NICOR INC, 10-K405, 1997-03-26

NICOR INC
10-K405, 1997-03-26
NATURAL GAS DISTRIBUTION

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

(Mark One)

[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to

Commission file number 1-7297

NICOR Inc.
(Exact name of registrant as specified in its charter)

Illinois 36-2855175
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

1844 Ferry Road
Naperville, Illinois 60563-9600
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (630) 305-9500

Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange on
Title of each class which registered
Common Stock, par value $2.50 per share New York Stock Exchange
Chicago Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ X ]

As of February 28, 1997, 49,224,465 common shares were outstanding, and the
aggregate market value of voting securities held by non-affiliates of the
registrant was approximately $1.6 billion.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the company's 1997 Annual Meeting Definitive Proxy Statement,
dated March 6, 1997 are incorporated by reference into Part III.

NICOR Inc. Page i

Table of Contents

Item No. Page
Part I
1. Business................................................ 1

2. Properties.............................................. 6

3. Legal Proceedings....................................... 6

4. Submission of Matters to a Vote of Security Holders..... 6

Executive Officers of the Registrant.................... 7

Part II
5. Market for Registrant's Common Equity and Related
Stockholder Matters................................... 8

6. Selected Financial Data................................. 9

7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 10

8. Financial Statements and Supplementary Data............. 20

9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................... 37

Part III
10. Directors and Executive Officers of the Registrant...... 37

11. Executive Compensation.................................. 37

12. Security Ownership of Certain Beneficial Owners
and Management........................................ 37

13. Certain Relationships and Related Transactions.......... 37

Part IV
14. Exhibits, Financial Statement Schedule, and Reports
on Form 8-K........................................... 38

Signatures.............................................. 40

Exhibit Index........................................... 41

Selected abbreviations:

FERC - Federal Energy Regulatory Commission
Ill.C.C. - Illinois Commerce Commission
Mcf, Bcf - Thousand cubic feet, billion cubic feet
TEU - Twenty-foot equivalent unit

NICOR Inc. Page 1

PART I

Item 1. Business

NICOR Inc. (NICOR), incorporated in 1976, is a holding company and through
its wholly owned subsidiaries is engaged in gas distribution (Northern
Illinois Gas) and containerized shipping (Tropical Shipping). NICOR had
approximately 3,300 employees at year-end 1996.

Gas distribution is NICOR's primary business, representing approximately
90 percent of consolidated operating income and assets. NICOR provides
financial information on both of its business segments in Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, on pages 10 through 19.

The mailing address of the company's general office is P.O. Box 3014,
Naperville, Illinois 60566-7014. The telephone number is (630) 305-9500.

GAS DISTRIBUTION

General

Northern Illinois Gas, formed in 1954, is one of the nation's largest gas
distribution utilities. The company delivers natural gas to about
1.9 million customers, including transportation service, gas storage and gas
supply backup to approximately 21,000 commercial and industrial customers
who purchase their own gas supplies. The company has approximately 2,200
employees. The company's service territory spans over 17,000 square miles,
covering more than 600 communities and adjacent areas in 35 counties and
encompasses most of the northern third of Illinois, excluding the city of
Chicago. Northern Illinois Gas maintains franchise agreements with 474
municipalities with terms ranging up to 50 years. More than 65 percent, or
approximately 315 franchise agreements, will expire in 15 years or more.
Only 23 agreements, or 5 percent, will expire in less than five years.
These agreements allow the company to construct, operate and maintain
distribution facilities in the municipalities served.

The Northern Illinois Gas service territory has a stable economic base that
provides strong and balanced demand among residential, commercial and
industrial customers. Residential customers account for about 45 percent of
the company's total gas deliveries, while industrial and commercial
customers account for approximately 30 percent and 25 percent of deliveries,
respectively. In addition, the company's industrial and commercial
customer base is well-diversified, lessening the impact of industry-specific
economic swings. See Operating Statistics on page 16 for operating revenues,
deliveries and customers by customer classification.

Gas deliveries are seasonal since approximately 50 percent are used for
space heating. Typically, 70 percent to 75 percent of deliveries and
revenues occur from October through March.

NICOR Inc. Page 2

Item 1. Business (continued)

Customer Services

In addition to gas sales to all customer classes, Northern Illinois Gas
provides transportation, storage and backup services to commercial and
industrial customers who purchase their own gas supplies. Transportation
service provides customers the opportunity to lower their overall costs by
purchasing gas directly and transporting it to their facilities through the
company's distribution system. The company provides transportation
customers with supply backup which may vary from zero to 100 percent.

Northern Illinois Gas makes about 35 Bcf, or nearly one quarter of company-
owned storage capacity, available to its transportation customers.

In recent years, Northern Illinois Gas has developed several nontraditional
activities that are intended to maximize the value of the company's assets,
expertise and customer base. These activities included: providing
transportation service to neighboring pipelines and gas distribution
companies; providing a variety of hub services to buyers and sellers of
natural gas; providing storage services to customers, gas marketers and
others; selling space to outside vendors for direct-mail inserts in customer
bills; and providing water meter reading and other services to
municipalities.

Sources of Gas Supply

Northern Illinois Gas purchases gas supplies on a deregulated basis directly
from producers, marketers and affiliates of pipelines. Pipeline
transportation and purchased storage services are contracted for at rates
regulated by the FERC.

Northern Illinois Gas has been able to obtain sufficient supplies of natural
gas to meet customer requirements. The company believes natural gas supply
availability will be sufficient to meet market demands in the foreseeable
future.

Gas supply. Northern Illinois Gas maintains a diversified portfolio of gas
supply contracts. Firm gas supply contracts are diversified by supplier,
producing region, quantity, available transportation, contract length and
contract expiration date. Contract pricing is generally tied to published
price indices so as to approximate current market prices. The contracts
also generally provide for the payment of fixed demand charges to ensure the
availability of supplies on any given day. At the end of 1996, the company
had about 45 firm gas supply contracts, of which nearly 60 percent of the
contracted volumes will expire in 1997 and the remainder by 2001.
The company also purchases gas supplies on the spot market to fulfill its
supply requirements or to take advantage of favorable short-term pricing.

NICOR Inc. Page 3

Item 1. Business (continued)

The sources of gas purchased for the past three years were:
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
Source Bcf % Bcf % Bcf %

<S> <C> <C> <C> <C> <C> <C>
Firm gas supply 189.7 54.3 237.4 78.2 246.8 84.6
Spot gas 159.8 45.7 66.2 21.8 44.8 15.4

349.5 100.0 303.6 100.0 291.6 100.0
</TABLE>

Customers served under the company's transportation service tariffs purchase
their own gas supplies. Approximately 40 percent of the gas that the
company delivered in 1996 was purchased by transportation customers directly
from producers and marketers rather than from the company.

Pipeline transportation contracts. Northern Illinois Gas is directly
connected to five interstate pipelines which provide access to most of the
major natural gas producing regions in North America. The company's primary
firm transportation contracts with these pipelines at the end of 1996 are
summarized below:
<TABLE>
<CAPTION>
Total maximum
Year of service daily contract
agreement capacity
Major pipelines expiration (Bcf)

Natural Gas Pipeline Company
<S> <C> <C>
of America 2000 .92(a)
Midwestern Gas Transmission
Company 2000 .29
Northern Natural Gas Company 1999/2000 .19

<F1>
1.40
(a) Excludes .49 Bcf of delivered storage service.
</TABLE>

The company contracts for transportation capacity necessary to meet peak day
requirements. Contracted capacity that is temporarily not needed can be
released in the secondary market under FERC-mandated capacity release
provisions, with proceeds reducing the company's cost of gas charged to
customers.

Storage. Northern Illinois Gas owns and operates seven underground gas
storage facilities. This storage system is one of the largest in the gas
distribution industry and is able to meet up to 60 percent of the company's
peak day deliveries and approximately 30 percent of its normal winter
deliveries. On an annual basis, the company cycles about 130 Bcf of gas
through its storage fields. In addition to the company-owned facilities,
Northern Illinois Gas purchases about 43 Bcf of storage service from
interstate pipelines and other storage facility operators. Storage
facilities provide supply flexibility, improve reliability of deliveries and
reduce costs.

NICOR Inc. Page 4

Item 1. Business (continued)

Competition/Demand

Northern Illinois Gas is one of the largest utility energy suppliers in
Illinois, delivering about one-third of all utility energy consumed in the
state. About 95 percent of all single-family homes in Northern Illinois
Gas' service territory are heated with natural gas. The company's gas
services compete with other forms of energy, such as electricity and oil.
Significant factors that impact demand for gas include weather, economic
conditions and the price of gas relative to competitive fuels.

Additional information on competition and demand is presented in Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, on pages 12 and 13.

Regulation

Northern Illinois Gas is regulated by the Ill.C.C. which establishes the
rules and regulations governing utility rates and services in Illinois.
Rates are designed to allow the company to recover its costs and provide an
opportunity to earn a fair return on investment.

The cost of gas the company purchases for customers is recovered through a
monthly gas supply charge, which accounts for approximately 70 percent of a
typical residential customer's annual bill. The company's cost of gas is
passed on to the customer with no markup.

In April 1996, the Ill.C.C. granted Northern Illinois Gas a 2.8 percent,
$33.7 million general rate increase. In August 1996, Northern Illinois Gas
filed a performance-based rate plan with the Ill.C.C. for gas supply costs
and in January 1997 announced its intention to withdraw the filing. For
further information relating to these items, see Regulatory Matters on page
28.

Properties

The gas distribution, transmission and storage system includes approximately
28,000 miles of steel, plastic and cast iron main; approximately 25,000
miles of steel, plastic/aluminum composite, plastic and copper service pipe
connecting the mains to customers' premises; and seven underground storage
fields. Other properties include buildings, land, motor vehicles, meters,
regulators, compressors, construction equipment, tools, and communication,
computer and office equipment.

NICOR Inc. Page 5

Item 1. Business (concluded)

The principal real properties are held under easements, permits, licenses or
in fee. Land in fee is owned for essentially all administrative offices and
for certain transmission mains and underground storage fields. Substantial-
ly all properties are subject to the lien of the indenture securing the
company's first mortgage bonds.

SHIPPING

Tropical Shipping transports containerized freight between Florida and
26 ports in the Caribbean region. The company is one of the largest
containerized cargo carriers in the region and has leading market shares in
most of the ports it serves. Tropical Shipping carries cargo primarily
southbound to markets which are heavily dependant upon the tourist industry
and northbound for export trade. The company also provides additional
related services including inland transportation and cargo insurance.

Tropical Shipping's owned fleet consists of 14 vessels with a container
capacity totaling approximately 3,100 TEUs. Whenever practical, excess
capacity in Tropical Shipping's fleet is chartered out on a short-term
basis. In addition, the company owns containers, container-handling
equipment, chassis and other equipment. Real property, a significant
portion of which is leased, includes office buildings, cargo handling
facilities and warehouses located in the United States, as well as in some
of the ports served.

Additional information about factors affecting Tropical Shipping's business
is presented in Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations, on page 13.

OTHER UNREGULATED BUSINESSES

NICOR has formed several unregulated ventures that build on the company's
strengths in the gas distribution business. Additional information is
presented in Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations, on page 14.

ENVIRONMENTAL MATTERS

Information with respect to environmental matters is presented in the
Contingencies section of the Notes to the Consolidated Financial Statements
on pages 35 and 36.

NICOR Inc. Page 6

Item 2. Properties

Information with respect to this item concerning NICOR and its subsidiaries'
properties is included in Item 1, Business, above, and is incorporated
herein by reference. These properties are suitable, adequate and utilized
in the company's operations.

Item 3. Legal Proceedings

For information concerning legal proceedings, see Regulatory Matters on
page 28 and Contingencies on pages 35 and 36 in Notes to the Consolidated
Financial Statements, which are incorporated herein by reference.

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

None.

NICOR Inc. Page 7

Executive Officers of the Registrant

Name Age Current Position and Background

Thomas L. Fisher 52 Chairman, NICOR and Northern Illinois Gas
(since 1996), Chief Executive Officer, NICOR
(since 1995) and Northern Illinois Gas (since
1988), President, NICOR (since 1994) and
Northern Illinois Gas (since 1988) and Chief
Operating Officer, NICOR (1994).

Phil S. Cali 49 Senior Vice President Operations, Northern
Illinois Gas (since 1995), Vice President
Engineering, Codes and Environmental Affairs,
Northern Illinois Gas (1994-1995), Vice
President New Business Development, Costain
Holdings Inc. (company engaged in natural
resource development)(1987-1994).

David L. Cyranoski 53 Senior Vice President, NICOR and Northern
Illinois Gas (since 1995), Secretary, NICOR
(since 1992) and Northern Illinois Gas (since
1993), Controller, NICOR (since 1992) and
Northern Illinois Gas (since 1984) and Vice
President, NICOR (1992-1995) and Northern
Illinois Gas (1984-1995).

Kathleen L. Halloran 44 Senior Vice President Information Services,
Rates and Human Resources, Northern Illinois
Gas (since 1996), Vice President Information
Services, Rates and Human Resources, Northern
Illinois Gas (1995-1996), Vice President
Information Services and Rates, Northern
Illinois Gas (1994-1995), Vice President
Information Services and General Accounting,
Northern Illinois Gas (1992-1994), Vice
President and Secretary, Northern Illinois Gas
and Vice President, Secretary and Controller,
NICOR (1989-1992).

Thomas A. Nardi 42 Senior Vice President Nonutility Operations
and Business Development, NICOR (since 1995),
and Senior Vice President Business
Development, Northern Illinois Gas (since
1995), Vice President Business Development,
NICOR (1994-1995), Vice President Supply and
Business Development, Northern Illinois Gas
(1994-1995), Vice President Rates and Supply,
Northern Illinois Gas (1993-1994) and Vice
President Rates and Personnel and Secretary,
Northern Illinois Gas (1991-1992).

NICOR Inc. Page 8

Name Age Current Position and Background

Richard J. Lannon 48 Vice President Human Resources, NICOR (since
1996), Vice President Administration Northern
Illinois Gas (since 1996), Vice President
Marketing/Sales and Treasurer, Northern
Illinois Gas (1995-1996), Vice President and
Treasurer, Northern Illinois Gas (1994-1995)
and Vice President Divisions, Northern
Illinois Gas (1991-1994).

Donald W. Lohrentz 60 Treasurer, NICOR (since 1990) and Northern
Illinois Gas (since 1996, 1990-1993) and Vice
President, Northern Illinois Gas (since 1985).

Edwin M. Werneke 58 Vice President Supply Ventures, NICOR (since
1995) and Northern Illinois Gas (since 1996),
Vice President Supply Administration, Northern
Illinois Gas (1995) and Assistant Vice
President, Northern Illinois Gas (1980-1995).

Executive officers of the company are elected annually by the Board of
Directors.

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters

NICOR common stock is listed on the New York and Chicago Stock Exchanges.
At February 28, 1997, there were approximately 40,000 common stockholders of
record. On March 11, 1997, the Board of Directors declared a quarterly
common stock dividend of 35 cents per share, payable May 1, 1997, to
stockholders of record March 31, 1997. This payment represents an annual
rate of $1.40 per share.

The common stock price range and dividends declared per common share by
quarter for 1996 and 1995, are as follows:

Stock price Dividends
Quarter High Low declared
1996
First $29-3/8 $25-7/8 $ .33
Second 29 25-3/8 .33
Third 34-3/4 27-5/8 .33
Fourth 37-1/8 33-1/2 .33

1995
First $25-3/8 $21-3/4 $ .32
Second 27-7/8 24-1/2 .32
Third 28-1/2 25-1/8 .32
Fourth 28-1/2 24-7/8 .32

<TABLE>
NICOR Inc. Page 9

Item 6. Selected Financial Data
<CAPTION>
Year Ended December 31
(Millions, except per share data) 1996 1995 1994 1993 1992

<S> <C> <C> <C> <C> <C>
Operating revenues $1,850.7 $1,480.1 $1,609.4 $1,673.9 $1,546.5

Operating income $ 233.1 $ 189.8 $ 189.5 $ 198.1 $ 188.3

Net income
Continuing operations $ 121.2 $ 99.8 $ 109.5 $ 109.4 $ 95.0
Discontinued operations 15.0 - - 2.3 13.3

$ 136.2 $ 99.8 $ 109.5 $ 111.7 $ 108.3

Average shares of common stock
outstanding 50.0 50.7 52.6 55.1 56.0

Earnings per average share of common
stock
Continuing operations $ 2.42 $ 1.96 $ 2.07 $ 1.97 $ 1.67
Discontinued operations .30 - - .04 .24

$ 2.72 $ 1.96 $ 2.07 $ 2.01 $ 1.91

Dividends declared per share of common
stock $ 1.32 $ 1.28 $ 1.26 $ 1.22 $ 1.18

Total assets $2,438.6 $2,259.1 $2,209.9 $2,222.1 $2,339.2

Capitalization
Long-term debt $ 518.0 $ 468.7 $ 458.9 $ 458.9 $ 417.2
Redeemable preferred and preference
stock 7.4 8.8 9.3 16.6 17.2
Nonredeemable preferred and preference
stock .1 .1 .1 .1 .1
Common equity 729.6 687.6 683.4 703.9 711.6

$1,255.1 $1,165.2 $1,151.7 $1,179.5 $1,146.1
</TABLE>

NICOR Inc. Page 10

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations

The purpose of this financial review is to explain changes in NICOR's
operating results and financial condition from 1994 to 1996. This review
also discusses business trends and uncertainties that might affect NICOR.
A summary of operating performance during this period is presented below,
followed by a more detailed discussion. Certain abbreviations used herein
are defined in the Table of Contents.

SUMMARY

NICOR's two major business segments are gas distribution and shipping. Gas
distribution is NICOR's primary business, representing approximately
90 percent of consolidated operating income and assets.

NICOR's 1996 income from continuing operations of $121.2 million increased
21 percent from 1995 as a result of improved operating results in the gas
distribution segment. In the second quarter of 1996, NICOR made a positive
after-tax adjustment of $15 million to its reserve for discontinued
operations. Including this adjustment, NICOR's 1996 net income was
$136.2 million. In 1995, NICOR's net income of $99.8 million declined
9 percent from 1994 due primarily to the negative impact of a higher
effective tax rate and lower nonoperating income.

Earnings per common share from continuing operations were $2.42 in 1996
compared with $1.96 in 1995 and $2.07 in 1994. Earnings per common share
were $2.72, $1.96 and $2.07 in 1996, 1995 and 1994, respectively. Per share
results in each period benefited from the company's common stock buyback
programs. Dividends declared per common share were $1.32, $1.28 and $1.26
for 1996, 1995 and 1994, respectively.

Gas distribution operating income increased to $215.6 million in 1996 from
$170.7 million in 1995 due to the impact of a general rate increase and an
increase in deliveries of natural gas, partially offset by higher
depreciation. Higher deliveries were attributable to the positive impact of
weather that was 5 percent colder than in 1995, demand growth among existing
customers and customer additions. In 1995, gas distribution operating
income decreased $4.2 million to $170.7 million as higher depreciation and
higher operating and maintenance expenses more than offset the impact of
higher demand unrelated to weather.

Shipping operating income was $22.2 million, down $1.2 million from 1995.
Revenues increased to $195 million compared with $163.6 million a year ago
on a 23 percent increase in volumes shipped, but the increase was more than
offset by higher costs primarily associated with business expansion and the
fourth quarter exit from Central American liner operations. In 1995,
shipping operating income rose $4.8 million to $23.4 million due to higher
revenue per unit related to an improved mix of cargo shipped.

NICOR Inc. Page 11

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)

Net cash flow from operating activities decreased $169 million in 1996 to
$104.6 million due to changes in gas distribution working capital. These
changes are further explained within the Financial Condition and Liquidity
section to follow.

In March 1996, NICOR completed a $50 million common stock buyback program
initiated in October 1994. In June 1996, another $50 million common stock
repurchase program was initiated. During the last three years, the company
has purchased and retired nearly 4.5 million common shares at a cost of
$120 million.

(Millions) 1996 1995 1994

Operating revenues
Gas distribution $ 1,610.2 $ 1,312.7 $ 1,455.0
Shipping 195.0 163.6 153.0
Other 45.5 3.8 1.4

$ 1,850.7 $ 1,480.1 $ 1,609.4

Depreciation
Gas distribution $ 111.8 $ 98.8 $ 90.1
Shipping 13.4 12.9 13.0
Other .1 .1 -

$ 125.3 $ 111.8 $ 103.1

Operating income (loss)
Gas distribution $ 215.6 $ 170.7 $ 174.9
Shipping 22.2 23.4 18.6
Other (4.7) (4.3) (4.0)

$ 233.1 $ 189.8 $ 189.5

NICOR Inc. Page 12

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)

FACTORS AFFECTING BUSINESS PERFORMANCE

The following factors can impact year-to-year comparisons and may affect the
future performance of NICOR's businesses.

Gas distribution. Since approximately 50 percent of gas deliveries are used
for space heating, fluctuations in weather can have a significant impact on
year-to-year comparisons of operating income and cash flow. In addition,
significant changes in gas prices or economic conditions can impact gas
usage. However, Northern Illinois Gas' large residential customer base
provides relative stability during weak economic periods. Also, the
industrial and commercial customer base is well-diversified, lessening the
impact of industry-specific economic swings.

Northern Illinois Gas competes with other suppliers of energy based on such
factors as price, service and reliability. The company is well-positioned
to deal with the possibility of fuel switching by customers because it has
rates and services designed to compete against alternative fuels and because
of its competitively priced supply of gas. In addition, the company has a
rate which allows negotiation with potential bypass customers and no
customer has bypassed since the rate became effective in 1987. Northern
Illinois Gas also offers commercial and industrial customers flexibility and
alternatives in rates and service, increasing its ability to compete in
these markets.

Direct connection to five interstate pipelines and extensive underground
storage capacity allow the company to maintain rates that are among the
lowest in the nation, while also providing transportation customers with
direct access to gas supplies and storage services. Northern Illinois Gas'
storage capabilities enable the company to minimize purchases of premium-
cost pipeline services. In addition, in an effort to ensure supply
reliability, the company purchases gas from several different producing
regions under varied contract terms.
<TABLE>
Gas Distribution Operating Statistics
<CAPTION>
1996 1995 1994

<S> <C> <C> <C>
Year-end customers (Thousands) 1,863.0 1,833.5 1,802.7
Margin per Mcf delivered $ .90 $ .83 $ .86
Average gas cost per Mcf sold $ 2.99 $ 2.52 $ 3.16
Degree days (Normal 6,116) 6,429 6,111 5,865
</TABLE>

Northern Illinois Gas has been able to increase gas deliveries in recent
years in part because of more diversified uses of natural gas. The majority
of the company's growth in the past has been driven by customer additions.
However, diversified uses, such as large-tonnage gas air conditioning and
gas-fired cogeneration, are expected to continue to contribute to Northern
Illinois Gas' growth in deliveries.

Beyond efforts to increase natural gas deliveries in its service territory,
Northern Illinois Gas is working to increase profitability through
nontraditional activities. During 1996, these nontraditional activities
included: providing transportation service to neighboring pipelines and gas
distribution companies; providing a variety of hub services to buyers and
sellers of natural gas; and providing storage services to customers, gas
marketers and others.

NICOR Inc. Page 13

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)

The natural gas industry has been going through deregulation at both the
federal and state levels for several years. Deregulation has also recently
spread to the electric utility industry, and many electric utilities have
begun reducing their costs in anticipation of increased competition.
Although Northern Illinois Gas' traditional pricing advantage compared to
electricity may decrease as the price of electricity declines, the company
expects to maintain a pricing advantage in the foreseeable future. Ongoing
efforts to maintain this pricing advantage include: continuing to reduce
fixed gas supply and pipeline transportation costs; reducing the level of
capital spending from historic levels while maintaining or improving system
integrity; and reducing operating and maintenance expenses while increasing
the level of customer satisfaction.

Shipping. Tropical Shipping's financial results can be significantly
affected by general economic conditions in the United States and the
Caribbean. Most of the markets served by the company depend on imports of
food and other essential provisions. Tourism is a key element in their
economies.

Tropical Shipping is one of the largest containerized cargo carriers in the
Caribbean region, which is characterized by modest market growth and
intensifying price competition. The company intends to take advantage of
opportunities in the region by expanding services to selected destinations
and initiating service to new areas when appropriate. Additional growth is
expected from value-added services, such as handling of less-than-container
load shipments and providing service via other carriers to ports not served
by Tropical vessels.

At present, all shipping companies engaged in the foreign commerce of the
United States are required to file their rates and tariff terms with the
Federal Maritime Commission (FMC). There is currently a bill before
Congress to partially deregulate international shipping by eliminating the
FMC. Tropical's competitive rates and service levels should allow the
company to meet the challenges of increased competition; however, the full
impact of deregulation is uncertain at this time.

<TABLE>
Shipping Operating Statistics
<CAPTION>
1996 1995 1994
TEUs shipped (Thousands)
<S> <C> <C> <C>
Southbound 97.4 76.2 75.2
Northbound 14.3 15.7 16.7
Interisland 7.5 5.0 4.0

119.2 96.9 95.9

Ports served 26 23 22
Vessels owned 14 14 14
</TABLE>

NICOR Inc. Page 14

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)

Other Unregulated Businesses. While working to achieve growth through its
regulated utility operations, NICOR has formed several unregulated ventures
that build on the company's strengths in the gas distribution business.
Currently, these ventures include: providing gas marketing and related
services for customers who purchase their own natural gas; participating
with other industry leaders to develop, administer and operate natural gas
market-area hubs; providing consulting services, field testing and
evaluation of materials, and product development and commercialization;
acting as a general contractor for cogeneration and other energy development
projects; and offering maintenance and repair contracts for heating, air
conditioning and water heating equipment to residential and small commercial
customers.

Contingencies. The company is conducting environmental investigations at
former barge-cleaning facilities and gas manufacturing plant sites.
Although unable to determine the outcome of these contingencies, management
believes that appropriate accruals have been recorded. Final disposition of
these matters is not expected to have a material impact on the company's
financial condition or results of operations. For further information, see
Contingencies on pages 35 and 36.

RESULTS OF OPERATIONS

Details of various financial and operating information by segment can be
found in the tables throughout this review. The following discussion
summarizes the major items impacting NICOR's earnings.

Revenues. NICOR's operating revenues in 1996 increased 25 percent from the
prior year to $1,850.7 million. Gas distribution revenues of $1,610.2
million were up 23 percent due to the recovery from customers of higher
natural gas supply costs, an increase in deliveries and the impact of the
rate order. Higher deliveries were attributable to the positive impact of
colder weather, demand growth among existing customers and customer
additions. Shipping revenues rose 19 percent to $195 million due to
additional volumes shipped. In 1995, NICOR's operating revenues decreased
8 percent to $1,480.1 million. Gas distribution revenues of $1,312.7
million were down 10 percent as a result of the recovery from customers of
lower gas costs. Shipping revenues rose 7 percent to $163.6 million due to
an improved cargo mix, additional volumes shipped and increased charter
activity.

Margin. Gas distribution margin, defined as operating revenues less cost of
gas and revenue taxes, which are both passed directly through to customers,
rose $60.2 million to $502.5 million in 1996 due primarily to the positive
effect of the rate order and the impact of higher deliveries. In 1995,
margin rose $10.2 million to $442.3 million due to increased deliveries.
Margin per Mcf delivered in 1996 rose primarily as a result of the rate
order. In 1995, margin per Mcf delivered was adversely affected by an
increase in lower margin deliveries for electric power generation.

NICOR Inc. Page 15

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)

Operating and Maintenance. In 1996, operating and maintenance expenses
increased $39.4 million to $326.7 million due principally to higher costs in
the shipping segment caused primarily by volume-related shore and vessel
costs. In 1995, operating and maintenance expenses were $287.3 million, up
$14.6 million from the prior year. The gas distribution segment accounted
for $6.1 million of the increase due to several factors, including a higher
pension provision, increased expenditures for information technology and
costs associated with the company's rate filing. Operating and maintenance
expenses in the shipping segment were $5.8 million higher due to shore and
vessel costs.

Depreciation. Depreciation rose 12 percent to $125.3 million in 1996 due to
an increase in the gas distribution composite depreciation rate and gas
plant additions. For further information on the change in the composite
depreciation rate, see Accounting Policies on page 27. In 1995,
depreciation increased 8 percent to $111.8 million mainly as a result of gas
plant additions.

Nonoperating items. Other income decreased $2.6 million in 1996 to
$3.6 million due primarily to a change in interest on income tax adjustments
and the impact of lower investment levels on interest income which were
partially offset by a $1.8 million gain on property sales. In 1995, other
income decreased $5 million to $6.2 million primarily as a result of a 1994
gain of $4.2 million on property sales.

In 1996, interest expense rose $6 million to $47.8 million due primarily to
higher borrowing levels. Interest expense rose $1.7 million in 1995 due to
the impact of higher interest rates.

Effective income tax rates were 35.9 percent, 35.3 percent and 31.8 percent
for 1996, 1995 and 1994, respectively. The increase from 1994 was primarily
the result of a higher state tax provision and less excess deferred taxes
turning around.

Discontinued operations. In the second quarter of 1996, the company made a
positive after-tax adjustment of $15 million to its reserve for
discontinued operations. For further information on this adjustment, see
Discontinued Operations on page 30.

NICOR Inc. Page 16

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
<TABLE>
Gas Distribution Operating Statistics
<CAPTION>
1996 1995 1994

Gas distribution revenues (Millions)
Sales
<S> <C> <C> <C> <C> <C>
Residential $ 1,040.2 $ 849.8 $ 939.2
Commercial 281.9 217.8 260.0
Industrial 54.4 35.9 50.2
1,376.5 1,103.5 1,249.4

Transportation
Commercial 55.7 50.3 41.8
Industrial 54.0 62.5 51.2
109.7 112.8 93.0
Revenue taxes and other 124.0 96.4 112.6

$ 1,610.2 $ 1,312.7 $ 1,455.0

Deliveries (Bcf)
Sales
Residential 247.0 231.4 215.8
Commercial 67.0 59.3 60.5
Industrial 15.0 10.5 12.4
329.0 301.2 288.7
Transportation
Commercial 73.5 64.0 54.2
Industrial 154.1 165.6 156.9
227.6 229.6 211.1

556.6 530.8 499.8

Year-end customers (Thousands)
Sales
Residential 1,688.5 1,660.6 1,632.0
Commercial 142.1 141.7 141.5
Industrial 11.6 11.6 11.6
1,842.2 1,813.9 1,785.1
Transportation
Commercial 18.1 17.1 15.3
Industrial 2.7 2.5 2.3
20.8 19.6 17.6

1,863.0 1,833.5 1,802.7
</TABLE>

NICOR Inc. Page 17

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)

FINANCIAL CONDITION AND LIQUIDITY

Overall, NICOR's financial condition is sound. Long-term debt continues to
be about 40 percent of capitalization.

The company believes it has access to adequate resources to meet planned
capital expenditures, debt and stock redemptions, dividends and working
capital needs. These resources include net cash flow from operating
activities, access to capital markets, unused lines of credit and short-term
investments.

Operating. Net cash flow from operating activities was $104.6 million in
1996, $273.6 million in 1995 and $297.1 million in 1994. The 1996 decrease
was due to the impact of increased gas in storage, the timing of the
recovery of gas costs from customers, a 1995 gas pipeline refund and a
return to normal levels of customer advance payments in the gas distribution
segment. These factors were partially offset by a favorable $35 million
income tax settlement in the second quarter of 1996. The 1995 decrease from
1994 was due primarily to the timing of gas cost recoveries.

The working capital component of net cash flow from operating activities can
swing sharply from year to year due primarily to certain gas distribution
factors, including weather, the timing of collections from customers and
gas-purchasing practices. The company generally relies on short-term
financing to meet temporary increases in working capital needs.

Investing. NICOR's capital expenditures, which are mainly in the gas
distribution segment, were $119.9 million in 1996 compared with
$156.9 million in 1995 and $172.1 million in 1994. Capital expenditures in
1995 and 1994 were higher than normal due to the construction of the Elgin-
Volo transmission and storage system improvement, a two-year, $65 million
project. Reduced 1996 capital expenditures also reflect continuing cost
management efforts. The decline in 1995 capital spending in the shipping
segment related primarily to a delay in certain equipment purchases.

NICOR Inc. Page 18

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)

Capital spending in 1997 is projected to be about $140 million, with
$105 million for gas distribution and $35 million for shipping. In the
shipping segment, 1997 capital expenditures are expected to increase as a
result of potential investments to improve vessel fleet effectiveness and
anticipated expansion into new markets.

<TABLE>
<CAPTION>
Estimated Actual
(Millions) 1997 1996 1995 1994

Capital Expenditures
<S> <C> <C> <C> <C> <C>
Gas distribution $ 105 $ 107.7 $ 152.2 $ 160.3
Shipping 35 11.2 4.5 11.8
Other - 1.0 .2 -

$ 140 $ 119.9 $ 156.9 $ 172.1

Identifiable assets at December 31
Gas distribution $2,236.8 $2,080.3 $2,011.7
Shipping 167.6 164.3 180.6
Other 34.2 14.5 17.6

$2,438.6 $2,259.1 $2,209.9
</TABLE>

Financing. NICOR's long-term debt outstanding was $518 million,
$468.7 million, and $458.9 million at December 31, 1996, 1995 and 1994,
respectively. Long-term debt as a percent of capitalization was
41.3 percent, 40.2 percent and 39.9 percent at year-end 1996, 1995 and 1994,
respectively.

Long-term debt. In August 1996, Northern Illinois Gas sold $75 million of
6.45% First Mortgage Bonds due in 2001. The net proceeds from the sale of
the bonds replenished corporate funds which were used for the March 1996
maturity of $50 million of 4-1/2% First Mortgage Bonds and for general
corporate purposes.

In October 1995, Northern Illinois Gas issued $50 million of 7.26% First
Mortgage Bonds due in 2025. The net proceeds of the sale replenished
corporate funds which were used for the maturity of $50 million of 5-1/2%
unsecured notes due in July 1995.

In September 1995, Tropical Shipping issued $22.5 million of 6.83% unsecured
senior notes due in September 2000. Proceeds from the sale were used for
replacement of a $12.5 million promissory note due in December 1996 and for
general corporate purposes.

In August 1994, Northern Illinois Gas issued $50 million of 8-1/4% First
Mortgage Bonds due in 2024. The net proceeds from the sale of the bonds
were used for general corporate purposes, including construction programs.

In July 1994, Northern Illinois Gas redeemed $50 million of 8.70% First
Mortgage Bonds due in 1995 with proceeds from the issuance of $50 million of
5-1/2% unsecured notes due in July 1995.

NICOR Inc. Page 19

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (concluded)

Northern Illinois Gas filed a $225 million First Mortgage Bond shelf
registration statement with the Securities and Exchange Commission in 1994,
of which $100 million remained available for issuance at December 31, 1996.
The net proceeds from any securities issued are expected to be used for the
refinancing of certain outstanding debt, for construction programs to the
extent not provided by internally generated funds and for general corporate
purposes.

In 1997, Northern Illinois Gas anticipates issuing, depending upon market
conditions, $50 million of debt to finance maturing debt and for general
corporate purposes.

Short-term debt. NICOR and its gas distribution subsidiary maintain short-
term credit agreements with major domestic and foreign banks. At
December 31, 1996, these agreements, which serve as backup for the issuance
of commercial paper, totaled $303 million. The company had $292 million and
$198.8 million of commercial paper outstanding at year-end 1996 and 1995,
respectively. At December 31, 1996, the unused lines of credit under these
credit agreements were $11 million.

Preference stock. In May 1994, NICOR redeemed its 7.90% preference stock at
a price of $505 per share.

Common stock. Through common stock repurchase programs, NICOR has purchased
and retired .8 million, 1.2 million and 2.4 million common shares in 1996,
1995 and 1994, respectively, at a cost of $26 million, $31 million and
$63 million. These repurchases were financed in large part by cash flow
from operations. At December 31, 1996, approximately $28 million remained
authorized for the repurchase of common stock under an existing program.

The company increased its quarterly common stock dividend rate during 1996
for the ninth consecutive year. The company paid dividends of $66 million,
$65.2 million and $66.9 million in 1996, 1995 and 1994, respectively.

Other. Restrictions imposed by regulatory agencies and loan agreements
limiting the amount of subsidiary net assets that can be transferred to
NICOR are not expected to have a material impact on the company's ability to
meet its cash obligations.

NICOR Inc. Page 20

Item 8. Financial Statements and Supplementary Data
Page

Report of Independent Public Accountants 21

Financial Statements:

Consolidated Statement of Income 22

Consolidated Statement of Cash Flows 23

Consolidated Balance Sheet 24

Consolidated Statement of Capitalization 25

Consolidated Statement of Common Equity 26

Notes to the Consolidated Financial Statements 27

NICOR Inc. Page 21

Report of Independent Public Accountants

To the Shareholders and Board of Directors of NICOR Inc.:

We have audited the accompanying consolidated balance sheet and statement of
capitalization of NICOR Inc. (an Illinois corporation) and subsidiary
companies as of December 31, 1996 and 1995, and the related consolidated
statements of income, common equity and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements and
the schedule referred to below are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements and the schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of NICOR Inc. and
subsidiary companies as of December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted
accounting principles.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The financial statement schedule
listed in the accompanying index (page 38) is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not
part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audits of the basic financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.

ARTHUR ANDERSEN LLP
Arthur Andersen LLP

Chicago, Illinois
January 28, 1997

<TABLE>
NICOR Inc. Page 22

Consolidated Statement of Income
(Millions, except per share data)
<CAPTION>
Year Ended December 31
1996 1995 1994
<S> <C> <C> <C>
Operating revenues $ 1,850.7 $ 1,480.1 $ 1,609.4
Operating expenses
Cost of gas 1,044.7 787.2 929.1
Operating and maintenance 326.7 287.3 272.7
Depreciation 125.3 111.8 103.1
Taxes, other than income taxes 120.9 104.0 115.0
1,617.6 1,290.3 1,419.9
Operating income 233.1 189.8 189.5

Other income (expense)
Interest income 1.6 3.1 2.3
Other, net 2.0 3.1 8.9
3.6 6.2 11.2

Income before interest on debt and income taxes 236.7 196.0 200.7

Interest on debt, net of amounts capitalized 47.8 41.8 40.1

Income before income taxes 188.9 154.2 160.6

Income taxes 67.7 54.4 51.1

Income from continuing operations 121.2 99.8 109.5

Income from discontinued operations,
net of income taxes 15.0 - -

Net income 136.2 99.8 109.5

Dividends on preferred and preference stock .4 .4 .6

Earnings applicable to common stock $ 135.8 $ 99.4 $ 108.9

Average shares of common stock outstanding 50.0 50.7 52.6

Earnings per average share of common stock
Continuing operations $ 2.42 $ 1.96 $ 2.07
Discontinued operations .30 - -

$ 2.72 $ 1.96 $ 2.07

<F1>
The accompanying notes are an integral part of this statement.
</TABLE>

<TABLE>
NICOR Inc. Page 23

Consolidated Statement of Cash Flows
(Millions)
<CAPTION>
Year Ended December 31
1996 1995 1994
Operating activities
<S> <C> <C> <C>
Net income $ 136.2 $ 99.8 $ 109.5
Adjustments to reconcile net income to net cash
flow provided from operating activities:
Depreciation 125.3 111.8 103.1
Deferred income tax expense (benefit) (1.4) (3.1) (32.7)
Change in working capital items and other:
Receivables, less allowances (78.3) (43.0) 58.5
Gas in storage (55.2) 7.0 6.6
Deferred gas costs (42.4) 25.9 22.3
Accounts payable 25.5 50.0 29.4
Gas refunds due customers (22.9) 21.9 .7
Other 17.8 3.3 (.3)

Net cash flow provided from operating activities 104.6 273.6 297.1

Investing activities
Capital expenditures (119.9) (156.9) (172.1)
Short-term investments 6.9 8.2 23.8
Other .5 2.1 1.3

Net cash flow used for investing activities (112.5) (146.6) (147.0)

Financing activities
Net proceeds from issuing long-term debt 74.2 72.0 99.1
Disbursements to retire long-term debt (50.0) (62.5) (50.0)
Short-term borrowings (repayments), net 93.2 (47.6) (57.6)
Dividends paid (66.0) (65.2) (66.9)
Disbursements to reacquire stock (35.7) (33.6) (71.6)
Other 5.9 2.2 .9

Net cash flow provided from (used for) financing activities 21.6 (134.7) (146.1)

Net increase (decrease) in cash and cash equivalents 13.7 (7.7) 4.0

Cash and cash equivalents, beginning of year 6.8 14.5 10.5

Cash and cash equivalents, end of year $ 20.5 $ 6.8 $ 14.5

Supplemental information
Income taxes paid, net of refunds $ 75.3 $ 52.9 $ 77.7
Interest paid, net of amounts capitalized 46.4 41.6 39.5

<F1>
The accompanying notes are an integral part of this statement.
</TABLE>

<TABLE>
NICOR Inc. Page 24

Consolidated Balance Sheet
(Millions, except share data)
<CAPTION>
December 31
Assets 1996 1995

Current assets
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 20.5 $ 6.8
Short-term investments, at cost which
approximates market 12.7 19.6
Receivables, less allowances of $7.7 and $5.8,
respectively 340.0 261.7
Gas in storage, at last-in, first-out cost 118.2 63.0
Deferred gas costs 51.1 8.7
Other 30.9 30.0

573.4 389.8

Property, plant and equipment, at cost
Gas distribution 2,957.3 2,886.2
Shipping 233.9 223.8
Other 1.5 .4
3,192.7 3,110.4
Less accumulated depreciation 1,420.8 1,331.1

1,771.9 1,779.3

Other assets 93.3 90.0

$ 2,438.6 $ 2,259.1

Liabilities and Capitalization

Current liabilities
Long-term obligations due within one year $ 25.0 $ 50.0
Short-term borrowings 292.0 198.8
Accounts payable 333.9 308.4
Gas refunds due customers 1.3 24.2
Other 47.6 44.3

699.8 625.7
Deferred credits and other liabilities
Deferred income taxes 211.6 210.0
Regulatory income tax liability 83.8 86.5
Unamortized investment tax credits 48.4 50.8
Other 139.9 120.9

483.7 468.2
Capitalization
Long-term debt 518.0 468.7
Preferred stock 7.5 8.9
Common stock, par value $2.50, authorized 80,000,000 shares
(reserved for conversion and other purposes 4,112,839 and
4,399,110 shares, respectively), outstanding 49,491,823
and 50,301,587 shares, respectively 123.7 125.8
Paid-in capital 23.8 49.6
Retained earnings 582.1 512.2

1,255.1 1,165.2

$ 2,438.6 $ 2,259.1

<F1>
The accompanying notes are an integral part of this statement.
</TABLE>

<TABLE>
NICOR Inc. Page 25

Consolidated Statement of Capitalization
(Millions, except share data)
<CAPTION>
December 31
1996 1995

First mortgage bonds
Maturity Interest rate
<S> <S> <C> <S> <C> <C>
1996 4.50 % $ - $ 50.0
1997 5.50 25.0 25.0
1998 5.875 25.0 25.0
1999 6.25 25.0 25.0
2000 5.875 50.0 50.0
2001 6.45 75.0 -
2019 9.0 50.0 50.0
2021 8.875 50.0 50.0
2022 8.25 75.0 75.0
2023 7.375 50.0 50.0
2024 8.25 50.0 50.0
2025 7.26 50.0 50.0
525.0 500.0
Less: Amount due within one year 25.0 50.0
Unamortized debt discount, net of premium 4.5 3.8

495.5 39.5% 446.2 38.3%

Other long-term debt
Notes payable due 2000, 6.83% 22.5 1.8 22.5 1.9

Preferred and preference stock
Cumulative, par value $50, authorized 1,600,000 shares
for preferred; and cumulative, without par value,
authorized 20,000,000 shares for preference
Redeemable preferred stock, 4.48% and 5.00% series,
outstanding 147,673 and 175,385 shares, respectively 7.4 8.8
Other .1 .1
7.5 .6 8.9 .8

Common equity
Common stock 123.7 125.8
Paid-in capital 23.8 49.6
Retained earnings 582.1 512.2

729.6 58.1 687.6 59.0

$1,255.1 100.0% $1,165.2 100.0%

<F1>
The accompanying notes are an integral part of this statement.
</TABLE>

<TABLE>
NICOR Inc. Page 26

Consolidated Statement of Common Equity
(Millions, except per share data)
<CAPTION>
Year Ended December 31
1996 1995 1994
Common stock
<S> <C> <C> <C>
Balance at beginning of year $ 125.8 $ 128.9 $ 134.9
Issued and converted .6 .1 .1
Reacquired and cancelled (2.7) (3.2) (6.1)

Balance at end of year 123.7 125.8 128.9

Paid-in capital
Balance at beginning of year 49.6 77.1 134.5
Issued and converted 5.9 2.0 .8
Reacquired and cancelled (31.7) (29.5) (58.2)

Balance at end of year 23.8 49.6 77.1

Retained earnings
Balance at beginning of year 512.2 477.4 434.5
Net income 136.2 99.8 109.5
Dividends on common stock ($1.32, $1.28 and
$1.26 per share, respectively) (65.9) (64.6) (66.0)
Dividends on preferred and preference stock (.4) (.4) (.6)

Balance at end of year 582.1 512.2 477.4

Total common equity at end of year $ 729.6 $ 687.6 $ 683.4

<F1>
The accompanying notes are an integral part of this statement.
</TABLE>

NICOR Inc. Page 27

Notes to the Consolidated Financial Statements

NICOR Inc. is a holding company with its principal business being Northern
Illinois Gas, one of the nation's largest gas distribution companies.
Northern Illinois Gas serves almost 1.9 million customers in a service
territory that encompasses most of the northern third of Illinois, excluding
the city of Chicago. NICOR also owns Tropical Shipping, which transports
containerized freight between Florida and 26 ports in the Caribbean region.

ACCOUNTING POLICIES

Consolidation. The consolidated financial statements include the accounts
of NICOR Inc. and its subsidiaries. All significant intercompany balances
and transactions have been eliminated. The preparation of the consolidated
financial statements requires management to make estimates that affect the
reported amounts. Actual results could differ from those estimates.
Certain reclassifications were made to conform the prior years' financial
statements to the current year presentation.

Regulation. Northern Illinois Gas is regulated by the Ill.C.C. which
establishes the rules and regulations governing utility rates and services
in Illinois. The company applies accounting standards that recognize the
economic effects of rate regulation and, accordingly, has recorded
regulatory assets and liabilities. At December 31, 1996, the company had a
net regulatory liability of about $25 million.

Operating revenues and gas costs. The cost of gas purchased, adjusted for
inventory activity, is reflected in volumetric charges to customers through
operation of the Uniform Purchased Gas Adjustment Clause (PGA). Any
difference between PGA revenues and recoverable gas costs is deferred or
accrued with a corresponding decrease or increase in cost of gas. This
difference is amortized as it is collected from or refunded to customers
through the PGA.

Depreciation. Property, plant and equipment are depreciated over estimated
useful lives on a straight-line basis. In April 1996, the gas distribution
composite depreciation rate was increased to 4.1 percent from 3.7 percent.
The useful life estimates of vessels range from 15 to 25 years.

Income taxes. Deferred income taxes are provided for temporary differences
between the tax basis of an asset or liability and its reported amount in
the financial statements. Although the federal investment tax credit has
been eliminated, Northern Illinois Gas continues to amortize prior deferred
amounts to income over the lives of the applicable properties.

Cash and cash equivalents. The company considers investments purchased with
a maturity of three months or less to be cash equivalents.

Receivable credit risk. Each NICOR subsidiary has a diversified base of
customers, typical for its industry, and prudent creditworthiness policies
which limit risk.

NICOR Inc. Page 28

Notes to the Consolidated Financial Statements (continued)

REGULATORY MATTERS

Rate proceedings. On April 3, 1996, the Ill.C.C. granted Northern Illinois
Gas a $33.7 million general rate increase, of which $12 million relates to a
change in the company's composite depreciation rate. The order, effective
April 11, 1996, allows the company a rate of return on original-cost rate
base of 9.67 percent, which reflects an 11.13 percent cost of common equity.
The new rate structure will allow Northern Illinois Gas to recover a larger
proportion of its fixed costs during warmer months. The overall result is
that the company's earnings are now less sensitive to the effects of weather
and seasonal variations in quarterly earnings are now reduced.

In May 1996, the Ill.C.C. denied requests for rehearing filed by several
parties, including Northern Illinois Gas. The company and other parties
have subsequently appealed certain aspects of the Ill.C.C.'s order to the
Third District Appellate Court of Illinois.

On August 15, 1996, Northern Illinois Gas filed a performance-based rate
plan with the Ill.C.C. for gas supply costs. The filing was in response to
a recent amendment to the Illinois Public Utilities Act which allows
utilities to propose programs consisting of alternatives to traditional
cost-of-service regulation. In January 1997, the company announced its
intention to withdraw the filing after concluding that a performance-based
rate program is not likely under Illinois law at this time.

FERC Order 636. In April 1992, the FERC issued Order 636 which
substantially restructured the interstate sale and transportation of gas.
The FERC authorized pipelines to recover transition costs, such as gas
supply realignment and certain other costs, caused by compliance with
Order 636. The company estimates that the total transition costs from all
pipeline transporters could approximate $300 million. However, the ultimate
level of costs is dependent upon the future market price of natural gas,
pipeline negotiations with producers and other factors. Approximately
$220 million of such costs has been recorded, of which $213 million has been
paid to the pipeline transporters, subject to refund. Since 1994, the
company has been recovering these costs through the PGA in accordance with
Ill.C.C. authorization. As such, Order 636 will not have a material impact
on the company's financial condition or results of operations.

GAS IN STORAGE

Based on the average cost of gas purchased in December 1996 and 1995, the
estimated replacement cost of gas in inventory at December 31, 1996 and 1995
exceeded the last-in, first-out cost by approximately $351 million and
$161 million, respectively.

NICOR Inc. Page 29

Notes to the Consolidated Financial Statements (continued)

INCOME TAXES
<TABLE>
The components of income tax expense are presented below:
<CAPTION>
(Millions) 1996 1995 1994

Current
<S> <C> <C> <C>
Federal $ 61.7 $ 52.7 $ 74.8
State 9.4 7.1 11.2
71.1 59.8 86.0
Deferred
Federal (1.4) (2.3) (24.9)
State - (.8) (7.8)
(1.4) (3.1) (32.7)

Amortization of investment
tax credits, net (2.4) (2.7) (2.4)
Foreign taxes .4 .4 .2

Income tax expense $ 67.7 $ 54.4 $ 51.1
</TABLE>

The temporary differences which gave rise to significant portions of the net
deferred tax liability at December 31, 1996 and 1995 were as follows:

(Millions) 1996 1995

Deferred tax liabilities
Property, plant and equipment $ 238.4 $ 237.7
Investment in foreign subsidiaries 36.6 37.4
Purchased gas adjustment 17.3 -
Other 13.4 20.8
305.7 295.9
Deferred tax assets
Unamortized investment tax credits 31.8 33.6
Regulatory income tax liability 20.6 21.0
Other 44.5 46.4
96.9 101.0

Net deferred tax liability $ 208.8 $ 194.9

NICOR Inc. Page 30

Notes to the Consolidated Financial Statements (continued)

The effective combined federal and state income tax rate was 35.9 percent,
35.3 percent and 31.8 percent in 1996, 1995 and 1994, respectively.
Differences between federal income taxes computed using the statutory rate
and reported income tax expense are shown below:
<TABLE>
<CAPTION>
(Millions) 1996 1995 1994

Federal income taxes using
<S> <C> <C> <C>
statutory rate $ 66.1 $ 54.0 $ 56.2
State income taxes, net 6.2 4.7 2.5
Amortization of investment
tax credits (2.5) (2.6) (2.7)
Other, net (2.1) (1.7) (4.9)

Income tax expense $ 67.7 $ 54.4 $ 51.1
</TABLE>

DISCONTINUED OPERATIONS

In the second quarter of 1996, the company made a positive after-tax
adjustment of $15 million to its reserve for discontinued operations.
Factors contributing to the adjustment include the settlement of certain
contingencies at terms more favorable than originally anticipated and
revisions in management's estimate of the remaining costs related to
discontinued contract drilling, oil and gas, inland barging and extractive
operations. The balance of the reserve will continue to be evaluated as the
remaining environmental, legal, tax and other contingencies are resolved.

POSTRETIREMENT BENEFITS

Pension benefits. Northern Illinois Gas maintains non-contributory defined
benefit pension plans covering substantially all employees. Pension
benefits consider job level or the highest average salary earned during five
consecutive years of employment and years of service. The plans are
generally funded to the extent deductible for federal income tax purposes.
Plan assets are invested primarily in corporate and government securities.
<TABLE>
Net periodic pension cost (benefit) included:
<CAPTION>
(Millions) 1996 1995 1994

<S> <C> <C> <C> <C> <C> <C>
Service cost $ 7.7 $ 6.4 $ 7.0
Interest cost 19.8 19.3 18.5
Loss (return) on plan assets (61.9) (61.5) (17.1)
Net amortization and deferral 26.8 27.0 (19.4)

$ (7.6) $ (8.8) $ (11.0)

Expected long-term rate of return
on plan assets 8.5% 9.0% 8.5%
</TABLE>

NICOR Inc. Page 31

Notes to the Consolidated Financial Statements (continued)
<TABLE>
The following table reflects the funded status of the pension plans at
October 1, 1996 and 1995 reconciled to amounts recorded in the financial
statements at December 31, 1996 and 1995, respectively:
<CAPTION>
(Millions) 1996 1995

<S> <C> <C>
Vested benefits $ 192.6 $ 217.8
Nonvested benefits 21.4 25.7
Accumulated benefit obligation 214.0 243.5
Effect of assumed increase in
compensation level 31.3 32.5
Projected benefit obligation 245.3 276.0
Plan assets at market value 381.9 379.4
Plan assets in excess of projected
benefit obligation 136.6 103.4
Unrecognized net gain (64.5) (40.7)
Unrecognized net transition asset (20.1) (23.9)
Unrecognized prior service cost 4.1 4.5
Other 1.9 3.4

Prepaid pension cost $ 58.0 $ 46.7

Weighted average discount rate 7.5% 7.5%
Rate of compensation increase 3.5-5 4-5
</TABLE>

Northern Illinois Gas has historically amended the collectively bargained
pension plan every two to three years so that such pension benefits are
based on the most current wages. Northern Illinois Gas intends, subject to
collective bargaining, to continue making similar amendments to the plan.
These future amendments have been anticipated and are reflected in the
projected benefit obligation and pension expense.

Other postretirement benefits. Health care and life insurance benefits are
provided for retired employees if they become eligible for retirement while
working for Northern Illinois Gas. The plans are generally funded to the
extent deductible for federal income tax purposes. Plan assets are invested
primarily in corporate and government securities.
<TABLE>
Net periodic postretirement benefit cost included:
<CAPTION>
(Millions) 1996 1995 1994

<S> <C> <C> <C> <C> <C> <C>
Service cost $ 2.6 $ 2.3 $ 2.3
Interest cost 9.0 9.0 8.1
Loss (return) on plan assets (1.6) (1.8) (.4)
Amortization of transition obligation 3.7 3.7 3.7
Net amortization and deferral .5 1.0 (.1)

$ 14.2 $ 14.2 $ 13.6

Expected long-term rate of return
on plan assets 8.5% 9.0% 8.5%
</TABLE>

NICOR Inc. Page 32

Notes to the Consolidated Financial Statements (continued)
<TABLE>
The following table reflects the funded status of the postretirement health
care and life insurance plans at October 1, 1996 and 1995 reconciled to
amounts recorded in the financial statements at December 31, 1996 and 1995,
respectively:
<CAPTION>
(Millions) 1996 1995

Accumulated postretirement benefit
obligation (APBO):
<S> <C> <C> <C> <C>
Retirees $ 79.2 $ 76.9
Fully eligible active plan participants 12.0 16.9
Other active plan participants 29.0 29.6
Total APBO 120.2 123.4
Plan assets at market value 13.4 11.5
APBO in excess of plan assets (106.8) (111.9)
Unrecognized transition obligation 59.8 63.5
Unrecognized prior service cost (1.2) (1.2)
Unrecognized net loss 4.1 12.8
Other (.6) (2.1)

Accrued postretirement benefit cost $ (44.7) $ (38.9)

Weighted average discount rate 7.5% 7.5%
Rate of compensation increase 3.5-5 4-5
</TABLE>

The health care cost trend rate for pre-Medicare benefits was assumed to be
9 percent for 1997, declining to 5 percent for 2001 and remaining at that
level thereafter. The health care cost trend rate for post-Medicare
benefits was assumed to be 6 percent for 1997, declining to 5 percent for
1998 and remaining at that level thereafter. Increasing the assumed health
care cost trend rate by 1 percentage point would increase the APBO as of
December 31, 1996, by about $16 million, the aggregate of the service and
interest cost components of 1996 net postretirement health care costs by
$2 million, and operating expense by $1.5 million, after capitalization.

SHORT- AND LONG-TERM DEBT
<TABLE>
The company's short-term borrowings at December 31 included:
<CAPTION>
(Millions) 1996 1995 1994

Balance
<S> <C> <C> <C>
Commercial paper $ 292.0 $ 198.8 $ 243.9
Bank loans - - 2.5
Weighted average interest rate
Commercial paper 5.36% 5.69% 5.95%
Bank loans - - 6.55
</TABLE>

NICOR Inc. Page 33

Notes to the Consolidated Financial Statements (continued)

The company establishes lines of credit with major domestic and foreign
banks to support outstanding commercial paper. At December 31, 1996, lines
of credit totaled $303 million, of which $292 million served as backup for
commercial paper borrowings. Commitment fees of up to .08 percent per annum
were paid on these lines. All credit agreements have variable interest-rate
options tied to short-term markets.

Bank cash balances averaged about $3.6 million during 1996, which partially
compensated for the cost of maintaining accounts and other banking services.
Such demand balances may be withdrawn at any time.

First mortgage bonds are secured by liens on substantially all gas
distribution property and franchises.

Interest on debt was net of amounts capitalized of $.9 million and
$.2 million in 1995 and 1994, respectively.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The recorded amount of short-term investments and short-term borrowings
approximates fair value because of the short maturity of the instruments.
Based on quoted market interest rates, the recorded amount of the long-term
debt outstanding, including current maturities, also approximates fair
value.

STOCK-BASED COMPENSATION

NICOR has a plan which permits the granting of stock options, alternate
stock rights and restricted stock to key executives and managerial
employees, as well as an employee stock purchase plan (ESPP). The company
accounts for these plans in accordance with Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, under which no
compensation expense has been recognized. If compensation expense for these
plans had been recognized based on the fair value of awards at the grant
dates consistent with Financial Accounting Standards Board Statement
No. 123, Accounting for Stock-Based Compensation, the impact on the
company's net income and earnings per share would not have been material.

The company may grant options for up to 2.5 million shares and has granted
options on 1.3 million shares through December 31, 1996. The stock option
exercise price equals the stock's market price on the date of grant.
Options are vested after one year, generally become exercisable after three
years and expire after ten years.

NICOR Inc. Page 34

Notes to the Consolidated Financial Statements (continued)
<TABLE>
A summary of stock option activity is presented below:
<CAPTION>
Weighted
average
Number exercise
of shares price

Options outstanding at:
<S> <C> <C>
December 31, 1993 429,000 $ 23.19
Granted 145,000 27.50
Exercised (14,000) 18.77
Cancelled (1,000) 28.94

December 31, 1994 559,000 24.40
Granted 240,000 24.63
Exercised (40,000) 19.25
Cancelled (2,000) 24.63

December 31, 1995 757,000 24.74
Granted 143,000 28.25
Exercised (261,000) 22.51
Cancelled (10,000) 28.18

December 31, 1996 629,000 26.41

Options exercisable at:
December 31, 1994 195,000 $ 19.85
December 31, 1995 215,000 19.90
December 31, 1996 142,000 26.50
</TABLE>

As of December 31, 1996, the 629,000 stock options outstanding have exercise
prices ranging from $18.50 to $28.94 and a weighted-average remaining
contractual life of eight years.

The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions used for
grants in 1996 and 1995, respectively: dividend yield of 4.7 percent and
5.5 percent, volatility of 15.8 percent and 15 percent, risk-free interest
rate of 6.2 percent and 6.6 percent, and expected period outstanding of
three years for both years. The weighted-average fair value of options
granted in 1996 and 1995 was $3.22 and $2.48, respectively.

During 1996, 2,000 shares of restricted stock became unrestricted. No
shares of restricted stock or alternate stock rights were outstanding at
December 31, 1996.

The company may sell up to 1.5 million shares of common stock to its
employees under the ESPP. Under the terms of this plan, all employees with
a minimum of five months service are eligible to purchase shares at 90
percent of the stock's market price at the date of purchase. The company
sold 25,000 shares and 29,000 shares to employees in 1996 and 1995,
respectively, and has sold 790,000 shares through December 31, 1996. The
weighted-average fair value of shares sold in 1996 and 1995 was $30.00 and
$26.32, respectively.

NICOR Inc. Page 35

Notes to the Consolidated Financial Statements (continued)

CHANGE IN COMMON SHARES

Changes in common shares outstanding are summarized below:

(Thousands) 1996 1995 1994

Beginning of year 50,302 51,540 53,959
Issued and converted 279 75 43
Reacquired and cancelled (1,089) (1,313) (2,462)
End of year 49,492 50,302 51,540

NICOR repurchased 822,000 shares in 1996, 1,238,000 shares in 1995 and
2,407,000 shares in 1994, under common stock repurchase programs.

INDUSTRY SEGMENT INFORMATION

See Management's Discussion and Analysis of Financial Condition and Results
of Operations beginning on page 10 for industry segment information
regarding operating revenues, depreciation, operating income, identifiable
assets and capital expenditures.

CONTINGENCIES

The company is involved in legal or administrative proceedings before
various courts and agencies with respect to rates, taxes and other matters.

Current environmental laws require treatment of certain waste materials on
sites owned by NICOR that may have been generated by barge-cleaning
facilities previously owned and operated by certain discontinued businesses
of the company. The cost of evaluation and cleanup is currently estimated
to range from $5 million to $15 million. The company is evaluating whether
any of these costs will be recoverable from insurance or other sources.

Until the early 1950s, certain manufactured gas facilities were operated in
the Northern Illinois Gas service territory. Manufactured gas is now known
to have created various by-products that may still be present at these
sites. Current environmental laws may require cleanup of these former
manufactured gas plant sites. The company has identified up to 40
properties in its service territory believed to be the location of such
sites. Of these properties, Northern Illinois Gas currently owns 15 and
formerly owned or leased 13. The remaining properties were never owned or
leased by the company. Information regarding preliminary reviews of the
company's currently owned and formerly owned or leased properties has been
presented to the Illinois Environmental Protection Agency. More detailed
investigations are either currently in progress or planned at many of these
sites. The results of continued testing and analysis should determine to
what extent remediation is necessary and may provide a basis for estimating
any additional future costs which, based on industry experience, could be
significant. Since 1994, the company has been recovering these costs from
its customers in accordance with Ill.C.C. authorization.

At certain sites, the current owners are seeking to allocate cleanup costs
to former owners or lessees, including Northern Illinois Gas.

NICOR Inc. Page 36

Notes to the Consolidated Financial Statements (concluded)

On December 20, 1995, Northern Illinois Gas filed suit in the Circuit Court
of Cook County against certain insurance carriers seeking recovery of
environmental cleanup costs of former manufactured gas plant sites.
Presently, management cannot predict the outcome of this lawsuit. Any
recoveries from such litigation or other sources will be flowed back to the
company's customers.

Although unable to determine the outcome of these contingencies, management
believes that appropriate accruals have been recorded. Final disposition of
these matters is not expected to have a material impact on the company's
financial condition or results of operations.

QUARTERLY RESULTS (UNAUDITED)
<TABLE>
Quarterly results fluctuate due mainly to the seasonal nature of the gas
distribution business. Northern Illinois Gas' restructured rates, effective
April 11, 1996, result in the shifting of some revenues from cold-weather
quarters to warm-weather quarters.
<CAPTION>
(Millions, 1996 Quarter Ended
except per share data)
Mar. 31 June 30 Sept. 30 Dec. 31

<S> <C> <C> <C> <C>
Operating revenues $ 700.9 $ 336.5 $ 220.4 $ 592.9
Operating income 82.1 52.0 35.3 63.7

Income from continuing
operations $ 45.5 $ 25.4 $ 15.1 $ 35.1
Discontinued operations, net - 15.0 - -
Net income $ 45.5 $ 40.4 $ 15.1 $ 35.1

Earnings per share
Continuing operations $ .90 $ .50 $ .30 $ .71
Discontinued operations - .30 - -

$ .90 $ .80 $ .30 $ .71

1995 Quarter Ended
Mar. 31 June 30 Sept. 30 Dec. 31

Operating revenues $ 609.8 $ 246.9 $ 157.1 $ 466.3
Operating income 74.1 34.1 17.8 63.8
Net income 40.9 17.1 6.1 35.7
Earnings per share .80 .34 .12 .71
</TABLE>

NICOR Inc. Page 37

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

None.

PART III

Items 10. and 11. Directors and Executive Officers of the Registrant and
Executive Compensation

Information on directors and executive compensation is contained on pages 2
through 6 and 14 through 18 of the Definitive Proxy Statement, dated
March 6, 1997, and is incorporated herein by reference. Information
relating to the executive officers of the registrant is provided on pages 7
and 8 in Part I of this document.

Item 12. and 13. Security Ownership of Certain Beneficial Owners and
Management and Certain Relationships and Related
Transactions

Information about shares beneficially owned by directors and executive
officers and certain relationships and related transactions is contained on
pages 7 through 8 of the Definitive Proxy Statement, dated March 6, 1997,
and is incorporated herein by reference.

NICOR Inc. Page 38

PART IV

Item 14. Exhibits, Financial Statement Schedule, and Reports on
Form 8-K

(a) 1) Financial Statements:

See Item 8, Financial Statements and Supplementary Data, on page
20 filed herewith, for a list of financial statements.

2) Financial Statement Schedule:

Schedule
Number Page

Report of Independent Public Accountants 21
II Valuation and Qualifying Accounts 39

Schedules other than those listed are omitted because they are
either not required or not applicable.

3) Exhibits Filed:

See Exhibit Index on pages 41 through 44 filed herewith.

(b) The company did not file a report on Form 8-K during the fourth
quarter of 1996.

<TABLE>
NICOR Inc. Page 39

Schedule II

VALUATION AND QUALIFYING ACCOUNTS
(Millions)

<CAPTION>
Column A Column B Column C Column D Column E
Additions
Balance at Charged to Charged Balance at
beginning costs and to other end of
Description of period expenses accounts Deductions period

1996

Allowance
for uncollectible
<S> <C> <C> <C> <C> <C> <S> <C> <C> <C> <C>
accounts receivable $ 5.8 $ 12.7 $ - $ 10.8(a) $ 7.7
Reserve for estimated
future costs related to
discontinued businesses(b) 18.2 - 2.1(c) 5.8(d) 14.5

1995

Allowance
for uncollectible
accounts receivable $ 5.2 $ 8.0 $ - $ 7.4(a) $ 5.8
Reserve for estimated
future costs related to
discontinued businesses(b) 20.6 - - 2.4(c) 18.2

1994

Allowance
for uncollectible
accounts receivable $ 6.8 $ 8.5 $ - $ 10.1(a) $ 5.2
Reserve for estimated
future costs related to
discontinued businesses(b) 20.0 - .6(c) - 20.6

<F1>
(a) Accounts receivable written off, net of recoveries.
<F2>
(b) Excludes the related reserve for federal and state income taxes.
<F3>
(c) Net receipts, expenditures, operating results, gains and losses related to discontinued businesses
credited or charged to reserve.
<F4>
(d) Adjustment credited to income.
</TABLE>

NICOR Inc. Page 40

Signatures

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

NICOR Inc.

Date March 25, 1997 By DAVID L. CYRANOSKI
David L. Cyranoski
Senior Vice President,
Secretary and Controller

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 25, 1997.

Signature Title

THOMAS L. FISHER Chairman, President, Chief
Thomas L. Fisher Executive Officer and Director

DAVID L. CYRANOSKI Senior Vice President,
David L. Cyranoski Secretary and Controller and
Principal Financial Officer

ROBERT M. BEAVERS, JR.* Director

BRUCE P. BICKNER* Director

JOHN H. BIRDSALL, III* Director

W. H. CLARK* Director

JOHN E. JONES* Director

DENNIS J. KELLER* Director

CHARLES S. LOCKE* Director

SIDNEY R. PETERSEN* Director

DANIEL R. TOLL* Director

PATRICIA A. WIER* Director

*By MARIANNE T. LORENZ
Marianne T. Lorenz (Attorney-in-fact)

NICOR Inc. Page 41

Exhibit Index

Exhibit
Number Description of Document

3.01 * Articles of Incorporation of the company. (File No. 2-55451,
Form S-14, NICOR Inc., Exhibit 1-03 and Exhibit B of Amendment
No. 1 thereto.)

3.02 * Amendment to Articles of Incorporation of the company. (Proxy
Statement dated April 20, 1979, NICOR Inc., Item 3 thereto.)

3.03 * Amendment to Articles of Incorporation of the company. (File
No. 2-68777, Form S-16, NICOR Inc., Exhibit 2-01.)

3.04 * Amendment to Articles of Incorporation of the company. (File
No. 1-7297, Form 10-K for 1985, NICOR Inc., Exhibit 3-03.)

3.05 * Amendment to Articles of Incorporation of the company. (Proxy
Statement dated March 12, 1987, NICOR Inc., Exhibit A and
Exhibit B thereto.)

3.06 * Amendment to Articles of Incorporation of the company. (File
No. 1-7297, Form 10-K for 1992, NICOR Inc., Exhibit 3-06.)

3.07 * Amendments to Articles of Incorporation of the company. (Proxy
Statement dated March 9, 1994, NICOR Inc., Exhibit A-1 and
Exhibit B thereto.)

3.08 * By-Laws of the company as amended by the company's Board of
Directors on May 3, 1995. (File No. 1-7297, Form 10-Q for
March 1995, NICOR Inc., Exhibit 3(ii).01.)

4.01 * Indenture of Commonwealth Edison Company to Continental Illinois
National Bank and Trust Company of Chicago, Trustee, dated as of
January 1, 1954. (File No. 1-7296, Form 10-K for 1995, Northern
Illinois Gas Company, Exhibit 4.01.)

4.02 * Indenture of Adoption of Northern Illinois Gas Company to
Continental Illinois National Bank and Trust Company of Chicago,
Trustee, dated February 9, 1954. (File No. 1-7296, Form 10-K for
1995, Northern Illinois Gas Company, Exhibit 4.02.)

4.03 * Supplemental Indenture, dated June 1, 1963, of Northern Illinois
Gas Company to Continental Illinois National Bank and Trust
Company of Chicago, Trustee, under Indenture dated as of
January 1, 1954. (File No. 2-21490, Form S-9, Northern Illinois
Gas Company, Exhibit 2-8.)

4.04 * Supplemental Indenture, dated May 1, 1966, of Northern Illinois
Gas Company to Continental Illinois National Bank and Trust
Company of Chicago, Trustee, under Indenture dated as of
January 1, 1954. (File No. 2-25292, Form S-9, Northern Illinois
Gas Company, Exhibit 2-4.)

4.05 * Supplemental Indenture, dated June 1, 1971, of Northern Illinois
Gas Company to Continental Illinois National Bank and Trust
Company of Chicago, Trustee, under Indenture dated as of
January 1, 1954. (File No. 2-44647, Form S-7, Northern Illinois
Gas Company, Exhibit 2-03.)

NICOR Inc. Page 42

Exhibit Index (continued)

Exhibit
Number Description of Document

4.06 * Supplemental Indenture, dated April 30, 1976, between the company
and Continental Illinois National Bank and Trust Company of
Chicago, Trustee, under Indenture dated as of January 1, 1954.
(File No. 2-56578, Form S-9, Northern Illinois Gas Company,
Exhibit 2-25.)

4.07 * Supplemental Indenture, dated April 30, 1976, of Northern
Illinois Gas Company to Continental Illinois National Bank and
Trust Company of Chicago, Trustee, under Indenture dated as of
January 1, 1954. (File No. 2-56578, Form S-9, Northern Illinois
Gas Company, Exhibit 2-21.)

4.08 * Supplemental Indenture, dated July 1, 1989, of Northern Illinois
Gas Company to Continental Bank, National Association, Trustee,
under Indenture dated as of January 1, 1954. (File No. 1-7296,
Form 8-K for June 1989, Northern Illinois Gas Company,
Exhibit 4-01.)

4.09 * Supplemental Indenture, dated August 15, 1991, of Northern
Illinois Gas Company to Continental Bank, National Association,
Trustee, under Indenture dated as of January 1, 1954. (File
No. 1-7296, Form 8-K for August 1991, Northern Illinois Gas
Company, Exhibit 4-01.)

4.10 * Supplemental Indenture, dated July 15, 1992, of Northern Illinois
Gas Company to Continental Bank, National Association, Trustee,
under Indenture dated as of January 1, 1954. (File No. 1-7296,
Form 10-Q for June 1992, Northern Illinois Gas Company,
Exhibit 4-01.)

4.11 * Supplemental Indenture, dated February 1, 1993, of Northern
Illinois Gas Company to Continental Bank, National Association,
Trustee, under Indenture dated as of January 1, 1954. (File
No. 1-7296, Form 10-K for 1992, Northern Illinois Gas Company,
Exhibit 4-17.)

4.12 * Supplemental Indenture, dated May 1, 1993, of Northern Illinois
Gas Company to Continental Bank, National Association, Trustee,
under Indenture dated as of January 1, 1954. (File No. 1-7296,
Form 10-Q for March 1993, Northern Illinois Gas Company,
Exhibit 4-02.)

4.13 * Supplemental Indenture, dated July 1, 1993, of Northern Illinois
Gas Company to Continental Bank, National Association, Trustee,
under Indenture dated as of January 1, 1954. (File No. 1-7296,
Form 10-Q for June 1993, Northern Illinois Gas Company,
Exhibit 4-01.)

4.14 * Supplemental Indenture, dated August 15, 1994, of Northern
Illinois Gas Company to Continental Bank, Trustee, under
Indenture dated as of January 1, 1954. (File No. 1-7296,
Form 10-Q for September 1994, Northern Illinois Gas Company,
Exhibit 4.01.)

NICOR Inc. Page 43

Exhibit Index (continued)

Exhibit
Number Description of Document

4.15 * Supplemental Indenture, dated October 15, 1995, of Northern
Illinois Gas Company to Bank of America Illinois, Trustee, under
Indenture dated as of January 1, 1954. (File No. 1-7296,
Form 10-Q for September 1995, Northern Illinois Gas Company,
Exhibit 4.01.)

4.16 * Supplemental Indenture, dated May 10, 1996, of Northern Illinois
Gas Company to Harris Trust and Savings Bank, Trustee, under
Indenture dated as of January 1, 1954. (File No. 1-7296,
Form 10-Q for June 1996, Northern Illinois Gas Company,
Exhibit 4.01.)

4.17 * Supplemental Indenture, dated August 1, 1996, of Northern
Illinois Gas Company to Harris Trust and Savings Bank, Trustee,
under Indenture dated as of January 1, 1954. (File No. 1-7296,
Form 10-Q for June 1996, Northern Illinois Gas Company,
Exhibit 4.02.)

Other debt instruments are omitted in accordance with Item
601(b)(4)(iii)(A) of Regulation S-K. Copies of such agreements
will be furnished to the Commission upon request.

10.01 * Security Payment Plan. (File No. 1-7297, Form 10-K for 1980,
NICOR Inc., Exhibit 10-09.)

10.02 * 1984 NICOR Officers' Capital Accumulation Plan Participation
Agreement. (File No. 1-7297, Form 10-K for 1988, NICOR Inc.,
Exhibit 10-10.)

10.02(a) * 1985 NICOR Officers' Capital Accumulation Plan Participation
Agreement. (File No. 1-7297, Form 10-K for 1988, NICOR Inc.,
Exhibit 10-10(a).)

10.03 * 1984 NICOR Directors' Capital Accumulation Plan Participation
Agreement. (File No. 1-7297, Form 10-K for 1983, NICOR Inc.,
Exhibit 10-13.)

10.03(a) * 1985 NICOR Directors' Capital Accumulation Plan Participation
Agreement. (File No. 1-7297, Form 10-K for 1984, NICOR Inc.,
Exhibit 10-13(a).)

10.04 * Directors' Deferred Compensation Plan. (File No. 1-7297,
Form 10-K for 1983, NICOR Inc., Exhibit 10-16.)

10.05 * Directors' Pension Plan. (File No. 1-7297, Form 10-K for 1985,
NICOR Inc., Exhibit 10-18.)

10.06 * Flexible Spending Account for Executives. (File No. 1-7297,
Form 10-K for 1986, NICOR Inc., Exhibit 10-20.)

10.07 * Amendment and Restatement of the NI-GAS Incentive Compensation
Plan. (File No. 1-7297, Form 10-K for 1986, NICOR Inc.,
Exhibit 10-21.)

NICOR Inc. Page 44

Exhibit Index (concluded)

Exhibit
Number Description of Document

10.08 * NICOR Inc. 1989 Long-Term Incentive Plan. (Filed with NICOR Inc.
Proxy Statement, dated April 20, 1989, Exhibit A.)

10.09 * NI-GAS Supplementary Retirement Plan. (File No. 1-7297,
Form 10-K for 1989, NICOR Inc., Exhibit 10-24.)

10.10 * NI-GAS Supplementary Savings Plan. (File No. 1-7297, Form 10-K
for 1989, NICOR Inc., Exhibit 10-25.)

10.11 * NICOR Salary Deferral Plan. (File No. 1-7297, Form 10-K for
1989, NICOR Inc., Exhibit 10-29.)

10.12 * 1996 NICOR Incentive Compensation Plan. (File No. 1-7297,
Form 10-K for 1995, NICOR Inc., Exhibit 10.17.)

10.13 * 1996 NI-GAS Incentive Compensation Plan. (File No. 1-7297,
Form 10-K for 1995, NICOR Inc., Exhibit 10.18.)

10.14 * 1996 Long-Term Incentive Program. (File No. 1-7297, Form 10-K
for 1995, NICOR Inc., Exhibit 10.19.)

10.15 * NICOR Stock Deferral Plan. (File No. 1-7297, Form 10-Q for
September 1996, NICOR Inc., Exhibit 10.01.)

10.16 * NICOR 1995 Directors' Stock Plan. (File No. 1-7297, Form 10-Q
for September 1996, NICOR Inc., Exhibit 10.02.)

10.17 1997 NICOR Incentive Compensation Plan.

10.18 1997 NI-GAS Incentive Compensation Plan.

Exhibits 10.01 through 10.18 constitute management contracts and
compensatory plans and arrangements required to be filed as exhibits to this
Form pursuant to Item 14(c) of Form 10-K.

21.01 Subsidiaries.

23.01 Consent of Independent Public Accountants.

24.01 Powers of Attorney.

27.01 Financial Data Schedule.

27.02 Restated Financial Data Schedule for 1994.

* These exhibits have been previously filed with the Securities and Exchange
Commission as exhibits to registration statements or to other filings with
the Commission and are incorporated herein as exhibits by reference. The
file number and exhibit number of each such exhibit, where applicable, are
stated, in parentheses, in the description of such exhibit.

Upon written request, the company will furnish free of charge a copy of any
exhibit. Requests should be sent to Investor Relations at the corporate
headquarters.

NICOR Inc.
Form 10-K
Exhibit 10.17

1997
NICOR INCENTIVE COMPENSATION PLAN

A. The 1997 NICOR Incentive Compensation Plan is designed to
link participant incentive compensation to the accomplishment
of important objectives--both financial goals and defined
strategic plans. It ties the pay an individual receives to
his performance and that of the company. This plan is
intended to provide a flexible framework for a performance
bonus program for NICOR.

B. Purpose

The purpose of this Plan is to provide an annual incentive
plan which supports the longer-term strategic planning
process. This is done by linking pay to the performance of
tasks which focus on objectives of strategic importance.

C. Eligible Group

Officers of NICOR. Participation should be limited to those
employees in positions which enable them to make significant
contributions to the performance and growth of the company.

D. Components of Plan

Compensation Objective
Bonus Targets
Performance Targets
Goal Setting Guidelines
Program Schedule
Form of Payment

Compensation Objective

Base Salary + Bonus Target = Short-Term Compensation
Objective

An individual's short-term compensation objective will be
based on salary plus a bonus, expected to be earned if
agreed-upon performance targets are met. Under certain
conditions, short-term compensation above or below targets
may be paid.

Base salaries will be managed at the industry average which
will be determined annually by survey data. Bonus targets
will be set based on the individual's grade level and
compensation objective, such that total compensation
objectives are managed at the level as determined by the
Compensation Committee to remain competitive with industry.

Bonus Target

The bonus target amount varies according to pay, salary grade
and ability to impact the organization. The higher
responsibility and impact levels, the greater the dollars at
risk.

Performance Targets

Performance criteria would focus on the achievement of
agreed-upon and documented strategic goals. Performance
targets will include measures of financial performance, the
ability to meet budget levels and individual or group
performance objectives. An individual's target may include
all three types of goals, weighted by the grade level and
responsibilities involved. Each particular performance
target will be assigned weighting reflected as a percentage
of compensation objective.

Goal Setting Guidelines

The most important aspect of this Plan will be in
establishing effective goals. In addition to the goals which
will be measured by company financial performance, realistic,
operational management goals must be established and agreed
upon by both the participant and his supervisor for company,
division, project or individual performance. As well as
being realistic, the goals should be measurable wherever
possible by quantifiable performance criteria. It is
recognized that measurement of some goals will require
subjective assessments on criteria mutually agreed between an
individual and his/her supervisor. Goals must be consistent
with the longer-term strategic plan.

A set of guidelines will be devised by the NICOR Human
Resources Department to aid in this process. These
guidelines will provide direction as to goal formulation and
reporting.

Amount of bonus payment for financial/budget related goals
can vary above and below target based upon results achieved.
For targets met, bonus amount will be 100% of target. When
targets are exceeded or are not reached, bonus will be
proportionately more or less than the target.

Project or individual goals which are not quantifiable will
be evaluated by the participant's superior based on
performance and will fall into one of five categories of
achievement: unsatisfactory; less than expected, but
acceptable given facts and circumstances; expected; more than
expected, but less than outstanding; and outstanding
performance. Accordingly, performance at, below or above
expected performance will result in awards relative to
performance.

The Compensation Committee may make appropriate upward or
downward adjustments if, after taking into consideration all
of the facts and circumstances of the performance period, it
determines that adjustments are warranted.

Plan Schedule

The 1997 NICOR Incentive Compensation Plan runs on a calendar
year basis, with the strategic planning cycle and budgeting
process the primary link to performance and bonus targets.
Responsibility for determination of financial results will be
with the Accounting Department. A program for review will be
established and individual, project, division or company goal
performance will be reviewed at least twice each performance
year.

Year-end results should be available and evaluated in January
of the following year. Following approval of the
Compensation Committee and Board at the January meeting,
bonuses will be payable to participants.

Form of Payment

All awards will be paid in cash, except that a participant in
the Stock Deferral Plan may elect to defer up to 50% of their
award into that plan. Deferral elections must meet the
guidelines and timing of the Stock Deferral Plan to be
effective. Appropriate taxes for the entire award amount
will be withheld from the portion of the award being paid in
cash.

A participant may elect by writing to the Compensation
Committee prior to the end of the fiscal year to have all or
a portion of the following year's incentive award deferred
and paid in no more than five annual installments beginning
either with the date of termination or retirement, or in a
lump sum within six months after termination of employment or
retirement. In addition, with the consent of the
Compensation Committee, the participant may, at the time of
making such election, designate some other date for the
commencement of such deferred payment. Further, the
participant may submit a request to change the original
deferral period. The request must be submitted in writing to
the Compensation Committee who will take into consideration
the particular facts and circumstances in its final
determination.

An amount which is deferred shall be credited with compounded
interest equal to the prime rate applied on a quarterly
basis.

E. Integration with Existing Programs

Base salaries will be managed with range standards at the
industry average for comparable positions, with total
compensation objectives to be managed at a level appropriate
with the performance of the company within industry, as
determined by the Compensation Committee. Salaries will be
monitored each year and increases granted based on merit and
range standard. Bonus targets will be set as a percentage of
base salary. A change, other than the annual salary review,
in the compensation objective
will customarily occur during the year only through promotion
to various levels, at which time the base salary and bonus
target are also likely to change.

Promotion of an employee during the year or reassignment to
responsibilities in which new performance objectives apply
will result in proration of the existing performance
objectives and bonus target and assignment of new performance
objectives as the Compensation Committee shall determine.
Promotion into the Plan would involve a promotional increase,
but eligibility for bonus would be delayed unless the
participant is able to produce positive results in the
remaining time, as determined by the Compensation Committee.

If a participant voluntarily terminates or is terminated for
cause prior to the end of the performance period, then no
award shall be granted. In the event a participant shall
die, become disabled, retire or is terminated without cause
before the end of the performance period, then the
Compensation Committee will authorize payment of an award to
the participant, or beneficiary, in such amount as the
Committee deems appropriate.

F. Responsibility

Acceptance and success of this Plan will depend on
documented, realistic goals that are fair, understandable and
measurable. Considerable management focus and involvement
will be required for goals to be established, communicated
and monitored.

The Human Resources Department will be responsible for the
administration of the system for the company. This will
include:

1) monitoring industry salary and total compensation levels,

2) recommending structural changes in base salary and
compensation objective adjustments,<PAGE>
3) reviewing eligibility and performance targets,

4) monitoring performance targets through the Accounting
Department,

5) communicating progress report to participants, and,

6) progress and exception reporting to Compensation
Committee.

The 1997 NICOR Incentive Compensation Plan and changes to its
performance targets and measurement criteria will be reviewed
and approved by the Compensation Committee.

In establishing the actual bonus awards to be made, the
Compensation Committee may take into account all of the facts
and circumstances which exist during the year and may make
appropriate upward or downward revisions in performance
criteria, add or delete objectives, or change the relative
percentages assigned to the various performance objectives.

G. Amendment and Termination

The Board of Directors may amend or terminate the Plan at any
time without the consent of the participants. No such
amendment or termination shall negatively impact any
participant's amount which accrued under the Plan prior to
the calendar year in which the amendment is made.

Summary

The primary focus of this Plan is to link employee and
company performance and performance bonus through an
incentive plan. It provides the necessary emphasis on
accountability for actions and decisions and enables people
to gain personally through significant efforts which
contribute to the company's present and future success.

NICOR Human Resources
February 1997

NICOR Inc.
Form 10-K
Exhibit 10.18

1997
NI-GAS INCENTIVE COMPENSATION PLAN

A. Purpose

The purpose of this Plan is to provide an annual incentive plan which
supports the longer-term strategic planning process. This is done by
linking pay to the performance of tasks which focus on objectives of
strategic importance. The Plan also encourages teamwork among officer
areas and among line and staff groups.

B. Eligible Group

Officers of NI-Gas in Salary Grades EX-1 or higher. Participation should
be limited to those employees in positions which enable them to make
significant contributions to the performance and growth of the company.

C. Components of Plan

Compensation Objective
Bonus Targets
Performance Targets
Goal Setting Guidelines
Program Schedule
Form of Payment

Compensation Objective

Base Salary + Bonus Target = Short-Term Compensation Objective

An individual's short-term compensation objective will be based on salary
plus a bonus, expected to be earned if agreed-upon performance targets are
met. Under certain conditions, short-term compensation above or below
targets may be paid.

Standards for base salaries will be managed at the appropriate industry
quartile which will be determined by survey data. Bonus targets will be
set based on the individual's grade level and compensation objective, such
that total compensation objectives are managed at the level as determined
by the Compensation Committee to remain competitive with industry.

Bonus Target

The bonus target amount varies according to pay and salary grade. The
higher responsibility, the greater the dollars at risk.

Performance Targets

Performance criteria focus on the achievement of agreed-upon and
documented strategic goals. Performance targets may include measures of
financial performance, defined group objectives or individual performance
objectives. Each particular performance target will be assigned weighting
reflected as a percentage of bonus target.

Goal Setting Guidelines

The most important aspect of this Plan will be in establishing effective
goals. In addition to the goals which will be measured by company
financial performance, realistic, operational management goals must be
established. As well as being realistic, the goals should be measurable
wherever possible by quantifiable performance criteria. It is recognized
that measurement of some goals will require subjective assessments of
performance. Goals must be consistent with the longer-term strategic
plan.

Amount of bonus payment for financial/budget related goals can vary above
and below target based upon results achieved. For targets met, bonus
amount will be 100% of bonus target. When targets are exceeded or are not
reached, bonus will be proportionately more or less than the target.

Project goals which are not quantifiable will be evaluated by the NI-Gas
CEO based on performance and will fall into one of five categories of
achievement: unsatisfactory; less than expected, but acceptable given
facts and circumstances; expected; more than expected, but less than
outstanding; and outstanding performance. Accordingly, performance at,
below or above expected performance will result in awards relative to
performance.

The Compensation Committee may make appropriate upward or downward
adjustments if, after taking into consideration all of the facts and
circumstances of the performance period, it determines that adjustments
are warranted.

Plan Schedule

The 1997 NI-Gas Incentive Compensation Plan runs on a calendar year basis,
with the strategic planning cycle and budgeting process the primary link
to performance and bonus targets. Responsibility for determination of
financial results will be with the Accounting Department. A program for
review will be established and project or company goal performance will be
reviewed at least twice each performance year.

Year-end results should be available and evaluated in January of the
following year. Following approval of the Compensation Committee and
Board at the January meeting, bonuses will be payable to participants.

Form of Payment

All awards will be paid in cash, except that a participant in the Stock
Deferral Plan may elect to defer up to 50% of their award into that plan.
Deferral elections must meet the guidelines and timing of the Stock
Deferral Plan to be effective. Appropriate taxes for the entire award
amount will be withheld from the portion of the award being paid in cash.

D. Integration with Existing Programs

Base salaries will be managed with range standards at the appropriate
industry quartile for comparable positions, with total compensation
objectives to be managed at a level appropriate with the performance of
the company within industry, as determined by the Compensation Committee.
Salaries will be monitored each year and increases granted based on merit
and range standard. Bonus targets will be set as a percentage of base
salary. A change, other than the annual salary review, in the
compensation objective will customarily occur during the year only through
promotion to various levels, at which time the base salary and bonus
target are also likely to change.

Promotion into an Executive Salary Grade would create eligibility for
bonus at an amount prorated on a monthly basis (i.e., eligible for the
plan 9 months - 9/12 of an annual bonus).

If a participant voluntarily terminates or is terminated for cause prior
to the end of the performance period, then the participant will be
entitled to no award. In the event a participant shall die, become
disabled, or retire before the end of the performance period, an award is
payable prorated on a monthly basis or the Compensation Committee may
authorize payment of an award to the participant, or beneficiary, in such
other amount as the Committee deems appropriate.

E. Responsibility

Acceptance and success of this Plan will depend on documented, realistic
goals that are fair, understandable and measurable. Considerable
management focus and involvement will be required for goals to be
established, communicated and monitored.

The Human Resources Department will be responsible for the administration
of the system for the company. This will include:

1) monitoring industry salary and total compensation levels,

2) recommending structural changes in base salary and compensation
objective adjustments, and,

3) assisting the NI-Gas CEO in progress and exception reporting to the
Compensation Committee.

The NI-Gas CEO shall be responsible for:

1) reviewing industry salary and compensation levels and approving
recommendations before presentation to the Compensation Committee,

2) approving structural changes in base salary and compensation objective
adjustments before presentation to the Compensation Committee,

3) recommending eligibility, performance targets and goals to the
Compensation Committee,

4) monitoring performance targets through the Accounting Department and
other sources of necessary documentation,

5) communicating progress reports to the participants, and,

6) reporting performance results and making award recommendations to the
Compensation Committee.

The company's 1997 NI-Gas Incentive Compensation Plan and changes to its
performance targets and measurement criteria will be reviewed and approved
by the Compensation Committee.

In establishing the actual bonus awards to be made, the Compensation
Committee may take into account all of the facts and circumstances which
exist during the year and may make appropriate upward or downward
revisions in performance criteria, add or delete objectives, or change the
relative percentages assigned to the various performance objectives.

F. Amendment and Termination

The Board of Directors may amend or terminate the Plan at any time without
the consent of the participants. No such amendment or termination shall
negatively impact any participant's amount which accrued under the Plan
prior to the calendar year in which the amendment is made.

Summary

The primary focus of this Plan is to link company performance and
participant performance through an incentive plan. It enables people to
gain personally through the accomplishment of defined objectives which are
expected to contribute to the achievement of shareholder value and to the
company's present and future success.

NICOR Human Resources
February 1997

NICOR Inc.
Form 10-K
Exhibit 21.01

NICOR Inc.,
Subsidiaries
At December 31, 1996

State or
Jurisdiction of
Registrant Incorporation

NICOR Inc. Illinois

Subsidiaries of Registrant*

Gas Distribution
Northern Illinois Gas Company Illinois
NI-Gas Exploration, Inc. Illinois

Shipping
Birdsall, Inc. Florida
Belize Container Terminals Ltd. Belize
Birdsall de Mexico, S.A. Mexico
Birdsall Shipping Co., Ltd. (85%) Liberia
Birdsall Shipping, S.A. (38%) Panama
Seven Seas Insurance Company, Inc. Florida
Transfresca, S.A. Honduras
Tropical Shipping and Construction Co., Ltd. Bahamas
Birdsall Shipping Co., Ltd. (15%) Liberia
Birdsall Shipping, S.A. (62%) Panama
Container Terminals, Ltd. Bahamas
Freship, S.A. Dominican
Republic
Seven Seas Insurance Company Ltd. Bahamas
Tropical Shipping International, Ltd. Bahamas
Tropical Shipping, Inc. Delaware
Tropical Shipping of Canada Inc. Delaware

These wholly owned subsidiaries are included in the consolidated
financial statements of NICOR Inc.

<F1>
* List includes active subsidiaries in reportable segments only and
omits certain subsidiaries which in the aggregate do not constitute
a significant subsidiary.

NICOR Inc.
Form 10-K
Exhibit 23.01

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation
by reference of our report, dated January 28, 1997, included in this
Form 10-K, into the company's previously filed Form S-3 Registration
Statement in connection with the NICOR Automatic Dividend Reinvestment and
Stock Purchase Plan (No. 33-56871), and Form S-8 Registration Statements
in connection with the NICOR Employee Stock Purchase Plan (No. 33-1732),
the NI-Gas Savings Investment Plan (No. 33-56867), the NI-Gas Thrift Plan
(No. 33-60689) and the NICOR 1989 Long-Term Incentive Plan (No. 33-31029).

ARTHUR ANDERSEN LLP
Arthur Andersen LLP

Chicago, Illinois
March 25, 1997

NICOR Inc.
Form 10-K
Exhibit 24.01

POWER OF ATTORNEY