJR believes that as of March 31, 2014 , NJR and NJNG were, and currently are, in compliance with all existing debt covenants, both financial and non-financial.

On April 23, 2014, the BPU approved a petition filed by NJNG requesting authorization over a three-year period to issue up to $300 million of medium-term notes with a maturity of not more than 30 years, renew its revolving credit facility expiring August 2014 for up to five years, enter into interest rate risk management transactions related to debt securities and redeem, refinance or defease any of NJNG’s outstanding long-term debt securities.

Short-Term Debt

NJR uses its short-term borrowings primarily to finance its share repurchases, to satisfy NJRES' short-term liquidity needs and to finance, on an initial basis, NJR's unregulated NJRCEV investments. NJRES' use of high volume storage facilities and anticipated pipeline park-and-loan arrangements, combined with related economic hedging activities in the volatile wholesale natural gas market, create significant short-term cash requirements.

The seasonal nature of NJNG's operations creates large short-term cash requirements, primarily to finance natural gas purchases and customer accounts receivable. NJNG obtains working capital for these requirements, and for the temporary financing of construction and MGP remediation expenditures and energy tax payments, based on its own financial profile, through the issuance of commercial paper supported by the NJNG Credit Facility or through short-term bank loans under the NJNG Credit Facility.

Due to the seasonal nature of natural gas prices and demand, NJR and NJNG's short-term borrowings tend to peak in the winter months.

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Short-term borrowings were as follows:



	Three Months Ended			Six Months Ended
(Thousands)	March 31, 2014
NJR
Notes Payable to banks:
Balance at end of period	$	15,200		$	15,200
Weighted average interest rate at end of period	0.95		%	0.95		%
Average balance for the period	$	246,865		$	263,844
Weighted average interest rate for average balance	0.95		%	0.96		%
Month end maximum for the period	$	323,100		$	324,900
NJNG
Commercial Paper and Notes Payable to banks:
Balance at end of period	$	48,000		$	48,000
Weighted average interest rate at end of period	0.12		%	0.12		%
Average balance for the period	$	187,338		$	154,684
Weighted average interest rate for average balance	0.15		%	0.14		%
Month end maximum for the period	$	204,500		$	204,500

NJR

On January 24, 2014, NJR entered into an agreement for an additional $50 million unsecured committed credit line. The additional credit line was put in place primarily to provide additional working capital to NJRES to meet any potential margin calls that may arise in NJRES’ normal course of business. Effective January 31, 2014, NJR utilized the accordion option available under the NJR Credit Facility to increase the amount of credit available from $325 million to $425 million and the additional credit line was thereby terminated on the same date. As of March 31, 2014 , NJR's revolving credit facility had $384.5 million available under the facility.

On September 13, 2013 , NJR entered into the $100 million uncommitted JPMC Term Loan Credit Agreement, with JPMorgan Chase Bank, N.A., as a Lender and Administrative Agent, which is scheduled to terminate on September 15, 2014 . As of March 31, 2014 , NJR had no amounts outstanding under the JPMC Term Loan with the full amount remaining for future borrowings.

Based on its average borrowings during the six months ended March 31, 2014 , NJR's average interest rate was .96 percent , resulting in interest expense of $1.3 million .

As of March 31, 2014 , NJR has five letters of credit outstanding totaling $25.3 million , which reduces the amount available under the NJR Credit Facility by the same amount.

In June 2013 , NJR entered into an agreement permitting the issuance of stand-alone letters of credit for up to $10 million through June 5, 2014 . No amounts have been drawn under this arrangement as of March 31, 2014 .

NJNG

NJNG’s commercial paper is sold through several commercial banks under an issuing and paying agency agreement and is supported by the $250 million NJNG Credit Facility. As of March 31, 2014 , the unused amount available under the NJNG Credit Facility, including amounts allocated to the backstop under the commercial paper program and the issuance of letters of credit, was $201.3 million . In addition, the JPMC Facility providing liquidity support for NJNG's VRDNs has not been used to date.

During the six months ended March 31, 2014 , based on its average commercial paper outstanding, NJNG's weighted average interest rate on its short-term debt was .14 percent , resulting in interest expense of $112,000 .

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

As of March 31, 2014 , NJNG has two letters of credit outstanding totaling approximately $731,000 . These letters of credit reduce the amount available under NJNG's committed credit facility by the same amount. NJNG does not anticipate that these letters of credit will be drawn upon by the counterparties. These letters of credit are used for collateral for soil remediation systems and expire on August 11, 2015 .

Short-Term Debt Covenants

Borrowings under the NJR Credit Facility, NJNG Credit Facility, JPMC Term Loan and JPMC Facility are conditioned upon compliance with a maximum leverage ratio (consolidated total indebtedness to consolidated total capitalization as defined in the applicable agreements), of not more than .65 to 1.00 at any time. These revolving credit facilities and the JPMC Term Loan contain customary representations and warranties for transactions of this type. They also contain customary events of default and certain covenants that will limit NJR or NJNG's ability beyond agreed upon thresholds, to, among other things:

• incur additional debt;

• incur liens and encumbrances;

• make dispositions of assets;

• enter into transactions with affiliates; and

• merge, consolidate, transfer, sell or lease all or substantially all of the borrower's or guarantors' assets.

These covenants are subject to a number of exceptions and qualifications set forth in the applicable agreements.

Default Provisions

The agreements governing our long-term and short-term debt obligations include provisions that, if not complied with, could require early payment or similar actions. The most important default events include:

• defaults for non-payment;

• defaults for breach of representations and warranties;

• defaults for insolvency;

• defaults for non-performance of covenants;

• cross-defaults to other debt obligations of the borrower; and

• guarantor defaults.

The occurrence of an event of default under these agreements could result in all loans and other obligations of the borrower becoming immediately due and payable and the credit facilities or term loan being terminated.

Long-Term Debt

NJR

On September 26, 2013 , NJR entered into an unsecured, uncommitted $100 million private placement shelf note agreement with MetLife. The MetLife Facility, subject to the terms and conditions set forth therein, allows NJR to issue senior notes to MetLife or certain of MetLife's affiliates from time to time during a three-year issuance period ending September 26, 2016 , on terms and conditions, including interest rates and maturity dates, to be agreed upon in connection with each note issuance. Any notes issued under the MetLife Facility will be guaranteed by certain unregulated subsidiaries of NJR. As of March 31, 2014 , $100 million remains available for borrowing under the MetLife Facility.

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

NJR has outstanding $25 million of 1.94 percent senior notes due September 15, 2015 , and $25 million of 2.51 percent senior notes due September 15, 2018 , which were issued under a now-expired facility with MetLife.

In June 2011 , NJR entered into an unsecured, uncommitted $75 million private placement shelf note agreement with Prudential. The Prudential Facility, subject to the terms and conditions set forth therein, allows NJR to issue senior notes to Prudential or certain of Prudential's affiliates from time to time during a three-year issuance period ending June 30, 2014 , on terms and conditions, including interest rates and maturity dates, to be agreed upon in connection with each note issuance. In September 2012 , NJR issued $50 million of 3.25 percent senior notes due September 17, 2022 . The notes issued under the Prudential Facility are guaranteed by certain unregulated subsidiaries of NJR. As of March 31, 2014 , $25 million remains available for borrowing under the Prudential Facility.

NJR has a $50 million , 6.05 percent senior unsecured note, issued through the private placement market, maturing in September 2017 .

NJNG

As of March 31, 2014 , NJNG's long-term debt consisted of $347.8 million in secured fixed-rate debt issuances, with maturities ranging from 2018 to 2044 , $97 million in secured variable rate debt with maturities ranging from 2027 to 2041 and $55.2 million in capital leases with various maturities ranging from 2014 to 2021 .

On March 13, 2014 , NJNG issued $70 million of 3.58 percent senior secured notes due March 13, 2024 , and $55 million of 4.61 percent senior secured notes due March 13, 2044 , in the private placement market pursuant to a note purchase agreement entered into on February 7, 2014. The notes are secured by an equal principal amount of NJNG's FMB (Series QQ and RR, respectively) issued under NJNG's Indenture, until the Release Date. The Release Date, as defined in the note purchase agreement, is the date at which the security provided by the pledge under the Mortgage Indenture would no longer be available to holders of any outstanding series of NJNG's senior secured notes and such indebtedness would become senior unsecured indebtedness. The proceeds from the notes were used to pay down short-term debt and redeem its $60 million , 4.77 percent private placement bonds. The notes are subject to required prepayments upon the occurrence of certain events and NJNG may at any time prepay all or a portion of the notes at a make-whole prepayment price.

On April 10, 2014 , NJNG provided notice to bond holders that the $12 million , 5 percent Series HH bonds, which were callable as of December 1, 2013 , will be redeemed on May 27, 2014 .

NJR is not obligated directly or contingently with respect to the Notes or the FMB.

Long-Term Debt Covenants and Default Provisions

The NJR and NJNG long-term debt instruments contain customary representations and warranties for transaction of their type. They also contain customary events of default and certain covenants that will limit NJR or NJNG’s ability beyond agreed upon thresholds to, among other things:

• Incur additional debt (including a covenant that limits the amount of consolidated total debt of the borrower at the end of a fiscal quarter to 65 percent of the consolidated total capitalization of the borrower, as those terms are defined in the applicable agreements, and a covenant limiting priority debt to 20 percent of the borrower’s consolidated total capitalization, as those terms are defined in the applicable agreements);

• Incur liens and encumbrances;

• Make loans and investments;

• Make dispositions of assets;

• Make dividends or restricted payments;

• Enter into transactions with affiliates; and

• Merge, consolidate, transfer, sell or lease substantially all of the borrower’s assets.

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

The aforementioned covenants are subject to a number of important exceptions and qualifications set forth in the applicable note purchase agreements.

Sale-Leaseback

NJNG received $7.6 million and $7.1 million in December 2013 and 2012 , respectively, in connection with the sale-leaseback of its natural gas meters. NJNG expects to continue this sale-leaseback program on an annual basis, subject to market conditions.

Contractual Obligations

NJNG's total capital expenditures are projected to be $157.7 million and $161.8 million , in fiscal 2014 and 2015 , respectively, and include estimated SAFE construction costs of $31.6 million and $33.7 million , respectively. Total capital expenditures spent or accrued during the six months ended March 31, 2014 were $72.1 million , of which $19.3 million was related to SAFE. In November 2012, NJNG filed a petition with the BPU requesting deferral accounting for actually incurred uninsured incremental O&M costs associated with Superstorm Sandy. As of March 31, 2014 , NJNG has deferred $15.2 million in regulatory assets for future recovery. In addition, NJNG requested the review of and the appropriate amortization period for such deferred expenses be addressed in the Company's next base rate case to be filed no later than November 15, 2015 . However, there can be no assurances that such recovery mechanisms will be available or, if available, no assurances can be given relative to the timing or amount of such recovery.

NJNG expects to fund its obligations with a combination of cash flow from operations, cash on hand, issuance of commercial paper, available capacity under its revolving credit facility, the issuance of long-term debt and contributions from NJR.

As of March 31, 2014 , NJNG's future MGP expenditures are estimated to total $183.6 million . For a more detailed description of MGP properties and expenditures see Note 12. Commitments and Contingent Liabilities in the accompanying Unaudited Condensed Consolidated Financial Statements .

Estimated capital expenditures are reviewed on a regular basis and may vary based on the ongoing effects of regulatory constraints, environmental regulations, unforeseen events, and the ability to access capital.

NJRCEV's expenditures include discretionary spending on capital projects that support NJR's goal to promote clean energy. Accordingly, NJRCEV enters into agreements to install solar equipment involving both residential and commercial projects. The Company estimates solar-related capital expenditures for projects placed in service during fiscal 2014 to be between $75 million and $85 million . During the six months ended March 31, 2014 , $27.6 million has been spent and an additional $72.3 million has been committed or accrued for projects to be placed in service during fiscal 2014 and beyond.

In addition, NJRCEV expects to invest approximately $22 million to construct the 9.7 MW Two Dot wind project in Montana, which NJRCEV expects to be operational in the second half of fiscal 2014 . NJRCEV will also invest approximately $42 million on a second wind project located in Carroll County, Iowa. NJRCEV expects to complete that 20 MW project in fiscal 2015 . During the six months ended March 31, 2014 , $17.8 million has been spent and an additional $15.2 million has been committed or accrued for these wind projects.

Capital expenditures related to distributed power projects are subject to change due to a variety of factors that may affect our ability to commence operations at these projects on a timely basis or, at all, including logistics associated with the start-up of residential and commercial solar projects, such as timing of construction schedules, the permitting and regulatory process, any delays related to electric grid interconnection, economic trends, unforeseen events and the ability to access capital or allocation of capital to other investments or business opportunities.

NJRES does not currently anticipate any significant capital expenditures in fiscal 2014 and 2015 .

Off-Balance-Sheet Arrangements

The Company does not have any off-balance-sheet arrangements, with the exception of guarantees covering approximately $408.4 million of natural gas purchases and demand fee commitments and outstanding letters of credit totaling $26 million , as noted above.

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Cash Flow

Operating Activities

As presented on the Unaudited Condensed Consolidated Statements of Cash Flows, cash flows from operating activities totaled $383.4 million during the six months ended March 31, 2014 , compared with $108.4 million during the six months ended March 31, 2013 . Operating cash flows are primarily affected by variations in working capital, which can be impacted by the following:

• seasonality of NJR's business;

• fluctuations in wholesale natural gas prices, including changes in derivative asset and liability values;

• timing of storage injections and withdrawals;

• the deferral and recovery of gas costs;

• changes in contractual assets utilized to optimize margins related to natural gas transactions;

• broker margin requirements;

• timing of the collections of receivables and payments of current liabilities; and

• volumes of natural gas purchased and sold.

In addition to the above factors, unusually cold weather during the six months ended March 31, 2014 compared with the prior fiscal year resulted in a significant increase in sales of natural gas resulting in a 55.8 percent decrease to gas in storage along with the overall profitability at NJRES.

Investing Activities

Cash flows used in investing activities totaled $110.2 million during the six months ended March 31, 2014 , compared with $90.2 million during the six months ended March 31, 2013 . The increase was due primarily to an increase in capital expenditures of $17.8 million related to wind projects and $2.8 million related to solar projects at NJRCEV, partially offset by proceeds from the sale of land at CR&R.

Financing Activities

Financing cash flows generally are seasonal in nature and are impacted by the volatility in pricing in the natural gas markets. NJNG's inventory levels are built up during its natural gas injection season (April through October) and reduced during withdrawal season (November through March) in response to the supply requirements of its customers. Changes in financing cash flows can also be impacted by gas management and marketing activities at NJRES and distributed power investments at NJRCEV.

Cash flows used in financing activities totaled $266.6 million during the six months ended March 31, 2014 , compared with $16.7 million during the six months ended March 31, 2013 . The increase was due primarily to an increase in payments of short-term debt. Unusually cold weather during the current six-month period resulted in an increase in natural gas sales and profitability that allowed NJR and NJNG to reduce short-term borrowings. NJNG also issued $125 million in senior notes, which was used to reduce short-term borrowings and redeem $60 million of NJNG’s long-term debt that matured in March 2014.

Credit Ratings

On January 30, 2014, Moody’s upgraded NJNG’s senior secured rating from Aa3 to Aa2, while maintaining a stable outlook. The rating upgrade was driven primarily by the overall credit supportiveness of the regulatory environment under which NJNG operates. In its review of NJNG’s credit rating, Moody’s considered the BPU's continued support of NJNG’s rate mechanisms, which allows for timely recovery of costs, including those associated with NJNG’s BGSS and CIP. In addition, the favorable recovery of investments related to NJNG’s infrastructure and energy efficiency programs factored into the rating upgrade.

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

The table below summarizes NJNG's current credit ratings issued by two rating entities, S&P and Moody's



	Standard and Poor's	Moody's
Corporate Rating	A	N/A
Commercial Paper	A-1	P-1
Senior Secured	A+	Aa2
Ratings Outlook	Stable	Stable

NJNG is not party to any lending agreements that would accelerate the maturity date of any obligation caused by a failure to maintain any specific credit rating. If such ratings are downgraded below investment grade, borrowing costs could increase, as would the costs of maintaining certain contractual relationships and future financing. Even if ratings are downgraded without falling below investment grade, NJR and NJNG could still face increased borrowing costs under their credit facilities. A rating set forth above is not a recommendation to buy, sell or hold the Company's or NJNG's securities and may be subject to revision or withdrawal at any time. Each rating set forth above should be evaluated independently of any other rating.

The timing and mix of any external financings will target a common equity ratio that is consistent with maintaining the Company's current short-term and long-term credit ratings.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Financial Risk Management

Commodity Market Risks

Natural gas is a nationally traded commodity. Its prices are determined effectively by the NYMEX and over-the-counter markets. The prices on the NYMEX/CME, ICE and over-the-counter markets generally reflect the national balance of natural gas supply and demand, but are also significantly influenced from time to time by other events.

The regulated and unregulated natural gas businesses of NJR and its subsidiaries are subject to market risk due to fluctuations in the price of natural gas. To economically hedge against such fluctuations, NJR and its subsidiaries have entered into forwards, futures contracts, options agreements and swap agreements. To manage these derivative instruments, NJR has well-defined risk management policies and procedures that include daily monitoring of volumetric limits and monetary guidelines. NJR's natural gas businesses are conducted through three of its operating subsidiaries. NJNG is a regulated utility that uses futures, options and swaps to economically hedge against price fluctuations, and its recovery of natural gas costs is governed by the BPU. NJRES uses futures, options, swaps and physical contracts to economically hedge purchases and sales of natural gas and NJR Energy from time to time may enter into energy-related ventures. Financial derivatives have historically been transacted on an exchange and cleared through an FCM, thus requiring daily cash margining for a majority of NJRES' and NJNG's positions. As a result of the Dodd-Frank Act, certain of NJRES' and NJNG's other transactions that were previously executed in the over-the-counter markets are now cleared through an FCM, resulting in increased margin requirements. The related cash flow impact from the increased requirements is expected to be minimal. Non-financial (physical) derivatives utilized by the Company have received statutory exclusion from similar Dodd-Frank provisions due to the element of physical settlement.

The following table reflects the changes in the fair market value of financial derivatives related to natural gas purchases and sales from September 30, 2013 to March 31, 2014 :



	Balance			Increase				Less				Balance
(Thousands)	September 30, 2013			(Decrease) in Fair Market Value				Amounts Settled				March 31, 2014
NJNG		$	1,438		$	14,369			$	1,418			$	14,389
NJRES		14,563			(156,880		)		(129,097		)		(13,220		)
Total		$	16,001		$	(142,511	)		$	(127,679	)		$	1,169

There were no changes in methods of valuations during the six months ended March 31, 2014 .

New Jersey Resources Corporation

Part I

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)

The following is a summary of fair market value of financial derivatives at March 31, 2014 , excluding foreign exchange contracts discussed below, by method of valuation and by maturity for each fiscal year period:



(Thousands)	2014		2015			2016 - 2018				After 2018			Total Fair Value
Price based on NYMEX/CME	$	11,221	$	(2,823	)		$	(23	)		$	—		$	8,375
Price based on ICE	400		(6,186		)		(1,420		)		—			(7,206		)
Total	$	11,621	$	(9,009	)		$	(1,443	)		$	—		$	1,169

The following is a summary of financial derivatives by type as of March 31, 2014 :



		Volume Bcf		Price per MMBtu	Amounts included in Derivatives (Thousands)
NJNG	Futures	27.5		$3.31 - $4.94		$	14,389
NJRES	Futures	(20.9	)	$3.24 - $6.48		(13,220		)
Total						$	1,169

The following table reflects the changes in the fair market value of physical commodity contracts from September 30, 2013 to March 31, 2014 :



	Balance				Increase			Less			Balance
(Thousands)	September 30, 2013				(Decrease) in Fair Market Value			Amounts Settled			March 31, 2014
NJRES - Prices based on other external data		$	(2,772	)		(90,004	)		(62,928	)		$	(29,848	)

The Company's market price risk is predominately related to changes in the price of natural gas at Henry Hub, which is the delivery point for the NYMEX natural gas futures contracts. As the fair value of futures and our fixed swaps is derived from this location, the price sensitivity analysis below has been prepared for all open Henry Hub natural gas futures and fixed swap positions. Based on this, an illustrative 10 percent movement in Henry Hub natural gas futures contract prices for example, increases (decreases) the reported derivative fair value of all open, unadjusted Henry Hub natural gas futures and fixed swap positions by approximately $7.3 million . This analysis does not include potential changes to reported credit adjustments embedded in the $8.8 million reported fair value.



Derivative Fair Value Sensitivity Analysis
(Thousands)	Henry Hub Futures and Fixed Price Swaps
Percent increase in NYMEX natural gas futures prices	0%			5%			10%			15%			20%
Estimated change in derivative fair value	$	—		$	(3,639	)	$	(7,278	)	$	(10,918	)	$	(14,557	)
Ending derivative fair value	$	(8,753	)	$	(12,392	)	$	(16,031	)	$	(19,671	)	$	(23,310	)

Percent decrease in NYMEX natural gas futures prices	0%			(5)%			(10)%			(15)%			(20)%
Estimated change in derivative fair value	$	—		$	3,639		$	7,278		$	10,918		$	14,557
Ending derivative fair value	$	(8,753	)	$	(5,114	)	$	(1,475	)	$	2,165		$	5,804

Wholesale Credit Risk

The following is a summary of gross and net credit exposures, grouped by investment and noninvestment grade counterparties, as of March 31, 2014 . Gross credit exposure is defined as the unrealized fair value of derivative and energy trading contracts plus any outstanding wholesale receivable for the value of natural gas delivered and/or financial derivative commodity contract that has settled for which payment has not yet been received. Net credit exposure is defined as gross credit exposure reduced by collateral received from counterparties and/or payables, where netting agreements exist. The amounts presented below exclude accounts receivable for NJNG retail natural gas sales and services.

New Jersey Resources Corporation

Part I

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)

NJRES' counterparty credit exposure as of March 31, 2014 , is as follows:



(Thousands)	Gross Credit Exposure			Net Credit Exposure
Investment grade		$	275,133		$	213,067
Noninvestment grade		6,104			474
Internally rated investment grade		43,212			19,660
Internally rated noninvestment grade		26,213			884
Total		$	350,662		$	234,085

NJNG's counterparty credit exposure as of March 31, 2014 , is as follows:



(Thousands)	Gross Credit Exposure			Net Credit Exposure
Investment grade		$	24,052		$	21,300
Internally rated investment grade		741			254
Internally rated noninvestment grade		1,143			—
Total		$	25,936		$	21,554

Due to the inherent volatility in the prices of natural gas commodities and derivatives, the market value of contractual positions with individual counterparties could exceed established credit limits or collateral provided by those counterparties. If a counterparty failed to perform the obligations under its contract (for example, failed to deliver or pay for natural gas), the Company could sustain a loss. This loss would comprise the loss on natural gas delivered but not paid for and/or the cost of replacing natural gas not delivered or received at a price that is unfavorable to the price in the original contract. Any such loss could have a material impact on the Company's financial condition, results of operations or cash flows.

Information regarding NJR's interest rate risk can be found in Item 7A. Quantitative and Qualitative Disclosures About Market Risks and the Liquidity and Capital Resources - Debt section of Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of its Annual Report on Form 10-K for the period ended September 30, 2013 .

Effects of Inflation

Although inflation rates have been relatively low to moderate in recent years, any change in price levels has an effect on operating results due to the capital-intensive and regulated nature of the Company's utility subsidiary. The Company attempts to minimize the effects of inflation through cost control, productivity improvements and regulatory actions when appropriate.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Under the supervision and with the participation of the Company's management, including the principal executive officer and principal financial officer, the Company conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended), as of the end of the period covered by this report. Based on this evaluation, the Company's principal executive officer and principal financial officer concluded that, as of end of the period covered by this report, the Company's disclosure controls and procedures are effective, to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to the Company's management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There has been no change in internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) that occurred during the quarter ended March 31, 2014 , that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.

ITEM 1. LEGAL PROCEEDINGS

Information regarding reportable legal proceedings is contained in Part I, “Item 3. Legal Proceedings” in NJR's Annual Report on Form 10-K for the year ended September 30, 2013 , and is set forth in Part I, Item 1, Note 12. Commitment and Contingent Liabilities-Legal Proceedings on the Unaudited Condensed Consolidated Financial Statements. No legal proceedings became reportable during the quarter ended March 31, 2014 , and there have been no material developments during such quarter regarding any previously reported legal proceedings, which have not been previously disclosed.

ITEM 1A. RISK FACTORS

While NJR attempts to identify, manage and mitigate risks and uncertainties associated with its business to the extent practical, under the circumstances, some level of risk and uncertainty will always be present. Part I, Item 1A. Risk Factors of NJR's 2013 Annual Report on Form 10-K includes a detailed discussion of NJR's risk factors. Those risks and uncertainties have the potential to materially affect NJR's financial condition and results of operations. There have been no material changes in our risk factors from those previously disclosed in Part I, Item 1A, of our 2013 Annual Report on Form 10-K.

ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table sets forth NJR's repurchase activity for the quarter ended March 31, 2014 :



Period	Total Number of Shares (or Units) Purchased	Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under the Plans or Programs
1/01/14 - 1/31/14	—	$	—	—	1,649,727
2/01/14 - 2/28/14	48,800	$	44.91	48,800	1,600,927
3/01/14 - 3/31/14	48,800	$	44.95	48,800	1,552,127
Total	97,600	$	44.93	97,600	1,552,127

The stock repurchase plan, which was authorized by our Board of Directors, became effective in September 1996 and as of March 31, 2014 , included 9.75 million shares of common stock for repurchase, of which, approximately 1.55 million shares remained available for repurchase. The stock repurchase plan will expire when we have repurchased all shares authorized for repurchase thereunder, unless the repurchase plan is earlier terminated by action of our Board of Directors or further shares are authorized for repurchase.

New Jersey Resources Corporation

Part II

ITEM 6. EXHIBITS



Exhibit Number	Exhibit Description



4.2(f)+	Thirty-Fifth Supplemental Indenture dated as of March 1, 2014

4.5+	$125,000,000 Note Purchase Agreement dated as of February 7, 2014, by and among New Jersey Natural Gas Company and the Purchasers party thereto

31.1+	Certification of the Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act

31.2+	Certification of the Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act

32.1+ †	Certification of the Chief Executive Officer pursuant to section 906 of the Sarbanes-Oxley Act

32.2+ †	Certification of the Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act

101+	Interactive Data File (Form 10-Q, for the fiscal period ended March 31, 2014, furnished in XBRL (eXtensible Business Reporting Language)).

_______________________________


+	Filed herewith.

† This certificate accompanies this report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by NJR for purposes of Section 18 or any other provision of the Securities Exchange Act of 1934, as amended.

New Jersey Resources Corporation

Part II

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



		NEW JERSEY RESOURCES CORPORATION
		(Registrant)
Date:	May 7, 2014
		By:/s/ Glenn C. Lockwood
		Glenn C. Lockwood
		Executive Vice President and
		Chief Financial Officer

[CONFORMED COPY]

MORTGAGE

NEW JERSEY NATURAL GAS COMPANY

THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A.,

successor in interest to BNY Midwest Trust Company,

As Trustee

___________________________

THIRTY-FIFTH SUPPLEMENTAL INDENTURE

Dated as of March 1, 2014

___________________________

Supplemental to Indenture of Mortgage and

Deed of Trust Dated April 1, 1952



Prepared by: William M. Libit Chapman and Cutler LLP 111 West Monroe Street Chicago, Illinois 60603	Record and Return to: Richard Reich, Esq. NJR Service Corporation 1415 Wyckoff Road Wall, New Jersey 07719

2212348

MORTGAGE

THIRTY-FIFTH SUPPLEMENTAL INDENTURE, dated as of March 1, 2014, between NEW JERSEY NATURAL GAS COMPANY, a corporation organized and existing under the laws of the State of New Jersey (hereinafter called the “Company” ), having its principal office at 1415 Wyckoff Road, Wall, New Jersey, party of the first part, and THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., successor in interest to BNY Midwest Trust Company, a national banking association (hereinafter called the “Trustee” ), having a principal office at 525 William Penn Place, 38th Floor, Pittsburgh, PA 15259, as Trustee under the Indenture of Mortgage and Deed of Trust hereinafter mentioned, party of the second part.

WHEREAS, the Company has heretofore executed and delivered to the Trustee its Indenture of Mortgage and Deed of Trust dated April 1, 1952 (hereinafter sometimes called the “Original Indenture” ) to secure the payment of the principal of and the interest and premium (if any) on all Bonds at any time issued and outstanding thereunder, and to declare the terms and conditions upon which Bonds are to be issued thereunder; and

WHEREAS, the Company thereafter executed and delivered to the Trustee its First Supplemental Indenture dated February 1, 1958, its Second Supplemental Indenture dated December 1, 1960, its Third Supplemental Indenture dated July 1, 1962, its Fourth Supplemental Indenture dated September 1, 1962, its Fifth Supplemental Indenture dated December 1, 1963, its Sixth Supplemental Indenture dated June 1, 1966, its Seventh Supplemental Indenture dated October 1, 1970, its Eighth Supplemental Indenture dated May 1, 1975, its Ninth Supplemental Indenture dated February 1, 1977, its Tenth Supplemental Indenture dated as of September 1, 1980, its Eleventh Supplemental Indenture dated as of September 1, 1983, its Twelfth Supplemental Indenture dated as of August 1, 1984, its Thirteenth Supplemental Indenture dated as of September 1, 1985, its Fourteenth Supplemental Indenture dated as of May 1, 1986, its Fifteenth Supplemental Indenture dated as of March 1, 1987, its Sixteenth Supplemental Indenture dated as of December 1, 1987, its Seventeenth Supplemental Indenture dated as of June 1, 1988, its Eighteenth Supplemental Indenture dated as of June 1, 1989, its Nineteenth Supplemental Indenture dated as of March 1, 1991, its Twentieth Supplemental Indenture dated as of December 1, 1992, its Twenty-First Supplemental Indenture dated as of August 1, 1993, its Twenty-Second Supplemental Indenture dated as of October 1, 1993, its Twenty-Third Supplemental Indenture dated as of August 15, 1994, its Twenty-Fourth Supplemental Indenture dated as of October 1, 1994, its Twenty-Fifth Supplemental Indenture dated as of July 15, 1995, its Twenty-Sixth Supplemental Indenture dated as of October 1, 1995, its Twenty-Seventh Supplemental Indenture dated as of September 1, 1997, its Twenty-Eighth Supplemental Indenture dated as of January 1, 1998, its Twenty-Ninth Supplemental Indenture dated as of April 1, 1998, its Thirtieth Supplemental Indenture dated as of December 1, 2003, its Thirty-First Supplemental Indenture dated as of October 1, 2005, its Thirty-

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Second Supplemental Indenture dated as of May 1, 2008, its Thirty‑Third Supplemental Indenture dated as of August 1, 2011 and its Thirty‑Fourth Supplemental Indenture dated as of April 1, 2013, supplementing and amending the Original Indenture; and

WHEREAS, Bonds in the aggregate principal amount of Twelve Million Five Hundred Thousand Dollars ($12,500,000) were issued under and in accordance with the terms of the Original Indenture, as an initial series designated “First Mortgage Bonds, 4‑1/4% Series A due 1977,” herein sometimes called “1977 Series A Bonds,” which 1977 Series A Bonds have since been paid and redeemed by the Company; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Two Million Two Hundred Fifty Thousand Dollars ($2,250,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First Supplemental Indenture, as a second series designated “First Mortgage Bonds, 5% Series B due 1983”, herein sometimes called “1983 Series B Bonds” , which 1983 Series B Bonds have since been paid and redeemed by the Company; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Four Million Dollars ($4,000,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First Supplemental Indenture and the Second Supplemental Indenture, as a third series designated “First Mortgage Bonds, 5‑1/8% Series C due 1985,” herein sometimes called “1985 Series C Bonds,” which 1985 Series C Bonds have since been paid and redeemed by the Company; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Five Million Dollars ($5,000,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Fourth Supplemental Indentures, inclusive, as a fourth series designated “First Mortgage Bonds, 4‑7/8% Series D due 1987,” herein sometimes called “1987 Series D Bonds,” which 1987 Series D Bonds have since been paid and redeemed by the Company; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Four Million Five Hundred Thousand Dollars ($4,500,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Fifth Supplemental Indentures, inclusive, as a fifth series designated “First Mortgage Bonds, 4‑3/4% Series E due 1988,” herein sometimes called “1988 Series E Bonds,” which 1988 Series E Bonds have since been paid and redeemed by the Company; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Fifteen Million Dollars ($15,000,000) were issued under and in accordance with the terms of the Original Indenture, as

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supplemented and amended by the First through the Seventh Supplemental Indentures, inclusive, as a sixth series designated “First Mortgage Bonds, 9‑1/4% Series F due 1995,” herein sometimes called “1995 Series F Bonds,” which 1995 Series F Bonds have since been paid and redeemed by the Company; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Ten Million Dollars ($10,000,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Eighth Supplemental Indentures, inclusive as a seventh series designated “First Mortgage Bonds, 10% Series G due 1987,” herein sometimes called “1987 Series G Bonds,” which 1987 Series G Bonds have since been paid and redeemed by the Company; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Ten Million Dollars ($10,000,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Ninth Supplemental Indentures, inclusive, as an eighth series designated “First Mortgage Bonds, 9% Series H due 1992,” herein sometimes called “1992 Series H Bonds,” which 1992 Series H Bonds have since been paid and redeemed by the Company; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Nine Million Five Hundred Forty-Five Thousand Dollars ($9,545,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Tenth Supplemental Indentures, inclusive, as a ninth series designated “First Mortgage Bonds, 9‑1/8% Series J due 2000,” herein sometimes called “2000 Series J Bonds,” which 2000 Series J Bonds have since been paid and redeemed by the Company; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Ten Million Three Hundred Thousand Dollars ($10,300,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Eleventh Supplemental Indentures, inclusive, as a tenth series designated “First Mortgage Bonds, 10‑3/8% Series K due 2013,” herein sometimes called “2013 Series K Bonds,” which 2013 Series K Bonds have since been paid and redeemed by the Company; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Ten Million Five Hundred Thousand Dollars ($10,500,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Twelfth Supplemental Indentures, inclusive, as an eleventh series designated “First Mortgage Bonds, 10‑l/2% Series L due 2014,” herein sometimes called “2014 Series L Bonds,” which 2014 Series L Bonds have since been paid and redeemed by the Company; and

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WHEREAS, thereafter Bonds in the aggregate principal amount of Twelve Million Dollars ($12,000,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Thirteenth Supplemental Indentures, inclusive, as a twelfth series designated “First Mortgage Bonds, 10.85% Series M due 2000,” herein sometimes called “2000 Series M Bonds,” which 2000 Series M Bonds have since been paid and redeemed by the Company; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Ten Million Dollars ($10,000,000) were issued under and in accordance with the terms of the Original Indenture as supplemented and amended by the First through the Fourteenth Supplemental Indentures, inclusive, as a thirteenth series designated “First Mortgage Bonds, 10% Series N due 2001,” herein sometimes called “2001 Series N Bonds,” which 2001 Series N Bonds have since been paid and redeemed by the Company; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Fifteen Million Dollars ($15,000,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Fifteenth Supplemental Indentures, inclusive, as a fourteenth series designated “First Mortgage Bonds, 8.50% Series P due 2002,” herein sometimes called “2002 Series P Bonds,” which 2002 Series P Bonds have since been paid and redeemed by the Company; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Thirteen Million Five Hundred Thousand Dollars ($13,500,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Sixteenth Supplemental Indentures, inclusive, as a fifteenth series designated “First Mortgage Bonds, 9% Series Q due 2017,” herein sometimes called “2017 Series Q Bonds,” which 2017 Series Q Bonds have since been paid and redeemed by the Company; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Twenty-Five Million Dollars ($25,000,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Seventeenth Supplemental Indentures, inclusive, as a sixteenth series designated “First Mortgage Bonds, 8.50% Series R due 2018,” herein sometimes called “2018 Series R Bonds,” which 2018 Series R Bonds have since been paid and redeemed by the Company; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Twenty Million Dollars ($20,000,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Eighteenth Supplemental Indentures, inclusive, as a seventeenth series designated “First Mortgage Bonds, 10.10% Series S due 2009,” herein

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sometimes called “2009 Series S Bonds,” which 2009 Series S Bonds have since been paid and redeemed by the Company; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Nine Million Five Hundred Forty-Five Thousand Dollars ($9,545,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Nineteenth Supplemental Indentures, inclusive, as an eighteenth series designated “First Mortgage Bonds, 7.05% Series T due 2016,” herein sometimes called “2016 Series T Bonds,” which 2016 Series T Bonds have since been paid and redeemed by the Company; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Fifteen Million Dollars ($15,000,000) were authorized, of which Fifteen Million Dollars ($15,000,000) have been issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Nineteenth Supplemental Indentures, inclusive, as a nineteenth series designated “First Mortgage Bonds, 7.25% Series U due 2021,” herein sometimes called “2021 Series U Bonds,” which 2021 Series U Bonds have since been paid and redeemed by the Company; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Twenty-Five Million Dollars ($25,000,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Twentieth Supplemental Indentures, inclusive, as a twentieth series designated “First Mortgage Bonds, 7.50% Series V due 2002,” herein sometimes called “2002 Series V Bonds,” which 2002 Series V Bonds have since been paid and redeemed by the Company; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Ten Million Three Hundred Thousand Dollars ($10,300,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Twenty-First Supplemental Indentures, inclusive, as a twenty-first series designated “First Mortgage Bonds, 5‑3/8% Series W due 2023,” herein sometimes called “2023 Series W Bonds,” which 2023 Series W Bonds have since been paid and redeemed by the Company; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Thirty Million Dollars ($30,000,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Twenty-Second Supplemental Indentures, inclusive, as a twenty-second series designated “First Mortgage Bonds, 6.27% Series X due 2008,” herein sometimes called “2008 Series X Bonds,” which 2008 Series X Bonds have since been paid and redeemed by the Company; and

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WHEREAS, thereafter Bonds in the aggregate principal amount of Ten Million Five Hundred Thousand Dollars ($10,500,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Twenty-Third Supplemental Indentures, inclusive, as a twenty-third series designated “First Mortgage Bonds, 6.25% Series Y due 2024,” herein sometimes called “2024 Series Y Bonds,” which 2024 Series Y Bonds have since been paid and redeemed by the Company; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Twenty-Five Million Dollars ($25,000,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Twenty-Fourth Supplemental Indentures, inclusive, as a twenty-fourth series designated “First Mortgage Bonds, 8.25% Series Z due 2004,” herein sometimes called “2004 Series Z Bonds,” which 2004 Series Z Bonds have since been paid and redeemed by the Company; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Twenty-Five Million Dollars ($25,000,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Twenty-Fifth Supplemental Indentures, inclusive, as a twenty-fifth series designated “First Mortgage Bonds, Adjustable Rate Series AA due 2030,” herein sometimes called “2030 Series AA Bonds,” which 2030 Series AA Bonds have since been paid and redeemed by the Company; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Sixteen Million Dollars ($16,000,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Twenty-Fifth Supplemental Indentures, inclusive, as a twenty-sixth series designated “First Mortgage Bonds, Adjustable Rate Series BB due 2030,” herein sometimes called “2030 Series BB Bonds,” which 2030 Series BB Bonds have since been paid and redeemed by the Company; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Twenty Million Dollars ($20,000,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Twenty-Sixth Supplemental Indentures, inclusive, as a twenty-seventh series designated “First Mortgage Bonds, 6-7/8 Series CC due 2010,” herein sometimes called “2010 Series CC Bonds,” which 2010 Series CC Bonds have since been paid and redeemed by the Company; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Thirteen Million Five Hundred Thousand Dollars ($13,500,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Twenty-Seventh Supplemental Indentures, inclusive, as a twenty-eighth series designated “First Mortgage Bonds,

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Adjustable Rate Series DD due 2027,” herein sometimes called “2027 Series DD Bonds,” which 2027 Series DD Bonds have since been paid and redeemed by the Company; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Nine Million Five Hundred Forty-Five Thousand Dollars ($9,545,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Twenty-Eighth Supplemental Indentures, inclusive, as a twenty-ninth series designated “First Mortgage Bonds, Adjustable Rate Series EE due 2028,” herein sometimes called “2028 Series EE Bonds,” which 2028 Series EE Bonds have since been paid and redeemed by the Company; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Fifteen Million Dollars ($15,000,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Twenty-Eighth Supplemental Indentures, inclusive, as a thirtieth series designated “First Mortgage Bonds, Adjustable Rate Series FF due 2028,” herein sometimes called “2028 Series FF Bonds,” which 2028 Series FF Bonds have since been paid and redeemed by the Company; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Eighteen Million Dollars ($18,000,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Twenty-Ninth Supplemental Indentures, inclusive, as a thirty-first series designated “First Mortgage Bonds, Adjustable Rate Series GG due 2033,” herein sometimes called “2033 Series GG Bonds,” which 2033 Series GG Bonds have since been paid and redeemed by the Company; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Twelve Million Dollars ($12,000,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Thirtieth Supplemental Indentures, inclusive, as a thirty-second series designated “First Mortgage Bonds, Series HH due 2038,” herein sometimes called “2038 Series HH Bonds,” of which Twelve Million Dollars ($12,000,000) in principal amount are outstanding at the date hereof; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Ten Million Three Hundred Thousand Dollars ($10,300,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Thirty-First Supplemental Indentures, inclusive, as a thirty-third series designated “First Mortgage Bonds, Series II due 2023,” herein sometimes called “2023 Series II Bonds,” of which Ten Million Three Hundred Thousand Dollars ($10,300,000) in principal amount are outstanding at the date hereof; and

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WHEREAS, thereafter Bonds in the aggregate principal amount of Ten Million Five Hundred Thousand Dollars ($10,500,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Thirty-First Supplemental Indentures, inclusive, as a thirty-fourth series designated “First Mortgage Bonds, Series JJ due 2024,” herein sometimes called “2024 Series JJ Bonds,” of which Ten Million Five Hundred Thousand Dollars ($10,500,000) in principal amount are outstanding at the date hereof; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Fifteen Million Dollars ($15,000,000) were authorized under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Thirty-First Supplemental Indentures, inclusive, as a thirty-fifth series designated “First Mortgage Bonds, Series KK due 2040,” herein sometimes called “2040 Series KK Bonds,” of which Ten Million Eight Hundred Thousand Dollars ($10,800,000) in principal amount are outstanding at the date hereof; and

WHEREAS, thereafter Bonds in the aggregate principal amount of One Hundred Twenty Five Million Dollars ($125,000,000) were authorized under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Thirty‑Second Supplemental Indentures, inclusive, as a thirty-sixth series designated “First Mortgage Bonds, Series LL due 2018,” herein sometimes called “2018 Series LL Bonds,” of which One Hundred Twenty Five Million Dollars ($125,000,000) in principal amount are outstanding at the date hereof; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Nine Million Five Hundred Forty Five Thousand Dollars ($9,545,000) were authorized under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Thirty-Third Supplemental Indentures, inclusive, as a thirty-seventh series designated “First Mortgage Bonds, Series MM due 2027,” herein sometimes called “2027 Series MM Bonds,” of which Nine Million Five Hundred Forty Five Thousand Dollars ($9,545,000) in principal amount are outstanding at the date hereof; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Forty One Million Dollars ($41,000,000) were authorized under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Thirty-Third Supplemental Indentures, inclusive, as a thirty-eighth series designated “First Mortgage Bonds, Series NN due 2035,” herein sometimes called “2035 Series NN Bonds,” of which Forty One Million Dollars ($41,000,000) in principal amount are outstanding at the date hereof; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Forty Six Million Five Hundred Thousand Dollars ($46,500,000) were authorized under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Thirty‑Third

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Supplemental Indentures, inclusive, as a thirty-ninth series designated “First Mortgage Bonds, Series OO due 2041,” herein sometimes called “2041 Series OO Bonds,” of which Forty Six Million Five Hundred Thousand Dollars ($46,500,000) in principal amount are outstanding at the date hereof; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Fifty Million Dollars ($50,000,000) were authorized under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through Thirty‑Fourth Supplemental Indentures, inclusive, as a fortieth series designated “First Mortgage Bonds, Series PP due 2028,” herein sometimes called “2028 Series PP Bonds,” of which Fifty Million Dollars ($50,000,000) in principal amount are outstanding at the date hereof; and

WHEREAS, that on May 17, 2000 BNY Midwest Trust Company, as transferee of the corporate trust business of Harris Trust and Savings Bank, Trustee under the Original Indenture, became successor Trustee under the Original Indenture; and

WHEREAS, the Original Indenture provides that, subject to certain exceptions not presently relevant, such changes in or additions to the provisions of the Indenture (the term “Indenture” and other terms used herein having the meanings assigned thereto in the Original Indenture except as herein expressly modified) may be made to add to the covenants and agreements of the Company in the Indenture contained other covenants and agreements thereafter to be observed by the Company; and to provide for the creation of any series of Bonds, designating the series to be created and specifying the form and provisions of the Bonds of such series as in the Indenture provided or permitted; and

WHEREAS, the Indenture further provides that the Company and the Trustee may enter into indentures supplemental to the Indenture to convey, transfer and assign unto the Trustee and to subject to the lien of the Indenture additional properties acquired by the Company; and

WHEREAS, the Company has entered into a Note Purchase Agreement dated as of February 7, 2014 (the “Note Purchase Agreement” ) with the Purchasers identified in Schedule A attached thereto, pursuant to which the Company issued its senior notes designated (i) “3.58% Series A Senior Notes due March 13, 2024” in the aggregate principal amount of $70,000,000 (the “Senior Notes due March 13, 2024” ) and (ii) “4.61% Series B Senior Notes due March 13, 2044” in the aggregate principal amount of $55,000,000 (the “Senior Notes due March 13, 2044” ); and

WHEREAS, the Company has duly determined to create a forty‑first and a forty-second series of Bonds, to be known as (i) ”First Mortgage Bonds, Series QQ due 2024,” herein sometimes called “2024 Series QQ Bonds,” and (ii) ”First Mortgage Bonds, Series RR due 2044,” herein sometimes called “2044 Series RR Bonds,” respectively , to be delivered and pledged to U.S. Bank

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National Association, as collateral agent (the “Collateral Agent” ) pursuant to the Note Purchase Agreement for the benefit and security of the holders of the Senior Notes due March 13, 2024 and the Senior Notes due March 13, 2044, respectively, all as herein provided and as provided in the Note Purchase Agreement, and to add to the covenants and agreements contained in the Indenture the covenants and agreements hereinafter set forth; and

WHEREAS, the Company, in the exercise of the powers and authority conferred upon and reserved to it under the provisions of the Indenture and pursuant to appropriate resolutions of its Board of Directors, has duly resolved and determined to make, execute and deliver to the Trustee a Thirty‑Fifth Supplemental Indenture in the form hereof for the purposes herein provided; and

WHEREAS, all conditions and requirements necessary to make this Thirty-Fifth Supplemental Indenture a valid, binding and legal instrument have been done, performed and fulfilled and the execution and delivery hereof have been in all respects duly authorized.

NOW, THEREFORE, THIS INDENTURE WITNESSETH:

That NEW JERSEY NATURAL GAS COMPANY, by way of further assurance and in consideration of the premises and of the acceptance by the Trustee of the trusts hereby created and of One Dollar to it duly paid by the Trustee at or before the ensealing and delivery of these presents, the receipt whereof is hereby acknowledged, and in order to secure the payment of principal of and any premium which may be due and payable on and the interest on all Bonds at any time issued and outstanding under the Indenture according to their tenor and effect, and the performance and observance by the Company of all the covenants and conditions herein and therein contained, has granted, bargained, sold, warranted, aliened, remised, released, conveyed, assigned, transferred, mortgaged, pledged, set over and confirmed, and by these presents does grant, bargain, sell, warrant, alien, remise, release, convey, assign, transfer, mortgage, pledge, set over and confirm, unto the party of the second part, and to its successors in the trust, and to it and its assigns forever, and has granted and does hereby grant thereunto a security interest in, all of the property, real, personal and mixed, now owned by the Company and situated in the Counties of Burlington, Middlesex, Monmouth, Morris, Ocean, Passaic, Somerset and Sussex in the State of New Jersey, or wherever situate (except property specifically excepted from the lien of the Indenture by the terms of the Indenture) and also all of the property, real, personal and mixed, hereafter acquired by the Company wherever situate (except property specifically excepted from the lien of the Indenture by the terms of the Indenture), including both as to property now owned and property hereafter acquired, without in any way limiting or impairing the enumeration of the same, the scope and intent of the foregoing or of any general or specific description contained in the Indenture, the following:

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I. FRANCHISES

All and singular, the franchises, grants, permits, immunities, privileges and rights of the Company owned and held by it at the date of the execution hereof or hereafter acquired for the construction, maintenance, and operation of the gas plants and systems now or hereafter subject to the lien hereof, as well as all certificates, franchises, grants, permits, immunities, privileges, and rights of the Company used or useful in the operation of the property now or hereafter mortgaged hereunder, including all and singular the franchises, grants, permits, immunities, privileges, and rights of the Company granted by the governing authorities of any municipalities or other political subdivisions and all renewals, extensions and modifications of said certificates, franchises, grants, permits, privileges, and rights or any of them.

II. GAS DISTRIBUTION SYSTEMS AND RELATED PROPERTY

All gas generating plants, gas storage plants and gas manufacturing plants of the Company, all the buildings, erections, structures, generating and purifying apparatus, holders, engines, boilers, benches, retorts, tanks, instruments, appliances, apparatus, facilities, machinery, fixtures, and all other property used or provided for use in the generation, manufacturing and purifying of gas, together with the land on which the same are situated, and all other lands and easements, rights-of-way, permits, privileges, and sites forming a part of such plants or any of them or occupied, enjoyed or used in connection therewith.

All gas distribution or gas transmission systems of the Company, all buildings, erections, structures, generating and purifying apparatus, holders, engines, boilers, benches, retorts, tanks, pipe lines, connections, service pipes, meters, conduits, tools, instruments, appliances, apparatus, facilities, machinery, fixtures, and all other property used or provided for use in the construction, maintenance, repair or operations of such distribution or transmission systems, together with all the certificates, rights, privileges, rights-of-way, franchises, licenses, easements, grants, liberties, immunities, permits of the Company, howsoever conferred or acquired, under, over, or upon any private property or any public streets or highways within as well as without the corporate limits of any municipal corporation. Without limiting the generality of the foregoing, there are expressly included the gas distribution or gas transmission systems located in the Counties of Burlington, Middlesex, Monmouth, Morris, Ocean, Passaic, Somerset and Sussex in the State of New Jersey, and in the following municipalities in said State and Counties: Aberdeen Township (formerly Matawan Township), Allenhurst Borough, City of Asbury Park, Atlantic Highlands Borough, Avon Borough, Barnegat Light Borough, Barnegat Township (formerly named Union Township), Bay Head Borough, Beach Haven Borough, Beachwood Borough, Belmar Borough, Berkeley Township, Boonton Town, Boonton Township, Bradley Beach Borough, Brick Township, Brielle Borough, Colts Neck Township, Deal Borough, Denville Township, Dover Town, Dover Township,

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Eagleswood Township, East Brunswick Township, Eatontown Borough, Englishtown Borough, Fair Haven Borough, Farmingdale Borough, Franklin Township in Somerset County, Freehold Borough, Freehold Township, Hanover Township, Harvey Cedars Borough, Hazlet Township, Highlands Borough, Holmdel Township, Hopatcong Borough, Howell Township, Interlaken Borough, Island Heights Borough, Jackson Township, Jefferson Township, Keansburg Borough, Keyport Borough, Lacey Township, Lakehurst Borough, Lakewood Township, Lavallette Borough, Lincoln Park Borough, Little Egg Harbor Township, Little Silver Borough, Loch Arbour Village, Long Beach Township, Long Branch City, Manalapan Township, Manasquan Borough, Manchester Township, Mantoloking Borough, Marlboro Township, Matawan Borough, Middletown Township, Milltown Borough, Mine Hill Township, Monmouth Beach Borough, Monroe Township, Montville Township, Morris Plains Borough, Mount Arlington Borough, Mount Olive Township, Mountain Lakes Borough, Neptune City Borough, Neptune Township, Netcong Borough, New Brunswick City, North Brunswick Township, Ocean Township in Monmouth County, Ocean Township in Ocean County, Ocean Gate Borough, Oceanport Borough, Old Bridge Township (formerly named Madison Township), Parsippany-Troy Hills Township, Pine Beach Borough, Point Pleasant Borough, Point Pleasant Beach Borough, Randolph Township, Red Bank Borough, Rockaway Borough, Rockaway Township, Roxbury Township, Rumson Borough, Sayreville Borough, Sea Bright Borough, Sea Girt Borough, Seaside Heights Borough, Seaside Park Borough, Ship Bottom Borough, Shrewsbury Borough, Shrewsbury Township, South Belmar Borough, South Brunswick Township, South River Borough, South Toms River Borough, Spring Lake Borough, Spring Lake Heights Borough, Stafford Township, Surf City Borough, Tinton Falls Borough (formerly named New Shrewsbury Borough), Tuckerton Borough, Union Beach Borough, Union Township, Victory Gardens Borough, Wall Township, Washington Township in Burlington County, Washington Township in Morris County, West Long Branch Borough, West Milford Township and Wharton Borough.

III. CONTRACTS

All of the Company’s right, title and interest in and under all contracts, licenses or leases for the purchase of gas, either in effect at the date of execution hereof or hereafter made and any extension or renewal thereof.

TOGETHER WITH ALL AND SINGULAR the tenements, hereditaments and appurtenances belonging or in anywise appertaining to the Trust Estate, or any part thereof, with the reversion or reversions, remainder and remainders, rents, issues, income and profits thereof, and all the right, title, interest and claim whatsoever, at law or in equity, which the Company now has or which it may hereafter acquire in and to the Trust Estate and every part and parcel thereof.

TO HAVE AND TO HOLD the Trust Estate and all and singular the lands, properties, estates, rights, franchises, privileges and appurtenances hereby mortgaged, conveyed, pledged or assigned,

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or intended so to be, together with all the appurtenances thereto appertaining, unto the Trustee and its successors and assigns forever;

SUBJECT, HOWEVER, as to property hereby conveyed, to Permitted Encumbrances;

BUT IN TRUST, NEVERTHELESS, under and subject to the terms and conditions hereafter set forth, for the equal and proportionate use, benefit, security and protection of each and every person and corporation who may be or become the holders of the Bonds and coupons hereby secured, if any, without preference, priority or distinction as to the lien or otherwise of one Bond or coupon over or from the others by reason of priority in the issue or negotiation thereof, or by reason of the date of maturity thereof, or otherwise (except as any sinking, amortization, improvement, renewal or other analogous fund, established in accordance with the provisions of the Indenture, may afford additional security for the Bonds of any particular series and except as provided in § 9.02 of the Indenture), and for securing the observance and performance of all the terms, provisions and conditions of the Indenture.

THIS INDENTURE FURTHER WITNESSETH, that the Company has agreed and covenanted, and hereby does agree and covenant, with the Trustee and its successors and assigns and with the respective holders from time to time of the Bonds and coupons, or any thereof, as follows:

ARTICLE I

CERTAIN AMENDMENTS OF INDENTURE

§ 1.1. The Original Indenture, as heretofore amended, be and it hereby is further amended in the following respects, the section numbers specified below being the sections of the Indenture in which such amendments occur:

§ 1.01. The following definition be and it hereby is added immediately after the thirty-fifth sentence of § 1.01B:

“‘THIRTY-FIFTH SUPPLEMENTAL INDENTURE’ shall mean the Supplemental Indenture dated as of March 1, 2014, supplemental to the Indenture.”

§ 1.01. The following definitions be and they hereby are added immediately after the forty‑first sentence of § 1.01F:

“‘2024 SERIES QQ BOND’ shall mean one of the First Mortgage Bonds, Series QQ due 2024, issued hereunder.

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‘2044 SERIES RR BOND’ shall mean one of the First Mortgage Bonds, Series RR due 2044, issued hereunder.”

§ 2.11. The following be and it hereby is added at the end of § 2.11:

“No charge except for taxes or governmental charges shall be made against any holder of any 2024 Series QQ Bond or 2044 Series RR Bond for the exchange, transfer or registration of transfer thereof.”

§ 8.08. The period at the end of the first paragraph of § 8.08 be and it hereby is deleted and the following words and figures be and they hereby are added thereto:

“, and the 2024 Series QQ Bonds and the 2044 Series RR Bonds shall be redeemed at the redemption price specified in § 10.98 and § 10.100, respectively.”

ARTICLE II

2024 SERIES QQ BONDS

§ 2.1. There shall be a forty‑first series of Bonds, known as and entitled “First Mortgage Bonds, Series QQ due 2024” or “First Mortgage Bonds, Series QQ” (herein and in the Indenture referred to as the “2024 Series QQ Bonds” ), and the form thereof shall contain suitable provisions with respect to the matters hereinafter in this Section specified and shall in other respects be substantially as set forth in the preambles to the Original Indenture.

The aggregate principal amount of 2024 Series QQ Bonds which may be authenticated and delivered and outstanding under the Indenture is Seventy Million Dollars ($70,000,000).

The 2024 Series QQ Bonds shall be payable to the Collateral Agent, and shall be nontransferable except to a successor of the Collateral Agent, in accordance with the Note Purchase Agreement.

The 2024 Series QQ Bonds shall bear interest at the rate of 3.58% per annum, computed on the basis of a 360‑day year of twelve 30‑day months, until the principal thereof is paid or made available for payment , and shall mature on March 13, 2024, subject to prior redemption as described herein; provided that any principal and Make-Whole Amount (as defined in the Note Purchase Agreement), and any such installment of interest which is overdue shall bear interest at the rate of six percent (6%) per annum (to the extent that payment of such interest is enforceable under applicable law).

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The 2024 Series QQ Bonds shall be in the form of registered Bonds without coupons of denominations of One Thousand Dollars ($1,000) and any integral multiple thereof which may be authorized by the Company, the issue of a registered Bond without coupons in any such denomination to be conclusive evidence of such authorization. The 2024 Series QQ Bonds shall be dated as provided in § 2.05 of the Indenture. All 2024 Series QQ Bonds shall bear interest from their respective dates, such interest to be payable, upon the terms of and otherwise in accordance with the 2024 Series QQ Bonds, on each date on which interest shall from time to time be payable on the Senior Notes due March 13, 2024; provided, that the obligation of the Company to make payments with respect to the principal of, Make-Whole Amount, if any, and interest on the 2024 Series QQ Bonds shall be fully or partially, as the case may be, satisfied and discharged to the extent that at the time any such payment shall be due, the then due principal of, Make-Whole Amount, if any, and interest on any of the Senior Notes due March 13, 2024 shall have been fully or partially paid from payments made by the Company under the Note Purchase Agreement. The principal of and the Make-Whole Amount, if any, and interest on the 2024 Series QQ Bonds shall be payable at the principal office of the Trustee, in the City of Pittsburgh, Pennsylvania, or, at the option of the Company, at the “principal office” (as indicated pursuant to the Note Purchase Agreement) of the Collateral Agent, in any coin or currency of the United States of America which at the time of payment shall be legal tender for the payment of public and private debts.

Notwithstanding any other provision of the Indenture or of the 2024 Series QQ Bonds, payments of the principal of and the Make-Whole Amount, if any, and interest on any 2024 Series QQ Bond may be made directly to the registered holder thereof without presentation or surrender thereof or the making of any notation thereon if there shall be filed with the Trustee a Certificate of the Company to the effect that such registered holder (or the person for whom such registered holder is a nominee) and the Company have entered into a written agreement that payment shall be so made; provided, however, that before such registered holder transfers or otherwise disposes of any 2024 Series QQ Bond, such registered holder will, at its election, either endorse thereon (or on a paper annexed thereto) the principal amount thereof redeemed and the last date to which interest has been paid thereon or make such Bond available to the Company at the principal office of the Trustee for the purpose of making such endorsement thereon.

The 2024 Series QQ Bonds shall be subject to redemption at the option of the Company or otherwise, and shall be subject to mandatory redemption, in the manner provided in the applicable provisions of Article Ten of the Indenture, as amended by Article III of this Supplemental Indenture.

The 2024 Series QQ Bonds shall be excluded from the benefits of, and shall not be subject to redemption through the operation of, a Mandatory Sinking Fund pursuant to § 11.02 of the Indenture and shall also be excluded from the benefits of the covenants of § 9.08 and § 11.01 of the Indenture.

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Notwithstanding the provisions of § 10.04 or any other provision of the Indenture, the selection of 2024 Series QQ Bonds to be redeemed shall, in case fewer than all of the outstanding 2024 Series QQ Bonds are to be redeemed, be made by the Trustee pro rata (to the nearest multiple of One Thousand Dollars ($1,000)) among the registered holders of the 2024 Series QQ Bonds in proportion, as nearly as practicable, to the respective unpaid principal amounts of 2024 Series QQ Bonds registered in the names of such holders, with adjustments, to the extent practicable, to compensate for any prior redemption not made exactly in such proportion (or otherwise as may be specified by a written order signed by the registered holders of all outstanding 2024 Series QQ Bonds).

The definitive 2024 Series QQ Bonds may be issued in the form of engraved Bonds or Bonds printed or lithographed on steel engraved borders or Bonds in typed form on normal bond paper. Subject to the foregoing provisions of this Section and the provisions of § 2.11 of the Indenture, all definitive 2024 Series QQ Bonds shall be fully exchangeable for other Bonds of the same series, of like aggregate principal amounts, and, upon surrender to the Trustee at its principal office, shall be exchangeable for other Bonds of the same series of a different authorized denomination or denominations, as requested by the holder surrendering the same. The Company will execute, and the Trustee shall authenticate and deliver, registered Bonds without coupons, whenever the same shall be required for any such exchange.

§ 2.2 . 2024 Series QQ Bonds in the aggregate principal amount of Seventy Million Dollars ($70,000,000) may forthwith upon the execution and delivery of this Supplemental Indenture, or from time to time thereafter, be executed by the Company and delivered to the Trustee, and shall thereupon be authenticated and delivered by the Trustee upon compliance by the Company with the provisions of Articles Four, Five or Six of the Indenture, without awaiting the filing or recording of this Supplemental Indenture. No additional 2024 Series QQ Bonds shall be issued under Article Four, Five or Six of the Indenture without the consent in writing of the holders of all the outstanding 2024 Series QQ Bonds.

§ 2.3 . As provided in Section 2.2(d) of the Note Purchase Agreement, from and after the Release Date (as defined in the Note Purchase Agreement), the obligations of the Company with respect to the 2024 Series QQ Bonds shall be deemed to be satisfied and discharged, the 2024 Series QQ Bonds shall cease to secure in any manner any Senior Notes due March 13, 2024 outstanding under the Note Purchase Agreement, and, following the satisfaction of the requirements of Section 2.2(d) of the Note Purchase Agreement, the Collateral Agent shall forthwith deliver the 2024 Series QQ Bonds to the Company together with such appropriate instruments of transfer or release as may be reasonably required by the Company, and then the Company shall deliver such 2024 Series QQ Bonds to the Trustee for cancellation.

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ARTICLE III

REDEMPTION OF THE 2024 SERIES QQ BONDS

§ 3.1. The following § 10.97 and § 10.98 be and they hereby are added to Article Ten of the Indenture:

“§ 10.97. The 2024 Series QQ Bonds shall be subject to redemption as follows: payments of principal of and Make‑Whole Amount, if any, and interest on the 2024 Series QQ Bonds shall be made to the Collateral Agent to redeem 2024 Series QQ Bonds in such amounts as shall be necessary, in accordance with the provisions of the Note Purchase Agreement, to provide funds under the Note Purchase Agreement to (a) make, when due, payment at maturity (including, without limitation, maturity upon acceleration of the Senior Notes due March 13, 2024) and (b) make, when due, any prepayment required or permitted by the Senior Notes due March 13, 2024 in connection with any prepayment of the Senior Notes due March 13, 2024; provided, however, that the obligation of the Company to make any redemption payments under this Section shall be fully or partially, as the case may be, satisfied and discharged to the extent that at any time such payment shall be due, the then due payment at maturity or redemption payment on any of the Senior Notes due March 13, 2024 shall have been fully or partially made from payments made by the Company on the Notes under the Note Purchase Agreement; provided, further, however, that any principal and Make-Whole Amount, and any interest which is overdue shall bear interest at the rate of six percent (6%) per annum (to the extent that payment of such interest is enforceable under applicable law). Terms used and not defined in this Section shall have the respective meanings given to them in the Thirty-Fifth Supplemental Indenture dated as of March 1, 2014.”

“§ 10.98. In the case of the redemption of 2024 Series QQ Bonds out of moneys deposited with the Trustee pursuant to § 8.08, such 2024 Series QQ Bonds shall, upon compliance with provisions of § 10.04, and subject to the provisions of § 2.1 of the Thirty‑Fifth Supplemental Indenture, be redeemable at the principal amounts thereof, together with interest accrued thereon to the date fixed for redemption, without premium or Make-Whole Amount.”

ARTICLE IV

2044 SERIES RR BONDS

§ 4.1. There shall be a forty‑second series of Bonds, known as and entitled “First Mortgage Bonds, Series RR due 2044” or “First Mortgage Bonds, Series RR” (herein and in the Indenture referred to as the “2044 Series RR Bonds” ), and the form thereof shall contain suitable provisions with respect to the matters hereinafter in this Section specified and shall in other respects be substantially as set forth in the preambles to the Original Indenture.

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The aggregate principal amount of 2044 Series RR Bonds which may be authenticated and delivered and outstanding under the Indenture is Fifty-Five Million Dollars ($55,000,000).

The 2044 Series RR Bonds shall be payable to the Collateral Agent, and shall be nontransferable except to a successor of the Collateral Agent, in accordance with the Note Purchase Agreement.

The 2044 Series RR Bonds shall bear interest at the rate of 4.61% per annum, computed on the basis of a 360‑day year of twelve 30‑day months, until the principal thereof is paid or made available for payment , and shall mature on March 13, 2044, subject to prior redemption as described herein; provided that any principal and Make-Whole Amount (as defined in the Note Purchase Agreement), and any such installment of interest which is overdue shall bear interest at the rate of six percent (6%) per annum (to the extent that payment of such interest is enforceable under applicable law).

The 2044 Series RR Bonds shall be in the form of registered Bonds without coupons of denominations of One Thousand Dollars ($1,000) and any integral multiple thereof which may be authorized by the Company, the issue of a registered Bond without coupons in any such denomination to be conclusive evidence of such authorization. The 2044 Series RR Bonds shall be dated as provided in § 2.05 of the Indenture. All 2044 Series RR Bonds shall bear interest from their respective dates, such interest to be payable, upon the terms of and otherwise in accordance with the 2044 Series RR Bonds, on each date on which interest shall from time to time be payable on the Senior Notes due March 13, 2044; provided, that the obligation of the Company to make payments with respect to the principal of, Make-Whole Amount, if any, and interest on the 2044 Series RR Bonds shall be fully or partially, as the case may be, satisfied and discharged to the extent that at the time any such payment shall be due, the then due principal of, Make-Whole Amount, if any, and interest on any of the Senior Notes due March 13, 2044 shall have been fully or partially paid from payments made by the Company under the Note Purchase Agreement. The principal of and the Make-Whole Amount, if any, and interest on the 2044 Series RR Bonds shall be payable at the principal office of the Trustee, in the City of Pittsburgh, Pennsylvania, or, at the option of the Company, at the “principal office” (as indicated pursuant to the Note Purchase Agreement) of the Collateral Agent, in any coin or currency of the United States of America which at the time of payment shall be legal tender for the payment of public and private debts.

Notwithstanding any other provision of the Indenture or of the 2044 Series RR Bonds, payments of the principal of and the Make-Whole Amount, if any, and interest on any 2044 Series RR Bond may be made directly to the registered holder thereof without presentation or surrender thereof or the making of any notation thereon if there shall be filed with the Trustee a Certificate of the Company to the effect that such registered holder (or the person for whom such registered holder is a nominee) and the Company have entered into a written agreement that payment shall be so

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made; provided, however, that before such registered holder transfers or otherwise disposes of any 2044 Series RR Bond, such registered holder will, at its election, either endorse thereon (or on a paper annexed thereto) the principal amount thereof redeemed and the last date to which interest has been paid thereon or make such Bond available to the Company at the principal office of the Trustee for the purpose of making such endorsement thereon.

The 2044 Series RR Bonds shall be subject to redemption at the option of the Company or otherwise, and shall be subject to mandatory redemption, in the manner provided in the applicable provisions of Article Ten of the Indenture, as amended by Article V of this Supplemental Indenture.

The 2044 Series RR Bonds shall be excluded from the benefits of, and shall not be subject to redemption through the operation of, a Mandatory Sinking Fund pursuant to § 11.02 of the Indenture and shall also be excluded from the benefits of the covenants of § 9.08 and § 11.01 of the Indenture.

Notwithstanding the provisions of § 10.04 or any other provision of the Indenture, the selection of 2044 Series RR Bonds to be redeemed shall, in case fewer than all of the outstanding 2044 Series RR Bonds are to be redeemed, be made by the Trustee pro rata (to the nearest multiple of One Thousand Dollars ($1,000)) among the registered holders of the 2044 Series RR Bonds in proportion, as nearly as practicable, to the respective unpaid principal amounts of 2044 Series RR Bonds registered in the names of such holders, with adjustments, to the extent practicable, to compensate for any prior redemption not made exactly in such proportion (or otherwise as may be specified by a written order signed by the registered holders of all outstanding 2044 Series RR Bonds).

The definitive 2044 Series RR Bonds may be issued in the form of engraved Bonds or Bonds printed or lithographed on steel engraved borders or Bonds in typed form on normal bond paper. Subject to the foregoing provisions of this Section and the provisions of § 2.11 of the Indenture, all definitive 2044 Series RR Bonds shall be fully exchangeable for other Bonds of the same series, of like aggregate principal amounts, and, upon surrender to the Trustee at its principal office, shall be exchangeable for other Bonds of the same series of a different authorized denomination or denominations, as requested by the holder surrendering the same. The Company will execute, and the Trustee shall authenticate and deliver, registered Bonds without coupons, whenever the same shall be required for any such exchange.

§ 4.2 . 2044 Series RR Bonds in the aggregate principal amount of Fifty‑Five Million Dollars ($55,000,000) may forthwith upon the execution and delivery of this Supplemental Indenture, or from time to time thereafter, be executed by the Company and delivered to the Trustee, and shall thereupon be authenticated and delivered by the Trustee upon compliance by the Company with the provisions of Articles Four, Five or Six of the Indenture, without awaiting the filing or

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recording of this Supplemental Indenture. No additional 2044 Series RR Bonds shall be issued under Article Four, Five or Six of the Indenture without the consent in writing of the holders of all the outstanding 2044 Series RR Bonds.

§ 4.3 . As provided in Section 2.2(d) of the Note Purchase Agreement, from and after the Release Date (as defined in the Note Purchase Agreement), the obligations of the Company with respect to the 2044 Series RR Bonds shall be deemed to be satisfied and discharged, the 2044 Series RR Bonds shall cease to secure in any manner any Senior Notes due March 13, 2044 outstanding under the Note Purchase Agreement, and, following the satisfaction of the requirements of Section 2.2(d) of the Note Purchase Agreement, the Collateral Agent shall forthwith deliver the 2044 Series RR Bonds to the Company together with such appropriate instruments of transfer or release as may be reasonably required by the Company, and then the Company shall deliver such 2044 Series RR Bonds to the Trustee for cancellation.

ARTICLE V

REDEMPTION OF THE 2044 SERIES RR BONDS

§ 5.1. The following § 10.99 and § 10.100 be and they hereby are added to Article Ten of the Indenture:

“§ 10.99. The 2044 Series RR Bonds shall be subject to redemption as follows: payments of principal of and Make‑Whole Amount, if any, and interest on the 2044 Series RR Bonds shall be made to the Collateral Agent to redeem 2044 Series RR Bonds in such amounts as shall be necessary, in accordance with the provisions of the Note Purchase Agreement, to provide funds under the Note Purchase Agreement to (a) make, when due, payment at maturity (including, without limitation, maturity upon acceleration of the Senior Notes due March 13, 2044) and (b) make, when due, any prepayment required or permitted by the Senior Notes due March 13, 2044 in connection with any prepayment of the Senior Notes due March 13, 2044; provided, however, that the obligation of the Company to make any redemption payments under this Section shall be fully or partially, as the case may be, satisfied and discharged to the extent that at any time such payment shall be due, the then due payment at maturity or redemption payment on any of the Senior Notes due March 13, 2044 shall have been fully or partially made from payments made by the Company on the Notes under the Note Purchase Agreement; provided, further, however, that any principal and Make-Whole Amount, and any interest which is overdue shall bear interest at the rate of six percent (6%) per annum (to the extent that payment of such interest is enforceable under applicable law). Terms used and not defined in this Section shall have the respective meanings given to them in the Thirty-Fifth Supplemental Indenture dated as of March 1, 2014.”

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“§ 10.100. In the case of the redemption of 2044 Series RR Bonds out of moneys deposited with the Trustee pursuant to § 8.08, such 2044 Series RR Bonds shall, upon compliance with provisions of § 10.04, and subject to the provisions of § 4.1 of the Thirty‑Fifth Supplemental Indenture, be redeemable at the principal amounts thereof, together with interest accrued thereon to the date fixed for redemption, without premium or Make-Whole Amount.”

ARTICLE VI

MISCELLANEOUS

§ 6.1. The Company is lawfully seized and possessed of all the real estate, franchises and other property described or referred to in the Indenture (except properties released from the lien of the Indenture pursuant to the provisions thereof) as presently mortgaged, subject to the exceptions stated therein, such real estate, franchises and other property are free and clear of any lien prior to the lien of the Indenture except as set forth in the Granting Clauses of the Indenture and the Company has good right and lawful authority to mortgage the same as provided in and by the Indenture.

§ 6.2. The Trustee assumes no duties, responsibilities or liabilities by reason of this Supplemental Indenture other than as set forth in the Indenture, and this Supplemental Indenture is executed and accepted by the Trustee subject to all the terms and conditions of its acceptance of the trust under the Indenture, as fully as if said terms and conditions were herein set forth at length.

§6.3. The terms used in this Supplemental Indenture shall have the meanings assigned thereto in the Indenture. Reference by number in this Supplemental Indenture to Articles or Sections shall be construed as referring to Articles or Sections contained in the Indenture, unless otherwise stated.

§ 6.4. As amended and modified by this Supplemental Indenture, the Indenture is in all respects ratified and confirmed and the Indenture and this Supplemental Indenture shall be read, taken and construed as one and the same instrument.

§ 6.5. Neither the approval by the Board of Public Utilities of the State of New Jersey of the execution and delivery of this Supplemental Indenture nor the approval by said Board of the issue of any Bonds under the Indenture shall in any way be construed as the approval by said Board of any other act, matter or thing which requires approval of said Board under the laws of the State of New Jersey; nor shall approval by said Board of the issue of any Bonds under the Indenture bind said Board or any other public body or authority of the State of New Jersey having jurisdiction in the premises in any future application for the issue of Bonds under the Indenture or otherwise.

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§ 6.6. This Supplemental Indenture may be executed in any number of counterparts and all said counterparts executed and delivered each as an original shall constitute but one and the same instrument.

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NEW JERSEY NATURAL GAS COMPANY HEREBY DECLARES THAT IT HAS READ THIS THIRTY‑FIFTH SUPPLEMENTAL INDENTURE, HAS RECEIVED A COMPLETELY FILLED-IN TRUE COPY OF IT WITHOUT CHARGE AND HAS SIGNED THIS THIRTY‑FIFTH SUPPLEMENTAL INDENTURE ON THE DATE CONTAINED IN ITS ACKNOWLEDGMENT HEREOF.

IN WITNESS WHEREOF, NEW JERSEY NATURAL GAS COMPANY, party of the first part, has caused these presents to be signed in its corporate name by its President or a Vice President and its corporate seal to be hereunto affixed and attested by its Secretary or an Assistant Secretary, and THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., successor in interest to BNY Midwest Trust Company, party of the second part, in evidence of its acceptance of the trust hereby created, has caused these presents to be signed in its corporate name by one of its Vice Presidents.

NEW JERSEY NATURAL GAS COMPANY

By /s/ Kathleen T. Ellis __________________

Name: Kathleen T. Ellis

Title: Executive Vice President and

Chief Operating Officer

[Corporate Seal]

ATTEST:

/s/ Rhonda M. Figueroa_____________

Name: Rhonda M. Figueroa

Title: Corporate Secretary

THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., successor in interest to BNY Midwest Trust Company, as Trustee

By /s/ Melonee Young__________________

Name: Melonee Young

Title: Vice President

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STATE OF NEW JERSEY )

) SS:

COUNTY OF MONMOUTH )

BE IT REMEMBERED that on this 6th day of March, 2014, before me, the subscriber, an Attorney-at-Law of the State of New Jersey, and I hereby certify that I am such an Attorney-at-Law as witness my hand, personally appeared Rhonda M. Figueroa to me known who, being by me duly sworn according to law, on her oath, does depose and make proof to my satisfaction that she is the Corporate Secretary of NEW JERSEY NATURAL GAS COMPANY, the grantor or mortgagor in the foregoing Supplemental Indenture named; that she well knows the seal of said corporation; that the seal affixed to said Supplemental Indenture is the corporate seal of said corporation, and that it was so affixed in pursuance of resolutions of the Board of Directors of said corporation; that [Kathleen T. Ellis] is Executive Vice President and Chief Operating Officer of said corporation; that she saw said Kathleen T. Ellis, as such Executive Vice President and Chief Operating Officer, affix said seal thereto, sign and deliver said Supplemental Indenture, and heard her declare that she signed, sealed and delivered the same as the voluntary act and deed of said corporation, in pursuance of said resolutions, and that this deponent signed her name thereto, at the same time, as attesting witness.

/s/ Rhonda M. Figueroa______________

Name: Rhonda M. Figueroa

Title: Corporate Secretary

Subscribed and sworn to before me,

an Attorney-at-Law of the State of

New Jersey, at Wall, New Jersey,

the day and year aforesaid.

/s/ Richard Reich________________

Name: Richard Reich

Attorney-at-Law of the

State of New Jersey

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ACKNOWLEDGEMENT

State of California

COUNTY OF LOS ANGELES )

On March 10, 2014 before me, Marvin G. Cuenca, Notary Public________________

(insert name and title of the officer)

personally appeared _____________ Melonee Young __________________________________,

who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her /their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.

SIGNATURE__ /S/ Marvin G. Cuenca___________ (SEAL)

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CONFORMED COPY

NEW JERSEY NATURAL GAS COMPANY

$70,000,000 3.58% Series A Senior Notes due March 13, 2024
$55,000,000 4.61% Series B Senior Notes due March 13, 2044

______________

NOTE PURCHASE AGREEMENT

_____________

Dated as of February 7, 2014

TABLE OF CONTENTS

(Not a part of the Agreement)



Section	Heading	Page

Section 1.	Authorization of Notes	1

Section 2.	Sale and Purchase of Notes and Security for the Notes	1
Section 2.1.	Sale and Purchase of Notes	1
Section 2.2.	Security for the Notes; First Mortgage Bonds; Release; New Security for the Notes	1

Section 3.	Closing	3

Section 4.	Conditions to Closing	4
Section 4.1.	Representations and Warranties	4
Section 4.2.	Performance; No Default	4
Section 4.3.	Compliance Certificates	4
Section 4.4.	Opinions of Counsel	4
Section 4.5.	Purchase Permitted by Applicable Law, Etc.	5
Section 4.6.	Related Transactions	5
Section 4.7.	Payment of Special Counsel Fees	5
Section 4.8.	Private Placement Number	5
Section 4.9.	Changes in Corporate Structure	5
Section 4.10.	Funding Instructions	5
Section 4.11.	Board Approval	5
Section 4.12.	First Mortgage Bonds and Supplemental Indenture	6
Section 4.13.	Proceedings and Documents	6

Section 5.	Representations and Warranties of the Company	6
Section 5.1.	Organization; Power and Authority	6
Section 5.2.	Authorization, Etc	6
Section 5.3.	Disclosure	7
Section 5.4.	Organization and Ownership of Shares of Subsidiaries	7
Section 5.5.	Financial Statements	8
Section 5.6.	Compliance with Laws, Other Instruments, Etc.	8
Section 5.7.	Governmental Authorizations, Etc.	8
Section 5.8.	Litigation; Observance of Statutes and Orders	8
Section 5.9.	Taxes	9
Section 5.10.	Title to Property; Leases	9
Section 5.11.	Licenses, Permits, Etc.	9
Section 5.12.	Compliance with ERISA	9
Section 5.13.	Private Offering by the Company	10
Section 5.14.	Use of Proceeds; Margin Regulations	10
Section 5.15.	Existing Debt	11
Section 5.16.	Foreign Assets Control Regulations, Etc	11
Section 5.17.	Status under Certain Statutes	13
Section 5.18.	Environmental Matters	13

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Section 5.19.	Perfection of Liens	14
Section 5.20.	First Mortgage Bonds Pari Passu	14
Section 5.21.	No Event of Default	14

Section 6.	Representations of the Purchasers	14
Section 6.1.	Purchase for Investment	14
Section 6.2.	Source of Funds	15

Section 7.	Information as to Company	16
Section 7.1.	Financial and Business Information	16
Section 7.2.	Officer’s Certificate	19
Section 7.3.	Inspection	20

Section 8.	Prepayment of the Notes	20
Section 8.1.	Required Prepayments	20
Section 8.2.	Required Prepayment—Condemnation; Required Sale	20
Section 8.3.	Optional Prepayments with Make-Whole Amount	21
Section 8.4.	Allocation of Partial Prepayments	22
Section 8.5.	Maturity; Surrender, Etc.	22
Section 8.6.	Purchase of Notes	22
Section 8.7.	Make-Whole Amount for Notes	22
Section 8.8.	Offer to Prepay upon Asset Disposition	24
Section 8.9.	Offer to Prepay in the Event of a Change of Control	25

Section 9.	Affirmative Covenants	26
Section 9.1.	Compliance with Laws	26
Section 9.2.	Insurance	26
Section 9.3.	Maintenance of Properties	26
Section 9.4.	Payment of Taxes and Claims	26
Section 9.5.	Corporate Existence, Etc.	27
Section 9.6.	Regulated Nature	27
Section 9.7.	Notes to Rank Pari Passu	27

Section 10.	Negative Covenants	27
Section 10.1.	Limitations on Debt	27
Section 10.2.	Liens	27
Section 10.3.	Restricted Payments	30
Section 10.4.	Restrictions on Dividends of Subsidiaries, Etc.	30
Section 10.5.	Sale of Assets, Etc.	30
Section 10.6.	Merger, Consolidation, Etc.	31
Section 10.7.	Disposal of Ownership of a Restricted Subsidiary	32
Section 10.8.	Limitations on Subsidiaries, Partnerships and Joint Ventures	32
Section 10.9.	Limitation on Certain Leases	33
Section 10.10.	Nature of Business	33
Section 10.11.	Transactions with Affiliates	33
Section 10.12.	Designation of Restricted and Unrestricted Subsidiaries	33
Section 10.13.	Terrorism Sanctions Regulations	34

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Section 11.	Events of Default	34

Section 12.	Remedies on Default, Etc.	37
Section 12.1.	Acceleration	37
Section 12.2.	Other Remedies	38
Section 12.3.	Rescission	38
Section 12.4.	No Waivers or Election of Remedies, Expenses, Etc.	38

Section 13.	Registration; Exchange; Substitution of Notes	39
Section 13.1.	Registration of Notes	39
Section 13.2.	Transfer and Exchange of Notes	39
Section 13.3.	Replacement of Notes	40

Section 14.	Payments on Notes	40
Section 14.1.	Place of Payment	40
Section 14.2.	Home Office Payment	40

Section 15.	Expenses, Etc.	41
Section 15.1.	Transaction Expenses	41
Section 15.2.	Survival	41

Section 16.	Survival of Representations and Warranties; Entire Agreement	41

Section 17.	Amendment and Waiver	42
Section 17.1.	Requirements	42
Section 17.2.	Solicitation of Holders of Notes	42
Section 17.3.	Binding Effect, Etc.	43
Section 17.4.	Notes Held by Company, Etc.	43

Section 18.	Notices	43

Section 19.	Reproduction of Documents	44

Section 20.	Confidential Information	44

Section 21.	Substitution of Purchaser	45

Section 22.	Miscellaneous	46
Section 22.1.	Successors and Assigns	46
Section 22.2.	Submission to Jurisdiction; Waiver of Jury Trial	46
Section 22.3.	Payments Due on Non-Business Days	46
Section 22.4.	Accounting Terms	46
Section 22.5.	Severability	47
Section 22.6.	Construction	47
Section 22.7.	Counterparts	47
Section 22.8.	Governing Law	47

Section 23.	Appointment and Direction of Collateral Agent	48

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Section 23.1.	Appointment and Authority; Direction	48
Section 23.2.	Limited Agency	48
Section 23.3.	Delegation of Duties	48
Section 23.4.	Exculpatory Provisions	48
Section 23.5.	Reliance by Collateral Agent	49
Section 23.6.	Indemnification	49
Section 23.7.	Duties; Obligations	50
Section 23.8.	Requesting Instructions	50
Section 23.9.	Administrative Actions	50
Section 23.10.	Exercise of Remedies	50
Section 23.11.	Sharing and Application of Proceeds	50
Section 23.12.	Resignation or Termination of Collateral Agent	51
Section 23.13.	Succession of Successor Collateral Agent	51
Section 23.14.	Eligibility of Collateral Agent	52
Section 23.15.	Successor Collateral Agent by Merger	52
Section 23.16.	Compensation and Reimbursement of Collateral Agent	52
Section 23.17.	Self Dealing	53
Section 23.18.	Third Party Beneficiary	53
Section 23.19.	New Indenture	53

Section 24.	New Indenture Installation	53
Section 24.1.	New Indenture Installation	53
Section 24.2.	Conditions to New Indenture Installation	54

Signature		58

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ATTACHMENTS TO NOTE PURCHASE AGREEMENT:

SCHEDULE A — Information Relating to Purchasers

SCHEDULE B — Defined Terms

SCHEDULE 4.9 — Changes in Corporate Structure

SCHEDULE 5.3 — Disclosure Materials

SCHEDULE 5.4 — Subsidiaries of the Company and Ownership of Subsidiary Stock

SCHEDULE 5.5 — Financials

SCHEDULE 5.8 — Certain Litigation

SCHEDULE 5.11 — Patents, Etc.

SCHEDULE 5.14 — Use of Proceeds

SCHEDULE 5.15 — Existing Debt

EXHIBIT 1‑A — Form of 3.58% Series A Senior Notes due March 13, 2024

EXHIBIT 1‑B — Form of 4.61% Series B Senior Notes due March 13, 2044

EXHIBIT 2 — Form of Supplemental Indenture

EXHIBIT 4.4(a) — Form of Opinion of Special Counsel to the Company

EXHIBIT 4.4(b) — Form of Opinion of Special Counsel to the Purchasers

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NEW JERSEY NATURAL GAS COMPANY
1415 WYCKOFF ROAD
WALL, NEW JERSEY 07719

$70,000,000 3.58% Series A Senior Notes due March 13, 2024

$55,000,000 4.61% Series B Senior Notes due March 13, 2044

Dated as of February 7, 2014

TO THE PURCHASERS LISTED IN
THE ATTACHED SCHEDULE A:

Ladies and Gentlemen:

NEW JERSEY NATURAL GAS COMPANY, a New Jersey corporation (the “Company” ), agrees with the purchasers listed in the attached Schedule A (each a “Purchaser” and collectively, the “Purchasers” ) as follows:


SECTION 1.	AUTHORIZATION OF NOTES.

The Company will authorize the issue and sale of (i) $70,000,000 aggregate principal amount of its 3.58% Series A Senior Notes due March 13, 2024 (the “Series A Notes” ) and (ii) $55,000,000 aggregate principal amount of its 4.61% Series B Senior Notes due March 13, 2044 (the “Series B Notes,” together with the Series A Notes, the “Notes,” the term Notes shall also include any such notes issued in substitution for the Series A Notes or the Series B Notes, as the case may be, pursuant to Section 13 of this Agreement). The Notes shall be substantially in the form set out in Exhibit 1-A and Exhibit 1-B , with such changes therefrom, if any, as may be approved by the Purchasers and the Company. Certain capitalized terms used in this Agreement are defined in Schedule B ; references to a “Schedule” or an “Exhibit” are, unless otherwise specified, to a Schedule or an Exhibit attached to this Agreement. References to a “Section” are references to a Section of this Agreement unless otherwise specified.


SECTION 2.	SALE AND PURCHASE OF NOTES AND SECURITY FOR THE NOTES.

Section 2.1. Sale and Purchase of Notes. Subject to the terms and conditions of this Agreement, the Company will issue and sell to each Purchaser and each Purchaser will purchase from the Company, at the Closing provided for in Section 3 , Notes in the principal amount and of the same series specified opposite such Purchaser’s name in Schedule A at the purchase price of 100% of the principal amount thereof. Each Purchaser’s obligations hereunder are several and not

joint and no Purchaser shall have any obligation or liability to any Person for the performance or nonperformance by any other Purchaser hereunder.

Section 2.2. Security for the Notes; First Mortgage Bonds; Release; New Security for the Notes . (a) Prior to the Release Date, the Notes of each series shall be secured by an equal principal amount of the related First Mortgage Bonds issued by the Company under the Mortgage Indenture to U.S. Bank National Association, as collateral agent for the holders of the Notes. The First Mortgage Bonds will rank pari passu with all other existing and future first mortgage bonds issued pursuant to the Mortgage Indenture.

(b) Terms of First Mortgage Bonds. The First Mortgage Bonds of each series will have the same stated interest rate, interest payment dates, stated maturity and redemption provisions (including Make‑Whole Amount, if any), and will be in the same aggregate principal amount, as the related Notes; provided, however, that the interest rate on defaulted principal, Make‑Whole Amount, if any, and interest on the First Mortgage Bonds, to the extent permitted by law, is 6% per annum. Payments of the principal of, Make‑Whole Amount, if any, and interest on the Notes of a series shall be deemed to satisfy and discharge the Company’s obligation to make such payments on the related First Mortgage Bonds. Principal of, Make‑Whole Amount, if any, and interest on the First Mortgage Bonds are payable at the principal office of the Mortgage Trustee in Chicago, Illinois or at the Company’s option at the principal office of the Collateral Agent.

(c) Parallel Payments of Notes and First Mortgage Bonds. The First Mortgage Bonds of each series shall contain optional and mandatory redemption provisions (including Make‑Whole Amount, if any) which correspond to the optional and mandatory prepayment provisions of the related Notes; provided, however, that the interest rate on defaulted principal, Make‑Whole Amount, if any, and interest on the First Mortgage Bonds, to the extent permitted by law, is 6% per annum. In addition, the First Mortgage Bonds shall be subject to mandatory redemption if the Company or the Mortgage Trustee is notified that an Event of Default under this Agreement has occurred and is continuing and that the principal amount of all Notes then outstanding has become due and payable in accordance with this Agreement. Prior to the Release Date and from and after the New Security Date:

(1) In the event the Company elects to or is required to prepay the Notes, in whole or in part, in accordance with the provisions of this Agreement, the Company’s obligations with respect to a principal amount of First Mortgage Bonds or New First Mortgage Bonds, as applicable, equal to the principal amount of such Notes being prepaid will, upon prepayment of such Notes, be satisfied and discharged, and the Collateral Agent shall deliver corresponding First Mortgage Bonds or New First Mortgage Bonds, as applicable, in a principal amount equal to the principal amount of the Notes so prepaid to

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the Company for further delivery to the Mortgage Trustee or the trustee under the New Indenture, as applicable, for cancellation.

(2) In the event the Company elects to or is required to redeem First Mortgage Bonds or New First Mortgage Bonds, as applicable, in whole or in part, in accordance with the provisions of the Mortgage Indenture or the New Indenture, as applicable, the Company shall prepay a principal amount of Notes equal to the principal amount of such First Mortgage Bonds or New First Mortgage Bonds, as applicable, being redeemed in accordance with the provisions of Section 8.2 or Section 8.3 , as applicable, and the Company’s obligation in respect of First Mortgage Bonds or New First Mortgage Bonds, as applicable, equal to the principal amount of such prepaid Notes will be satisfied and discharged, and the Collateral Agent shall deliver corresponding First Mortgage Bonds or New First Mortgage Bonds, as applicable, in a principal amount equal to the principal amount of such Notes so prepaid to the Company for further delivery to the Mortgage Trustee or the trustee under the New Indenture, as applicable, for cancellation.

(d) Release of Security for the Notes. Upon the occurrence of the Release Date, the Company shall promptly furnish the Collateral Agent and each holder of the Notes an Officer’s Certificate certifying that the conditions precedent to the occurrence of the Release Date have been satisfied. From and after the Release Date, the obligations of the Company with respect to the First Mortgage Bonds shall be deemed to be satisfied and discharged, the First Mortgage Bonds shall cease to secure in any manner the Company’s obligations under this Agreement or the Notes, and the Collateral Agent shall forthwith deliver the First Mortgage Bonds to the Company which shall then deliver the First Mortgage Bonds to the Mortgage Trustee for cancellation. On the Release Date, the Notes shall become unsecured obligations of the Company and will rank pari passu in right of repayment with other unsecured Senior Debt of the Company. Following the Release Date, the Company shall cause the Mortgage Indenture to be closed after payment of all first mortgage bonds and the Company shall not issue any additional first mortgage bonds under the Mortgage Indenture.

(e) New Security for the Notes. At any time after the Release Date, the Company may, at its option without the consent of the holders, secure the outstanding Notes by an equal principal amount of New First Mortgage Bonds issued by the Company under a New Indenture upon the Company’s compliance with the requirements of Section 24 .

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SECTION 3.	CLOSING.

The execution and delivery of this Agreement will be made at the offices of Schiff Hardin LLP, 666 Fifth Avenue, 17th Floor, New York, New York 10103 on February 7, 2014 (the “Execution Date” ).

The sale and purchase of the Notes to be purchased by the Purchasers shall occur at the offices of Schiff Hardin LLP, 666 Fifth Avenue, 17th Floor, New York, New York 10103, at 11:00 a.m., New York, New York time, at a closing (the “Closing” ) on March 13, 2014 or on such other Business Day thereafter on or prior to March 31, 2014 as may be agreed upon by the Company and the Purchasers. At the Closing, the Company will deliver to each Purchaser the Notes to be purchased by such Purchaser in the form of a single Series A Note and/or Series B Note, as the case may be (or such greater number of Notes in denominations of at least $100,000 as such Purchaser may request) dated the date of the Closing and registered in such Purchaser’s name (or in the name of its nominee), against delivery by such Purchaser to the Company or its order of immediately available funds in the amount of the purchase price therefor by wire transfer of immediately available funds for the account of the Company in accordance with the funding instructions provided pursuant to Section 4.10 . If at the Closing the Company shall fail to tender such Notes to any Purchaser as provided above in this Section 3 , or any of the conditions specified in Section 4 shall not have been fulfilled to any Purchaser’s satisfaction, such Purchaser shall, at its election, be relieved of all further obligations under this Agreement, without thereby waiving any rights such Purchaser may have by reason of such failure or such nonfulfillment.


SECTION 4.	CONDITIONS TO CLOSING.

Each Purchaser’s obligation to purchase and pay for the Notes to be sold to such Purchaser at the Closing is subject to the fulfillment to such Purchaser’s satisfaction, prior to or at the Closing, of the following conditions:

Section 4.1. Representations and Warranties . (a) The representations and warranties of the Company in this Agreement shall be true and correct (i) upon execution and delivery hereof on the Execution Date and (ii) at the time of the Closing, except for any representation or warranty that by its terms speaks as of a particular time, in which case such representation or warranty shall have been correct as of that time, and (b) the representations and warranties of the Company in the Mortgage Indenture (including the Supplemental Indenture) and the First Mortgage Bond Documents to which it is a party shall be correct upon execution and delivery of the First Mortgage Bond Documents at the time of the Closing.

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Section 4.2. Performance; No Default. The Company shall have performed and complied with all agreements and conditions contained in this Agreement, the Mortgage Indenture (including the Supplemental Indenture) and the First Mortgage Bond Documents to which it is a party required to be performed or complied with by it prior to or at the Closing, and after giving effect to the issue and sale of the Notes (and the application of the proceeds thereof as contemplated by Schedule 5.14 ) and the issue of the First Mortgage Bonds, no Default or Event of Default shall have occurred and be continuing.

Section 4.3. Compliance Certificates .

(a) Officer’s Certificate . The Company shall have delivered to such Purchaser an Officer’s Certificate, dated the date of the Closing, certifying that the conditions specified in Sections 4.1, 4.2 and 4.9 have been fulfilled.

(b) Secretary’s Certificate . The Company shall have delivered to such Purchaser a certificate of its Secretary or Assistant Secretary, dated the date of Closing, certifying as to (i) the resolutions attached thereto and other corporate proceedings relating to the authorization, execution and delivery of this Agreement, the Supplemental Indenture, the First Mortgage Bond Documents to which it is a party, the Notes and the First Mortgage Bonds and (ii) the Company’s organizational documents as then in effect.

Section 4.4. Opinions of Counsel . Such Purchaser shall have received opinions in form and substance satisfactory to such Purchaser, dated the date of the Closing (a) from Chapman and Cutler LLP, special counsel for the Company, covering the matters set forth in Exhibit 4.4(a) and covering such other matters incident to the transactions contemplated hereby as such Purchaser or special counsel to the Purchasers may reasonably request (and the Company hereby instructs its counsel to deliver such opinion to such Purchaser) and (b) from Schiff Hardin LLP, special counsel to the Purchasers in connection with such transactions, substantially in the form set forth in Exhibit 4.4(b) and covering such other matters incident to such transactions as such Purchaser may reasonably request.

Section 4.5. Purchase Permitted by Applicable Law, Etc . On the date of the Closing, such Purchaser’s purchase of Notes shall (a) be permitted by the laws and regulations of each jurisdiction to which such Purchaser is subject, without recourse to provisions (such as Section 1405(a)(8) of the New York Insurance Law) permitting limited investments by insurance companies without restriction as to the character of the particular investment, (b) not violate any applicable law or regulation (including, without limitation, Regulation T, U or X of the Board of Governors of the Federal Reserve System) and (c) not subject such Purchaser to any tax, penalty or liability under or pursuant to any applicable law or regulation. If requested by any Purchaser, such Purchaser shall

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have received an Officer’s Certificate certifying as to such matters of fact as such Purchaser may reasonably specify to enable it to determine whether such purchase is so permitted.

Section 4.6. Related Transactions . The Company shall have consummated the sale of the entire principal amount of the Notes scheduled to be sold on the date of the Closing pursuant to this Agreement and delivered the First Mortgage Bonds to the Collateral Agent pursuant to this Agreement and the Supplemental Indenture.

Section 4.7. Payment of Special Counsel Fees. Without limiting the provisions of Section 15.1 , the Company shall have paid on or before the Closing the reasonable fees, charges and disbursements of the Purchasers’ special counsel referred to in Section 4.4(b) to the extent reflected in a statement of such counsel rendered to the Company at least one Business Day prior to the Closing.

Section 4.8. Private Placement Number . A Private Placement Number issued by Standard & Poor’s CUSIP Service Bureau (in cooperation with the Securities Valuation Office of the National Association of Insurance Commissioners) shall have been obtained for each series of the Notes.

Section 4.9. Changes in Corporate Structure . Except as specified in Schedule 4.9 , the Company shall not have changed its jurisdiction of incorporation or been a party to any merger or consolidation and shall not have succeeded to all or any substantial part of the liabilities of any other entity, at any time following the date of the most recent financial statements referred to in Schedule 5.5 .

Section 4.10. Funding Instructions . At least three Business Days prior to the date of the Closing, such Purchaser shall have received written instructions executed by an authorized financial officer of the Company on letterhead of the Company directing the manner of the payment of funds and setting forth (a) the name of the transferee bank, (b) such transferee bank’s ABA number, (c) the account name and number into which the purchase price for the Notes is to be deposited and (d) the name and telephone number of the account representative responsible for verifying receipt of such funds.

Section 4.11. Board Approval. The New Jersey Board of Public Utilities shall have entered an appropriate order authorizing the issuance and sale of the Notes to the Purchasers and the delivery of the First Mortgage Bonds to the Collateral Agent as security for the Notes, upon terms not inconsistent with this Agreement, the Supplemental Indenture, the related Notes and the First Mortgage Bonds and such order shall not be subject to appeal.

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Section 4.12. First Mortgage Bonds and Supplemental Indentur e . (a) All conditions precedent set forth in the Mortgage Indenture with respect to the execution and delivery of the Supplemental Indenture and the issuance of the First Mortgage Bonds shall have been satisfied.

(b) The First Mortgage Bonds, the Supplemental Indenture and the First Mortgage Bond Documents shall have been duly authorized, executed, authenticated in the case of the First Mortgage Bonds and delivered by the respective parties thereto, shall constitute legal, valid and binding contracts and agreements of such parties, and such Purchaser shall have received true, complete, executed copies thereof and a certified copy of the Mortgage Indenture.

(c) The Mortgage Indenture and the Supplemental Indenture shall have been duly recorded as an indenture on real property and duly filed, recorded or indexed as a security interest in personal property so as to constitute a valid, perfected first Lien on all of the Company’s property covered by the Mortgage Indenture and the Supplemental Indenture, all in accordance with applicable law, and the Company shall have caused satisfactory evidence thereof to be furnished to such Purchaser and special counsel to the Purchasers.

Section 4.13. Proceedings and Documents . All corporate and other proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be satisfactory to such Purchaser and special counsel to the Purchasers, and such Purchaser and special counsel to the Purchasers shall have received all such counterpart originals or certified or other copies of such documents as such Purchaser or special counsel to the Purchasers may reasonably request.


SECTION 5.	REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

The Company represents and warrants to each Purchaser that:

Section 5.1. Organization; Power and Authority . The Company is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, and is duly qualified as a foreign corporation and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company has the corporate power and authority to own or hold under lease the properties it purports to own or hold under lease, to transact the business it transacts and proposes to transact, to execute and deliver on the Execution Date, this Agreement, and, at the Closing, the Supplemental Indenture, the First Mortgage Bond Documents to which it is a party, the Notes and the First Mortgage Bonds, and to perform the provisions hereof, thereof and of the Mortgage Indenture.

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Section 5.2. Authorization, Etc . This Agreement, the Mortgage Indenture (including the Supplemental Indenture), the First Mortgage Bond Documents to which the Company is a party, the Notes, and the First Mortgage Bonds have been duly authorized by all necessary corporate action on the part of the Company, and this Agreement and the Mortgage Indenture constitute, and upon execution and delivery thereof the Supplemental Indenture, the First Mortgage Bond Documents to which the Company is a party, each Note and each First Mortgage Bond will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its respective terms, except as such enforceability may be limited by (a) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and (b) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

Section 5.3. Disclosure . The Company, through its agents, TD Securities (USA) LLC, U.S. Bancorp Investments, Inc. and J.P. Morgan Securities LLC, has delivered to each Purchaser a copy of a Private Placement Memorandum, dated January 13, 2014 (the “Memorandum” ), relating to the transactions contemplated hereby. Except as disclosed in Schedule 5.3 , this Agreement, the Supplemental Indenture (upon execution and delivery thereof), the Memorandum, the documents, certificates or other writings identified in Schedule 5.3 and the financial statements listed in Schedule 5.5 (collectively, the “Disclosure Documents” ), taken as a whole, do not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading in light of the circumstances under which they were made. Except as disclosed in the Disclosure Documents, since September 30, 2013, there has been no change in the financial condition, operations, business or properties of the Company or any of its Restricted Subsidiaries except changes that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect.

Section 5.4. Organization and Ownership of Shares of Subsidiaries . (a) Schedule 5.4 is (except as noted therein) a complete and correct list of the Company’s Subsidiaries, showing, as to each Subsidiary, the correct name thereof, the jurisdiction of its organization, the percentage of shares of each class of its capital stock or similar equity interests outstanding owned by the Company and each other Subsidiary and whether or not such Subsidiary is a Restricted Subsidiary and/or an Inactive Subsidiary.

(b) All of the outstanding shares of capital stock or similar equity interests of each Restricted Subsidiary shown in Schedule 5.4 as being owned by the Company and its Subsidiaries have been validly issued, are fully paid and nonassessable and are owned by the Company or another Subsidiary free and clear of any Lien (except as otherwise disclosed in Schedule 5.4 ).

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(c) Each Restricted Subsidiary identified in Schedule 5.4 is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and is duly qualified as a foreign corporation or other legal entity and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Each such Restricted Subsidiary has the corporate or other power and authority to own or lease the properties it purports to own or hold under lease and to transact the business it transacts and proposes to transact.

Section 5.5. Financial Statements . The Company has delivered to each Purchaser copies of the financial statements of the Company and its Subsidiaries listed on Schedule 5.5 . All of said financial statements (including in each case the related schedules and notes) fairly present in all material respects the consolidated financial position of the Company and its Subsidiaries as of the respective dates specified in such Schedule and the consolidated results of their operations and cash flows for the respective periods so specified and have been prepared in accordance with GAAP consistently applied throughout the periods involved except as set forth in the notes thereto (subject, in the case of any interim financial statements, to normal year-end adjustments). The Company and its Subsidiaries do not have any Material liabilities that are not disclosed on such financial statements or otherwise disclosed in the Disclosure Documents.

Section 5.6. Compliance with Laws, Other Instruments, Etc . Neither the execution and delivery by the Company of this Agreement, the Supplemental Indenture, the First Mortgage Bond Documents to which it is a party, the Notes or the First Mortgage Bonds nor the performance by the Company of this Agreement, the Mortgage Indenture (including the Supplemental Indenture), the First Mortgage Bond Documents to which it is a party, the Notes or the First Mortgage Bonds will (a) contravene, result in any breach of, or constitute a default under, or result in the creation of any Lien (other than the Liens contemplated thereby) in respect of any property of the Company or any Restricted Subsidiary under, any indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate charter or by-laws, or any other Material agreement or instrument to which the Company or any Restricted Subsidiary is bound or by which the Company or any Restricted Subsidiary or any of their respective properties may be bound or affected, (b) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree or ruling of any court, arbitrator or Governmental Authority applicable to the Company or any Restricted Subsidiary or (c) violate any provision of any statute or other rule or regulation of any Governmental Authority applicable to the Company or any Restricted Subsidiary.

Section 5.7. Governmental Authorizations, Etc . No consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority is required in connection with the execution and delivery by the Company of this Agreement, the Supplemental Indenture,

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the First Mortgage Bond Documents to which it is a party, the Notes or the First Mortgage Bonds or the performance by the Company of this Agreement, the Mortgage Indenture (including the Supplemental Indenture), the First Mortgage Bond Documents to which it is a party, the Notes or the First Mortgage Bonds other than such consents, approvals, authorizations, registrations, filings or declarations that have been or will be obtained or made prior to the date of the Closing.

Section 5.8. Litigation; Observance of Statutes and Orders . (a) Except as disclosed in Schedule 5.8 , there are no actions, suits or proceedings pending or, to the knowledge of the Company, threatened against or affecting the Company or any Restricted Subsidiary or any property of the Company or any Restricted Subsidiary in any court or before any arbitrator of any kind or before or by any Governmental Authority that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect.

(b) Neither the Company nor any Restricted Subsidiary is in default under any order, judgment, decree or ruling of any court, arbitrator or Governmental Authority or is in violation of any applicable law, ordinance, rule or regulation (including, without limitation, ERISA, Environmental Laws or the USA Patriot Act) of any Governmental Authority, which default or violation, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect.

Section 5.9. Taxes . The Company and its Subsidiaries have filed all income tax returns that are required to have been filed in any jurisdiction, and have paid all taxes shown to be due and payable on such returns and all other taxes and assessments payable by them, to the extent such taxes and assessments have become due and payable and before they have become delinquent, except for any taxes and assessments (a) the amount of which is not, individually or in the aggregate, Material or (b) the amount, applicability or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which the Company or a Subsidiary, as the case may be, has established adequate reserves in accordance with GAAP. The charges, accruals and reserves on the books of the Company and its Subsidiaries in respect of Federal, state or other taxes for all fiscal periods are adequate. The Federal income tax liabilities of the Company and its Subsidiaries have been determined by the Internal Revenue Service and paid for all fiscal years up to and including the fiscal year ended September 30, 2009.

Section 5.10. Title to Property; Leases . The Company and its Restricted Subsidiaries have good and sufficient title related to the ownership of their respective Material properties, including all such properties reflected in the most recent audited balance sheet referred to in Section 5.5 or purported to have been acquired by the Company or any Restricted Subsidiary after said date (except as sold or otherwise disposed of in the ordinary course of business), in each case free and clear of Liens prohibited by this Agreement or the Mortgage Indenture (including the Supplemental

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Indenture), except for those defects in title and Liens that, individually or in the aggregate, would not have a Material Adverse Effect. All Material leases are valid and subsisting and are in full force and effect in all material respects.

Section 5.11. Licenses, Permits, Etc . Except as disclosed in Schedule 5.11 , the Company and its Restricted Subsidiaries own or possess all licenses, permits, franchises, authorizations, patents, copyrights, proprietary software, service marks, trademarks, trade names and domain names or rights thereto, that are Material, without known conflict with the rights of others, except for those conflicts that, individually or in the aggregate, would not have a Material Adverse Effect.

Section 5.12. Compliance with ERISA . (a) The Company and each ERISA Affiliate have operated and administered each Plan in compliance with all applicable laws except for such instances of noncompliance as have not resulted in and would not reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any ERISA Affiliate has incurred any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans (as defined in section 3 of ERISA), and no event, transaction or condition has occurred or exists that would reasonably be expected to result in the incurrence of any such liability by the Company or any ERISA Affiliate, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate, in either case pursuant to Title I or IV of ERISA or to section 430(k) of the Code or to any such penalty or excise tax provisions under the Code or federal law or section 4068 of ERISA or by the granting of a security interest in connection with the amendment of a Plan, other than such liabilities or Liens as would not be, individually or in the aggregate, Material.

(b) The present value of the aggregate benefit liabilities under each of the Plans which are subject to Title IV of ERISA (other than Multiemployer Plans), determined as of the beginning of such Plan’s most recently ended plan year on the basis of the actuarial assumptions specified for funding purposes in such Plan’s most recent actuarial valuation report, did not exceed the market value, including accrued contributions, of the assets of such Plan allocable to such benefit liabilities. The term “benefit liabilities” has the meaning specified in section 4001 of ERISA and the term “present value” has the meaning specified in section 3 of ERISA. The terms “market value” and “accrued contributions” shall have the meanings set forth in applicable Financial Accounting Standards Board standards.

(c) The Company and its ERISA Affiliates have not incurred withdrawal liabilities (and are not subject to contingent withdrawal liabilities) under section 4201 or 4204 of ERISA in respect of Multiemployer Plans that, individually or in the aggregate, are Material.

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(d) The accumulated post-retirement benefit obligation (determined as of the last day of the Company’s most recently ended fiscal year in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 715-60, without regard to liabilities attributable to continuation coverage mandated by section 4980B of the Code) of the Company and its Restricted Subsidiaries is not Material.

(e) The execution and delivery of this Agreement and the issuance and sale of the Notes hereunder will not involve any transaction that is subject to the prohibitions of section 406 of ERISA or in connection with which a tax could be imposed pursuant to section 4975(c)(1)(A)‑(D) of the Code. The representation by the Company in the first sentence of this Section 5.12(e) with respect to each Purchaser is made in reliance upon and subject to the accuracy of such Purchaser’s representation in Section 6.2 as to the sources of the funds used to pay the purchase price of the Notes to be purchased by such Purchaser.

Section 5.13. Private Offering by the Company . Neither the Company nor anyone authorized to act on its behalf has offered the Notes, the First Mortgage Bonds or any similar securities for sale to, or solicited any offer to buy any of the same from, or otherwise approached or negotiated in respect thereof with, any Person other than the Purchasers and not more than eleven (11) other Institutional Investors of the type described in clause (c) of the definition thereof, each of which has been offered the Notes at a private sale for investment. Neither the Company nor anyone acting on its behalf has taken, or will take, any action that would subject the issuance or sale of the Notes to the registration requirements of section 5 of the Securities Act.

Section 5.14. Use of Proceeds; Margin Regulations . The Company will apply the proceeds of the sale of the Notes hereunder as set forth in Schedule 5.14 . No part of the proceeds from the sale of the Notes hereunder will be used, directly or indirectly, for the purpose of buying or carrying any margin stock within the meaning of Regulation U of the Board of Governors of the Federal Reserve System (12 CFR 221), or for the purpose of buying or carrying or trading in any securities under such circumstances as to involve the Company in a violation of Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a violation of Regulation T of said Board (12 CFR 220). Margin stock does not constitute more than 25% of the value of the consolidated assets of the Company and its Subsidiaries and the Company does not have any present intention that margin stock will constitute more than 25% of the value of such assets. As used in this Section, the terms “margin stock” and “purpose of buying or carrying” shall have the meanings assigned to them in said Regulation U.

Section 5.15. Existing Debt . (a) Except as described therein, Schedule 5.15 sets forth a complete and correct list of all outstanding Debt of the Company and its Restricted Subsidiaries as of September 30, 2013, since which date there has been no Material change in the amounts, interest

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rates, sinking funds, installment payments or maturities of the Debt of the Company or its Restricted Subsidiaries. Neither the Company nor any Restricted Subsidiary is in default and no waiver of default is currently in effect, in the payment of any principal or interest on any Debt of the Company or such Restricted Subsidiary and no event or condition exists with respect to any Debt of the Company or any Restricted Subsidiary the outstanding principal amount of which exceeds $1,000,000 that would permit (or that with notice or the lapse of time, or both, would permit) one or more Persons to cause such Debt to become due and payable before its stated maturity or before its regularly scheduled dates of payment.

(b) Neither the Company nor any Subsidiary is a party to, or otherwise subject to any provision contained in, any instrument evidencing Debt of the Company or such Subsidiary, any agreement relating thereto or any other agreement (including, but not limited to, its charter or other organizational document) which limits the amount of, or otherwise imposes restrictions on the incurring of, Debt of the Company, except as provided in the Mortgage Indenture and any Bank Credit Agreement and as otherwise specifically indicated in Schedule 5.15 .

Section 5.16. Foreign Assets Control Regulations, Etc . (a) Neither the Company nor any Controlled Entity is (i) a Person whose name appears on the list of Specially Designated Nationals and Blocked Persons published by the Office of Foreign Assets Control, United States Department of the Treasury ( “OFAC” ) (an “OFAC Listed Person” ), (ii) an agent, department, or instrumentality of, or is otherwise beneficially owned by, controlled by or acting on behalf of, directly or indirectly, (x) any OFAC Listed Person or (y) any Person, entity, organization, foreign country or regime that is subject to any OFAC Sanctions Program, or (iii) otherwise blocked, subject to sanctions under or engaged in any activity in violation of other United States economic sanctions, including but not limited to, the Trading with the Enemy Act, the International Emergency Economic Powers Act, the Comprehensive Iran Sanctions, Accountability and Divestment Act ( “CISADA” ) or any similar law or regulation with respect to Iran or any other country, the Sudan Accountability and Divestment Act, any OFAC Sanctions Program, or any economic sanctions regulations administered and enforced by the United States or any enabling legislation or executive order relating to any of the foregoing (collectively, “U.S. Economic Sanctions” ) (each OFAC Listed Person and each other Person, entity, organization and government of a country described in clause (i), clause (ii) or clause (iii), a “Blocked Person” ). Neither the Company nor any Controlled Entity has been notified that its name appears or may in the future appear on a state list of Persons that engage in investment or other commercial activities in Iran or any other country that is subject to U.S. Economic Sanctions.

(b) No part of the proceeds from the sale of the Notes hereunder constitutes or will constitute funds obtained on behalf of any Blocked Person or will otherwise be used by the Company or any Controlled Entity, directly or indirectly, (i) in connection with any investment in, or any

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transactions or dealings with, any Blocked Person, or (ii) otherwise in violation of U.S. Economic Sanctions.

(c) Neither the Company nor any Controlled Entity (i) has been found in violation of, charged with, or convicted of, money laundering, drug trafficking, terrorist-related activities or other money laundering predicate crimes under the Currency and Foreign Transactions Reporting Act of 1970 (otherwise known as the Bank Secrecy Act), the USA PATRIOT Act or any other United States law or regulation governing such activities (collectively, “Anti-Money Laundering Laws” ) or any U.S. Economic Sanctions violations, (ii) to the Company’s actual knowledge after making due inquiry, is under investigation by any Governmental Authority for possible violation of Anti-Money Laundering Laws or any U.S. Economic Sanctions violations, (iii) has been assessed civil penalties under any Anti-Money Laundering Laws or any U.S. Economic Sanctions, or (iv) has had any of its funds seized or forfeited in an action under any Anti-Money Laundering Laws. The Company has established procedures and controls which it reasonably believes are adequate (and otherwise comply with applicable law) to ensure that the Company and each Controlled Entity is and will continue to be in compliance with all applicable current and future Anti-Money Laundering Laws and U.S. Economic Sanctions.

(d) (1) Neither the Company nor any Controlled Entity (i) has been charged with, or convicted of bribery or any other anti-corruption related activity under any applicable law or regulation in a U.S. or any non-U.S. country or jurisdiction, including but not limited to, the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act 2010 (collectively, “Anti‑Corruption Laws” ), (ii) to the Company’s actual knowledge after making due inquiry, is under investigation by any U.S. or non‑U.S. Governmental Authority for possible violation of Anti‑Corruption Laws, (iii) has been assessed civil or criminal penalties under any Anti‑Corruption Laws or (iv) has been or is the target of sanctions imposed by the United Nations or the European Union;

(2) To the Company’s actual knowledge after making due inquiry, neither the Company nor any Controlled Entity has, within the last five years, directly or indirectly offered, promised, given, paid or authorized the offer, promise, giving or payment of anything of value to a Governmental Official or a commercial counterparty for the purposes of: (i) influencing any act, decision or failure to act by such Governmental Official in his or her official capacity or such commercial counterparty, (ii) inducing a Governmental Official to do or omit to do any act in violation of the Governmental Official’s lawful duty, or (iii) inducing a Governmental Official or a commercial counterparty to use his or her influence with a government or instrumentality to affect any act or decision of such government or entity; in each case in order to obtain, retain or direct business or to otherwise secure an improper advantage in violation of any applicable law or regulation or which would cause any holder to be in violation of any law or regulation applicable to such holder; and

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(3) No part of the proceeds from the sale of the Notes hereunder will be used, directly or indirectly, for any improper payments, including bribes, to any Governmental Official or commercial counterparty in order to obtain, retain or direct business or obtain any improper advantage. The Company has established procedures and controls which it reasonably believes are adequate (and otherwise comply with applicable law) to ensure that the Company and each Controlled Entity is and will continue to be in compliance with all applicable current and future Anti‑Corruption Laws.

Section 5.17. Status under Certain Statutes . Neither the Company nor any Subsidiary is an “investment company” registered or required to be registered under the Investment Company Act of 1940 or an “affiliated person” of an “investment company” or an “affiliated person” of such “affiliated person” or under the “control” of an “investment company” as such terms are defined in the Investment Company Act of 1940, as amended, and shall not become such an “investment company” or such an “affiliated person” or under such “control.” Neither the Company nor any Subsidiary is a “holding company” or a “subsidiary company” of a “holding company,” or an “affiliate” of a “holding company” or of a “subsidiary company” of a “holding company” within the meaning of the Public Utility Holding Company Act of 2005, as amended. Based upon the immediately preceding sentence, neither the Company nor the issue and sale of the Notes or the issuance of the First Mortgage Bonds pursuant to the Supplemental Indenture is subject to regulation under the Public Utility Holding Company Act of 2005, as amended. Neither the Company nor any Subsidiary is subject to the ICC Termination Act of 1995, as amended, or the Federal Power Act, as amended. Neither the Company nor any Subsidiary is subject to any Federal or state statute or regulation limiting its ability to incur Debt except for rules and regulations of the New Jersey Board of Public Utilities.

Section 5.18. Environmental Matters . Except as disclosed in Schedule 5.8 , neither the Company nor any Restricted Subsidiary has knowledge of any claim or has received any notice of any claim, and no proceeding has been instituted raising any claim against the Company or any of its Restricted Subsidiaries or any of their respective real properties now or formerly owned, leased or operated by any of them or other assets, alleging any damage to the environment or violation of any Environmental Laws, except, in each case, such as would not reasonably be expected to result in a Material Adverse Effect. Except as otherwise disclosed to the Purchasers in writing prior to the date of this Agreement:

(a) neither the Company nor any Restricted Subsidiary has knowledge of any facts which would give rise to any claim, public or private, of violation of Environmental Laws or damage to the environment emanating from, occurring on or in any way related to real properties now or formerly owned, leased or operated by any of them or to other assets or their use, except, in each case, such as would not reasonably be expected to result in a Material Adverse Effect;

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(b) neither the Company nor any of its Restricted Subsidiaries has stored any Hazardous Materials on real properties now or formerly owned, leased or operated by any of them or has disposed of any Hazardous Materials in a manner contrary to any Environmental Laws in each case in any manner that would reasonably be expected to result in a Material Adverse Effect; and

(c) all buildings on all real properties now owned, leased or operated by the Company or any of its Restricted Subsidiaries are in compliance with applicable Environmental Laws, except where failure to comply would not reasonably be expected to result in a Material Adverse Effect.

Section 5.19. Perfection of Liens. (a) The Mortgage Indenture has been duly recorded and filed, and, on the date of the Closing, the Supplemental Indenture will have been duly recorded and filed, in each place in which such recording or filing is required to protect and preserve the Lien of the Mortgage Indenture and the Supplemental Indenture, as the case may be, in and to the Trust Estate and such Lien will constitute a valid, fully perfected and continuing first priority Lien in and to, all right, title and interest of the Company in the Trust Estate and all taxes and recording or filing fees required to be paid in connection with the execution, recording or filing of the Mortgage Indenture and the Supplemental Indenture have been or will have been duly paid, as the case may be.

(b) On the date of the Closing, the Lien of the Collateral Agent in the First Mortgage Bonds will constitute a valid, fully perfected and continuing first priority Lien.

Section 5.20. First Mortgage Bonds Pari Passu. On the date of the Closing, the Company’s obligations under the Supplemental Indenture and the First Mortgage Bonds will rank pari passu in right of payment, without preference or priority, with its obligations under each other series of first mortgage bonds issued and outstanding under the Mortgage Indenture.

Section 5.21. No Event of Default. No “Event of Default” under the Mortgage Indenture exists on the date of execution and delivery of this Agreement or, upon the execution and delivery thereof, the Supplemental Indenture, or will exist immediately after giving effect to the transactions contemplated by this Agreement or the Supplemental Indenture and the applications of the proceeds from the issue and sale of the Notes and the issuance of the First Mortgage Bonds.


SECTION 6.	REPRESENTATIONS OF THE PURCHASERS.

Section 6.1. Purchase for Investment . Each Purchaser severally represents that it is purchasing the Notes for its own account or for one or more separate accounts maintained by such

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Purchaser or for the account of one or more pension or trust funds and not with a view to the distribution thereof, provided that the disposition of such Purchaser’s or such pension or trust fund’s property shall at all times be within such Purchaser’s or such pension or trust fund’s control. Each Purchaser represents that it is an “accredited investor,” as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act. Each Purchaser understands that the Notes have not been registered under the Securities Act and may be resold only if registered pursuant to the provisions of the Securities Act or if an exemption from registration is available, except under circumstances where neither such registration nor such an exemption is required by law, and that the Company is not required to register the Notes.

Section 6.2. Source of Funds . Each Purchaser severally represents that at least one of the following statements is an accurate representation as to each source of funds (a “Source” ) to be used by such Purchaser to pay the purchase price of the Notes to be purchased by such Purchaser hereunder:

(a) the Source is an “insurance company general account” (as the term is defined in the United States Department of Labor’s Prohibited Transaction Exemption ( “PTE” ) 95‑60) in respect of which the reserves and liabilities (as defined by the annual statement for life insurance companies approved by the National Association of Insurance Commissioners (the “NAIC Annual Statement” )) for the general account contract(s) held by or on behalf of any employee benefit plan together with the amount of the reserves and liabilities for the general account contract(s) held by or on behalf of any other employee benefit plans maintained by the same employer (or affiliate thereof as defined in PTE 95‑60) or by the same employee organization in the general account do not exceed 10% of the total reserves and liabilities of the general account (exclusive of separate account liabilities) plus surplus as set forth in the NAIC Annual Statement filed with such Purchaser’s state of domicile; or

(b) the Source is a separate account that is maintained solely in connection with such Purchaser’s fixed contractual obligations under which the amounts payable, or credited, to any employee benefit plan (or its related trust) that has any interest in such separate account (or to any participant or beneficiary of such plan (including any annuitant)) are not affected in any manner by the investment performance of the separate account; or

(c) the Source is either (i) an insurance company pooled separate account, within the meaning of PTE 90-1 or (ii) a bank collective investment fund, within the meaning of the PTE 91-38 and, except as disclosed by such Purchaser to the Company in writing pursuant to this clause (c), no employee benefit plan or group of plans maintained by the same

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employer or employee organization beneficially owns more than 10% of all assets allocated to such pooled separate account or collective investment fund; or

(d) the Source constitutes assets of an “investment fund” (within the meaning of Part VI of PTE 84‑14 (the “QPAM Exemption” )) managed by a “qualified professional asset manager” or “QPAM” (within the meaning of Part VI of the QPAM Exemption), no employee benefit plan’s assets that are managed by the QPAM in such investment fund, when combined with the assets of all other employee benefit plans established or maintained by the same employer or by an affiliate (within the meaning of Part VI(c)(1) of the QPAM Exemption) of such employer or by the same employee organization and managed by such QPAM, represent more than 20% of the total client assets managed by such QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption are satisfied, neither the QPAM nor a person controlling or controlled by the QPAM maintains an ownership interest in the Company that would cause the QPAM and the Company to be “related” within the meaning of Part VI(h) of the QPAM Exemption and (i) the identity of such QPAM and (ii) the names of any employee benefit plans whose assets in the investment fund, when combined with the assets of all other employee benefit plans established or maintained by the same employer or by an affiliate (within the meaning of Part VI(c)(1) of the QPAM Exemption) of such employer or by the same employee organization, represent 10% or more of the assets of such investment fund, have been disclosed to the Company in writing pursuant to this clause (d); or

(e) the Source constitutes assets of a “plan(s)” (within the meaning of Part IV(h) of PTE 96‑23 (the “INHAM Exemption” )) managed by an “in-house asset manager” or “INHAM” (within the meaning of Part IV(a) of the INHAM Exemption), the conditions of Part I(a), (g) and (h) of the INHAM Exemption are satisfied, neither the INHAM nor a person controlling or controlled by the INHAM (applying the definition of “control” in Part IV(d)(3) of the INHAM Exemption) owns a 10% or more interest in the Company and (i) the identity of such INHAM and (ii) the name(s) of the employee benefit plan(s) whose assets constitute the Source have been disclosed to the Company in writing pursuant to this clause (e); or

(f) the Source is a governmental plan; or

(g) the Source is one or more employee benefit plans, or a separate account or trust fund comprised of one or more employee benefit plans, each of which has been identified to the Company in writing pursuant to this clause (g); or

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(h) the Source does not include assets of any employee benefit plan, other than a plan exempt from the coverage of ERISA.

As used in this Section 6.2 , the terms “ employee benefit plan,” “governmental plan,” and “separate account” shall have the respective meanings assigned to such terms in section 3 of ERISA.


SECTION 7.	INFORMATION AS TO COMPANY.

Section 7.1. Financial and Business Information . The Company shall deliver to each Purchaser and each holder of Notes that is an Institutional Investor:

(a) Quarterly Statements — within 55 days after the end of each quarterly fiscal period in each fiscal year of the Company (other than the last quarterly fiscal period of each such fiscal year), duplicate copies of:

(1) a consolidated and consolidating balance sheet of the Company and its Subsidiaries as at the end of such quarter, and

(2) consolidated and consolidating statements of income, changes in shareholders’ equity and cash flows of the Company and its Subsidiaries for such quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with such quarter,

setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP applicable to quarterly financial statements generally, and certified by a Senior Financial Officer as fairly presenting, in all material respects, the financial position of the companies being reported on and their results of operations and cash flows, subject to changes resulting from normal year-end adjustments, provided that (i) in the event the Company posts such financial statements on its home page on the worldwide web (at the date of this Agreement located at http://investor.njresources.com/njng-reports.cfm ) within the time period specified above, such posting shall be deemed to satisfy the requirements of this Section 7.1(a) or (ii) in the event the Company becomes a reporting company under the Exchange Act, delivery to the Securities and Exchange Commission within the time period specified above of copies of the Company’s Quarterly Report on Form 10‑Q prepared in compliance with the requirements therefor and filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this Section 7.1(a) and provided, further, that the Company shall be deemed to have made such delivery of the financial statements described above or such Form 10‑Q if it shall have timely posted such financial statements on its home

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page on the worldwide web or timely made such Form 10‑Q available on “EDGAR” and on its home page on the worldwide web, as the case may be, and shall have given such holder prior notice (such notice to include the address of its home page) of such availability on its home page or on EDGAR and on its home page in connection with each delivery (such availability and notice thereof being referred to as “Electronic Delivery” );

(b) Annual Statements — within 100 days after the end of each fiscal year of the Company, duplicate copies of,

(1) a consolidated and consolidating balance sheet of the Company and its Subsidiaries, as at the end of such year, and

(2) consolidated and consolidating statements of income, changes in shareholders’ equity and cash flows of the Company and its Subsidiaries, for such year,

setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP, and accompanied by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that such financial statements present fairly, in all material respects, the financial position of the companies being reported upon and their results of operations and cash flows and have been prepared in conformity with GAAP, and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards, and that such audit provides a reasonable basis for such opinion in the circumstances, provided that in the event the Company becomes a reporting company under the Exchange Act, the delivery within the time period specified above of the Company’s Annual Report on Form 10‑K for such fiscal year (together with the Company’s annual report to shareholders, if any, prepared pursuant to Rule 14a‑3 under the Exchange Act) prepared in accordance with the requirements therefor and filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this Section 7.1(b) , and provided, further, that the Company shall be deemed to have made such delivery of such Form 10‑K if it shall have timely made Electronic Delivery thereof;

(c) SEC and Other Reports — with reasonable promptness, upon their becoming available, one copy of (1) each financial statement, report, notice or proxy statement sent by the Company or any Restricted Subsidiary to its principal lending banks as a whole (excluding information sent to such banks in the ordinary course of administration of a bank facility, such as information relating to pricing and borrowing availability) or to its public securities holders generally and (2) each regular or periodic report, each registration

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statement that shall have become effective (without exhibits except as expressly requested by such holder), and each final prospectus and all amendments thereto filed by the Company or any Restricted Subsidiary with the Securities and Exchange Commission, provided and to the extent that the Company’s Quarterly Report on Form 10‑Q or Annual Report on Form 10‑K is filed with the Securities and Exchange Commission such filing shall be deemed to satisfy the requirements of this Section 7.1(c) with respect to such filings;

(d) Notice of Default or Event of Default — with reasonable promptness, and in any event within five days after a Responsible Officer becoming aware of the existence of any Default or Event of Default, a written notice specifying the nature and period of existence thereof and what action the Company is taking or proposes to take with respect thereto;

(e) ERISA Matters — with reasonable promptness, and in any event within five days after a Responsible Officer becoming aware of any of the following, a written notice setting forth the nature thereof and the action, if any, that the Company or an ERISA Affiliate proposes to take with respect thereto:

(1) with respect to any Plan, any reportable event, as defined in section 4043(c) of ERISA and the regulations thereunder, for which notice thereof has not been waived pursuant to such regulations as in effect on the date thereof; or

(2) the taking by the PBGC of steps to institute, or the threatening by the PBGC of the institution of, proceedings under section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by the PBGC with respect to such Multiemployer Plan; or

(3) any event, transaction or condition that could result in the incurrence of any liability by the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or such penalty or excise tax provisions, if such liability or Lien, taken together with any other such liabilities or Liens then existing, would reasonably be expected to have a Material Adverse Effect;

(f) Unrestricted Subsidiaries — at such time as either (1) the aggregate amount of the total assets of all Unrestricted Subsidiaries exceeds 10% of the consolidated total

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assets of the Company and its Subsidiaries determined in accordance with GAAP or (2) one or more Unrestricted Subsidiaries account for more than 10% of the consolidated gross revenues of the Company and its Subsidiaries determined in accordance with GAAP, and within the respective periods provided in paragraphs (a) and (b) above, financial statements of the character and for the dates and periods as in said paragraphs (a) and (b) covering each Unrestricted Subsidiary (or groups of Unrestricted Subsidiaries on a consolidated basis) together with consolidating statements reflecting eliminations or adjustments required in order to reconcile such financial statements to the corresponding consolidated financial statements of the Company and its Subsidiaries delivered pursuant to paragraphs (a) and (b) above; and

(g) Requested Information — with reasonable promptness, such other data and information relating to the business, operations, affairs, financial condition, assets or properties of the Company or any of its Restricted Subsidiaries or relating to the ability of the Company to perform its obligations hereunder, under the Notes and, prior to the Release Date, under the Mortgage Indenture (including the Supplemental Indenture), the First Mortgage Bond Documents to which the Company is a party, and the First Mortgage Bonds and, from and after the New Security Date, under the New Indenture and the New First Mortgage Bonds (including any related new bond documents to which the Company is a party), as from time to time may be reasonably requested by any such holder of Notes.

Section 7.2. Officer’s Certificate . Each set of financial statements delivered to a holder of Notes pursuant to Section 7.1(a) or Section 7.1(b) hereof shall be accompanied by a certificate of a Senior Financial Officer setting forth (which, in the case of Electronic Delivery of any such financial statements, shall be by separate concurrent delivery of such certificate to each holder of Notes):

(a) Covenant Compliance — the information (including reasonably detailed calculations) required in order to establish whether the Company was in compliance with the requirements of Section 10.1 through Section 10.5 , inclusive, and Section 10.9 during the quarterly or annual period covered by the statements then being furnished (including with respect to each such Section, where applicable, the calculations of the maximum or minimum amount, ratio or percentage, as the case may be, permissible under the terms of such Sections, and the calculation of the amount, ratio or percentage then in existence); and

(b) Event of Default — a statement that such Senior Financial Officer has reviewed the relevant terms hereof and, prior to the Release Date, the Mortgage Indenture (including the Supplemental Indenture), and the First Mortgage Bond Documents to which the Company is a party and, from and after the New Security Date, under the New Indenture

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and any related new bond documents to which the Company is a party, and has made, or caused to be made, under his or her supervision, a review of the transactions and conditions of the Company and its Subsidiaries from the beginning of the quarterly or annual period covered by the statements then being furnished to the date of the certificate and that such review shall not have disclosed the existence during such period of any condition or event that constitutes a Default or an Event of Default or, if any such condition or event existed or exists (including, without limitation, any such event or condition resulting from the failure of the Company or any Subsidiary to comply with any Environmental Law), specifying the nature and period of existence thereof and what action the Company shall have taken or proposes to take with respect thereto.

Section 7.3. Inspection . The Company shall permit the representatives of each holder of Notes that is an Institutional Investor:

(a) No Default — if no Default or Event of Default then exists, at the expense of such holder and upon reasonable prior written notice to the Company, to visit the principal executive office of the Company, to discuss the affairs, finances and accounts of the Company and its Restricted Subsidiaries with the Company’s officers, and, with the consent of the Company (which consent will not be unreasonably withheld) to visit the other offices and properties of the Company and each Restricted Subsidiary, all at such reasonable times and as often as may be reasonably requested in writing; and

(b) Default — if a Default or Event of Default then exists, at the expense of the Company, to visit and inspect any of the offices or properties of the Company or any Restricted Subsidiary, to examine all their respective books of account, records, reports and other papers, to make copies and extracts therefrom, and to discuss their respective affairs, finances and accounts with their respective officers and independent public accountants (and by this provision the Company authorizes said accountants to discuss the affairs, finances and accounts of the Company and its Restricted Subsidiaries), all at such times and as often as may be requested.


SECTION 8.	PREPAYMENT OF THE NOTES.

Section 8.1. Required Prepayments . Subject to Section 8.2 , the Notes shall not be subject to required prepayments. The entire unpaid principal balance of the Notes of each series shall be due and payable on the respective stated maturity date thereof.

Section 8.2. Required Prepayment—Condemnation; Required Sale . (a) Prior to the Release Date, in the event that, pursuant to the terms of section 8.08 of the Mortgage Indenture, the

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First Mortgage Bonds are called for redemption, in whole or in part, then the Company shall, (i) at least 30 days and not more than 60 days prior to the redemption date of the First Mortgage Bonds pursuant to section 8.08 of the Mortgage Indenture, give written notice to the Collateral Agent, as the registered holder of the First Mortgage Bonds, and each holder of Notes, of the redemption of all or a portion of the related First Mortgage Bonds and the corresponding prepayment of all or a portion of the related Notes, and (ii) on the redemption date of the First Mortgage Bonds so called for redemption, prepay the Notes in an aggregate principal amount equal to the amount of First Mortgage Bonds called for redemption at a prepayment price equal to 100% of the First Mortgage Bonds being redeemed, together with interest accrued thereon to the date of such prepayment. The notice described in (i) above shall specify the prepayment date (which shall be a Business Day), the aggregate principal amount of the Notes to be prepaid on such date, the principal amount of each Note held by such holder to be prepaid (determined in accordance with Section 8.4) , and the interest to be paid on the prepayment date with respect to such principal amount being prepaid.

(b) From and after the New Security Date, in the event that, pursuant to the terms of the New Indenture, the New First Mortgage Bonds are called for mandatory redemption, in whole or in part, in the event of the occurrence of events substantially similar to those described in section 8.08 of the Mortgage Indenture, as in effect on the date of this Agreement, then the Company shall, (i) at least 30 days and not more than 60 days prior to the redemption date of the New First Mortgage Bonds pursuant to the New Indenture, give written notice to the Collateral Agent, as the registered holder of the New First Mortgage Bonds, and each holder of Notes, of the redemption of all or a portion of the New First Mortgage Bonds and the corresponding prepayment of all or a portion of the related Notes, and (ii) on the redemption date of the New First Mortgage Bonds so called for redemption, prepay the Notes in an aggregate principal amount equal to the amount of first mortgage bonds called for redemption at a prepayment price equal to 100% of New First Mortgage Bonds being redeemed, together with interest accrued thereon to the date of such prepayment. The notice described in (i) above shall specify the prepayment date (which shall be a Business Day), the aggregate principal amount and series of the Notes to be prepaid on such date, the principal amount of each Note held by such holder to be prepaid (determined in accordance with Section 8.4) , and the interest to be paid on the prepayment date with respect to such principal amount being prepaid.

Section 8.3. Optional Prepayments with Make-Whole Amount . The Company may, at its option, upon notice as provided below, prepay at any time all, or from time to time any part of, the Notes, in an amount not less than $1,000,000 in aggregate principal amount of the Notes then outstanding in the case of a partial prepayment, at 100% of the aggregate principal amount so prepaid (but if in the case of a partial prepayment, then against each series of Notes in proportion to the aggregate principal outstanding of each series) together with interest accrued thereon to the date of such prepayment and the Make-Whole Amount, if any, determined for the prepayment date with respect to such principal amount. The Company will give each holder of Notes written notice of

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each optional prepayment under this Section 8.3 not less than 30 days and not more than 60 days prior to the date fixed for such prepayment. Each such notice shall specify such date (which shall be a Business Day), the aggregate principal amount of each series of the Notes to be prepaid on such date, the principal amount of each Note held by such holder to be prepaid (determined in accordance with Section 8.4 ), and the interest to be paid on the prepayment date with respect to such principal amount being prepaid, and shall be accompanied by a certificate of a Senior Financial Officer as to the estimated Make-Whole Amount due in connection with such prepayment (calculated as if the date of such notice were the date of the prepayment), setting forth the details of such computation. Two Business Days prior to such prepayment, the Company shall deliver to each holder of Notes a certificate of a Senior Financial Officer specifying the calculation of such Make-Whole Amount as of the specified prepayment date.

Section 8.4. Allocation of Partial Prepayments . In the case of each partial prepayment of the Notes pursuant to Section 8.2 or Section 8.3 hereof, the principal amount of the Notes to be prepaid shall be allocated among all the Notes of each series at the time outstanding in proportion, as nearly as reasonably practicable, to the respective unpaid principal amounts thereof not theretofore called for prepayment. All partial prepayments or purchases made pursuant to Section 8.6(b) or Section 8.8(a) shall be applied only to the Notes of the holders who have elected to participate in such prepayment or purchase.

Section 8.5. Maturity; Surrender, Etc . In the case of each prepayment of Notes pursuant to this Section 8 , the principal amount of each Note to be prepaid shall mature and become due and payable on the date fixed for such prepayment, together with interest on such principal amount accrued to such date and the applicable Make-Whole Amount, if any. From and after such date, unless the Company shall fail to pay such principal amount when so due and payable, together with the interest and Make-Whole Amount, if any, as aforesaid, interest on such principal amount shall cease to accrue. Any Note paid or prepaid in full shall be surrendered to the Company and cancelled and shall not be reissued, and no Note shall be issued in lieu of any prepaid principal amount of any Note.

Section 8.6. Purchase of Notes . The Company will not, and will not permit any Affiliate to, purchase, redeem, prepay or otherwise acquire, directly or indirectly, any of the outstanding Notes except (a) upon the payment or prepayment of the Notes in accordance with the terms of this Agreement and the Notes or (b) pursuant to an offer to purchase made by the Company or an Affiliate pro rata to the holders of all Notes at the time outstanding upon the same terms and conditions. Any such offer shall provide each holder with sufficient information to enable it to make an informed decision with respect to such offer, and shall remain open for at least 15 Business Days. If the holders of more than 50% of the principal amount of the Notes then outstanding accept such offer, the Company shall promptly notify the remaining holders of such fact and the expiration date for

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the acceptance by holders of Notes of such offer shall be extended by the number of days necessary to give each such remaining holder at least 10 Business Days from its receipt of such notice to accept such offer. The Company will promptly cancel all Notes acquired by it or any Affiliate pursuant to any payment, prepayment or purchase of Notes pursuant to any provision of this Agreement and no Notes may be issued in substitution or exchange for any such Notes.

Section 8.7. Make-Whole Amount for Notes . The term “Make-Whole Amount” shall mean, with respect to any Note, an amount equal to the excess, if any, of the Discounted Value of the Remaining Scheduled Payments with respect to the Called Principal of such Note over the amount of such Called Principal, provided that the Make-Whole Amount may in no event be less than zero. For the purposes of determining the Make-Whole Amount, the following terms have the following meanings:

“Called Principal” shall mean, with respect to any Note, the principal of such Note that is to be prepaid pursuant to Section 8.3 or has become or is declared to be immediately due and payable pursuant to Section 12.1 , as the context requires.

“Discounted Value” shall mean, with respect to the Called Principal of any Note, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on the same periodic basis as that on which interest on the Notes is payable) equal to the Reinvestment Yield with respect to such Called Principal.

“Reinvestment Yield” shall mean, with respect to the Called Principal of any Note, 0.50% over the yield to maturity implied by (a) the ask side yield(s) reported, as of 10:00 a.m. (New York, New York time) on the second Business Day preceding the Settlement Date with respect to such Called Principal, on the display designated as “Page PX1” (or such other display as may replace Page PX1) on the Bloomberg Financial Markets Services Screen) for the most recently issued actively traded on the run U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date, or (b) if such yields are not reported as of such time or the yields reported as of such time are not ascertainable (including by way of interpolation), the Treasury Constant Maturity Series Yields reported, for the latest day for which such yields have been so reported as of the second Business Day preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (or any comparable successor publication) for U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date.

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In the case of each determination under clause (a) or clause (b), as the case may be, of the preceding paragraph, such implied yield will be determined, if necessary, by (1) converting U.S. Treasury bill quotations to bond-equivalent yields in accordance with accepted financial practice and (2) interpolating linearly between (i) the applicable U.S. Treasury security with the maturity closest to and greater than such Remaining Average Life and (ii) the applicable U.S. Treasury security with the maturity closest to and less than such Remaining Average Life. The Reinvestment Yield shall be rounded to the number of decimal places as appears in the interest rate of the applicable Note.

“Remaining Average Life” shall mean, with respect to any Called Principal, the number of years (calculated to the nearest one-twelfth year) obtained by dividing (a) such Called Principal into (b) the sum of the products obtained by multiplying (1) the principal component of each Remaining Scheduled Payment with respect to such Called Principal by (2) the number of years (calculated to the nearest one-twelfth year) that will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment.

“Remaining Scheduled Payments” shall mean, with respect to the Called Principal of any Note, all payments of such Called Principal and interest thereon that would be due after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date, provided that if such Settlement Date is not a date on which interest payments are due to be made under the terms of the Notes, then the amount of the next succeeding scheduled interest payment will be reduced by the amount of interest accrued to such Settlement Date and required to be paid on such Settlement Date pursuant to Section 8.3 or Section 12.1 .

“Settlement Date” shall mean, with respect to the Called Principal of any Note, the date on which such Called Principal is to be prepaid pursuant to Section 8.3 or has become or is declared to be immediately due and payable pursuant to Section 12.1 , as the context requires.

Section 8.8. Offer to Prepay upon Asset Disposition .

(a) Notice and Offer . In the event of a Transfer where the Company has elected to apply all or a portion of the Net Proceeds Amount of such Transfer pursuant to Section 10.5(b) , the Company shall, no later than the 305 ^th day following the date of such Transfer, give written notice of such event (an “Asset Disposition Prepayment Event” ) to each holder of Notes. Such notice shall contain, and shall constitute, an irrevocable offer to prepay a Ratable Portion of the Notes held by such holder on the date (which shall be a Business Day) specified in such notice (the “Asset

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Disposition Prepayment Date” ) which date shall be not less than 30 days and not more than 60 days after such notice.

(b) Acceptance and Payment. A holder of Notes may accept or reject the offer to prepay pursuant to this Section 8.8 by causing a notice of such acceptance or rejection to be delivered to the Company at least 10 days prior to the Asset Disposition Prepayment Date. A failure by a holder of the Notes to respond to an offer to prepay made pursuant to this Section 8.8 shall be deemed to constitute a rejection of such offer by such holder. If so accepted, such offered prepayment in respect of the Ratable Portion of the Notes of each holder that has accepted such offer shall be due and payable on the Asset Disposition Prepayment Date. Such offered prepayment shall be made at 100% of the aggregate Ratable Portion of the Notes of each holder that has accepted such offer, together with interest on that portion of the Notes then being prepaid accrued to the Asset Disposition Prepayment Date, but without any Make-Whole Amount. If any holder of a Note rejects or is deemed to have rejected such offer of prepayment, the Company may use the Ratable Portion for such Note for general corporate purposes.

(c) Officer’s Certificate. Each offer to prepay the Notes pursuant to this Section 8.8 shall be accompanied by a certificate, executed by a Senior Financial Officer and dated the date of such offer, specifying: (1) the Asset Disposition Prepayment Date; (2) that such offer is being made pursuant to this Section 8.8 and that the failure by a holder to respond to such offer by the deadline established in Section 8.8(b) shall result in such offer to such holder being deemed rejected; (3) the Ratable Portion of each such Note offered to be prepaid; (4) the interest that would be due on the Ratable Portion of each such Note offered to be prepaid, accrued to the Asset Disposition Prepayment Date; (5) that the conditions of this Section 8.8 have been satisfied and (6) in reasonable detail, a description of the nature and date of the Asset Disposition Prepayment Event giving rise to such offer of prepayment.

Section 8.9. Offer to Prepay in the Event of a Change of Control .

(a) Notice of Change of Control. The Company will, at least 30 days prior to any Change of Control, give written notice of such Change of Control to each holder of the Notes. Such notice shall contain and constitute an offer to prepay the Notes as described in Section 8.9(c) and shall be accompanied by the certificate described in Section 8.9(f) .

(b) Notice of Acceptance of Offer under Section 8.9(a). If the Company shall at any time receive an acceptance to an offer to prepay Notes under Section 8.9(a) from some, but not all, of the holders of the Notes, then the Company will, within two Business Days after the receipt of such acceptance, give written notice of such acceptance to each other holder of the Notes.

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(c) Offer to Prepay Notes. The offer to prepay Notes contemplated by Section 8.9(a) shall be an offer to prepay, in accordance with and subject to this Section 8.9 , all, but not less than all, of the Notes held by each holder (in this case only, “holder” in respect of any Note registered in the name of a nominee for a disclosed beneficial owner shall mean such beneficial owner) at the time of the occurrence of the Change of Control.

(d) Rejection; Acceptance. A holder of Notes may accept or reject the offer to prepay made pursuant to this Section 8.9 by causing a notice of such acceptance or rejection to be delivered to the Company prior to the prepayment date. A failure by a holder of Notes to so respond to an offer to prepay made pursuant to this Section 8.9(d) shall be deemed to constitute an acceptance of such offer by such holder.

(e) Prepayment. Prepayment of the Notes to be prepaid pursuant to this Section 8.9 shall be at 100% of the principal amount of such Notes, together with interest on such Notes accrued to the date of prepayment. The prepayment shall be made at the time of occurrence of a Change of Control.

(f) Officer’s Certificate. Each offer to prepay the Notes pursuant to this Section 8.9 shall be accompanied by a certificate, executed by a Responsible Officer of the Company and dated the date of such offer, specifying (i) the proposed prepayment date (which shall be the date of the Change of Control), (ii) that such offer is made pursuant to this Section 8.9 , (iii) the principal amount of each Note offered to be prepaid, (iv) the interest that would be due on each Note offered to be prepaid, accrued to the prepayment date, (v) that the conditions of this Section 8.9 have been fulfilled, and (vi) in reasonable detail, the nature and anticipated date of the Change of Control.


SECTION 9.	AFFIRMATIVE COVENANTS.

The Company covenants that so long as any of the Notes are outstanding:

Section 9.1. Compliance with Laws . Without limiting Section 10.13 , the Company will, and will cause each of its Subsidiaries to, comply with all laws, ordinances or governmental rules or regulations to which each of them is subject, including, without limitation, ERISA, Environmental Laws, the USA PATRIOT Act and the other laws and regulations that are referred to in Section 5.16 , and will obtain and maintain in effect all licenses, certificates, permits, franchises and other governmental authorizations necessary to the ownership of their respective properties or to the conduct of their respective businesses, in each case to the extent necessary to ensure that non-compliance with such laws, ordinances or governmental rules or regulations or failures to obtain or maintain in effect such licenses, certificates, permits, franchises and other governmental

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authorizations would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.

Section 9.2. Insurance . The Company will, and will cause each of its Restricted Subsidiaries to, maintain, with financially sound and reputable insurers, insurance with respect to their respective properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co-insurance and self-insurance, if adequate reserves are maintained with respect thereto) as is customary in the case of entities of established reputations engaged in the same or a similar business and in the same industry and similarly situated.

Section 9.3. Maintenance of Properties . The Company will, and will cause each of its Restricted Subsidiaries to, maintain and keep, or cause to be maintained and kept, their respective properties in good repair, working order and condition (other than ordinary wear and tear), so that the business carried on in connection therewith may be properly conducted at all times, provided that this Section shall not prevent the Company or any Restricted Subsidiary from discontinuing the operation and the maintenance of any of its properties if such discontinuance is desirable in the conduct of its business and the Company has concluded that such discontinuance would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.

Section 9.4. Payment of Taxes and Claims . The Company will, and will cause each of its Subsidiaries to, file all income tax or similar tax returns required to be filed in any jurisdiction and to pay and discharge all taxes shown to be due and payable on such returns and all other taxes, assessments, governmental charges or levies payable by any of them, to the extent the same have become due and payable and before they have become delinquent, provided that neither the Company nor any Subsidiary need pay any such tax, assessment, governmental charge or levy if (1) the amount, applicability or validity thereof is contested by the Company or such Subsidiary on a timely basis in good faith and in appropriate proceedings, and the Company or a Subsidiary has established adequate reserves therefor in accordance with GAAP on the books of the Company or such Subsidiary or (2) the nonpayment of all such taxes, assessments, governmental charges and levies in the aggregate would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.

Section 9.5. Corporate Existence, Etc . The Company will at all times preserve and keep in full force and effect its corporate existence. Subject to Sections 10.5 , 10.6 and 10.7 , the Company will at all times preserve and keep in full force and effect the corporate existence of each of its Restricted Subsidiaries (unless merged into the Company or a Wholly‑Owned Restricted Subsidiary) and all rights and franchises of the Company and its Restricted Subsidiaries unless, in the good faith judgment of the Company, the termination of or failure to preserve and keep in full

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force and effect such corporate existence, right or franchise would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.

Section 9.6. Regulated Nature. The Company will at all times be and remain a Person that is subject under law to regulation by a public utility commission or other governmental regulatory body with oversight responsibilities for utilities.

Section 9.7. Notes to Rank Pari Passu . After the Release Date until the New Security Date, the Company will ensure that its payment obligations under this Agreement and the Notes will at all times rank at least pari passu in right of payment with all other unsecured Senior Debt (actual or contingent) of the Company.


SECTION 10.	NEGATIVE COVENANTS.

The Company covenants that so long as any of the Notes are outstanding:

Section 10.1. Limitations on Debt. From and after the Release Date until the New Security Date, the Company will not permit, as of the end of any fiscal quarter of the Company: (a) the ratio of Consolidated Total Debt to Consolidated Total Capitalization to exceed 0.65 to 1.00; or (b) Priority Debt to exceed 20% of Consolidated Total Capitalization.

Section 10.2. Liens . The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly create, incur, assume or permit to exist (upon the happening of a contingency or otherwise) any Lien on or with respect to any property or asset (including, without limitation, any document or instrument in respect of goods or accounts receivable) of the Company or any such Restricted Subsidiary, whether now owned or held or hereafter acquired, or any income or profits therefrom, or assign or otherwise convey any right to receive income or profits, except:

(a) Liens for taxes, assessments or other governmental charges which are not yet due and payable or the payment of which is not at the time required by Section 9.4 ;

(b) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other similar Liens, in each case, incurred in the ordinary course of business for sums not yet due and payable or the payment of which is not at the time required by Section 9.4 ;

(c) Liens (other than any Lien imposed by ERISA) incurred or deposits made in the ordinary course of business (1) in connection with workers’ compensation, unemployment insurance and other types of social security or retirement benefits, or (2) to

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secure (or to obtain letters of credit that secure) the performance of tenders, statutory obligations, surety bonds, appeal bonds, bids, leases (other than Capital Leases), performance bonds, purchase, construction or sales contracts, and other similar obligations, in each case not incurred or made in connection with the borrowing of money, the obtaining of advances or credit or the payment of the deferred purchase price of property;

(d) subject to Section 11(k) , any attachment or judgment Lien, unless the judgment it secures shall not, within 30 days after the entry thereof, have been discharged or execution thereof stayed pending appeal, or shall not have been discharged within 30 days after the expiration of any such stay;

(e) leases or subleases granted to others, easements, rights-of-way, restrictions and other similar charges or encumbrances or minor survey exceptions, in each case incidental to, and not interfering with, the ordinary conduct of the business of the Company or any of its Restricted Subsidiaries, provided that such Liens do not, in the aggregate, materially detract from the value of such property;

(f) Liens on property or assets of any Restricted Subsidiary securing Debt owing to the Company or to a Wholly-Owned Restricted Subsidiary;

(g) Liens existing on the date of the Closing and described on Schedule 5.15 hereto (other than Liens on “Excepted Property” of the Company as defined in the Mortgage Indenture as in effect on the date of the Closing);

(h) Liens on accounts receivable owned by Securitization Subsidiaries that are Restricted Subsidiaries and incurred pursuant to Receivables Securitization Transactions;

(i) any Lien created to secure all or any part of the purchase price, or to secure Debt incurred or assumed to pay all or any part of the purchase price or cost of construction, of property (or any improvement thereon) acquired or constructed by the Company or a Restricted Subsidiary after the date of the Closing, provided that:

(1) any such Lien shall extend solely to the item or items of such property (or improvement thereon) so acquired or constructed and, if required by the terms of the instrument originally creating such Lien, other property (or improvement thereon) which is an improvement to or is acquired for specific use in connection with such acquired or constructed property (or improvement thereon) or which is real property being improved by such acquired or constructed property (or improvement thereon);

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(2) the principal amount of the Debt secured by any such Lien shall at no time exceed an amount equal to the lesser of (i) the cost to the Company or such Restricted Subsidiary of the property (or improvement thereon) so acquired or constructed and (ii) the Fair Market Value (as determined in good faith by one or more officers of the Company to whom authority to enter into the subject transaction has been delegated by the board of directors of the Company) of such property (or improvement thereon) at the time of such acquisition or construction;

(3) any such Lien shall be created contemporaneously with, or within 180 days after, the acquisition or construction of such property; and

(4) after the Release Date until the New Security Date, the aggregate principal amount of all Debt secured by such Liens shall be permitted by the limitation set forth in Section 10.1(a) if tested on the date such Lien is created and not as of the end of the immediately preceding fiscal quarter of the Company;

(j) any Lien existing on property of a Person immediately prior to its being consolidated with or merged into the Company or a Restricted Subsidiary or its becoming a Subsidiary, or any Lien existing on any property acquired by the Company or any Restricted Subsidiary at the time such property is so acquired (whether or not the Debt secured thereby shall have been assumed), provided that (1) no such Lien shall have been created or assumed in contemplation of such consolidation or merger or such Person becoming a Subsidiary or such acquisition of property, (2) each such Lien shall extend solely to the item or items of property so acquired and, if required by the terms of the instrument originally creating such Lien (i) other property which is an improvement to or is acquired for specific use in connection with such acquired property or (ii) other property that does not constitute property or assets of the Company or any of its Restricted Subsidiaries and (3) after the Release Date until the New Security Date, the aggregate amount of all Debt secured by such Liens shall be permitted by the limitation set forth in Section 10.1(a) if tested on the date of such event and not as of the end of the immediately preceding fiscal quarter of the Company;

(k) (1) Liens on assets of the Company (other than Liens on “Excepted Property” as defined in the Mortgage Indenture as in effect on the date of the Closing) which Liens secure Debt outstanding as of the date of the Closing under the Mortgage Indenture and any additional Debt that is issued in accordance with Article Two of the Mortgage Indenture (as in effect on the date of the Closing) and after the Release Date until the New Security Date, is otherwise permitted by the limitation set forth in Section 10.1(a) if tested on the date of such event and not as of the end of the immediately preceding fiscal quarter of the Company; provided that such additional Debt shall not contain covenants, defaults and other terms and

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conditions more restrictive than or in addition to those contained in this Agreement; and (2) from and after the New Security Date, Liens on assets of the Company which Liens secure Debt that is issued in accordance with the New Indenture; provided that such additional Debt shall not contain covenants, defaults and other terms and conditions more restrictive than or in addition to those contained in this Agreement;

(l) any Lien renewing, extending or refunding any Lien permitted by paragraphs (g), (i), (j) or (k) of this Section 10.2 , provided that (1) the principal amount of Debt secured by such Lien immediately prior to such extension, renewal or refunding is not increased or the maturity thereof reduced, (2) such Lien is not extended to any other property and (3) immediately after such extension, renewal or refunding no Default or Event of Default would exist ( provided that, after the Release Date until the New Security Date, with respect to the limitations set forth in Section 10.1 , calculation of compliance therewith shall be made as of the date of determination under this Section 10.2(l) and not as of the end of the immediately preceding fiscal quarter of the Company); and

(m) other Liens not otherwise permitted by paragraphs (a) through (l), inclusive, of this Section 10.2 securing Debt, provided that after the Release Date until the New Security Date, the Debt secured by such Liens shall be permitted by the limitations set forth in Section 10.1 if tested on the date such Lien is created and not as of the end of the immediately preceding fiscal quarter of the Company.

Section 10.3. Restricted Payments . (a) The Company will not, and will not permit any Restricted Subsidiary to, declare or make or incur any liability to declare or make any Restricted Payment unless immediately after giving effect to such action no Default or Event of Default would exist ( provided that, after the Release Date until the New Security Date, with respect to Section 10.1 , calculation of compliance therewith shall be made as of the date of determination under this Section 10.3 and not as of the end of the immediately preceding fiscal quarter of the Company).

(b) The Company will not, and will not permit any Restricted Subsidiary to, declare a Restricted Payment that is not payable within 60 days of such declaration.

Section 10.4. Restrictions on Dividends of Subsidiaries, Etc . The Company will not, and will not permit any Subsidiary to, enter into any agreement which would restrict any Restricted Subsidiary’s ability or right to pay dividends to, or make advances to or investments in, the Company or, if such Restricted Subsidiary is not directly owned by the Company, the “parent” Restricted Subsidiary of such Restricted Subsidiary; provided that the foregoing shall not apply to restrictions and conditions imposed by law or this Agreement, any Bank Credit Agreement or the Mortgage Indenture (in each case, as in effect on the date of Closing) or, if applicable, the New Indenture, so

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long as any such restrictions in the New Indenture are not more restrictive than such restrictions in the Mortgage Indenture, as in effect on the date of this Agreement.

Section 10.5. Sale of Assets, Etc. (a) Except as permitted under Section 10.6 and Section 10.7 , the Company will not, and will not permit any of its Restricted Subsidiaries to, make any Asset Disposition unless :

(1) in the good faith opinion of the Company, the Asset Disposition is in the best interest of the Company or such Restricted Subsidiary;

(2) immediately after giving effect to the Asset Disposition, no Default or Event of Default would exist ( provided that, after the Release Date until the New Security Date, with respect to Section 10.1 , calculation of compliance therewith shall be made as of the date of determination under this Section 10.5 and not as of the end of the immediately preceding fiscal quarter of the Company); and

(3) immediately after giving effect to the Asset Disposition the Disposition Value of all property that was the subject of any Asset Disposition occurring in the immediately preceding 12 consecutive month period would not exceed 10% of Consolidated Tangible Assets as of the end of the then most recently ended fiscal year of the Company.

(b) If the Net Proceeds Amount for any Transfer is, within 365 days after such Transfer, (1) applied to a Debt Prepayment Application, (2) applied to or would otherwise constitute a Property Reinvestment Application or (3) applied to any combination of the foregoing clauses (1) and (2), then such Transfer, only for the purpose of determining compliance with subsection (3) of Section 10.5(a) as of a date on or after the Net Proceeds Amount is so applied, shall be deemed not to be an Asset Disposition.

(c) Notwithstanding the foregoing, the sale of accounts receivable to a Securitization Subsidiary in connection with a Receivables Securitization Transaction shall not be considered an Asset Disposition for purposes of this Section 10.5 ; provided, that, to the extent any such sale results in the aggregate amount of Debt of all Securitization Subsidiaries under all Receivables Securitization Transactions being in excess of $100,000,000, the Company shall treat that portion of such sale resulting in the aggregate amount of Debt of all Securitization Subsidiaries under all Receivables Securitization Transactions being in excess of $100,000,000 as an Asset Disposition subject to this Section 10.5 without application of this clause (c).

Section 10.6. Merger, Consolidation, Etc. The Company will not, and will not permit any Restricted Subsidiary to, consolidate with or merge with any other Person or convey, transfer or lease all or substantially all of its assets in a single transaction or series of transactions to any Person

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(except that a Restricted Subsidiary may (x) consolidate with or merge with, or convey, transfer or lease all or substantially all of its assets in a single transaction or series of transactions to, the Company or another Restricted Subsidiary or any other Person so long as such Restricted Subsidiary is the surviving Person and (y) convey, transfer or lease all of its assets in compliance with the provisions of Section 10.5 or 10.7 ), provided that the foregoing restriction does not apply to the consolidation or merger of the Company with, or the conveyance, transfer or lease of all or substantially all of the assets of the Company in a single transaction or series of transactions to, any Person so long as:

(a) the successor formed by such consolidation or the survivor of such merger or the Person that acquires by conveyance, transfer or lease all or substantially all of the assets of the Company as an entirety, as the case may be (the “Successor Corporation” ), shall be a solvent Person organized and existing under the laws of the United States or any State thereof (including the District of Columbia);

(b) if the Company is not the Successor Corporation, (1) such Person shall have executed and delivered to each holder of the Notes its assumption of the due and punctual performance and observance of each covenant and condition of this Agreement and the Notes and, prior to the Release Date, the Mortgage Indenture (including the Supplemental Indenture), the First Mortgage Bond Documents to which it is a party and the First Mortgage Bonds and, from and after the New Security Date, the New Indenture, the New First Mortgage Bonds and any related new bond documents to which it is a party (pursuant to such agreements or instruments as shall be reasonably satisfactory to the Required Holders), and (2) such Person shall have caused to be delivered to each holder of the Notes an opinion of nationally recognized independent counsel, or other independent counsel reasonably satisfactory to the Required Holders, to the effect that all agreements or instruments effecting such assumption are enforceable in accordance with their terms and comply with the terms hereof; and

(c) immediately after giving effect to such transaction, no Default or Event of Default would exist ( provided that, after the Release Date until the New Security Date with respect to Section 10.1 , calculation of compliance therewith shall be made as of the date of determination under this Section 10.6 and not as of the end of the immediately preceding fiscal quarter of the Company).

No such conveyance, transfer or lease of all or substantially all of the assets of the Company shall have the effect of releasing the Company or any Successor Corporation that shall theretofore have become such in the manner prescribed in this Section 10.6 from its liability under this Agreement or the Notes or, prior to the Release Date, the Mortgage Indenture (including the Supplemental

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Indenture), the First Mortgage Bond Documents to which it is a party or the First Mortgage Bonds or, from and after the New Security Date, the New Indenture, the New First Mortgage Bonds or any related new bond documents to which it is a party.

Section 10.7. Disposal of Ownership of a Restricted Subsidiary . The Company will not, and will not permit any Restricted Subsidiary to, sell or otherwise dispose of any shares of Restricted Subsidiary Stock, nor will the Company permit any such Restricted Subsidiary to issue, sell or otherwise dispose of any shares of its own Restricted Subsidiary Stock, provided that the foregoing restrictions do not apply to:

(a) the issue of directors’ qualifying shares by any such Restricted Subsidiary;

(b) any such Transfer of Restricted Subsidiary Stock constituting a Transfer described in clause (a) of the definition of “Asset Disposition”; and

(c) the Transfer of the Restricted Subsidiary Stock of a Restricted Subsidiary owned by the Company and its other Subsidiaries; provided that such Transfer satisfies the requirements of Section 10.5 .

Section 10.8. Limitations on Subsidiaries, Partnerships and Joint Ventures. The Company will not, and will not permit any of its Restricted Subsidiaries to, own or create directly or indirectly any Subsidiaries without the prior written consent of the Required Holders. The Company shall not, and shall not permit any Restricted Subsidiary to, become or agree to become (a) a general or limited partner in any general or limited partnership, except that the Company may be a general or limited partner in any Subsidiary and any Restricted Subsidiary may be a general or limited partner in any other Subsidiary and except that the Company and its Restricted Subsidiaries may be a limited partner in a Permitted Related Business Opportunity, (b) a member or manager of, or hold a limited liability company interest in, a limited liability company, except that the Company may be a member or manager of, or hold limited liability company interests in, its Subsidiaries and Restricted Subsidiaries may be members or managers of, or hold limited liability company interests in, other Subsidiaries and except that the Company and its Restricted Subsidiaries may be members or managers of, or hold limited liability company interests in a Permitted Related Business Opportunity or (c) a joint venturer or hold a joint venture interest in any joint venture, except that the Company and its Restricted Subsidiaries may become a joint venturer in or hold a joint venture interest in any joint venture that is a Permitted Related Business Opportunity.

Section 10.9. Limitation on Certain Leases. The Company will not, and will not permit any of its Restricted Subsidiaries to, engage in any off-balance sheet transaction ( i.e., the liabilities in respect of which do not appear on the liability side of the balance sheet, with such balance sheet

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prepared in accordance with GAAP) providing the functional equivalent of borrowed money (including asset securitizations, sale/leasebacks or Synthetic Leases (other than any sale/leaseback transaction or Synthetic Lease entered into, in either case, with respect to meter assets and which transaction is otherwise permitted by this Agreement)) with liabilities in excess, in the aggregate for the Company and its Restricted Subsidiaries as of any date of determination, of 5% of the Consolidated Tangible Assets.

For purposes of this Section 10.9 , the amount of any lease which is not a Capital Lease is the aggregate amount of minimum lease payments due pursuant to such lease for any non-cancelable portion of its term.

Section 10.10. Nature of Business . The Company will not, and will not permit any of its Restricted Subsidiaries to, engage in any business if, as a result, the general nature of the business in which the Company and its Restricted Subsidiaries, taken as a whole, would then be engaged would be substantially and materially changed from the general nature of the business in which the Company and its Restricted Subsidiaries are engaged on the date of this Agreement.

Section 10.11. Transactions with Affiliates . Except in the case of a Permitted Related Business Opportunity, the Company will not, and will not permit any Restricted Subsidiary to, enter into, directly or indirectly, any Material transaction or group of related transactions (including, without limitation, the purchase, lease, sale or exchange of properties of any kind or the rendering of any service) with any Affiliate (other than the Company or a Restricted Subsidiary), except in the ordinary course and pursuant to the reasonable requirements of the Company’s or such Restricted Subsidiary’s business and upon fair and reasonable terms no less favorable to the Company or such Restricted Subsidiary than would be obtainable in a comparable arm’s-length transaction with a Person not an Affiliate.

Section 10.12. Designation of Restricted and Unrestricted Subsidiaries. The Company may designate any Subsidiary to be a Restricted Subsidiary and may designate any Restricted Subsidiary to be an Unrestricted Subsidiary by giving written notice to each holder of Notes that the Board of Directors of the Company has made such designation, provided, however, that no Subsidiary may be designated a Restricted Subsidiary and no Restricted Subsidiary may be designated an Unrestricted Subsidiary unless, at the time of such action and after giving effect thereto, (a) solely in the case of a Restricted Subsidiary being designated an Unrestricted Subsidiary, such Restricted Subsidiary being designated an Unrestricted Subsidiary shall not have any continuing Investment in the Company or any other Restricted Subsidiary and (b) no Default or Event of Default shall have occurred and be continuing ( provided that, after the Release Date until the New Security Date, with respect to Section 10.1 , calculation of compliance therewith shall be made as of the date of determination under this Section 10.12 and not as of the end of the immediately preceding fiscal

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quarter of the Company). Any Restricted Subsidiary which has been designated an Unrestricted Subsidiary and which has then been redesignated a Restricted Subsidiary, in each case in accordance with the provisions of the first sentence of this Section 10.12 , shall not at any time thereafter be redesignated an Unrestricted Subsidiary without the prior written consent of the Required Holders. Any Unrestricted Subsidiary which has been designated a Restricted Subsidiary and which has then been redesignated an Unrestricted Subsidiary, in each case in accordance with the provisions of the first sentence of this Section 10.12 , shall not at any time thereafter be redesignated a Restricted Subsidiary without the prior written consent of the Required Holders.

Section 10.13. Terrorism Sanctions Regulations . The Company will not and will not permit any Controlled Entity (a) to become (including by virtue of being owned or controlled by a Blocked Person), own or control a Blocked Person or any Person that is the target of sanctions imposed by the United Nations or by the European Union, or (b) directly or indirectly to have any investment in or engage in any dealing or transaction (including, without limitation, any investment, dealing or transaction involving the proceeds of the Notes) with any Person if such investment, dealing or transaction (i) would cause any holder to be in violation of any law or regulation applicable to such holder, or (ii) is prohibited by or subject to sanctions under any U.S. Economic Sanctions, or (c) to engage, nor shall any Affiliate of either engage, in any activity that could subject such Person or any holder to sanctions under CISADA or any similar law or regulation with respect to Iran or any other country that is subject to U.S. Economic Sanctions.


SECTION 11.	EVENTS OF DEFAULT.

An “Event of Default” shall exist if any of the following conditions or events shall occur and be continuing:

(a) the Company defaults in the payment of any principal or Make-Whole Amount on any Note when the same becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise; or

(b) the Company defaults in the payment of any interest on any Note for more than five (5) Business Days after the same becomes due and payable; or

(c) the Company defaults in the performance of or compliance with any term contained in Section 9.6, Section 10.1 through Section 10.9 , inclusive, or Section 10.13 ; or

(d) the Company defaults in the performance of or compliance with any term contained herein (other than those referred to in paragraphs (a), (b) and (c) of this Section 11 )

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and such default is not remedied within 30 days after the earlier of (1) a Responsible Officer obtaining actual knowledge of such default and (2) the Company receiving written notice of such default from any holder of a Note (any such written notice to be identified as a “notice of default” and to refer specifically to this paragraph (d) of Section 11 ); or

(e) any representation or warranty made in writing by or on behalf of the Company or by any officer of the Company in this Agreement or prior to the Release Date, in the Mortgage Indenture (including the Supplemental Indenture) or, from and after the New Security Date, in the New Indenture, or in any writing furnished in connection with the transactions contemplated hereby or thereby proves to have been false or incorrect in any material respect on the date as of which made; or

(f) (1) the Company or any Significant Subsidiary is in default (as principal or as guarantor or other surety) in the payment of any principal of or premium or make‑whole amount or interest on any Debt that is outstanding in an aggregate principal amount of at least $30,000,000 beyond any period of grace provided with respect thereto or (2) the Company or any Significant Subsidiary is in default in the performance of or compliance with any term of any evidence of any Debt in an aggregate outstanding principal amount of at least $30,000,000 or of any mortgage, indenture or other agreement relating thereto or any other condition exists, and as a consequence of such default or condition such Debt has become, or has been declared (or one or more Persons are entitled to declare such Debt to be), due and payable before its stated maturity or before its regularly scheduled dates of payment or (3) as a consequence of the occurrence or continuation of any event or condition (other than the passage of time or the right of the holder of Debt to convert such Debt into equity interests), (i) the Company or any Significant Subsidiary has become obligated to purchase or repay Debt before its regular maturity or before its regularly scheduled dates of payment in an aggregate outstanding principal amount of at least $30,000,000 or (ii) one or more Persons have the right to require the Company or any Significant Subsidiary so to purchase or repay such Debt; or

(g) prior to the Release Date, an “Event of Default” under the Mortgage Indenture shall have occurred and be continuing or, from and after the New Security Date, an “Event of Default” or similar term under the New Indenture shall have occurred and be continuing; provided, however, that anything in this Agreement to the contrary notwithstanding, the waiver or cure of such default under the Mortgage Indenture or the New Indenture, as the case may be, and the rescission and annulment of the consequences thereof under the Mortgage Indenture or the New Indenture, as the case may be, shall constitute a waiver of the corresponding Event of Default hereunder and a rescission and annulment of the consequences thereof hereunder; or

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(h) the Company or any Significant Subsidiary is in default under the terms of any agreement involving any off-balance sheet transaction (including any asset securitization, sale/leaseback transaction or Synthetic Lease) with obligations in the aggregate thereunder for which the Company or any Significant Subsidiary may be obligated in an amount in excess of $30,000,000, and such breach, default or event of default consists of the failure to pay (beyond any period of grace permitted with respect thereto) any obligation when due (whether at stated maturity, by acceleration or otherwise) or if such breach or default permits or causes the acceleration of any obligation or the termination of such agreement; or

(i) the Company or any Significant Subsidiary (1) is generally not paying, or admits in writing its inability to pay, its debts as they become due, (2) files, or consents by answer or otherwise to the filing against it of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency, reorganization, moratorium or other similar law of any jurisdiction, (3) makes an assignment for the benefit of its creditors, (4) consents to the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, (5) is adjudicated as insolvent or to be liquidated or (6) takes corporate action for the purpose of any of the foregoing; or

(j) a court or other Governmental Authority of competent jurisdiction enters an order appointing, without consent by the Company or any of its Significant Subsidiaries, a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, or constituting an order for relief or approving a petition for relief or reorganization or any other petition in bankruptcy or for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of the Company or any of its Significant Subsidiaries, or any such petition shall be filed against the Company or any of its Significant Subsidiaries and such petition shall not be dismissed within 60 days; or

(k) a final judgment or judgments for the payment of money aggregating in excess of $30,000,000 (exclusive of amounts fully covered by valid and collectible insurance in respect thereof subject to customary deductibles) are rendered against one or more of the Company and its Significant Subsidiaries and which judgments are not, within 45 days after entry thereof (or such shorter period as judgment creditors are stayed pursuant to applicable law from executing on such judgment or judgments), bonded, discharged or stayed pending appeal, or are not discharged within 45 days after the expiration of such stay (or such shorter period as judgment creditors are stayed pursuant to applicable law from executing on such judgment or judgments); or

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(l) if (1) any Plan shall fail to satisfy the minimum funding standards of Title IV of ERISA or the Code for any plan year or part thereof or a waiver of such standards is sought or granted under section 412 of the Code, (2) a notice of intent to terminate any Plan on other than a standard basis shall have been or is reasonably expected to be filed with the PBGC or the PBGC shall have instituted proceedings under section 4042 of ERISA to terminate or appoint a trustee to administer any Plan or the PBGC shall have notified the Company or any ERISA Affiliate that a Plan may become a subject of any such proceedings, (3) the present value of the aggregate “amount of unfunded benefit liabilities” within the meaning of section 4001(a)(18) of ERISA under all Plans (determined in accordance with Title IV of ERISA as of the end of the most recent Plan year on the basis of the actuarial assumptions specified for funding purposes in the most recent actuarial valuation), shall exceed the aggregate actuarial value of their assets by an amount equal to 10% of Consolidated Tangible Net Worth, (4) the Company or any ERISA Affiliate shall have incurred or is reasonably expected to incur any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, (5) the Company or any ERISA Affiliate withdraws from any Multiemployer Plan or (6) the Company or any Subsidiary establishes or amends any employee welfare benefit plan that provides post-employment welfare benefits in a manner that would increase the liability of the Company or any Subsidiary thereunder; and any such event or events described in clauses (1) through (6) above, either individually or together with any other such event or events, would reasonably be expected to have a Material Adverse Effect.

As used in Section 11(l) , the terms “employee benefit plan” and “employee welfare benefit plan” shall have the respective meanings assigned to such terms in section 3 of ERISA.


SECTION 12.	REMEDIES ON DEFAULT, ETC.

Section 12.1. Acceleration . (a) If an Event of Default with respect to the Company described in paragraph (i) or (j) of Section 11 (other than an Event of Default described in clause (1) of paragraph (i) or described in clause (6) of paragraph (i) by virtue of the fact that such clause encompasses clause (1) of paragraph (i)) has occurred, all the Notes then outstanding shall automatically become immediately due and payable.

(b) If any other Event of Default has occurred and is continuing, the Required Holders may at any time at its or their option, by notice or notices to the Company, declare all the Notes then outstanding to be immediately due and payable.

(c) If any Event of Default described in paragraph (a) or (b) of Section 11 has occurred and is continuing, any holder or holders of Notes at the time outstanding affected by such Event of

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Default may at any time, at its or their option, by notice or notices to the Company, declare all the Notes held by it or them to be immediately due and payable.

Upon any Note becoming due and payable under this Section 12.1 , whether automatically or by declaration, such Note will forthwith mature and the entire unpaid principal amount of such Note, plus (1) all accrued and unpaid interest thereon and (2) the Make-Whole Amount, if any, determined in respect of such principal amount (to the full extent permitted by applicable law) shall all be immediately due and payable, in each and every case without presentment, demand, protest or further notice, all of which are hereby waived. The Company acknowledges, and the parties hereto agree, that each holder of a Note has the right to maintain its investment in the Notes free from repayment by the Company (except as herein specifically provided for), and that the provision for payment of the Make-Whole Amount by the Company in the event that the Notes are prepaid or are accelerated as a result of an Event of Default, is intended to provide compensation for the deprivation of such right under such circumstances.

Section 12.2. Other Remedies . (a) If any Default or Event of Default has occurred and is continuing, and irrespective of whether any Notes have become or have been declared immediately due and payable under Section 12.1 , the holder of any Note at the time outstanding may proceed to protect and enforce the rights of such holder by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in any Note, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise.

(b) (1) If any Event of Default has occurred and is continuing and the Notes then outstanding have become due and payable pursuant to Section 12.1 , the holders of the related Notes may, prior to the Release Date, immediately proceed to exercise their rights pursuant to section 10.97 of the Mortgage Indenture (added by section 3.1 of the Supplemental Indenture) and section 10.99 of the Mortgage Indenture (added by section 5.1 of the Supplemental Indenture), as the case may be, to require the redemption of the First Mortgage Bonds and, upon any failure of the Company to so redeem the First Mortgage Bonds, to exercise all rights as beneficial owners of the First Mortgage Bonds under the Mortgage Indenture and (2) if any Event of Default has occurred and is continuing and the Notes then outstanding have become due and payable pursuant to Section 12.1 , the holders of the Notes may, from and after the New Security Date, immediately proceed to exercise their rights under the New Indenture to require the redemption of the New First Mortgage Bonds and, upon any failure of the Company to so redeem the First Mortgage Bonds, to exercise all rights as beneficial owners of the New First Mortgage Bonds under the New Indenture.

Section 12.3. Rescission . At any time after any Notes have been declared due and payable pursuant to clause (b) or (c) of Section 12.1 , the Required Holders, by written notice to the Company,

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may rescind and annul any such declaration and its consequences if (a) the Company has paid all overdue interest on the Notes, all principal of and Make-Whole Amount, if any, on any Notes that are due and payable and are unpaid other than by reason of such declaration, and all interest on such overdue principal and Make-Whole Amount, if any, and (to the extent permitted by applicable law) any overdue interest in respect of the Notes, at the Default Rate, (b) neither the Company nor any other Person shall have paid any amounts which have become due solely by reason of such declaration, (c) all Events of Default and Defaults, other than non-payment of amounts that have become due solely by reason of such declaration, have been cured or have been waived pursuant to Section 17 and (d) no judgment or decree has been entered for the payment of any monies due pursuant hereto or to the Notes. No rescission and annulment under this Section 12.3 will extend to or affect any subsequent Event of Default or Default or impair any right consequent thereon.

Section 12.4. No Waivers or Election of Remedies, Expenses, Etc . No course of dealing and no delay on the part of any holder of any Note in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice such holder’s rights, powers or remedies. No right, power or remedy conferred by this Agreement or by any Note upon any holder thereof shall be exclusive of any other right, power or remedy referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise. Without limiting the obligations of the Company under Section 15 , the Company will pay to the holder of each Note on demand such further amount as shall be sufficient to cover all costs and expenses of such holder incurred in any enforcement or collection under this Section 12 , including, without limitation, reasonable attorneys’ fees, expenses and disbursements.


SECTION 13.	REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.

Section 13.1. Registration of Notes . The Company shall cause its transfer agent to keep at its office designated pursuant to Section 13.2 a register for the registration and registration of transfers of Notes. The name and address of each holder of one or more Notes, each transfer thereof and the name and address of each transferee of one or more Notes shall be registered in such register. If any holder of one or more Notes is a nominee, then (a) the name and address of the beneficial owner of such Note or Notes shall also be registered in such register as an owner and holder thereof and (b) at any such beneficial owner’s option, either such beneficial owner or its nominee may execute any amendment, waiver or consent pursuant to this Agreement. Prior to due presentment for registration of transfer, the Person(s) in whose name any Note(s) shall be registered shall be deemed and treated as the owner and holder thereof for all purposes hereof, and the Company shall not be affected by any notice or knowledge to the contrary. The Company shall give to any holder of a Note that is an Institutional Investor promptly upon request therefor, a complete and correct copy of the names and addresses of all registered holders of Notes.

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Section 13.2. Transfer and Exchange of Notes . Upon surrender of any Note at the corporate trust office of the Company’s transfer agent, U.S. Bank National Association by mail at U.S. Bank Global Corporate Trust Services, Attention: Transfers – EP‑MN‑WS2N, 60 Livingston Avenue, St. Paul, Minnesota 55107‑2292 or by hand at U.S. Bank Global Corporate Trust Services, Attention: Transfers, 1st Floor, 60 Livingston Avenue, St. Paul, Minnesota 55107‑2292, or at such other addresses as may be provided in writing to the holders of the Notes, for registration of transfer or exchange (and in the case of a surrender for registration of transfer, duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of such Note or its attorney duly authorized in writing and accompanied by the address for notices of each transferee of such Note or part thereof), within 10 Business Days thereafter, the Company shall execute and deliver, at the Company’s expense (except as provided below), one or more new Notes (as requested by the holder thereof) in exchange therefor, in an aggregate principal amount equal to the unpaid principal amount of the surrendered Note. Each such new Note shall be payable to such Person as such holder may request and shall be substantially in the form of Exhibit 1‑A or Exhibit 1‑B , as applicable. Each such new Note shall be dated and bear interest from the date to which interest shall have been paid on the surrendered Note or dated the date of the surrendered Note if no interest shall have been paid thereon. The Company may require payment of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such transfer of Notes. Notes shall not be transferred in denominations of less than $100,000, provided that if necessary to enable the registration of transfer by a holder of its entire holding of Notes, one Note may be in a denomination of less than $100,000. Any transferee, by its acceptance of a Note registered in its name (or the name of its nominee), shall be deemed to have made the representation set forth in Section 6.2 .

Section 13.3. Replacement of Notes . Upon receipt by the Company of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any Note (which evidence shall be, in the case of an Institutional Investor, notice from such Institutional Investor of such ownership and such loss, theft, destruction or mutilation), and

(a) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it ( provided that if the holder of such Note is, or is a nominee for, an original Purchaser or another holder of a Note with a minimum net worth of at least $50,000,000, such Person’s own unsecured agreement of indemnity shall be deemed to be satisfactory), or

(b) in the case of mutilation, upon surrender and cancellation thereof,

within 10 Business Days thereafter, the Company at its own expense shall execute and deliver, in lieu thereof, a new Note of the same series, dated and bearing interest from the date to which interest shall have been paid on such lost, stolen, destroyed or mutilated Note or dated the date of such lost, stolen, destroyed or mutilated Note if no interest shall have been paid thereon.

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SECTION 14.	PAYMENTS ON NOTES.

Section 14.1. Place of Payment . Subject to Section 14.2 , payments of principal, Make-Whole Amount, if any, and interest becoming due and payable on the Notes shall be made in New York, New York at the principal office of U.S. Bank National Association in such jurisdiction. The Company may at any time, by notice to each holder of a Note, change the place of payment of the Notes so long as such place of payment shall be either the principal office of the Company in such jurisdiction or the principal office of a bank or trust company in such jurisdiction.

Section 14.2. Home Office Payment . So long as any Purchaser or its nominee shall be the holder of any Note, and notwithstanding anything contained in Section 14.1 or in such Note to the contrary, the Company will pay all sums becoming due on such Note for principal, Make‑Whole Amount, if any, interest and all other amounts due hereunder by the method and at the address specified for such purpose below such Purchaser’s name in Schedule A , or by such other method or at such other address as such Purchaser shall have from time to time specified to the Company in writing for such purpose, without the presentation or surrender of such Note or the making of any notation thereon, except that upon written request of the Company made concurrently with or reasonably promptly after payment or prepayment in full of any Note, such Purchaser shall surrender such Note for cancellation, reasonably promptly after any such request, to the Company at its principal executive office or at the place of payment most recently designated by the Company pursuant to Section 14.1 . Prior to any sale or other disposition of any Note held by any Purchaser or its nominee such Purchaser will, at its election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender such Note to the Company in exchange for a new Note or Notes of the same series pursuant to Section 13.2 . The Company will afford the benefits of this Section 14.2 to any Institutional Investor that is the direct or indirect transferee of any Note purchased by any Purchaser under this Agreement and that has made the same agreement relating to such Note as such Purchaser have made in this Section 14.2 .


SECTION 15.	EXPENSES, ETC.

Section 15.1. Transaction Expenses . Whether or not the transactions contemplated hereby or any proposed New Indenture Installation are consummated, the Company will pay the costs and expenses incurred in connection with the initial filing of this Agreement and all related documents and financial information, and all subsequent annual and interim filings of documents and financial information related thereto, with the Securities Valuation Office of the National Association of Insurance Commissioners or any successor organization, all costs and expenses (including reasonable attorneys’ fees of a special counsel and, if reasonably required, local or other counsel) incurred by the Purchasers or any other holder of a Note in connection with such transactions and in connection with any amendments, waivers or consents under or in respect of this Agreement, the

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Notes, the Mortgage Indenture (including the Supplemental Indenture), the First Mortgage Bonds, the New Indenture, or the New First Mortgage Bonds and any related new bond documents (whether or not such amendment, waiver or consent becomes effective), including, without limitation: (a) the costs and expenses incurred in enforcing or defending (or determining whether or how to enforce or defend) any rights under this Agreement, the Notes, the Mortgage Indenture (including the Supplemental Indenture), the First Mortgage Bonds, the New Indenture, or the New First Mortgage Bonds and any related new bond documents or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Agreement, the Notes, the Mortgage Indenture (including the Supplemental Indenture), the First Mortgage Bonds, the New Indenture, or the New First Mortgage Bonds and any related new bond documents, or by reason of being a holder of any Note and (b) the costs and expenses, including financial advisors’ fees, incurred in connection with the insolvency or bankruptcy of the Company or any Subsidiary or in connection with any work-out or restructuring of the transactions contemplated hereby, by the Notes, by the Mortgage Indenture (including the Supplemental Indenture), by the First Mortgage Bonds, by the New Indenture, or by the New First Mortgage Bonds and any related new bond documents. The Company will pay, and will save the Purchasers and each other holder of a Note harmless from, all claims in respect of any fees, costs or expenses, if any, of brokers and finders (other than those retained by such Person).

Section 15.2. Survival . The obligations of the Company under this Section 15 will survive the payment or transfer of any Note, the enforcement, amendment or waiver of any provision of this Agreement or the Notes, and the termination of this Agreement.


SECTION 16.	SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.

All representations and warranties contained herein shall survive the execution and delivery of this Agreement and the Notes, the purchase or transfer by any Purchaser of any Note or portion thereof or interest therein and the payment of any Note, and may be relied upon by any subsequent holder of a Note, regardless of any investigation made at any time by or on behalf of any Purchaser or any other holder of a Note. All statements contained in any certificate or other instrument delivered by or on behalf of the Company pursuant to this Agreement shall be deemed representations and warranties of the Company under this Agreement. Subject to the preceding sentence, this Agreement and the Notes embody the entire agreement and understanding between the Purchasers and the Company and supersede all prior agreements and understandings relating to the subject matter hereof.

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SECTION 17.	AMENDMENT AND WAIVER.

Section 17.1. Requirements . This Agreement and the Notes may be amended, and the observance of any term hereof or of the Notes may be waived (either retroactively or prospectively), with (and only with) the written consent of the Company and the Required Holders, except that (a) no amendment or waiver of any of the provisions of Section 1, 2, 3, 4, 5, 6 or 21 hereof, or any defined term (as it is used therein), will be effective as to any Purchaser or holder of a Note unless consented to by such holder or Purchaser in writing and (b) no such amendment or waiver may, without the written consent of each Purchaser or the holder of each Note at the time outstanding affected thereby, (1) subject to the provisions of Section 12 relating to acceleration or rescission, change the amount or time of any prepayment or payment of principal of, or reduce the rate or change the time of payment or method of computation of interest or of the Make-Whole Amount on, the Notes, (2) change the percentage of the principal amount of the Notes the holders of which are required to consent to any such amendment or waiver or the principal amount of the Notes that the Purchasers are to purchase pursuant to Section 2 upon the satisfaction of the conditions to Closing that appear in Section 4 or (3) amend any of Sections 8, 11(a), 11(b), 12, 17, 20 or 23 .

Section 17.2. Solicitation of Holders of Notes .

(a) Solicitation . The Company will provide each Purchaser and each holder of the Notes (irrespective of the amount of Notes then owned by it) with sufficient information, sufficiently far in advance of the date a decision is required, to enable such Purchaser and holder to make an informed and considered decision with respect to any proposed amendment, waiver or consent in respect of any of the provisions hereof or of the Notes. The Company will deliver executed or true and correct copies of each amendment, waiver or consent effected pursuant to the provisions of this Section 17 to each Purchaser and each holder of outstanding Notes promptly following the date on which it is executed and delivered by, or receives the consent or approval of, the requisite Purchasers or holders of Notes.

(b) Payment . The Company will not, directly or indirectly, pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, or grant any security or provide any other credit support, to any holder of a Note as consideration for or as an inducement to the entering into by such holder of any waiver or amendment of any of the terms and provisions hereof unless such remuneration is concurrently paid, or security is concurrently granted or other credit support concurrently provided, on the same terms, ratably to each holder of Notes then outstanding even if such holder did not consent to such waiver or amendment.

(c) Consent in Contemplation of Transfer. Any consent made pursuant to this Section 17 by a holder of a Note that has transferred or has agreed to transfer all or a portion of its Notes to

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the Company, any Subsidiary or any Affiliate of the Company and has provided or has agreed to provide such written consent as a condition to such transfer shall be void and of no force and effect except solely as to such holder, and any amendments effected or waivers granted or to be effected or granted that would not have been or be so effected or granted but for such consent (and the consents of all other holders of Notes that were acquired under the same or similar conditions) shall be void and of no force or effect except solely as to such holder.

Section 17.3. Binding Effect, Etc . Any amendment or waiver consented to as provided in this Section 17 applies equally to all Purchasers and holders of Notes and is binding upon them and upon each future holder of any Note of any series and upon the Company without regard to whether such Note has been marked to indicate such amendment or waiver. No such amendment or waiver will extend to or affect any obligation, covenant, agreement, Default or Event of Default not expressly amended or waived or impair any right consequent thereon. No course of dealing between the Company and the Purchaser or holder of any Note of any series nor any delay in exercising any rights hereunder or under any Note of any series shall operate as a waiver of any rights of any Purchaser or holder of such Note. As used herein, the term “this Agreement” and references thereto shall mean this Agreement as it may from time to time be amended or supplemented.

Section 17.4. Notes Held by Company, Etc . Solely for the purpose of determining whether the holders of the requisite percentage of the aggregate principal amount of Notes then outstanding approved or consented to any amendment, waiver or consent to be given under this Agreement or the Notes, or have directed the taking of any action provided herein or in the Notes to be taken upon the direction of the holders of a specified percentage of the aggregate principal amount of Notes then outstanding, Notes directly or indirectly owned by the Company or any of its Affiliates shall be deemed not to be outstanding.


SECTION 18.	NOTICES.

All notices and communications provided for hereunder shall be in writing and sent (a) by telefacsimile if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), (b) by registered or certified mail with return receipt requested (postage prepaid) or (c) by a recognized overnight delivery service (charges prepaid). Any such notice must be sent:

(1) if to any Purchaser or its nominee, to such Purchaser or its nominee at the address specified for such communications in Schedule A , or at such other address as such Purchaser or its nominee shall have specified to the Company in writing,

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(2) if to any other holder of any Note, to such holder at such address as such other holder shall have specified to the Company in writing, or

(3) if to the Company, to the Company at its address set forth at the beginning hereof to the attention of the Chief Financial Officer of the Company, or at such other address as the Company shall have specified to the holder of each Note in writing.

Notices under this Section 18 will be deemed given only when actually received.


SECTION 19.	REPRODUCTION OF DOCUMENTS.

This Agreement, the Mortgage Indenture (including the Supplemental Indenture), or the New Indenture, as the case may be, and all documents relating hereto and thereto, including, without limitation, (a) consents, waivers and modifications that may hereafter be executed, (b) documents received by the Purchasers at the Closing (except the Notes themselves) and (c) financial statements, certificates and other information previously or hereafter furnished to any holder of the Notes, may be reproduced by such holder by any photographic, photostatic, microfilm, microcard, miniature photographic or other similar process and such holder may destroy any original document so reproduced. The Company agrees and stipulates that, to the extent permitted by applicable law, any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by any holder of the Notes in the regular course of business) and any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. This Section 19 shall not prohibit the Company or any other holder of Notes from contesting any such reproduction to the same extent that it could contest the original, or from introducing evidence to demonstrate the inaccuracy of any such reproduction.


SECTION 20.	CONFIDENTIAL INFORMATION.

For the purposes of this Section 20 , “Confidential Information” shall mean information delivered to any Purchaser by or on behalf of the Company or any Subsidiary in connection with the transactions contemplated by or otherwise pursuant to this Agreement that is proprietary in nature and that was clearly marked or labeled or otherwise adequately identified when received by such Purchaser as being confidential information of the Company or such Subsidiary, provided that such term does not include information that (a) was publicly known or otherwise known to such Purchaser prior to the time of such disclosure ( provided, however, that to such Purchaser’s actual knowledge, the source of such information was not, at the time of disclosure to such Purchaser, bound by a confidentiality agreement with the Company or its Subsidiaries relating to such information), (b) subsequently becomes publicly known through no act or omission by such

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Purchaser or any Person acting on such Purchaser’s behalf, (c) otherwise becomes known to such Purchaser other than through disclosure by the Company or any Subsidiary ( provided, however, that to such Purchaser’s actual knowledge, the source of such information was not, at the time of disclosure to such Purchaser, bound by a confidentiality agreement with the Company or its Subsidiaries relating to such information) or (d) constitutes financial statements delivered to such Purchaser under Section 7.1 that are otherwise publicly available. Each Purchaser will maintain the confidentiality of such Confidential Information in accordance with procedures adopted by such Purchaser in good faith to protect confidential information of third parties delivered to such Purchaser, provided that such Purchaser may deliver or disclose Confidential Information to (1) its directors, officers, trustees, employees, agents, attorneys and affiliates (to the extent such disclosure reasonably relates to the administration of the investment represented by its Notes and such individuals are bound by the terms of this Section 20 or agree to hold confidential the Confidential Information substantially in accordance with the terms of this Section 20 ), (2) its financial advisors and other professional advisors who agree to hold confidential the Confidential Information substantially in accordance with the terms of this Section 20 , (3) any other holder of any Note, (4) any Institutional Investor to which such Purchaser sells or offers to sell such Note or any part thereof or any participation therein (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 20 ), (5) any Person from which such Purchaser offers to purchase any security of the Company (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 20 ), (6) any Federal or state regulatory authority having jurisdiction over such Purchaser, (7) the National Association of Insurance Commissioners or any similar organization, or any nationally recognized rating agency that requires access to information about such Purchaser’s investment portfolio or (8) any other Person to which such delivery or disclosure may be necessary or appropriate (i) to effect compliance with any law, rule, regulation or order applicable to such Purchaser, (ii) in response to any subpoena or other legal process, (iii) in connection with any litigation to which such Purchaser is a party or (iv) if an Event of Default has occurred and is continuing, to the extent such Purchaser may reasonably determine such delivery and disclosure to be necessary or appropriate in the enforcement or for the protection of the rights and remedies under such Purchaser’s Notes and this Agreement. Each holder of a Note, by its acceptance of a Note, will be deemed to have agreed to be bound by and to be entitled to the benefits of this Section 20 as though it were a party to this Agreement. On reasonable request by the Company in connection with the delivery to any holder of a Note of information required to be delivered to such holder under this Agreement or requested by such holder (other than a holder that is a party to this Agreement or its nominee), such holder will enter into an agreement with the Company embodying the provisions of this Section 20 .

In the event that as a condition to receiving access to information relating to the Company or its Subsidiaries in connection with the transactions contemplated by or otherwise pursuant to

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this Agreement, any Purchaser or holder of a Note is required to agree to a confidentiality undertaking (whether through IntraLinks, another secure website, a secure virtual workspace or otherwise) which is different from this Section 20 , this Section 20 shall not be amended thereby and, as between such Purchaser or such holder and the Company, this Section 20 shall supersede any such other confidentiality undertaking.


SECTION 21.	SUBSTITUTION OF PURCHASER.

Each Purchaser shall have the right to substitute any one of its Affiliates as the purchaser of the Notes that such Purchaser has agreed to purchase hereunder, by written notice to the Company, which notice shall be signed by both such Purchaser and such Affiliate, shall contain such Affiliate’s agreement to be bound by this Agreement and shall contain a confirmation by such Affiliate of the accuracy with respect to it of the representations set forth in Section 6 . Upon receipt of such notice, wherever the word “Purchaser” is used in this Agreement (other than in this Section 21 ), such word shall be deemed to refer to such Affiliate in lieu of such Purchaser. In the event that such Affiliate is so substituted as a purchaser hereunder and such Affiliate thereafter transfers to such Purchaser all of the Notes then held by such Affiliate, upon receipt by the Company of notice of such transfer, wherever the word “Purchaser” is used in this Agreement (other than in this Section 21 ), such word shall no longer be deemed to refer to such Affiliate, but shall refer to such Purchaser, and such Purchaser shall have all the rights of an original holder of the Notes under this Agreement.


SECTION 22.	MISCELLANEOUS.

Section 22.1. Successors and Assigns . All covenants and other agreements contained in this Agreement by or on behalf of any of the parties hereto bind and inure to the benefit of their respective successors and assigns (including, without limitation, any subsequent holder of a Note) whether so expressed or not.

Section 22.2. Submission to Jurisdiction; Waiver of Jury Trial. (a) The Company hereby irrevocably submits to the non-exclusive jurisdiction of any State of New York court or any Federal court located in New York County, New York, New York for the adjudication of any matter arising out of or relating to this Agreement, and consents to the service of all writs, process and summonses by registered or certified mail out of any such court or by service of process on the Company at its address to which notices are to be given pursuant to Section 18 hereof and hereby waives any requirement to have an agent for service of process in the State of New York. Nothing contained herein shall affect the right of any holder of the Notes to serve legal process in any other manner or to bring any proceeding hereunder in any jurisdiction where the Company may be amenable to suit. The Company hereby irrevocably waives any objection to any suit, action or proceeding in any New York court or Federal court located in New York County, New York, New York on the

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grounds of venue and hereby further irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.

(b) THE PARTIES HERETO HEREBY WAIVE TRIAL BY JURY IN ANY ACTION BROUGHT ON OR WITH RESPECT TO THIS AGREEMENT, THE NOTES OR ANY OTHER DOCUMENT EXECUTED IN CONNECTION HEREWITH OR THEREWITH.

Section 22.3. Payments Due on Non-Business Days . Anything in this Agreement or the Notes to the contrary notwithstanding (but without limiting the requirement in Section 8.5 that the notice of any optional prepayment specify a Business Day as the date fixed for such prepayment), any payment of principal of or Make-Whole Amount, if any, or interest on any Note that is due on a date other than a Business Day shall be made on the next succeeding Business Day without including the additional days elapsed in the computation of the interest payable on such next succeeding Business Day; provided that if the maturity date of any Note is a date other than a Business Day, the payment otherwise due on such maturity date shall be made on the next succeeding Business Day and shall include the additional days elapsed in the computation of interest payable on such next succeeding Business Day.

Section 22.4. Accounting Terms. All accounting terms used herein which are not expressly defined in this Agreement have the meanings respectively given to them in accordance with GAAP. Except as otherwise specifically provided herein, (i) all computations made pursuant to this Agreement shall be made in accordance with GAAP and (ii) all financial statements shall be prepared in accordance with GAAP; provided that, if the Company notifies the holders of Notes that the Company requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision, regardless of whether any such notice is given before or after such change in GAAP or in the application thereof (or if the Required Holder(s) notify the Company that the Required Holder(s) request an amendment to any provision hereof for such purposes), then (i) such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith and (ii) the Company shall provide to the holders financial statements and other documents required by this Agreement or requested by any holder setting forth reconciliations between the computations relating to the compliance with the provisions hereof and financial statements provided hereunder made before and after giving effect to such changes in GAAP or the application thereof. Any reference herein to any specific citation, section or form of law, statute, rule or regulation shall refer to such new, replacement or analogous citation, section or form should such citation, section or form be modified, amended or replaced. Notwithstanding the foregoing or any other provision of this Agreement providing for any amount to be determined in accordance with GAAP, for purposes of determining compliance with the covenants contained in this

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Agreement, any election by the Company to measure an item of Debt using fair value (as permitted by Financial Accounting Standards Board Accounting Standards Codification Topic No. 825‑10‑25 – Fair Value Option, International Accounting Standard 39 – Financial Instruments: Recognition and Measurement or any similar accounting standard) shall be disregarded and such determination shall be made as if such election had not been made.

Section 22.5. Severability . Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall (to the full extent permitted by law) not invalidate or render unenforceable such provision in any other jurisdiction.

Section 22.6. Construction . Each covenant contained herein shall be construed (absent express provision to the contrary) as being independent of each other covenant contained herein, so that compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with any other covenant. Where any provision herein refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person.

For the avoidance of doubt, all Schedules and Exhibits attached to this Agreement shall be deemed to be a part hereof.

Section 22.7. Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto.

Section 22.8. Governing Law . This Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of New York excluding choice-of-law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State.


SECTION 23.	APPOINTMENT AND DIRECTION OF COLLATERAL AGENT.

Section 23.1. Appointment and Authority; Direction . Each holder of the Notes, by its acceptance thereof, designates and appoints U.S. Bank National Association to act as Collateral Agent for it under this Agreement, and authorizes U.S. Bank National Association, as the Collateral Agent acting on behalf of and for such holder’s benefit, to (a) accept delivery of the First Mortgage Bonds, issued in the name of the Collateral Agent, and to hold the First Mortgage Bonds for the

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benefit of the holders of the Notes in accordance with this Agreement in a collateral account established by the Collateral Agent, (b) execute and deliver the Collateral Agent Acceptance in connection with the Closing (the “First Mortgage Bond Documents” ) and (c) enter into each and all other instruments relating to the security for the Notes and to take such action under the provisions of the this Agreement, the Mortgage Indenture and all other instruments relating hereto and thereto, and to exercise such powers and perform such duties as are expressly delegated to the Collateral Agent by the terms hereof and thereof.

Section 23.2. Limited Agency . Notwithstanding any provision to the contrary set forth elsewhere in this Agreement or any document related hereto, the Collateral Agent shall not have any duties or responsibilities in its capacity as Collateral Agent except those expressly set forth herein or therein, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or the First Mortgage Bond Documents or otherwise exist against the Collateral Agent.

Section 23.3. Delegation of Duties . The Collateral Agent may exercise its powers and execute any of its duties under this Agreement and the First Mortgage Bond Documents by or through employees, agents or attorneys-in-fact and shall be entitled to take and to rely on advice of counsel concerning all matters pertaining to such powers and duties. The Collateral Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. The Collateral Agent may utilize the services of such Persons as the Collateral Agent in its sole discretion may determine, and all reasonable fees and expenses of such Persons shall be borne by the Company.

Section 23.4. Exculpatory Provisions . (a) The Collateral Agent or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates shall not be (1) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or the First Mortgage Bond Documents (except for its or such Person’s personal liability for its own or such Person’s own gross negligence or willful misconduct) or (2) responsible in any manner to any of the holders for any recitals, statements, representations or warranties made by the Company or any officer thereof contained herein or in any First Mortgage Bond Document or in any certificate, report, statement or other document referred to or provided for in, or received by, the Collateral Agent under or in connection with this Agreement or any First Mortgage Bond Document, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of the First Mortgage Bond Documents or for any failure of the Company to perform its obligations thereunder. The Collateral Agent shall not be under any obligation to the holders to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, the First Mortgage Bond Documents.

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(b) The Collateral Agent shall be deemed to have exercised reasonable care in the custody of any First Mortgage Bonds in its possession if the First Mortgage Bonds are accorded treatment substantially equal to that which it accords its own property.

(c) The Collateral Agent shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith and reasonably believed by it to be authorized or within the rights or powers conferred upon it by this Agreement.

(d) In no event shall the Collateral Agent be responsible or liable for special, indirect, or consequential loss or damage of any kind whatsoever (including, but not limited to, loss of profit).

Section 23.5. Reliance by Collateral Agent . The Collateral Agent shall be entitled to conclusively rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or facsimile message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Company), independent accountants and other experts selected by the Collateral Agent. The Collateral Agent shall be fully justified in failing or refusing to take action under this Agreement or the First Mortgage Bond Documents unless it shall first receive such advice or concurrence of the Required Holders and it shall first be indemnified to its reasonable satisfaction by the holders against any and all liability and expense which may be incurred by it by reason of taking, continuing to take or refraining from taking any such action. The Collateral Agent, in all cases, shall be fully protected in acting, or in refraining from acting, under this Agreement and the First Mortgage Bond Documents if such acting or refraining from acting is in accordance with the provisions hereof, and any action taken or failure to act pursuant hereto shall be binding upon all the holders.

Section 23.6. Indemnification . Each holder severally agrees to indemnify the Collateral Agent in its capacity as such (to the extent not reimbursed by the Company (and without limiting the Company’s obligation to do so) within 45 days after the Collateral Agent’s written request therefor), ratably according to its respective share of the outstanding principal amount of the Notes held thereby, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Notes) be imposed on, incurred by or asserted against the Collateral Agent in any way relating to or arising out of actions or omissions of the Collateral Agent specifically required or permitted by this Agreement or by written instructions of the Required Holders, delivered pursuant thereto, provided that no holder shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements to the extent resulting from

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the Collateral Agent’s own gross negligence or willful misconduct. The agreements in this Section 23.6 shall survive the payment of the Notes.

Section 23.7. Duties; Obligations . The only duties and obligations which the Collateral Agent shall have are those set forth in this Agreement and in the First Mortgage Bond Documents.

Section 23.8. Requesting Instructions . The Collateral Agent may at any time request directions from the holders as to any course of action or other matter relating to the performance of its duties under this Agreement and the First Mortgage Bond Documents and the holders shall promptly comply with such request. Directions given to the Collateral Agent by the Required Holders shall be binding on each of the holders.

Section 23.9. Administrative Actions . The Collateral Agent shall have the right to take such actions, or omit to take such actions, hereunder and under the First Mortgage Bond Documents not inconsistent with the written instructions of the requisite holders or the terms of the First Mortgage Bond Documents and this Agreement, including without limitation actions the Collateral Agent deems necessary or appropriate to perfect or continue the perfection of the Liens on the First Mortgage Bonds for the benefit of the holders or to protect the First Mortgage Bonds. Except as provided above and as otherwise provided pursuant to applicable law, the Collateral Agent shall have no duty as to the collection or protection of the First Mortgage Bonds or any income thereon, nor as to the preservation of rights against prior parties, nor as to the preservation of rights pertaining to the First Mortgage Bonds beyond the safe custody of any First Mortgage Bonds in the Collateral Agent’s possession.

Section 23.10. Exercise of Remedies . Except as otherwise provided in Section 23.9 , the Collateral Agent shall only be authorized to take such actions under the First Mortgage Bond Documents and to enforce or prepare to enforce the remedies available under such First Mortgage Bond Documents as are approved in a written notice by the Required Holders; provided, however, that no notice to release First Mortgage Bonds (other than on the Release Date) shall be effective unless signed by all of the holders. In furtherance of the foregoing, the Collateral Agent agrees to make such demands and give such notices under the First Mortgage Bond Documents as may be requested by, and to take such action to enforce the First Mortgage Bond Documents and to foreclose upon, collect and dispose of the First Mortgage Bonds or any portion thereof as may be directed by the Required Holders; provided, however, that the Collateral Agent shall not be required to take any action that is in its opinion contrary to law or the terms of this Agreement or the First Mortgage Bond Documents and the Collateral Agent shall not be required to take any action unless indemnified in accordance with the provisions of Section 23.6 hereof.

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Section 23.11. Sharing and Application of Proceeds . The holders agree all amounts owing with respect to the Notes shall be secured pro rata by the Collateral Agent without distinction. Upon any realization upon the First Mortgage Bonds by the Collateral Agent, the holders agree that the proceeds thereof shall be applied (i) first, to the payment of expenses incurred by and amounts owed to the Collateral Agent with respect to maintenance and protection of the First Mortgage Bonds and of expenses incurred with respect to the sale of or realization upon any of the First Mortgage Bonds or the perfection, enforcement or protection of the rights of the holders (including reasonable attorneys’ fees and expenses of every kind, including, without limitation, reasonable allocated costs of staff counsel); (ii) second, equally and ratably to the payment of all amounts of interest on the Notes, according to the aggregate amounts thereof owing to each holder; (iii) third, equally and ratably to the payment of all amounts of principal on the Notes according to the aggregate amounts thereof owing to each holder; (iv) fourth, equally and ratably to the payment of all Make-Whole Amounts according to the aggregate amounts thereof owing to each holder; (v) fifth, equally and ratably to the payment of other amounts then due to the holders under this Agreement (including but not limited to all fees and expenses) with amounts prorated, if necessary, based on the aggregate amounts thereof then owing to each holder, and (vi) s ixth, the balance, if any, shall be returned to the Company.

Section 23.12. Resignation or Termination of Collateral Agent . The Collateral Agent may resign as Collateral Agent upon not less than 60 days’ written notice to each of the holders (with a copy to the Company), such resignation to take effect upon the acceptance by a successor Collateral Agent of its appointment as the Collateral Agent hereunder. In addition, the Required Holders may remove the Collateral Agent, with or without cause, each at any time by giving written notice thereof to the Collateral Agent, such resignation to take effect upon the acceptance by a successor Collateral Agent of its appointment as the Collateral Agent hereunder. Upon any such resignation or removal, the Required Holders shall have the right to appoint a successor Collateral Agent which meets the eligibility requirements of Section 23.14 . If no successor Collateral Agent shall have been so appointed and shall have accepted such appointment in writing within 60 days after the retiring Collateral Agent’s giving of notice of resignation or its removal, then any holder or the retiring Collateral Agent (unless the Collateral Agent is being removed), on behalf of the holders, may petition at the expense of the Company a court of competent jurisdiction for the appointment of a successor Collateral Agent. Such court shall, after such notice as it may deem proper, appoint a successor Collateral Agent meeting the qualifications specified in Section 23.14. The holders of the Notes hereby consent to such petition and appointment so long as such criteria are met. Upon acceptance of appointment as Collateral Agent, such successor shall thereupon and forthwith succeed to and become vested with all the rights, powers and privileges, immunities and duties of the retiring Collateral Agent, and the retiring Collateral Agent, upon the signing, transferring and setting over to such successor Collateral Agent all rights, moneys and other collateral held by it in its capacity as Collateral Agent, shall be discharged from its duties and obligations hereunder. After

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any retiring Collateral Agent’s resignation or removal as Collateral Agent, the provisions of this Section 23 , shall inure to its benefit as to any actions taken or omitted to be taken by it while it acted as Collateral Agent.

Section 23.13. Succession of Successor Collateral Agent . Any successor Collateral Agent appointed hereunder shall execute, acknowledge and deliver to the holders and the predecessor Collateral Agent an instrument accepting such appointment, and thereupon such successor Collateral Agent, without any further act, deed, conveyance or transfer, shall become vested with the title to the First Mortgage Bonds, and with all the rights, powers, duties and obligations of the predecessor Collateral Agent in the First Mortgage Bonds and the First Mortgage Bond Documents, with like effect as if originally named as Collateral Agent herein.

Upon the request of any such successor Collateral Agent, however, the holders and the predecessor Collateral Agent shall promptly execute and deliver such instruments of conveyance and further assurance reflecting terms consistent with the terms of this Agreement and the First Mortgage Bond Documents then in effect and do such other things as may reasonably be required for more fully and certainly vesting and confirming in such successor Collateral Agent its interest in the First Mortgage Bonds and all such rights, powers, duties and obligations of the predecessor Collateral Agent hereunder, and the predecessor Collateral Agent shall also promptly assign and deliver to the successor Collateral Agent any First Mortgage Bonds which may then be in its possession. The Company, to the extent requested by any holder of the Notes or the Collateral Agent shall procure any and all documents, conveyances or instruments and execute the same, to the extent required, in order to reflect the transfer to the successor Collateral Agent.

Section 23.14. Eligibility of Collateral Agent. Any successor Collateral Agent shall be (a) a state or national bank or trust company in good standing, organized under the laws of the United States of America or of any state, having capital, surplus and undivided profits aggregating at least $500,000,000 and subject to supervision or examination by a Federal or state banking authority and (b) authorized under the laws of the jurisdiction of its incorporation or organization to assume the functions of the Collateral Agent, if there be such a bank or trust company willing and able to accept the duties hereunder upon reasonable and customary terms.

Section 23.15. Successor Collateral Agent by Merger . Any corporation into which the Collateral Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Collateral Agent shall be a party, or any state or national bank or trust company in any manner succeeding to the corporate trust business of the Collateral Agent as a whole or substantially as a whole, if eligible as provided in Section 23.14 , shall be the successor of the Collateral Agent hereunder without the execution or filing of any paper

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or any further act on the part of any of the parties hereto, anything to the contrary contained herein notwithstanding.

Section 23.16. Compensation and Reimbursement of Collateral Agent . The Company agrees:

(a) to pay to the Collateral Agent all of its out-of-pocket expenses in connection with the preparation, execution and delivery of this Agreement and the First Mortgage Bond Documents and the transactions contemplated hereby, including but not limited to the reasonable charges and disbursements of its special counsel;

(b) to pay to the Collateral Agent from time to time reasonable compensation for all services rendered by it hereunder;

(c) to reimburse the Collateral Agent upon its request for all reasonable expenses, disbursements and advances incurred or made by the Collateral Agent in accordance with any provision of this Agreement (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as shall have been caused by its own gross negligence or willful misconduct; and

(d) to indemnify the Collateral Agent for, and to hold it harmless against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs or disbursements of any kind whatsoever imposed on, incurred by or asserted against the Collateral Agent without gross negligence or willful misconduct on its part, at any time (including without limitation, at any time following the payment of the Notes), arising out of or in connection with this Agreement or any First Mortgage Bond Document or any action taken or omitted by it thereunder or in connection therewith, including, but not limited to, the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder, and any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs or disbursements of any kind whatsoever or claims arising out of its possession or control, of the First Mortgage Bonds.

Notwithstanding any other provision of this Agreement or the First Mortgage Bond Documents, the Collateral Agent shall in all cases be fully justified in failing or refusing to act hereunder unless it shall be indemnified to its satisfaction by the Company or, to the extent it is not satisfactorily indemnified by the Company, the holders of the Notes against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action.

Section 23.17. Self Dealing . In the event that a holder serves as the Collateral Agent, such holder acting in its capacity as such shall have the same rights and powers under this Agreement

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and the Notes as any other holder and may exercise or refrain from exercising the same as though it were not the Collateral Agent. Without limiting the generality of the foregoing, the Collateral Agent or any holding company, trust company or corporation in or with which the Collateral Agent or the Collateral Agent’s stockholders may be interested or affiliated, or any officer or director of the Collateral Agent, or of any other such entity, or any agent appointed by the Collateral Agent, may have commercial relations or otherwise deal with any of the holders, or with any other corporation having relations with any of the holders, and with any other entity, whether or not affiliated with the Collateral Agent.

Section 23.18. Third Party Beneficiary . The Collateral Agent is hereby deemed a third party beneficiary of Section 23 of this Agreement.

Section 23.19. New Indenture . In connection with a New Indenture Installation in compliance with the requirements of Section 24 , a collateral agent, meeting the requirements of Section 23.14 as though it was a successor Collateral Agent, shall be appointed and the appointment and direction of a collateral agent under this Agreement to act on behalf of and for the benefit of the holders, shall be on terms substantially similar to those set forth in this Section 23 .


SECTION 24.	NEW INDENTURE INSTALLATION.

Section 24.1. New Indenture Installation . At any time after the Release Date and subject to the fulfillment of the conditions set forth in Section 24.2 below, the Company may, at its option and without the consent of the holders of the Notes, on the date designated by the Company (the “New Security Date” ), secure the outstanding Notes with an equal principal amount of new first mortgage bonds (the “New First Mortgage Bonds” ) issued by the Company under a new first mortgage indenture (including any supplemental indentures thereto, the “New Indenture” ) to a collateral agent for the holders of the Notes appointed pursuant to Section 23.19 (referred to herein as a “New Indenture Installation” ). The New First Mortgage Bonds will rank pari passu with all other first mortgage bonds issued pursuant to the New Indenture.

Section 24.2. Conditions to New Indenture Installation . The occurrence of a New Indenture Installation is subject to the fulfillment of the following conditions:

(a) After giving pro forma effect to any New Indenture Installation, the Company (on a secured basis) shall be rated at least the same as immediately prior to the Release Date (by way of a rating made available to the holders of all Notes) by at least one of the Required Rating Agencies, and such Required Rating Agency shall not have such rating on a credit watch or proposed downgrade and the Company shall have provided written evidence of the foregoing to each holder of Notes and the Collateral Agent in a form satisfactory to them.

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(b) At the Company’s sole expense, a collateral agent shall be appointed pursuant to Section 23.19 , and the appointment and direction of such collateral agent under this Agreement to act on behalf of and for the benefit of the holders of the Notes, shall be on terms substantially similar to those set forth in Section 23 .

(c) The New First Mortgage Bonds of each series shall secure equally and ratably the payment of the principal of, Make‑Whole Amount and interest on, the related Notes and if any Event of Default under Section 11 has occurred and is continuing and the Notes then outstanding have become due and payable pursuant to Section 12.1 , the holders of the Notes may exercise their rights under the New Indenture to require the redemption of the New First Mortgage Bonds and, upon any failure of the Company to so redeem the New First Mortgage Bonds, to exercise all rights as beneficial owners of the New First Mortgage Bonds under the New Indenture;

(d) The Company shall provide a certificate to each holder of a Note and the Collateral Agent that the New Indenture creates a first priority lien in favor of the mortgage trustee thereunder for the benefit of the holders of the New First Mortgage Bonds on the real and personal property of the Company described in the New Indenture, which property shall be subject to no prior lien for borrowed money except for any prior liens existing on the date the New Indenture becomes effective;

(e) (A) all other necessary amendments or modifications to this Agreement, the Notes and any other documents or agreements executed in connection with the transactions contemplated hereby, shall have been made (at the Company’s sole expense) in order to duly and properly secure the Notes by an equal and ratable amount of the New First Mortgage Bonds issued by the Company under the New Indenture, such amendments and modifications, and the New Indenture and the New First Mortgage Bonds (and any related new bond documents), each to be in form and substance reasonably satisfactory to the Required Holders and the Collateral Agent, (B) the Collateral Agent shall be reasonably acceptable to the mortgage trustee under the New Indenture, and (C) the Collateral Agent may (at the direction of Required Holders and at the Company’s sole expense) consult with Purchasers’ special counsel with respect to any of the matters set forth in this Section 24.2(e) or elsewhere in Section 24 or otherwise;

(f) The Company shall deliver an opinion of Chapman and Cutler LLP or other reputable and qualified outside counsel to the Company, to the Collateral Agent and each holder of the Notes, in form and substance reasonably satisfactory to the Required Holders and the Collateral Agent, containing customary opinions (subject to customary qualifications) with respect to the security provided by the New First Mortgage Bonds issued

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under the New Indenture, including, without limitation, that: (i) the New Indenture is in proper form for statutory recording; (ii) the New Indenture is effective to create, in favor of the mortgage trustee thereunder, for the benefit of the holders of the New First Mortgage Bonds, a legal, valid, and enforceable lien and security interest in all right, title, and interest of the Company in the real and personal property described therein, entitling such holders to an equal and ratable share of such properties with the other holders of bonds under the New Indenture (except as otherwise provided in the New Indenture and except to the extent that enforcement of such lien may be limited by the effect of certain laws and judicial decisions upon the remedies provided for in the New Indenture, which, however, do not make the remedies afforded inadequate for the practical realization of the security and benefits provided by the New Indenture); (iii) the New Indenture and any necessary related financing statements have been duly filed and recorded in all jurisdictions in which it is necessary for such instruments to be filed and recorded in order to constitute a lien of record on the property subject thereto, and no other filing or recordation is presently necessary in order to perfect the lien of the New Indenture on such property; (iv) all taxes, fees or other charges that are payable to any federal, state or local entity on account of the execution, delivery, filing or recording of the New Indenture or any of the New First Mortgage Bonds as so secured have been paid by the Company; (v) neither the Collateral Agent (or other agent on behalf of the holders of the Notes) nor any holder of a New First Mortgage Bond shall be required to qualify to do business in the jurisdiction in which the New Indenture is recorded solely by reason of the transactions contemplated by the New Indenture or in order to enforce their rights under the New Indenture; (vi) the interest rate as set forth in the New First Mortgage Bonds is not usurious under the jurisdictions in which the New Indenture is recorded; (vii) the New Indenture, the New First Mortgage Bonds and any related new bond documents to which the Company is a party have each been duly authorized, executed and delivered by the Company and constitute the legal, valid and binding obligations of the Company enforceable against the Company in accordance with their respective terms; and (viii) the execution and delivery of the New Indenture, the New First Mortgage Bonds and any related new bond documents to which the Company is a party, by the Company do not, and its performance thereof will not, (A) violate any provision of applicable law to which the Company is subject, (B) violate the certificate of incorporation or bylaws of the Company, (C) result in the breach of, or constitute a default under, an indenture, mortgage, contract or other instrument to which the Company is a party, (D) result in the creation or imposition of any Lien on, or security interest in, the assets of the Company (other than the Lien of the New Indenture) or (E) result in a breach of, or constitute a default under, any order, judgment, decree or ruling binding on the Company;

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(g) No First Mortgage Bonds shall be outstanding, the Mortgage Indenture shall have been terminated, and the Liens created by the Mortgage Indenture shall have been released;

(h) Each series of the New First Mortgage Bonds will have the same stated interest rate, interest payment dates, stated maturity and redemption provisions (including Make Whole Amount, if any), and will be in the same aggregate principal amount, as the related Notes; the New First Mortgage Bonds shall contain optional and mandatory redemption provisions (including Make Whole Amount, if any) which correspond to the optional and mandatory prepayment provisions of the related Notes; the New First Mortgage Bonds shall be subject to mandatory redemption if the Company or the trustee under the New Indenture is notified that an Event of Default under this Agreement has occurred and is continuing and that the principal amount of all Notes then outstanding has become due and payable in accordance with this Agreement; and the New Indenture and each series of the New First Mortgage Bonds shall contain provisions that are substantially the same as sections 2.1 and 2.2 and sections 4.1 and 4.2 of the Supplemental Indenture, respectively, and section 10.97 of the Mortgage Indenture and section 10.99 of the Mortgage Indenture, respectively;

(i) The representations and warranties of the Company in the New Indenture and the related new bond documents to which it is a party shall be correct on the New Security Date; and the Company shall have performed and complied with all agreements and conditions contained in this Agreement, the New Indenture and the related new bond documents to which it is a party required to be performed or complied with by it prior to or at the New Security Date;

(j) The Company shall have delivered to each holder a certificate of its Secretary, dated the New Security Date, certifying as to (i) the resolutions attached thereto and other corporate proceedings relating to the authorization, execution and delivery of the New Indenture, the related new bond documents to which it is a party and the New First Mortgage Bonds and (ii) the Company’s organizational documents as then in effect;

(k) The conditions specified in Sections 4.11 and 4.12, if applicable to the New Indenture, the New First Mortgage Bonds and the related new bond documents, shall have been satisfied as at the New Security Date;

(l) The holders shall have received an Officer’s Certificate, dated the New Security Date, certifying that the conditions set forth in clause (i) have been fulfilled and each of the representations in Sections 5.1, 5.2, 5.6, 5.7, 5.19, 5.20 and 5.21, in each case

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as if applicable to the New Indenture, the New First Mortgage Bonds and any related new bond documents instead of the Mortgage Indenture, the First Mortgage Bonds and the Supplemental Indenture, shall be correct on the New Security Date; and

(m) The New Indenture, the New First Mortgage Bonds and any related new bond documents shall be reasonably satisfactory in form and substance to the Required Holders.

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The execution hereof by the Purchasers shall constitute a contract among the Company and the Purchasers for the uses and purposes hereinabove set forth.

Very truly yours,

NEW JERSEY NATURAL GAS COMPANY

By /s/ Patrick Migliaccio

Title: Treasurer

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The foregoing is hereby agreed

to as of the date thereof.

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

By /s/ Brien Davis

Title: Vice President

PRUDENTIAL RETIREMENT INSURANCE AND ANNUITY COMPANY

By: Prudential Investment Management, Inc.,

as investment manager

By /s/ Brien Davis

Title: Vice President

PHYSICIANS MUTUAL INSURANCE COMPANY

By: Prudential Private Placement Investors,

L.P. (as Investment Advisor)

By: Prudential Private Placement Investors, Inc. (as its General Partner)

By /s/ Brien Davis

Title: Vice President

Signature Page to Note Purchase Agreement

The foregoing is hereby agreed

to as of the date thereof.

FARMERS NEW WORLD LIFE INSURANCE COMPANY

By: Prudential Private Placement Investors,

L.P. (as Investment Advisor)

By: Prudential Private Placement Investors, Inc. (as its General Partner)

By /s/ Brien Davis

Title: Vice President

ZURICH AMERICAN INSURANCE COMPANY

By: Prudential Private Placement Investors,

L.P. (as Investment Advisor)

By: Prudential Private Placement Investors, Inc. (as its General Partner)

By /s/ Brien Davis

Title: Vice President

WILLIAM PENN LIFE INSURANCE COMPANY

OF NEW YORK

By: Prudential Private Placement Investors,

L.P. (as Investment Advisor)

By: Prudential Private Placement Investors, Inc. (as its General Partner)

By /s/ Brien Davis

Title: Vice President

Signature Page to Note Purchase Agreement

The foregoing is hereby agreed

to as of the date thereof.

THRIVENT FINANCIAL FOR LUTHERANS

By: /s/ Alan D. Onstad

Title: Senior Director

THE NORTHWESTERN MUTUAL LIFE INSURANCE

COMPANY

By /s/ David A. Barras

Title: Authorized Representative

STATE FARM LIFE INSURANCE COMPANY

By /s/ Julie Hoyer

Title: Senior Investment Officer

By /s/ Christiane M. Stoffer

Title: Assistant Secretary

STATE FARM LIFE AND ACCIDENT ASSURANCE

COMPANY

By /s/ Julie Hoyer

Title: Senior Investment Officer

By /s/ Christiane M. Stoffer

Title: Assistant Secretary

Signature Page to Note Purchase Agreement

The foregoing is hereby agreed

to as of the date thereof.

STATE FARM INSURANCE COMPANIES EMPLOYEE

RETIREMENT TRUST

By /s/ Julie Hoyer

Title: Senior Investment Officer – Fixed Income State Farm Mutual Automobile Insurance

Company

By /s/ Christiane M. Stoffer

Title: Assistant Secretary – Treasurer

State Farm Mutual Automobile Insurance

Company

MUTUAL OF OMAHA INSURANCE COMPANY

By /s/ Justin P. Kavan

Title: Vice President

UNITED OF OMAHA LIFE INSURANCE COMPANY

By /s/ Justin P. Kavan

Title: Vice President

Signature Page to Note Purchase Agreement

The foregoing is hereby agreed

to as of the date thereof.

AMERICAN UNITED LIFE INSURANCE COMPANY

By /s/ David M. Weisenburger

Title: VP, Fixed Income Securities

THE STATE LIFE INSURANCE COMPANY

By: American United Life Insurance Company

Its: Agent

By /s/ David M. Weisenburger

Title: VP, Fixed Income Securities

MODERN WOODMEN OF AMERICA

By /s/ Michael E. Dau

Title: Treasurer & Investment Manager

Signature Page to Note Purchase Agreement

SCHEDULE A

INFORMATION RELATING TO PURCHASERS



	Name and Address of Purchaser	PRINCIPAL AMOUNT OF SERIES A NOTES TO BE PURCHASED	PRINCIPAL AMOUNT OF SERIES B NOTES TO BE PURCHASED

	PRUDENTIAL RETIREMENT INSURANCE AND ANNUITY COMPANY c/o Prudential Capital Group 2200 Ross Avenue, Suite 4300 Dallas, TX 75201	$2,075,000 $1,195,000	$0

(1)	All payments on account of Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to: JP Morgan Chase Bank New York, NY ABA No. 021000021 Account Name: PRIAC - SA - New York Carpenters - Privates Account No. P86337 (please do not include spaces) in the case of payments on account of the Note originally issued in the principal amount of $2,075,000) Account Name: PRIAC - SA - Health Care Service Corp - Privates Account No. P86341 (please do not include spaces) in the case of payments on account of the Note originally issued in the principal amount of $1,195,000) Each such wire transfer shall set forth the name of the Company, a reference to “3.58% Senior Notes due 2024, Security No. INV05233, PPN 645869 D@4” and the due date and application (as among principal, interest and Make-Whole Amount) of the payment being made.

(2)	Address for all notices relating to payments: Prudential Retirement Insurance and Annuity Company c/o Prudential Investment Management, Inc. Private Placement Trade Management PRIAC Administration Gateway Center Four, 7th Floor 100 Mulberry Street Newark, NJ 07102 Telephone: (973) 802-8107 Facsimile: (888) 889-3832

SCHEDULE A
(to Note Purchase Agreement)



(3)	Address for all other communications and notices: Prudential Retirement Insurance and Annuity Company c/o Prudential Capital Group 2200 Ross Avenue, Suite 4300 Dallas, TX 75201 Attention: Managing Director, Energy Finance Group - Oil & Gas

(4)	Address for Delivery of Notes: Prudential Capital Group 2200 Ross Avenue, Suite 4300 Dallas, TX 75201 Attention: M. Jaya McClure Telephone: (214) 720-6207

(5)	Tax Identification Number: 06-1050034 Nominee Name: None.

A-2



	Name and Address of Purchaser	PRINCIPAL AMOUNT OF SERIES A NOTES TO BE PURCHASED	PRINCIPAL AMOUNT OF SERIES B NOTES TO BE PURCHASED

	PHYSICIANS MUTUAL INSURANCE COMPANY c/o Prudential Capital Group 2200 Ross Avenue, Suite 4300 Dallas, TX 75201	$1,730,000	$0

(1)	All payments on account of Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to: All payments on account of Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to: The Northern Trust Company Chicago, IL ABA No.: 071000152 Account Name: Physicians Mutual Insurance Company Account No.: 26-98845 Each such wire transfer shall set forth the name of the Company, a reference to “3.58% Senior Notes due 2024, PPN 645869 D@4” and the due date and application (as among principal, interest and Make-Whole Amount) of the payment being made.

(2)	All notices of payments and written confirmations of such wire transfers: Physicians Mutual Insurance Company 2600 Dodge Street Omaha, NE 68131 Attention: Steve Scanlan Facsimile: (402) 633-1096

(3)	Address for all other communications and notices: Prudential Private Placement Investors, L.P. c/o Prudential Capital Group 2200 Ross Avenue, Suite 4300 Dallas, TX 75201 Attention: Managing Director, Energy Finance Group - Oil & Gas

A-3



(4)	Address for Delivery of Notes: Northern Trust Co Trade Securities Processing 801 South Canal Street C1N Chicago, IL 60607 Reference: Physicians Mutual Insurance Company-Prudential; Account Number: 26-98845 Send a copy to : Prudential Capital Group Gateway Center 2, 10th Floor 100 Mulberry Newark, NJ 07102 Attention: Trade Management, Manager Telephone: (973) 367-3141

(5)	Tax Identification Number: 47-0270450 Nominee Name: How & Co.

A-4



	Name and Address of Purchaser	PRINCIPAL AMOUNT OF SERIES A NOTES TO BE PURCHASED	PRINCIPAL AMOUNT OF SERIES B NOTES TO BE PURCHASED
	THE PRUDENTIAL INSURANCE COMPANY OF AMERICA c/o Prudential Capital Group 2200 Ross Avenue, Suite 4300 Dallas, TX 75201	$0	$14,000,000 $3,325,000

(1)	All payments on account of Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to: JPMorgan Chase Bank New York, NY ABA No.: 021-000-021 Account Name: Prudential Managed Portfolio Account No.: P86188 (please do not include spaces) (in the case of payments on account of the Note originally issued in the principal amount of $14,000,000) Account Name: The Prudential - Privest Portfolio Account No.: P86189 (please do not include spaces) (in the case of payments on account of the Note originally issued in the principal amount of $3,325,000) Each such wire transfer shall set forth the name of the Company, a reference to “4.61% Senior Notes due 2044, Security No. INV05233, PPN 645869 D#2” and the due date and application (as among principal, interest and Make-Whole Amount) of the payment being made.

(2)	Address for all notices relating to payments: The Prudential Insurance Company of America c/o Investment Operations Group Gateway Center Two, 10th Floor 100 Mulberry Street Newark, NJ 07102-4077 Attention: Manager, Billings and Collections

A-5



(3)	Address for all other communications and notices: The Prudential Insurance Company of America c/o Prudential Capital Group 2200 Ross Avenue, Suite 4300 Dallas, TX 75201 Attention: Managing Director, Energy Finance Group - Oil & Gas

(4)	Recipient of telephonic prepayment notices: Manager, Trade Management Group Telephone: (973) 367-3141 Facsimile: (888) 889-3832
(5)	Address for Delivery of Notes: Prudential Capital Group 2200 Ross Avenue, Suite 4300 Dallas, TX 75201 Attention: M. Jaya McClure Telephone: (214) 720-6207

(6)	Tax Identification Number: 22-1211670 Nominee Name: None.

A-6



	Name and Address of Purchaser	PRINCIPAL AMOUNT OF SERIES A NOTES TO BE PURCHASED	PRINCIPAL AMOUNT OF SERIES B NOTES TO BE PURCHASED
	FARMERS NEW WORLD LIFE INSURANCE COMPANY c/o Prudential Capital Group 2200 Ross Avenue, Suite 4300 Dallas, TX 75201	$0	$3,585,000

(1)	All payments on account of Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to: JPMorgan Chase Bank New York, NY ABA No.: 021000021 Account No.: 9009000200 Account Name: SSG Private Income Processing For further credit to Account P58834 Farmers NWL Each such wire transfer shall set forth the name of the Company, a reference to “4.61% Senior Notes due 2044, PPN 645869 D#2” and the due date and application (as among principal, interest and Make-Whole Amount) of the payment being made.

(2)	All notices of payments and written confirmations of such wire transfers: investment.accounting@farmersinsurance.com Farmers Insurance Company Attention: Investment Accounting Team 4680 Wilshire Blvd., 4th Floor Los Angeles, CA 90010 and investments.operations@farmersinsurance.com Farmers New World Life Insurance Company Attention: Investment Operations Team 3003 77th Avenue Southeast, 5th Floor Mercer Island, WA 98040-2837

A-7



(3)	Address for all other communications and notices: Prudential Private Placement Investors, L.P. c/o Prudential Capital Group 2200 Ross Avenue, Suite 4300 Dallas, TX 75201 Attention: Managing Director, Energy Finance Group - Oil & Gas
(4)	Address for Delivery of Notes: JPMorgan Chase Bank, N.A. 4 Chase Metrotech Center, 3rd Floor Brooklyn, NY 11245-0001 Attention: Physical Receive Department Brian Cavanaugh Telephone: (718) 242-0264 Reference: P58834 – Farmers New World Life Private Placement; PPN: 645869 D#2 Send a copy to : Prudential Capital Group Gateway Center 2, 10th Floor 100 Mulberry Newark, NJ 07102 Attention: Trade Management, Manager Telephone: (973) 367-3141
(5)	Tax Identification Number: 91-0335750 Nominee Name: None.

A-8



	Name and Address of Purchaser	PRINCIPAL AMOUNT OF SERIES A NOTES TO BE PURCHASED	PRINCIPAL AMOUNT OF SERIES B NOTES TO BE PURCHASED
	ZURICH AMERICAN INSURANCE COMPANY c/o Prudential Capital Group 2200 Ross Avenue, Suite 4300 Dallas, TX 75201	$0	$3,585,000

(1)	All payments on account of Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to: The Bank of New York ABA No: 021000018 BNF: IOC566 Attn: PP P&I Department Ref: ZAIC Private Placements, Cusip Each such wire transfer shall set forth the name of the Company, a reference to “4.61% Senior Notes due 2044, PPN 645869 D#2” and the due date and application (as among principal, interest and Make-Whole Amount) of the payment being made.

(2)	All notices of payments and written confirmations of such wire transfers: Zurich North America Attn: Treasury T1-19 1400 American Lane Schaumburg, IL 60196-1056 Contact: Mary Fran Callahan, Vice President-Treasurer Telephone: (847) 605-6447 Facsimile: (847) 605-7895 E-mail: mary.callahan@zurichna.com

(3)	Address for all other communications and notices: Prudential Private Placement Investors, L.P. c/o Prudential Capital Group 2200 Ross Avenue, Suite 4300 Dallas, TX 75201 Attention: Managing Director, Energy Finance Group - Oil & Gas

A-9



(4)	Address for Delivery of Notes: Bank of New York Window A One Wall Street, 3rd Floor New York, NY 10286 Reference: Zurich American Insurance Co.-Private Placements; Account Number: 399141 Send a copy to : Prudential Capital Group Gateway Center 2, 10th Floor 100 Mulberry Newark, NJ 07102 Attention: Trade Management, Manager Telephone: (973) 367-3141
(5)	Tax Identification Number: 36-4233459 Nominee Name: Hare & Co., LLC

A-10



	Name and Address of Purchaser	PRINCIPAL AMOUNT OF SERIES A NOTES TO BE PURCHASED	PRINCIPAL AMOUNT OF SERIES B NOTES TO BE PURCHASED
	WILLIAM PENN LIFE INSURANCE COMPANY OF NEW YORK c/o Prudential Capital Group 2200 Ross Avenue, Suite 4300 Dallas, TX 75201	$0	$3,505,000

(1)	All payments on account of Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to: The Bank of New York/Mellon One Wall Street 3rd Floor / Window A New York, NY 10286 ABA No.: 021000018 Bnf/Account: GLA 111566 Attention: P&I Dept Each such wire transfer shall set forth the name of the Company, a reference to “4.61% Senior Notes due 2044, PPN 645869 D#2” and the due date and application (as among principal, interest and Make-Whole Amount) of the payment being made.

(2)	All notices of payments and written confirmations of such wire transfers: William Penn Life Insurance Company of New York 3275 Bennett Creek Ave. Fredrick, MD 21704 Attention: Investment Accounting

(3)	Address for all other communications and notices: Prudential Private Placement Investors, L.P. c/o Prudential Capital Group 2200 Ross Avenue, Suite 4300 Dallas, TX 75201 Attention: Managing Director, Energy Finance Group - Oil & Gas

A-11



(4)	Address for Delivery of Notes: The Bank of New York One Wall Street – 3rd Floor/Window A New York, NY 10286 For account: U.S. Bank N.A. #117612 Send a copy to : Prudential Capital Group Gateway Center 2, 10th Floor 100 Mulberry Newark, NJ 07102 Attention: Trade Management, Manager Telephone: (973) 367-3141
(5)	Tax Identification Number: 13-1976260 Nominee Name: Hare & Co

A-12



	Name and Address of Purchaser	PRINCIPAL AMOUNT OF SERIES A NOTES TO BE PURCHASED	PRINCIPAL AMOUNT OF SERIES B NOTES TO BE PURCHASED
	THRIVENT FINANCIAL FOR LUTHERANS 625 Fourth Avenue South Minneapolis, MN 55415	$5,000,000 $2,000,000	$5,000,000 $5,000,000 $5,000,000 $2,000,000

(1)	All payments on account of Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to: ABA # 011000028 State Street Bank & Trust Co. DDA # A/C – 6813-049-1 Fund Number: NCE1 Fund Name: Thrivent Financial for Lutherans Reference: Security Description Reference Purpose of Payment Interest and/or Principal Breakdown Series A PPN: 645869 D@4 Series B PPN: 645869 D#2

(2)	Notices of payments and written confirmation of such wire transfers to: Investment Division-Private Placements ATT: Alan D. Onstad Thrivent Financial for Lutherans 625 Fourth Avenue South Minneapolis, MN 55415 Fax: (612) 844-4027 Email: privateinvestments@thrivent.com With a copy to : ATT: Jeremy Anderson or Harmon Bergenheier Thrivent Financial for Lutherans 625 Fourth Avenue South Minneapolis, MN 55415 Email: boxprivateplacement@thrivent.com

A-13



(3)	Address for all other communications and notices: Thrivent Financial for Lutherans Attn: Investment Division-Private Placements 625 Fourth Avenue South Minneapolis, MN 55415 Fax: (612) 844-4027 Email: privateinvestments@thrivent.com

(4)	Address for Delivery of Notes: DTCC Newport Office Center 570 Washington Blvd Jersey City, NJ 07310 Attn: 5th floor / NY Window / Robert Mendez Ref: State Street Account Fund Name: Thrivent Financial for Lutherans Fund Number: NCE1 Nominee Name: Swanbird & Co. Nominee Tax ID Number: 04-3475606 Send a copy to : Taiesha McBroom, Senior Counsel 625 Fourth Avenue South, MS 1100 Minneapolis, MN 55415 Taiesha.McBroom@thrivent.com
(5)	Tax Identification Number: 39-0123480 Nominee Name: Swanbird & Co.

A-14



	Name and Address of Purchaser	PRINCIPAL AMOUNT OF SERIES A NOTES TO BE PURCHASED	PRINCIPAL AMOUNT OF SERIES B NOTES TO BE PURCHASED
	THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY 720 East Wisconsin Avenue Milwaukee, WI 53202	$23,000,000	$0

(1)	All payments on account of Notes held by such Purchaser shall be made by wire transfer of immediately available funds, providing sufficient information to identify the source of the transfer, the amount of the dividend and/or redemption (as applicable) and the identity of the security as to which payment is being made. Please contact our Treasury & Investment Operations Department to securely obtain wire transfer instructions for The Northwestern Mutual Life Insurance Company. E-mail: payments@northwesternmutual.com Phone: (414) 665-1679

(2)	All notices with respect to confirmation of payments on account of the Notes shall be delivered or mailed to: The Northwestern Mutual Life Insurance Company 720 East Wisconsin Avenue Milwaukee, WI 53202 Attention: Investment Operations E-mail: payments@northwesternmutual.com Phone: (414) 665-1679

(3)	All other communications shall be delivered or mailed to: The Northwestern Mutual Life Insurance Company 720 East Wisconsin Avenue Milwaukee, WI 53202 Attention: Securities Department E-mail: privateinvest@northwesternmutual.com

(4)	Address for Delivery of Notes: The Northwestern Mutual Life Insurance Company 720 East Wisconsin Avenue Milwaukee, WI 53202 Attention: Ryan Heinemann

A-15



(5)	Tax Identification Number: 39-0509570 Nominee Name: None.

A-16



	Name and Address of Purchaser	PRINCIPAL AMOUNT OF SERIES A NOTES TO BE PURCHASED	PRINCIPAL AMOUNT OF SERIES B NOTES TO BE PURCHASED
	STATE FARM LIFE INSURANCE COMPANY Investment Dept. E-8 One State Farm Plaza Bloomington, IL 61710	$15,000,000	$0

(1)	All principal and interest payments on the Notes shall be made by wire transfer of immediately available funds to: JPMorganChase ABA# 021000021 Attn: SSG Private Income Processing A/C# 9009000200 For further credit to: State Farm Life Insurance Company Custody Account # G06893 RE: New Jersey Natural Gas Company, 3.58% Series A Senior Notes due March 13, 2024 PPN #: 645869 D@4 Maturity Date: March 13, 2024

(2)	Send confirms to: State Farm Life Insurance Company Investment Accounting Dept. D-3 One State Farm Plaza Bloomington, IL 61710

(3)	Send notices, financial statements, officer’s certificates and other correspondence to: State Farm Life Insurance Company Investment Dept. E-8 One State Farm Plaza Bloomington, IL 61710 privateplacements@statefarm.com

A-17



(4)	Address for Delivery of Notes: JPMorgan Chase Bank, N.A. 4 Chase Metrotech Center 3rd Floor Brooklyn, New York 11245-0001 Attention: Physical Receive Department Account: G06893 Send a copy to : State Farm Insurance Companies One State Farm Plaza Bloomington, Illinois 61710 Attn: Corporate Law-Investments, A-3 Christiane M. Stoffer, Associate General Counsel

(5)	Tax Identification Number: 37-0533090 Nominee Name: None.

A-18



	Name and Address of Purchaser	PRINCIPAL AMOUNT OF SERIES A NOTES TO BE PURCHASED	PRINCIPAL AMOUNT OF SERIES B NOTES TO BE PURCHASED
	STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY Investment Dept. E-8 One State Farm Plaza Bloomington, IL 61710	$1,000,000	$0

(1)	All principal and interest payments on the Notes shall be made by wire transfer of immediately available funds to: JPMorganChase ABA# 021000021 Attn: SSG Private Income Processing A/C# 9009000200 For further credit to: State Farm Life and Accident Assurance Company Custody Account # G06895 RE: New Jersey Natural Gas Company, 3.58% Series A Senior Notes due March 13, 2024 PPN #: 645869 D@4 Maturity Date: March 13, 2024

(2)	Send confirms to: State Farm Life and Accident Assurance Company Investment Accounting Dept. D-3 One State Farm Plaza Bloomington, IL 61710

(3)	Send notices, financial statements, officer’s certificates and other correspondence to: State Farm Life and Accident Assurance Company Investment Dept. E-8 One State Farm Plaza Bloomington, IL 61710 privateplacements@statefarm.com

A-19



(4)	Address for Delivery of Notes: JPMorgan Chase Bank, N.A. 4 Chase Metrotech Center 3rd Floor Brooklyn, New York 11245-0001 Attention: Physical Receive Department Account: G06895 Send a copy to : State Farm Insurance Companies One State Farm Plaza Bloomington, Illinois 61710 Attn: Corporate Law-Investments, A-3 Christiane M. Stoffer, Associate General Counsel

(5)	Tax Identification Number: 37-0805091 Nominee Name: None.

A-20



	Name and Address of Purchaser	PRINCIPAL AMOUNT OF SERIES A NOTES TO BE PURCHASED	PRINCIPAL AMOUNT OF SERIES B NOTES TO BE PURCHASED
	STATE FARM INSURANCE COMPANIES EMPLOYEE RETIREMENT TRUST Investment Dept. E-8 One State Farm Plaza Bloomington, IL 61710	$1,000,000	$0

(1)	All principal and interest payments on the Notes shall be made by wire transfer of immediately available funds to: JPMorganChase ABA# 021000021 Attn: SSG Private Income Processing A/C# 9009000200 For further credit to: State Farm Insurance Companies Employee Retirement Trust Custody Account # G07251 RE: New Jersey Natural Gas Company, 3.58% Series A Senior Notes due March 13, 2024 PPN #: 645869 D@4 Maturity Date: March 13, 2024

(2)	Send confirms to: State Farm Insurance Companies Employee Retirement Trust Investment Accounting Dept. D-3 One State Farm Plaza Bloomington, IL 61710

(3)	Send notices, financial statements, officer’s certificates and other correspondence to: State Farm Insurance Companies Employee Retirement Trust Investment Dept. E-8 One State Farm Plaza Bloomington, IL 61710 privateplacements@statefarm.com

A-21



(4)	Address for Delivery of Notes: JPMorgan Chase Bank, N.A. 4 Chase Metrotech Center 3rd Floor Brooklyn, New York 11245-0001 Attention: Physical Receive Department Account: G07251 Send a copy to : State Farm Insurance Companies One State Farm Plaza Bloomington, Illinois 61710 Attn: Corporate Law-Investments, A-3 Christiane M. Stoffer, Associate General Counsel

(5)	Tax Identification Number: 36-6042145 Nominee Name: None.

A-22



	Name and Address of Purchaser	PRINCIPAL AMOUNT OF SERIES A NOTES TO BE PURCHASED	PRINCIPAL AMOUNT OF SERIES B NOTES TO BE PURCHASED
	MUTUAL OF OMAHA INSURANCE COMPANY 4 - Investment Management Mutual of Omaha Plaza Omaha, NE 68175-1011	$0	$5,000,000

(1)	All principal and interest payments on the Notes shall be made by wire transfer of immediately available funds to: JPMorgan Chase Bank ABA #021000021 Private Income Processing For credit to: Mutual of Omaha Insurance Company Account #900-9000200 a/c: G07096 Cusip/PPN: 645869 D#2 Interest Amount: Principal Amount:

(2)	Address for all notices in respect of payment of Principal and Interest, Corporate Actions, and Reorganization Notifications: JPMorgan Chase Bank 14201 Dallas Parkway – 13th Floor Dallas, TX 75254-2917 Attn: Income Processing a/c: G07096

(3)	Address for all other communications (i.e.: Quarterly/Annual reports, Tax filings, Modifications, Waivers regarding the indenture): 4 - Investment Management Mutual of Omaha Insurance Company Mutual of Omaha Plaza Omaha, NE 68175-1011 Email Address for Electronic Document Transmission: privateplacements@mutualofomaha.com

A-23



(4)	Address for Delivery of Notes: JPMorgan Chase Bank 4 Chase Metrotech Center, 3rd Floor Brooklyn, NY 11245-0001 Attention: Physical Receive Department Account # G07096

(5)	Tax Identification Number: 47-0246511 Nominee Name: None.

A-24



	Name and Address of Purchaser	PRINCIPAL AMOUNT OF SERIES A NOTES TO BE PURCHASED	PRINCIPAL AMOUNT OF SERIES B NOTES TO BE PURCHASED
	UNITED OF OMAHA LIFE INSURANCE COMPANY 4 - Investment Management Mutual of Omaha Plaza Omaha, NE 68175-1011	$0	$5,000,000

(1)	All principal and interest payments on the Notes shall be made by wire transfer of immediately available funds to: JPMorgan Chase Bank ABA #021000021 Private Income Processing For credit to: United of Omaha Life Insurance Company Account # 900-9000200 a/c: G07097 Cusip/PPN: 645869 D#2 Interest Amount: Principal Amount:

(2)	Address for all notices in respect of payment of Principal and Interest, Corporate Actions, and Reorganization Notifications: JPMorgan Chase Bank 14201 Dallas Parkway - 13th Floor Dallas, TX 75254-2917 Attn: Income Processing a/c: G07097

(3)	Address for all other communications (i.e.: Quarterly/Annual reports, Tax filings, Modifications, Waivers regarding the indenture): 4 - Investment Management United of Omaha Life Insurance Company Mutual of Omaha Plaza Omaha, NE 68175-1011 Email Address for Electronic Document Transmission: privateplacements@mutualofomaha.com

A-25



(4)	Address for Delivery of Notes: JPMorgan Chase Bank 4 Chase Metrotech Center, 3rd Floor Brooklyn, NY 11245-0001 Attention: Physical Receive Department Account # G07097

(5)	Tax Identification Number: 47-0322111 Nominee Name: None.

A-26



	Name and Address of Purchaser	PRINCIPAL AMOUNT OF SERIES A NOTES TO BE PURCHASED	PRINCIPAL AMOUNT OF SERIES B NOTES TO BE PURCHASED
	AMERICAN UNITED LIFE INSURANCE COMPANY One American Square, Suite 305W Post Office Box 368 Indianapolis, IN 46206	$6,000,000	$0

(1)	All principal and interest payments on the Notes shall be made by wire transfer of immediately available funds to: AMERICAN UNITED LIFE INSURANCE COMPANY Bank of New York ABA #: 021000018 Credit Account: GLA111566 Account Name: American United Life Insurance Company Account #: 186683 P & I Breakdown: (Insert) Re: 645869 D@4; (Insert credit name here) Payments should contain sufficient information to identify the breakdown of principal and interest and should identify the full description of the note(s) and the payment date.

(2)	Address for all notices and communications: American United Life Insurance Company Attn: Mike Bullock, Securities Department One American Square, Suite 305W Post Office Box 368 Indianapolis, IN 46206

(3)	Address for Delivery of Notes: Bank of New York One Wall Street, 3rd Floor New York, NY 10286 Re: American United Life Insurance Company, Account # 186683 Attn: Anthony Saviano/Window A cc: Michele Morris/NYC Physical Desk on all correspondence
(4)	Tax Identification Number: 35-0145825 Nominee Name: None.

A-27



	Name and Address of Purchaser	PRINCIPAL AMOUNT OF SERIES A NOTES TO BE PURCHASED	PRINCIPAL AMOUNT OF SERIES B NOTES TO BE PURCHASED
	THE STATE LIFE INSURANCE COMPANY One American Square, Suite 305W Post Office Box 368 Indianapolis, IN 46206	$4,000,000	$0

(1)	All principal and interest payments on the Notes shall be made by wire transfer of immediately available funds to: THE STATE LIFE INSURANCE COMPANY Bank of New York ABA #: 021000018 Credit Account: GLA111566 Account Name: The State Life Insurance Company Account #: 343761 P & I Breakdown: (Insert) Re: 645869 D@4; (Insert credit name here) Payments should contain sufficient information to identify the breakdown of principal and interest and should identify the full description of the note(s) and the payment date.

(2)	Address for all notices and communications: American United Life Insurance Company Attn: Mike Bullock, Securities Department One American Square, Suite 305W Post Office Box 368 Indianapolis, IN 46206

(3)	Address for Delivery of Notes: Bank of New York One Wall Street, 3rd Floor New York, NY 10286 Re: The State Life Insurance Company, c/o American United Life Insurance Company, Account # 343761 Attn: Anthony Saviano/Window A cc: Michele Morris/NYC Physical Desk on all correspondence

A-28



(4)	Tax Identification Number: 35-0684263 Nominee Name: None.

A-29



	Name and Address of Purchaser	PRINCIPAL AMOUNT OF SERIES A NOTES TO BE PURCHASED	PRINCIPAL AMOUNT OF SERIES B NOTES TO BE PURCHASED
	MODERN WOODMEN OF AMERICA 1701 First Avenue Rock Island, IL 61201	$8,000,000	$0

(1)	All payments on account of Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to: The Northern Trust Company 50 South LaSalle Street Chicago, IL 60675 ABA No. 071-000-152 Account Name: Modern Woodmen of America Account No. 84352 Each such wire transfer shall set forth the name of the Company, the full title (including the applicable coupon rate and final maturity date) of the Notes, a reference to PPN No. 645869 D@4 and the due date and application (as among principal, premium and interest) of the payment being made.

(2)	Address for all notices relating to payments: Modern Woodmen of America Attn: Investment Accounting Department 1701 First Avenue Rock Island, IL 61201 Fax: (309) 793-5688

(3)	Address for all other communications and notices: Modern Woodmen of America Attn: Investment Department 1701 First Avenue Rock Island, IL 61201 investments@modern-woodmen.org Fax: (309) 793-5574

A-30



(4)	Address for Delivery of Notes: Modern Woodmen of America Attn: Douglas A. Pannier 1701 1st Ave Rock Island, IL 61201

(5)	Tax Identification Number: 36-1493430 Nominee Name: None.

A-31

DEFINED TERMS

As used herein, the following terms have the respective meanings set forth below or set forth in the Section hereof following such term:

“Affiliate” shall mean, (a) at any time, and with respect to any Person, any other Person that at such time directly or indirectly through one or more intermediaries Controls, or is Controlled by, or is under common Control with, such first Person and (b) any Person beneficially owning or holding, directly or indirectly, 10% or more of any class of equity or Voting Stock of the Company or any Subsidiary or any Person of which the Company and its Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly, 10% or more of any class of equity or Voting Stock. As used in this definition, “Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of Voting Stock, by contract or otherwise. Unless the context otherwise clearly requires, any reference to an “Affiliate” is a reference to an Affiliate of the Company.

“Anti-Corruption Laws” is defined in Section 5.16(d)(1) .

“Anti-Money Laundering Laws” is defined in Section 5.16(c) .

“Anti-Terrorism Order” shall mean Executive Order No. 13,224 of September 24, 2001 (Executive Order Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism, 66 U.S. Fed. Reg. 49,079 (2001), as amended).

“Asset Disposition” shall mean any Transfer except:

(a) any

(1) Transfer from a Restricted Subsidiary to the Company or a Wholly-Owned Restricted Subsidiary; and

(2) Transfer from the Company to a Wholly-Owned Restricted Subsidiary;

so long as immediately before and immediately after the consummation of any such Transfer and after giving effect thereto, no Default or Event of Default shall exist ( provided that, after the Release Date until the New Security Date, calculation of compliance therewith shall be made as of any date of determination thereof and not as of the end of the immediately preceding fiscal quarter of the Company); and

SCHEDULE B
(to Note Purchase Agreement)

(b) any Transfer made in the ordinary course of business and involving only property that is either (1) inventory held for sale or (2) equipment, fixtures, supplies or materials no longer required in the operation of the business of the Company or any of its Restricted Subsidiaries or that is obsolete.

“Asset Disposition Prepayment Date” is defined in Section 8.8(a) .

“Asset Disposition Prepayment Event” is defined in Section 8.8(a) .

“Bank Credit Agreements” shall mean each of (a) that certain Credit Agreement by and among the Company, PNC Bank, National, Association, as Administrative Agent, the banks party thereto, JPMorgan Chase Bank, N.A., as Syndication Agent, U.S. Bank National Association, TD Bank, N.A., and Wells Fargo Bank, National Association, as Documentation Agents, and PNC Capital Markets LLC, as Lead Arranger, dated as of August 24, 2011, as the same may be amended, restated, increased, refinanced, replaced or otherwise modified or any successor thereto and (b) that certain Credit Agreement by and among the Company, the banks party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and J.P. Morgan Securities LLC, as Lead Arranger, dated as of August 29, 2011, as the same may be amended, restated, increased, refinanced, replaced or otherwise modified or any successor thereto.

“Blocked Person” is defined in Section 5.16(a) .

“Business Day” shall mean (a) for purposes of Section 8.7 only, any day other than a Saturday, a Sunday or a day on which commercial banks in New York, New York are required or authorized to be closed and (b) for the purposes of any other provision of this Agreement, any day other than a Saturday, a Sunday or a day on which commercial banks in Wall, New Jersey or New York, New York are required or authorized to be closed.

“Capital Lease” shall mean, at any time, a lease with respect to which the lessee is required concurrently to recognize the acquisition of an asset and the incurrence of a liability in accordance with GAAP.

“Change of Control” shall mean an event or series of events by which New Jersey Resources Corporation shall cease to own 100% of the issued and outstanding common stock of the Company and 51% of the Voting Stock of the Company.

“CISADA” means the Comprehensive Iran Sanctions, Accountability and Divestment Act.

“Closing” is defined in Section 3 .

B-2

“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder from time to time.

“Collateral Agent” shall mean, (a) prior to the Release Date, the party identified as collateral agent for the holders of the Notes in Section 2.2(a) , and (b) from and after the New Security Date, the party appointed to act as collateral agent for the holders of the Notes pursuant to Section 23.19 .

“Company” shall mean New Jersey Natural Gas Company, a New Jersey corporation, or any Successor Corporation.

“Confidential Information” is defined in Section 20 .

“Consolidated Shareholders’ Equity” shall mean, as of any date of determination, the sum of the amounts under the headings “Common Shareholders’ Equity” and “Preferred Shareholders’ Equity” on the balance sheet, prepared in accordance with GAAP, for the Company and its Restricted Subsidiaries on a consolidated basis.

“Consolidated Tangible Assets” shall mean, as of any date of determination, the total assets of the Company and its Restricted Subsidiaries that would be shown as assets on a consolidated balance sheet of the Company and its Restricted Subsidiaries as of such time determined on a consolidated basis in accordance with GAAP after subtracting therefrom the aggregate amount of all intangible assets of the Company and its Restricted Subsidiaries, including, without limitation, all goodwill, franchises, licenses, patents, trademarks, trade name, copyrights, service marks and brand names.

“Consolidated Tangible Net Worth” shall mean, as of any date of determination, (a) Consolidated Shareholders’ Equity minus (b) the net book amount of all assets of the Company and its Restricted Subsidiaries (after deducting reserves applicable thereto) that would be shown as intangible assets on a balance sheet, prepared in accordance with GAAP, for the Company and its Restricted Subsidiaries on a consolidated basis as of such date of determination.

“Consolidated Total Capitalization” shall mean, as of any date of determination, the sum of (a) Consolidated Total Debt and (b) Consolidated Shareholders’ Equity.

“Consolidated Total Debt” shall mean, as of any date of determination, without duplication, the total of all Debt of the Company and its Restricted Subsidiaries determined on a consolidated basis in accordance with GAAP.

For purposes of determining “Consolidated Total Debt,” there shall be excluded from any such determination Debt of Securitization Subsidiaries that are Restricted Subsidiaries (but not Debt

B-3

of the Company or any other Restricted Subsidiary) incurred pursuant to Receivables Securitization Transactions in an amount for principal and accrued and unpaid interest not to exceed $100,000,000 in the aggregate.

“Controlled Entity” means (i) any of the Subsidiaries of the Company and any of their or the Company’s respective Controlled Affiliates and (ii) if the Company has a parent company, such parent company and its Controlled Affiliates. As used in this definition, “Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

“Debt” as to any Person at any time, shall mean, without duplication, any and all indebtedness, obligations or liabilities (whether matured or unmatured, liquidated or unliquidated, direct or indirect, absolute or contingent, or joint or several) of such Person for or in respect of: (a) borrowed money, (b) amounts raised under or liabilities in respect of any note purchase or acceptance credit facility, (c) reimbursement obligations (contingent or otherwise) under any letter of credit, currency swap agreement, interest rate swap, cap, collar or floor agreement or other interest rate or currency exchange rate management device, (d) any other transaction (including forward sale or purchase agreements, Capital Leases, Synthetic Leases and conditional sales agreements) having the commercial effect of a borrowing of money entered into by such Person to finance its operations or capital requirements (but not including trade payables and accrued expenses incurred in the ordinary course of business which are not represented by a promissory note or other evidence of indebtedness and which are not more than 30 days past due), (e) any Hedging Contract, to the extent that any net indebtedness, obligations or liabilities of such Person in respect thereof constitutes “indebtedness” as determined in accordance with GAAP, (f) any Guaranty of any Hedging Contract described in the immediately preceding clause (e), (g) any Guaranty of Debt for borrowed money, (h) any Hybrid Security described in clause (a) of the definition of Hybrid Security or (i) the mandatory repayment obligation of the issuer of any Hybrid Security described in clause (b) of the definition of Hybrid Security.

“Debt Prepayment Application” shall mean, with respect to any Transfer of property, the application by the Company or its Restricted Subsidiaries of cash in an amount equal to the Net Proceeds Amount with respect to such Transfer to pay Senior Debt of the Company (other than Senior Debt owing to any of its Subsidiaries or any Affiliate and Senior Debt in respect of any revolving credit or similar credit facility providing the Company with the right to obtain loans or other extensions of credit from time to time, except to the extent that in connection with such payment of Senior Debt the availability of credit under such credit facility is permanently reduced by an amount not less than the amount of such proceeds applied to the payment of such Senior Debt); provided that in the course of making such application the Company shall offer to prepay

B-4

each outstanding Note in accordance with Section 8.8 in a principal amount that equals the Ratable Portion for such Note.

“Default” shall mean an event or condition the occurrence or existence of which would, with the lapse of time or the giving of notice or both, become an Event of Default.

“Default Rate” as of any date shall mean that rate of interest that is the greater of (a) (i) with respect to the Series A Notes, 5.58% per annum or (ii) with respect to the Series B Notes, 6.61% per annum or (b) 2.0% per annum over the rate of interest publicly announced by PNC Bank, National Association as its “base” or “prime” rate.

“Disclosure Documents” is defined in Section 5.3 .

“Disposition Value” shall mean, at any time, with respect to any property:

(a) in the case of property that does not constitute Subsidiary Stock, the book value thereof, valued at the time of such disposition in good faith by the Company, and

(b) in the case of property that constitutes Subsidiary Stock, an amount equal to that percentage of book value of the assets of the Subsidiary that issued such stock as is equal to the percentage that the book value of such Subsidiary Stock represents of the book value of all of the outstanding capital stock of such Subsidiary (assuming, in making such calculations, that all securities convertible into such capital stock are so converted and giving full effect to all transactions that would occur or be required in connection with such conversion) determined at the time of the disposition thereof, in good faith by the Company.

“Distribution” shall mean, in respect of any corporation, association or other business entity: (a) dividends or other distributions or payments on capital stock or other equity interests of such corporation, association or other business entity (except distributions in such stock or other equity interests); and (b) the redemption or acquisition of such stock or other equity interests (except when solely in exchange for such stock or other equity interests) unless made, contemporaneously, from the net proceeds of a sale of such stock or other equity interests.

“Electronic Delivery” is defined in Section 7.1(a) .

“Environmental Laws” shall mean any and all Federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including but not limited to those related to Hazardous Materials.

B-5

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.

“ERISA Affiliate” shall mean any trade or business (whether or not incorporated) that is treated as a single employer together with the Company under Section 414 of the Code.

“Event of Default” is defined in Section 11 .

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

“Execution Date” is defined in Section 3 .

“Fair Market Value” shall mean, at any time and with respect to any property, the sale value of such property that would be realized in an arm’s-length sale at such time between an informed and willing buyer and an informed and willing seller (neither being under a compulsion to buy or sell).

“First Mortgage Bond Documents” is defined in Section 23.1 .

“First Mortgage Bonds” shall mean the series of first mortgage bonds designated the (i) “First Mortgage Bonds, Series QQ due 2024” and (ii) “First Mortgage Bonds, Series RR due 2044” to be issued by the Company pursuant to the Original Mortgage Indenture, as security for the related Notes prior to the Release Date.

“GAAP” shall mean generally accepted accounting principles as in effect from time to time in the United States of America.

“Gas Business” shall mean the business of generating, manufacturing, purchasing, transmitting, distributing, selling and/or supplying gas and any by‑products thereof as a public utility.

“Governmental Authority” shall mean

(a) the government of

(1) the United States of America or any State or other political subdivision thereof, or

(2) any jurisdiction in which the Company or any Subsidiary conducts all or any part of its business, or which asserts jurisdiction over any properties of the Company or any Subsidiary, or

B-6

(b) any entity exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to, any such government.

“Governmental Official” means any governmental official or employee, employee of any government‑owned or government‑controlled entity, political party, any official of a political party, candidate for political office, official of any public international organization or anyone else acting in an official capacity.

“Guaranty” shall mean, with respect to any Person, any obligation (except the endorsement in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing or in effect guaranteeing any Debt, dividend or other obligation of any other Person in any manner, whether directly or indirectly, including, without limitation, obligations incurred through an agreement, contingent or otherwise, by such Person: (a) to purchase such Debt or obligation or any property constituting security therefor; (b) to advance or supply funds (1) for the purchase or payment of such Debt or obligation, or (2) to maintain any working capital or other balance sheet condition or any income statement condition of any other Person or otherwise to advance or make available funds for the purchase or payment of such Debt or obligation; (c) to lease properties or to purchase properties or services primarily for the purpose of assuring the owner of such Debt or obligation of the ability of any other Person to make payment of such Debt or obligation; or (d) otherwise to assure the owner of such Debt or obligation against loss in respect thereof. In any computation of the Debt or other liabilities of the obligor under any Guaranty, the Debt obligations that are the subject of such Guaranty shall be assumed to be direct obligations of such obligor.

“Hazardous Materials” shall mean any and all pollutants, toxic or hazardous wastes or any other substances that might pose a hazard to health or safety, the removal of which may be required or the generation, manufacture, refining, production, processing, treatment, storage, handling, transportation, transfer, use, disposal, release, discharge, spillage, seepage or filtration of which is or shall be restricted, prohibited or penalized by any applicable law (including, without limitation, asbestos, urea formaldehyde foam insulation and polychlorinated biphenyls, petroleum, petroleum products, lead based paint, radon gas or similar restricted, prohibited or penalized substances).

“Hedging Contract” shall mean any transaction entered into by the Company or any of its Restricted Subsidiaries with respect to hedging or trading of gas contracts or other commodity, hedging contracts of any kind, or any derivatives or other similar financial instruments of the Company and its Restricted Subsidiaries.

“holder” shall mean, with respect to any Note, the Person in whose name such Note is registered in the register maintained by the Company pursuant to Section 13.1 .

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“Hybrid Security” shall mean any of the following: (a) beneficial interests issued by a trust which constitutes a Subsidiary of the Company or any Restricted Subsidiary substantially all of the assets of which trust are unsecured Debt of the Company or any Restricted Subsidiary or any Subsidiary of the Company or any Restricted Subsidiary or proceeds thereof, and all payments of which Debt are required to be, and are, distributed to the holders of beneficial interests in such trust promptly after receipt by such trust, or (b) any shares of capital stock or other equity interests that, other than solely at the option of the issuer thereof, by their terms (or by the terms of any security into which they are convertible or exchangeable) are, or upon the happening of an event or the passage of time would be, required to be redeemed or repurchased, in whole or in part, or have, or upon the happening of an event or the passage of time would have, a redemption or similar payment.

“Inactive Subsidiary” shall mean, at any time, any Subsidiary of any Person, which Subsidiary (a) does not conduct any business or have operations and (b) does not have total assets with a net book value, as of any date of determination, in excess of $100,000.

“INHAM Exemption” is defined in Section 6.2(e) .

“Institutional Investor” shall mean (a) any original purchaser of a Note, (b) any holder of a Note holding (together with one or more of its affiliates) more than 5% of the aggregate principal amount of any series of the Notes then outstanding (c) any bank, trust company, savings and loan association or other financial institution, any pension plan, any investment company, any insurance company, any broker or dealer, or any other similar financial institution or entity, regardless of legal form and (d) any Related Fund of any holder of any Note.

“Investment” shall mean any investment, made in cash or by delivery of property, by the Company or any of its Restricted Subsidiaries (a) in any Person, whether by acquisition of stock, Debt or other obligation or security, or by loan, Guaranty, advance, capital contribution or otherwise, or (b) in any property.

“Lien” shall mean, with respect to any Person, any mortgage, lien, pledge, charge, security interest, or other encumbrance, or any interest or title of any vendor, lessor, lender or secured party to or of such Person under any conditional sale or other title retention agreement or Capital Lease or Synthetic Lease, upon or with respect to any property or asset of such Person (including in the case of stock, stockholder agreements, voting trust agreements and all similar arrangements).

“Make-Whole Amount” is defined in Section 8.7 .

“Material” shall mean material in relation to the business, operations, affairs, financial condition, assets or properties of the Company and its Restricted Subsidiaries, taken as a whole.

B-8

“Material Adverse Effect” shall mean a material adverse effect on (a) the business, operations, affairs, financial condition, assets or properties of the Company and its Restricted Subsidiaries, taken as a whole, or (b) the ability of the Company to perform its obligations under this Agreement and the Notes, (c) the validity or enforceability of this Agreement or the Notes, (d) prior to the Release Date, the ability of the Company to perform its obligations under the Mortgage Indenture or the First Mortgage Bonds, (e) prior to the Release Date, the validity or the enforceability of the Mortgage Indenture or the First Mortgage Bonds, (f) from and after the New Security Date, the ability of the Company to perform its obligations under the New Indenture or the New First Mortgage Bonds or (g) from and after the New Security Date, the validity or the enforceability of the New Indenture or the New First Mortgage Bonds.

“Memorandum” is defined in Section 5.3 .

“Moody’s” shall mean Moody’s Investors Service, Inc.

“Mortgage Indenture” shall mean the Original Mortgage Indenture, as supplemented and amended by thirty‑four supplemental indentures, as further supplemented and amended by the Supplemental Indenture, and as further supplemented and amended from time to time.

“Mortgage Trustee” shall mean The Bank of New York Mellon Trust Company, N.A., as successor in interest to BNY Midwest Trust Company, under the Mortgage Indenture.

“Multiemployer Plan” shall mean any Plan that is a “multiemployer plan” (as such term is defined in Section 4001(a)(3) of ERISA).

“NAIC Annual Statement” is defined in Section 6.2(a) .

“Net Proceeds Amount” shall mean, with respect to any Transfer of any Property by any Person, an amount equal to the difference of

(a) the aggregate amount of the consideration (valued at the Fair Market Value of such consideration at the time of the consummation of such Transfer) received by such Person in respect of such Transfer, minus

(b) all ordinary and reasonable out-of-pocket costs and expenses actually incurred by such Person in connection with such Transfer.

“Net Tangible Assets” shall mean the amount shown as total assets on the Company’s consolidated balance sheet, less (a) intangible assets including, but without limitation, such items as goodwill, trademarks, trade names, patents, unamortized debt discount and expense and certain

B-9

regulatory assets, and (b) appropriate adjustments, if any, on account of minority interests. Net Tangible Assets shall be determined in accordance with GAAP and practices applicable to the type of business in which the Company is engaged and approved by the independent accountants regularly retained by the Company, and may be determined as of a date not more than 60 days prior to the happening of the event for which such determination is being made.

“New First Mortgage Bonds” is defined in Section 24.1 .

“New Indenture” is defined in Section 24.1 .

“New Indenture Installation” is defined in Section 24.1 .

“New Jersey Resources Corporation” shall mean New Jersey Resources Corporation, a New Jersey corporation.

“New Security Date” is defined in Section 24.1 .

“Notes” is defined in Section 1.1 .

“OFAC” is defined in Section 5.16(a) .

“OFAC Listed Person” is defined in Section 5.16(a) .

“OFAC Sanctions Program” means any economic or trade sanction that OFAC is responsible for administering and enforcing. A list of OFAC Sanctions Programs may be found at http://www.treasury.gov/resource-center/sanctions/Programs/Pages/Programs.aspx .

“Officer’s Certificate” shall mean a certificate of a Senior Financial Officer or of any other officer of the Company whose responsibilities extend to the subject matter of such certificate.

“Original Mortgage Indenture” shall mean an Indenture of Mortgage and Deed of Trust dated April 1, 1952 between the Company and the Mortgage Trustee.

“PBGC” shall mean the Pension Benefit Guaranty Corporation referred to and defined in ERISA or any successor thereto.

“Permitted Related Business Opportunity” shall mean any transaction with another Person (other than any Inactive Subsidiary of New Jersey Resources Corporation) involving business activities or assets reasonably related or complementary to the business of the Company and its Restricted Subsidiaries as conducted at Closing or as may be conducted pursuant to Section 10.10 , including, without limitation, the management and marketing of storage, capacity and transportation

B-10

of gas and other forms of energy, the generation, transmission or storage of gas and other forms of energy, or the access to gas and energy transmission lines, and business initiatives for the conservation and efficiency of gas and energy.

“Person” shall mean an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization or a government or agency or political subdivision thereof.

“Plan” shall mean an “employee benefit plan” (as defined in section 3(3) of ERISA) subject to Title I of ERISA that is or, within the preceding five years, has been established or maintained, or to which contributions are or, within the preceding five years, have been made or required to be made, by the Company or any ERISA Affiliate or with respect to which the Company or any ERISA Affiliate may have any liability.

“Priority Debt” shall mean (without duplication) the sum of (a) unsecured Debt of Restricted Subsidiaries other than (1) Debt owed to the Company or a Wholly-Owned Restricted Subsidiary and (2) Debt outstanding at the time such Person became a Subsidiary provided that such Debt shall not have been incurred in contemplation of such Person becoming a Subsidiary and (b) Debt of the Company or its Restricted Subsidiaries secured by a Lien other than those permitted by paragraphs (a) through (l) of Section 10.2 .

“property” or “properties” shall mean, unless otherwise specifically limited, real or personal property of any kind, tangible or intangible, choate or inchoate.

“Property Reinvestment Application” shall mean, with respect to any Transfer of property, the application of an amount equal to the Net Proceeds Amount with respect to such Transfer to the acquisition by the Company or any Restricted Subsidiary of operating assets of the Company or any Restricted Subsidiary to be used in the principal business of such Person.

“PTE” is defined in Section 6.2(a) .

“Purchaser” is defined in the first paragraph of this Agreement.

“QPAM Exemption” is defined in Section 6.2(d) .

“Ratable Portion” for any Note shall mean an amount equal to the product of (a) the Net Proceeds Amount from a Transfer being applied to a Debt Prepayment Application pursuant to Section 10.5(b) multiplied by (b) a fraction, the numerator of which is the aggregate outstanding principal amount of such Note and the denominator of which is the aggregate outstanding principal

B-11

amount of all Senior Debt of the Company (other than Senior Debt owing to any of its Subsidiaries or any Affiliate).

“Receivables Securitization Transaction” shall mean any transaction pursuant to which the Company or any Restricted Subsidiary Transfers accounts receivable to a Securitization Subsidiary and such Securitization Subsidiary incurs Debt in connection with the purchase of such accounts receivable and grants a security interest in such accounts receivable as collateral security for such Debt; provided that such Debt is non‑recourse to the Company and the other Restricted Subsidiaries other than with respect to representations, warranties and indemnities entered into by the Company or the applicable Restricted Subsidiary in connection with such transaction that are customary in non‑recourse securitization of receivables transactions.

“Related Fund” shall mean, with respect to any holder of any Note, any fund or entity that (a) invests in securities or bank loans and (b) is advised or managed by such holder, the same investment advisor as such holder or by an Affiliate of such holder or such investment advisor.

“Release Capitalization” shall mean the total of all the following items appearing on, or included in, the Company’s consolidated balance sheet: (a) liabilities for indebtedness maturing more than 12 months from the date of determination; and (b) common stock, preferred stock, premium on capital stock, capital surplus, capital in excess of par value, and retained earnings (however the foregoing may be designated), less, to the extent not otherwise deducted, the cost of shares of the Company’s capital stock held in its treasury. Release Capitalization shall be determined in accordance with GAAP and practices applicable to the type of business in which the Company is engaged and approved by independent accountants regularly retained by the Company, and may be determined as of a date not more than 60 days prior to the happening of the event for which the determination is being made.

“Release Date” shall mean, so long as no Default or Event of Default shall have occurred and be continuing, the date that the Company has repaid, redeemed or otherwise retired all of its first mortgage bonds issued under the Mortgage Indenture, excluding (a) the First Mortgage Bonds, (b) any other first mortgage bonds which are outstanding on the date of the Closing or may in the future be issued by the Company subject to substantially similar release provisions and which are concurrently being released and (c) other first mortgage bonds which do not in aggregate principal amount exceed the greater of 5% of the Company’s Net Tangible Assets or 5% of the Company’s Release Capitalization; provided, however, in the event that on the date that the Release Date would otherwise occur, if after giving effect to the release of the First Mortgage Bonds and any other first mortgage bonds which would also be released on such date, a Default or Event of Default would occur, then the Release Date will be postponed until any such Default or Event of Default would not occur after giving effect to such release and the other conditions precedent to the Release Date

B-12

shall have been satisfied. For clarification in determining the existence of a Default or Event of Default on the Release Date (after giving effect to the release), calculation of compliance with the limitations set forth in Section 10.1 shall be made as of the scheduled Release Date and not as of the end of the immediately preceding fiscal quarter of the Company.

“Required Holders” shall mean, at any time, (i) prior to Closing, the Purchasers and (ii) on or after the Closing, the holders of more than 50% in principal amount of the Notes at the time outstanding (exclusive of Notes then owned by the Company or any of its Affiliates).

“Required Rating Agency” means any nationally recognized statistical rating organization, as recognized and accepted as such by the Securities Valuation Office of the National Association of Insurance Commissioners or any successor organization.

“Responsible Officer” shall mean any Senior Financial Officer and any other officer of the Company with responsibility for the administration of the relevant portion of this Agreement.

“Restricted Payment” shall mean any Distribution in respect of the Company or any Restricted Subsidiary (other than on account of capital stock or other equity interests of a Restricted Subsidiary owned legally and beneficially by the Company or another Restricted Subsidiary), including, without limitation, any Distribution resulting in the acquisition by the Company or any Restricted Subsidiary of securities that would constitute treasury stock. For purposes of this Agreement, the amount of any Restricted Payment made in property shall be the greater of (a) the Fair Market Value of such property (determined in good faith by the Board of Directors (or equivalent governing body) of the Person making such Restricted Payment) and (b) the net book value thereof on the books of such Person, in each case determined as of the date on which such Restricted Payment is made.

“Restricted Subsidiary” shall mean each Subsidiary that is either (a) designated as a Restricted Subsidiary on Schedule 5.4 or (b) designated as a Restricted Subsidiary by the Board of Directors of the Company in accordance with Section 10.12 .

“Restricted Subsidiary Stock” shall mean Subsidiary Stock of any Restricted Subsidiary.

“Securities Act” shall mean the Securities Act of 1933, as amended from time to time and the rules and regulations promulgated thereunder from time to time in effect.

“Securitization Subsidiary” shall mean any Restricted Subsidiary that (a) has been created for the sole purpose and business of purchasing and owning the accounts receivable of the Company or any other Restricted Subsidiary, (b) has no Debt outstanding other than Debt incurred in connection with the purchase of such accounts receivable and (c) does not, and by the terms of its

B-13

organizational documents or contractual obligations to which it or its property is then bound can not, own or hold any other assets or participate in any other business or incur any other Debt.

“Senior Debt” shall mean any Debt of the Company other than Debt that is in any manner subordinated in right of payment or security in any respect to the Debt evidenced by the Notes.

“Senior Financial Officer” shall mean the chief financial officer, principal accounting officer, treasurer or comptroller of the Company.

“Series A Notes” is defined in Section 1 .

“Series B Notes” is defined in Section 1 .

“Significant Subsidiary” shall mean at any time each Restricted Subsidiary that would at such time constitute a “significant subsidiary” (as such term is defined in Regulation S-X of the Securities and Exchange Commission as in effect on the date of the Closing) of the Company.

“Source” is defined in Section 6.2 .

“Standard & Poor’s” shall mean Standard & Poor’s Ratings Group, a division of The McGraw-Hill Companies, Inc.

“Subsidiary” shall mean, as to any Person, any corporation, association, or other business entity in which such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries owns sufficient Voting Stock to enable it or them (as a group) ordinarily, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such entity, and any partnership or joint venture if more than a 50% interest in the profits or capital thereof is owned by such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries (unless such partnership or joint venture can and does ordinarily take major business actions without the prior approval of such Person or one or more of its Subsidiaries). Unless the context otherwise clearly requires, any reference to a “Subsidiary” is a reference to a Subsidiary of the Company.

“Subsidiary Stock” shall mean, with respect to any Person, the stock (or any options or warrants to purchase stock or other securities exchangeable for or convertible into stock) of any Subsidiary of such Person.

“Supplemental Indenture” shall mean the Thirty‑Fifth Supplemental Indenture to the Mortgage Indenture, to be entered into between the Company and the Mortgage Trustee, pursuant to which the First Mortgage Bonds shall have been issued, in substantially the form set out in Exhibit 2 .

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“Synthetic Lease” shall mean any lease transaction under which the parties intend that (a) the lease will be treated as an “operating lease” by the lessee pursuant to Statement of Financial Accounting Standards No. 13, as amended, or appropriate successor thereto, and (b) the lessee will be entitled to various tax benefits ordinarily available to owners (as opposed to lessees) of like property.

“Transfer” shall mean, with respect to any Person, any transaction in which such Person sells, conveys, transfers or leases (as lessor) any of its property, including, without limitation, Subsidiary Stock. For purposes of determining the application of the Net Proceeds Amount in respect of any Transfer, the Company may designate any Transfer as one or more separate Transfers each yielding a separate Net Proceeds Amount. In any such case, (a) the Disposition Value of any property subject to each such separate Transfer and (b) the amount of Consolidated Tangible Assets attributable to any property subject to each such separate Transfer shall be determined by ratably allocating the aggregate Disposition Value of, and the aggregate Consolidated Tangible Assets attributable to, all property subject to all such separate Transfers to each such separate Transfer on a proportionate basis.

“Trust Estate” shall mean substantially all operating properties and franchises (other than excepted property, such as cash in hand, chooses in action, securities, rent, and certain materials, supplies, appliances and vehicles) that the Company currently owns or that it will acquire in the future, subject to certain permitted encumbrances and any pre-existing Liens at the time of such acquisition, that serve as collateral under the Mortgage Indenture.

“Unrestricted Subsidiary” shall mean each Subsidiary that is either (a) designated as an Unrestricted Subsidiary on Schedule 5.4 or (b) designated as an Unrestricted Subsidiary by the Board of Directors of the Company in accordance with Section 10.12 . Any Subsidiary which has not been designated as either a Restricted Subsidiary or Unrestricted Subsidiary shall be deemed to be an Unrestricted Subsidiary.

“USA Patriot Act” shall mean United States Public Law 107-56, Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.

“U.S. Economic Sanctions” is defined in Section 5.16(a) .

“Voting Stock” shall mean any securities of any class of a Person whose holders are entitled under ordinary circumstances to vote for the election of directors of such Person (or Persons

B-15

performing similar functions) irrespective of whether at the time securities of any other class shall have or might have voting power by reason of the happening of any contingency.

“Wholly-Owned Restricted Subsidiary” shall mean, at any time, any Restricted Subsidiary one hundred percent (100%) of all of the equity interests (except directors’ qualifying shares) and voting interests of which are owned by any one or more of the Company and the Company’s other Wholly-Owned Restricted Subsidiaries at such time.

B-16

CHANGES IN CORPORATE STRUCTURE

None.

SCHEDULE 4.9

(to Note Purchase Agreement)

DISCLOSURE MATERIALS

None.

SCHEDULE 5.3

(to Note Purchase Agreement)

SUBSIDIARIES OF THE COMPANY AND
OWNERSHIP OF SUBSIDIARY STOCK

None.

SCHEDULE 5.4

(to Note Purchase Agreement)

FINANCIALS

NEW JERSEY NATURAL GAS COMPANY

Annual Reports for the each of the Fiscal Years Ended September 30, 2009 through September 30, 2013.

SCHEDULE 5.5

(to Note Purchase Agreement)

CERTAIN LITIGATION

Actions, suits and proceedings described in Item 3 to New Jersey Resources Corporation’s Annual Report on Form 10‑K for the year ended September 30, 2013.

SCHEDULE 5.8

(to Note Purchase Agreement)

PATENTS, ETC.

None.

SCHEDULE 5.11

(to Note Purchase Agreement)

USE OF PROCEEDS

The Company will apply the proceeds of the sale of the Notes for its general corporate purposes, including but not limited to redeeming or refinancing existing debt and funding capital expenditures.

SCHEDULE 5.14

(to Note Purchase Agreement)

EXISTING DEBT



December 31, 2013
	Rate	Maturity Date	Principal Amt.
First Mortgage Bonds (Secured)

Series HH	5%	12/1/2038	$	12,000,000
Series II	4.5%	8/1/2023	$	10,300,000
Series JJ	4.6%	8/1/2024	$	10,500,000
Series KK	4.9%	10/1/2040	$	15,000,000
Series LL	5.6%	5/15/2018		$125,000,000
Series MM	Var.	9/1/2027	$	9,545,000
Series NN	Var.	8/1/2035	$	41,000,000
Series OO	Var.	8/1/2041	$	46,500,000
Series PP	3.15%	4/15/2028	$	50,000,000
Sub-total First Mortgage Bonds				$319,845,000
Unsecured Senior Notes Capital Lease Obligation - Building Capital Lease Obligation - Meters Commercial Paper (Unsecured) Letters of Credit	4.77%	3/15/14 6/1/21 Var. Dates	$ 60,000,000 $ 20,381,000 $ 37,350,000 $180,500,000 731,000

Total				$618,807,000

SCHEDULE 5.15

(to Note Purchase Agreement)

FORM OF SERIES A NOTE

NEW JERSEY NATURAL GAS COMPANY

3.58% Series A Senior Note due March 13, 2024

No. R-[_______] March 13, 2014

$[____________] PPN[_________]

FOR VALUE RECEIVED, the undersigned, NEW JERSEY NATURAL GAS COMPANY (herein called the “Company” ), a corporation organized and existing under the laws of the State of New Jersey, hereby promises to pay to ________________, or registered assigns, the principal sum of ________________ DOLLARS on March 13, 2024, with interest (computed on the basis of a 360‑day year of twelve 30‑day months) (a) on the unpaid balance thereof at the rate of 3.58% per annum from the date hereof, payable semiannually, on the 15th day of March and September in each year and on March 13, 2024, commencing with the September 15 next succeeding the date hereof, until the principal hereof shall have become due and payable, and (b) to the extent permitted by law on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest and any overdue payment of any Make-Whole Amount (as defined in the Note Purchase Agreement referred to below), payable semiannually as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the Default Rate (as defined in the Note Purchase Agreement referred to below).

Payments of principal of, interest on and any Make-Whole Amount with respect to this Note are to be made in lawful money of the United States of America at the office of U.S. Bank National Association designated pursuant to the Note Purchase Agreement or at such other place as the Company shall have designated by written notice to the holder of this Note as provided in the Note Purchase Agreement referred to below.

This Note is one of a series of 3.58% Series A Senior Notes (herein called the “Notes” ) issued pursuant to that certain Note Purchase Agreement dated as of February 7, 2014 (as from time to time amended, the “Note Purchase Agreement” ), between the Company and the respective Purchasers named therein and is entitled to the benefits thereof. Each holder of this Note will be deemed, by its acceptance hereof, (1) to have agreed to the confidentiality provisions set forth in Section 20 of the Note Purchase Agreement and (2) to have made the representation set forth in Section 6.2 of the Note Purchase Agreement.

This Note is a registered Note and, as provided in the Note Purchase Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written

EXHIBIT 1-A

(to Note Purchase Agreement)

instrument of transfer duly executed, by the registered holder hereof or such holder’s attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company will not be affected by any notice to the contrary.

This Note is subject to prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note Purchase Agreement, but not otherwise.

If an Event of Default, as defined in the Note Purchase Agreement, occurs and is continuing, the principal of this Note may be declared or otherwise become due and payable in the manner, at the price (including any applicable Make-Whole Amount) and with the effect provided in the Note Purchase Agreement.

This Note shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of New York excluding the choice of law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State.

NEW JERSEY NATURAL GAS COMPANY


By	____________________________________

Its Treasurer

E-1-A-2

FORM OF SERIES B NOTE

NEW JERSEY NATURAL GAS COMPANY

4.61% Series B Senior Note due March 13, 2044

No. R-[_______] March 13, 2014

$[____________] PPN[_________]

FOR VALUE RECEIVED, the undersigned, NEW JERSEY NATURAL GAS COMPANY (herein called the “Company” ), a corporation organized and existing under the laws of the State of New Jersey, hereby promises to pay to ________________, or registered assigns, the principal sum of ________________ DOLLARS on March 13, 2044, with interest (computed on the basis of a 360‑day year of twelve 30‑day months) (a) on the unpaid balance thereof at the rate of 4.61% per annum from the date hereof, payable semiannually, on the 15th day of March and September in each year and on March 13, 2044, commencing with the September 15 next succeeding the date hereof, until the principal hereof shall have become due and payable, and (b) to the extent permitted by law on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest and any overdue payment of any Make-Whole Amount (as defined in the Note Purchase Agreement referred to below), payable semiannually as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the Default Rate (as defined in the Note Purchase Agreement referred to below).

This Note is one of a series of 4.61% Series B Senior Notes (herein called the “Notes” ) issued pursuant to that certain Note Purchase Agreement dated as of February 7, 2014 (as from time to time amended, the “Note Purchase Agreement” ), between the Company and the respective Purchasers named therein and is entitled to the benefits thereof. Each holder of this Note will be deemed, by its acceptance hereof, (1) to have agreed to the confidentiality provisions set forth in Section 20 of the Note Purchase Agreement and (2) to have made the representation set forth in Section 6.2 of the Note Purchase Agreement.

This Note is a registered Note and, as provided in the Note Purchase Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written

EXHIBIT 1-B

(to Note Purchase Agreement)

This Note is subject to prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note Purchase Agreement, but not otherwise.

NEW JERSEY NATURAL GAS COMPANY


By	____________________________________

Its Treasurer

E-1-B-2

MORTGAGE

NEW JERSEY NATURAL GAS COMPANY

THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A.,

successor in interest to BNY Midwest Trust Company,

As Trustee

___________________________

THIRTY-FIFTH SUPPLEMENTAL INDENTURE

Dated as of March 1, 2014

___________________________

Supplemental to Indenture of Mortgage and

Deed of Trust Dated April 1, 1952



Prepared by: William M. Libit Chapman and Cutler LLP 111 West Monroe Street Chicago, Illinois 60603	Record and Return to: Richard Reich, Esq. NJR Service Corporation 1415 Wyckoff Road Wall, New Jersey 07719

EXHIBIT 2

(to Note Purchase Agreement)

MORTGAGE

THIRTY-FIFTH SUPPLEMENTAL INDENTURE, dated as of March 1, 2014, between NEW JERSEY NATURAL GAS COMPANY, a corporation organized and existing under the laws of the State of New Jersey (hereinafter called the “Company” ), having its principal office at 1415 Wyckoff Road, Wall, New Jersey, party of the first part, and THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., successor in interest to BNY Midwest Trust Company, a national banking association (hereinafter called the “Trustee” ), having its principal office at 2 North LaSalle Street, Chicago, Illinois, as Trustee under the Indenture of Mortgage and Deed of Trust hereinafter mentioned, party of the second part.

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WHEREAS, thereafter Bonds in the aggregate principal amount of Fifteen Million Dollars ($15,000,000) were issued under and in accordance with the terms of the Original Indenture, as

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WHEREAS, thereafter Bonds in the aggregate principal amount of Ten Million Dollars ($10,000,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Ninth Supplemental Indentures, inclusive, as an eighth series designated “First Mortgage Bonds, 9% Series H due 1992,” herein sometimes called “1992 Series H Bonds,” which 1992 Series H Bonds have since been paid and redeemed by the Company; and

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sometimes called “2009 Series S Bonds,” which 2009 Series S Bonds have since been paid and redeemed by the Company; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Nine Million Five Hundred Forty-Five Thousand Dollars ($9,545,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Nineteenth Supplemental Indentures, inclusive, as an eighteenth series designated “First Mortgage Bonds, 7.05% Series T due 2016,” herein sometimes called “2016 Series T Bonds,” which 2016 Series T Bonds have since been paid and redeemed by the Company; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Twenty-Five Million Dollars ($25,000,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Twentieth Supplemental Indentures, inclusive, as a twentieth series designated “First Mortgage Bonds, 7.50% Series V due 2002,” herein sometimes called “2002 Series V Bonds,” which 2002 Series V Bonds have since been paid and redeemed by the Company; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Ten Million Three Hundred Thousand Dollars ($10,300,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Twenty-First Supplemental Indentures, inclusive, as a twenty-first series designated “First Mortgage Bonds, 5‑3/8% Series W due 2023,” herein sometimes called “2023 Series W Bonds,” which 2023 Series W Bonds have since been paid and redeemed by the Company; and

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WHEREAS, thereafter Bonds in the aggregate principal amount of Ten Million Five Hundred Thousand Dollars ($10,500,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Twenty-Third Supplemental Indentures, inclusive, as a twenty-third series designated “First Mortgage Bonds, 6.25% Series Y due 2024,” herein sometimes called “2024 Series Y Bonds,” which 2024 Series Y Bonds have since been paid and redeemed by the Company; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Twenty-Five Million Dollars ($25,000,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Twenty-Fourth Supplemental Indentures, inclusive, as a twenty-fourth series designated “First Mortgage Bonds, 8.25% Series Z due 2004,” herein sometimes called “2004 Series Z Bonds,” which 2004 Series Z Bonds have since been paid and redeemed by the Company; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Twenty-Five Million Dollars ($25,000,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Twenty-Fifth Supplemental Indentures, inclusive, as a twenty-fifth series designated “First Mortgage Bonds, Adjustable Rate Series AA due 2030,” herein sometimes called “2030 Series AA Bonds,” which 2030 Series AA Bonds have since been paid and redeemed by the Company; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Twenty Million Dollars ($20,000,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Twenty-Sixth Supplemental Indentures, inclusive, as a twenty-seventh series designated “First Mortgage Bonds, 6-7/8 Series CC due 2010,” herein sometimes called “2010 Series CC Bonds,” which 2010 Series CC Bonds have since been paid and redeemed by the Company; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Thirteen Million Five Hundred Thousand Dollars ($13,500,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Twenty-Seventh Supplemental Indentures, inclusive, as a twenty-eighth series designated “First Mortgage Bonds,

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Adjustable Rate Series DD due 2027,” herein sometimes called “2027 Series DD Bonds,” which 2027 Series DD Bonds have since been paid and redeemed by the Company; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Nine Million Five Hundred Forty-Five Thousand Dollars ($9,545,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Twenty-Eighth Supplemental Indentures, inclusive, as a twenty-ninth series designated “First Mortgage Bonds, Adjustable Rate Series EE due 2028,” herein sometimes called “2028 Series EE Bonds,” which 2028 Series EE Bonds have since been paid and redeemed by the Company; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Fifteen Million Dollars ($15,000,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Twenty-Eighth Supplemental Indentures, inclusive, as a thirtieth series designated “First Mortgage Bonds, Adjustable Rate Series FF due 2028,” herein sometimes called “2028 Series FF Bonds,” which 2028 Series FF Bonds have since been paid and redeemed by the Company; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Twelve Million Dollars ($12,000,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Thirtieth Supplemental Indentures, inclusive, as a thirty-second series designated “First Mortgage Bonds, Series HH due 2038,” herein sometimes called “2038 Series HH Bonds,” of which Twelve Million Dollars ($12,000,000) in principal amount are outstanding at the date hereof; and

WHEREAS, thereafter Bonds in the aggregate principal amount of Ten Million Three Hundred Thousand Dollars ($10,300,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Thirty-First Supplemental Indentures, inclusive, as a thirty-third series designated “First Mortgage Bonds, Series II due 2023,” herein sometimes called “2023 Series II Bonds,” of which Ten Million Three Hundred Thousand Dollars ($10,300,000) in principal amount are outstanding at the date hereof; and

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WHEREAS, thereafter Bonds in the aggregate principal amount of Ten Million Five Hundred Thousand Dollars ($10,500,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Thirty-First Supplemental Indentures, inclusive, as a thirty-fourth series designated “First Mortgage Bonds, Series JJ due 2024,” herein sometimes called “2024 Series JJ Bonds,” of which Ten Million Five Hundred Thousand Dollars ($10,500,000) in principal amount are outstanding at the date hereof; and

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WHEREAS, the Company has duly determined to create a forty‑first and a forty-second series of Bonds, to be known as (i) ”First Mortgage Bonds, Series QQ due 2024,” herein sometimes called “2024 Series QQ Bonds,” and (i) ”First Mortgage Bonds, Series RR due 2044,” herein sometimes called “2044 Series RR Bonds,” respectively , to be delivered and pledged to U.S. Bank

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NOW, THEREFORE, THIS INDENTURE WITNESSETH:

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I. FRANCHISES

II. GAS DISTRIBUTION SYSTEMS AND RELATED PROPERTY

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III. CONTRACTS

TO HAVE AND TO HOLD the Trust Estate and all and singular the lands, properties, estates, rights, franchises, privileges and appurtenances hereby mortgaged, conveyed, pledged or assigned,

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or intended so to be, together with all the appurtenances thereto appertaining, unto the Trustee and its successors and assigns forever;

SUBJECT, HOWEVER, as to property hereby conveyed, to Permitted Encumbrances;

ARTICLE I

CERTAIN AMENDMENTS OF INDENTURE

§ 1.01. The following definition be and it hereby is added immediately after the thirty-fifth sentence of § 1.01B:

“‘THIRTY-FIFTH SUPPLEMENTAL INDENTURE’ shall mean the Supplemental Indenture dated as of March 1, 2014, supplemental to the Indenture.”

§ 1.01. The following definitions be and they hereby are added immediately after the forty‑first sentence of § 1.01F:

“‘2024 SERIES QQ BOND’ shall mean one of the First Mortgage Bonds, Series QQ due 2024, issued hereunder.

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‘2044 SERIES RR BOND’ shall mean one of the First Mortgage Bonds, Series RR due 2044, issued hereunder.”

§ 2.11. The following be and it hereby is added at the end of § 2.11:

§ 8.08. The period at the end of the first paragraph of § 8.08 be and it hereby is deleted and the following words and figures be and they hereby are added thereto:

“, and the 2024 Series QQ Bonds and the 2044 Series RR Bonds shall be redeemed at the redemption price specified in § 10.98 and § 10.100, respectively.”

ARTICLE II

2024 SERIES QQ BONDS

The aggregate principal amount of 2024 Series QQ Bonds which may be authenticated and delivered and outstanding under the Indenture is Seventy Million Dollars ($70,000,000).

The 2024 Series QQ Bonds shall be payable to the Collateral Agent, and shall be nontransferable except to a successor of the Collateral Agent, in accordance with the Note Purchase Agreement.

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The 2024 Series QQ Bonds shall be in the form of registered Bonds without coupons of denominations of One Thousand Dollars ($1,000) and any integral multiple thereof which may be authorized by the Company, the issue of a registered Bond without coupons in any such denomination to be conclusive evidence of such authorization. The 2024 Series QQ Bonds shall be dated as provided in § 2.05 of the Indenture. All 2024 Series QQ Bonds shall bear interest from their respective dates, such interest to be payable, upon the terms of and otherwise in accordance with the 2024 Series QQ Bonds, on each date on which interest shall from time to time be payable on the Senior Notes due March 13, 2024; provided, that the obligation of the Company to make payments with respect to the principal of, Make-Whole Amount, if any, and interest on the 2024 Series QQ Bonds shall be fully or partially, as the case may be, satisfied and discharged to the extent that at the time any such payment shall be due, the then due principal of, Make-Whole Amount, if any, and interest on any of the Senior Notes due March 13, 2024 shall have been fully or partially paid from payments made by the Company under the Note Purchase Agreement. The principal of and the Make-Whole Amount, if any, and interest on the 2024 Series QQ Bonds shall be payable at the principal office of the Trustee, in the City of Chicago, Illinois, or, at the option of the Company, at the “principal office” (as indicated pursuant to the Note Purchase Agreement) of the Collateral Agent, in any coin or currency of the United States of America which at the time of payment shall be legal tender for the payment of public and private debts.

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ARTICLE III

REDEMPTION OF THE 2024 SERIES QQ BONDS

§ 3.1. The following § 10.97 and § 10.98 be and they hereby are added to Article Ten of the Indenture:

ARTICLE IV

2044 SERIES RR BONDS

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The aggregate principal amount of 2044 Series RR Bonds which may be authenticated and delivered and outstanding under the Indenture is Fifty-Five Million Dollars ($55,000,000).

The 2044 Series RR Bonds shall be payable to the Collateral Agent, and shall be nontransferable except to a successor of the Collateral Agent, in accordance with the Note Purchase Agreement.

The 2044 Series RR Bonds shall be in the form of registered Bonds without coupons of denominations of One Thousand Dollars ($1,000) and any integral multiple thereof which may be authorized by the Company, the issue of a registered Bond without coupons in any such denomination to be conclusive evidence of such authorization. The 2044 Series RR Bonds shall be dated as provided in § 2.05 of the Indenture. All 2044 Series RR Bonds shall bear interest from their respective dates, such interest to be payable, upon the terms of and otherwise in accordance with the 2044 Series RR Bonds, on each date on which interest shall from time to time be payable on the Senior Notes due March 13, 2044; provided, that the obligation of the Company to make payments with respect to the principal of, Make-Whole Amount, if any, and interest on the 2044 Series RR Bonds shall be fully or partially, as the case may be, satisfied and discharged to the extent that at the time any such payment shall be due, the then due principal of, Make-Whole Amount, if any, and interest on any of the Senior Notes due March 13, 2044 shall have been fully or partially paid from payments made by the Company under the Note Purchase Agreement. The principal of and the Make-Whole Amount, if any, and interest on the 2044 Series RR Bonds shall be payable at the principal office of the Trustee, in the City of Chicago, Illinois, or, at the option of the Company, at the “principal office” (as indicated pursuant to the Note Purchase Agreement) of the Collateral Agent, in any coin or currency of the United States of America which at the time of payment shall be legal tender for the payment of public and private debts.

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ARTICLE V

REDEMPTION OF THE 2044 SERIES RR BONDS

§ 5.1. The following § 10.99 and § 10.100 be and they hereby are added to Article Ten of the Indenture:

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ARTICLE VI

MISCELLANEOUS

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NEW JERSEY NATURAL GAS COMPANY

By___________________________________

Name: [Kathleen T. Ellis]

Title: [Executive Vice President and

Chief Operating Officer]

[Corporate Seal]

ATTEST:

____________________________________

Name: Rhonda M. Figueroa

Title: Corporate Secretary

THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., successor in interest to BNY Midwest Trust Company, as Trustee

By___________________________________

Name: _____________________________

Title: ______________________________

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STATE OF NEW JERSEY )

) SS:

COUNTY OF MONMOUTH )

BE IT REMEMBERED that on this ______ day of ____________, 2014, before me, the subscriber, an Attorney-at-Law of the State of New Jersey, and I hereby certify that I am such an Attorney-at-Law as witness my hand, personally appeared Rhonda M. Figueroa to me known who, being by me duly sworn according to law, on her oath, does depose and make proof to my satisfaction that she is the Corporate Secretary of NEW JERSEY NATURAL GAS COMPANY, the grantor or mortgagor in the foregoing Supplemental Indenture named; that she well knows the seal of said corporation; that the seal affixed to said Supplemental Indenture is the corporate seal of said corporation, and that it was so affixed in pursuance of resolutions of the Board of Directors of said corporation; that [Kathleen T. Ellis] is Executive Vice President and Chief Operating Officer of said corporation; that she saw said Kathleen T. Ellis, as such Executive Vice President and Chief Operating Officer, affix said seal thereto, sign and deliver said Supplemental Indenture, and heard her declare that she signed, sealed and delivered the same as the voluntary act and deed of said corporation, in pursuance of said resolutions, and that this deponent signed her name thereto, at the same time, as attesting witness.

___________________________________

Name: Rhonda M. Figueroa

Title: Corporate Secretary

Subscribed and sworn to before me,

an Attorney-at-Law of the State of

New Jersey, at Wall, New Jersey,

the day and year aforesaid.

_________________________________

Name:

Attorney-at-Law of the

State of New Jersey

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COMMONWEALTH OF PENNSYLVANIA )

) SS:

COUNTY OF __________________ )

BE IT REMEMBERED that on this ______ day of ____________, 2014, before me, the subscriber, a Notary Public of the Commonwealth of Pennsylvania, personally appeared _____________________ to me known who, being by me duly sworn according to law, on his/her oath, does depose and make proof to my satisfaction that s/he is a ________________ of THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., successor in interest to BNY Midwest Trust Company, the grantee or mortgagee and trustee in the foregoing Supplemental Indenture named and heard said _________________ declare that s/he signed and delivered the same as the voluntary act and deed of said corporation, in pursuance of said resolution, and that this deponent signed her/his name thereto, at the same time, as attesting witness.

_________________________________

Name: ___________________________

Title: ____________________________

Subscribed and sworn to before me a

Notary Public of the Commonwealth

of Pennsylvania at Pittsburgh, the day

and year aforesaid.

__________________________________

Notary Public of the

Commonwealth of Pennsylvania

[NOTARY SEAL]

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FORM OF OPINION OF SPECIAL COUNSEL
TO THE COMPANY

The closing opinion of Chapman and Cutler, LLP, special counsel for the Company, which is called for by Section 4.4(a) of the Agreement, shall be dated the date of the Closing and addressed to each Purchaser, shall be satisfactory in scope and form to each Purchaser and shall be to the effect that:

1. The Company is a corporation, duly incorporated, validly existing and in good standing under the laws of the State of New Jersey, has the corporate power and the corporate authority to (a) execute the Note Purchase Agreement, the Supplemental Indenture and the First Mortgage Bond Documents, (b) issue the Notes and the First Mortgage Bonds and (c) perform the Note Purchase Agreement, the Supplemental Indenture, the Notes, the First Mortgage Bonds, the Mortgage Indenture and the First Mortgage Bond Documents and has the full corporate power and the corporate authority to conduct the activities in which it is now engaged and is duly licensed or qualified and, based solely on the attached Officer’s Certificate of the Company, is in good standing as a foreign corporation in each jurisdiction in which the character of the properties owned or leased by it or the nature of the business transacted by it makes such licensing or qualification necessary, other than those jurisdictions as to which the failure to be so licensed, qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

2. The Note Purchase Agreement has been duly authorized by all necessary corporate action on the part of the Company, has been duly executed and delivered by the Company and constitutes the legal, valid and binding contract of the Company enforceable against it in accordance with its terms.

3. The Notes have been duly authorized by all necessary corporate action on the part of the Company, have been duly executed and delivered by the Company and constitute the legal, valid and binding obligations of the Company enforceable against it in accordance with their terms.

4. Assuming the due authorization, execution and delivery of the Original Mortgage Indenture and the supplements thereto (other than the Supplemental Indenture) by the Company and the Mortgage Trustee, the Mortgage Indenture is valid and legally binding on the Company and enforceable against it in accordance with its terms.

EXHIBIT 4.4(a)

(to Note Purchase Agreement)

5. The Supplemental Indenture has been duly authorized by all necessary corporate action on the part of the Company, has been duly executed and delivered by the Company, and constitutes the legal, valid and binding contract of the Company enforceable against it in accordance with its terms.

6. The First Mortgage Bonds delivered on the date hereof have been authorized by all necessary corporate action on the part of the Company, have been duly executed by the Company, and assuming the due authentication thereof by the Mortgage Trustee under the Mortgage Indenture, have been duly issued, and constitute the legal, valid and binding obligations of the Company enforceable against it in accordance with their terms and are entitled to the benefits and security of the Mortgage Indenture, in accordance with their terms.

7. The First Mortgage Bond Documents have been duly authorized by all necessary corporate action on the part of the Company, have been duly executed and delivered by the Company, and constitute the legal, valid and binding obligations of the Company enforceable against it in accordance with their terms.

8. The offer, issuance and sale of the Notes and the issuance of the First Mortgage Bonds have been duly authorized and approved by the New Jersey Board of Public Utilities (the “Board” ) and such authorization and approval is still in full force and effect; no other approval, consent or withholding of objection on the part of, or filing, registration or qualification with, any Governmental Authority, Federal or state, is necessary in connection with (a) the execution or delivery by the Company of the Note Purchase Agreement, the Supplemental Indenture, the Notes, the First Mortgage Bonds or the First Mortgage Bond Documents or (b) the performance by the Company of the Note Purchase Agreement, the Supplemental Indenture, the Notes, the First Mortgage Bonds, the First Mortgage Bond Documents or the Mortgage Indenture, except for such approvals of the Board of the Original Mortgage Indenture and the supplements thereto (other than the Supplemental Indenture which has been duly authorized and approved by the Board) and for such filings as may be necessary to perfect or maintain the perfection of the Lien created by the Mortgage Indenture.

9. The execution and delivery of the Note Purchase Agreement, the Supplemental Indenture, the Notes, the First Mortgage Bonds and the First Mortgage Bond Documents, by the Company do not, and the performance of the Note Purchase Agreement, the Supplemental Indenture, the Notes, the First Mortgage Bonds, the First Mortgage Bond Documents and the Mortgage Indenture as therein contemplated will not (a) violate any provision of any applicable law, rule or regulation to which the Company is subject or any

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order of any court, or of any other agency of government presently in effect to which the Company is subject, (b) violate the Certificate of Incorporation or By‑Laws of the Company, (c) result in a breach of, or constitute a default under any indenture, mortgage, contract or other instrument listed on Exhibit B attached hereto, to which the Company is a party or by which the Company or any of its properties and assets are bound, (d) result in the creation or imposition of any Lien on, or security interest in, any assets of the Company (other than the Lien of the Mortgage Indenture) or (e) result in a breach of, or constitute a default under, any order, judgment, decree or ruling of any court binding on the Company.

10. To our knowledge, the Company is not an “investment company,” or a company “controlled” by an “investment company,” within the meaning of the Investment Company Act of 1940, as amended. The issuance of the Notes and the First Mortgage Bonds by the Company is not subject to regulation under the Public Utility Holding Company Act of 2005.

11. Neither the issuance of the Notes and the First Mortgage Bonds nor the use of the proceeds of the sale of the Notes in accordance with the provisions of and contemplated by the Note Purchase Agreement violate Regulation T, U or X of the Board of Governors of the Federal Reserve System.

12. The issuance, sale and delivery of the Notes and the issuance of the First Mortgage Bonds under the circumstances contemplated by the Note Purchase Agreement do not, under existing law, require the registration of the Notes or the First Mortgage Bonds under the Securities Act or the qualification of an indenture under the Trust Indenture Act of 1939, as amended, it being understood that no opinion is expressed as to any subsequent resale of any Note or the First Mortgage Bonds issued on the date hereof.

13. The provisions of the Supplemental Indenture and the Mortgage Indenture are effective to create, in favor of the Mortgage Trustee, for the benefit of the holders of the First Mortgage Bonds, a legal, valid, and enforceable lien and security interest in all right, title, and interest of the Company in the Trust Estate, entitling such holders to an equal and ratable share of such Trust Estate with the other holders of bonds under the Mortgage Indenture (except as otherwise provided in the Mortgage Indenture and except to the extent that enforcement of such lien may be limited by the effect of certain laws and judicial decisions upon the remedies provided for in the Mortgage Indenture, which, however, do not make the remedies afforded inadequate for the practical realization of the security and benefits provided by the Mortgage Indenture).

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14. The Mortgage Indenture and any necessary related financing statements have been duly filed and recorded in all jurisdictions in which it is necessary for such instruments to be filed and recorded in order to constitute a lien of record on the property subject thereto. No other filing or recordation is presently necessary in order to perfect the lien of the Mortgage Indenture on such properties.

15. To the best of our knowledge, all fees or taxes in connection with the filing and recording of the Mortgage Indenture have been paid.

With respect to matters of fact on which such opinion is based, such counsel shall be entitled to rely on appropriate certificates of public officials, TD Securities (USA) LLC, U.S. Bancorp Investments, Inc., J.P. Morgan Securities LLC, and officers of the Company and upon representations of the Company and the Purchasers delivered in connection with the issuance and sale of the Notes.

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FORM OF OPINION OF SPECIAL COUNSEL
TO THE PURCHASERS

The closing opinion of Schiff Hardin LLP, special counsel to the Purchasers, called for by Section 4.4(b) of the Agreement, shall be dated the date of the Closing and addressed to the Purchasers, shall be satisfactory in form and substance to the Purchasers and shall be to the effect that:

1. The Company is a corporation validly existing and in good standing under the laws of the State of New Jersey.

2. The Agreement and the Notes being delivered on the date hereof constitute the legal, valid and binding contracts of the Company, enforceable against the Company in accordance with their respective terms.

3. The issuance, sale and delivery of the Notes being delivered on the date hereof under the circumstances contemplated by this Agreement do not, under existing law, require the registration of such Notes under the Securities Act or the qualification of an indenture under the Trust Indenture Act of 1939, as amended.

The opinion of Schiff Hardin LLP shall also state that the opinion of Chapman and Cutler LLP is satisfactory in scope and form to Schiff Hardin LLP and that, in their opinion, the Purchasers are justified in relying thereon.

In rendering the opinion set forth in paragraph 1 above, Schiff Hardin LLP may rely, as to matters referred to in paragraph 1, solely upon an examination of the Certificate of Incorporation certified by, and a certificate of good standing of the Company from, the Secretary of State of the State of New Jersey. The opinion of Schiff Hardin LLP is limited to the laws of the State of New York and the Federal laws of the United States.

With respect to matters of fact upon which such opinion is based, Schiff Hardin LLP may rely on appropriate certificates of public officials and officers of the Company and upon representations of the Company and the Purchasers delivered in connection with the issuance and sale of the Notes.

42188-0000

CH2\14203070.1

EXHIBIT 4.4(b)

(to Note Purchase Agreement)

EXHIBIT 31.1

CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Laurence M. Downes, certify that:


1)	I have reviewed this quarterly report on Form 10-Q of New Jersey Resources Corporation;


2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4)	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5)	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.



Date:	May 7, 2014	By:	/s/ Laurence M. Downes
			Laurence M. Downes
			Chairman, President & Chief Executive Officer

EXHIBIT 31.2

CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Glenn C. Lockwood, certify that:


1)	I have reviewed this quarterly report on Form 10-Q of New Jersey Resources Corporation;


2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4)	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5)	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.



Date:	May 7, 2014	By:	/s/ Glenn C. Lockwood
			Glenn C. Lockwood
			Executive Vice President and Chief Financial Officer

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, Laurence M. Downes hereby certifies as follows:


(a)	I am the Chief Executive Officer of New Jersey Resources Corporation;


(b)	To the best of my knowledge, this quarterly report on Form 10-Q for the period ended March 31, 2014 , fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and


(c)	To the best of my knowledge, based upon a review of this report, the information contained in this periodic report fairly presents, in all material respects, the financial condition and results of operations of the issuer.



Date:	May 7, 2014	By:	/s/ Laurence M. Downes
			Laurence M. Downes
			Chairman, President and Chief Executive Officer

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, Glenn C. Lockwood hereby certifies as follows:


(a)	I am the Chief Financial Officer of New Jersey Resources Corporation;


(b)	To the best of my knowledge, this quarterly report on Form 10-Q for the period ended March 31, 2014 , fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and


(c)	To the best of my knowledge, based upon a review of this report, the information contained in this periodic report fairly presents, in all material respects, the financial condition and results of operations of the issuer.



Date:	May 7, 2014	By:	/s/ Glenn C. Lockwood
			Glenn C. Lockwood
			Executive Vice President and Chief Financial Officer