AGL RESOURCES INC, 10-Q, 1997-02-14

AGL RESOURCES INC
10-Q, 1997-02-14
NATURAL GAS DISTRIBUTION

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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-Q

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

For the Quarterly Period Ended December 31, 1996

Commission Registrant; State of Incorporation; I.R.S. Employer
File Number Address; and Telephone Number Identification Number

1-14174 AGL RESOURCES INC. 58-2210952
( A Georgia Corporation)
303 PEACHTREE STREET, NE
ATLANTA, GEORGIA 30308
404-584-9470

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 and (2) has been subject to such filing requirements for
the past 90 days. Yes X No

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of December 31, 1996.

Common Stock, $5.00 Par Value
Shares Outstanding at December 31, 1996 .............................55,867,649

Page 1 of 20 Pages

<PAGE>

AGL RESOURCES INC.

Quarterly Report on Form 10-Q
For the Quarter Ended December 31, 1996

Table of Contents

Item Page
Number PART I -- FINANCIAL INFORMATION Number

1 Financial Statements (Unaudited)

Condensed Consolidated Income Statements 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Cash Flows 6

Notes to Condensed Consolidated Financial Statements 7

2 Management's Discussion and Analysis of Results of
Operations and Financial Condition 11

PART II -- OTHER INFORMATION

1 Legal Proceedings 15

5 Other Information 15

6 Exhibits and Reports on Form 8-K 19

SIGNATURES 20

Page 2 of 20 Pages

<PAGE>

PART I -- FINANCIAL INFORMATION

Item 1. Financial Statements

AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND TWELVE MONTHS ENDED
DECEMBER 31, 1996 AND 1995
(MILLIONS, EXCEPT PER SHARE DATA)

Three Months Twelve Months
--------------- ------------------
1996 1995 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Revenues ........................... $ 379.6 $ 330.7 $ 1,277.5 $ 1,068.7
Cost of Gas .................................. 231.1 189.7 766.9 575.0
- -----------------------------------------------------------------------------------------
Operating Margin ............................. 148.5 141.0 510.6 493.7
- -----------------------------------------------------------------------------------------
Other Operating Expenses
Operating expenses ......................... 88.3 81.5 345.2 330.0
Restructuring costs ........................ 25.8
- -----------------------------------------------------------------------------------------
Total other operating expenses ........... 88.3 81.5 345.2 355.8
- -----------------------------------------------------------------------------------------
Operating Income ............................. 60.2 59.5 165.4 137.9
- -----------------------------------------------------------------------------------------
Other Income ................................. 2.4 1.2 13.2 1.8
- -----------------------------------------------------------------------------------------
Income Before Interest and Income Taxes ...... 62.6 60.7 178.6 139.7
- -----------------------------------------------------------------------------------------
Interest Expense and Preferred Stock Dividends
Interest expense ........................... 13.6 12.8 49.9 47.1
Dividends on preferred stock of subsidiary . 1.1 1.1 4.4 4.4
- -----------------------------------------------------------------------------------------
Total interest expense and preferred stock
dividends .............................. 14.7 13.9 54.3 51.5
- -----------------------------------------------------------------------------------------
Income Before Income Taxes ................... 47.9 46.8 124.3 88.2
- -----------------------------------------------------------------------------------------
Income Taxes ................................. 18.3 17.7 48.2 33.4
- -----------------------------------------------------------------------------------------
Net Income ................................... $ 29.6 $ 29.1 $ 76.1 $ 54.8
=========================================================================================

Earnings Per Share of Common Stock $ 0.53 $ 0.53 $ 1.37 $ 1.03

Cash Dividends Paid Per Share of Common Stock $ 0.27 $ 0.265 $ 1.065 $ 1.045

Weighted Average Number of Common Shares
Outstanding 55.8 55.1 55.5 53.5

</TABLE>

See notes to condensed consolidated financial statements.

Page 3 of 20 Pages
<PAGE>
<TABLE>
<CAPTION>

AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(MILLIONS)

September
December 31, 30,
---------------------------------
ASSETS 1996 1995 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current Assets
Cash and cash equivalents ............................ $ 1.1 $ 5.8 $ 8.7
Receivables (less allowance for uncollectible accounts
of $3.9 at December 31, 1996, $5.2 at December 31,
1995, and $2.7 at September 30, 1996) .............. 222.3 198.2 93.6
Inventories
Natural gas stored underground ..................... 113.1 87.4 144.0
Liquefied natural gas .............................. 17.4 11.6 16.8
Materials and supplies ............................. 6.5 8.5 8.1
Other .............................................. 2.8 2.0 3.0
Deferred purchased gas adjustment .................... 31.4 7.5 4.7
Other ................................................ 10.0 9.2 10.3
- --------------------------------------------------------------------------------------------
Total current assets ............................... 404.6 330.2 289.2
- --------------------------------------------------------------------------------------------
Property, Plant and Equipment
Utility plant ........................................ 1,982.7 1,943.1 1,969.0
Less accumulated depreciation ........................ 615.8 595.8 607.8
- --------------------------------------------------------------------------------------------
Utility plant - net ................................ 1,366.9 1,347.3 1,361.2
- --------------------------------------------------------------------------------------------
Nonutility property .................................. 88.0 14.9 80.5
Less accumulated depreciation ........................ 27.0 2.4 26.3
- --------------------------------------------------------------------------------------------
Nonutility property - net .......................... 61.0 12.5 54.2
- --------------------------------------------------------------------------------------------
Total property, plant and equipment - net .......... 1,427.9 1,359.8 1,415.4
- --------------------------------------------------------------------------------------------
Deferred Debits and Other Assets
Unrecovered environmental response costs ............. 40.7 34.7 38.0
Investment in joint ventures ......................... 36.4 32.6 35.5
Unrecovered Integrated Resource Plan costs ........... 9.6 7.5 10.0
Other ................................................ 37.2 32.6 36.6
- --------------------------------------------------------------------------------------------
Total deferred debits and other assets ............. 123.9 107.4 120.1
- --------------------------------------------------------------------------------------------
Total Assets ........................................... $ 1,956.4 $ 1,797.4 $ 1,824.7
============================================================================================

</TABLE>

See notes to condensed consolidated financial statements.

Page 4 of 20 Pages

AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(MILLIONS)

September
December 31, 30,
---------------------------------
LIABILITIES AND CAPITALIZATION 1996 1995 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current Liabilities
Accounts payable-trade .............................. $ 108.7 $ 83.1 $ 73.7
Short-term debt ..................................... 188.8 156.3 152.0
Customer deposits ................................... 29.9 29.8 27.8
Interest ............................................ 18.4 17.5 25.7
Taxes ............................................... 24.2 10.9 16.0
Other ............................................... 33.0 35.2 27.3
- -------------------------------------------------------------------------------------------
Total current liabilities ......................... 403.0 332.8 322.5
- -------------------------------------------------------------------------------------------
Accumulated Deferred Income Taxes ..................... 171.3 141.0 168.5
- -------------------------------------------------------------------------------------------
Long-Term Liabilities
Accrued environmental response costs ................ 31.3 28.6 30.4
Accrued pension costs ............................... 6.6 9.8 4.9
Accrued postretirement benefits costs ............... 34.5 31.4 36.2
Deferred credits .................................... 60.4 64.5 60.9
- -------------------------------------------------------------------------------------------
Total long-term liabilities ....................... 132.8 134.3 132.4
- -------------------------------------------------------------------------------------------
Capitalization
Long-term debt ...................................... 584.5 554.5 554.5
Preferred stock of subsidiary, cumulative $100 par or
stated value, shares issued and outstanding of
0.6 at December 31, 1996, December 31, 1995, and
September 30, 1996 ................................ 58.5 58.5 58.5
Common stock, $5 par value, shares issued and
outstanding of 55.9 at December 31, 1996, 55.2 at . 606.3 576.3 588.3
December 31, 1995, and 55.7 at September 30, 1996
- -------------------------------------------------------------------------------------------
Total capitalization .............................. 1,249.3 1,189.3 1,201.3
- -------------------------------------------------------------------------------------------
Total Liabilities and Capitalization .................. $ 1,956.4 $ 1,797.4 $ 1,824.7
===========================================================================================

</TABLE>

See notes to condensed consolidated financial statements.

Page 5 of 20 Pages

AGL RESOURCES INC. AND SUBISIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS AND TWELVE MONTHS ENDED DECEMBER 31, 1996
(MILLIONS)

Three Months Twelve Months
----------------- -------------------
1996 1995 1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net income .............................. $ 29.6 $ 29.1 $ 76.1 $ 54.8
Adjustments to reconcile net income to
net cash flow from operating activities
Depreciation and amortization ......... 17.4 16.6 68.3 63.4
Deferred income taxes ................. 2.6 2.3 26.3 19.6
Non-cash compensation expense ......... 0.3 1.8 0.1 5.6
Noncash restructuring costs ........... 8.4
Other ................................. (0.2) (0.6) (0.8) (2.1)
Changes in certain assets and liabilities (82.3) (114.8) (54.6) 6.9
- ------------------------------------------------------------------------------------
Net cash flow from operating
activities ........................ (32.6) (65.6) 115.4 156.6
- ------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Sale of common stock, net of expenses ... 1.6 0.3 3.1 50.2
Short-term borrowings, net .............. 36.8 105.3 32.5 7.7
Redemptions of long-term debt ........... (15.0)
Sale of long-term debt .................. 30.0 30.0
Dividends paid on common stock .......... (13.9) (12.2) (50.8) (45.7)
- ------------------------------------------------------------------------------------
Net cash flow from financing
activities ........................ 54.5 93.4 14.8 (2.8)
- ------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Utility plant expenditures .............. (29.0) (27.1) (134.0) (122.2)
Cash received from joint ventures ....... 0.1 2.9
Investment in joint ventures ............ (1.2) (2.3) (32.6)
Other ................................... 0.6 1.4 (1.5) 2.6
- ------------------------------------------------------------------------------------
Net cash flow from investing
activities ........................ (29.5) (25.7) (134.9) (152.2)
- ------------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents .................. (7.6) 2.1 (4.7) 1.6
Cash and cash equivalents
at beginning of period ............ 8.7 3.7 5.8 4.2
- ------------------------------------------------------------------------------------
Cash and cash equivalents
at end of period .................. $ 1.1 $ 5.8 $ 1.1 $ 5.8
====================================================================================
Cash Paid During the Year for
Interest ................................ $ 21.0 $ 20.8 $ 46.4 $ 48.4
Income taxes ............................ $ 0.2 $ 19.5 $ 20.3

</TABLE>

See notes to condensed consolidated financial statements.

Page 6 of 20 Pages

<PAGE>

AGL RESOURCES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Implementation of Holding Company Reorganization
On March 6, 1996, following shareholder approval of a corporate
restructuring, AGL Resources Inc. (AGL Resources) became the parent company
of Atlanta Gas Light Company (AGLC) and its subsidiaries. The consolidated
financial statements of AGL Resources include the financial statements of
AGLC, Chattanooga Gas Company (Chattanooga) and AGL Resources' nonregulated
subsidiaries as though AGL Resources had existed in all periods shown and
had owned all of AGLC's outstanding common stock prior to March 6, 1996.

As a result of the restructuring, AGL Resources engages in utility
activities through AGLC and its wholly owned subsidiary, Chattanooga.
Unless noted specifically or otherwise required by the context, references
to AGLC or the utility include the operations and activities of AGLC and
Chattanooga. AGL Resources engages in nonregulated business activities
through AGL Energy Services, Inc. (AGL Energy Services), a gas supply
services company; AGL Investments, Inc. (AGL Investments), a subsidiary
established to develop and manage certain nonregulated business
opportunities; The Energy Spring, Inc. (Energy Spring), a retail energy
marketing company; and their subsidiaries. AGL Resources Service Company
(Service Company), provides corporate support services to AGL Resources and
its subsidiaries.

Ownership of AGLC's nonregulated business, Georgia Gas Company
(natural gas production activities), has been transferred to AGL Energy
Services. Ownership of AGLC's other nonregulated businesses, Georgia Energy
Company (natural gas vehicle conversions), Georgia Gas Service Company
(propane sales) and Trustees Investments, Inc. (real estate holdings), has
been transferred to AGL Investments. AGLC's interest in Sonat Marketing
Company L.P. has been transferred to AGL Gas Marketing, Inc., a wholly
owned subsidiary of AGL Investments. In addition, AGL Investments has
established two wholly owned subsidiaries: AGL Power Services, Inc., which
owns a 35% interest in Sonat Power Marketing L.P., and AGL Consumer
Services, Inc., an energy-related consumer products and services company.

Service Company was formed during fiscal 1996 to provide corporate
support services to AGL Resources and its subsidiaries. The transfer of
related assets and accumulated deferred income tax liabilities from AGLC to
Service Company and other nonregulated subsidiaries was effected through
noncash dividends of $34.3 million during the fourth quarter of fiscal 1996
and $4.8 million during the first quarter of fiscal 1997. As a result of
those noncash dividends, utility plant-net decreased and nonutility
property-net increased by approximately $48.4 million. Expenses of Service
Company are allocated to AGL Resources and its subsidiaries.

2. Interim Financial Statements

In the opinion of management, the unaudited condensed consolidated
financial statements included herein reflect all normal recurring accruals
necessary for a fair statement of the results of the interim periods
reflected. Certain information and footnote disclosure normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted from these condensed consolidated
financial statements pursuant to applicable rules and regulations of the
Securities and Exchange Commission. These financial statements should be
read in conjunction with the financial statements and the notes thereto
included in the annual reports on Form 10-K of AGL Resources for the fiscal
year ended September 30, 1996, and of AGLC for the fiscal years ended
September 30, 1996 and 1995. Certain 1995 amounts have been reclassified
for comparability with 1996 amounts.

Page 7 of 20 Pages

<PAGE>

3 . Earnings

AGL Resources' principal business is the distribution of natural gas
to customers in central, northwest, northeast and southeast Georgia and the
Chattanooga, Tennessee area through its natural gas distribution
subsidiary, AGLC. Since consumption of natural gas is dependent to a large
extent on weather, the majority of AGL Resources' income is realized during
the winter months. Earnings for a three-month period are not indicative of
the earnings for a twelve-month period.

On October 3, 1995, AGLC implemented revised firm service rates
pursuant to an order on rehearing of the rate design issues of AGLC's 1993
rate case that was issued by the Georgia Public Service Commission (Georgia
Commission) on September 25, 1995. Although neutral with respect to total
annual margins, the new rates shift margins from heating months (November -
March) into non-heating months, thereby affecting the comparisons of
earnings for the twelve-month periods ended December 31, 1996, and 1995.

4. Environmental Matters - AGLC

AGLC has identified nine sites in Georgia where it currently owns all
or part of a manufactured gas plant (MGP) site. In addition, AGLC has
identified three other sites in Georgia which AGLC does not now own, but
which may have been associated with the operation of MGPs by AGLC or its
predecessors. There are also three sites in Florida which have been
investigated by environmental authorities in connection with which AGLC may
be contacted as a potentially responsible party.

AGLC's response to MGP sites in Georgia is proceeding under two state
regulatory programs. First, AGLC has entered into consent orders with the
Georgia Environmental Protection Division (EPD) with respect to four sites:
Augusta, Griffin, Savannah and Valdosta. Under these consent orders, AGLC
is obliged to investigate and, if necessary, remediate impacts at the site.
AGLC developed a proposed Corrective Action Plan (CAP) for the Griffin site
and has now conducted certain follow-up investigations in response to EPD's
comments. Assessment activities were conducted at Augusta and are planned
for Savannah during January 1997. In addition, AGLC is in the process of
planning certain interim remedial measures at the Augusta MGP site. Those
measures are expected to be implemented principally during fiscal 1997.

Second, AGLC's response to all Georgia sites is proceeding in
substantial compliance with Georgia's Hazardous Site Response Act (HSRA).
AGLC submitted to EPD formal notifications pertaining to all of its owned
MGP sites, and EPD had listed seven sites (Athens, Augusta, Brunswick,
Griffin, Savannah, Valdosta and Waycross) on the state's Hazardous Site
Inventory (HSI). EPD has not listed the Macon site on the HSI at this time.
EPD has also listed the Rome site, which AGLC has acquired, on the HSI.
Under the HSRA regulations, the four sites subject to consent orders are
presumed to require corrective action; EPD will determine whether
corrective action is required at the four remaining sites (Athens,
Brunswick, Rome and Waycross) in due course. In that respect, however, AGLC
has submitted Compliance Status Reports (CSRs) for the Athens, Brunswick
and Rome MGP sites, and AGLC has concluded that these sites do not meet
applicable risk reduction standards. Accordingly, some degree of response
action is likely to be required at those sites.

Page 8 of 20 Pages

<PAGE>

be held liable, but for which neither the existence nor the amount of such
liabilities can be reasonably forecast. Within the stated range of $31.3
million to $117.3 million, no amount within the range can be reliably
identified as a better estimate than any other estimate. Therefore, a
liability at the low end of this range and a corresponding regulatory asset
have been recorded in the financial statements.

AGLC has two means of recovering the expenses associated with the
former MGP sites. First, the Georgia Commission has approved the recovery
by AGLC of Environmental Response Costs, as defined, pursuant to an
Environmental Response Cost Recovery Rider (ERCRR). For purposes of the
ERCRR, Environmental Response Costs include investigation, testing,
remediation and litigation costs and expenses or other liabilities relating
to or arising from MGP sites. In connection with the ERCRR, the staff of
the Georgia Commission has undertaken a financial and management process
audit related to the MGP sites, cleanup activities at the sites and
environmental response costs that have been incurred for purposes of the
ERCRR. On October 10, 1996, the Georgia Commission issued an order to
prohibit funds collected through the ERCRR from being used for the payment
of any damage award, including punitive damages, as a result of any
litigation associated with any of the MGP sites in which AGLC is involved.
AGLC is currently pursuing judicial review of the October 10, 1996 order.

Second, AGLC intends to seek recovery of appropriate costs from its
insurers and other potentially responsible parties. With respect to its
insurers, in 1991, AGLC filed a declaratory judgement action against 23 of
its insurance companies. After the trial court entered a judgement adverse
to AGLC and AGLC appealed that ruling, the Eleventh Circuit Court of
Appeals held that the case did not present a case or controversy when
filed, and the case was remanded with instructions to dismiss. Since the
Eleventh Circuit's decision, AGLC has settled with, or is close to
settlement with, most of the major insurers. AGLC has not determined what
actions it will take with respect to non-settling insurers.

See Part I, Item 2 and Part II, Item 5, "Other Information -
Environmental Matters," of this Form 10-Q for additional information
regarding environmental response activities associated with MGP sites.

5. Competition - AGLC
AGLC competes to supply natural gas to interruptible customers who
are capable of switching to alternative fuels, including propane, fuel and
waste oils, electricity and, in some cases, combustible wood by-products.
AGLC also competes to supply gas to interruptible customers who might seek
to bypass its distribution system.

AGLC can price distribution services to interruptible customers four
ways. First, multiple rates are established under the rate schedules of
AGLC's tariff approved by the Georgia Commission. If an existing tariff
rate does not produce a price competitive with a customer's relevant
competitive alternative, three alternate pricing mechanisms exist:
Negotiated Contracts, Interruptible Transportation and Sales Maintenance
(ITSM) discounts and Special Contracts.

On February 17, 1995, the Georgia Commission approved a settlement
that permits AGLC to negotiate contracts with customers who have the option
of bypassing AGLC's facilities (Bypass Customers) to receive natural gas
from other suppliers. The bypass avoidance contracts (Negotiated Contracts)
can be renewable, provided the initial term does not exceed five years,
unless a longer term specifically is authorized by the Georgia Commission.
The rate provided by the Negotiated Contract may be lower than AGLC's filed
rate, but not less than AGLC's marginal cost of service to the potential
Bypass Customer. Service pursuant to a Negotiated Contract may commence
without Georgia Commission action, after a copy of the contract is filed
with the Georgia Commission. Negotiated Contracts may be rejected by the
Georgia Commission within 90 days of filing; absent such action, however,
the Negotiated Contracts remain in effect. None of the Negotiated Contracts
filed to date with the Georgia Commission have been rejected.

Page 9 of 20 Pages

<PAGE>

The settlement also provides for a bypass loss recovery mechanism to
operate until the earlier of September 30, 1998, or the effective date of
new rates for AGLC resulting from a general rate case. Under the recovery
mechanism, AGLC is allowed to recover from other customers 75% of the
difference between (a) the nongas cost revenue that was received from the
potential Bypass Customer during the most recent 12-month period and (b)
the nongas cost revenue that is calculated to be received from the lower
Negotiated Contract rate applied to the same volumetric level. Concerning
the remaining 25% of the difference, AGLC is allowed to retain a 44% share
of capacity release revenues in excess of $5 million until AGLC is made
whole for discounts from Negotiated Contracts. To the extent there are
additional capacity release revenues, AGLC is allowed to retain 15% of such
amounts.

In addition to Negotiated Contracts, which are designed to serve
existing and potential Bypass Customers, AGLC's ITSM Rider continues to
permit discounts for short-term transactions to compete with alternative
fuels. Revenue shortfalls, if any, from interruptible customers as measured
by the test-year interruptible revenues determined by the Georgia
Commission in AGLC's 1993 rate case will continue to be recovered under the
ITSM Rider.

The settlement approved by the Georgia Commission also provides that
AGLC may file contracts (Special Contracts) for Georgia Commission approval
if the service cannot be provided through the ITSM Rider, existing rate
schedules, or Negotiated Contract procedures. A Special Contract, for
example, could involve AGLC providing a long-term service contract to
compete with alternative fuels where physical bypass is not the relevant
competition.

Pursuant to the approved settlement, AGLC has filed and is providing
service pursuant to 46 Negotiated Contracts. Additionally, the Georgia
Commission has approved Special Contracts between AGLC and five
interruptible customers.

On July 22, 1996, Chattanooga filed a plan with the Tennessee
Regulatory Authority (TRA) that permits Chattanooga to negotiate contracts
with customers in Tennessee who have long-term competitive options,
including bypass. On November 27, 1996, the TRA approved a settlement that
permits Chattanooga to negotiate contracts with large commercial or
industrial customers who are capable of bypassing Chattanooga's
distribution system. The settlement provides for approval on an
experimental basis, with the TRA to review the measure two years from the
approval date. The pricing terms provided in any such contract may be
neither less than Chattanooga's marginal cost of providing service nor
greater than the filed tariff rate generally applicable to such service.
Chattanooga can recover 50% of the difference between the contract rate and
the applicable tariff rate through the balancing account of the purchased
gas adjustment provisions of Chattanooga's rate schedules.

6. Corporate Restructuring - AGLC

In November 1994 AGL Resources announced a corporate restructuring
plan and began its implementation during fiscal 1995. As a result of the
restructuring, AGLC combined offices, established centralized customer
service centers and reduced the average number of employees through
voluntary retirement, severance programs and attrition. Restructuring costs
of $43.1 million and $14.7 million, after income taxes, were recorded
during fiscal and calendar year 1995, respectively. The principal financial
effects of the restructuring charges were to increase obligations with
respect to pension benefits and postretirement benefits other than
pensions.

(The remainder of this page was
intentionally left blank.)

Page 10 of 20 Pages

<PAGE>

Item 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION

On March 6, 1996, AGL Resources Inc. (AGL Resources) became the
holding company for Atlanta Gas Light Company (AGLC), and its subsidiaries.
During calendar 1996, ownership of AGLC's nonregulated businesses was
transferred to AGL Resources and its various subsidiaries. The following
discussion and analysis reflects the results of operations and financial
condition of AGL Resources and factors expected to impact its future operations.
See Note 1 in Notes to Condensed Consolidated Financial Statements in this Form
10-Q.

Results of Operations

Three-Month Periods Ended December 31, 1996 and 1995

Explained below are the major factors that had a significant effect on
results of operations for the three-month period ended December 31, 1996,
compared with the same period in 1995.

Operating revenues increased 14.8% for the three-month period ended
December 31, 1996, compared with the same period in 1995 primarily due to (1) an
increase in the cost of the gas supply recovered from customers under the
purchased gas provisions of the utility's rate schedules, as explained in the
following paragraph, and (2) growth in the number of utility customers served.
The increase in operating revenues was offset partly by decreased volumes of gas
sold as a result of weather that was 26% warmer than the same period in 1995.

The utility balances the cost of gas with revenues collected from
customers under the purchased gas provisions of its rate schedules.
Underrecoveries or overrecoveries of gas costs are deferred and recorded as
current assets or liabilities, thereby eliminating the effect that recovery of
gas costs would otherwise have on net income. Cost of gas increased 21.8% for
the three-month period ended December 31, 1996, compared with the same period in
1995. The increase in the cost of the utility's gas supply was primarily due to
(1) an increase in the cost of gas purchased for system supply and (2) an
increase in the cost of gas withdrawn from underground storage. The increase in
cost of gas was offset partly by decreased volumes of gas sold as a result of
weather that was 26% warmer than the same period in 1995.

Operating margin increased 5.3% for the three-month period ended December
31, 1996, compared with the same period in 1995 primarily due to growth in the
number of utility customers served. Weather normalization adjustment riders
(WNARs) approved by the Georgia Commission and the TRA stabilized operating
margin at the level which would occur with normal weather for the three-month
periods ended December 31, 1996 and 1995. As a result of the WNARs, weather
conditions experienced do not have a significant impact on the comparability of
operating margin.

Operating expenses increased 8.3% for the three-month period ended
December 31, 1996, compared with the same period in 1995 primarily due to (1)
increased labor and labor-related expenses, (2) increased uncollectible accounts
expense and (3) increased depreciation expense recorded as a result of increased
property subject to depreciation.

Other income increased $1.2 million for the three-month period ended
December 31, 1996, compared with the same period in 1995 primarily due to (1)
the recovery from customers of carrying costs not included in base rates related
to storage gas inventories, (2) an increase in the recovery of carrying costs
attributable to AGLC's Integrated Resource Plan and (3) the recovery of carrying
costs attributable to an increase in underrecovered deferred purchased gas
costs.

Interest expense increased $0.8 million for the three-month period ended
December 31, 1996, compared with the same period in 1995 primarily due to
increased amounts of short-term and long-term debt outstanding.

Page 11 of 20 Pages

<PAGE>

Income taxes increased $0.6 million for the three-month period ended
December 31, 1996, compared with the same period in 1995 primarily due to
increased taxable income.

Net income for the three-month period ended December 31, 1996, was $29.6
million, compared with net income of $29.1 million in 1995. Earnings per share
of common stock were $0.53 for the three-month periods ended December 31, 1996,
and 1995. The increase in net income was primarily due to (1) increased other
income and (2) increased operating margin. The increase in net income was offset
partly by increased other operating expenses.

Twelve-Month Periods Ended December 31, 1996 and 1995

Explained below are the major factors that had a significant effect on
results of operations for the twelve-month period ended December 31, 1996,
compared with the same period in 1995.

Operating revenues increased 19.5% for the twelve-month period ended
December 31, 1996, compared with the same period in 1995 primarily due to (1) an
increase in the cost of the gas supply recovered from customers under the
purchased gas provisions of the utility's rate schedules, as explained in the
following paragraph and (2) growth in the number of utility customers served.

The utility balances the cost of gas with revenues collected from
customers under the purchased gas provisions of its rate schedules.
Underrecoveries or overrecoveries of gas costs are deferred and recorded as
current assets or liabilities, thereby eliminating the effect that recovery of
gas costs would otherwise have on net income. Cost of gas increased 33.4% for
the twelve-month period ended December 31, 1996, compared with the same period
in 1995. The increase in the cost of the utility's gas supply was primarily due
to an increase in the cost of gas purchased for system supply.

Operating margin increased 3.4% for the twelve-month period ended
December 31, 1996, compared with the same period in 1995 primarily due to (1)
revised firm service rates, effective October 3, 1995, which shift margins from
heating months into non-heating months (see Note 3 to Notes to Condensed
Consolidated Financial Statements in this Form 10-Q), (2) growth in the number
of utility customers served and (3) a revenue increase granted by the TRA
effective November 1, 1995. WNARs stabilized operating margin at the level which
would occur with normal weather for the twelve-month periods ended December 31,
1996 and 1995. As a result of the WNARs, weather conditions experienced do not
have a significant impact on the comparability of operating margin.

Operating expenses increased 4.6% for the twelve-month period ended
December 31, 1996, compared with the same period in 1995 primarily due to (1)
increased depreciation expense recorded as a result of increased property
subject to depreciation, (2) increased uncollectible accounts expense and (3)
expenses associated with the formation of AGL Resources. Total other operating
expenses decreased primarily due to restructuring costs of $25.8 million
recorded during the twelve-month period ended December 31, 1995. See Note 6 to
Notes to Condensed Consolidated Financial Statements in this Form 10-Q.

Other income increased $11.4 million for the twelve-month period ended
December 31, 1996, compared with the same period in 1995 primarily due to (1)
income from a gas marketing joint venture, (2) the recovery of carrying costs
attributable to an increase in underrecovered deferred purchased gas costs and
(3) recoveries of environmental response costs from insurance carriers and third
parties.

Interest expense increased $2.8 million for the twelve-month period ended
December 31, 1996, compared with the same period in 1995 primarily due to
increased amounts of short-term and long-term debt outstanding.

Income taxes increased $14.8 million for the twelve-month period ended
December 31, 1996, compared with the same period in 1995 primarily due to
increased taxable income.

Page 12 of 20 Pages

<PAGE>

Net income for the twelve-month period ended December 31, 1996, was $76.1
million, compared with net income of $54.8 million in 1995. Earnings per share
of common stock were $1.37 for the twelve-month period ended December 31, 1996,
compared with earnings per share of $1.03 in 1995. The increases in net income
and earnings per share were primarily due to (1) restructuring costs of $14.7
million (after income taxes) recorded in 1995, (2) increased operating margin
and (3) increased other income. The increases in net income and earnings per
share were offset partly by increased other operating expenses. The increase in
earnings per share was also offset partly by an increase in the average number
of common shares outstanding.

Financial Condition

AGL Resources' primary business is highly seasonal in nature and
typically shows a substantial increase in accounts receivable from customers and
accounts payable to gas suppliers from September 30 to December 31 as a result
of colder weather. The utility also uses gas stored underground and liquefied
natural gas to serve its customers during periods of colder weather. As a
result, accounts receivable increased $128.7 million and inventory of gas stored
underground decreased $30.9 million during the three months ended December 31,
1996. As a result of weather that was 13.2% warmer than normal during the
three-month period ended December 31, 1996, significant usage of liquefied
natural gas was not necessary to meet system demand. Accounts payable increased
$35 million during the three months ended December 31, 1996, primarily due to a
$38.4 million increase in accounts payable to gas suppliers.

Accounts receivable increased $24.1 million from December 31, 1995 to
December 31, 1996, primarily due to increased operating revenues. Inventory of
gas stored underground and liquefied natural gas increased $31.5 million from
December 31, 1995 to December 31, 1996, primarily due to an increase in the cost
of gas injected into storage. Accounts payable increased $25.6 million from
December 31, 1995 to December 31, 1996, primarily due to a $14.5 million
increase in accounts payable to gas suppliers.

The purchasing practices of AGLC are subject to review by the Georgia
Commission under legislation enacted by the Georgia General Assembly (Gas Supply
Plan Legislation). The Gas Supply Plan Legislation establishes procedures for
review and approval, in advance, of gas supply plans for gas utilities and gas
cost adjustment factors applicable to firm service customers of gas utilities.
Pursuant to AGLC's approved Gas Supply Plan for fiscal year 1997, gas supply
purchases are being recovered under the purchased gas provisions of AGLC's rate
schedules. The plan also allows recovery from the customers of AGLC of Order 636
transition costs that are currently being charged by AGLC's pipeline suppliers.

AGLC currently estimates that its portion of transition costs resulting
from FERC Order 636 restructuring proceedings from all of its pipeline
suppliers, that have been filed to be recovered to date, could be as high as
approximately $113.6 million. This estimate assumes both that FERC approval of
Southern Natural Gas Company's restructuring settlement agreement is not
overturned on judicial review and that FERC does not alter its Gas Supply
Realignment (GSR) recovery policies on remand from the United States Court of
Appeals for the District of Columbia Circuit. Such filings currently are pending
final FERC approval, and the transition costs are being collected subject to
refund. Approximately $85.2 million of such costs have been incurred by AGLC as
of December 31, 1996, recovery of which is provided under the purchased gas
provisions of AGLC's rate schedules. For further discussion of the effects of
FERC Order 636 on AGLC, see Part II, Item 5, "Other Information - Federal
Regulatory Matters" of this Form 10-Q.

As noted above, AGLC recovers the cost of gas under the purchased gas
provisions of its rate schedules. AGLC was in an underrecovery position of $31.4
million as of December 31, 1996, $7.5 million as of December 31, 1995, and $4.7
million as of September 30, 1996. Under the provisions of the utility's rate
schedules, any underrecoveries of gas costs are included in current assets and
have no effect on net income.

Cash and cash equivalents decreased $7.6 million and $4.7 million for the
three-month and twelve-month periods ended December 31, 1996, respectively
primarily to offset other working capital requirements.

Page 13 of 20 Pages

<PAGE>

The expenditures for plant and other property totaled $29.3 million and
$135.2 million for the three-month and twelve-month periods ended December 31,
1996, respectively.

Service Company was formed during fiscal 1996 to provide corporate
support services to AGL Resources and its subsidiaries. The transfer of related
assets and accumulated deferred income tax liabilities from AGLC to Service
Company and other nonregulated subsidiaries was effected through noncash
dividends of $34.3 million during the fourth quarter of fiscal 1996 and $4.8
million during the first quarter of fiscal 1997. As a result of those noncash
dividends, utility plant-net decreased and nonutility property-net increased by
approximately $48.4 million. Expenses of Service Company are allocated to AGL
Resources and its subsidiaries.

AGLC has accrued liabilities of $31.3 million as of December 31, 1996,
$28.6 million as of December 31, 1995, and $30.4 million as of September 30,
1996, for estimated future expenditures which are expected to be made over a
period of several years in connection with or related to MGP sites. The Georgia
Commission has approved the recovery by AGLC of Environmental Response Costs, as
defined in Note 4 to Notes to Condensed Consolidated Financial Statements in
this Form 10-Q, pursuant to the ERCRR. In connection with the ERCRR, the staff
of the Georgia Commission has undertaken a financial and management process
audit related to the MGP sites, cleanup activities at the sites and
environmental response costs that have been incurred for purposes of the ERCRR.
On October 10, 1996, the Georgia Commission issued an order to prohibit funds
collected through the ERCRR from being used for the payment of any damage award,
including punitive damages, as a result of any litigation associated with any of
the MGP sites in which AGLC is involved. AGLC is currently pursuing judicial
review of the October 10, 1996, order.

On June 16, 1995, approximately 3.0 million shares of common stock were
issued and sold at a price of $16.81 per share, resulting in net proceeds of
$48.6 million. Proceeds from that sale of common stock were used to finance
capital expenditures and for other corporate purposes.

Short-term debt increased $36.8 million and $32.5 million for the
three-month and twelve-month periods ended December 31, 1996, respectively,
primarily to meet increased working capital requirements.

Long-term debt outstanding increased $30 million during the three-month
and twelve-month periods ended December 31, 1996, as a result of the issuance by
AGLC of $30 million in principal amount of Medium-Term Notes, Series C in
November 1996. The notes were issued under a registration statement filed with
the Securities and Exchange Commission in September 1993 covering the periodic
offer and sale of up to $300 million in principal amount of Medium-Term Notes,
Series C. As of December 31, 1996, AGLC had issued $224.5 million in principal
amount of Medium-Term Notes Series C, with maturity dates ranging from ten to 30
years and with interest rates ranging from 5.9% to 7.2%. The notes are issued
under an Indenture dated as of December 1, 1989, as supplemented and modified,
and are unsecured and rank on a parity with all other unsecured indebtedness of
AGLC. Net proceeds from the issuance of Medium-Term Notes were used to fund
capital expenditures, to repay short-term debt and for other corporate purposes.

On February 17, 1995, the Georgia Commission approved a settlement that
permits AGLC to negotiate contracts with customers who have the option of
bypassing AGLC's facilities (Bypass Customers) to receive natural gas from other
suppliers. The bypass avoidance contracts (Negotiated Contracts) can be
renewable, provided the initial term does not exceed five years, unless a longer
term specifically is authorized by the Georgia Commission. The rate provided by
the Negotiated Contract may be lower than AGLC's filed rate, but not less than
AGLC's marginal cost of service to the potential Bypass Customer. Service
pursuant to a Negotiated Contract may commence without Georgia Commission
action, after a copy of the contract is filed with the Georgia Commission.
Negotiated Contracts may be rejected by the Georgia Commission within 90 days of
filing; absent such action, however, the Negotiated Contracts remain in effect.
None of the Negotiated Contracts filed to date with the Georgia Commission have
been rejected.

Page 14 of 20 Pages

<PAGE>

On July 22, 1996, Chattanooga filed a plan with the TRA that permits
Chattanooga to negotiate contracts with customers in Tennessee who have
long-term competitive options, including bypass. On November 27, 1996, the TRA
approved a settlement that permits Chattanooga to negotiate contracts with large
commercial or industrial customers who are capable of bypassing Chattanooga's
distribution system. The settlement provides for approval on an experimental
basis, with the TRA to review the measure two years from the approval date. The
pricing terms provided in any such contract may be neither less than
Chattanooga's marginal cost of providing service nor greater than the filed
tariff rate generally applicable to such service. Chattanooga can recover 50% of
the difference between the contract rate and the applicable tariff rate through
the balancing account of the purchased gas adjustment provisions of
Chattanooga's rate schedules.

PART II -- OTHER INFORMATION

"Part II -- Other Information" is intended to supplement information
contained in the Annual Report on Form 10-K for the fiscal year ended September
30, 1996, and should be read in conjunction therewith.

Item 1. Legal Proceedings
See Item 5.

Item 5. Other Information

Federal Regulatory Matters

Order No. 636

AGLC currently estimates that its portion of transition costs (which
include unrecovered gas costs, GSR costs and various stranded costs resulting
from unbundling of interstate pipeline sales service) from all of its pipeline
suppliers filed with the FERC to date to be recovered could be as high as
approximately $113.6 million. AGLC's estimate is based on the most recent
estimates of transition costs filed by its pipeline suppliers with the FERC, and
assumes both that FERC approval of Southern Natural Gas Company's (Southern)
restructuring settlement agreement is not overturned on judicial review and that
FERC does not alter its GSR recovery policies on remand from the United States
Court of Appeals for the District of Columbia Circuit in United Distribution
Cos. v. FERC, in which the court questioned the FERC's GSR recovery policy. Such
filings by AGLC's pipeline suppliers are pending final FERC approval.
Approximately $85.2 million of transition costs have been incurred by AGLC as of
December 31, 1996, and are being recovered from customers under the purchased
gas provisions of AGLC's rate schedules. Details concerning the status of the
Order No. 636 restructuring proceedings involving the pipelines that serve AGLC
directly are set forth below.

SOUTHERN GSR Cost Recovery Proceeding. Southern continues to make quarterly and
monthly transition cost filings to recover costs from contesting parties to the
settlement, and the FERC has ordered that such costs may be recovered by
Southern, subject to the outcome of a hearing for contesting parties. However,
since AGLC is a consenting party, its GSR and other transition cost charges are
in accordance with Southern's restructuring settlement. Assuming the FERC's
approval of the settlement is upheld on judicial review, AGLC's share of
Southern's transition costs is estimated to be $88 million. This estimate would
not be affected by the remand of Order No. 636, unless FERC's approval of the
settlement is not upheld on judicial review. As of December 31, 1996, $74.7
million of such costs have already been incurred by AGLC.

Page 15 of 20 Pages

<PAGE>

TENNESSEE GSR Cost Recovery Proceeding. Tennessee Gas Pipeline Company
(Tennessee) has continued to make quarterly GSR cost recovery filings with the
FERC. On December 26, 1996, Tennessee filed with the FERC to recover an
additional $33 million in GSR costs. AGLC protested this filing, but the FERC
has not yet acted upon Tennessee's filing. AGLC's estimated liability for GSR
costs as a result of Tennessee's filings is approximately $17.4 million, subject
to possible reduction based upon the hearing FERC established to investigate
Tennessee's costs. AGLC is actively participating in Tennessee's GSR cost
recovery proceeding. As of December 31, 1996, $5.7 million of such costs have
already been incurred by AGLC. In addition, Tennessee and its customers have
reached an agreement in principle which would resolve all outstanding transition
cost issues; it is not possible, however, to say when this agreement will be
fully documented and filed with the FERC as a settlement, or whether the FERC
would approve such a settlement.

FERC Rate Proceedings

ANR PIPELINE On January 10, 1997, the presiding administrative law judge (ALJ)
issued an initial decision in ANR's rate proceeding. The ALJ upheld AGLC's
position that ANR's proposed rate for certain transportation services Southern
purchases from ANR, for the benefit of AGLC, was excessive. Under the initial
decision, Southern would receive approximately $7 million in refunds from ANR,
which amount would be flowed through to AGLC. The initial decision would also
reduce the rate for future service by approximately $3.5 million annually. AGLC
had sought a prospective annual reduction of up to $4.5 million. The initial
decision is subject to the possible filing of exceptions before the FERC, and
thus is not yet final.

Arcadian

On December 30, 1996, AGLC filed a petition in the United States Court of
Appeals for the Eleventh Circuit, seeking judicial review of the FERC's November
26, 1996, order rejecting AGLC's request for rehearing of the FERC's approval of
the settlement between Southern and Arcadian Corporation. On January 6, 1997,
AGLC moved to consolidate this appeal with its two prior appeals of the FERC's
orders in the Arcadian proceeding, which appeals had been held in abeyance
pending action by the FERC on AGLC's rehearing request before the FERC. The
court has not yet acted on AGLC's motion, and AGLC's three appeals remain
pending before the court.

AGLC cannot predict the outcome of these federal proceedings nor can it
determine the ultimate effect, if any, such proceedings may have on AGLC.

State Regulatory Matters

On February 17, 1995, the Georgia Commission approved a settlement that
permits AGLC to negotiate contracts with customers who have the option to bypass
AGLC's facilities and receive natural gas from other suppliers. A bypass
avoidance contract (Negotiated Contract) can be renewable, provided the initial
term does not exceed five years, unless a longer term specifically is authorized
by the Georgia Commission. The rate provided by the Negotiated Contract may be
lower than AGLC's filed rate, but not less than AGLC's marginal cost of service
to the potential Bypass Customer. Negotiated Contracts may be rejected by the
Georgia Commission within 90 days of filing; none of the Negotiated Contracts
filed to date with the Georgia Commission have been rejected.

On May 21, 1996, the Georgia Commission adopted a Policy Statement
following its November 20, 1995 Notice of Inquiry concerning changes in state
regulatory guidelines to respond to trends toward increased competition in
natural gas markets. Among other things, the Policy Statement sets up a
distinction between competitive and natural monopoly services; favors
performance-based regulation in lieu of traditional cost-of-service regulation;
calls for unbundling interruptible service; directs the Georgia Commission's
staff to develop standards of conduct for utilities and their marketing
affiliates; and invites pilot programs for unbundling services to residential
and small business customers.

Page 16 of 20 Pages

<PAGE>

Consistent with specific goals in the Georgia Commission's Policy
Statement, AGLC filed on June 10, 1996, the Natural Gas Service Provider
Selection Plan (the Plan), a comprehensive plan for serving interruptible
markets. The Plan proposes further unbundling of services to provide large
customers more service options and the ability to purchase only those services
they require. Proposed tariff changes would allow AGLC to cease its sales
service function and the associated sales obligation for large customers;
implement delivery-only service for large customers on a firm and interruptible
basis; and provide pooling services to marketers. The Plan also includes
proposed standards of conduct for utilities and utility marketing affiliates.
Hearings on the proposal are in process before the Georgia Commission with a
decision expected by April 1997.

Another regulatory reform initiative is before the Georgia General
Assembly. The 1996 Georgia General Assembly considered, but delayed action on,
The Natural Gas Fair Pricing Act, which would have allowed local gas companies
to negotiate contract prices and terms for gas services with large commercial
and industrial customers absent Georgia Commission-mandated rates. The Georgia
General Assembly stated through resolutions a desire to fashion a more
comprehensive approach to deregulation and unbundling of natural gas services in
Georgia. Those resolutions, adopted during the 1996 session, created Senate and
House committees to study and recommend a comprehensive course of action by
December 31, 1996, for deregulating natural gas markets in Georgia.

The separate Senate and House study committees conducted joint meetings
during September, October and November 1996, with the goal of crafting a
comprehensive deregulation bill for the 1997 Georgia General Assembly. The
committees issued a joint report in December 1996, setting forth the following
findings of fact: (1) unbundling gas services, and providing such services on an
open access, non-discriminatory basis, would foster a more competitive market
for the local distribution of natural gas; (2) performance-based ratemaking for
regulated, monopoly services could produce better results than current
cost-of-service ratemaking for consumers of natural gas and for local
distribution companies; (3) any company which proposes to serve firm
(residential and small business) natural gas consumers should be subject to
certification of its financial and technical expertise; (4) safeguards must be
in place to ensure pipeline safety and to protect against cross-subsidy, unfair
and deceptive acts and practices, and unfair competition as competition develops
in the local distribution of natural gas; (5) it is appropriate for a natural
gas local distribution company to recover from its firm customers "stranded
costs" that the Georgia Commission determines are prudently incurred; and (6) a
"one-size-fits-all" approach to introducing competition into Georgia's natural
gas markets may not be appropriate, due to the difference in size and markets
served of Georgia's natural gas distribution companies.

In response to the joint report of the study committees, Senate Bill 215
was introduced in the 1997 Georgia General Assembly. The Bill entitled, the
Natural Gas Competition and Deregulation Act, would unbundle services to all of
AGLC's natural gas customers, continue AGLC's role as the intrastate transporter
of natural gas, allow AGLC to assign firm delivery capacity to certificated
marketers who would sell the gas commodity, and create a secondary
transportation market for interruptible transportation capacity.

AGLC supports both the Plan under consideration by the Georgia Commission
and the Bill under consideration by the Georgia General Assembly. AGLC currently
makes no profit on the purchase and sale of gas because actual gas costs are
passed through to customers under the purchased gas provisions of AGLC's rate
schedules. Earnings are provided through revenues received for intrastate
transportation of the commodity. Consequently, allowing AGLC to cease its sales
service function and the associated sales obligation would not adversely affect
AGLC's ability to earn a return on its distribution system investment. In
addition, allowing gas to be sold to all customers by numerous marketers,
including nonregulated subsidiaries of AGL Resources, would provide new business
opportunities.

Page 17 of 20 Pages

<PAGE>

may be neither less than Chattanooga's marginal cost of providing service nor
greater than the filed tariff rate generally applicable to such service.
Chattanooga can recover 50% of the difference between the contract rate and the
applicable tariff rate through the balancing account of the purchased gas
adjustment provisions of Chattanooga's rate schedules.

Environmental Matters

AGLC has identified nine sites in Georgia where it currently owns all or
part of an MGP site. In addition, AGLC has identified three other sites in
Georgia which AGLC does not now own, but which may have been associated with the
operation of MGPs by AGLC or its predecessors. There are also three sites in
Florida which have been investigated by environmental authorities in connection
with which AGLC may be contacted as a potentially responsible party.

AGLC's response to MGP sites in Georgia is proceeding under two state
regulatory programs. First, AGLC has entered into consent orders with the EPD
with respect to four sites: Augusta, Griffin, Savannah and Valdosta. Under these
consent orders, AGLC is obliged to investigate and, if necessary, remediate
impacts at the site. AGLC developed a proposed CAP for the Griffin site and has
now conducted certain follow-up investigations in response to EPD's comments.
Assessment activities were conducted at Augusta and are planned for Savannah
during January 1997. In addition, AGLC is in the process of planning certain
interim remedial measures at the Augusta MGP site. Those measures are expected
to be implemented principally during fiscal 1997.

Second, AGLC's response to all Georgia sites is proceeding in substantial
compliance with Georgia's HSRA. AGLC submitted to EPD formal notifications
pertaining to all of its owned MGP sites, and EPD had listed seven sites
(Athens, Augusta, Brunswick, Griffin, Savannah, Valdosta and Waycross) on the
state's HSI. EPD has not listed the Macon site on the HSI at this time. EPD has
also listed the Rome site, which AGLC has acquired, on the HSI. Under the HSRA
regulations, the four sites subject to consent orders are presumed to require
corrective action; EPD will determine whether corrective action is required at
the four remaining sites (Athens, Brunswick, Rome and Waycross) in due course.
In that respect, however, AGLC has submitted CSRs for the Athens, Brunswick and
Rome MGP sites, and AGLC has concluded that these sites do not meet applicable
risk reduction standards. Accordingly, some degree of response action is likely
to be required at those sites.

AGLC has estimated that, under the most favorable circumstances
reasonably possible, the future cost to AGLC of investigating and remediating
the former MGP sites could be as low as $31.3 million. Alternatively, AGLC has
estimated that, under reasonably possible unfavorable circumstances, the future
cost to AGLC of investigating and remediating the former MGP sites could be as
high as $117.3 million. Those estimates have been adjusted from the September
30, 1996 estimates to reflect settlements of property damage claims at certain
sites. If additional sites were added to those for which action now appears
reasonably likely, or if substantially more stringent cleanups were required, or
if site conditions are markedly worse than those now anticipated, the costs
could be higher. In addition, those costs do not include other expenses, such as
property damage claims, for which AGLC may ultimately be held liable, but for
which neither the existence nor the amount of such liabilities can be reasonably
forecast. Within the stated range of $31.3 million to $117.3 million, no amount
within the range can be reliably identified as a better estimate than any other
estimate. Therefore, a liability at the low end of this range and a
corresponding regulatory asset have been recorded in the financial statements.

AGLC has two means of recovering the expenses associated with the former
MGP sites. First, the Georgia Commission has approved the recovery by AGLC of
Environmental Response Costs, as defined, pursuant to AGLC's ERCRR. For purposes
of the ERCRR, Environmental Response Costs include investigation, testing,
remediation and litigation costs and expenses or other liabilities relating to
or arising from MGP sites. In connection with the ERCRR, the staff of the
Georgia Commission has undertaken a financial and management process audit
related to the MGP sites, cleanup activities at the sites and environmental
response costs that have been incurred for purposes of the ERCRR. On October 10,
1996, the Georgia Commission issued an order to prohibit funds collected through
the ERCRR from being used for the payment of any damage award, including
punitive damages, as a result of any litigation associated with any of the MGP
sites in which AGLC is involved. AGLC is currently pursuing judicial review of
the October 10, 1996, order.

Page 18 of 20 Pages

<PAGE>

Second, AGLC intends to seek recovery of appropriate costs from its
insurers and other potentially responsible parties. See Note 4 to Notes to
Condensed Consolidated Financial Statements in this Form 10-Q.

Other Legal Proceedings

With regard to other legal proceedings, AGL Resources is a party, as both
plaintiff and defendant, to a number of other suits, claims and counterclaims on
an ongoing basis. Management believes that the outcome of all litigation in
which it is involved will not have a material adverse effect on the consolidated
financial statements of AGL Resources.

New Joint Venture and Propane Company Acquisition

During December 1996, AGL Resources signed a letter of intent with Transco
to form a joint venture, which would be known as Cumberland Pipeline Company, to
operate and market interstate pipeline capacity. The transaction is subject to
various corporate and regulatory approvals.

Initially, the 135-mile Cumberland pipeline will include existing pipeline
infrastructure owned by the two companies. Projected to enter service by
November 1, 2000, Cumberland will provide service to AGLC, Chattanooga and other
markets throughout the eastern Tennessee Valley and northwest Georgia and
northeast Alabama.

Affiliates of Transco and AGL Resources each will own 50% of the new
pipeline company, and an affiliate of Transco will serve as operator. The
project will be submitted to the FERC for approval in the fourth quarter of
1997.

Effective February 1, 1997, Georgia Gas Service Company (Georgia Gas
Service), a subsidiary of AGL Investments, acquired, through a wholly-owned
subsidiary, eight related companies (the Jordan Gas Propane Companies). The
acquisition of the Jordan Gas Propane Companies is expected to increase the
retail sales of Georgia Gas Service's propane operations from 7 million gallons
annually to approximately 20 million gallons annually. As a result of the
acquisition, Georgia Gas Service will serve approximately 38,000 customers in
northwest Georgia and northern Alabama.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

3.2 - Bylaws.

10.1 - Executive Compensation Plans and Arrangements.

10.1.a - Second Amendment to the AGL Resources Inc. Long-Term
Stock IncentivePlan of 1990.

10.1.b - Fourth Amendment to the AGL Resources Inc. Long-Term
Stock Incentive Plan of 1990.

10.1.c - Fifth Amendment to the AGL Resources Inc. Long-Term
Stock Incentive Plan of 1990.

10.1.d - First Amendment to the AGL Resources Inc. Nonqualified
Savings Plan.

27 - Financial Data Schedule.

(b) Reports on Form 8-K.
None.

Page 19 of 20 Pages

<PAGE>

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.

AGL Resources Inc.
(Registrant)

Date February 14, 1997 /s/ David R. Jones
David R. Jones
President and Chief Executive Officer

Date February 14, 1997 /s/ J. Michael Riley
J. Michael Riley
Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)

Page 20 of 20 Pages

<PAGE>

<ARTICLE> UT
<CIK> 0001004155
<NAME> AGL RESOURCES INC.
<MULTIPLIER> 1,000,000

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,367
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<LONG-TERM-DEBT-NET> 585
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0
<CAPITAL-LEASE-OBLIGATIONS> 0
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<INCOME-BEFORE-INTEREST-EXPEN> 45
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<EARNINGS-AVAILABLE-FOR-COMM> 30
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</TABLE>

BYLAWS

AGL RESOURCES INC.

ARTICLE I

SHAREHOLDERS

SECTION 1.1. Annual Meetings. The annual meeting of the Shareholders of the
Corporation shall be held each year for the purposes of electing Directors and
of transacting such other business as properly may be brought before the
meeting. To be properly brought before the meeting, business must be brought
before the meeting (i) by or at the direction of the Board of Directors or (ii)
by any Shareholder of the Corporation entitled to vote at the meeting who
complies with the procedures set forth in Sections 1.2 through 1.2.2 of this
Article; provided, in each case, that such business proposed to be conducted is,
under the law, an appropriate subject for Shareholder action.

SECTION 1.2. Notice of Business to Be Brought Before Annual Meetings. For
business to be properly brought before an annual meeting by a Shareholder, the
Shareholder must have given timely notice thereof in writing to the Secretary of
the Corporation. To be timely, in the case of an annual meeting of Shareholders,
a Shareholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation, in accordance with Securities
and Exchange Commission Rule 14a-8(a)(3)(i), not less than 120 calendar days
prior to the date of the Corporation's proxy statement released to Shareholders
in connection with the previous year's annual meeting of Shareholders, except
that if no annual meeting of Shareholders was held in the previous year or if
the date of the annual meeting of Shareholders has been changed by more than 30
calendar days from the date contemplated at the time of the previous year's
proxy statement, the notice shall be received at the principal executive offices
of the Corporation not less than the later of (i) 150 calendar days prior to the
date of the contemplated annual meeting or (ii) the date which is 10 calendar
days after the date of the first public announcement or other notification to
the Shareholders of the date of the contemplated annual meeting.

SECTION 1.2.1. Notice of Business to Be Brought Before Special Meetings. In
the case of special meetings of Shareholders, held pursuant to Section 1.3 of
this Article, a Shareholder's notice must be delivered to or mailed and received
at the principal executive offices of the Corporation, in accordance with
Securities and Exchange Commission Rule 14a-8(a)(3)(i), not less than 120
calendar days prior to the date of the special meeting.

SECTION 1.2.2. Contents of Notice. A Shareholder's notice to the Secretary
shall set forth as to each matter such Shareholder proposes to bring before the
annual meeting (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for

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conducting such business at the annual meeting; (ii) the name and address, as
they appear on the Corporation's books, of the Shareholder proposing such
business; (iii) the class and number of shares of the Corporation which are
beneficially owned by such Shareholder; (iv) the dates upon which the
Shareholder acquired such shares; (v) documentary support for any claim of
beneficial ownership, (vi) any material interest of such Shareholder in such
business; (vii) a statement in support of the matter and any other information
required by said Rule 14a-8; and (viii) as to each person whom the Shareholder
proposes to nominate for election or reelection as Director all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of Directors in an election contest, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended, and Rule 14a-1 thereunder (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a Director if elected).

SECTION 1.2.3. Determination of Validity of Notice. The chairman of an
annual meeting may, if the facts warrant, determine and declare to the meeting
that business was not properly brought before the meeting in accordance with the
provisions of Sections 1.2 through 1.2.2 of this Article, and, if he should so
determine, he shall so declare to the meeting and any such business so
determined to be not properly brought before the meeting shall not be
transacted, or in the case of persons so nominated, not be eligible for
election.

SECTION 1.3. Special Meetings. The Corporation shall hold a special meeting
of Shareholders on call of the Board of Directors or the Executive Committee,
the Chairman of the Board of Directors, the President, or, upon delivery to the
Corporation's Secretary of a signed and dated written request setting out the
purpose or purposes for the meeting, on call of the holders of 100% of the votes
entitled to be cast on any issue proposed to be considered at the proposed
special meeting. Only business within the purpose or purposes described in the
notice of special meeting required by Section 1.5 below may be conducted at a
special meeting of the Shareholders.

SECTION 1.4. Date, Time and Place of Meetings. Annual meetings of the
Shareholders shall be held on such date and at such time and place, within or
without the State of Georgia, as may be fixed by the Board of Directors. Special
meetings of Shareholders shall be held on such date and at such time and place,
within or without the State of Georgia, as may be fixed from time to time by the
Board of Directors. The date, time and place of all meetings shall be stated in
the notice of the meeting or in a duly executed waiver of notice thereof. If no
designation is made, the place of the meeting shall be the principal executive
offices of the Corporation.

SECTION 1.5. Notice of Meetings. The Secretary or an Assistant Secretary
shall deliver, either personally or by mailing it, postage prepaid, a written
notice of the place, day, and time of all meetings of the Shareholders not less
than ten (10) nor more than sixty (60) days before the meeting date to each
Shareholder of record entitled to vote at such meeting. Unless otherwise
required or permitted by law, written notice is effective when mailed, if mailed
with postage prepaid and correctly addressed to the Shareholder's address shown
in the Corporation's current record of Shareholders. It shall not be necessary
that notice of an annual meeting include a description of the purpose or
purposes for which the meeting is called. In the case of a special meeting, the
purpose

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or purposes for which the meeting is called shall be included in the notice of
the special meeting. If an annual or special Shareholders' meeting is adjourned
to a different date, time, or place, notice of the new date, time, or place need
not be given if the new date, time, or place is announced at the meeting before
adjournment. However, if a new record date for the adjourned meeting is or must
be fixed under Section 1.9 herein, notice of the adjourned meeting must be given
to persons who are Shareholders as of the new record date.

SECTION 1.6. Record Date. The Board of Directors, in order to determine the
Shareholders entitled to notice of or to vote at any meeting of the Shareholders
or any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or to receive payment of any dividend or other distribution
or allotment of any rights, or to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
shall fix in advance a record date that may not be more than seventy (70) days
before the meeting or action requiring a determination of Shareholders. Only
such Shareholders as shall be Shareholders of record on the date fixed shall be
entitled to such notice of or to vote at such meeting or any adjournment
thereof, or to receive payment of any such dividend or other distribution or
allotment of any rights, or to exercise any such rights in respect of stock, or
to take any such other lawful action, as the case may be, notwithstanding any
transfer of any stock on the books of the Corporation after any such record date
fixed as aforesaid. The record date shall apply to any adjournment of the
meeting except that the Board of Directors shall fix a new record date for the
adjourned meeting if the meeting is adjourned to a date more than 120 days after
the date fixed for the original meeting.

SECTION 1.6. Shareholders' List for Meeting. After fixing a record date for
a meeting, the Corporation shall prepare an alphabetical list of the names of
all Shareholders who are entitled to notice of the Shareholders' meeting. The
list shall be arranged by voting group (and within each voting group by class or
series of shares) and show the address of and number of shares held by each
Shareholder. The Corporation shall make the Shareholders' list available for
inspection by any Shareholder, his agent, or his attorney at the time and place
of the meeting.

SECTION 1.8. Quorum. Subject to any express provision of law or the
Articles of Incorporation, a majority of the votes entitled to be cast by all
shares voting together as a group shall constitute a quorum for the transaction
of business at all meetings of the Shareholders. Whenever a class of shares or
series of shares is entitled to vote as a separate voting group on a matter, a
majority of the votes entitled to be cast by each voting group so entitled shall
constitute a quorum for purposes of action on any matter requiring such separate
voting. Once a share is represented, either in person or by proxy, for any
purpose at a meeting other than solely to object to holding a meeting or
transacting business at the meeting, it is deemed present for quorum purposes
for the remainder of the meeting and for any adjournment of that meeting unless
a new record date is set for the adjourned meeting.

SECTION 1.9. Adjournment of Meetings. The holders of a majority of the
voting shares represented at a meeting, or the Chairman of the Board or the
President, whether or not a quorum is present, shall have the power to adjourn
the meeting from time to time, without notice other than announcement at the
meeting. At such adjourned meeting at which a quorum shall be

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present or represented, any business may be transacted which might have been
transacted at the meeting as originally notified. If after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each Shareholder of record entitled to vote at the
adjourned meeting.

SECTION 1.10. Vote Required. When a quorum exists, action on a matter
(other than the election of Directors) by a voting group is approved if the
votes cast within the voting group favoring the action exceed the votes cast
opposing the action, unless the Articles of Incorporation, a bylaw authorized by
the Articles of Incorporation or express provision of law requires a greater
number of affirmative votes. Unless otherwise provided in the Articles of
Incorporation, Directors are elected by a plurality of the votes cast by the
shares entitled to vote in the election at a meeting at which a quorum is
present. Shareholders do not have the right to cumulate their votes unless the
Articles of Incorporation so provide.

SECTION 1.11. Voting Entitlement of Shares. Unless otherwise provided in
the Articles of Incorporation, each Shareholder, at every meeting of the
Shareholders, shall be entitled to cast one vote, either in person or by written
proxy, for each share standing in his or her name on the books of the
Corporation as of the record date. A Shareholder may vote his shares in person
or by proxy. An appointment of proxy is effective when received by the Secretary
of the Corporation or other officer or agent authorized to tabulate votes and is
valid for eleven (11) months unless a longer period is expressly provided in the
appointment of proxy form. An appointment of proxy is revocable by the
Shareholder unless the appointment form conspicuously states that it is
irrevocable and the appointment is coupled with an interest.

ARTICLE II

BOARD OF DIRECTORS

SECTION 2.1. General Powers. Subject to the Articles of Incorporation, and
Bylaws approved by the Shareholders, all corporate powers shall be exercised by
or under the authority of, and the business and affairs of the Corporation
managed under the direction of, the Board of Directors.

SECTION 2.2. Number and Tenure. The Board of Directors shall consist of at
least five (5) members and not more than fifteen (15) members, the exact number
of Directors to be fixed from time to time by resolution of the Board of
Directors of the Corporation. No decrease in the number or minimum number of
Directors, through amendment of the Articles of Incorporation or of the Bylaws
or otherwise, shall have the effect of shortening the term of any incumbent
Director. The Board of Directors shall be divided into three classes as nearly
equal in number as possible, with the term of office of one class expiring each
year. At the first annual meeting of shareholders, the Directors shall be
divided into three classes, as nearly equal in size as may be, with the
Directors of one class to be elected to hold office for a term expiring at the
third annual meeting following the election and until their successors shall
have been duly elected and qualified; with the Directors of

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the second class to be elected to serve for a term expiring at the second annual
meeting following the election and until their successors shall have been duly
elected and qualified; and the Directors of the third class to be elected to
serve for a term expiring at the first annual meeting following the election and
until their successors shall have been duly elected and qualified. Thereafter,
Directors shall be elected for terms of three years, and until their successors
have been duly elected and qualified or until there is a decrease in the number
of Directors.

SECTION 2.3. Qualifications of Directors. Directors shall be natural
persons who have attained the age of 18 years who shall own at least 100 shares
of the Common Stock of the Corporation but need not be residents of the State of
Georgia.

SECTION 2.3.1. Re-election After Termination of Principal Employment. If
any Director ceases to hold the position in his or her principal employment
profession, trade or calling that he or she held at he beginning of the current
term for which he or she was elected a Director, such person shall not be
eligible for re-election to the Board of Directors after the expiration of such
current term unless the Board of Directors decides that such person should be
eligible for re-election.

SECTION 2.3.2. Terminating Events; Honorary Directors. Any Director who
either (i) attains his or her seventieth (70th) birthday or (ii) retires from or
discontinues his or her employment with the Corporation, whichever first occurs,
shall thereafter, upon completion of the term for which he or she was elected a
Director, cease to be an active Director; provided, however, anyone who, upon
his or her retirement is Chairman of the Board or President of the Corporation
may, notwithstanding the above provisions of this Section, continue to serve as
an active Director until his attains his seventieth (70th) birthday, and
thereafter until completion of the term for which he or she was elected a
Director.

SECTION 2.3.3. Honorary Directors. Upon appointment by the Board of
Directors, a Director who ceases to be an active Director because of age or
retirement, or any other person who shall be so elected by the Board of
Directors, shall become an Honorary Director for such term or terms as the Board
of Directors may determine, but subject to removal from the position of Honorary
Director at any time at the pleasure of the Board. Except for the regular
November meeting of the Board of Directors, Honorary Directors will not be
expected to attend meetings of the Board unless specially invited. The expenses
of Honorary Directors in attending such November meeting or any other meeting of
the Board of Directors to which they are specially invited will be reimbursed by
the Corporation but they will not receive fees for attending such meetings.
Honorary Directors may participate in an advisory capacity in all discussions
and deliberations of the Board of Directors, but shall have no vote at the
meetings which they attend in accordance with the foregoing provisions. An
Honorary Director shall not be included in any calculation of the number of
active Directors authorized and serving under Section 2.2.

SECTION 2.4. Vacancies. Unless the Articles of Incorporation provide
otherwise, if a vacancy occurs on the Board of Directors, including a vacancy
resulting from an increase in the number of Directors, the vacancy may be filled
only by the Board of Directors, or, if the Directors remaining in office
constitute fewer than a quorum of the Board, by the affirmative vote of a

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majority of all Directors remaining in office. If the vacant office was held by
a Director elected by a voting group of Shareholders, only the remaining
Directors elected by that voting group are entitled to vote to fill the vacancy.

SECTION 2.5. Meetings. The Board of Directors shall meet annually, without
notice of the date, time, place or purpose of the meeting, immediately following
and at the same place as the annual meeting of Shareholders. Regular meetings of
the Board of Directors or any committee may be held between annual meetings
without notice at such time and at such place, within or without the State of
Georgia, as from time to time shall be determined by the Board or committee, as
the case may be. A majority of the Board of Directors, the Chairman of the
Board, the President or the Executive Committee may call a special meeting of
the Directors at any time by giving each Director two (2) days notice of the
date, time and place of the meeting. Such notice may be given orally or in
writing in accordance with the provisions of Section 4.1. Unless otherwise
provided in the Articles of Incorporation, these Bylaws or by law, neither the
business to be transacted at, nor the purpose of, any regular or special meeting
need be specified in the notice or any waiver of notice.

SECTION 2.6. Quorum and Voting. At all meetings of the Board of Directors
or any committee thereof, a majority of the number of Directors prescribed, or
if no number is prescribed, the number in office immediately before the meeting
begins, shall constitute a quorum for the transaction of business. The
affirmative vote of a majority of the Directors present at any meeting at which
there is a quorum at the time of such act shall be the act of the Board or of
the committee, except as might be otherwise specifically provided by statute or
by the Articles of Incorporation or Bylaws. In the absence of a quorum, the
Directors present by majority vote may adjourn the meeting from time to time
without notice other than by verbal announcement at the meeting until a quorum
shall attend. At any such adjourned meeting at which a quorum shall be present,
any business may be transacted which might have been transacted at the meeting
as originally notified.

SECTION 2.7. Action Without Meeting. Unless the Articles of Incorporation
or Bylaws provide otherwise, any action required or permitted to be taken at any
meeting of the Board of Directors or any committee thereof may be taken without
a meeting if the action is taken by all members of the Board or committee, as
the case may be. The action must be evidenced by one or more written consents
describing the action taken, signed by each Director, and filed with the minutes
of the proceedings of the Board or committee or filed with the corporate
records.

SECTION 2.8. Remote Participation in a Meeting. Unless otherwise restricted
by the Articles of Incorporation or the Bylaws, any meeting of the Board of
Directors may be conducted by the use of any means of communication by which all
Directors participating may simultaneously hear each other during the meeting. A
Director participating in a meeting by this means is deemed to be present in
person at the meeting.

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SECTION 2.9. Compensation of Directors. The Board of Directors may fix the
compensation of the Directors for their services as Directors. Compensation
shall be fixed from time to time by a resolution of the Board of Directors, and
may be on the basis of an annual sum or a fixed sum for attendance at each
regular or special meeting and every adjournment thereof, or a combination of
these methods. Members may be reimbursed for all reasonable traveling expenses
incurred in attending meetings. No provision of these Bylaws shall be construed
to preclude any Director from serving the Corporation in any other capacity and
receiving compensation therefor.

SECTION 2.10. Removal of Directors by Shareholders. Subject to the
requirements of Section 14-2-808 of the Georgia Business Corporation Code (the
"Code") for the removal of Directors elected by cumulative voting, voting group
or staggered terms, any one or more Directors may be removed from office, only
with cause, at any meeting of Shareholders with respect to which notice of such
purpose has been given, by the affirmative vote of the holder or holders of a
majority of the outstanding shares of the Corporation.

SECTION 2.11. Nomination of Directors. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
Directors. Nominations of persons for election to the Board of Directors of the
Corporation may be made at a meeting of Shareholders (i) by the Board of
Directors or at the direction of the Board by any nominating committee or person
appointed by the Board or (ii) by any Shareholder of the Corporation entitled to
vote for the election of Directors at the meeting who complies with the notice
procedures set forth in Sections 1.2 through 1.2.2 of these Bylaws. Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation. Such notice to the Secretary shall set forth the information
required in Section 1.2.2 of these Bylaws. The Corporation may require any
proposed nominee to furnish such other information as reasonably may be required
by the Corporation to determine the eligibility of such proposed nominee to
serve as a Director of the Corporation. The chairman of the meeting may, if the
facts warrant, determine and declare to the meeting that a nomination was not
made in accordance with the foregoing procedures, and if he should so determine,
he shall so declare to the meeting and the defective nomination shall be
disregarded.

SECTION 2.15. Indemnification. The indemnification authorized in the
Articles of Incorporation shall be subject to the following provisions and
procedures:

SECTION 2.15.1. Determination of Eligibility for Indemnification. In the
case of actions brought by or in the right of the Corporation, a Director's
right to indemnification as authorized in the Articles of Incorporation shall be
determined:

(i) If there are two or more directors not at the time parties to the
proceeding ("Disinterested Directors"), by the board of directors
by a majority vote of all the Disinterested Directors (a majority
of whom shall for such purpose constitute a quorum), or by a
majority of the members of a committee of two or more
Disinterested Directors appointed by such a vote;

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(ii) By special legal counsel:

(a) Selected in the manner prescribed in paragraph (i) of this
subsection; or

(b) If there are fewer than two Disinterested Directors, the
Board of Directors (in which selection directors who do not
qualify as Disinterested Directors may participate); or

(iii)By the shareholders, but shares owned by or voted under the
control of a director who at the time does not qualify as a
disinterested director may not be voted on the determination.

SECTION 2.15.2. Rights Not Exclusive. The rights to indemnification and
advance of expenses granted in the Articles of Incorporation and in these Bylaws
are not exclusive, and do not limit the Corporation's power to pay or reimburse
expenses to which a Director may be entitled, whether by agreement vote of
shareholders or Disinterested Directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding office, and
do not limit the Corporation's power to pay or reimburse expenses incurred by a
Director in connection with his appearance as a witness in a proceeding at a
time when he has not been made a named defendant or respondent to the
proceeding.

SECTION 2.15.3. Insurance. The Corporation and its officers shall have the
power to purchase and maintain insurance on behalf of an individual who is or
was a Director, officer, employee or agent of the Corporation or who, while a
Director, officer, employee, or agent of the Corporation, is or was serving as a
Director, officer, partner, trustee employee, or agent of another foreign or
domestic corporation, partnership, joint venture, trust, employee benefit plan,
or other enterprise against liability asserted against or incurred by him in
that capacity or arising from his status as a Director, officer, employee or
agent, whether or not the Corporation would have the power to indemnify him
against the same liability under the provisions of these Bylaws.

SECTION 2.15.4. Reports to Shareholders. If the Corporation indemnifies or
advances expenses to a Director, otherwise than by action of the shareholders or
by an insurance carrier pursuant to insurance maintained by the Corporation
shall report the indemnification or advance in writing to the shareholders with
or before the notice of the next annual shareholders' meeting.

ARTICLE III

COMMITTEES

SECTION 3.1. Committees. The Board of Directors may, by resolution,
designate from among its members one or more committees, each committee to
consist of one or more Directors, except that committees appointed to take
action with respect to indemnification of Directors, Directors' conflicting
interest transactions or derivative proceedings shall consist of two

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or more Directors qualified to serve pursuant to the Code. Any such committee,
to the extent specified by the Board of Directors, Articles of Incorporation or
Bylaws, shall have and may exercise all of the authority of the Board of
Directors in the management of the business affairs of the Corporation, except
that it may not (i) approve or propose to Shareholders action that the Code
requires to be approved by Shareholders; (ii) fill vacancies on the Board of
Directors or any of its committees; (iii) amend the Articles of Incorporation;
(iv) adopt, amend, or repeal Bylaws; or (v) approve a plan of merger not
requiring Shareholder approval. All action by any committee shall be reported to
the Board of Directors at its meeting next succeeding such action, and shall be
subject to revision and alteration by the Board of Directors, except that no
rights of third person shall be affected by any such revision or alteration.
Vacancies in any committee shall be filled by the Board of Directors.

SECTION 3.2. Meetings of Committees. Regular meetings of any committee may
be held without notice at such time and at such place, within or without the
State of Georgia, as from time to time shall be determined by such committee.
The Chairman of the Board of Directors, the President, the Board of Directors or
the committee by vote at a meeting, or by two members of any committee in
writing without a meeting, may call a special meeting of any such committee at
any time by giving each such committee member two (2) days notice of the date,
time and place of the meeting. Such notice may be given orally or in writing in
accordance with the provisions of Section 4.1. Unless otherwise provided in the
Articles of Incorporation, these Bylaws or by law, neither the business to be
transacted at, nor the purpose of, any regular or special meeting of any such
committee need be specified in the notice or any waiver of notice.

SECTION 3.3. Quorum of Committee. At all meetings of any committee a
majority of the total number of its members shall constitute a quorum for the
transaction of business. Except in cases in which it is by law, by the Articles
of Incorporation, by these Bylaws, or by resolution of the Board of Directors
otherwise provided, a majority of such quorum shall decide any questions that
may come before the meeting. In the absence of a quorum, the members of the
committee present by majority vote may adjourn the meeting from time to time,
without notice other than by verbal announcement at the meeting, until a quorum
shall attend.

SECTION 3.4. Compensation of Committee Members. The Board of Directors may
fix the compensation of the Directors for their services as members of
committees of the Board of Directors. Compensation shall be fixed from time to
time by a resolution of the Board of Directors, and may be on the basis of an
annual sum or a fixed sum for attendance at each regular or special meeting and
every adjournment thereof, or a combination of these methods. Members of
committees shall be reimbursed for all reasonable traveling expenses incurred in
attending meetings. No provision of these Bylaws shall be construed to preclude
any Director from serving the Corporation in any other capacity and receiving
compensation therefor.

SECTION 3.5. Executive Committee. The Board of Directors, by resolution
adopted by a majority of the whole Board of Directors, may designate an
Executive Committee of three or more Directors, which designation shall include
the Chairman of the Board of Directors and the President. Each Director of the
Corporation who is not designated as a member of the Executive

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Committee hereby is designated as an alternate member of the Executive
Committee, who may act in the place and stead of any absent member or members at
any meeting of such Executive Committee in the event (i) a quorum of the
Executive Committee is not present and (ii) the Chairman of the Board or, in his
absence, the President, appoints such alternate member to act for that meeting
as a member of the Executive Committee; and such alternate member shall serve
only at the meeting for which such appointment is made, but shall have at that
meeting all the powers of a regular member of the Executive Committee. During
the intervals between the meetings of the Board of Directors the Executive
Committee shall have and may exercise all of the authority of the Board of
Directors in the management of the business affairs of the Corporation to the
extent authorized by the resolution providing for such Executive Committee or by
subsequent resolution adopted by a majority of the whole Board of Directors,
except that it may not (i) approve or propose to Shareholders action that the
Code requires to be approved by Shareholders; (ii) fill vacancies on the Board
of Directors or any of its committees; (iii) amend the Articles of
Incorporation; (iv) adopt, amend, or repeal bylaws; or (v) approve a plan of
merger not requiring Shareholder approval.

SECTION 3.5.1. Honorary Members of Executive Committee. Upon appointment by
the Board of Directors, a Director who ceases to be an active Director because
of age or retirement, and who at the time has been a member of the Executive
Committee for twelve or more years, shall become an Honorary Member of the
Executive Committee for such term or terms as the Board of Directors may
determine, but subject to removal from the position of Honorary Member of the
Executive Committee at any time at the pleasure of the Board. Honorary Members
of the Executive Committee shall receive the customary fees for attending
regular meetings, and may participate in an advisory capacity in all discussions
and deliberations of the Executive Committee, but shall have no vote at the
meetings which they attend in accordance with the foregoing provisions. An
Honorary Member shall not be included in any calculation of the number of active
Directors authorized and serving under Section 3.5.

SECTION 3.6. Audit Committee. The Board of Directors, by resolution adopted
by a majority of the whole Board of Directors, may designate an Audit Committee
of four (4) or more Directors. The members of the Audit Committee shall serve at
the pleasure of the Board of Directors or until their successors shall be duly
designated. Each Director of the Corporation who is not designated as a member
of the Audit Committee hereby is designated as an alternate member of the Audit
Committee, who may act in the place and stead of any absent member or members at
any meeting of such Audit Committee in the event (i) a quorum of the Audit
Committee is not present and (ii) the Chairman of the Board or, in his absence,
the President, appoints such alternate member to act for that meeting as a
member of the Audit Committee; and such alternate member shall serve only at the
meeting for which such appointment is made, but shall have at that meeting all
the powers of a regular member of the Audit Committee. The Audit Committee shall
consider the choice of the independent public accountants for the Corporation,
shall review the planned scope of the audit and the results of their
examinations of the financial statements of the Corporation, their opinions
thereon and their recommendations with respect to accounting, internal controls
and other matters, shall convey information to and from the Board of Directors
and its independent public accountants and auditors, shall be available for
discussions of internal auditing problems and procedures, and shall make their
report to the Board of Directors or the Executive Committee, or to

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both. The Audit Committee shall keep full and fair accounts of its transactions.
All action by the Audit Committee shall be reported to the Board of Directors at
its meeting next succeeding such action, and shall be subject to revision and
alteration by the Board of Directors; provided that no rights of third persons
shall be affected by any such revision or alteration. Vacancies in the Audit
Committee shall be filled by the Board of Directors.

SECTION 3.7. Nominating and Compensation Committee. The Board of Directors,
by resolution adopted by a majority of the whole Board of Directors, may
designate a Nominating and Compensation Committee of four (4) or more Directors.
The members of the Nominating and Compensation Committee shall serve at the
pleasure of the Board of Directors or until their successors shall be duly
designated. Each Director of the Corporation who is not designated as a member
of the Nominating and Compensation Committee hereby is designated as an
alternate member of the Nominating and Compensation Committee, who may act in
the place and stead of any absent member or members at any meeting of such
Nominating and Compensation Committee in the event (i) a quorum of the
Nominating and Compensation Committee is not present and (ii) the Chairman of
the Board or, in his absence, the President, appoints such alternate member to
act for that meeting as a member of the Nominating and Compensation Committee;
and such alternate member shall serve only at the meeting for which such
appointment is made, but shall have at that meeting all the powers of a regular
member of the Nominating and Compensation Committee. The Nominating and
Compensation Committee shall review the performance of the senior officers of
the Corporation and will recommend to the Board of Directors the appropriate
compensation level for these and the other officers of the Corporation; they
shall review and recommend to the Board of Directors any changes in the various
benefit programs of the Corporation; and shall review the level of fees paid and
the manner in which fees are paid to members of the Corporation's Board of
Directors and shall make recommendations for adjustments as appropriate. The
Nominating and Compensation Committee shall also identify and recommend to the
Board of Directors the nominees for the Board. The Nominating and Compensation
Committee shall keep full and fair accounts of its transactions. All action by
the Nominating and Compensation Committee shall be reported to the Board of
Directors at its meeting next succeeding such action, and shall be subject to
revision and alteration by the Board of Directors; provided that no rights of
third persons shall be affected by any such revision or alteration. Vacancies in
the Nominating and Compensation Committee shall be filled by the Board of
Directors.

SECTION 3.8. Long Range Planning Committee. The Board of Directors, by
resolution adopted by a majority of the whole Board of Directors, may designate
a Long Range Planning Committee of four (4) or more Directors. The members of
the Long Range Planning Committee shall serve at the pleasure of the Board of
Directors or until their successors shall be duly designated. Each Director of
the Corporation who is not designated as a member of the Long Range Planning
Committee hereby is designated as an alternate member of the Long Range Planning
Committee, who may act in the place and stead of any absent member or members at
any meeting of such Long Range Planning Committee in the event (i) a quorum of
the Long Range Planning Committee is not present and (ii) the Chairman of the
Board or, in his absence, the President, appoints such alternate member to act
for that meeting as a member of the Nominating and Compensation Committee; and
such alternate member shall serve only at the meeting for which such

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appointment is made, but shall have at that meeting all the powers of a regular
member of the Long Range Planning Committee. The Long Range Planning Committee
shall review plans for the growth and financial stability of the Corporation. In
carrying out these duties, the Long Range Planning Committee shall make periodic
reviews of the annual budget of the Corporation, all financing plans, the
Corporation's Employee Pension Plan (including investments of its funds) and
investments in non-utility operations. The results of said reviews shall be
reported to the Board of Directors. The Long Range Planning Committee shall keep
full and fair accounts of its transactions. All action by the Long Range
Planning Committee shall be reported to the Board of Directors at its meeting
next succeeding such action, and shall be subject to revision and alteration by
the Board of Directors; provided that no rights of third persons shall be
affected by any such revision or alteration. Vacancies in the Long Range
Planning Committee shall be filled by the Board of Directors.

ARTICLE IV

NOTICES

SECTION 4.1. Notice. Whenever, under the provisions of the Articles of
Incorporation or these Bylaws or by law, notice is required to be given to any
Director or Shareholder, such notice may be given in writing, by mail; by
telegram, telex or facsimile transmission; by other form of wire or wireless
communication; or by private carrier. Unless otherwise required or permitted by
law, such notice shall be deemed to be effective at the earliest of when
received, or when delivered, properly addressed, to the addressee's last known
principal place of business or residence; or five days after the same shall be
deposited in the United States mail if mailed with first-class postage prepaid
and correctly addressed; or on the date shown on the return receipt, if sent by
registered or certified mail, and the receipt is signed by or on behalf of the
addressee. Notice to any Director or Shareholder may also be oral if oral notice
is reasonable under the circumstances. Oral notice is effective when
communicated if communicated in a comprehensible manner. If these forms of
personal notice are impractical, notice may be communicated by a newspaper of
general circulation in the area where published, or by radio, television, or
other form of public broadcast communication.

SECTION 4.2. Waiver of Notice. Whenever any notice is required to be given
under provisions of the Articles of Incorporation or of these Bylaws or by law,
a waiver thereof, signed by the person entitled to notice and delivered to the
Corporation for inclusion in the minutes or filing with the corporate records,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting and of all objections to the place or time of the meeting or the
manner in which it has been called or convened, except when the person attends a
meeting for the express purpose of stating, at the beginning of the meeting, any
such objection and, in the case of a Director, does not thereafter vote for or
assent to action taken at the meeting. Neither the business to be transacted at
nor the purpose of any regular or special meeting of the Shareholders, Directors
or a committee of Directors need be specified in any written waiver of notice;
provided, however, that any waiver of notice of

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a meeting of Shareholders required with respect to a plan of merger or a plan of
consolidation shall be effective only upon compliance with Section 14-2-706(c)
of the Code or successor provisions.

ARTICLE V

OFFICERS

SECTION 5.1. Appointment. The Board of Directors at its first meeting
following the annual meeting of Shareholders shall elect such officers as it
shall deem necessary, including a Chairman of the Board, a President, a
Secretary, a Treasurer, one or more Vice Presidents (one or more of whom may be
designated Executive Vice President or Senior Vice President), Assistant Vice
Presidents, Assistant Secretaries and Assistant Treasurers, who shall exercise
such powers and perform such duties as shall be determined from time to time by
the Board of Directors. Each such officer shall hold office until the
corresponding meeting of the Board of Directors in the next year and until his
successor shall have been duly elected and qualified or until he shall have
resigned or shall have been removed in the manner provided in Section 5.2 of
this Article V. Any number of offices may be held by the same person unless the
Articles of Incorporation or these Bylaws otherwise provide. The appointment of
an officer does not itself create contract rights.

SECTION 5.2. Resignation and Removal of Officers. An officer may resign at
any time by delivering notice to the Corporation and such resignation is
effective when the notice is delivered unless the notice specifies a later
effective date. The Board of Directors (except in the case of an officer elected
by the Board of Directors) or the Executive Committee or an officer upon whom
such power of removal may have been conferred may remove any officer at any time
with or without cause.

SECTION 5.3. Vacancies. Any vacancy in office resulting from any cause may
be filled by the Board of Directors at any regular or special meeting.

SECTION 5.4. Powers and Duties. Each officer has the authority and shall
perform the duties set forth below or, to the extent consistent with these
Bylaws, the duties prescribed by the Board of Directors or by direction of an
officer authorized by the Board of Directors to prescribe the duties of other
officers.

SECTION 5.4.1. Chairman of the Board of Directors. The Chairman of the
Board of Directors may be chosen from among the Directors of the Corporation and
need not be an Executive Officer or employee of the Corporation. The Chairman
shall preside at all meetings of the Shareholders, the Board of Directors, and
the Executive Committee. He shall have the usual powers and duties incident to
the office of the chairman of the board of directors of a corporation and such
other powers and duties as from time to time may be assigned to him by the Board
of Directors.

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SECTION 5.4.2. Chief Executive Officer. The Board of Directors may
designate as the Chief Executive Officer of the Corporation the President or any
other officer of the Corporation including the Chairman if the Chairman is a
full-time officer and employee of the Corporation. The Chief Executive Officer
of the Corporation shall have general and active management responsibility for
the business of the Corporation and shall see that all orders and resolutions of
the Board of Directors are carried into effect. Except where by law the
signature of the President is required, the Chief Executive Officer shall have
the same powers as the President to sign all authorized certificates, contracts,
bonds, deeds, mortgages and other instruments. He shall have the usual powers
and duties incident to the position of chief executive officer of a corporation
and such other powers and duties as from time to time may be assigned by the
Board of Directors. The Board of Directors may, or if it does not, the Chief
Executive Officer may, from time to time designate an Executive Officer of the
Corporation to assume and perform the duties and powers of the Chief Executive
Officer during the absence or disability of the Chief Executive Officer.

SECTION 5.4.3. President. The President shall be responsible for the
general supervision of the affairs of the Corporation and general and active
management of the financial affairs of the Corporation. He shall have the power
to make and execute certificates, contracts, bonds, deeds, mortgages and other
instruments on behalf of the Corporation, except in cases in which the signing
thereof shall have been expressly delegated to some other officer or agent of
the Corporation and to delegate such power to others. He also shall have such
powers and perform such duties as are specifically imposed on him by law and as
may be assigned to him by the Board of Directors. In the event there is no
Chairman of the Board, the President shall also have all the powers and
authority that the Chairman is given in these Bylaws or otherwise. During the
absence or disability of the Chairman of the Board, the President shall preside
at all meetings of the Shareholders, the Board of Directors and the Executive
Committee. He shall have the usual powers and duties incident to the office of a
president of a corporation and such other powers and duties as from time to time
may be assigned to him by the Board of Directors. If the Board of Directors
designates the President as the Chief Executive Officer of the Corporation, the
President shall also have the powers and duties of the Chief Executive Officer.

SECTION 5.4.4. Vice Presidents. The Executive Vice Presidents shall be
senior in authority among the Vice Presidents. During the absence or disability
of the President, the Board of Directors shall designate which of the Executive
Vice Presidents shall exercise all the powers and discharge all of the duties of
the President, provided, however, that if he is not a Director he shall not
preside at any meetings of the Board of Directors or the Executive Committee.
The Vice Presidents, shall perform such duties as vice presidents customarily
perform and shall perform such other duties and shall exercise such other powers
as the President or the Board of Directors may from time to time designate.

SECTION 5.4.5. Secretary. The Secretary shall attend all meetings of the
Shareholders and all meetings of the Board of Directors and shall record all
votes and minutes of all proceedings in books to be kept for that purpose, and
shall perform like duties for the standing committees when required. He shall
have custody of the corporate seal of the Corporation, shall have the authority
to affix the same to any instrument the execution of which on behalf of the
Corporation under its

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seal is duly authorized and shall attest to the same by his signature whenever
required. The Board of Directors may give general authority to any other officer
to affix the seal of the Corporation and to attest to the same by his signature.
The Secretary shall give, or cause to be given, any notice required to be given
of any meetings of the Shareholders, the Board of Directors and of the standing
committees when required. The Secretary shall cause to be kept such books and
records as the Board of Directors, the Chairman of the Board or the President
may require and shall cause to be prepared, recorded, transferred, issued,
sealed and canceled certificates of stock as required by the transactions of the
Corporation and its Shareholders. The Secretary shall attend to such
correspondence and shall perform such other duties as may be incident to the
office of a Secretary of a Corporation or as may be assigned to him by the Board
of Directors, the Chairman of the Board or the President.

SECTION 5.4.6. Treasurer. The Treasurer shall be charged with the
management of financial affairs of the Corporation and shall have charge of and
be responsible for all funds, securities, receipts and disbursements of the
Corporation, and shall deposit or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust
companies, or other depositaries as shall from time to time be selected by the
Board of Directors. He shall render to the President and to the Board of
Directors, whenever requested, an account of the financial condition of the
Corporation. In general, he shall perform such duties as treasurers usually
perform and shall perform such other duties and shall exercise such other powers
as the Board of Directors, the Chairman of the Board or the President may from
time to time designate and shall render to the Chairman of the Board, the
President and to the Board of Directors, whenever requested, an account of the
financial condition of the Corporation.

SECTION 5.4.7. Controller. The Controller shall have charge of and be
responsible for preparation of financial and management reports, budgeting, rate
material, property accounting, taxes and such other duties as are commonly
incident to the office of Controller. The Controller shall have such power and
duties as from time to time may be properly delegated by the President and such
other powers and duties as may from time to time be assigned by the Board of
Directors.

SECTION 5.4.8. Assistant Vice President, Assistant Secretary and Assistant
Treasurer. One or more Assistant Vice Presidents, Assistant Secretaries and
Assistant Treasurers, in the absence or disability of any Vice President, the
Secretary or the Treasurer, respectively, shall perform the duties and exercise
the powers of those offices, and, in general, they shall perform such other
duties as shall be assigned to them by the Board of Directors or by the person
appointing them. Specifically the Assistant Secretaries may affix the corporate
seal to all necessary documents and attest the signature of any officer of the
Corporation.

SECTION 5.4.9. Subordinate Officers. The Board of Directors may elect such
subordinate officers as it may deem desirable. Each such officer shall hold
office for such period, have such authority and perform such duties as the Board
of Directors may prescribe. The Board of Directors may from time to time
authorize any officer to appoint and remove subordinate officers and prescribe
the powers and duties thereof. The Board of Directors may from time to time
authorize the Chairman of the Board of Directors or the President to appoint any
employee or officer

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of the Corporation (except the President, the Secretary or an Assistant
Secretary elected by the Board of Directors) as an Assistant Secretary of the
Corporation, to prescribe the powers, term, duties and salary, if any, of such
Assistant Secretary, and to remove any Assistant Secretary thus appointed.

SECTION 5.5. Officers Holding Two or More Offices. Any two of the above
mentioned offices, except those of President and Secretary or Assistant
Secretary, may be held by the same person, but no officer shall execute,
acknowledge or verify any instrument in more than one capacity if such
instrument be required by statute, by the Articles of Incorporation or by these
Bylaws to be executed, acknowledge or verified by any two or more officers.

SECTION 5.6. Compensation. The Board of Directors shall have power to fix
the compensation of all officers of the Corporation. It may authorize any
officer, upon whom the power of appointing subordinate officers may have been
conferred, to fix the compensation of such subordinate officers.

ARTICLE VI

CAPITAL STOCK

SECTION 6.1. Share Certificates. Unless the Articles of Incorporation or
these Bylaws provide otherwise, the Board of Directors may authorize the issue
of some or all of the shares of any or all of its classes or series with or
without certificates. Unless the Code provides otherwise, there shall be no
differences in the rights and obligations of Shareholders based on whether or
not their shares are represented by certificates.

In the event that the Board of Directors authorizes shares with
certificates, each certificate representing shares of stock of the Corporation
shall be in such form as shall be approved by the Board of Directors and shall
set forth upon the face thereof the name of the Corporation and that it is
organized under the laws of the State of Georgia, the name of the person to whom
the certificate is issued, and the number and class of shares and the
designation of the series, if any, the certificate represents. The Board of
Directors may designate any one or more officers to sign each share certificate,
either manually or by facsimile. In the absence of such designation, each share
certificate must be signed by the President or a Vice President and the
Secretary or an Assistant Secretary. If the person who signed a share
certificate, either manually or in facsimile, no longer holds office when the
certificate is issued, the certificate is nevertheless valid.

SECTION 6.2. Record of Shareholders. The Corporation or an agent designated
by the Board of Directors shall maintain a record of the Corporation's
Shareholders in a form that permits preparation of a list of names and addresses
of all Shareholders, in alphabetical order by class or shares showing the number
and class of shares held by each Shareholder. The Corporation shall be entitled
to treat the person in whose name shares are registered in the records of the
Corporation as the owner thereof for all purposes unless it accepts for its
records a nominee certificate naming a beneficial owner of shares other than the
record owner, and shall not otherwise

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be bound to recognize any equitable or other claim to or interest in such shares
except as may be provided by law.

SECTION 6.3. Lost Certificates. In the event that a share certificate is
lost, stolen, mutilated or destroyed, the Board of Directors may direct that a
new certificate be issued in place of such certificate. When authorizing the
issue of a new certificate, the Board of Directors may require such proof of
loss as it may deem appropriate as a condition precedent to the issuance
thereof, including a requirement that the owner of such lost, stolen or
destroyed certificate, or his legal representative, advertise the same in such
manner as the Board shall require and/or that he give the Corporation a bond in
such sum as the Board may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.

SECTION 6.4. Transfers of Shares. Transfers of shares of the capital stock
of the Corporation shall be made only upon the books of the Corporation by the
registered holder thereof, or by his duly authorized attorney, or with a
transfer clerk or transfer agent appointed as provided in Section 6.5 hereof,
and, in the case of a share represented by certificate, on surrender of the
certificate or certificates for such shares properly endorsed and the payment of
all taxes thereon. The Corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, to vote as such owner, and for all other purposes, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by law.

SECTION 6.5. Transfer Agents and Registrars. The Board of Directors may
establish such other regulations as it deems appropriate governing the issue,
transfer, conversion and registration of share certificates, including
appointment of transfer agents, clerks or registrars.

ARTICLE VII

GENERAL PROVISIONS

SECTION 7.1. Indemnification of Officers, Employees and Agents. The
Corporation shall indemnify any officer who was or is made a party to or is
otherwise involved in any threatened, pending or completed action, suit or
proceeding, whether civil, derivative, criminal, administrative or investigative
(hereinafter, a "proceeding") to the same extent as it is obligated to indemnify
any Director of the Corporation, but without being subject to the same
procedural conditions imposed for the indemnification of Directors. The
Corporation may indemnify and advance expenses to an employee or agent who is
not a Director or officer to the extent permitted by the Articles of
Incorporation, the Bylaws or by law.

SECTION 7.2. Seal. The Corporation may have a seal, which shall be in such
form as the Board of Directors may from time to time determine. In the event
that the use of the seal is

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at any time inconvenient, the signature of an officer of the Corporation,
followed by the word "Seal" enclosed in parentheses, shall be deemed the seal of
the Corporation.

SECTION 7.3. Voting Shares in Other Corporations. In the absence of other
arrangements by the Board of Directors, shares of stock issued by another
corporation and owned or controlled by the Corporation, whether in a fiduciary
capacity or otherwise, may be voted by the President or any Vice President, in
the absence of action by the President, in the same order as they preside in the
absence of the President, or, in the absence of action by the President or any
Vice President, by any other officer of the Corporation, and such person may
execute the aforementioned powers by executing proxies and written waivers and
consents on behalf of the Corporation.

SECTION 7.4. Amendment of Bylaws. These Bylaws may be amended or repealed
and new bylaws may be adopted by the Board of Directors at any regular or
special meeting of the Board of Directors unless the Articles of Incorporation
or the Code reserve this power exclusively to the Shareholders in whole or in
part or the Shareholders, in amending or repealing the particular bylaw, provide
expressly that the Board of Directors may not amend or repeal that bylaw. Unless
the Shareholders have fixed a greater quorum or voting requirement, these Bylaws
also may be altered, amended or repealed and new bylaws may be adopted, unless
such action has been recommended by the Board of Directors, by an affirmative
vote of the holders of at least two-thirds of all outstanding shares entitled to
vote.

SECTION 7.5. Execution of Bonds, Debentures, Evidences of Indebtedness,
Checks, drafts and other Obligations and Orders for Payment. The signatures of
any officer or officers of the Corporation executing a corporate bond, debenture
or other debt security of the Corporation or attesting the corporate seal
thereon, or upon any interest coupons annexed to any such corporate bond,
debenture or other debt security of the Corporation, and the corporate seal
affixed to any such bond, debenture or other debt security of the Corporation,
may be facsimiles, engraved or printed, provided that such bond, debenture or
other debt security of the Corporation is authenticated or countersigned with
the manual signature of an authorized officer of the corporate trustee
designated by the indenture or other agreement under which said security is
issued by a transfer agent, or registered by a registrar, other than the
Corporation itself, or an employee of the Corporation. If the person who signed
such, bond, debenture or other debt security of the Corporation, either manually
or in facsimile, no longer holds office when the certificate is issued, the
certificate is nevertheless valid.

SECTION 7.6. Business Combinations. All of the requirements of Sections
14-2- 1131 to 1133, inclusive, of the Code, as now in effect and as hereafter
from time to time amended, shall be applicable to this Corporation and to any
business combination approved or recommended by the Board of Directors.

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ARTICLE VIII

EMERGENCY BYLAWS

SECTION 8.1. Emergency Bylaws. This Article shall be operative during any
emergency resulting from some catastrophic event that prevents a quorum of the
Board of Directors or any committee thereof from being readily assembled (an
"emergency"), notwithstanding any different or conflicting provisions set forth
elsewhere in these Bylaws or in the Articles of Incorporation. To the extent not
inconsistent with the provisions of this Article, the bylaws set forth elsewhere
herein and the provisions of the Articles of Incorporation shall remain in
effect during such emergency, and upon termination of such emergency, the
provisions of this Article shall cease to be operative.

SECTION 8.2. Meetings. During any emergency, a meeting of the Board of
Directors or any committee thereof may be called by any Director, or by the
President, any Vice President, the Secretary or the Treasurer (the "Designated
Officers") of the Corporation. Notice of the time and place of the meeting shall
be given by any available means of communication by the person calling the
meeting to such of the Directors and/or Designated Officers as may be feasible
to reach. Such notice shall be given at such time in advance of the meeting as,
in the judgement of the person calling the meeting, circumstances permit.

SECTION 8.3 Quorum. At any meeting of the Board of Directors or any
committee thereof called in accordance with this Article, the presence or
participation of two Directors, one Director and a Designated Officer, or two
Designated Officers shall constitute a quorum for the transaction of business.

SECTION 8.4. Bylaws. At any meeting called in accordance with this Article,
the Board of Directors or committee thereof, as the case may be, may modify,
amend or add to the provisions of this Article so as to make any provision that
may be practical or necessary for the circumstance of the emergency.

SECTION 8.5. Liability. Corporate action taken in good faith in accordance
with the emergency bylaws may not be used to impose liability on a Director,
officer, employee or agent of the Corporation.

SECTION 8.6. Repeal or Change. The provisions of this Article shall be
subject to repeal or change by further action of the Board of Directors or by
action of Shareholders, but no such repeal or change shall modify the provisions
of the immediately preceding section of this Article with regard to action taken
prior to the time of such repeal or change.

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SECOND AMENDMENT TO THE
ATLANTA GAS LIGHT COMPANY LONG-TERM
STOCK INCENTIVE PLAN OF 1990

This Second Amendment to the Atlanta Gas Light Company Long-Term Stock
Incentive Plan (the "Plan") is made and entered into this 16th day of December,
1994, by the Atlanta Gas Light Company (the "Company").

W I T N E S S E T H:

WHEREAS, the Company sponsors the Plan to provide incentive and to
encourage proprietary interest in the Company by its key employees, officers and
inside directors; and

WHEREAS, the Company believes that it is in the best interest of the
Company and its employees to amend the Plan to provide for limited beneficiary
designations and the extension of certain exercise periods; and

WHEREAS, Section 10 of the Plan provides that the Company may amend the
Plan at any time; and

WHEREAS, the Board of Directors of the Company has adopted a resolution
authorizing the amendment of the Plan;

NOW, THEREFORE BE IT RESOLVED, that the Plan hereby is amended as follows:

1. Section 3 of the Plan shall be amended by deleting that section in its
entirety and substituting in lieu thereof the following section:

3. Stock.

The stock subject to the Stock Rights and other provisions of the
Plan shall be authorized but unissued or reacquired shares of the
$5.00 par value common stock of the Company (the "Common Stock").
Subject to readjustment in accordance with the provisions of
Section 8, the total number of shares of the Common Stock for
which Stock Rights may be granted to persons participating in the
Plan shall not exceed in the aggregate 800,000 shares of Common
Stock, less any shares used as payment for SAR's pursuant to
Section 6(a). Notwithstanding the foregoing, shares of Common
Stock allocable to the unexercised portion of any expired or
terminated Option may become subject to Stock Rights under the
Plan. Stock not subject to Stock Rights includes (i) shares of
Restricted Stock which are forfeited for any reason and (ii)
shares used in payment of the Option price for any Option under
the Plan.

2. Section 5(j)(ii) of the Plan shall be amended by deleting that
subsection in its entirety and substituting in lieu thereof the following
subsection:

(ii) Upon an Optionee's retirement with the Company's consent or the
termination of an Optionee's employment due to disability, as
determined by the Committee in its sole discretion, any Option or
unexercised portion thereof granted to him which is otherwise
exercisable shall terminate on and shall not be exercisable after
12 months from the date of the Optionee's retirement with the
consent of the Company or after 3 months from the date of the
Optionee's termination due to disability; provided, any ISO or
unexercised portion thereof which remains unexercised on the date
three months after the date on which such Optionee ceases to be
an employee of the Company and any Subsidiary shall convert to a
Non-ISO for the remainder of its exercise period. Notwithstanding
the above, the Committee may provide in the Option Agreement that
such Option or any unexercised portion thereof shall terminate
sooner. An Option shall be exercisable in accordance with its
terms and only for the number of shares exercisable on the date
such

<PAGE>

Optionee's employment ceases.

3. Section 5(j)(iii) of the Plan shall be amended by deleting that
subsection in its entirety and substituting in lieu thereof the following
subsection:

(iii)In the event of the death of the Optionee while he or she is an
employee of the Company or a Subsidiary or within 3 months after
the date on which such Optionee's employment terminated due to
retirement with the Company's consent or due to disability, as
determined by the Committee in its sole discretion, any Option or
unexercised portion thereof granted to him or her may be
exercised by his or her beneficiary, as designated pursuant to
the provisions of Section 5(p) of the Plan, at any time prior to
the expiration of 1 year from the date of death of such Optionee,
but in no event later than the date of expiration of the option
period; provided, the Committee may provide in any Option
Agreement that such Option or any unexercised portion thereof
shall terminate sooner. Any exercise by a designated beneficiary
of the Optionee shall be effected pursuant to the terms of this
Section 5 as if such designated beneficiary were the named
Optionee.

4. A new Section 5(p) shall be added to the Plan as follows:

(p) Designation of Beneficiary. Each Optionee shall be permitted to
name one person as -------------------------- beneficiary for
each Option he or she is granted under the Plan. The designated
beneficiary shall have the rights described in Section 5(j)(iii)
of the Plan. Each Optionee shall be provided a beneficiary
designation form by the Committee and may designate one
individual as beneficiary for each Option, and that form should
be completed and returned to the Committee. If no completed
beneficiary designation form has been received by the Committee
for an Option upon the death of the Optionee, the executor or
administrator of the Optionee's estate shall be considered the
Optionee's designated beneficiary for that Option.

5. The amendments contained in this Second Amendment to the Plan shall be
considered effective for all Options granted after January 1, 1994. In addition,
the amendments made by Items 2, 3 and 4 above shall be considered applicable to
all Options (and their respective option agreements) granted under the Plan
prior to that date, retroactive to the initial effective date of the Plan,
November 3, 1989.

6. Except as specifically set for herein, the terms of the Plan shall
remain in full force and effect.

IN WITNESS WHEREOF, the Company has caused this Second Amendment to the
Plan to be executed by its duly authorized officer as of the date first above
written.

ATLANTA GAS LIGHT COMPANY

BY: /s/ Robert L. Goocher
Executive Vice President-
Business Support and Chief
Financial Officer
A.26045

<PAGE>

FOURTH AMENDMENT TO THE
ATLANTA GAS LIGHT COMPANY LONG-TERM
STOCK INCENTIVE PLAN OF 1990

This Fourth Amendment to the Atlanta Gas Light Company Long-Term Stock
Incentive Plan (the "Plan") is made and entered into this 6th day of March,
1996, by the Atlanta Gas Light Company (the "Company").

W I T N E S S E T H:

WHEREAS, the Company sponsors the Plan to provide incentive and to
encourage proprietary interest in the Company by its key employees, officers and
inside directors; and

WHEREAS, in light of the establishment of AGL Resources Inc. and the change
and conversion of all common stock of the Company into common stock of AGL
Resources Inc., the Company believes that it is in the best interest of the
Company and its employees to amend the Plan to provide for and clarify such
change and conversion with regard to all stock issued and options granted under
the Plan; and

WHEREAS, Section 8 of the Plan provides for certain adjustments to be made
to all outstanding Stock Rights under the Plan in the event of a change in the
securities of the Company, and it is the Board's intent to make such
adjustments; and

WHEREAS, Section 10 of the Plan provides that the Company may amend the
Plan at any time; and

WHEREAS, the Board of Directors of the Company has adopted a resolution
authorizing the amendment of the Plan;

NOW, THEREFORE, BE IT RESOLVED, that the Plan hereby is amended as follows:

Section 3 of the Plan shall be amended, effective as of March 6, 1996, by
replacing the first sentence thereof with the following sentence:

"Effective as of March 6, 1996, the stock subject to the Stock Rights
and other provisions of the Plan shall be authorized but unissued or
reacquired shares of the $5.00 par value common stock of AGL Resources
Inc. (the 'Common Stock')."

<PAGE>

Section 8(a) of the Plan shall apply to all outstanding Stock Rights under
the Plan so that appropriate adjustments shall be made under the Plan upon the
conversion of all common stock of the Company into $5.00 par value common stock
of AGL Resources Inc.

Except as specifically set forth herein, the terms of the Plan shall remain
in full force and effect.

IN WITNESS WHEREOF, the Company has caused this Fourth Amendment to the
Plan to be executed by its duly authorized officer as of the date first above
written.

ATLANTA GAS LIGHT COMPANY

By: /s/ Robert L. Goocher
Robert L. Goocher
Executive Vice President
and Chief Financial Officer

S1.220264

<PAGE>

FIFTH AMENDMENT TO THE
AGL RESOURCES INC. LONG-TERM
STOCK INCENTIVE PLAN OF 1990

(Formerly known as the ATLANTA GAS LIGHT COMPANY
LONG-TERM STOCK INCENTIVE PLAN OF 1990)

This Fifth Amendment to the AGL Resources Inc. Long-Term Stock Incentive
Plan of 1990 (formerly known as the Atlanta Gas Light Company Long-Term Stock
Incentive Plan of 1990) (the "Plan") is made and entered into this 1st day of
November, 1996, by AGL Resources Inc. (the "Company").

W I T N E S S E T H:

WHEREAS, the Company has assumed the sponsorship of this Plan and has
determined that it would be in the best interest of the Company, its employees
and the employees of its subsidiaries to amend the Plan to change the name of
the Plan, to clarify the definition of "fair market value" with regard to stock
under the Plan and to clarify the methods of payment an Optionee may use to
exercise an option; and

WHEREAS, Section 10 of the Plan provides that the Company may amend the
Plan at any time; and

WHEREAS, the Board of Directors of the Company has adopted a resolution
authorizing the amendment of the Plan;

NOW, THEREFORE, the Plan is hereby amended as follows:

Effective as of July 1, 1996, the name of the Plan is hereby changed to
"AGL Resources Inc. Long-Term Stock Incentive Plan of 1990"; all references to
the "Plan" in the Plan shall mean the AGL Resources Inc. Long-Term Stock
Incentive Plan of 1990 and all references to "Company" shall mean AGL Resources
Inc.

Section 5(c)(ii) is hereby amended, effective as of January 1, 1996, by
deleting that section in its entirety and substituting in lieu thereof the
following:

<PAGE>

"(ii) The fair market value per share of Common Stock as of a date of
determination shall mean the following:

(A) For purposes of transactions under the Plan that constitute a
purchase or sale of Common Stock on the open market, the fair market value
of the Common Stock shall be the actual market price on the date and time
of the purchase or sale; and

(B) For all other purposes under the Plan, the fair market value per
share of the Common Stock on any particular date shall be (a) the closing
sale price of the stock as reflected on the National Association of
Securities Dealers, Inc. National Market System on such date, or (b) if the
Common Stock is listed on an established stock exchange, the closing price
of the stock on such exchange on such date. If, for any reason, the fair
market value per share of the Common Stock cannot be ascertained or is
unavailable for a particular date, the fair market value of such stock
shall be determined as of the nearest preceding date on which such fair
market value can be ascertained pursuant to the terms hereof."

Section 5(h)(i) of the Plan is hereby amended, effective as of January 1,
1996, by replacing the second sentence thereof with the following sentence.

"The Optionee [or his or her successors as provided in Section 5(j)(iii)]
may use any of the following methods of payment: (A) cash; (B) the delivery
of a certificate or certificates for shares of the Common Stock duly
endorsed for transfer to the Company with medallion level signature
guaranteed by a member firm of a national stock exchange or by a national
or state bank (or guaranteed or notarized in such other manner as the
Committee may require); (C) broker-assisted cashless exercise; or (D) any
combination of the above methods or any other method of exercise permitted
by the Committee."

Section 5(h)(i) of the Plan is hereby amended, effective as of November 1,
1996, by deleting the third sentence thereof in its entirety.

<PAGE>

Except as specifically set forth herein, the terms of the Plan shall remain
in full force and effect.

IN WITNESS WHEREOF, the Company has caused this Fifth Amendment to the Plan
to be executed by its duly authorized officer as of the date first above
written.

AGL RESOURCES INC.

By: /s/ Robert L. Goocher
Robert L. Goocher
Executive Vice President

b.275900.1

<PAGE>

FIRST AMENDMENT TO THE
ATLANTA GAS LIGHT COMPANY
NONQUALIFIED SAVINGS PLAN

This First Amendment to the Atlanta Gas Light Company Nonqualified Savings
Plan (the "Plan") is made and entered into this 6th day of March, 1996, by the
Atlanta Gas Light Company (the "Company").

W I T N E S S E T H:

WHEREAS, the Company sponsors the Plan to provide a select group of
management or highly compensated employees an opportunity to accumulate
retirement savings due to the legal limitations on their savings under the
Atlanta Gas Light Company Retirement Savings Plus Plan; and

WHEREAS, Article X of the Plan provides that the Company may amend the Plan
at any time; and

WHEREAS, the Board of Directors of the Company has adopted a resolution
authorizing the amendment of the Plan;

NOW, THEREFORE, BE IT RESOLVED, that the Plan hereby is amended as follows:

1. Effective as of March 6, 1996, Section 1.14 of the Plan is amended by
replacing that section with the following new Section 1.14:

"1.14 Company Stock shall mean the $5.00 par value common stock of AGL
Resources Inc."

2. Except as specifically set forth herein, the terms of the Plan shall
remain in full force and effect.

IN WITNESS WHEREOF, the Company has caused this First Amendment to the Plan
to be executed by its duly authorized officer as of the date first above
written.

ATLANTA GAS LIGHT COMPANY

By: /s/ Robert L. Goocher
Robert L. Goocher
Executive Vice President
and Chief Financial Officer

S1.220283

<PAGE>