SOUTH JERSEY INDUSTRIES INC - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2004

OR

[ ] 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 1-6364

SOUTH JERSEY INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)

New Jersey 22-1901645
(State of incorporation) (IRS employer identification no.)

1 South Jersey Plaza, Folsom, NJ 08037
(Address of principal executive offices, including zip code)

(609) 561-9000
(Registrant's telephone number, including area code)

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 [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]

As of August 2, 2004, there were 13,792,371 shares of the registrant's common
stock outstanding.

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SJI-1

PART I -- FINANCIAL INFORMATION

Item 1. Financial Statements-- See Pages 3 through 23

SJI-2

SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In Thousands Except for Per Share Data)

Three Months Ended
June 30,
--------------------------
2004 2003
----------- ------------

Operating Revenues:
Utility $ 70,039 $ 68,164
Nonutility 64,535 38,051
----------- ------------

Total Operating Revenues 134,574 106,215
----------- ------------

Operating Expenses:
Cost of Gas Sold - Utility 42,477 41,965
Cost of Sales - Nonutility 55,942 34,682
Operations 14,794 12,425
Maintenance 1,439 1,482
Depreciation 6,757 5,932
Energy and Other Taxes 2,088 2,207
----------- ------------

Total Operating Expenses 123,497 98,693
----------- ------------

Operating Income 11,077 7,522

Other Income and Expense:
Equity in Affiliated Companies 267 192
Other 137 65
----------- ------------

Total Other Income and Expense 404 257
----------- ------------

Interest Charges 4,971 4,530

Income Before Income Taxes 6,510 3,249

Income Taxes 2,590 1,293
----------- ------------

Income from Continuing Operations 3,920 1,956

Discontinued Operations - Net (142) (154)

----------- ------------

Net Income Applicable to Common Stock $ 3,778 $ 1,802
=========== ============

Basic Earnings Per Common Share:
Continuing Operations $ 0.29 $ 0.16
Discontinued Operations - Net (0.01) (0.01)

Basic Earnings Per Common Share $ 0.28 $ 0.15
=========== ============

Average Shares of Common Stock Outstanding - Basic 13,730 12,387

Diluted Earnings Per Common Share:
Continuing Operations $ 0.28 $ 0.16
Discontinued Operations - Net (0.01) (0.01)

----------- ------------

Diluted Earnings Per Common Share $ 0.27 $ 0.15
=========== ============

Average Shares of Common Stock Outstanding - Diluted 13,848 12,489

Dividends Declared per Common Share $ 0.405 $ 0.385
=========== ============

The accompanying footnotes are an integral part of the financial statements.

SJI-3

SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In Thousands Except for Per Share Data)

Six Months Ended
June 30,
--------------------------
2004 2003
----------- ------------

Operating Revenues:
Utility $ 265,317 $ 284,304
Nonutility 174,731 101,737
----------- ------------

Total Operating Revenues 440,048 386,041
----------- ------------

Operating Expenses:
Cost of Gas Sold - Utility 173,868 197,032
Cost of Sales - Nonutility 156,931 90,899
Operations 29,618 24,666
Maintenance 2,784 2,940
Depreciation 13,357 11,767
Energy and Other Taxes 6,960 7,321
----------- ------------

Total Operating Expenses 383,518 334,625
----------- ------------

Operating Income 56,530 51,416

Other Income and Expense:
Equity in Affiliated Companies 423 379
Other 858 (50)
----------- ------------

Total Other Income and Expense 1,281 329
----------- ------------

Interest Charges 9,932 9,280

Income Before Income Taxes 47,879 42,465

Income Taxes 19,500 17,672
----------- ------------

Income from Continuing Operations 28,379 24,793

Discontinued Operations - Net (282) (302)
Cumulative Effect of a Change in Accounting
Principle - Net - (426)
----------- ------------

Net Income Applicable to Common Stock $ 28,097 $ 24,065
=========== ============

Basic Earnings Per Common Share:
Continuing Operations $ 2.09 $ 2.01
Discontinued Operations - Net (0.02) (0.03)
Cumulative Effect of a Change in Accounting
Principle - Net - (0.03)
----------- ------------

Basic Earnings Per Common Share $ 2.07 $ 1.95
=========== ============

Average Shares of Common Stock Outstanding - Basic 13,561 12,316

Diluted Earnings Per Common Share:
Continuing Operations $ 2.08 $ 2.00
Discontinued Operations - Net (0.02) (0.03)
Cumulative Effect of a Change in Accounting
Principle - Net - (0.03)
----------- ------------

Diluted Earnings Per Common Share $ 2.06 $ 1.94
=========== ============

Average Shares of Common Stock Outstanding - Diluted 13,655 12,408

Dividends Declared per Common Share $ 0.810 $ 0.770
=========== ============

The accompanying footnotes are an integral part of the financial statements.

SJI-4

SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(In Thousands)

Three Months Ended
June 30,
---------------------

2004 2003
---------- ----------

Net Income Applicable to Common Stock $ 3,778 $ 1,802
---------- ----------

Other Comprehensive (Loss) Income, Net of Tax:*

Change in Fair Value of Investments (25) 193
Change in Fair Value of Derivatives - Other 682 1,643
Change in Fair Value of Derivatives - Energy Related 2,784 (323)
----------- ---------

Other Comprehensive Income - Net of Tax* 3,441 1,513
----------- ---------

Comprehensive Income $ 7,219 $ 3,315
=========== =========

Six Months Ended
June 30,
---------------------
2004 2003
----------- ---------

Net Income Applicable to Common Stock $ 28,097 $ 24,065
----------- ---------

Other Comprehensive (Loss) Income, Net of Tax:*

Change in Fair Value of Investments (301) 153
Change in Fair Value of Derivatives - Other 429 (218)
Change in Fair Value of Derivatives - Energy Related 2,875 (186)
----------- ---------

Other Comprehensive Income(Loss) - Net of Tax* 3,003 (251)
----------- ---------

Comprehensive Income $ 31,100 $ 23,814
=========== =========

* Determined using a combined statutory tax rate of 40.85%.
The accompanying footnotes are an integral part of the financial statements.

SJI-5

SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands)

Six Months Ended
June 30,
------------------------------
2004 2003
------------- -------------

Cash Flows from Operating Activities:
Net Income Applicable to Common Stock $ 28,097 $ 24,065
Adjustments to Reconcile Net Income to Cash Flows
Provided by Operating Activities:
Depreciation and Amortization 14,523 12,942
Unrealized Loss(Gain) on Derivatives - Energy Related 484 (776)
Provision for Losses on Accounts Receivable 461 936
Revenues and Fuel Costs Deferred - Net 12,784 19,653
Deferred and Non-Current Income Taxes and Credits - Net 5,933 846
Environmental Remediation Costs - Net (1,227) 3,067
Gas Plant Cost of Removal (400) (306)
Changes in:
Accounts Receivable 34,048 18,148
Inventories 9,511 (6,766)
Other Prepayments and Current Assets 641 693
Prepaid and Accrued Taxes - Net (14,307) 4,092
Accounts Payable and Other Accrued Liabilities 15,769 11,152
Other - Net (6,501) (3,173)
------------- -------------

Net Cash Provided by Operating Activities 99,816 84,573
------------- -------------

Cash Flows from Investing Activities:
Investment in Affiliate (22) (183)
Affiliate Repayment of Loan 600 395
Proceeds from Sale of (Purchase of) Restricted Investments 4,022 (1,341)
Capital Expenditures, Cost of Removal and Salvage (33,750) (29,060)
------------- -------------

Net Cash Used in Investing Activities (29,150) (30,189)
------------- -------------

Cash Flows from Financing Activities:
Net Repayments of Lines of Credit (72,400) (41,300)
Proceeds from Issuance of Long-Term Debt - 6,000
Principal Repayments of Long-Term Debt (6,773) (15,658)
Dividends on Common Stock (11,053) (9,509)
Proceeds from Sale of Common Stock 20,486 6,497
Payments for Issuance of Long-Term Debt (42) (70)
------------- -------------

Net Cash Used in Financing Activities (69,782) (54,040)
------------- -------------

Net Increase in Cash and Cash Equivalents 884 344
Cash and Cash Equivalents at Beginning of Period 4,364 4,291
------------- -------------

Cash and Cash Equivalents at End of Period $ 5,248 $ 4,635
============= =============

The accompanying footnotes are an integral part of the financial statements.

SJI-6

SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)

(Unaudited)
June 30, December 31,
---------------------------------- ---------------
2004 2003 2003
--------------- ---------------- ---------------

Assets

Property, Plant and Equipment:
Utility Plant, at original cost $ 924,497 $867,801 $ 894,654
Accumulated Depreciation (218,042) (202,460) (209,831)
Nonutility Property and Equipment, at cost 67,435 63,352 65,768
Accumulated Depreciation (3,207) (1,550) (2,326)
--------------- ---------------- ---------------

Property, Plant and Equipment - Net 770,683 727,143 748,265
--------------- ---------------- ---------------

Investments:
Available-for-Sale Securities 4,654 3,712 4,550
Restricted - 3,421 4,022
Investment in Affiliates 2,213 3,116 2,191
--------------- ---------------- ---------------

Total Investments 6,867 10,249 10,763
--------------- ---------------- ---------------

Current Assets:
Cash and Cash Equivalents 5,248 4,635 4,364
Accounts Receivable 97,739 101,265 98,221
Unbilled Revenues 8,822 7,489 42,892
Provision for Uncollectibles (3,522) (3,366) (3,565)
Natural Gas in Storage, average cost 58,606 48,832 69,596
Materials and Supplies, average cost 5,091 3,580 3,612
Prepaid Taxes 17,361 10,974 2,661
Prepaid Pension 18,046 - 19,690
Derivatives - Energy Related Assets 24,380 20,621 23,472
Derivatives - Other 730 803 565
Other Prepayments and Current Assets 5,271 6,068 4,268
--------------- ---------------- ---------------

Total Current Assets 237,772 200,901 265,776
--------------- ---------------- ---------------

Regulatory and Other Non-Current Assets:
Other Regulatory Assets 75,115 83,853 75,780
Derivatives - Energy Related Assets 3,328 4,157 4,212
Derivatives - Other - 37 -
Unamortized Debt Discount and Expense 7,056 6,388 7,298
Other 17,280 14,607 14,109
--------------- ---------------- ---------------

Total Regulatory and Other Non-Current Assets 102,779 109,042 101,399
--------------- ---------------- ---------------

Total Assets $ 1,118,101 $ 1,047,335 $ 1,126,203
=============== ================ ===============

The accompanying footnotes are an integral part of the financial statements.

SJI-7

SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)

(Unaudited)
June 30, December 31,
---------------------------------- ---------------
2004 2003 2003
--------------- ---------------- ---------------

Capitalization and Liabilities

Common Equity:
Common Stock $ 17,175 $ 15,515 $ 16,536
Premium on Common Stock 206,200 156,709 186,316
Accumulated Other Comprehensive Income (Loss) 6,474 (6,153) 3,471
Retained Earnings 108,682 92,558 91,638
--------------- ---------------- ---------------

Total Common Equity 338,531 258,629 297,961
--------------- ---------------- ---------------

Preferred Stock of Subsidiary 1,690 1,690 1,690
--------------- ---------------- ---------------

Long-Term Debt 302,008 266,713 308,781
--------------- ---------------- ---------------

Total Capitalization 642,229 527,032 608,432
--------------- ---------------- ---------------

Current Liabilities:
Notes Payable 40,400 125,200 112,800
Current Maturities of Long-Term Debt 5,273 8,423 5,273
Accounts Payable 89,454 80,509 80,254
Customer Deposits 8,328 7,143 7,957
Environmental Remediation Costs 6,031 5,076 7,865
Taxes Accrued 12,333 13,518 11,940
Derivatives - Energy Related Liabilities 8,653 11,003 18,809
Derivatives - Other 1,612 235 1,505
Deferred Income Taxes - Net 10,095 19,431 11,537
Interest Accrued and Other Current Liabilities 16,709 16,130 10,511
--------------- ---------------- ---------------

Total Current Liabilities 198,888 286,668 268,451
--------------- ---------------- ---------------

Deferred Credits and Other Non-Current Liabilities:
Deferred Income Taxes - Net 131,123 103,355 121,922
Investment Tax Credits 3,300 3,645 3,471
Pension and Other Postretirement Benefits 12,610 18,183 12,431
Environmental Remediation Costs 50,018 47,051 47,001
Derivatives - Energy Related Liabilities 2,041 1,908 1,875
Derivatives - Other 1,091 2,965 1,853
Regulatory Liabilities 66,791 47,522 49,970
Other 10,010 9,006 10,797
--------------- ---------------- ---------------

Total Deferred Credits
and Other Non-Current Liabilities 276,984 233,635 249,320
--------------- ---------------- ---------------

Commitments and Contingencies (Note 9)

Total Capitalization and Liabilities $ 1,118,101 $ 1,047,335 $ 1,126,203
=============== ================ ===============

The accompanying footnotes are an integral part of the financial statements.

SJI-8

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1. Summary of Significant Accounting Policies:

Consolidation - The condensed consolidated financial statements include
the accounts of South Jersey Industries, Inc. (SJI) and its subsidiaries. We
eliminated all significant intercompany accounts and transactions. SJI
reclassified some previously reported amounts to conform with current year
classifications. In our opinion, the condensed consolidated financial statements
reflect all adjustments, which are of a normal recurring nature, needed to
fairly present SJI's financial position and operating results at the dates and
for the periods presented. Our businesses are subject to seasonal fluctuations
and, accordingly, this interim financial information should not be the basis for
estimating the full year's operating results. These financial statements should
be read in conjunction with SJI's 2003 Form 10K and annual report.

Equity Investments - We classify equity investments purchased as
long-term investments as Available-for-Sale Securities on our condensed
consolidated balance sheets and carry them at their estimated fair value with
any changes in unrealized gains or losses included in Accumulated Other
Comprehensive Income (Loss). SJI, either directly or through its wholly owned
subsidiaries, currently holds a 50% non-controlling interest in two affiliated
companies and accounts for the investments under the equity method. We include
the operations of these affiliated companies in the statements of condensed
consolidated income under the caption, Equity in Affiliated Companies.

Estimates and Assumptions - We prepare our financial statements to
conform with generally accepted accounting principles. Management makes
estimates and assumptions that affect the amounts reported in the financial
statements and related disclosures. Therefore, actual results could differ from
those estimates.

Regulation - South Jersey Gas Company (SJG) is subject to the rules and
regulations of the New Jersey Board of Public Utilities (BPU). We maintain our
accounts according to the BPU's prescribed Uniform System of Accounts. SJG
follows the accounting for regulated enterprises prescribed by the Financial
Accounting Standards Board (FASB) Statement No. 71, "Accounting for the Effects
of Certain Types of Regulation." In general, Statement No. 71 allows deferral of
certain costs and creation of certain obligations when it is probable that these
items will be recovered from or refunded to customers in future periods.

Capitalized Interest - SJG capitalizes interest on construction at its
BPU-approved rate of return on rate base. SJG's capitalized interest totaled
$0.2 million and $0.1 million for the three months and $0.3 million in each of
the six months ended June 30, 2004 and 2003, respectively. Marina Energy LLC
(Marina) also capitalized interest during the construction of its thermal energy
facility based on the actual cost of borrowed funds. Marina's capitalized
interest totaled $0.7 million and $1.8 million for the three and six months
ended June 30, 2003, respectively. SJG's amounts are included in Utility Plant
and Marina's amounts are included in Nonutility Property and Equipment on the
condensed consolidated balance sheets. All capitalized interest is reflected on
the condensed consolidated statements of income as a reduction of Interest
Charges.

SJI-9

Energy Trading Activities and Derivative Instruments - South Jersey
Resources Group, LLC (SJRG) manages its portfolio of purchases and sales, as
well as natural gas in storage, using a variety of instruments that include
forward contracts, swap agreements, option contracts and futures contracts.
SJRG's contracts are accounted for at fair value under FASB Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended.
Under this method of accounting, SJRG measures the fair value of the contracts
and records these as Derivatives - Energy Related Assets or Derivatives - Energy
Related Liabilities on our condensed consolidated balance sheets. For the three
months ended June 30, 2004 and 2003, we recorded the net unrealized pre-tax
losses of $(2.4) million and $(.7) million, respectively. For the six months
ended June 30, 2004, we recorded a net unrealized pre-tax (loss)gain of $(.5)
million and $.8 million, respectively. These unrealized losses and gains on
energy-related contracts, determined under the mark-to-market method, are
included in Operating Revenues - Nonutility, except to the extent that they are
designated cash flow hedges and are recorded through Accumulated Other
Comprehensive Income (Loss).

On October 25, 2002, the Emerging Issues Task Force (EITF) rescinded
its consensus in Issue No. 98-10, "Accounting for Contracts Involved in Energy
Trading and Risk Management Activities," effective for transactions entered into
after that date, with a cumulative effect adjustment for previously existing
transactions to be recognized in the quarter beginning January 1, 2003. As a
result of the rescission, SJI only marks-to-market those energy-related
contracts that meet the definition of a derivative in Statement No. 133.
Energy-related contracts that do not meet the definition of a derivative are
accounted for using the accrual basis of accounting. The effect of this change
in accounting resulted in a net charge of $426,338 shown as a Cumulative Effect
of a Change in Accounting Principle - Net in 2003. Contracts to hedge physical
gas in storage are designated as cash flow hedges and we account for them
accordingly. We include these balances on the condensed consolidated balance
sheet under the caption Derivatives - Other. At inception, and as of June 30,
2004, we calculated these hedges to be highly effective; therefore, we record
the offset, net of taxes, in Accumulated Other Comprehensive Income (Loss).

In November 2001, we entered into two interest rate swap contracts. The
first swap effectively provides us with a fixed interest rate of 4.08% on $20
million of Marina's tax-exempt Series A variable rate bonds for a 10-year
period. The second swap effectively fixed the interest rate on $9.0 million of
Marina's taxable Series B variable rate bonds at 4.55% for a 6-year period. The
notional amount of this second swap decreases by $3.0 million per year beginning
in December 2005.

In January 2002, Marina issued an additional $10.0 million of taxable
Series B variable rate bonds. In April 2002, we entered into an interest rate
swap contract that effectively fixed the interest rate on these bonds at 4.62%
for a 4-year period. The notional amount of this swap decreased to $8.0 million
in December 2003, then decreases to $3.9 million in December 2004, and
terminates in December 2005.

SJI-10

In May 2003, SJG entered into an interest rate swap contract that
effectively fixed the interest rate at 2.24% through May 20, 2004 on $20.0
million of SJG's debt outstanding under its bank credit agreements.

We entered into interest rate swap agreements to hedge the exposure to
increasing rates with respect to our variable rate debt. The differential to be
paid or received as a result of these swap agreements is accrued as interest
rates change and is recognized as an adjustment to interest expense. These
interest rate swaps are accounted for as cash flow hedges. As of June 30, 2004
and 2003, the market value of these swaps was $(1.1) million and $(2.9) million,
respectively, which represents the amount we would have to pay the counterparty
to terminate these contracts as of those dates. These balances are included on
the condensed consolidated balance sheets under the caption Derivatives - Other.
As of June 30, 2004 and 2003, we calculated the swaps to be highly effective;
therefore, we record the offset to the hedge, net of taxes, in Accumulated Other
Comprehensive Income (Loss).

We determined the fair value of derivative investments by reference to
quoted market prices of listed contracts, published quotations or quotations
from independent parties.

Stock Compensation - Prior to 2003, SJI valued stock options to
employees using the intrinsic value method. Effective in 2003, SJI adopted the
policy of accounting for this compensation using the fair value based method on
a prospective basis. At this time, SJI has no stock options outstanding.

New Accounting Pronouncements - In January 2003, SJI adopted FASB
Statement No. 143, "Accounting for Asset Retirement Obligations," which
establishes accounting and reporting standards for legal obligations associated
with the retirement of tangible long-lived assets and the associated asset
retirement costs. SJG has certain easements and right-of-way agreements that
qualify as legal obligations under Statement No. 143. However, it is our intent
to maintain these agreements in perpetuity; therefore, no change in SJG's
current accounting practices is required related to these agreements.

SJG recovers certain asset retirement costs through rates charged to
customers as an approved component of depreciation expense. As of June 30, 2004
and 2003, SJG had accrued amounts in excess of actual removal costs incurred
totaling $47.3 million and $43.5 million, respectively, which, in accordance
with Statement No. 143, are recorded as Regulatory Liabilities on the condensed
consolidated balance sheets. The adoption of this statement did not materially
affect SJI's financial condition or results of operations.

In January 2003, the FASB issued Interpretation No. (FIN) 46,
"Consolidation of Variable Interest Entities." FIN 46 clarifies the application
of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to
certain entities in which equity investors do not have the characteristics of
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. Management has adopted FIN 46 and accordingly
determined that SJG Capital Trust, which was established for the sole purpose of
issuing $35.0 million of mandatorily redeemable preferred securities, could no
longer be consolidated into SJI's financial statements effective July 1, 2003.
These securities were redeemed in November 2003. Prior periods were restated to

SJI-11

report the original equity investment amount in SJG Capital Trust as a separate
$1.1 million investment in an affiliate and the $36.1 million subordinated
debenture to SJG Capital Trust as debt on our condensed consolidated balance
sheet rather than the $35.0 million of mandatorily redeemable preferred
securities as previously reported. The adoption of FIN 46, inclusive of
revisions released by FASB in December 2003, did not impact SJI's net income or
retained earnings for the periods reported. SJI is not a party to any variable
interest entities covered by FIN 46.

In August 2003, the EITF reached a consensus on Issue No. 03-11, which
provides guidance on whether to report realized gains or losses on physically
settled derivative contracts not held for trading purposes on a gross basis, and
realized gains or losses on derivative contracts that net settle on a net basis.
The new guidance is applicable for financial statement periods after September
30, 2003. Management believes the portion of SJRG's operations that are not
currently being presented on a gross basis meet the definition of "trading" in
accordance with EITF No. 02-03, and are, therefore, reported net. There was no
impact to our financial statements as a result of adopting EITF No. 03-11
effective October 1, 2003.

In December 2003, the FASB revised Statement No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." This revised
statement requires certain interim period disclosures about pension and other
postretirement benefit plans.

Other Regulatory Assets & Regulatory Liabilities - Other Regulatory
Assets consisted of the following items (in thousands):

Years Remaining
As of June 30, December 31,
June 30, 2004 2004 2003 2003
----------------------------------------------------------

Environmental Remediation Costs:
Expended - Net Various $ 5,363 $ 3,375 $ 4,147
Liability for Future Expenditures - 52,177 48,211 50,983
Income Taxes - Flowthrough
Depreciation 7 7,130 8,108 7,619
Deferred Fuel Costs - Net Various - 10,897 -
Postretirement Benefit Costs 9 3,213 3,591 3,402
Gross Receipts and Franchise Taxes 3 1,146 1,589 1,367
Societal Benefit Charges Various 5,053 7,531 7,529
Other - 1,033 551 733
------------------------------------------

Total Other Regulatory Assets $ 75,115 $ 83,853 $ 75,780
==========================================

Each item separately identified above is being recovered through
utility rate charges without a return on investment over the period indicated.
All assets reflected within the above caption "Other" are being recovered from
ratepayers as approved by the BPU (See Note 6).

SJI-12

Regulatory Liabilities consisted of the following items (in thousands):

June 30, December 31,
2004 2003 2003
------------------------------------------

Deferred Revenues - Net $ 13,917 $ - $ 90
Excess Plant Removal Costs 47,320 43,462 45,241
Overcollected State Taxes 5,268 3,774 4,353
Other 286 286 286
------------------------------------------

Total Regulatory Liabilities $ 66,791 $ 47,522 $ 49,970
==========================================

Deferred Revenues - Net reflects the overrecovery of gas costs from
ratepayers under SJG's gas cost clauses (See Note 6). Excess Plant Removal Costs
represent amounts accrued in excess of actual utility plant removal costs
incurred to date (See New Accounting Pronouncements). All other amounts are
subject to being returned to ratepayers in future rate proceedings.

Statements of Cash Flows - For purposes of reporting cash flows, highly
liquid investments with original maturities of three months or less are
considered cash equivalents.

Note 2. Divestitures and Affiliations:

Divestitures - In 1996, Energy & Minerals, Inc. (EMI), an SJI
subsidiary, sold the common stock of The Morie Company, Inc. (Morie), its sand
mining and processing subsidiary.

In 1997, R&T Group, Inc., SJI's construction subsidiary, sold all its
operating assets, except some real estate.

SJI conducts tests annually to estimate the environmental remediation
costs for properties owned by South Jersey Fuel, Inc. (SJF), an EMI subsidiary,
from its previously operated fuel oil business. SJI reports the environmental
remediation activity related to these properties as discontinued operations.
This reporting is consistent with previous years.

Summarized operating results of the discontinued operations for the
three and six months ended June 30 were (in thousands):

Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
-------------------------------------------------

Loss before Income Taxes:
Sand Mining $ (214) $ (219) $ (427) $ (429)
Construction - (8) - (16)
Fuel Oil (3) (10) (6) (21)
Income Tax Credits 75 83 151 164
-------------------------------------------------
Loss from Discontinued Operations - Net $ (142) $ (154) $ (282) $ (302)
=================================================
Earnings Per Common Share from
Discontinued Operations - Net $ (0.01) $ (0.01) $ (0.02) $ (0.03)
=================================================

SJI-13

Losses from sand mining are mainly comprised of environmental
remediation and product liability litigation associated with Morie's prior
activities.

Affiliations - In January 1999, SJI and Conectiv Solutions, LLC formed
Millennium Account Services, LLC to provide meter reading services in southern
New Jersey.

In June 1999, SJE and Energy East Solutions, Inc. (EES) formed South
Jersey Energy Solutions, LLC (SJES) to market retail electricity and energy
management services. SJES began supplying retail electricity during 2000, and
ceased active operations in May 2002. In January 2003, SJES became a wholly
owned subsidiary of SJE when EES redeemed its 50% interest upon payment of
$54,686, their capital deficit balance, to SJES.

In April 2000, SJE and GZA GeoEnvironmental, Inc. formed AirLogics, LLC
to market a jointly developed air monitoring system designed to assist companies
involved in environmental cleanup activities.

In April 2004, Marina and DCO Energy, LLC formed AC Landfill Energy,
LLC (ACLE) to develop and install a 1,400-kilowatt methane-to-electric power
generation system at a county-owned landfill in Egg Harbor Township, NJ. Marina
owns a 51% interest in ACLE and will consolidate ACLE's balance sheet and
results of operation accordingly. The project is estimated to generate
12,000,000 kilowatt-hours per year, enough energy to power 1,000 homes for a
year. In addition to providing another revenue stream for Marina, this project
will also contribute to improving air quality. When methane gas is recovered as
an energy source, it helps to reduce air pollution. Commercial operation of the
plant is targeted for December 2004.

Note 3. Common Stock:

SJI has 20,000,000 shares of authorized Common Stock. The following
shares were issued and outstanding:

2004 2003
----------------------------
Beginning Balance, January 1 13,229,001 12,206,474
New Issues During Year:
Dividend Reinvestment Plan 479,212 173,240
Employees' Stock Ownership Plan - 832
Stock Option, Stock Appreciation
Rights and Restricted Stock
Award Plan 32,056 32,005
----------------------------
Ending Balance, June 30 13,740,269 12,412,551
============================

We credited the par value ($1.25 per share) of stock issued in 2004 and
2003 to Common Stock. We credited the net excess over par value of approximately
$19.9 million and $6.3 million, respectively, to Premium on Common Stock.

Earnings Per Common Share - We present basic Earnings Per Share (EPS)
based on the weighted-average number of common shares outstanding. EPS are
presented in accordance with FASB Statement No. 128, "Earnings Per Share," which
establishes standards for computing and presenting basic and diluted EPS. The

SJI-14

incremental shares required for inclusion in the denominator for the diluted EPS
calculation were 118,333 and 101,782 shares for the three months and 93,636 and
91,941 for the six months ended June 30, 2004 and 2003, respectively. These
shares relate to restricted stock and were calculated using the treasury stock
method.

Stock Option, Stock Appreciation Rights and Restricted Stock Award Plan
- - Under this plan, no more than 306,000 shares in the aggregate may be issued to
SJI's officers and other key employees. No options or stock appreciation rights
may be granted under the Plan after November 22, 2006. At June 30, 2004 and
2003, SJI had no options outstanding. No options were granted in 2004 or 2003.
No stock appreciation rights were issued under the Plan. In the first six months
of 2004 and 2003, we granted 21,899 and 30,810 restricted shares, respectively.
These restricted shares vest over a 3-year period and are subject to SJI
achieving certain performance targets.

Dividend Reinvestment Plan (DRP) and Employees' Stock Ownership Plan
(ESOP) Newly issued shares of common stock offered through the DRP are issued
directly by SJI. All shares offered through the ESOP were also issued directly
by SJI. As of June 30, 2004, SJI reserved 1,199,764 shares of authorized, but
unissued, common stock for future issuance to the DRP. As of October 1, 2003,
the ESOP was terminated.

Note 4. Financial Instruments:

Restricted Investments - In accordance with the terms of Marina's bond
agreements, we were required to invest unused proceeds in high-quality, highly
liquid investments pending approved construction expenditures. As of June 30,
2004 and 2003, these residual proceeds totaled $-0- and $.7 million,
respectively.

SJRG maintains a margin account with a national investment firm to
support its risk management activities. As of June 30, 2004, the balance of this
account was $3.8 million due to changes in the market value of outstanding
contracts.

Note 5. Segments of Business:

Information about SJI's operations in different industry segments for
the three and six months ended June 30 is presented below (in thousands):

Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
--------------------------------------------------------

Operating Revenues:
Gas Utility Operations $ 73,991 $ 75,547 $ 274,114 $ 315,483
Wholesale Gas Operations 3,075 1,632 8,786 5,998
Retail Gas and Other Operations 41,692 35,266 125,210 93,234
Retail Electric Operations 17,092 660 34,173 1,423
On-Site Energy Production 5,002 981 11,114 2,000
-----------------------------------------------------------
Subtotal 140,852 114,086 453,397 418,138
Intersegment Sales (6,278) (7,871) (13,349) (32,097)
-----------------------------------------------------------
Total Operating Revenues $ 134,574 $ 106,215 $ 440,048 $ 386,041
===========================================================
SJI-15

Operating Income:
Gas Utility Operations $ 6,009 $ 5,909 $ 45,151 $ 44,216
Wholesale Gas Operations 2,314 1,368 2,403 3,271
Retail Gas and Other Operations 1,046 212 5,188 3,953
Retail Electric Operations 401 (52) 1,015 (73)
On-Site Energy Production 1,607 271 3,201 480
General Corporate (300) (186) (428) (431)
-----------------------------------------------------------
Total Operating Income $ 11,077 $ 7,522 $ 56,530 $ 51,416
===========================================================

Depreciation and Amortization:
Gas Utility Operations $ 7,904 $ 6,445 $ 13,632 $ 12,816
Wholesale Gas Operations 3 3 7 6
Retail Gas and Other Operations 35 26 67 49
Retail Electric Operations - - - -
On-Site Energy Production 416 34 817 57
Discontinued Operations - 7 - 14
------------------------------------------------------------
Total Depreciation
and Amortization $ 8,358 $ 6,515 $ 14,523 $ 12,942
=============================================================

Property Additions:
Gas Utility Operations $ 21,011 $ 11,956 $ 32,076 $ 23,660
Wholesale Gas Operations - - 15 -
Retail Gas and Other Operations 82 109 122 156
Retail Electric Operations - - - -
On-Site Energy Production 578 1,611 1,559 5,286
------------------------------------------------------------
Total Property Additions $ 21,671 $ 13,676 $ 33,772 $ 29,102
=============================================================

June 30,
2004 2003
---------------------------
Identifiable Assets:
Gas Utility Operations $ 944,793 $ 896,143
Wholesale Gas Operations 64,320 64,059
Retail Gas and Other Operations 34,362 30,951
Retail Electric Operations 12,733 408
On-Site Energy Production 78,475 68,697
Discontinued Operations 2,348 2,313
---------------------------
Subtotal 1,137,031 1,062,571
Corporate Assets 32,454 29,959
Intersegment Assets (51,384) (45,195)
---------------------------
Total Identifiable Assets $ 1,118,101 $ 1,047,335
============================

Gas Utility Operations consist primarily of natural gas distribution to
residential, commercial and industrial customers. Wholesale Gas Operations
consist of SJRG's activities. Retail Gas and Other Operations include natural
gas acquisition and transportation service companies. Given the recent growth of

SJI-16

SJE's retail electric operations, which include SJE's electricity acquisition
and transportation to retail, commercial and industrial customers, management
now considers this a separate reporting segment. On-Site Energy Production
consists of Marina's energy-related projects.

SJI's interest expense relates primarily to SJG's and Marina's
borrowing and financing activities.

Note 6. Regulatory Actions:

In January 1997, the BPU granted SJG rate relief, which was predicated
in part upon a 9.62% rate of return on rate base that included an 11.25% return
on common equity. This rate relief provided for the recovery of cost of service,
including deferred costs, through base rates. Additionally, SJG's threshold for
sharing pre-tax margins generated by interruptible and off-system sales and
transportation increased. As a result of this case, SJG kept 100% of pre-tax
margins up to the threshold level of $7.8 million. The next $750,000 was
credited to customers through the Basic Gas Supply Service (BGSS) clause.
Thereafter, SJG kept 20% of the pre-tax margins as it had historically. See Note
10 for information regarding the July 7, 2004 approval of SJG's base rate
increase.

Effective January 10, 2000, the BPU approved full unbundling of SJG's
system. This allows all natural gas consumers to select their natural gas
commodity supplier. As of June 30, 2004, 106,179 of SJG's residential customers
were purchasing their gas commodity from someone other than SJG. Customers
choosing to purchase natural gas from providers other than the utility are
charged for the cost of gas by the marketer, not the utility. The resulting
decrease in SJG's revenues is offset by a corresponding decrease in gas costs.
While customer choice can reduce utility revenues, it does not negatively affect
SJG's net income or financial condition. The BPU continues to allow for full
recovery of prudently incurred natural gas costs through the BGSS. Unbundling
did not change the fact that SJG still recovers cost of service, including
certain deferred costs, through base rates.

In December 2001, the BPU approved recovery of SJG's October 31, 2001
underrecovered gas cost balance of $48.9 million plus accrued interest since
April 1, 2001 at a rate of 5.75%. As of June 30, 2004, the remaining deferred
underrecovered balance totaled $1.9 million.

During 2002, the BPU convened a gas policy group to address Basic Gas
Supply Service (BGSS), which is the gas supply service being provided by the
natural gas utility. In December 2002, the BPU approved the proposed BGSS price
structure. The BGSS-approved price structure replaced the Levelized Gas
Adjustment Clause (LGAC) pricing structure. The LGAC was structured to reset gas
charges to consumers once per year. The BGSS resets gas prices monthly for
larger customers, and for smaller customers, permits multiple resets each year
if certain conditions are met. With the implementation of BGSS in March 2003,
customers can make more informed decisions about choosing an alternate supplier
by having a utility pricing structure that more currently reflects market
conditions. Further, BGSS provides SJG with more pricing flexibility, through
self-implementing rate changes under certain conditions and limitations,
conceptually resulting in the reduction of over/under-recoveries. LGAC-related

SJI-17

mechanisms, such as deferred accounting treatment, the sharing of pre-tax
margins generated by interruptible and off-system sales and transportation, and
the allowance for full recovery of prudently incurred natural gas costs, remain
in place under BGSS.

In August 2002, SJG filed for a Societal Benefits Clause (SBC) rate
increase. The SBC recovers costs related to BPU-mandated programs and
environmental remediation costs that are recovered through SJG's Remediation
Adjustment Clause (RAC); energy efficiency and renewable energy program costs
that are recovered through our New Jersey Clean Energy Programs; consumer
education program costs; and the interim low income program costs. In August
2003, the BPU approved a $6.7 million increase to SJG's SBC, effective September
1, 2003. This approval increased the annual recovery level of $6.7 million to
$13.4 million.

Also in August 2002, SJG filed a petition with the BPU to transfer its
appliance service business from the regulated utility into a newly created
unregulated company. As filed, the newly created company would have the
flexibility to be more responsive to competition and customer needs by expanding
and modifying its service offerings in an unregulated environment. See Note 10 -
Subsequent Events for additional information on the approval of SJG's petition.

In September 2002, SJG filed with the BPU to maintain its current BGSS
rate through October 2003. However, due to price increases in the wholesale
market, in February 2003, SJG filed an amendment to the September 2002 filing.
In April 2003, the BPU approved a $16.6 million increase to SJG's annual gas
costs recoveries.

In March 2003, the BPU approved a statewide Universal Service Fund
(USF) program on a permanent basis. In June 2003, the BPU established a
statewide program through which funds for the USF and Lifeline Credit and
Tenants Assistance (Lifeline) Programs would be collected from customers of all
electric and gas utilities in the state. The BPU ordered that utility rates be
set to recover a total statewide USF budget of $33.0 million, and a total
Lifeline budget of $72.0 million. Recovery rates for both programs were
implemented on August 1, 2003. In April 2004, SJG made its annual USF filing,
along with the state's other electric and gas utilities, proposing a statewide
USF budget of $105.5 million. The proposed statewide budget was updated to
$113.0 million and filed with the BPU in May 2004. In June 2004, the BPU
approved the budget of $113.0 million with new rates being implemented effective
July 1, 2004.

In July 2003, SJG made its annual BGSS filing, as amended, with the
BPU. Due to further price increases in the wholesale market, SJG filed for a
$24.0 million increase to their annual gas cost revenues. In August 2003, the
BPU approved SJG's price increase on a provisional basis, subject to refund with
interest, effective September 1, 2003.

In August 2003, SJG filed a base rate case with the BPU to increase its
base rates to obtain a certain level of return on its invested capital. The rate
case was approved on July 7, 2004 (See Note 10). SJG had not sought a base rate
increase from the BPU since the implementation of its base rate case approval in
January 1997.

Also, in August 2003, the BPU approved SJG's previously filed petition
for recovery of a $5.7 million Temperature Adjustment Clause (TAC) deficiency,
effective September 1, 2003. As of June 30, 2004, the deferred TAC deficiency
had been reduced to $1.3 million.

SJI-18

In February 2004, SJG filed notice with the BPU to reduce its gas cost
revenues by approximately $5.0 million, via a rate reduction, in addition to
providing for a $21.8 million bill credit to customers. Both the rate reduction
and bill credit were approved and implemented in March 2004.

In June 2004, SJG made its annual BGSS filing with the BPU requesting a
$4.9 million increase in gas cost recoveries.

Filings and petitions described above are still pending unless
otherwise indicated.

Note 7. Pensions & Other Postretirement Benefits:

SJI has several defined benefit pension plans and other postretirement
benefit plans. The pension plans provide annuity payments to the majority of
full-time, regular employees upon retirement. Newly hired employees in certain
classifications and companies do not qualify for participation in the defined
benefit pension plan. The other postretirement benefit plans provide health care
and life insurance benefits to some retirees.

On December 8, 2003, the President signed into law the Medicare
Prescription Drug, Improvement and Modernization Act (the "Act") of 2003. In
accordance with FASB Staff Position No. 106-1, "Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003," issued in December 2003, management elected to defer
any financial impact resulting from the Act pending the availability of more
information. With the assistance of the company's actuary, management has
determined that the Act has no impact on the postretirement benefit plans of
SJI.

Net periodic benefit cost for the three and six months ended June 30,
2004 and 2003 related to the pension and other postretirement benefit insurance
plans consisted of the following components (in thousands):

Pension Benefits
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
--------------------------------------------------------

Service Cost $ 735 $ 632 $ 1,470 $ 1,264
Interest Cost 1,425 1,314 2,850 2,628
Expected Return on Plan Assets (1,774) (1,354) (3,548) (2,708)
Amortization of
Transition Obligation - 18 - 36
Amortization of Loss and Other 444 438 888 876
------------------------------------------------------
Net Periodic Benefit Cost $ 830 $ 1,048 $ 1,660 $ 2,096
======================================================

SJI-19

Other Benefits
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
--------------------------------------------------------

Service Cost $ 377 $ 319 $ 754 $ 638
Interest Cost 629 523 1,258 1,046
Expected Return on Plan Assets (350) (221) (700) (442)
Amortization of
Transition Obligation 193 193 386 386
Amortization of Loss and Other 44 46 88 92
------------------------------------------------------
Net Periodic Benefit Cost $ 893 $ 860 $ 1,786 $ 1,720
======================================================

Contributions - SJI expects to make no contributions to its pension
plan and contribute approximately $3.6 million in equal quarterly installments
to its other postretirement benefit plans in 2004.

Note 8. Retained Earnings:

Restrictions exist under various loan agreements regarding the amount
of cash dividends or other distributions that SJG may pay on its common stock.
As of June 30, 2004, SJG's restrictions did not affect the amount that may be
distributed from SJI's retained earnings.

Note 9. Commitments and Contingencies:

Construction and Environmental - SJI's estimated net cost of
construction and environmental remediation programs for 2004 totals $69.1
million. Commitments were made regarding some of these programs.

Gas Supply Contracts - SJG, in the normal course of conducting
business, has entered into long-term contracts for natural gas supplies, firm
transportation and gas storage service. During the next 12 months no contracts
are expiring that would have a material negative impact, either alone or in
combination, on SJG. The transportation and storage service agreements between
SJG and our interstate pipeline suppliers were made under Federal Energy
Regulatory Commission approved tariffs. SJG's cumulative obligation for demand
charges and reservation fees paid to suppliers for these services is
approximately $4.2 million per month, recovered on a current basis through the
BGSS.

Pending Litigation - SJI is subject to claims arising in the ordinary
course of business and other legal proceedings. We accrue liabilities related to
these claims when we can determine the amount or range of amounts of likely
settlement costs for those claims. Among other actions, SJI was named in certain
product liability claims related to our former sand mining subsidiary.
Management does not currently anticipate the disposition of any known claims to
have a material adverse effect on SJI's financial position, results of
operations or liquidity.

Parental Guarantees -As of June 30, 2004, SJI had issued $151.6 million
of parental guarantees on behalf of its subsidiaries. Of this total, $90.0
million expire within one year, $25.5 million expire within thirteen to

SJI-20

twenty-four months and $36.1 million have no expiration date. The vast majority
of these guarantees were issued as a guarantee of payment to third parties with
whom our subsidiaries have commodity supply contracts. As of June 30, 2004,
these guarantees support $28.2 million of the Accounts Payable recorded on our
condensed consolidated balance sheet. As part of our risk management policy, we
also require parental guarantees from counterparties as applicable. These
arrangements are typical in our industry. SJI has also issued two parental
guarantees totaling $6.8 million related to Marina's construction activity.

Standby Letters of Credit - SJI provided a standby letter of credit to
Marina District Development Corporation in support of Marina's contractual
obligations to construct the thermal energy plant and to supply heat, hot water
and cooling to Borgata Hotel Casino & Spa. The plant began commercial operations
in July 2003. Accordingly, as called for in the contract, the letter of credit
totaled $2.5 million as of June 30, 2004 and remains in place pending final
independent engineer certification.

As of June 30, 2004, SJI also provided $46.0 million of standby letters
of credit from four commercial banks supporting the variable rate demand bonds
issued through the New Jersey Economic Development Authority to finance Marina's
thermal plant project. The letter of credit agreement contains certain financial
covenants measured on a quarterly basis. SJI was in compliance with these
covenants as of June 30, 2004.

Also, as of June 30, 2004, SJI has issued four letters of credit
totaling $10.7 million to two different utilities. These letters were posted to
enable SJE to market retail electricity and retail gas within the respective
utilities' service territories.

Environmental Remediation Costs - SJI incurred and recorded costs for
environmental cleanup of sites where SJG or its predecessors operated gas
manufacturing plants. SJG stopped manufacturing gas in the 1950s. SJI and some
of its nonutility subsidiaries also recorded costs for environmental cleanup of
sites where SJF previously operated a fuel oil business and Morie maintained
equipment, fueling stations and storage.

SJI successfully entered into settlements with all of its historic
comprehensive general liability carriers regarding the environmental remediation
expenditures at the SJG sites. Also, SJG purchased a Cleanup Cost Cap Insurance
Policy limiting the amount of remediation expenditures that SJG will be required
to make at 11 of its sites. This Policy will be in force until 2024 at 10 sites
and until 2029 at one site. The minimum future cost estimate discussed below was
not reduced by projected insurance recoveries from the Cleanup Cost Cap
Insurance Policy.

Since the early 1980s, SJI accrued environmental remediation costs of
$147.6 million, of which $91.5 million has been spent as of June 30, 2004. With
the assistance of a consulting firm, we estimate that future costs to clean up
SJG's sites will range from $52.2 million to $162.6 million. We recorded the
lower end of this range as a liability. It is reflected on the 2004 condensed
consolidated balance sheet under the captions Current Liabilities and Deferred
Credits and Other Non-Current Liabilities. Recorded amounts include estimated
costs based on projected investigation and remediation work plans using existing
technologies. Actual costs could differ from the estimates due to the long-term
nature of the projects, changing technology, government regulations and
site-specific requirements. The major portion of accrued environmental costs
relate to the cleanup of SJG's former gas manufacturing sites.

SJI-21

SJG has two regulatory assets associated with environmental costs. The
first asset is titled Environmental Remediation Cost: Expended - Net. These
expenditures represent what was actually spent to clean up former gas
manufacturing plant sites. These costs meet the requirements of Statement No.
71. The BPU allows SJG to recover expenditures through the RAC (See Note 6).

The other asset titled Environmental Remediation Cost: Liability for
Future Expenditures relates to estimated future expenditures determined under
the guidance of FASB Statement No. 5, "Accounting for Contingencies." We
recorded this amount, which relates to former manufactured gas plant sites, as a
deferred debit with the corresponding amount reflected on the condensed
consolidated balance sheet under the captions Current Liabilities and Deferred
Credits and Other Non-Current Liabilities. The recorded deferred debit is a
regulatory asset under Statement No. 71. The BPU's intent, evidenced by current
practice, is to allow SJG to recover the deferred costs after those costs are
spent over 7-year periods. As of June 30, 2004, we reflected SJG's unamortized
remediation costs of $5.4 million on the condensed consolidated balance sheet
under the caption Other Regulatory Assets. Since implementing the RAC in 1992,
SJG has recovered $40.8 million through rates.

With Morie's sale, EMI assumed responsibility for environmental
liabilities estimated between $2.7 million and $8.8 million. The information
available on these sites is sufficient only to establish a range of probable
liability and no point within the range is more likely than any other.
Therefore, EMI continues to accrue the lower end of the range. Changes in the
accrual are included in the statements of condensed consolidated income under
the caption Loss from Discontinued Operations - Net.

SJI and SJF estimated their potential exposure for the future
remediation of four sites where fuel oil operations existed years ago. Estimates
for SJI's site range between $13,800 and $77,200, while SJF's estimated
liability ranges from $1.1 million to $4.9 million for its three sites. We
recorded the lower ends of these ranges on the condensed consolidated balance
sheet under Current Liabilities and Deferred Credits and Other Non-Current
Liabilities as of June 30, 2004.

Note 10. Subsequent Events:

Rate Case Settlement - On July 7, 2004, the BPU granted SJG a base rate
increase of $20.0 million, which was predicated in part upon a 7.97% rate of
return on rate base that included a 10.0% return on common equity. SJG expects
the settlement of the case to provide an incremental $8.5 million on an
annualized basis to net income. SJG was also permitted recovery of regulatory
assets contained in its petition.

Included in the base rate increase was a change to the sharing of
pre-tax margins on interruptible and off-system sales and transportation. SJG
will now recover through its base rates $7.8 million that it had previously
recovered through the sharing of pre-tax margins. As a result, the sharing of
pre-tax margins will begin from dollar one, with SJG retaining 20% as it has
historically. Moreover, SJG will now share pre-tax margins from on-system

SJI-22

capacity release sales, in addition to the interruptible and off-system sales
and transportation. Effective July 1, 2006, the 20% retained by SJG will
decrease to 15% of such margins.

As part of the tariff changes, SJG further expanded its choices
available to commercial and industrial customers. SJG added two electric
generation services for small and large users, and restructured its existing
Firm Electric Service so it is applicable to electric generation. The addition
of these services allowed SJG to eliminate its existing cogeneration services
since these services will be provided under one of the three electric generation
services, based on the customer needs. SJG also split its existing commercial
service into two classes to separate large and small users, resulting in two
distinct price structures.

As part of the overall settlement, SJG provided customers with an
offsetting $38.9 million rate reduction. These reductions are being provided to
customers through SJG's various clauses and will not negatively impact SJG's net
income.

Pending Audits - The BPU has issued an order under which it will
perform a competitive services audit and a management audit that includes a
focused review of SJG's gas supply and purchasing practices. The audits, which
will commence later in 2004, are mandated by statute to be conducted at
predetermined intervals.

Appliance Service Business - On July 23, 2004, the BPU approved SJG's
petition to transfer its appliance service business from the regulated utility.
In anticipation of this transfer, SJI had formed South Jersey Energy Service
Plus, LLC (SJESP), to perform appliance repair services after BPU approval of
the transfer. SJESP will purchase certain assets required to perform such repair
services from SJG. In addition, SJESP will assume certain liabilities from SJG.
The final price will be determined at the date of transfer which is currently
expected to be on September 1, 2004. The agreement also calls for SJESP to pay
an additional $1.5 million to SJG. This $1.5 million will be credited to
customers through the RAC and will have no earnings impact on SJG. The approval
of SJG's proposal will have no effect on the provision of safety-related or
emergency-related services to the public. The services being transferred include
only non-safety related, competitive appliance services.

Financing Activities - SJG redeemed, at par, its 7.7% Medium Term Note
(MTN) due 2015 on July 15, 2004. Subsequently, on August 4, 2004, SJG issued
$40.0 million of debt under its MTN program established in 2002. The debt was
issued at an average interest rate of 5.66% and an average maturity of 17 years.
This represents the final amount authorized to be issued under the 2002 MTN
program.

SJI-23

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Unaudited)

Overview

South Jersey Industries, Inc. (SJI) is an energy services holding
company that provides a variety of products and services through the following
wholly owned subsidiaries:

1) South Jersey Gas Company (SJG) is a regulated natural gas utility.
SJG distributed natural gas in the seven southernmost counties of New Jersey to
306,953 customers at June 30, 2004 compared with 298,877 customers at June 30,
2003. SJG also:

* sells natural gas and pipeline transportation capacity (off-system
sales) on a wholesale basis to various customers on the interstate
pipeline system;

* transports natural gas purchased directly from producers or suppliers
for its own sales and for some of its customers; and

* services appliances via the sale of appliance warranty programs as well
as on a time and materials basis.

2) South Jersey Energy Company (SJE) acquires and markets natural gas
and electricity to retail end users and provides total energy management
services to commercial and industrial customers. SJE also markets an air quality
monitoring system through AirLogics, LLC. SJE and GZA GeoEnvironmental, Inc., an
environmental consulting firm, each have a 50% equity interest in AirLogics.

3) South Jersey Resources Group, LLC (SJRG) markets wholesale natural
gas storage, commodity and transportation in the mid-Atlantic and southern
states. SJRG also conducts price-risk management activities.

4) Marina Energy LLC (Marina) develops and operates energy-related
projects. Marina's largest project, the development of a facility to provide
cooling, heating and hot water to Borgata Hotel Casino & Spa in Atlantic City,
began commercial operations in July 2003.

5) South Jersey Energy Service Plus, LLC (SJESP) installs residential
and small commercial HVAC systems in Southern New Jersey. Service Plus began
commercial operations in May 2003.

SJI also has a joint venture investment with Conectiv Solutions, LLC in
Millennium Account Services, LLC (Millennium). Millennium provides meter reading
services to SJG and Conectiv Power Delivery in southern New Jersey.

Forward-Looking Statements - This report contains certain
forward-looking statements concerning projected financial and operating

SJI-24

performance, future plans and courses of action and future economic conditions.
All statements in this report other than statements of historical fact are
forward-looking statements. These forward-looking statements are made based upon
management's expectations and beliefs concerning future events impacting the
company and involve a number of risks and uncertainties. We caution that
forward-looking statements are not guarantees and actual results could differ
materially from those expressed or implied in the forward-looking statements.
Also, in making forward-looking statements, we assume no duty to update these
statements should expectations change or actual results and events differ from
current expectations.

A number of factors could cause our actual results to differ materially
from those anticipated including, but not limited to, the following: general
economic conditions on an international, national, state and local level;
weather conditions in our marketing areas; changes in commodity costs; changes
in the availability of natural gas; legislative, regulatory and court decisions;
competition in our utility and nonutility activities; the availability and cost
of capital; our ability to maintain existing joint ventures to take advantage of
marketing opportunities; costs and effects of legal proceedings and
environmental liabilities; the failure of customers or suppliers to fulfill
their contractual obligations; and changes in business strategies.

Critical Accounting Policies

Estimates and Assumptions - As described in the footnotes to our
condensed consolidated financial statements, management must make estimates and
assumptions that affect the amounts reported in the financial statements and
related disclosures. Actual results could differ from those estimates. Five
types of transactions presented in our condensed consolidated financial
statements require a significant amount of judgment and estimation. These relate
to regulatory assets, energy trading activities, environmental remediation
costs, pension and other postretirement employee benefit costs and unbilled
revenues.

The New Jersey Board of Public Utilities (BPU) has reviewed and
approved, through specific orders, all of the items shown as regulatory assets.
In recording these costs as regulatory assets, management believes the costs are
probable of recovery under existing rate-making concepts that are embodied in
current rate orders received by SJG. However, ultimate recovery is subject to
BPU approval.

SJI recognizes assets or liabilities for those energy-related contracts
that qualify as derivatives that are entered into by its non-regulated
subsidiary, SJRG, when it executes contracts. We record contracts at their fair
value in accordance with FASB Statement No. 133. We adjust the fair value of the
contracts each reporting period for changes in the market. We derive the fair
value for most of the energy-related contracts from markets where the contracts
are actively traded and quoted. For other contracts, SJI uses published market
surveys and in certain cases, independent parties to obtain quotes concerning
the contracts' current value. Market quotes tend to be more plentiful for
contracts maturing in two years or less. Very few of our contracts extend beyond
two years.

An outside consulting firm assists us in estimating future costs for
environmental remediation activities. We estimate future costs based on
projected investigation and work plans using existing technologies. Developing a

SJI-25

single reliable estimation point is not feasible because of the amount of
uncertainty involved in the nature of projected remediation efforts and the long
period over which remediation efforts will continue. Therefore, we estimate the
range of future costs at $56.1 million to $176.8 million. In preparing financial
statements, SJI records liabilities for future costs using the lower end of the
range. We update estimates each quarter to take into account past efforts,
changes in work plans and remediation technologies.

The costs of providing pension and other postretirement employee
benefits are impacted by actual plan experience as well as assumptions of future
experience. Employee demographics, plan contributions, investment performance,
and actuarial assumptions concerning return on plan assets, discount rates and
health care cost trends all have a significant impact on determining our
projected benefit obligations. We evaluate actuarial assumptions annually with
the assistance of our investment manager and actuary and we adjust them
accordingly. These adjustments could result in significant changes to the net
periodic benefit cost of providing such benefits and the related liability
recognized by SJI.

A majority of SJG and SJE customers have their meters read on a cycle
basis throughout the month. As a result, recognized revenues include estimates
as described below.

Revenue Recognition - SJG and SJRG bill customers monthly for gas
delivered and recognize those revenues during the month. SJE bills customers
monthly for gas and electricity deliveries. For SJG and SJE retail customers
that are not billed at the end of each month, we make an accrual to recognize
estimated revenues for gas/electricity delivered from the date of the last meter
reading to the end of the month. We bill SJG customers at rates approved by the
BPU. SJE and SJRG customers are billed at rates negotiated between the parties.

We defer and recognize revenues related to SJG's appliance service
contracts over the full 12-month term of the contract as earned.

The BPU allows SJG to recover gas costs in rates through the Basic Gas
Supply Service (BGSS) price structure (which replaced the Levelized Gas
Adjustment Clause). SJG defers over/under-recoveries of gas costs and includes
them in subsequent adjustments to the BGSS rate or other similar rate recovery
mechanism. These adjustments result in over/under-recoveries of gas costs being
included in rates during future periods. As a result of these deferrals, utility
revenue recognition does not directly translate to profitability. While SJG
realizes profits on gas sales during the month of providing the utility service,
significant shifts in revenue recognition may result from the various recovery
clauses approved by the BPU (See Recent Regulatory Actions) without shifting
profits between periods, as these clauses provide for recovery of costs on a
dollar-for-dollar basis.

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

Temperature Adjustment Clause - A Board of Public Utilities approved
Temperature Adjustment Clause (TAC) increased(decreased) SJG's net income by
$0.9 million and $(1.0) million for the three months and $0.2 million and $(2.4)
million for the six months ended June 30, 2004 and 2003, respectively. The
clause is designed to mitigate the effect of variations in heating season
temperatures from historical norms. While we record the revenue and income
impacts of TAC adjustments as incurred, cash inflows or outflows directly
attributable to TAC adjustments generally do not begin until the next clause
year. Each TAC year begins October 1.

SJI-26

Recent Regulatory Actions - In August 2002, SJG filed for a Societal
Benefits Clause (SBC) rate increase. The SBC recovers costs related to
BPU-mandated programs and environmental remediation costs that are recovered
through SJG's Remediation Adjustment Clause (RAC); energy efficiency and
renewable energy program costs that are recovered through SJG's New Jersey Clean
Energy Programs; consumer education program costs; and the interim low income
program costs. In August 2003, the BPU approved a $6.7 million increase to SJG's
SBC, effective September 1, 2003. This approval increased the annual recovery
level of $6.7 million to $13.4 million.

Also in August 2002, SJG filed a petition with the BPU to transfer its
appliance service business from the regulated utility into a newly created
unregulated company. On July 23, 2004, the BPU approved SJG's petition to
transfer its appliance service business from the regulated utility. In
anticipation of this transfer, SJI had formed South Jersey Energy Service Plus,
LLC (SJESP), to perform appliance repair services after BPU approval of the
transfer. SJESP will purchase certain assets required to perform such repair
services from SJG. In addition, SJESP will assume certain liabilities from SJG.
The final price will be determined at the date of transfer which is currently
expected to be on September 1, 2004. The agreement also calls for SJESP to pay
an additional $1.5 million to SJG. This $1.5 million will be credited to
customers through the RAC and will have no earnings impact on SJG. The approval
of SJG's proposal will have no effect on the provision of safety-related or
emergency-related services to the public. The services being transferred include
only non-safety related, competitive appliance services. It is anticipated that
SJESP will have the flexibility to be more responsive to competition and
customer needs by expanding and modifying its service offerings in an
unregulated environment.

In September 2002, SJG filed with the BPU to maintain its current Basic
Gas Supply Service (BGSS) rate through October 2003. However, due to price
increases in the wholesale market, in February 2003, SJG filed an amendment to
the September 2002 filing. In April 2003, the BPU approved a $16.6 million
increase to SJG's annual gas cost revenues.

In March 2003, the BPU approved a statewide Universal Service Fund
(USF) program on a permanent basis. In June 2003, the BPU established a
statewide program through which funds for the USF and Lifeline Credit and
Tenants Assistance (Lifeline) Programs would be collected from customers of all
electric and gas utilities in the state. The BPU ordered that utility rates be
set to recover a total statewide USF budget of $33.0 million, and a total
Lifeline budget of $72.0 million. Recovery rates for both programs were
implemented on August 1, 2003. In April 2004, SJG made its annual USF filing,
along with the state's other electric and gas utilities, proposing a statewide
USF budget of $105.5 million. The proposed statewide budget was updated to
$113.0 million and filed with the BPU in May 2004. In June 2004, the BPU
approved the budget of $113.0 million with new rates being implemented effective
July 1, 2004.

In July 2003, SJG made its annual BGSS filing, as amended, with the
BPU. Due to further price increases in the wholesale market, SJG filed for a
$24.0 million increase to its annual gas cost revenues. In August 2003, the BPU
approved SJG's price increase on a provisional basis, subject to refund with
interest, effective September 1, 2003.

SJI-27

In August 2003, the BPU approved SJG's previously filed petition for
the recovery of a $5.7 million Temperature Adjustment Clause (TAC) deficiency,
effective September 1, 2003. As of June 30, 2004, the deferred TAC deficiency
had been reduced to $1.3 million.

Also in August 2003, SJG filed a base rate case with the BPU to
increase its base rate to obtain a certain level of return on its investment of
capital. SJG had not sought a base rate increase from the BPU since the
implementation of its base rate case approval in January 1997. On July 7, 2004,
the BPU approved an increase to SJG's base rates totaling $20.0 million, which
was predicated in part upon a 7.97% rate of return on rate base that included a
10.0% return on common equity. SJG expects the settlement of the case to provide
an incremental $8.5 million on an annualized basis to net income. SJG was also
permitted recovery of regulatory assets contained in its petition.

Included in the base rate increase was a change to the sharing of
pre-tax margins on interruptible and off-system sales and transportation. SJG
will now recover through its base rates $7.8 million that it previously had
recovered through the sharing of pre-tax margins. As a result, the sharing of
pre-tax margins will begin from dollar one, with SJG retaining 20% as it has
historically. Moreover, SJG will now share pre-tax margins from on-system
capacity release sales, in addition to the interruptible and off-system sales
and transportation. Effective July 1, 2006, the 20% retained by SJG will
decrease to 15% of such margins.

As part of the tariff changes, SJG further expanded service choices
available to commercial and industrial customers. SJG added two electric
generation services for small and large users, and restructured its existing
Firm Electric Service so it is applicable to electric generation. The addition
of these services allowed SJG to eliminate its existing cogeneration services
since these services will be provided under one of the three electric generation
services, based on customer needs. SJG also split its existing commercial
service into two classes to separate large and small users, resulting in two
distinct price structures.

As part of the overall settlement, SJG provided customers with an
offsetting $38.9 million rate reduction. These reductions are being provided to
customers through SJG's various clauses and will not negatively impact SJG's net
income.

In February 2004, SJG filed notice with the BPU to reduce its gas cost
revenues by approximately $5.0 million, via a rate reduction, in addition to
providing for a$21.8 million bill credit to customers. Both the rate reduction
and bill credit were approved and implemented in March 2004. In June 2004, SJG
made its annual BGSS filing with the BPU requesting a $4.9 million increase in
gas cost recoveries.

Pending Audits - The BPU has issued an order under which it will
perform a competitive services audit and a management audit that includes a
focused review of SJG's gas supply and purchasing practices. The audits, which
will commence later in 2004, are mandated by statute to be conducted at
predetermined intervals.

Filings and petitions described above are still pending unless
otherwise indicated. Additional discussion concerning Regulatory Actions can be
found in Notes 6 and 10 to the condensed consolidated financial statements.

SJI-28

Environmental Remediation - SJI incurred and recorded costs for
environmental cleanup of sites where SJG or its predecessors operated
manufactured gas plants (MGP). SJG stopped manufacturing gas in the 1950s. SJI
and some of its nonutility subsidiaries also recorded costs for environmental
cleanup of sites where we previously operated a fuel oil business and also where
we maintained equipment, fueling stations and storage. We successfully entered
into settlements with all of SJG's historic comprehensive general liability
carriers regarding environmental remediation expenditures at former MGP sites.
As part of these settlements, SJG purchased an insurance policy that caps its
remediation expenditures at 11 of these sites. The insurance policy is in force
until 2024 at 10 sites and until 2029 at one site.

We believe that all costs incurred net of insurance recoveries relating
to SJG's MGP sites will be recovered through rates under SJG's Remediation
Adjustment Clause (RAC). The RAC currently permits SJG to recover incurred costs
in equal installments over 7-year periods with carrying costs. As of June 30,
2004, SJG has $5.4 million of remediation costs not yet recovered through rates.

Other matters are incorporated by reference to Note 9 to the condensed
consolidated financial statements included as part of this report.

Competition - SJG's franchises are non-exclusive. Currently, no other
utility provides retail gas distribution services within SJG's territory. SJG
does not expect any other utilities to do so in the foreseeable future because
of the extensive investment required for utility plant and related costs. SJG
competes with oil, propane and electricity suppliers for residential, commercial
and industrial users. The market for natural gas sales is subject to competition
due to deregulation. We enhanced SJG's competitive position while maintaining
margins by using an unbundled tariff. This tariff allows full cost-of-service
recovery, except for the variable cost of the gas commodity, when transporting
gas for our customers. Under this tariff, SJG profits from transporting, rather
than selling, the commodity. SJG's residential, commercial and industrial
customers can choose their supplier while we recover the cost of service through
transportation service (see Customer Choice Legislation).

Customer Choice Legislation - All residential natural gas customers in
New Jersey can choose their gas supplier under the terms of the Electric
Discount and Energy Competition Act of 1999. As of June 30, 2004, 106,179 SJG
residential customers chose a natural gas commodity supplier other than the
utility. This number increased from 95,410 at June 30, 2003 as marketers were
able to offer natural gas at prices competitive with those available under
regulated utility tariffs. Customers purchasing natural gas from providers other
than SJG are charged for gas costs by the marketer, not SJG. The resulting
decrease in SJG's revenues is offset by a corresponding decrease in SJG's gas
costs. While customer choice can reduce utility revenues, it does not negatively
affect SJG's net income or financial condition. The BPU continues to allow for
full recovery of prudently incurred natural gas costs through the Basic Gas
Supply Service clause as well as other costs of service including deferred
costs, through tariffs. SJI has benefited from customer choice legislation as
SJE has successfully competed for and profited from its gas commodity customers.

SJI-29

Results of Operations

Operating Revenues - Utility - Revenues decreased $1.9 million during
the second quarter compared with the same period in 2003. The decrease was
primarily due to two factors. First, weather was 37.8% warmer during the quarter
than last year, which resulted in a reduction in utility sales volume. Second,
there was a 11.3% increase in the number of residential customers purchasing
their gas from a source other than SJG. The decline in customers who purchased
their natural gas from SJG directly impacted utility revenues. However, since
gas costs are passed on directly to customers without any profit margin added by
SJG, the increased customer usage of gas marketers did not impact SJG's
profitability. Providing an offset to the factors noted above were a significant
increase in Off-System Sales (OSS) during the quarter, the addition of 8,076
customers and several rate increases over the past 12 months (See Recent
Regulatory Actions).

Revenues decreased $19.0 million for the six months ended June 30, 2004
compared with the same period last year. The year-to-date decrease was
primarily due to three factors. First, weather was 9.8% warmer than last year
resulting in lower utility sales. Second, OSS revenues decreased as a direct
result of lower sales volume and lower prices for natural gas in this market in
2004 compared with the same period in 2003. Finally, there was an increase in
the number of residential customers purchasing their gas from a source other
than SJG. Partially offsetting these negative factors were the impact of 8,076
additional customers and several rate increases over the past 12 months as
discussed earlier.

As a result of SJG's Temperature Adjustment Clause (TAC), revenues from
utility ratepayers are closely tied to 20-year normal temperatures calculated
under the clause and not actual temperatures. While the clause significantly
reduces fluctuations in revenues related to temperature, as a general rule,
revenues continue to be positively impacted by colder weather and negatively
impacted by warmer weather. Weather during the second quarter of 2004 was 37.8%
warmer than in 2003 and 19.9% warmer than the 20-year TAC average. Weather
during the first six months of 2004 was 9.8% warmer than in 2003 and 0.7% warmer
than the 20-year TAC average.

The following is a comparison of operating revenue and throughput for
the three and six months ended June 30, 2004 vs. the same periods ended June 30,
2003:

Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
------ ---------------------------------

Operating Revenues (Thousands):
Firm
Residential $ 17,967 $ 25,699 $ 99,108 $ 115,007
Commercial 5,014 7,287 28,980 34,717
Industrial 715 973 3,032 3,340
Cogeneration & Electric Generation 2,004 1,969 2,423 3,291
Firm Transportation 13,540 13,142 46,409 41,202
--------------------------------------------------

Total Firm Operating Revenues 39,240 49,070 179,952 197,557
--------------------------------------------------
SJI-30

Interruptible 469 558 757 1,049
Interruptible Transportation 269 300 564 495
Off-System 31,024 22,985 86,376 111,715
Capacity Release & Storage 1,937 1,510 4,664 2,813
Other 1,052 1,124 1,801 1,854
Intercompany Sales (3,952) (7,383) (8,797) (31,179)
---------------------------------------------------

Total Operating Revenues $ 70,039 $ 68,164 $ 265,317 $ 284,304
==================================================

Throughput (MMcf):
Firm
Residential 1,801 2,449 9,289 10,504
Commercial 587 793 3,018 3,522
Industrial 24 43 116 148
Cogeneration & Electric Generation 218 240 243 348
Firm Transportation 6,562 6,427 18,774 17,490
--------------------------------------------------

Total Firm Throughput 9,192 9,952 31,440 32,012
--------------------------------------------------

Interruptible 54 96 88 132
Interruptible Transportation 589 547 1,165 958
Off-System 4,789 3,744 12,622 15,474
Capacity Release & Storage 13,533 10,402 25,195 16,395
--------------------------------------------------

Total Throughput 28,157 24,741 70,510 64,971
==================================================

Operating Revenues - Nonutility - Nonutility operating revenues
increased by $26.5 million and $73.0 million in the second quarter and first six
months of 2004, respectively, compared with the same periods of 2003. Most of
the increases were due to higher gas prices, colder temperatures in the first
quarter of 2004 and continued customer growth experienced by SJE, evidenced by
the addition of over 2,800 residential and 1,100 commercial natural gas
customers over the last twelve months. SJE's revenues from the sale of retail
electricity increased by $15.4 million and $30.2 million for the second quarter
and first six months of 2004, respectively, compared with the same periods of
2003. SJE was the successful bidder on a contract to supply retail electricity
to over 400 school districts located throughout the state of New Jersey
beginning in November 2003. Marina's revenues increased by $4.0 million for the
second quarter and $9.1 million for the first six months of 2004, respectively,
compared with the same periods of 2003. This increase resulted from sales of
thermal energy to Borgata Hotel Casino & Spa, which opened in July 2003, and
other on-site energy production projects.

Cost of Gas Sold - Utility - Cost of gas sold - utility increased $2.9
million in the second quarter primarily as a result of increased Off-System
Sales volume resulting in an additional $8.0 million in gas costs for the
period. In addition, customer additions and increased gas cost recoveries
approved by the BPU contributed substantially to offsetting the impact of the
warmer weather and customer migration to transportation services. Weather was

SJI-31

37.8% warmer in the second quarter of 2004 than the same period last year. SJG
also continued to experience the migration of customers from sales to
transportation service as described under Operating Revenues. As a result of
these two factors, firm sales volume decreased by 25.4% for the quarter.

Cost of gas sold - utility decreased $23.2 million for the six months
ended June 30, 2004 compared with 2003 due principally to a significant decrease
in sales volumes and lower gas costs for Off-System Sales. Unlike gas costs
associated with Off-System Sales, changes in the unit cost of gas sold to
utility ratepayers do not directly affect cost of gas sold. We defer
fluctuations in gas costs to ratepayers not reflected in current rates to future
periods under a BPU-approved Basic Gas Supply Service (BGSS) price structure,
formerly known as the Levelized Gas Adjustment Clause. SJG also experienced a
decrease in gas costs as a result of the continued migration of customers from
sales to transportation services as previously discussed. As a result of this
migration and the impact of warmer weather, firm sales volume decreased by
12.8% for the six months ended June 30, 2004 compared to the same period last
year.

Gas supply sources include contract and open-market purchases. SJG
secures and maintains its own gas supplies to serve its sales customers. We do
not anticipate any difficulty renewing or replacing expiring contracts under
substantially similar terms and conditions.

Cost of Sales - Nonutility - Cost of sales - nonutility increased $21.3
million and $66.0 million in the second quarter and for the first six months of
2004 compared with the respective prior year periods due mainly to SJE's gas and
electric customer growth and Marina's operations as described in the Operating
Revenues - Nonutility section.

Operations Expense - A summary of net changes in operations expenses
(in thousands):

Three Months Ended Six Months Ended
June 30, June 30,
2004 vs. 2003 2004 vs. 2003
------------------------------------
Utility:
Other Production Expense $ (7) $ (5)
Transmission - 35
Distribution (131) (228)
Customer Accounts and Services 1,130 3,962
Sales (73) (51)
Administration and General 101 (745)
--------------------------------
Total Utility 1,020 2,968
--------------------------------
Nonutility:
Wholesale Gas 50 174
Retail Gas and Other 403 284
On-Site Energy Production 813 1,539
--------------------------------
Total Nonutility 1,266 1,977
--------------------------------
Corporate 83 (13)
--------------------------------
Total Operations $ 2,369 $ 4,952
================================

SJI-32

Customer Accounts and Services expense increased significantly in 2004
as a result of the BPU-approved increase in SJG's Societal Benefits Clause (SBC)
in August 2003 (See Recent Regulatory Actions). With this approval, recoveries
and a corresponding charge to expense for previously deferred costs under SJG's
New Jersey Clean Energy Programs increased by $1.4 million in the second quarter
and $4.4 million for the six months ended June 30, 2004 when compared with the
respective periods in 2003. The BPU-approved SBC clause allows for full recovery
of these deferred costs including carrying costs and, as a result, the increase
in expense has no impact on SJG's net income. This increase was partially offset
by lower bad debt expense during 2004 as a result of a March 2004 BGSS refund
improving SJG's accounts receivable aging (See Recent Regulatory Actions).

Administrative and General expenses decreased in the six months ended
June 30, 2004 compared with the same period of 2003 primarily because of lower
pension expense, lower insurance expense and cost control measures implemented
throughout the company. Pension expense decreased $414,000 from 2003 to 2004 as
a result of SJG making a $9.1 million pension plan contribution in December 2003
as well as an improvement in investment returns throughout 2003 (See Note 7 to
the condensed consolidated financial statements). Insurance expense was reduced
by $340,000 in the first quarter of 2004 by lowering SJG's reserve for
outstanding claims following a period of favorable settlements that were not
appealed as anticipated. Significant increases in healthcare costs during the
second quarter resulted in higher A&G for the three months ended June 30, 2004.

Nonutility Retail Gas and Other Operations expense increased for the
second quarter and six months ended June 30, 2004 compared with the respective
prior year periods primarily due to the growth of our HVAC installation business
which was partially offset by lower retail gas customer acquisition costs.
On-Site Energy Production Operations expense increased in the second quarter and
for the six months ended June 30, 2004 due to the start of commercial operations
for Marina's thermal energy plant in July 2003 and the Mannington cogeneration
project which began in January 2004.

Other Operating Expenses - A summary of principal changes in other
consolidated operating expenses (in thousands):

Three Months Ended Six Months Ended
June 30, June 30,
2004 vs. 2003 2004 vs. 2003
------------- -------------

Maintenance $ (43) $ (156)
Depreciation 825 1,590
Energy and Other Taxes (119) (361)

Depreciation was higher due to SJG's and Marina's increased investment
in property, plant and equipment. Depreciation on Marina's thermal plant began
with the start of commercial operations in July 2003. The decrease in Energy and
Other Taxes relate primarily to decreases in taxable volumes of gas sold and
transported by SJG and lower revenue-based taxes (See table under the caption,
"Operating Revenues - Utility").

SJI-33

Other Income and Expense - Other income and expense was higher in the
first six months of 2004 compared with the first six months of 2003 due to a
pre-tax gain of $686,000 on SJG's postretirement healthcare plan trust. The
movement of plan assets to a new investment manager triggered the recognition of
gains on investments.

Interest Charges - Interest charges increased in the second quarter and
the first six months of 2004 compared with the respective periods of the prior
year due primarily to interest incurred by Marina that was previously permitted
to be capitalized during the construction phase of their thermal energy plant.
The increase was partially offset by reductions in short-term rates on line of
credit borrowings, the refunding of higher priced, fixed rate, long-term debt
with lower cost debt, and a lower total debt level. These refundings occurred
primarily during the second half of 2003 and were financed with long-term debt
issuances under SJG's Medium Term Note program at significantly lower interest
rates compared with the previous long-term interest rates. We have incurred debt
primarily to expand and upgrade SJG's gas transmission and distribution system,
to construct the Marina Energy thermal plant, and to support seasonal working
capital needs related to gas inventories and customer receivables.

Cumulative Effect of a Change in Accounting Principle - Net - On
October 25, 2002, the Emerging Issues Task Force rescinded its consensus in
Issue No. 98-10 effective for transactions entered into after that date, with a
cumulative effect adjustment for previously existing transactions to be
recognized in the quarter beginning January 1, 2003. As a result of the
rescission, SJI only marks-to-market those energy-related contracts that meet
the definition of a derivative in Statement No. 133. Energy-related contracts
that do not meet the definition of a derivative are accounted for using the
accrual basis of accounting. The effect of this change in accounting resulted in
a net charge of $426,338 shown as a Cumulative Effect of a Change in Accounting
Principle - Net. Furthermore, management has designated any contract entered
into after December 31, 2002 to hedge physical gas in storage as a cash flow
hedge and accounts for them accordingly. At inception, and as of June 30, 2004,
we calculated these hedges to be highly effective; therefore, we record the
offset, net of taxes, in Accumulated Other Comprehensive Income (Loss).

Net Income Applicable to Common Stock - Net income increased $2.0
million to $3.8 million for the quarter ended June 30, 2004 as compared with
$1.8 million for the quarter ended June 30, 2003. Net income increased $4.0
million, or 16.6%, to $28.1 million for the six months ended June 30, 2004 as
compared with $24.1 million for the six months ended June 30, 2003. Reasons for
the increase in net income in 2004 are discussed in detail above.

Liquidity and Capital Resources - Liquidity needs at SJI are driven by
factors that include natural gas commodity prices; the impact of weather on
customer bills; lags in fully collecting gas costs from customers under the
Basic Gas Supply Service charge; working capital needs of our energy trading and
marketing activities; the timing of construction and remediation expenditures
and related permanent financings; mandated tax payment dates; and both
discretionary and required repayments of long-term debt.

We first seek to meet liquidity needs with net cash provided by
operating activities. Net cash provided by operating activities varies from year

SJI-34

to year primarily due to the impact of weather on customer demand and related
gas purchases, inventory utilization and gas cost recoveries. We utilize
short-term borrowings under credit facilities provided by commercial banks to
supplement cash from operations where necessary.

Bank credit available to SJI totaled $236.0 million at June 30, 2004,
of which $51.1 million was used. Those bank facilities consist of a $100.0
million revolving credit facility that expires in August 2006 and $76.0 million
of uncommitted bank lines available to SJG as well as a $40.0 million revolving
credit facility and $20.0 million of uncommitted bank lines available to SJI.
Effective August 2004, the expiration of SJI's revolving credit facility was
extended through August 2007 and the amount of the revolving credit was
increased to $60.0 million. Based upon the existing credit facilities and a
regular dialogue with our banks, we believe that there will continue to be
sufficient credit available to meet our business' future liquidity needs.

SJI supplements its operating cash flow and credit lines with both debt
and equity capital. Over the years, SJG has used long-term debt, primarily in
the form of First Mortgage Bonds and Medium Term Notes (MTN), secured by the
same pool of assets as the First Mortgage Bonds, to finance its long-term
borrowing needs. These needs are primarily capital expenditures for property,
plant and equipment. SJG's registration of a $150.0 million MTN program with the
Securities and Exchange Commission became effective in December 2002. In July
2003, SJG issued $85.5 million of long-term debt under the program. In September
2003, SJG issued an additional $24.5 million of MTNs. SJG issued the remaining
$40.0 million of notes under the MTN program in August 2004 at an average
interest rate of 5.66% and an average maturity of 17 years. We used proceeds of
all of the issues to refinance short-term debt outstanding to commercial banks
and for the redemption of certain high-rate First Mortgage Bonds. Maturities of
long-term debt in 2004 have totaled $6.8 million. In addition, SJG called $15
million of its 7.7% Medium Term Notes for redemption in July 2004. No additional
maturities are scheduled or redemptions are anticipated for the remainder of
2004. Maturities of long-term debt over the next five calendar years are $5.3
million per year in 2005 through 2007, $1.5 million in 2008 and $0 in 2009.

Between September 2001 and January 2003, Marina issued $20 million of
tax-exempt and $25 million of taxable variable rate demand bonds (VRDB's)
through the New Jersey Economic Development Authority. The tax-exempt and
taxable bonds mature in 2031 and 2021, respectively. Investors in the bonds
receive liquidity and credit support via a letter of credit provided by a
syndicate of four commercial banks. The underlying letter of credit that
provides liquidity support for the weekly remarketing of the VRDB's extends to
September 2007. We used the proceeds of these bond issuances to fund project
development and construction costs for the thermal energy plant constructed by
Marina to serve Borgata Hotel Casino & Spa which opened in July 2003.

SJI has raised equity capital over the past three years through its
Dividend Reinvestment Plan (DRP). Participants in SJI's DRP receive newly issued
shares. We offer a 2% discount on DRP investments because it is the most
cost-effective way for us to raise equity capital in the quantities we are
seeking. Through the DRP, SJI raised $19.3 million of equity capital by issuing
479,212 shares for the six months ended June 30, 2004 and $5.7 million of equity
capital by issuing 173,240 shares for the six months ended June 30, 2003. We
anticipate raising approximately $25 million of equity capital through the DRP
in 2004.

SJI-35

SJI's capital structure was as follows:
As of As of
June 30, December 31,
2004 2003 2003
------ ------ -----

Common and Preferred Stock Equity 49% 39% 41%
Long-Term Debt 44% 41% 43%
Short-Term Debt 7% 20% 16%
--- ---- ----

Total 100% 100% 100%
==== ==== ====

SJI typically experiences seasonal fluctuations in leverage as
short-term debt has historically peaked in the November to January period in
support of high inventory and receivable levels. The seasonal low point for
short-term debt incurred in support of working capital usually occurs between
the end of March and the end of May each year. The ratios presented in the chart
above reflect a conscious effort by management to increase the percentage of
equity in SJI's capital structure over the past year.

Capital Expenditures, Commitments and Contingencies

Capital Expenditures - SJI has a continuing need for cash resources and
capital, primarily to invest in new and replacement facilities and equipment and
for environmental remediation costs. Net construction and remediation
expenditures for the first six months of 2004 amounted to $35.4 million. We
estimate the net costs for 2004, 2005 and 2006 at approximately $69.1 million,
$57.2 million and $52.1 million, respectively.

Commitments and Contingencies - SJI made certain commitments to Borgata
Hotel Casino & Spa relating to the development of Marina's thermal energy
project. In the event that certain construction milestones were not met, SJI was
obligated to make specific payments to Borgata, per the construction contract.
As construction was completed and commercial operations began in July 2003,
SJI's obligation under the contract was reduced to $5.0 million and remained at
that level as of June 30, 2004. This financial obligation is equally supported
by a standby letter of credit and an SJI parental guarantee, both reducing to
zero pending final independent engineer certification.

SJI is obligated on the letters of credit supporting the variable rate
demand bonds issued through the New Jersey Economic Development Authority by
Marina. A syndicate of four commercial banks has issued $46.0 million of letters
of credit to provide liquidity for these bonds. The letter of credit agreement
contains certain financial covenants measured on a quarterly basis. SJI was in
compliance with these covenants as of June 30, 2004.

SJG has certain commitments for both pipeline capacity and gas supply
for which it pays fees regardless of usage. Those commitments as of June 30,
2004 averaged $44.8 million annually and totaled $233.2 million over the
contracts' lives with expirations ranging from one to 13 years. We expect to
renew each of these contracts under renewal provisions as provided in each
contract. SJG recovers all prudently incurred fees through rates via the Basic
Gas Supply Service clause.

SJI-36

SJG's long-term, senior secured debt is rated "A" and "Baa1" by
Standard & Poor's and Moody's Investor Services, respectively. These ratings
have not changed in the past five years.

The following table summarizes our contractual cash obligations and
their applicable payment due dates (in thousands):

Up to 1 - 3 3 - 5 More than
Contractual Obligations Total 1 Year Years Years 5 Years
----- ------ ----- ----- -------

Long-Term Debt $ 307,281 $ 5,273 $ 10,543 $ 1,500 $ 289,965
Operating Leases 896 411 391 71 23
Construction Obligations 8,454 8,454 - - -
Commodity Supply Purchase Obligations:
Utility 233,178 43,746 80,906 68,413 40,113
Nonutility 172,458 158,552 13,906 - -
Other Purchase Obligations 3,762 3,059 703 - -
----------- ----------- ----------- ----------- -----------

Total Contractual Cash Obligations $ 726,029 $ 219,495 $ 106,449 $ 69,984 $ 330,101
=========== =========== =========== =========== ===========

Expected environmental remediation costs are not included in the table
above due to the subjective nature of such costs and time of anticipated
payments.

SJI expects to make no contributions to its pension plan and contribute
approximately $3.6 million in equal quarterly installments to its other
postretirement benefit plans in 2004.

As of June 30, 2004, SJI had issued $151.6 million of parental
guarantees on behalf of its subsidiaries. Of this total, $90.0 million expire
within one year, $25.5 million expire within thirteen to twenty-four months and
$36.1 million have no expiration date. The vast majority of these guarantees
were issued as guarantees of payment to third parties with whom our subsidiaries
have commodity supply contracts. As of June 30, 2004, these guarantees support
$28.2 million of the Accounts Payable recorded on our condensed consolidated
balance sheet. As part of our risk management policy, we also require parental
guarantees from trading counterparties, as applicable. These arrangements are
typical in our industry. SJI has also issued two parental guarantees totaling
$6.8 million related to Marina's construction activity.

On January 5, 2004, Marina paid $2.7 million to purchase a cogeneration
facility in Salem County, NJ and will lease back the facility to a large
manufacturer located on the same site over an 8-year lease. Marina also entered
into an 8-year operating contract to operate and manage the facility.

In April 2004, Marina and DCO Energy, LLC formed AC Landfill Energy,
LLC (ACLE) to develop and install a 1,400-kilowatt methane-to-electric power
generation system at a county-owned landfill in Egg Harbor Township, NJ. Marina
owns a 51% interest in ACLE and will consolidate ACLE's balance sheet and
results of operations accordingly. The project is estimated to generate

SJI-37

12,000,000 kilowatt-hours per year, enough energy to power 1,000 homes for a
year. In addition to providing another revenue stream for Marina, this project
will also contribute to improving air quality. When methane gas is recovered as
an energy source, it helps to reduce air pollution. Commercial operation of the
plant is targeted for December 2004.

SJI is subject to claims arising in the ordinary course of business and
other legal proceedings. We accrue liabilities related to claims when we can
determine the amount or range of amounts of likely settlement costs for those
claims. Among other actions, SJI was named in certain product liability claims
related to our former sand mining subsidiary. Management does not currently
anticipate the disposition of any known claims to have a material adverse effect
on SJI's financial position, results of operations or liquidity.

Item 3. Quantitative and Qualitative Disclosures About
Market Risks of the Company (Unaudited)

Commodity Market Risks: Certain regulated and unregulated SJI
subsidiaries are involved in buying, selling, transporting and storing natural
gas for their own accounts as well as managing these activities for others.
These subsidiaries are subject to market risk due to price fluctuations. To
hedge against this risk, we enter into a variety of physical and financial
transactions including forward contracts, swaps, futures and options agreements.
To manage these transactions, SJI has a well-defined risk management policy
approved by our board of directors that includes volumetric and monetary limits.
Management reviews reports detailing activity daily. Generally, we enter into
derivative activities described above for risk management, not trading,
purposes.

SJG and SJE complete commodity transactions on a physical basis only
and do not enter into financial derivative positions directly. SJRG manages risk
for these entities as well as for its own portfolio by entering into the types
of transactions noted above. It is management's policy, to the extent practical,
within predetermined risk management policy guidelines, to have limited
unmatched positions on a deal or portfolio basis while conducting these
activities. As a result of holding open positions to a minimal level, the
financial impact to SJRG of changes in value of a particular transaction is
substantially offset by an opposite change in the related hedge transaction. As
of June 30, 2004, SJRG had $23.0 million of accounts receivable under sales
contracts. Of that total, 65% were with companies rated investment-grade, or
were guaranteed by an investment-grade-rated parent or were with companies where
we have a collateral arrangement. The remainder of the accounts receivable were
within approved credit limits.

SJRG and SJE entered into certain contracts to purchase, sell, and
transport natural gas. We recorded net unrealized pre-tax losses on these energy
related derivative contracts of $(2.4) million and $(.7) million for the
quarters ended June 30, 2004 and 2003, respectively. For the six months ended
June 30, 2004, we recorded net unrealized pre-tax (loss)gain of $(.5) million

SJI-38

and $.8 million, respectively. These amounts are included as a component of
Operating Revenues - Nonutility. SJRG's and SJE's contracts are typically less
than 12 months long. The fair value of these contracts determined under the
mark-to-market method as of June 30, 2004 is as follows (in thousands):

Assets
Maturity Maturity
Source of Fair Value < 1 Year 1-3 Years Total
---------- --------- ----------
Prices Actively Quoted NYMEX $ 18,441 $ 2,079 $ 20,520
Other External Sources Basis 5,939 1,249 7,188
---------- --------- ----------
Total $ 24,380 $ 3,328 $ 27,708
========== ========= ==========

Liabilities
Maturity Maturity
Source of Fair Value < 1 Year 1-3 Years Total
---------- --------- -----------
Prices Actively Quoted NYMEX $ 5,091 $ 1,404 $ 6,495
Other External Sources Basis 3,562 637 4,199
---------- --------- ----------
Total $ 8,653 $ 2,041 $ 10,694
========== ========= ==========

NYMEX (New York Mercantile Exchange) is the primary national
commodities exchange on which natural gas is traded. Basis represents the price
of a NYMEX natural gas futures contract adjusted for the difference in price for
delivering the gas at another location.

A reconciliation of SJI's estimated net fair value of energy-related
derivatives follows (in thousands):

Net Derivatives - Energy Related Assets, January 1, 2004 $ 7,000
Contracts Settled During Six Months Ended June 30, 2004, Net 1,632
Other Changes in Fair Value from Continuing and
New Contracts, Net 8,382
--------------

Net Derivatives - Energy Related Assets, June 30, 2004 $ 17,014
=============

Interest Rate Risk: Our exposure to interest rate risk relates
primarily to short-term, variable rate borrowings. Our short-term, variable rate
debt outstanding at June 30, 2004 was $40.4 million and averaged $50.2 million
for the first six months of 2004. A hypothetical 100 basis point (b.p.), or 1%,
increase in interest rates on our average variable rate debt outstanding would
result in a $296,000 increase in our annual interest expense, net of tax. We
chose the 100 basis point increase for illustrative purposes, as it provides a
simple basis for calculating the impact of interest rate changes under a variety
of interest rate scenarios. Over the past five years, the change in basis points
(b.p.) of our average monthly interest rates from the beginning to end of each
year was as follows: 2003 - 28 b.p. decrease; 2002 -- 74 b.p. decrease; 2001 --
383 b.p. decrease; 2000 -- 83 b.p. increase; and 1999 -- 81 b.p. increase. For
June 2004, our average interest rate on variable rate debt was 1.64%.

SJG primarily issues long-term debt at fixed rates and, consequently,
interest expense on existing debt is not significantly impacted by changes in
market interest rates. SJG prepaid, at par, $1.5 million of 8.6% debenture notes

SJI-39

in February 2004 and $15.0 million of 7.7% Medium Term Notes in July 2004. The
only other long-term debt outstanding, exclusive of that issued by the utility,
consists of the New Jersey Economic Development Authority bonds used to finance
the construction of Marina's thermal energy plant. Those bonds were issued at
floating rates that reset weekly. Subsequent to issuance, we entered into
interest rate swap contracts that as of June 30, 2004 effectively fixed the rate
on $20.0 million of tax-exempt debt at 4.08% through 2011 and $17.0 million of
taxable debt at 4.59% through 2007. The amount of the swap on the taxable debt
reduces annually, commencing with a $2.0 million reduction in December 2003 and
an additional $3.1 million reduction in December 2004.

Item 4. Controls and Procedures

SJI management, including the Chief Executive Officer and Chief
Financial Officer, has conducted an evaluation of the effectiveness of
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based
on that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the disclosure controls and procedures are effective in ensuring
that all material information required to be filed in this quarterly report has
been made known to them in a timely fashion. There have been no significant
changes in internal controls, or in factors that could significantly affect
internal controls, subsequent to the date the Chief Executive Officer and Chief
Financial Officer completed their evaluation.

No change in SJI's internal control over financial reporting occurred
during SJI's second fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.

PART II -- OTHER INFORMATION

Item l. Legal Proceedings

Information required by this Item is incorporated by reference to Part
I, Item 1, Note 9, beginning on page 20.

SJI-40

Item 4. Submission of Matters to a Vote of Security Holders

(a) Our annual meeting of shareholders was held on April 29, 2004.
(b) Class III directors (with a term expiring 2007) were elected as follows:

For Withheld
---------- --------
Helen R. Bosley 11,909,687 192,284
Edward J. Graham 11,921,652 180,319
William J. Hughes 11,884,562 217,409
Herman D. James 11,874,323 227,648

One Class II director (with a term expiring in 2006) was
elected as follows:

Thomas A. Bracken 10,436,760 1,665,211

Class I directors (with a term expiring in 2005) continuing in
office are:

Charles Biscieglia, Keith S. Campbell, and W. Cary Edwards

Class II directors (with a term expiring in 2006) continuing in
office are:

Shirli M. Billings, Sheila Hartnet-Devlin, and Frederick R. Raring

The appointment of Deloitte & Touche LLP as our independent
accountants for the year ending December 2004 was approved by
a vote of 11,849,839 for the appointment and 187,187 against,
with 64,945 abstentions.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

Exhibit No. Description

31.1 Certification of Chief Executive Officer Pursuant
to Rule 13a-14(a) of the Exchange Act.

31.2 Certification of Chief Financial Officer Pursuant
to Rule 13a-14(a) of the Exchange Act.

SJI-41

32.1 Certification of Chief Executive Officer Pursuant
to Rule 13a-14(b) of the Exchange Act as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (subsections (a) and (b) of Section 1350,
Chapter 63 of Title 18, United States Code).

32.2 Certification of Chief Financial Officer Pursuant
to Rule 13a-14(b) of the Exchange Act as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (subsections (a) and (b) of Section 1350,
Chapter 63 of Title 18, United States Code).

(b) Form 8-K

Dated April 27, 2004 South Jersey Industries issued a press
release providing an earnings report for
the quarter ended March 31, 2003 under
Items 9 and 12.

SJI-42

SIGNATURES

Pursuant to the requirements 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.

SOUTH JERSEY INDUSTRIES, INC.
(Registrant)

Dated: August 9, 2004 By: /s/ Edward J. Graham
--------------------------------------
Edward J. Graham
President & Chief Executive Officer

Dated: August 9, 2004 By: /s/ David A. Kindlick
--------------------------------------
David A. Kindlick
Vice President & Chief Financial Officer

SJI-43
Exhibit 31.1
CERTIFICATION

I, Edward J. Graham, certify that:

1. I have reviewed this report on Form 10-Q for the period ended June 30, 2004,
of South Jersey Industries, Inc.;

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)) for the registrant and we 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) 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

c) 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 registrant's board of directors
(or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or
operation of internal controls 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: August 9, 2004 /s/ Edward J. Graham
-------------------------------------------
Edward J. Graham
President & Chief Executive Officer

SJI-44

Exhibit 31.2
CERTIFICATION

I, David A. Kindlick, certify that:

1. I have reviewed this report on Form 10-Q for the period ended June 30, 2004,
of South Jersey Industries, Inc.;

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)) for the registrant and we 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) 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

c) 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 registrant's board of directors
(or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or
operation of internal controls 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: August 9, 2004 /s/ David A. Kindlick
--------------------------------------------
David A. Kindlick
Vice President & Chief Financial Officer

SJI-45

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

In connection with the filing of the Quarterly Report on Form 10-Q of
South Jersey Industries, Inc. (the "Company") for the period ended June 30,
2004, as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, Edward J. Graham, Chief Executive Officer of the Company,
hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my
knowledge:

(1) The Report fully complies with the requirements of
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.

/s/ Edward J. Graham
- -------------------------------
Name: Edward J. Graham
Title: Chief Executive Officer
August 9, 2004

SJI-46
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

In connection with the filing of the Quarterly Report on Form 10-Q of
South Jersey Industries, Inc. (the "Company") for the period ended June 30,
2004, as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, David A. Kindlick, Chief Financial Officer of the Company,
hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my
knowledge:

(1) The Report fully complies with the requirements of
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.

/s/ David A. Kindlick
- ------------------------------
Name: David A. Kindlick
Title: Chief Financial Officer
August 9, 2004

SJI-47