----

----

**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      DC 20549**

**FORM      10-Q**

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

**September      30, 2006**

| [                  ] | TRANSITION                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE                ACT OF                1934 |
|--------------------------------|---------------------------------------------------------------------------------------------------------------------------------------|

**000-22211**

**SOUTH      JERSEY GAS COMPANY**

| **New                Jersey**                 | **21-0398330**                              |
|-----------------------------------------------|--------------------------------------------------|
|  (State                of incorporation) | (IRS                employer identification no.) |

**1      South Jersey Plaza, Folsom, NJ 08037**

**(609)      561-9000**

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**PART      I — FINANCIAL INFORMATION**

**Item      1. Financial Statements — See Pages 2 through 21**

----

| **SOUTH                  JERSEY GAS COMPANY**                                                              |   |   |                                |   |   |
|------------------------------------------------------------------------------------------------------------|--------|--------|-------------------------------------|--------|--------|
|                                                                                                       |   |   |                                |   |   |   |   |
| **STATEMENTS                  OF INCOME (UNAUDITED)**                                                      |   |   |                                |   |   |   |   |
| (In                  Thousands)                                                                            |   |   |                                |   |   |   |   |
|                                                                                                       |   |   |                                |   |   |   |   |
|                                                                                                       |   |   | Three                  Months Ended |   |
|                                                                                                            |   |   | September                  30,      |   |
|                                                                                                       |   |   | 2006                                |   |   | 2005 |   |
|                                                                                                       |   |   |                                |   |   |   |   |
|                                                                                                       |   |   |                                |   |   |   |   |
| **Operating                  Revenues**                                                                    |   | $      | 87,715                              |   | $      | 89,702 |   |
|                                                                                                       |   |   |                                |   |   |   |   |
| **Operating                  Expenses:**                                                                   |   |   |                                |   |   |   |   |
| Cost                  of Sales                                                                             |   |   | 65,014                              |   |   | 67,076 |   |
| Operations                                                                                                 |   |   | 11,088                              |   |   | 10,474 |   |
| Maintenance                                                                                                |   |   | 1,454                               |   |   | 1,456 |   |
| Depreciation                                                                                               |   |   | 5,916                               |   |   | 5,512 |   |
| Energy                  and Other Taxes                                                                    |   |   | 1,336                               |   |   | 1,580 |   |
|                                                                                                       |   |   |                                |   |   |   |   |
| Total                  Operating Expenses                                                                  |   |   | 84,808                              |   |   | 86,098 |   |
|                                                                                                       |   |   |                                |   |   |   |   |
| **Operating                  Income**                                                                      |   |   | 2,907                               |   |   | 3,604 |   |
|                                                                                                       |   |   |                                |   |   |   |   |
| **Other                  Income and Expense**                                                              |   |   | 232                                 |   |   | 11 |   |
|                                                                                                       |   |   |                                |   |   |   |   |
| **Interest                  Charges**                                                                      |   |   | (5,736                              | )      |   | (4,720 | ) |
|                                                                                                       |   |   |                                |   |   |   |   |
| **Loss                  Before Income Taxes**                                                              |   |   | (2,597                              | )      |   | (1,105 | ) |
|                                                                                                       |   |   |                                |   |   |   |   |
| **Income                  Tax Benefit**                                                                    |   |   | 1,062                               |   |   | 334 |   |
|                                                                                                       |   |   |                                |   |   |   |   |
| **Net                  Loss**                                                                              |   | $      | (1,535                              | )      | $      | (771 | ) |
|                                                                                                       |   |   |                                |   |   |   |   |
|                                                                                                       |   |   |                                |   |   |   |   |
|                                                                                                       |   |   |                                |   |   |   |   |
| The                  accompanying notes are an integral part of the financial                  statements. |   |   |                                |   |   |   |   |

----

|                                                                                                       |   |   |                               |   |   |    |   |
|------------------------------------------------------------------------------------------------------------|--------|--------|------------------------------------|--------|--------|---------|--------|
| **SOUTH                  JERSEY GAS COMPANY**                                                              |   |   |                               |   |   |    |   |
|                                                                                                       |   |   |                               |   |   |    |   |
| **STATEMENTS                  OF INCOME (UNAUDITED)**                                                      |   |   |                               |   |   |    |   |
| (In                  Thousands)                                                                            |   |   |                               |   |   |    |   |
|                                                                                                       |   |   |                               |   |   |    |   |
|                                                                                                       |   |   | Nine                  Months Ended |   |
|                                                                                                            |   |   | September                  30,     |   |
|                                                                                                       |   |   | 2006                               |   |   | 2005    |   |
|                                                                                                       |   |   |                               |   |   |    |   |
|                                                                                                       |   |   |                               |   |   |    |   |
| **Operating                  Revenues**                                                                    |   | $      | 469,802                            |   | $      | 390,322 |   |
|                                                                                                       |   |   |                               |   |   |    |   |
| **Operating                  Expenses:**                                                                   |   |   |                               |   |   |    |   |
| Cost                  of Sales                                                                             |   |   | 349,675                            |   |   | 266,532 |   |
| Operations                                                                                                 |   |   | 35,439                             |   |   | 37,702  |   |
| Maintenance                                                                                                |   |   | 4,224                              |   |   | 4,460   |   |
| Depreciation                                                                                               |   |   | 17,522                             |   |   | 16,307  |   |
| Energy                  and Other Taxes                                                                    |   |   | 7,295                              |   |   | 8,425   |   |
|                                                                                                       |   |   |                               |   |   |    |   |
| Total                  Operating Expenses                                                                  |   |   | 414,155                            |   |   | 333,426 |   |
|                                                                                                       |   |   |                               |   |   |    |   |
| **Operating                  Income**                                                                      |   |   | 55,647                             |   |   | 56,896  |   |
|                                                                                                       |   |   |                               |   |   |    |   |
| **Other                  Income and Expense**                                                              |   |   | 370                                |   |   | (27     | )      |
|                                                                                                       |   |   |                               |   |   |    |   |
| **Interest                  Charges**                                                                      |   |   | (16,069                            | )      |   | (13,353 | )      |
|                                                                                                       |   |   |                               |   |   |    |   |
| **Loss                  Before Income Taxes**                                                              |   |   | 39,948                             |   |   | 43,516  |   |
|                                                                                                       |   |   |                               |   |   |    |   |
| **Income                  Taxes**                                                                          |   |   | (16,406                            | )      |   | (18,368 | )      |
|                                                                                                       |   |   |                               |   |   |    |   |
| **Net                  Income**                                                                            |   | $      | 23,542                             |   | $      | 25,148  |   |
|                                                                                                       |   |   |                               |   |   |    |   |
|                                                                                                       |   |   |                               |   |   |    |   |
| The                  accompanying notes are an integral part of the financial                  statements. |   |   |                               |   |   |    |   |
|                                                                                                       |   |   |                               |   |   |    |   |

----

| **SOUTH                  JERSEY GAS COMPANY**                                                              |   |                                |   |   |   |
|------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|--------|--------|--------|
|                                                                                                       |   |                                |   |   |   |
| **STATEMENTS                  OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)**                                 |   |                                |   |   |   |
| (In                  Thousands)                                                                            |   |                                |   |   |   |
|                                                                                                       |   |                                |   |   |   |
|                                                                                                            |   | Three                  Months Ended |
|                                                                                                            |   | September                  30,      |
|                                                                                                       |   |                                | 2006   |   |   | 2005 |   |
|                                                                                                       |   |                                |   |   |   |   |   |
|                                                                                                       |   |                                |   |   |   |   |   |
|                                                                                                       |   |                                |   |   |   |   |   |
| **Net                  Loss**                                                                              |   | $                                   | (1,535 | )      | $      | (771 | ) |
|                                                                                                       |   |                                |   |   |   |   |   |
| **Other                  Comprehensive Income (Loss), Net of Tax:**                                        |   |                                |   |   |   |   |   |
|                                                                                                       |   |                                |   |   |   |   |   |
| Change                  in Fair Value of Investments                                                       |   |                                | 110    |   |   | 100 |   |
| Change                  in Fair Value of Derivatives                                                       |   |                                | (674   | )      |   | 102 |   |
|                                                                                                       |   |                                |   |   |   |   |   |
| Other                  Comprehensive Income (Loss) - Net of Tax                                            |   |                                | (564   | )      |   | 202 |   |
|                                                                                                       |   |                                |   |   |   |   |   |
| **Comprehensive                  Loss**                                                                    |   | $                                   | (2,099 | )      | $      | (569 | ) |
|                                                                                                       |   |                                |   |   |   |   |   |
|                                                                                                       |   |                                |   |   |   |   |   |
|                                                                                                       |   |                                |   |   |   |   |   |
|                                                                                                            |   | Nine                  Months Ended  |
|                                                                                                            |   | September                  30,      |
|                                                                                                       |   |                                | 2006   |   |   | 2005 |   |
|                                                                                                       |   |                                |   |   |   |   |   |
|                                                                                                       |   |                                |   |   |   |   |   |
|                                                                                                       |   |                                |   |   |   |   |   |
| **Net                  Income**                                                                            |   | $                                   | 23,542 |   | $      | 25,148 |   |
|                                                                                                       |   |                                |   |   |   |   |   |
| **Other                  Comprehensive Income (Loss), Net of Tax:**                                        |   |                                |   |   |   |   |   |
|                                                                                                       |   |                                |   |   |   |   |   |
| Change                  in Fair Value of Investments                                                       |   |                                | 279    |   |   | 178 |   |
| Change                  in Fair Value of Derivatives                                                       |   |                                | 199    |   |   | (616 | ) |
|                                                                                                       |   |                                |   |   |   |   |   |
| Other                  Comprehensive Income (Loss) - Net of Tax                                            |   |                                | 478    |   |   | (438 | ) |
|                                                                                                       |   |                                |   |   |   |   |   |
| **Comprehensive                  Income**                                                                  |   | $                                   | 24,020 |   | $      | 24,710 |   |
|                                                                                                       |   |                                |   |   |   |   |   |
|                                                                                                       |   |                                |   |   |   |   |   |
| The                  accompanying notes are an integral part of the financial                  statements. |   |                                |   |   |   |   |   |
|                                                                                                       |   |                                |   |   |   |   |   |

----

| **SOUTH                  JERSEY GAS COMPANY**                                                              |   |   |                               |   |   |
|------------------------------------------------------------------------------------------------------------|--------|--------|------------------------------------|--------|--------|
|                                                                                                       |   |   |                               |   |   |
| **STATEMENTS                  OF CASH FLOWS (UNAUDITED)**                                                  |   |   |                               |   |   |
| (In                  Thousands)                                                                            |   |   |                               |   |   |   |   |
|                                                                                                       |   |   |                               |   |   |   |   |
|                                                                                                            |   |   | Nine                  Months Ended |   |
|                                                                                                            |   |   | September                  30,     |   |
|                                                                                                       |   |   | 2006                               |   |   | 2005 |   |
|                                                                                                       |   |   |                               |   |   |   |   |
| **Cash                  Flows from Operating Activities:**                                                 |   |   |                               |   |   |   |   |
| Net                  Income                                                                                |   | $      | 23,542                             |   | $      | 25,148 |   |
| Adjustments                  to Reconcile Net Income to Net Cash                                           |   |   |                               |   |   |   |   |
| Provided                  by Operating Activities:                                                         |   |   |                               |   |   |   |   |
| Depreciation                  and Amortization                                                             |   |   | 18,905                             |   |   | 18,577 |   |
| Provision                  for Losses on Accounts Receivable                                               |   |   | 399                                |   |   | 167 |   |
| Revenues                  and Fuel Costs Deferred - Net                                                    |   |   | 12,254                             |   |   | (8,003 | ) |
| Deferred                  and Noncurrent Income Taxes and Credits - Net                                    |   |   | (498                               | )      |   | 19,555 |   |
| Environmental                  Remediation Costs - Net                                                     |   |   | (5,483                             | )      |   | (2,117 | ) |
| Gas                  Plant Cost of Removal                                                                 |   |   | (1,096                             | )      |   | (679 | ) |
| Changes                  in:                                                                               |   |   |                               |   |   |   |   |
| Accounts                  Receivable                                                                       |   |   | 39,961                             |   |   | 41,127 |   |
| Inventories                                                                                                |   |   | 3,979                              |   |   | (32,894 | ) |
| Other                  Prepayments and Current Assets                                                      |   |   | (404                               | )      |   | (1,357 | ) |
| Prepaid                  and Accrued Taxes - Net                                                           |   |   | (6,271                             | )      |   | (13,472 | ) |
| Accounts                  Payable and Other Accrued Liabilities                                            |   |   | (44,797                            | )      |   | 17,120 |   |
| Other                  Assets                                                                              |   |   | (7,555                             | )      |   | 5,572 |   |
| Other                  Liabilities                                                                         |   |   | 1,209                              |   |   | (2,317 | ) |
|                                                                                                       |   |   |                               |   |   |   |   |
| Net                  Cash Provided by Operating Activities                                                 |   |   | 34,145                             |   |   | 66,427 |   |
|                                                                                                       |   |   |                               |   |   |   |   |
| **Cash                  Flows from Investing Activities:**                                                 |   |   |                               |   |   |   |   |
| Capital                  Expenditures                                                                      |   |   | (47,326                            | )      |   | (50,040 | ) |
| Net                  (Purchase of) Proceeds from Sale of Restricted Investments                            |   |   | (14,486                            | )      |   | - |   |
|                                                                                                       |   |   |                               |   |   |   |   |
| Net                  Cash Used in Investing Activities                                                     |   |   | (61,812                            | )      |   | (50,040 | ) |
|                                                                                                       |   |   |                               |   |   |   |   |
| **Cash                  Flows from Financing Activities:**                                                 |   |   |                               |   |   |   |   |
| Net                  Borrowings from Lines of Credit                                                       |   |   | 17,100                             |   |   | 8,500 |   |
| Proceeds                  from Issuance of Long-Term Debt                                                  |   |   | 25,000                             |   |   | 10,000 |   |
| Principal                  Repayments of Long-Term Debt                                                    |   |   | (2,335                             | )      |   | (22,773 | ) |
| Redemption                  of Preferred Stock                                                             |   |   | -                                  |   |   | (1,690 | ) |
| Dividends                  on Common Stock                                                                 |   |   | (9,951                             | )      |   | (11,251 | ) |
| Payments                  for Issuance of Long-Term Debt                                                   |   |   | (971                               | )      |   | (289 | ) |
| Premium                  for Early Retirement of Debt                                                      |   |   | -                                  |   |   | (184 | ) |
|                                                                                                       |   |   |                               |   |   |   |   |
| Net                  Cash Provided by (Used in) Financing Activities                                       |   |   | 28,843                             |   |   | (17,687 | ) |
|                                                                                                       |   |   |                               |   |   |   |   |
| **Net                  Increase (Decrease) in Cash and Cash Equivalents**                                  |   |   | 1,176                              |   |   | (1,300 | ) |
| **Cash                  and Cash Equivalents at Beginning of Period**                                      |   |   | 2,551                              |   |   | 3,310 |   |
|                                                                                                       |   |   |                               |   |   |   |   |
| **Cash                  and Cash Equivalents at End of Period**                                            |   | $      | 3,727                              |   | $      | 2,010 |   |
|                                                                                                       |   |   |                               |   |   |   |   |
| **Supplemental                  Disclosures of Noncash Investing Activities:**                             |   |   |                               |   |   |   |   |
| Capital                  property and equipment acquired on account but                                    |   |   |                               |   |   |   |   |
| not                  paid as of September 30                                                               |   | $      | 4,201                              |   | $      | 6,351 |   |
|                                                                                                       |   |   |                               |   |   |   |   |
| The                  accompanying notes are an integral part of the financial                  statements. |   |   |                               |   |   |   |   |
|                                                                                                       |   |   |                               |   |   |   |   |

----

| **SOUTH                  JERSEY GAS COMPANY**                                                              |   |   |                           |   |   |
|------------------------------------------------------------------------------------------------------------|--------|--------|--------------------------------|--------|--------|
|                                                                                                       |   |   |                           |   |   |
| **BALANCE                  SHEETS**                                                                        |   |   |                           |   |   |
| (In                  Thousands)                                                                            |   |   |                           |   |   |   |   |
|                                                                                                            |   |   | (Unaudited)                    |   |   |   |   |
|                                                                                                            |   |   | September                  30, |   |   | December                  31, |   |
|                                                                                                       |   |   | 2006                           |   |   | 2005 |   |
| **Assets**                                                                                                 |   |   |                           |   |   |   |   |
|                                                                                                       |   |   |                           |   |   |   |   |
| **Property,                  Plant and Equipment:**                                                        |   |   |                           |   |   |   |   |
| Utility                  Plant, at original cost                                                           |   | $      | 1,067,675                      |   | $      | 1,030,029 |   |
|                    Accumulated Depreciation                                                           |   |   | (253,021                       | )      |   | (241,242 | ) |
|                                                                                                       |   |   |                           |   |   |   |   |
| Property,                  Plant and Equipment - Net                                                       |   |   | 814,654                        |   |   | 788,787 |   |
|                                                                                                       |   |   |                           |   |   |   |   |
| **Investments:**                                                                                           |   |   |                           |   |   |   |   |
| Available-for-Sale                  Securities                                                             |   |   | 6,016                          |   |   | 5,628 |   |
| Restricted                  Investments                                                                    |   |   | 14,486                         |   |   | - |   |
|                                                                                                       |   |   |                           |   |   |   |   |
| Total                  Investments                                                                         |   |   | 20,502                         |   |   | 5,628 |   |
|                                                                                                       |   |   |                           |   |   |   |   |
| **Current                  Assets:**                                                                       |   |   |                           |   |   |   |   |
| Cash                  and Cash Equivalents                                                                 |   |   | 3,727                          |   |   | 2,551 |   |
| Accounts                  Receivable                                                                       |   |   | 29,919                         |   |   | 41,040 |   |
| Accounts                  Receivable - Related Parties                                                     |   |   | 16,964                         |   |   | 3,186 |   |
| Unbilled                  Revenues                                                                         |   |   | 10,120                         |   |   | 53,648 |   |
| Provision                  for Uncollectibles                                                              |   |   | (2,950                         | )      |   | (3,461 | ) |
| Natural                  Gas in Storage, average cost                                                      |   |   | 87,921                         |   |   | 89,957 |   |
| Materials                  and Supplies, average cost                                                      |   |   | 1,923                          |   |   | 3,866 |   |
| Prepaid                  Taxes                                                                             |   |   | 18,506                         |   |   | 12,972 |   |
| Derivatives                  - Energy Related Assets                                                       |   |   | 11,386                         |   |   | 6,496 |   |
| Other                  Prepayments and Current Assets                                                      |   |   | 3,262                          |   |   | 2,858 |   |
|                                                                                                       |   |   |                           |   |   |   |   |
| Total                  Current Assets                                                                      |   |   | 180,778                        |   |   | 213,113 |   |
|                                                                                                       |   |   |                           |   |   |   |   |
| **Regulatory                  Assets:**                                                                    |   |   |                           |   |   |   |   |
| Environmental                  Remediation Costs:                                                          |   |   |                           |   |   |   |   |
|                    Expended - Net                                                                     |   |   | 14,833                         |   |   | 9,350 |   |
|                    Liability for Future Expenditures                                                  |   |   | 58,216                         |   |   | 56,717 |   |
| Income                  Taxes - Flowthrough Depreciation                                                   |   |   | 4,930                          |   |   | 5,663 |   |
| Deferred                  Asset Retirement Obligation Costs                                                |   |   | 20,743                         |   |   | 19,986 |   |
| Deferred                  Fuel Costs - Net                                                                 |   |   | 23,445                         |   |   | 21,237 |   |
| Deferred                  Postretirement Benefit Costs                                                     |   |   | 2,362                          |   |   | 2,646 |   |
| Temperature                  Adjustment Clause Receivable                                                  |   |   | 9,269                          |   |   | 1,003 |   |
| Societal                  Benefit Costs                                                                    |   |   | 5,682                          |   |   | 2,691 |   |
| Premium                  for Early Retirement of Debt                                                      |   |   | 1,573                          |   |   | 1,694 |   |
| Other                  Regulatory Assets                                                                   |   |   | 1,372                          |   |   | 1,499 |   |
|                                                                                                       |   |   |                           |   |   |   |   |
| Total                  Regulatory Assets                                                                   |   |   | 142,425                        |   |   | 122,486 |   |
|                                                                                                       |   |   |                           |   |   |   |   |
| **Other                  Noncurrent Assets:**                                                              |   |   |                           |   |   |   |   |
| Unamortized                  Debt Issuance Costs                                                           |   |   | 6,875                          |   |   | 6,251 |   |
| Prepaid                  Pension                                                                           |   |   | 23,465                         |   |   | 26,202 |   |
| Accounts                  Receivable - Merchandise                                                         |   |   | 5,555                          |   |   | 6,472 |   |
| Derivatives                  - Energy Related Assets                                                       |   |   | 25                             |   |   | 271 |   |
| Derivatives                  - Other                                                                       |   |   | 131                            |   |   | - |   |
| Other                                                                                                      |   |   | 2,011                          |   |   | 1,765 |   |
|                                                                                                       |   |   |                           |   |   |   |   |
| Total                  Other Noncurrent Assets                                                             |   |   | 38,062                         |   |   | 40,961 |   |
|                                                                                                       |   |   |                           |   |   |   |   |
| Total                  Assets                                                                              |   | $      | 1,196,421                      |   | $      | 1,170,975 |   |
|                                                                                                       |   |   |                           |   |   |   |   |
| The                  accompanying notes are an integral part of the financial                  statements. |   |   |                           |   |   |   |   |

----

|                                                                                                       |   |   |                           |   |   |                          |   |
|------------------------------------------------------------------------------------------------------------|--------|--------|--------------------------------|--------|--------|-------------------------------|--------|
| **SOUTH                  JERSEY GAS COMPANY**                                                              |   |   |                           |   |   |                          |   |
|                                                                                                       |   |   |                           |   |   |                          |   |
| **BALANCE                  SHEETS**                                                                        |   |   |                           |   |   |                          |   |
| (In                  Thousands, except per share amounts)                                                  |   |   |                           |   |   |                          |   |
|                                                                                                            |   |   | (Unaudited)                    |   |   |                          |   |
|                                                                                                            |   |   | September                  30, |   |   | December                  31, |   |
|                                                                                                       |   |   | 2006                           |   |   | 2005                          |   |
|                                                                                                       |   |   |                           |   |   |                          |   |
| **Capitalization                  and Liabilities**                                                        |   |   |                           |   |   |                          |   |
|                                                                                                       |   |   |                           |   |   |                          |   |
| **Common                  Equity:**                                                                        |   |   |                           |   |   |                          |   |
| Common                  Stock, Par Value $2.50 per share:                                                  |   |   |                           |   |   |                          |   |
| Authorized                  - 4,000,000 shares                                                             |   |   |                           |   |   |                          |   |
| Outstanding                  - 2,339,139 shares                                                            |   | $      | 5,848                          |   | $      | 5,848                         |   |
| Other                  Paid-In Capital and Premium on Common Stock                                         |   |   | 200,317                        |   |   | 200,317                       |   |
| Accumulated                  Other Comprehensive Loss                                                      |   |   | (3,858                         | )      |   | (4,337                        | )      |
| Retained                  Earnings                                                                         |   |   | 151,356                        |   |   | 142,740                       |   |
|                                                                                                       |   |   |                           |   |   |                          |   |
| Total                  Common Equity                                                                       |   |   | 353,663                        |   |   | 344,568                       |   |
|                                                                                                       |   |   |                           |   |   |                          |   |
| **Long-Term                  Debt**                                                                        |   |   | 294,903                        |   |   | 272,235                       |   |
|                                                                                                       |   |   |                           |   |   |                          |   |
| Total                  Capitalization                                                                      |   |   | 648,566                        |   |   | 616,803                       |   |
|                                                                                                       |   |   |                           |   |   |                          |   |
| **Current                  Liabilities:**                                                                  |   |   |                           |   |   |                          |   |
| Notes                  Payable                                                                             |   |   | 104,100                        |   |   | 87,000                        |   |
| Current                  Maturities of Long-Term Debt                                                      |   |   | 2,270                          |   |   | 2,273                         |   |
| Accounts                  Payable - Commodity                                                              |   |   | 18,960                         |   |   | 83,957                        |   |
| Accounts                  Payable - Other                                                                  |   |   | 8,686                          |   |   | 17,236                        |   |
| Accounts                  Payable - Related Parties                                                        |   |   | 10,751                         |   |   | 7,879                         |   |
| Derivatives                  - Energy Related Liabilities                                                  |   |   | 24,192                         |   |   | 6,197                         |   |
| Deferred                  Income Taxes - Net                                                               |   |   | 3,070                          |   |   | 2,295                         |   |
| Customer                  Deposits and Credit Balances                                                     |   |   | 37,387                         |   |   | 12,145                        |   |
| Environmental                  Remediation Costs                                                           |   |   | 18,877                         |   |   | 17,873                        |   |
| Taxes                  Accrued                                                                             |   |   | 1,425                          |   |   | 2,162                         |   |
| Dividends                  Payable                                                                         |   |   | 4,975                          |   |   | -                             |   |
| Interest                  Accrued                                                                          |   |   | 4,611                          |   |   | 6,032                         |   |
| Other                  Current Liabilities                                                                 |   |   | 3,313                          |   |   | 6,045                         |   |
|                                                                                                       |   |   |                           |   |   |                          |   |
| Total                  Current Liabilities                                                                 |   |   | 242,617                        |   |   | 251,094                       |   |
|                                                                                                       |   |   |                           |   |   |                          |   |
| **Deferred                  Credits and Other Noncurrent Liabilities:**                                    |   |   |                           |   |   |                          |   |
| Deferred                  Income Taxes - Net                                                               |   |   | 163,890                        |   |   | 162,542                       |   |
| Environmental                  Remediation Costs                                                           |   |   | 39,339                         |   |   | 38,844                        |   |
| Regulatory                  Liabilities                                                                    |   |   | 55,230                         |   |   | 54,002                        |   |
| Asset                  Retirement Obligations                                                              |   |   | 23,450                         |   |   | 22,505                        |   |
| Pension                  and Other Postretirement Benefits                                                 |   |   | 15,570                         |   |   | 16,633                        |   |
| Investment                  Tax Credits                                                                    |   |   | 2,551                          |   |   | 2,795                         |   |
| Derivatives                  - Energy Related Liabilities                                                  |   |   | 1,195                          |   |   | 84                            |   |
| Derivatives                  - Other                                                                       |   |   | -                              |   |   | 306                           |   |
| Other                                                                                                      |   |   | 4,013                          |   |   | 5,367                         |   |
|                                                                                                       |   |   |                           |   |   |                          |   |
| Total                  Deferred Credits and Other Noncurrent Liabilities                                   |   |   | 305,238                        |   |   | 303,078                       |   |
|                                                                                                       |   |   |                           |   |   |                          |   |
| Commitments                  and Contingencies (Note 9)                                                    |   |   |                           |   |   |                          |   |
|                                                                                                       |   |   |                           |   |   |                          |   |
| Total                  Capitalization and Liabilities                                                      |   | $      | 1,196,421                      |   | $      | 1,170,975                     |   |
|                                                                                                       |   |   |                           |   |   |                          |   |
| The                  accompanying notes are an integral part of the financial                  statements. |   |   |                           |   |   |                          |   |
|                                                                                                       |   |   |                           |   |   |                          |   |

----

**NOTES      TO FINANCIAL STATEMENTS (UNAUDITED)**

**1.**
**SUMMARY      OF SIGNIFICANT ACCOUNTING POLICIES**
**:**

**The      Entity**

**Equity      Investments**

**Estimates      and Assumptions**

**Regulation**
** **

**Operating      Revenues**

----

**Accounts      Receivable and Provision for Uncollectible Accounts**

**Property,      Plant & Equipment**

**Depreciation**

**Capitalized      Interest**

|                             |   | September                30,2006 |   | September                30, 2005 |
|----------------------------------|--------|----------------------------------|--------|-----------------------------------|
|                             |   |                             |   |                              |   |   |
| Quarter                Ended     |   | $                                | 102    |                              | $ | 258 |
| Nine                Months Ended |   |                             | 310    |                              |   | 800 |

**Impairment      of Long-Lived Assets**

**Derivative      Instruments**

----

**Stock-Based      Compensation Plans**

----

|   | Grant                    |   | Shares      |   |  Fair                Value     |   | Expected   |   | Risk-Free                    |
|--------|--------------------------|--------|-------------|--------|-------------------------------------|--------|------------|--------|------------------------------|
|   | Date                     |   | Outstanding |   |  Per                Share      |   | Volatility |   | Interest                Rate |
|   |                     |   |        |   |                                |   |       |   |                         |
|   | Jan.                2004 |   | 10,352      |   |   $                20.105 |   | 16.4%      |   | 2.4%                         |
|   | Jan.                2005 |   | 8,342       |   |   $                25.155 |   | 15.5%      |   | 3.4%                         |
|   | Jan.                2006 |   | 8,044       |   |   $                27.950 |   | 16.9%      |   | 4.5%                         |
|   |                     |   |        |   |                                |   |       |   |                         |

----

|                                                                                                                                                                                               | Officers                * |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------|
|                                                                                                                                                                                               |                      |
| Nonvested                Shares Outstanding, January 1, 2006                                                                                                                                       | 49,816                    |
|                                                                                                                                                                                               |                      |
| Granted                                                                                                                                                                                            | 10,991                    |
| Vested**                                                                                                                                                                                           | (27,924)                  |
| Cancelled/Forfeited                                                                                                                                                                                | (6,145)                   |
|                                                                                                                                                                                               |                      |
| Nonvested                Shares Outstanding, September 30, 2006                                                                                                                                    | 26,738                    |
|                                                                                                                                                                                               |                      |
| *   Excludes                accrued dividend equivalents.                                                                                                                           |                      |
| **                Actual shares awarded upon vesting, including dividend equivalents                and                adjustments for performance measures, totaled 44,575                shares. |

**Regulatory      Assets & Liabilities**

|                                                      |   |                           Years Remaining         |                          |
|-----------------------------------------------------------|--------|------------------------------------------------------------------------------------------------|-------------------------------|
| Regulatory                Asset                           |   |                          As of September 30, 2006 |                          |
|                                                      |   |                                                                                           |                          |
| Environmental                Remediation Costs:      |   |                                                                                           |                          |   |
| Expended                - Net                             |   |                                                                                           | Various                       |   |
| Liability                for Future Expenditures          |   |                                                                                           | Not                Applicable |   |
| Income                Taxes - Flowthrough Depreciation    |   |                                                                                           | 5                             |   |
| Deferred                Asset Retirement Obligation Costs |   |                                                                                           | Not                Applicable |   |
| Deferred                Fuel Costs - Net                  |   |                                                                                           | Various                       |   |
| Deferred                Postretirement Benefit Costs      |   |                                                                                           | 6                             |   |
| Temperature                Adjustment Clause Receivable   |   |                                                                                           | Various                       |   |
| Societal                Benefit Costs                     |   |                                                                                           | Various                       |   |
| Premium                for Early Retirement of Debt       |   |                                                                                           | Various                       |   |

----

|                                        |   | September                30, 2006   |   |  December                31,2005 |   |
|---------------------------------------------|--------|-----------------------------------------------|--------|---------------------------------------|--------|
| Excess                Plant Removal Costs   |   | $                                             | 48,286 |                                  | $      | 48,071 |   |
| Overcollected                State Taxes    |   |                                          | 4,151  |                                  |   | 4,025 |   |
| Other                                       |   |                                          | 2,793  |                                  |   | 1,906 |   |
|                                        |   |                                          |   |                                  |   |  |   |
| Total                Regulatory Liabilities |   | $                                             | 55,230 |                                  | $      | 54,002 |   |

**Cash      and Cash Equivalents**

**New      Accounting Pronouncements**
** **

----

**Reclassifications**
** -      **

**2.**
**  **
**REGULATORY      ACTIONS**
**:**

**Base      Rates**
**      - **

**BPU      Audit**

**Other      Regulatory Matters**
**      - **

----

**3.**
**RELATED      PARTY TRANSACTIONS:**

**SJI      Services, LLC (SJIS)**

**South      Jersey Energy Solutions, LLC (SJES)**

----

**Millennium      Account Services, LLC (Millennium)**

**Measurement      Solutions International**
**      - Northeast LLC (MSI)**

|                                               |   | Three                MonthsEnded                September 30, |   | Nine                MonthsEnded                September 30, |   |
|----------------------------------------------------|--------|---------------------------------------------------------------|--------|--------------------------------------------------------------|--------|
|                                               |   | 2006                                                          |   | 2005                                                         |   | 2006 |   | 2005 |   |
| *Sales                  and Services Provided to:* |   |                                                          |        |                                                         |   |  |   |   |  |   |   |  |   |
| SJIS                                               |   | $                                                             | 91     |                                                         | $      | - |   | $ | 272 |   | $ | - |   |
| SJI                                                |   |                                                          | 92     |                                                         |   | 298 |   |   | 726 |   |   | 1,038 |   |
| SJES                                               |   |                                                          | 21     |                                                         |   | - |   |   | 71 |   |   | - |   |
| SJE                                                |   |                                                          | 26     |                                                         |   | 184 |   |   | 117 |   |   | 581 |   |
| SJRG                                               |   |                                                          | 14,138 |                                                         |   | 628 |   |   | 44,129 |   |   | 4,250 |   |
| Marina                                             |   |                                                          | 42     |                                                         |   | 53 |   |   | 192 |   |   | 205 |   |
| SJESP                                              |   |                                                          | 68     |                                                         |   | 198 |   |   | 282 |   |   | 582 |   |

| *Sales                and Services Received from:* |   |   |   |   |   |   |   |
|----------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
| SJRG                                               |   | $      | 11,521 |   | $      | 80     |   | $ | 40,809 |   | $ | 2,807 |   |
| SJI                                                |   |   | 1,227  |   |   | 1,020  |   |   | 5,906 |   |   | 4,449 |   |
| SJIS                                               |   |   | 1,190  |   |   | -      |   |   | 3,909 |   |   | - |   |
| Millennium                                         |   |   | 690    |   |   | 659    |   |   | 2,046 |   |   | 1,955 |   |
|                                               |   |   |        |   |   |        |   |   |  |   |   |  |   |
|                                               |   |   |        |   |   |        |   |   |  |   |   |  |   |

----

|                               |   | September                30, |   | December                31, |   |
|------------------------------------|--------|------------------------------|--------|-----------------------------|--------|
|                               |   | 2006                         |   | 2005                        |   |
| *Amounts                due to:*   |   |                         |        |                        |   |   |   |
| SJIS                               |   | $                            | 1,370  |                        | $      | - |   |
| SJI                                |   |                         | 795    |                        |   | 1,470 |   |
| SJE                                |   |                         | 6,283  |                        |   | 1,691 |   |
| SJRG                               |   |                         | 727    |                        |   | 3,242 |   |
| SJESP                              |   |                         | 1,274  |                        |   | 993 |   |
| Millennium                         |   |                         | 234    |                        |   | 220 |   |
| MSI                                |   |                         | 68     |                        |   | 263 |   |
|                               |   | $                            | 10,751 |                        | $      | 7,879 |   |
|                               |   |                         |        |                        |   |  |   |
| *Amounts                due from:* |   |                         |        |                        |   |  |   |
| SJIS                               |   | $                            | 149    |                        | $      | - |   |
| SJI                                |   |                         | 94     |                        |   | 631 |   |
| SJES                               |   |                         | 37     |                        |   | - |   |
| SJE                                |   |                         | 42     |                        |   | 35 |   |
| SJRG                               |   |                         | 16,391 |                        |   | 2,184 |   |
| SJESP                              |   |                         | 175    |                        |   | 242 |   |
| Marina                             |   |                         | 11     |                        |   | 20 |   |
| Millennium                         |   |                         | 65     |                        |   | 74 |   |
|                               |   | $                            | 16,964 |                        | $      | 3,186 |   |

**4.**
**LONG-TERM      DEBT**
**:**

**5.**
**RESTRICTED      INVESTMENTS:**

**6.**
**UNUSED      LINES OF CREDIT**
**:      **

----

**7.      **
**RETAINED      EARNINGS**
**:      **

**8.**
** **
**PENSIONS      & OTHER POSTRETIRMENT BENEFIT PLANS**
**:      **

|                                          |   | Pension                Benefits                               |   |
|-----------------------------------------------|--------|---------------------------------------------------------------|--------|
|                                          |   | Three                Months EndedSeptember                30, |   |   |   | Nine                Months EndedSeptember                30, |   |
|                                          |   |                                                          |   |   |   |
|                                          |   | 2006                                                          |   | 2005 |   |   |   | 2006 |   | 2005 |   |
| Service                Cost                   |   | $                                                             | 574    |   | $ | 714 |   |   |   |   | $ | 1,723 |   | $ | 2,139 |   |
| Interest                Cost                  |   |                                                          | 1,471  |   |   | 1,467 |   |   |   |   |   | 4,411 |   |   | 4,399 |   |
| Expected                Return on Plan Assets |   |                                                          | (1,880 | ) |   | (1,869 | ) |   |   |   |   | (5,639 | ) |   | (5,608 | ) |
| Amortization                of Loss and Other |   |                                                          | 576    |   |   | 644 |   |   |   |   |   | 1,728 |   |   | 1,934 |   |
| Net                Periodic Benefit Cost      |   |                                                          | 741    |   |   | 956 |   |   |   |   |   | 2,223 |   |   | 2,864 |   |
| Capitalized                Benefit Costs      |   |                                                          | (319   | ) |   | (314 | ) |   |   |   |   | (956 | ) |   | (943 | ) |
| Net                Periodic Benefit Expense   |   | $                                                             | 422    |   | $ | 642 |   |   |   |   | $ | 1,267 |   | $ | 1,921 |   |
|                                          |   |                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

|                                                 |   |  Other                  Postretirement Benefits  |
|-------------------------------------------------|--------|------------------------------------------------------------|
|                                                 |   | Three                  Months Ended                        |  |  Nine                  Months Ended |
|                                                 |   | September                  30,                             |  | September                  30, |
|                                            |   |                                                       |   |   |   |   |   |   |   |   |   |   |   |
|                                            |   |                                                       | 2006 |   |   | 2005 |   |   | 2006 |   |   | 2005 |   |
|                                            |   |                                                       |   |   |   |   |   |   |   |   |   |   |   |
| Service                  Cost                   |   | $                                                          | 234 |   | $ | 183 |   | $ | 492 |   | $ | 549 |   |
| Interest                  Cost                  |   |                                                       | 1,095 |   |   | 491 |   |   | 1,709 |   |   | 1,473 |   |
| Expected                  Return on Plan Assets |   |                                                       | (757 | ) |   | (371 | ) |   | (1,213 | ) |   | (1,112 | ) |
| Amortization                  of Loss and Other |   |                                                       | 354 |   |   | 52 |   |   | 394 |   |   | 156 |   |
| Net                  Periodic Benefit Cost      |   |                                                       | 926 |   |   | 355 |   |   | 1,382 |   |   | 1,066 |   |
| Capitalized                  Benefit Costs      |   |                                                       | (398 | ) |   | (124 | ) |   | (594 | ) |   | (373 | ) |
| Net                  Periodic Benefit Expense   |   | $                                                          | 528 |   | $ | 231 |   | $ | 788 |   |   | 693 |   |

**Future      Benefit Payments**

|      |   |   |                              |   |   | Other                               |   |
|-----------|--------|--------|-----------------------------------|--------|--------|------------------------------------------|--------|
|      |   |   | Pension                  Benefits |   |   | Postretirement                  Benefits |   |
|      |   |   |                              |   |   |                                     |   |
| 2006      |   | $      | 5,436                             |   | $      | 2,147                                    |   |
| 2007      |   |   | 5,503                             |   |   | 2,361                                    |   |
| 2008      |   |   | 5,561                             |   |   | 2,474                                    |   |
| 2009      |   |   | 5,635                             |   |   | 2,549                                    |   |
| 2010      |   |   | 5,707                             |   |   | 2,688                                    |   |
| 2011-2015 |   |   | 31,384                            |   |   | 13,318                                   |   |

**Contributions**
**      -**

**9.**
**COMMITMENTS      AND CONTINGENCIES**
**:      **

|                                                 |   |   |    | Up                to  |   | Years                    |   | Years                    |    | More                than |   |
|------------------------------------------------------|--------|--------|---------|-----------------------|--------|--------------------------|--------|--------------------------|---------|--------------------------|--------|
| Contractual                Cash Obligations          |   | Total  |    | 1                Year |   | 2                & 3 |   | 4                & 5 |    | 5                Years   |   |
|                                                 |   |   |    |                  |   |                     |   |                     |    |                     |   |
| Long-Term                Debt                        |   | $      | 297,173 |                  | $      | 2,270                    |   | $                        | -       |                     | $      | 35,000 |   | $ | 259,903 |   |
| Interest                on Long-Term Debt            |   |   | 238,357 |                  |   | 17,191                   |   |                     | 34,003  |                     |   | 33,697 |   |   | 153,466 |   |
| Operating                Leases                      |   |   | 232     |                  |   | 124                      |   |                     | 89      |                     |   | 19 |   |   | - |   |
| Construction                Obligations              |   |   | 304     |                  |   | 304                      |   |                     | -       |                     |   | - |   |   | - |   |
| Commodity                Supply Purchase Obligations |   |   | 218,740 |                  |   | 49,829                   |   |                     | 82,215  |                     |   | 26,785 |   |   | 59,911 |   |
| New                Jersey Clean Energy Program       |   |   | 15,557  |                  |   | 5,807                    |   |                     | 9,750   |                     |   | - |   |   | - |   |
| Other                Purchase Obligations            |   |   | 9,695   |                  |   | 4,453                    |   |                     | 3,053   |                     |   | 2,064 |   |   | 125 |   |
|                                                 |   |   |         |                  |   |                          |   |                     |         |                     |   |  |   |   |  |   |
| Total                  Contractual Cash Obligations  |   | $      | 780,058 |                  | $      | 79,978                   |   | $                        | 129,110 |                     | $      | 97,565 |   | $ | 473,405 |   |

----

**Gas      Supply Contracts**

**Pending      Litigation**

**Union      Contract**
**      - **

**Environmental      Remediation Costs**

|                                          |   | Nine                Months Ended  |   | Year                Ended        |   |
|-----------------------------------------------|--------|-----------------------------------|--------|----------------------------------|--------|
|                                          |   | September                30, 2006 |   | December                31, 2005 |   |
|                                          |   |                              |   |                             |   |
| Beginning                Balance              |   | $                                 | 56,717 |                             | $      | 51,046 |   |
|  Accruals                and Adjustments |   |                              | 8,895  |                             |   | 11,710 |   |
|  Expenditures                            |   |                              | (6,448 | )                                |   | (6,039 | ) |
|  Insurance                Recoveries     |   |                              | (948   | )                                |   | - |   |
|                                          |   |                              |   |                             |   |   |   |
| Ending                Balance                 |   | $                                 | 58,216 |                             | $      | 56,717 |   |

----

**10.**
**SUBSEQUENT      EVENT: **

----

**Item        2. Management’s Discussion and Analysis of Financial        Condition**

**and        Results of Operations (Unaudited) **

**OVERVIEW:**

**Organization**
**        - **

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

|   | o | transport                  natural gas purchased directly from producers or suppliers for                  our own                  sales and for some of our customers. |
|--------|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Forward-Looking        Statement & Risk Factors**
**        - **

**Critical        Accounting Policies - Estimates and Assumptions**

**New        Accounting Pronouncements**
**        - **

----

**Temperature        Adjustment Clause**
**        - **

**Conservation        Incentive Program**

**Regulatory        Actions**
**        - **

**Environmental        Remediation**
**        - **

----

**Customer        Choice Legislation**
**        - **
*Electric        Discount and Energy Competition Act of 1999*

**RESULTS        OF OPERATIONS:**

**Operating        Revenues**

----

|                                                         |   | Three                  Months Ended | Nine                  Months Ended |
|---------------------------------------------------------|--------|-------------------------------------|------------------------------------|
|                                                         |   | September                  30,      | September                  30,     |
|                                                    |   |                                | 2006                               |   |   | 2005 |   |   | 2006 |   |   | 2005 |   |
| Operating                  Revenues (thousands):        |   |                                |                                    |   |   |  |   |   |  |   |   |  |   |
| Firm                  Sales                             |   |                                |                               |   |   |  |   |   |  |   |   |  |   |
| Residential                                             |   | $                                   | 28,209                             |   | $ | 22,307 |   | $ | 241,593 |   | $ | 149,421 |   |
| Commercial                                              |   |                                | 11,496                             |   |   | 10,325 |   |   | 75,749 |   |   | 55,763 |   |
| Industrial                                              |   |                                | 665                                |   |   | 1,279 |   |   | 3,627 |   |   | 3,423 |   |
| Cogeneration                  & Electric Generation |   |                                | 6,457                              |   |   | 10,901 |   |   | 9,817 |   |   | 16,040 |   |
| Firm                  Transportation                    |   |                                |                                    |   |   |  |   |   |  |   |   |  |   |
| Residential                                             |   |                                | 647                                |   |   | 2,962 |   |   | 2,790 |   |   | 23,888 |   |
| Commercial                                              |   |                                | 1,683                              |   |   | 1,899 |   |   | 8,156 |   |   | 10,321 |   |
| Industrial                                              |   |                                | 3,027                              |   |   | 3,282 |   |   | 9,289 |   |   | 9,846 |   |
| Cogeneration                  & Electric Generation |   |                                | 175                                |   |   | 115 |   |   | 186 |   |   | 220 |   |
|                                                    |   |                                |                                    |   |   |  |   |   |  |   |   |  |   |
| Total                  Firm Revenues                    |   |                                | 52,359                             |   |   | 53,070 |   |   | 351,207 |   |   | 268,922 |   |
|                                                    |   |                                |                                    |   |   |  |   |   |  |   |   |  |   |
| Interruptible                                           |   |                                | 95                                 |   |   | 340 |   |   | 864 |   |   | 1,179 |   |
| Interruptible                  Transportation           |   |                                | 332                                |   |   | 361 |   |   | 1,324 |   |   | 1,476 |   |
| Off-System                                              |   |                                | 32,816                             |   |   | 32,909 |   |   | 107,560 |   |   | 108,148 |   |
| Capacity                  Release & Storage         |   |                                | 1,796                              |   |   | 2,608 |   |   | 7,797 |   |   | 9,214 |   |
| Other                                                   |   |                                | 317                                |   |   | 414 |   |   | 1,050 |   |   | 1,383 |   |
|                                                    |   |                                |                                    |   |   |  |   |   |  |   |   |  |   |
| Total                  Operating Revenues               |   | $                                   | 87,715                             |   | $ | 89,702 |   | $ | 469,802 |   | $ | 390,322 |   |

| Throughput                  (MMcf):                     |   |   |   |   |   |   |   |   |    |
|---------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|---------|
| Firm                  Sales -                           |   |   |        |   |   |        |   |   |         |   |   |  |   |
| Residential                                             |   |   | 1,362  |   |   | 1,176  |   |   | 13,575  |   |   | 11,767 |   |
| Commercial                                              |   |   | 819    |   |   | 699    |   |   | 5,001   |   |   | 4,959 |   |
| Industrial                                              |   |   | 14     |   |   | 12     |   |   | 142     |   |   | 138 |   |
| Cogeneration                  & Electric Generation |   |   | 780    |   |   | 1,114  |   |   | 1,024   |   |   | 1,601 |   |
| Firm                  Transportation -                  |   |   |        |   |   |        |   |   |         |   |   |  |   |
| Residential                                             |   |   | 83     |   |   | 422    |   |   | 530     |   |   | 5,261 |   |
| Commercial                                              |   |   | 546    |   |   | 597    |   |   | 2,885   |   |   | 3,764 |   |
| Industrial                                              |   |   | 3,787  |   |   | 4,057  |   |   | 10,416  |   |   | 12,108 |   |
| Cogeneration                  & Electric Generation |   |   | 227    |   |   | 228    |   |   | 239     |   |   | 324 |   |
|                                                    |   |   |        |   |   |        |   |   |         |   |   |  |   |
| Total                  Firm Throughput                  |   |   | 7,618  |   |   | 8,305  |   |   | 33,812  |   |   | 39,922 |   |
|                                                    |   |   |        |   |   |        |   |   |         |   |   |  |   |
| Interruptible                                           |   |   | 6      |   |   | 16     |   |   | 70      |   |   | 95 |   |
| Interruptible                  Transportation           |   |   | 746    |   |   | 523    |   |   | 2,530   |   |   | 2,119 |   |
| Off-System                                              |   |   | 3,961  |   |   | 3,463  |   |   | 12,597  |   |   | 13,593 |   |
| Capacity                  Release & Storage         |   |   | 19,977 |   |   | 25,512 |   |   | 51,172  |   |   | 64,016 |   |
|                                                    |   |   |        |   |   |        |   |   |         |   |   |  |   |
| Total                  Throughput                       |   |   | 32,308 |   |   | 37,819 |   |   | 100,181 |   |   | 119,745 |   |

----

**Cost        of Sales**

**Operating        Expenses**

|                                         |   |   | Three                  MonthsEnded                  September 30, |   |   | Nine                  Months Ended                  September 30, |   |
|-----------------------------------------|--------|--------|-------------------------------------------------------------------|--------|--------|-------------------------------------------------------------------|--------|
|                                         |   |   | 2006                  vs. 2005                                    |   |   | 2006                  vs. 2005                                    |   |
|                                    |   |   |                                                                   |   |   |                                                                   |   |
| Operations                              |   | $      | 614                                                               |   | $      | (2,263                                                            | )      |
| Maintenance                             |   |   | (2                                                                | )      |   | (236                                                              | )      |
| Depreciation                            |   |   | 404                                                               |   |   | 1,215                                                             |   |
| Energy                  and Other Taxes |   |   | (244                                                              | )      |   | (1,130                                                            | )      |

----

**Other        Income and Expense**

**Interest        Charges**

**Liquidity        and Capital Resources**
**        - **

----

|                               | As                    of         |        | As                    of        |
|------------------------------------|----------------------------------|-------------|---------------------------------|
|                               | September                    30, |        | December                    31, |
|                               |  2006                       |        |  2005                      |
|                               |                             |        |                            |   |   |
| Common Equity                 |                             |  46.8% |                            |   |  49.0% |
| Long-Term                    Debt  |                             |  39.4% |                            |   |  38.7% |
| Short-Term                    Debt |                             |  13.8% |                            |   |  12.4% |
|                               |                             |        |                            |   |   |
| Total                              |                             | 100.0%      |                            |   | 100.0% |

----

**CAPITAL        EXPENDITURES, COMMITMENTS AND CONTINGENCIES: **

**Commitments        and Contingencies**

|                                                   |   |   |    | Up                  to  |   | Years                      |   | Years                      |    | More                  than |   |
|--------------------------------------------------------|--------|--------|---------|-------------------------|--------|----------------------------|--------|----------------------------|---------|----------------------------|--------|
| Contractual                  Cash Obligations          |   | Total  |    | 1                  Year |   | 2                  & 3 |   | 4                  & 5 |    | 5                  Years   |   |
|                                                   |   |   |    |                    |   |                       |   |                       |    |                       |   |
| Long-Term                  Debt                        |   | $      | 297,173 |                    | $      | 2,270                      |   | $                          | -       |                       | $      | 35,000 |   | $ | 259,903 |   |
| Interest                  on Long-Term Debt            |   |   | 238,357 |                    |   | 17,191                     |   |                       | 34,003  |                       |   | 33,697 |   |   | 153,466 |   |
| Operating                  Leases                      |   |   | 232     |                    |   | 124                        |   |                       | 89      |                       |   | 19 |   |   | - |   |
| Construction                  Obligations              |   |   | 304     |                    |   | 304                        |   |                       | -       |                       |   | - |   |   | - |   |
| Commodity                  Supply Purchase Obligations |   |   | 218,740 |                    |   | 49,829                     |   |                       | 82,215  |                       |   | 26,785 |   |   | 59,911 |   |
| New                  Jersey Clean Energy Program       |   |   | 15,557  |                    |   | 5,807                      |   |                       | 9,750   |                       |   | - |   |   | - |   |
| Other                  Purchase Obligations            |   |   | 9,695   |                    |   | 4,453                      |   |                       | 3,053   |                       |   | 2,064 |   |   | 125 |   |
|                                                   |   |   |    |                    |   |                       |   |                       |    |                       |   |   |   |   |   |   |
| Total                  Contractual Cash Obligations    |   | $      | 780,058 |                    | $      | 79,978                     |   | $                          | 129,110 |                       | $      | 97,565 |   | $ | 473,405 |   |

**Capital        and Remediation Expenditures**

**Off-Balance        Sheet Arrangements**

**Pending        Litigation**

----

**Ratio        of Earnings to Fixed Charges**
**        - **

| Twelve                  MonthsEnded                  September 30, |   |  Year                  Ended December 31, |
|--------------------------------------------------------------------|--------|------------------------------------------------|
|                                                               |   |                                           |   |   |   |   |   |   |   |   |   |
| 2006                                                               |   | 2005                                           |   | 2004 |   | 2003 |   | 2002 |   | 2001 |   |
|                                                               |   |                                           |   |   |   |   |   |   |   |   |   |
| 3.6x                                                               |   | 4.0x                                           |   | 3.9x |   | 3.3x |   | 2.9x |   | 2.6x |   |

**Item        3. Quantitative and Qualitative Disclosures about Market        Risks**

**MARKET        RISKS:**

**Commodity        Market Risks**

| Assets                                  |   |                                      |   | Maturity |                        | Maturity |   |                         |     |
|-----------------------------------------|--------|-------------------------------------------|--------|----------|-----------------------------|----------|--------|------------------------------|----------|
|                                         |   |  Source                of Fair Value |   |     | <1                  Year |     |   | 1                  - 3 Years |     |   | Total |   |
|                                    |   |                                      |        |     |                        |          |   |                         |          |   |   |  |   |
| Prices                  Actively Quoted |   |                                      | NYMEX  |     | $                           | 10,508   |   | $                            | 25       |   | $ | 10,533 |   |
| Other                  External Sources |   |                                      | Basis  |     |                        | 878      |   |                         | -        |   |   | 878 |   |
|                                    |   |                                      |   |     |                        |     |   |                         |     |   |   |   |   |
| Total                                   |   |                                      |        |     | $                           | 11,386   |   | $                            | 25       |   | $ | 11,411 |   |
|                                    |   |                                      |        |     |                        |          |   |                         |          |   |   |  |   |
| Liabilities                             |   |                                      |        |     |                        | Maturity |   |                         | Maturity |   |   |  |   |
|                                         |   |  Source                of Fair Value |   |     | <1                  Year |     |   | 1                  - 3 Years |     |   | Total |   |
|                                    |   |                                      |        |     |                        |          |   |                         |          |   |   |  |   |
| Prices                  Actively Quoted |   |                                      | NYMEX  |     | $                           | 23,671   |   | $                            | 1,195    |   | $ | 24,956 |   |
| Other                  External Sources |   |                                      | Basis  |     |                        | 431      |   |                         | -        |   |   | 431 |   |
|                                    |   |                                      |   |     |                        |     |   |                         |     |   |   |   |   |
| Total                                   |   |                                      |        |     | $                           | 24,192   |   | $                            | 1,195    |   | $ | 25,387 |   |

----

| Net                  Derivatives — Energy Related Asset, January 1, 2006                           |   | $      | 486     |   |
|----------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|
| Contracts                  Settled During The Nine Months Ended September 30, 2006,                  Net |   |   | 20,235  |   |
| Other                  Changes in Fair Value from Continuing and New Contracts,                  Net     |   |   | (34,697 | )      |
|                                                                                                     |   |   |    |   |
| Net                  Derivatives — Energy Related Liability, September 30, 2006                    |   | $      | (13,976 | )      |

**Interest        Rate Risk**
**        - **

**Item        4. Controls and Procedures**

----

**PART        II — OTHER INFORMATION**

**Item        1. Legal Proceedings**

**Item        1A. Risk Factors**

----

**Item        6. Exhibits**

| (a)                  Exhibits |                                                                                                                                                                                                                                                                                                                                                                       |
|-------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                          |                                                                                                                                                                                                                                                                                                                                                                       |
| Exhibit                  No.  | Description                                                                                                                                                                                                                                                                                                                                                                |
|                          |                                                                                                                                                                                                                                                                                                                                                                       |
| 31.1                          | Certification                  of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Exchange                  Act.                                                                                                                                                                                                                                                 |
|                          |                                                                                                                                                                                                                                                                                                                                                                       |
| 31.2                          | Certification                  of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Exchange                  Act.                                                                                                                                                                                                                                                 |
|                          |                                                                                                                                                                                                                                                                                                                                                                       |
| 32.1                          | Certification                  of Chief Executive Officer Pursuant to Rule 13a-14(b) of the Exchange                  Act                  as adopted pursuant to Section 906 of                  the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section                  1350,                  Chapter 63 of Title 18, United States Code).                  |
|                          |                                                                                                                                                                                                                                                                                                                                                                       |
| 32.2                          | Certification                  of Chief Financial Officer Pursuant to Rule 13a-14(b) of the Exchange                  Act                  as adopted pursuant to Section 906 of                  the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section                  1350,                  Chapter 63 of Title 18, United States                  Code). |

----

**SIGNATURES**

**SOUTH        JERSEY GAS COMPANY**

| Dated:                  November 9, 2006 | By:                          /s/                  Edward J. Graham                           |
|------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                     | Edward                  J. Graham                                                                                                                                                                                                                                      |
|                                     | President                  & Chief Executive Officer                                                                                                                                                                                                               |
|                                     |                                                                                                                                                                                                                                                                   |
|                                     |                                                                                                                                                                                                                                                                   |
| Dated:                  November 9, 2006 | By:                          /s/                  David A. Kindlick                               |
|                                     | David                  A. Kindlick                                                                                                                                                                                                                                     |
|                                     | Senior                  Vice President & Chief Financial                  Officer                                                                                                                                                                                  |

----