NICOR Inc.
                                                                 Form 10-K
                                                                 Exhibit 10.18



                                     1996
                      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.



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    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.



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    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 1996 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, less required taxes.

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 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 and if appropriate, a new bonus target as the
    Compensation Committee shall determine.

    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).



                                -4-


    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,



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

    The company's 1996 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
                                                       January 1996