Page 1 of 29


              SECURITIES AND EXCHANGE COMMISSION
                   Washington, D.C.  20549

                          FORM 10-Q

          QUARTERLY REPORT UNDER SECTION 13 or 15(d)
            OF THE SECURITIES EXCHANGE ACT OF 1934


For the Quarter Ended September 30, 1997

Commission File Number 1-12899

                    SOUTH JERSEY GAS COMPANY
-----------------------------------------------------------------
(Exact name of registrant as specified in its charter)

       New Jersey                                 22-0398330
-----------------------------------------------------------------
(State or other jurisdiction of              (I.R.S. Employer's
 incorporation of organization)             Identification No.)

  Number One South Jersey Plaza, Route 54, Folsom, NJ    08037
-----------------------------------------------------------------
(Address of principal executive offices)               (Zip Code)

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


-----------------------------------------------------------------
Former name, former address, and former fiscal year, if changed
since last report


Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days.


                     Yes   X      No
                         -----       -----

As of November 13, 1997, there were 2,339,139 shares of the
registrant's common stock outstanding.  All common shares are
owned by South Jersey Industries, Inc., the parent company of
South Jersey Gas Company.


                     Exhibit Index on page 29


<PAGE>
                   PART I  -  FINANCIAL INFORMATION


Item 1.  Financial Statements  --  See Pages 3 through 14






                               SJG-2
<PAGE>
<TABLE>

SOUTH JERSEY GAS COMPANY
STATEMENTS OF CONSOLIDATED INCOME AND RETAINED EARNINGS (UNAUDITED)
(In Thousands Except for Share Data)
<CAPTION>
                                                                    Three Months Ended
                                                                      September 30,
                                                                  -----------------------
                                                                     1997         1996
-----------------------------------------------------------------------------------------
<S>                                                               <C>          <C>
OPERATING REVENUES:
   Utility . . . . . . . . . . . . . . . . . . . . . . . . . . .    $49,635      $39,559
   Other . . . . . . . . . . . . . . . . . . . . . . . . . . . .        441          787
                                                                  ----------   ----------
      Total Operating Revenues . . . . . . . . . . . . . . . . .     50,076       40,346
                                                                  ----------   ----------
OPERATING EXPENSES:
   Gas Purchased for Resale. . . . . . . . . . . . . . . . . . .     31,483       22,354
   Operation - Utility . . . . . . . . . . . . . . . . . . . . .     10,149        9,451
                    - Other. . . . . . . . . . . . . . . . . . .        404          504
   Maintenance . . . . . . . . . . . . . . . . . . . . . . . . .      1,552        1,302
   Depreciation. . . . . . . . . . . . . . . . . . . . . . . . .      4,027        3,738
   Federal Income Taxes. . . . . . . . . . . . . . . . . . . . .     (2,675)      (2,313)
   Deferred and Non-current Federal Income Taxes . . . . . . . .        975          591
   Investment Tax Credit Deferred - Net. . . . . . . . . . . . .        (99)         (98)
   Gross Receipts and Franchise Taxes. . . . . . . . . . . . . .      2,585        2,925
   Other Taxes . . . . . . . . . . . . . . . . . . . . . . . . .        564          501
                                                                  ----------   ----------
      Total Operating Expenses . . . . . . . . . . . . . . . . .     48,965       38,955
                                                                  ----------   ----------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . .      1,111        1,391

INTEREST CHARGES . . . . . . . . . . . . . . . . . . . . . . . .      4,324        4,864
                                                                  ----------   ----------
LOSS BEFORE PREFERRED DIVIDEND REQUIREMENTS. . . . . . . . . . .     (3,213)      (3,473)
Preferred Stock Dividend Requirements. . . . . . . . . . . . . .         42           43
Preferred Securities Dividend Requirements . . . . . . . . . . .        731            0
                                                                  ----------   ----------
NET LOSS APPLICABLE TO COMMON STOCK . . . .  . . . . . . . . . .     (3,986)      (3,516)
RETAINED EARNINGS AT BEGINNING OF PERIOD . . . . . . . . . . . .     59,244       55,141
                                                                  ----------   ----------
      TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . .     55,258       51,625
COMMON STOCK DIVIDENDS DECLARED. . . . . . . . . . . . . . . . .      3,825        3,778
                                                                  ----------   ----------
RETAINED EARNINGS AT END OF PERIOD . . . . . . . . . . . . . . .    $51,433      $47,847
                                                                  ==========   ==========
AVERAGE SHARES OF COMMON STOCK OUTSTANDING . . . . . . . . . . .  2,339,139    2,339,139

LOSS PER COMMON SHARE. . . . . . . . . . . . . . . . . . . . . .     ($1.70)      ($1.50)
                                                                  ==========   ==========
DIVIDENDS PAID PER COMMON SHARE. . . . . . . . . . . . . . . . .     $1.635       $1.615
                                                                  ==========   ==========


The accompanying notes to the consolidated financial statements are an integral part
of these statements.

                        SJG-3
<PAGE>

SOUTH JERSEY GAS COMPANY
STATEMENTS OF CONSOLIDATED INCOME AND RETAINED EARNINGS (UNAUDITED)
(In Thousands Except for Share Data)
<CAPTION>
                                                                     Nine Months Ended
                                                                       September 30,
                                                                  -----------------------
                                                                     1997         1996
-----------------------------------------------------------------------------------------
<S>                                                               <C>          <C>
OPERATING REVENUES:
   Utility. . . . . . . . . . . . . . . . . . . . . . . . . . . .  $233,523     $231,889
   Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . .     1,483        2,249
                                                                  ----------   ----------
      Total Operating Revenues. . . . . . . . . . . . . . . . . .   235,006      234,138
                                                                  ----------   ----------
OPERATING EXPENSES:
   Gas Purchased for Resale . . . . . . . . . . . . . . . . . . .   133,304      132,283
   Operation - Utility  . . . . . . . . . . . . . . . . . . . . .    29,000       28,206
                    - Other . . . . . . . . . . . . . . . . . . .     1,339        1,614
   Maintenance  . . . . . . . . . . . . . . . . . . . . . . . . .     4,553        3,866
   Depreciation . . . . . . . . . . . . . . . . . . . . . . . . .    11,879       11,045
   Federal Income Taxes . . . . . . . . . . . . . . . . . . . . .     4,613        5,173
   Deferred and Non-current Federal Income Taxes. . . . . . . . .     2,797        1,756
   Investment Tax Credit Deferred - Net . . . . . . . . . . . . .      (297)        (293)
                                                                     19,610       22,295
   Other Taxes  . . . . . . . . . . . . . . . . . . . . . . . . .     1,948        1,873
                                                                  ----------   ----------
      Total Operating Expenses. . . . . . . . . . . . . . . . . .   208,746      207,818
                                                                  ----------   ----------
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . . . .    26,260       26,320

INTEREST CHARGES. . . . . . . . . . . . . . . . . . . . . . . . .    13,544       14,428
                                                                  ----------   ----------
INCOME BEFORE PREFERRED DIVIDEND REQUIREMENTS . . . . . . . . . .    12,716       11,892
Preferred Stock Dividend Requirements . . . . . . . . . . . . . .       128          131
Preferred Securities Dividend Requirements. . . . . . . . . . . .     1,202            0
                                                                  ----------   ----------
NET INCOME APPLICABLE TO COMMON STOCK . . . . . . . . . . . . . .    11,386       11,761
RETAINED EARNINGS AT BEGINNING OF PERIOD. . . . . . . . . . . . .    51,522       47,364
                                                                  ----------   ----------
      TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . .    62,908       59,125
COMMON STOCK DIVIDENDS DECLARED . . . . . . . . . . . . . . . . .    11,475       11,278
                                                                  ----------   ----------
RETAINED EARNINGS AT END OF PERIOD. . . . . . . . . . . . . . . .   $51,433      $47,847
                                                                  ==========   ==========
AVERAGE SHARES OF COMMON STOCK OUTSTANDING. . . . . . . . . . . . 2,339,139    2,339,139

EARNINGS PER COMMON SHARE . . . . . . . . . . . . . . . . . . . .     $4.87        $5.03
                                                                  ==========   ==========
DIVIDENDS PAID PER COMMON SHARE . . . . . . . . . . . . . . . . .    $4.906       $4.821
                                                                  ==========   ==========

The accompanying notes to the consolidated financial statements are an integral part
of these statements.

                        SJG-4
<PAGE>

SOUTH JERSEY GAS COMPANY
CONSOLIDATED BALANCE SHEET
(In Thousands)                                           (Unaudited)
<CAPTION>
                                                               September 30,       December 31,
                                                         ------------------------  ------------
                                                             1997         1996         1996
---------------------------------------------------------------------------------  ------------
<S>                                                      <C>          <C>          <C>
ASSETS

PROPERTY, PLANT AND EQUIPMENT:
   Utility Plant, at original cost . . . . . . . . . . .   $607,395     $565,232      $577,304
      Accumulated Depreciation . . . . . . . . . . . . .   (164,700)    (154,594)     (157,682)
   Gas Plant Acquisition Adjustment - Net. . . . . . . .      1,944        2,019         2,000
                                                         -----------  -----------  ------------
          Property, Plant and Equipment - Net. . . . . .    444,639      412,657       421,622
                                                         -----------  -----------  ------------
CURRENT ASSETS:
   Cash & Cash Equivalents . . . . . . . . . . . . . . .      3,684        4,139         7,469
   Accounts Receivable:
      Customers. . . . . . . . . . . . . . . . . . . . .     16,098       10,491        28,733
      Unbilled Revenues. . . . . . . . . . . . . . . . .      4,220        4,690        17,855
      Merchandise. . . . . . . . . . . . . . . . . . . .      1,841        2,113         2,260
      Other. . . . . . . . . . . . . . . . . . . . . . .        781        4,371           508
      Provision for Uncollectibles . . . . . . . . . . .     (1,032)      (1,032)       (1,032)
   Natural Gas in Storage, average cost. . . . . . . . .     26,600       24,777        22,638
   Materials and Supplies, average cost. . . . . . . . .      3,954        4,546         4,055
   Prepaid Gross Recpts and Franchise Taxes. . . . . . .      8,513       10,445         1,602
   Prepayments and Other . . . . . . . . . . . . . . . .      2,386        2,003         1,562
                                                         -----------  -----------  ------------
          Total Current Assets . . . . . . . . . . . . .     67,045       66,543        85,650
                                                         -----------  -----------  ------------
ACCOUNTS RECEIVABLE - Merchandise. . . . . . . . . . . .      1,547        2,066         1,999
                                                         -----------  -----------  ------------
DEFERRED DEBITS:
   Environmental Remediation Costs:
     Expended - Net. . . . . . . . . . . . . . . . . . .     17,805       15,045        15,566
     Liability for Future Expenditures . . . . . . . . .     52,400       23,099        41,700
   Gross Receipts and Franchise Taxes. . . . . . . . . .      4,139        4,568         4,468
   Income Taxes - Flowthrough Depreciation . . . . . . .     14,243       15,221        14,977
   Deferred Postretirement Benefit Costs . . . . . . . .      5,872        5,119         5,153
   Deferred Fuel Costs . . . . . . . . . . . . . . . . .        493            0           404
   Other . . . . . . . . . . . . . . . . . . . . . . . .      7,761        7,276         8,387
                                                         -----------  -----------  ------------
          Total Deferred Debits. . . . . . . . . . . . .    102,713       70,328        90,655
                                                         -----------  -----------  ------------
               TOTAL . . . . . . . . . . . . . . . . . .   $615,944     $551,594      $599,926
                                                         ===========  ===========  ============

The accompanying notes to the consolidated financial statements are an integral part
of these statements.

                        SJG-5
<PAGE>

SOUTH JERSEY GAS COMPANY
CONSOLIDATED BALANCE SHEET
(In Thousands)                                           (Unaudited)
<CAPTION>
                                                               September 30,       December 31,
                                                         ------------------------  ------------
                                                             1997         1996         1996
---------------------------------------------------------------------------------  ------------
<S>                                                      <C>          <C>          <C>
SHAREHOLDER'S EQUITY AND LIABILITIES

COMMON EQUITY:
   Common Stock, Par Value $2.50 a share:
      Authorized - 4,000,000 shares
      Outstanding - 2,339,139 shares . . . . . . . . . .     $5,848       $5,848        $5,848
   Other Paid-In Capital and Premium on Common Stock . .    102,817       77,194        77,194
   Retained Earnings . . . . . . . . . . . . . . . . . .     51,433       47,847        51,522
                                                         -----------  -----------  ------------
          Total Common Equity. . . . . . . . . . . . . .    160,098      130,889       134,564
                                                         -----------  -----------  ------------
PREFERRED STOCK AND SECURITIES:
  Redeemable Cumulative Preferred - Par Value $100,
    Authorized 47,304 and 48,204 shares, respectively
    Outstanding shares:
      Series A, 4.70% -  3,000, 3,900 and 3,900 shares .        300          390           390
      Series B, 8.00% - 19,242 shares. . . . . . . . . .      1,924        1,924         1,924
  Company-Obligated Mandatorily Redeemable
   Preferred Securities of Subsidiary Trust
   Par Value $25, 1,400,000 shares
   Authorized and Outstanding. . . . . . . . . . . . . .     35,000            0             0
                                                         -----------  -----------  ------------
          Total Preferred Stock and Securities . . . . .     37,224        2,314         2,314
                                                         -----------  -----------  ------------
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . .    178,003      151,879       149,736
                                                         -----------  -----------  ------------
CURRENT LIABILITIES:
   Notes Payable to Banks. . . . . . . . . . . . . . . .     28,600       95,900       108,300
   Current Maturities of Long-Term Debt. . . . . . . . .      8,876        6,603         6,603
   Accounts Payable. . . . . . . . . . . . . . . . . . .     37,786       34,193        48,347
   Customer Deposits . . . . . . . . . . . . . . . . . .      5,795        5,647         6,050
   Environmental Remediation Costs . . . . . . . . . . .      7,735        6,996         9,377
   Interest and Other Accrued Current Liabilities. . . .      4,722        8,677         2,161
                                                         -----------  -----------  ------------
          Total Current Liabilities. . . . . . . . . . .     93,514      158,016       180,838
                                                         -----------  -----------  ------------
DEFERRED CREDITS AND OTHER NON-CURRENT LIABILITIES:
   Deferred Income Taxes - Net . . . . . . . . . . . . .     80,225       69,655        78,415
   Investment Tax Credits. . . . . . . . . . . . . . . .      5,728        6,124         6,025
   Deferred Revenues . . . . . . . . . . . . . . . . . .          0          509             0
   Pension and Other Postretirement Benefits . . . . . .     10,434        9,224         9,551
   Environmental Remediation Costs . . . . . . . . . . .     44,665       16,103        32,323
   Other . . . . . . . . . . . . . . . . . . . . . . . .      6,053        6,881         6,160
                                                         -----------  -----------  ------------
          Total Deferred Credits
            and Other Non-Current Liabilities. . . . . .    147,105      108,496       132,474
                                                         -----------  -----------  ------------
COMMITMENTS AND CONTINGENCIES

               TOTAL . . . . . . . . . . . . . . . . . .   $615,944     $551,594      $599,926
                                                         ===========  ===========  ============

The accompanying notes to the consolidated financial statements are an integral part
of these statements.

                        SJG-6
<PAGE>

SOUTH JERSEY GAS COMPANY
STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
(In Thousands)
<CAPTION>
                                                        Nine Months Ended
                                                          September 30,
                                                      ---------------------
                                                        1997         1996
---------------------------------------------------------------------------
<S>                                                   <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income Applicable to Common Stock . . . . . . . . $11,386      $11,761

Adjustments to Reconcile Net Income to Cash Flows
 Provided by Operating Activities:
  Depreciation and Amortization . . . . . . . . . . .  13,316       13,161
  Provision for Losses on Accounts Receivable . . . .     949        1,168
  Revenues and Fuel Costs Deferred - Net. . . . . . .     (89)      (6,806)
  Deferred and Non-Current Federal Income Taxes
   and Credits - Net. . . . . . . . . . . . . . . . .   2,500        1,463
  Environmental Remediation Costs - Net . . . . . . .  (2,239)      (3,272)
  Changes in:
    Accounts Receivable . . . . . . . . . . . . . . .  25,467       31,078
    Inventories . . . . . . . . . . . . . . . . . . .  (3,861)     (10,718)
    Prepayments and Other Current Assets. . . . . . .    (824)           9
    Accounts Payable and Other Accrued Liabilities. .  (8,255)      (2,056)
    Prepaid Gross Receipts and Franchise Taxes. . . .  (6,911)      (6,796)
  Other - Net . . . . . . . . . . . . . . . . . . . .     466        2,274
                                                      --------     --------
Net Cash Provided by Operating Activities . . . . . .  31,905       31,266
                                                      --------     --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures, Cost of Removal & Salvage . . . (35,587)     (27,439)
                                                      --------     --------
Net Cash Used in Investing Activities . . . . . . . . (35,587)     (27,439)
                                                      --------     --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (Repayments of) Borrowings from Lines of Credit . (79,700)      19,600
Proceeds from Sale of Long-Term Debt. . . . . . . . .  35,000            0
Principal Repayments of Long-Term Debt. . . . . . . .  (4,461)     (10,113)
Repurchase of Preferred Stock . . . . . . . . . . . .     (90)         (90)
Proceeds from Sale of Preferred Securities. . . . . .  35,000            0
Additional Investment by Shareholder. . . . . . . . .  25,623            0
Dividends of Common Stock . . . . . . . . . . . . . . (11,475)     (11,278)
                                                      --------     --------
Net Cash Used In Financing Activities . . . . . . . .    (103)      (1,881)
                                                      --------     --------
NET (DECREASE)INCREASE IN CASH AND CASH EQUIVALENTS .  (3,785)       1,946
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD. . .   7,469        2,193
                                                      --------     --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD. . . . . .  $3,684       $4,139
                                                      ========     ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash paid during the period for:
    Interest (Net of Amounts Applicable to LGAC
     Overcollections and Amounts Capitalized) . . . . $15,578      $14,354
    Income Taxes (Net of Refunds) . . . . . . . . . .  $2,525         $947

The accompanying notes to the financial statements are an integral part
of these statements.

                         SJG-7
</TABLE>
<PAGE>

                     SOUTH JERSEY GAS COMPANY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

          The Entity - The consolidated financial statements
     present the accounts of South Jersey Gas Company (the Company
     or SJG) and its wholly owned statutory trust subsidiary, SJG
     Capital Trust.  All intercompany accounts and transactions
     have been eliminated.  South Jersey Industries, Inc.
     (Industries) owns all of the outstanding common stock of SJG.
     Certain reclassifications have been made of previously
     reported amounts to conform with classifications used in the
     current year.  In the opinion of management, the financial
     statements reflect all adjustments necessary for a fair
     presentation of the financial position and operating results
     of the Company at the dates and for the periods presented.
     The business of the Company is subject to seasonal
     fluctuations and, accordingly, this interim financial
     information should not be considered a basis for estimating
     the results of operations for the full year.

          Estimates and Assumptions - The preparation of financial
     statements in conformity with generally accepted accounting
     principles requires management to make estimates and
     assumptions that affect the amounts reported in the financial
     statements and related disclosures.  Therefore, actual
     results could differ from those estimates.

          New Accounting Pronouncement - In February 1997, the
     Financial Accounting Standards Board issued FASB No. 128,
     "Earnings per Share", which is effective for financial
     statements for periods ending after December 15, 1997.  FASB
     No. 128 supersedes previous reporting requirements on
     Earnings per Share (EPS) and replaces the presentation of
     primary EPS with a presentation of basic EPS.  It also
     requires dual presentation of basic and diluted EPS on the
     face of the income statement for all entities with a complex
     capital structure.  The adoption of FASB No. 128 will have no
     impact on the EPS of the Company.

          In June 1997, the FASB issued FASB No. 130, "Reporting
     Comprehensive Income".  This statement, which establishes
     standards for reporting and disclosure of comprehensive
     income, is effective for interim and annual periods beginning
     after December 15, 1997.  The Company currently has no
     additional items qualifying as comprehensive income under
     FASB No. 130 and, therefore, its adoption is not expected to
     have any impact.

2.   RECENT REGULATORY ACTIONS:

          On January 27, 1997, the BPU granted SJG a rate increase
     of $6.0 million based on a 9.62% rate of return on rate base,
     which included an 11.25% return on equity.  Revenue
     requirements for ratemaking purposes are established on the
     basis of firm and interruptible sales projections.  The
     majority of this increase will come from residential and
     small commercial customers.  In addition, part of the

                               SJG-8
<PAGE>

                     SOUTH JERSEY GAS COMPANY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            (Continued)

2.   RECENT REGULATORY ACTIONS:  (Continued)

     increase will be recovered from customers through new service
     fees which charge specific customers for costs which they
     cause SJG to incur.  SJG is allowed to retain the first $5.4
     million of pre-tax margins generated by interruptible and
     off-system sales and transportation and 20% of pre-tax
     margins above that level.  In 1997 and 1998, this $5.4
     million threshold will be increased by the annual revenue
     requirement associated with specified major construction
     projects.  These sharing formula improvements are expected to
     result in additional rate relief of approximately $0.2
     million in 1997 and $1.8 million in 1998.

          In addition to the rate increase, the BPU approved a
     revenue reduction in SJG's Temperature Adjustment Clause
     (TAC), a mechanism designed to reduce the impact of extreme
     fluctuations in temperatures on SJG and its customers.  For
     the TAC period running from October 1, 1995 through May 31,
     1996, weather in SJG's service area was significantly colder
     than the 20-year average, resulting in a $2.5 million credit
     due to customers' bills which is reflected in the 1996
     results of operations.

          As part of the tariff changes approved, SJG initiated
     its BPU approved pilot program in April 1997 to give
     residential customers a choice of gas supplier.  During the
     enrollment period which ended June 30, 1997, approximately
     13,000 residential customers applied for this service.
     Transportation of gas for these customers began on August 1,
     1997 and will continue until July 31, 1998, or later if
     approved by the BPU.  Under the applicable rate schedule,
     amounts billed to participants in the program will be reduced
     for cost of gas charges and applicable gross receipts taxes.
     This decrease in revenues will be offset by a corresponding
     decrease in SJG's gas costs and taxes under SJG's BPU-
     approved fuel clause.  Accordingly, SJG believes that the
     program will not affect its net income, financial condition
     or margins.  In addition, because the program affects only 5%
     of SJG's residential customers, and not all of those
     customers may elect to purchase gas from other suppliers, SJG
     believes that any reduction in revenue will not be material.
     SJG further expanded the choices available to commercial and
     industrial customers.

          On May 5, 1997, SJG made a filing with the BPU to update
     rates related to appliance service charges, including therein
     a design profit margin.  The rates are competitive with other
     providers of such services in South Jersey and are designed
     to provide increased earnings and cash flows to SJG over the
     current cost-based appliance service charge system.  The
     filing is pending before the BPU.

                               SJG-9
<PAGE>

                     SOUTH JERSEY GAS COMPANY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            (Continued)

2.   RECENT REGULATORY ACTIONS:  (Continued)

          On May 13, 1997, SJG filed to recover additional post-
     retirement benefit costs of approximately $1.2 million
     annually.  This recovery is expected to begin in 1998.

          On July 31, 1997, SJG made a filing with the BPU
     requesting an increase in the level of its annual recoveries
     through the RAC of $1.5 million.  This increase primarily
     reflects costs incurred pursuant to agreements with the NJDEP
     for cleanup of such sites during the period of August 1996
     through July 1997.  The amount sought to be recovered during
     the 1997-1998 Recovery Year, $3.9 million, consists of the
     amortization of Remediation Costs incurred during the 1996-
     1997 Remediation Year of $0.9 million and the amortization of
     Remediation Costs incurred prior to the 1996-1997 Remediation
     Year of $3.2 million.  It also consists of a credit for
     carrying costs on Deferred Tax Benefits of $0.7 million and
     the addition of an underrecovery from the 1996-1997 Recovery
     Year of $0.5 million.

          On September 6, 1996, SJG made its annual LGAC and TAC
     filings with the BPU.  SJG proposed a decrease to the LGAC of
     $1.4 million.  In addition, a credit resulting from the TAC
     of $2.5 million was filed and, on January 27, 1997, the BPU
     approved a revenue reduction for this credit, as noted above.
     On September 12, 1997, SJG made its LGAC, TAC and DSM filings
     with the BPU for the period November 1997 through October
     1998.  In this filing, SJG requested an increase in the
     annual level of LGAC recovery of $4.4 million which is
     inclusive of the $1.4 million proposed decrease filed in
     1996.  It also requested that the 1996-1997 filing be
     resolved simultaneously with this case.  Both cases are still
     pending at the BPU.

          On September 9, 1997, SJG made a filing with the BPU to
     adjust rates by replacing the current State Gross Receipts
     and Franchise Tax components with a Sales and Use Tax, a
     Corporation Business Tax and a Transitional Energy Facilities
     Assessment.  The new rates are expected to become effective
     January 1, 1998 (See Note 8).

3.   RELATED PARTY TRANSACTIONS:

          SJG had contracted with R & T Group, Inc., a wholly
     owned subsidiary of Industries, for general utility
     construction and environmental remediation services costing
     approximately $ -0- and $1,763,100 for the three months ended
     and $1,901,000 and $4,363,900 for the nine months ended
     September 30, 1997 and 1996, respectively.  Amounts payable
     to R & T Group, Inc. relating to these services were $10,500
     and $1,318,900 at September 30, 1997 and 1996, respectively.

          SJG engages in sales of natural gas for resale pursuant
     to Section 284.402 of the Regulations of the Federal Energy

                              SJG-10
<PAGE>

                     SOUTH JERSEY GAS COMPANY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            (Continued)

3.   RELATED PARTY TRANSACTIONS:  (Continued)

     Regulatory Commission which included sales to South Jersey
     Energy Company (SJE) and South Jersey Fuel Company (SJF),
     affiliates by common ownership of Industries.  Sales to SJE
     approximated $73,500 for the three months ended and $258,200
     for the nine months ended September 30, 1996.  There have
     been no sales to SJE during the three and nine months ended
     September 30, 1997.  Sales to SJF approximated $ -0- and
     $684,300 for the nine months ended September 30, 1997 and
     1996, respectively.  There have been no sales to SJF during
     the three months ended September 30, 1997 and 1996.

4.   FINANCING ACTIVITIES:

          On March 21, 1997, SJG sold $35.0 million of its First
     Mortgage Bonds, 7.7% Series due 2027.

          On May 2, 1997, SJG's statutory trust subsidiary, SJG
     Capital Trust (Trust), established in the State of Delaware
     on March 24, 1997, sold $35.0 million of 8.35% SJG-obligated
     Mandatorily Redeemable Preferred Securities.  The Trust
     solely holds as an asset the 8.35% Deferrable Interest
     Subordinated Debentures issued by SJG which mature on April
     30, 2037, which is also the maturity date of the Preferred
     Securities.  The Debentures and Preferred Securities are
     redeemable at the option of SJG at a redemption price equal
     to 100% of the principal amount thereof at any time on or
     after April 30, 2002.

5.   RETAINED EARNINGS:

          SJG is restricted under its First Mortgage Indenture, as
     supplemented, as to the amount of cash dividends or other
     distributions that may be paid on its common stock.  SJG had
     retained earnings free of such restriction of approximately
     $49.4 million at September 30, 1997.

6.    COMMITMENTS AND CONTINGENCIES:

          Gas Supply Contracts - SJG, in the normal course of
     conducting business, has entered into long-term contracts for
     natural gas supplies, firm transportation, and firm gas
     storage service.  The earliest expiration of any of the gas
     supply contracts is 1999.  All of the transportation and
     storage service agreements between SJG and its interstate
     pipeline suppliers are provided under Federal Energy
     Regulatory Commission (FERC) approved tariffs.  SJG's
     cumulative obligation for demand charges paid to its
     suppliers for all of these services is approximately $4.5
     million per month which is recovered on a current basis
     through the LGAC.

                              SJG-11
<PAGE>

                     SOUTH JERSEY GAS COMPANY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            (Continued)

 6.   COMMITMENTS AND CONTINGENCIES:  (Continued)

          Pending Litigation - The Company is subject to claims
     which arise in the ordinary course of its business and other
     legal proceedings.  A group of Atlantic City casinos filed a
     petition with the BPU on January 16, 1996, alleging
     overcharges of over $10.0 million, including interest.
     Management believes that charges to the casinos were based on
     applicable tariffs and that the casinos were not qualified
     under less expensive rate schedules, as claimed.  Management
     believes that the ultimate impact of these actions will not
     materially affect SJG's financial position, results of
     operations or liquidity.

          Environmental Remediation Costs - SJG has incurred and
     recorded certain costs for environmental remediation of sites
     where SJG or predecessor companies operated gas manufacturing
     plants.  Manufactured gas operations were terminated at all
     SJG sites more than 30 years ago.

          Since the early 1980s, SJG has recorded environmental
     remediation costs of $86.1 million, of which $33.7 million
     has been expended as of September 30, 1997.  SJG, with the
     assistance of an outside consulting firm, estimates that
     total future expenditures to remediate the sites will range
     from $52.4 million to $165.6 million.  The lower end of this
     range has been recorded as a liability and is reflected on
     the balance sheet under the captions "Current Liabilities"
     and "Deferred Credits and Other Non-Current Liabilities".
     Recorded environmental remediation costs do not directly
     affect earnings because those costs are deferred and, when
     expended, recovered through rates over 7-year amortization
     periods as authorized by the BPU.  Amounts accrued for future
     expenditures have not been adjusted for future insurance
     recoveries, which management is pursuing.  SJG has received
     $4.2 million of insurance recoveries as of September 30,
     1997.  These proceeds were first used to offset legal fees
     incurred in connection with those recoveries and the excess
     was used to reduce the balance of deferred environmental
     remediation costs.  Recorded amounts include estimated costs
     to be incurred based on projected investigation and
     remediation work plans using existing technologies.  Actual
     expenditures could differ from the estimates due to the long-
     term nature of the projects and changing technology,
     government regulations and site specific requirements.

          As a result of the 7-year recovery mechanism, SJG does
     not expense environmental costs for former gas manufacturing
     sites when incurred and defers costs to be recovered.  SJG
     has two regulatory assets associated with environmental cost.
     The first regulatory asset is titled "Environmental
     Remediation Cost:  Expended -Net".  These expenditures
     represent actual cost incurred to remediate former gas
     manufacturing plant sites.  These costs meet the requirements
     of FASB No. 71, "Accounting for the Effects of Certain Types

                              SJG-12
<PAGE>

                     SOUTH JERSEY GAS COMPANY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            (Continued)

6.   COMMITMENTS AND CONTINGENCIES:  (Continued)

     of Regulation".  The BPU has allowed recovery of these
     expenditures through July 1995 and petitions to recover these
     costs through July 1997 are pending before the BPU.

          The other regulatory asset titled "Environmental
     Remediation Cost:  Liability for Future Expenditures" relates
     to estimated future expenditures determined under the
     guidance of FASB No. 5, "Accounting for Contingencies".  This
     amount, which relates to former manufactured gas plant sites
     has been recorded as a deferred debit with the corresponding
     amount reflected in Current Liabilities and Deferred Credits
     and Other Non-Current Liabilities, as appropriate.  The
     deferred debit is a regulatory asset under FASB No. 71
     because the BPU's intent, as evidenced by its current
     practice, is to provide recovery sufficient in amount to
     recover the deferred costs after they have been expended.

          SJG makes annual filings with the BPU to recover these
     costs in rates.  The BPU has consistently allowed the full
     recovery over such 7-year periods, and SJG believes the BPU
     will continue to do so.  As of September 30, 1997, SJG has
     unamortized remediation expenditures of $17.8 million which
     are reflected on the consolidated balance sheet under the
     caption "Deferred Debits".  Since BPU approval of the RAC
     mechanism in August 1992, SJG has recovered $11.7 million
     through rates as of September 30, 1997.

 7.  COMMON EQUITY:

          On March 26, 1997, SJG received $25.6 million as a
     contribution of capital from Industries.  Contributions of
     capital are credited to Other Paid-In Capital and Premium on
     Common Stock.

 8.  ENERGY TAX REFORM:

          On July 14, 1997, legislation reforming the taxation of
     energy in New Jersey was adopted.  The new law eliminates the
     Gross Receipts and Franchise Taxes (approximately 13 percent
     of utility revenue) and replaces it with a combination of
     taxes.  Beginning January 1, 1998, retail sales of natural
     gas and electricity and utility services will be subject to
     the 6 percent State Sales and Use Tax on gas sales and
     transportation revenues.  Utilities will also be subject to
     the 9 percent State Corporation Business Tax on net income.
     To bridge the revenue gap created by the new tax law, the
     State will impose a Transitional Energy Facilities Assessment
     (TEFA) on volumes of gas sold and transported.  The TEFA will
     be phased out over a five-year period beginning January 1,
     1999 and ending January 1, 2003.  It is expected that the
     revised tax policy will eliminate tax disparities between

                              SJG-13
<PAGE>

                     SOUTH JERSEY GAS COMPANY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            (Continued)

 8.  ENERGY TAX REFORM:  (Continued)

     utility and non-utility suppliers, thereby providing fair
     competition and lower energy costs for the consumer.  The
     adoption of the new legislation will not materially affect
     the Company's financial position or results of operations.

                              SJG-14
<PAGE>

                     SOUTH JERSEY GAS COMPANY

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

Overview

     SJG is a natural gas distribution company serving 257,600
customers at September 30, 1997, compared with 250,400 customers
at September 30, 1996.  Seasonal aspects affect SJG's reported
revenues, inventories, receivables, operating expenses and cash
flows, which are usually greater during the first and fourth
quarters of the year.

Competition

     SJG franchises are non-exclusive.  However, currently no other
utility is providing retail gas distribution services within its
territory.  SJG does not expect any other utilities to do so in the
foreseeable future because of the extensive investment required for
utility plant and related costs.  SJG competes with oil, propane and
electricity suppliers for residential, commercial and industrial
users.  The market for natural gas sales is subject to competition
as a result of deregulation.  SJG has enhanced its competitive
position while maintaining its margins through its initiative in
obtaining an unbundled tariff which isolates the variable cost of
the gas commodity component within SJG's rate structure.  Under this
tariff, substantially all of SJG's profits are derived from the
transportation rather than the sale of the commodity since SJG does
not generally add a profit mark-up to the cost of the commodity.
Therefore, SJG is able to offer its commercial and industrial
customers flexibility regarding choice of gas supply while SJG
continues to recover its cost of service and fixed gas costs while
providing and charging for transportation service.  In April 1997,
SJG initiated its BPU-approved pilot program to give certain of its
residential customers a choice of gas suppliers (See "Pilot Program
- Choice of Gas Supplier").  In all of these respects, SJG has been
a leader in addressing the changing marketplace while maintaining
its focus on being a low-cost provider of natural gas and energy
services.  It is the intent of the SJG to develop creative
initiatives and propose meaningful regulatory and tax reforms
designed to benefit its customers and shareholder.

Pilot Program - Choice of Gas Supplier

     In April 1997, SJG initiated its BPU approved pilot program
to give residential customers a choice of gas supplier.  During
the enrollment period which ended June 30, 1997, approximately
13,000 residential customers applied for this service.
Transportation of gas for these customers began on August 1, 1997
and will continue until July 31, 1998, or later if approved by the
BPU.  Under the applicable rate schedule, amounts billed to
participants in the program will be reduced for cost of gas
charges and applicable gross receipts taxes.  The resulting
decrease in revenues will be offset by a corresponding decrease in
SJG's gas costs and taxes under SJG's BPU-approved fuel clause.
Accordingly, SJG believes that the program will not affect its net

                              SJG-15
<PAGE>

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

Pilot Program - Choice of Gas Supplier (Continued)

income, financial condition or margins.  In addition, because the
program affects only 5% of SJG's residential customers, and not
all of those customers may elect to purchase gas from other
suppliers, SJG believes that any reduction in revenue will not be
material.

Energy Adjustment Clauses

     SJG's tariff includes a Levelized Gas Adjustment Clause
("LGAC"), a Temperature Adjustment Clause ("TAC"), a Remediation
Adjustment Clause ("RAC") and a Demand Side Management Clause
("DSMC").  Such clauses are designed to permit adjustments for
changes in gas supply costs, reduce the impact of extreme
fluctuations in temperatures on SJG and its customers, recover
costs incurred in the remediation of former gas manufacturing
plants and recover costs associated with its conservation plan,
respectively.  The BPU approved LGAC, RAC and DSMC adjustments do
not directly affect earnings because revenues are adjusted to
match costs.  The Company's base rates are designed based on
twenty-year normal temperatures.  When actual temperatures are
colder than the twenty-year average, the Company sells more gas
than was anticipated generating higher revenues and net income.
Conversely, when actual temperatures are warmer than normal, the
Company sells less gas and revenues and net income are lower than
projected.  The TAC dampens the effect of these peaks and valleys
(and thus moderates the effect of weather extremes on SJG's
revenues) by giving customers a credit against higher usage in
colder weather and giving SJG a surcharge on lower usage in warmer
weather.  TAC adjustments therefore affect revenue, income and
cash flows.

Results of Operations - Three and Nine Months Ended September 30,
1997 Compared to Three and Nine Months Ended September 30, 1996

Operating Revenues

     The following is a summary of changes in operating revenue
and throughput by major category for 1997 compared with 1996:

                              SJG-16
<PAGE>

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

Operating Revenues - Utility (Continued)

                                    Period Ended September 30,
                                  ------------------------------
                                  Three Months      Nine Months
                                  1997 vs. 1996    1997 vs. 1996
                                  -------------    -------------
Operating Revenues (Thousands):
  Firm
    Residential                       $    614         $   (262)
    Commercial                          (1,161)          (3,952)
    Industrial                            (240)          (1,347)
    Cogeneration & Electric
     Generation                         (4,159)         (10,958)
    Firm Transportation                    687            1,707
                                  ------------     ------------
      Total Firm                        (4,259)         (14,812)

  Interruptible                            478             (247)
  Interruptible Transportation             116              636
  Off-System                            11,563           10,650
  Capacity Release & Storage             1,903            4,462
  Other Revenues                           (71)             179
                                  ------------     ------------
      Total Operating Revenues        $  9,730         $    868
                                  ============     ============
Throughput (MMcf):
  Firm
    Residential                           (120)          (1,529)
    Commercial                            (201)          (1,145)
    Industrial                             (55)            (303)
    Cogeneration & Electric
     Generation                         (1,592)          (3,926)
    Firm Transportation                  1,960            5,503
                                  ------------     ------------
      Total Firm Throughput                 (8)          (1,400)

  Interruptible                            136              (75)
  Interruptible Transportation             306            1,479
  Off-System                             4,699            6,196
  Capacity Release & Storage             1,827           12,084
                                  ------------     ------------
      Total Throughput                   6,960           18,284
                                  ============     ============

     Firm revenues in 1997 were negatively impacted by the effects
of warmer temperatures, partially offset by the effect of
increases in rates for residential and commercial customers.
Increased off-system sales and increased revenues from capacity
release and storage programs benefitted each 1997 period.

                              SJG-17
<PAGE>

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

Gas Purchased for Resale

     Gas purchased for resale increased $9.1 million in the third
quarter of 1997 compared with the 1996 quarter, principally due to
increased off-system sales, partially offset by decreases in unit
sales to commercial, cogeneration and electric generation
customers.  Gas purchased for resale increased by $1.0 million for
the nine months ended September 30, 1997, compared with 1996,
principally due to increased off-system sales, partially offset by
lower firm sales.  Sources of gas supply include both contract and
open-market purchases.  SJG is responsible for securing and
maintaining its own gas supplies to serve its customers.

     SJG has entered into long-term contracts for natural gas
supplies, firm transportation, and firm gas storage service.  The
earliest expiration of any of these contracts is 1999.  All of the
transportation and storage service agreements between SJG and its
interstate pipeline suppliers are provided under tariffs approved
by the Federal Energy Regulatory Commission.  SJG's cumulative
obligation for demand charges for all of these services is
approximately $4.5 million per month which is recovered on a
current basis through its LGAC.

Operations

     A summary of net changes in operations for 1997 compared with
1996 is as follows (in thousands):

                                      Period Ended September 30,
                                    ------------------------------
                                    Three Months      Nine Months
                                    1997 vs. 1996    1997 vs. 1996
                                    -------------    -------------

     Other Production Expense          $    1           $  (24)
     Transmission                         (13)             (23)
     Distribution                         107              287
     Customer Accounts and Services       (29)            (376)
     Sales                                 29               81
     Administration and General           603              849
     Other                               (100)            (275)
                                       ------           ------
                                       $  598           $  519
                                       ======           ======

     Customer Accounts and Service costs decreased in both periods
principally due to a charge in 1996 to increase the Company's
reserve for uncollectible accounts and lower payroll costs.
Administrative and General costs increased in 1997 principally due
to increased payroll, employee benefit and regulatory costs,
partially offset by decreases in outside service costs.

                              SJG-18
<PAGE>

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

Other Operating Expenses

     A summary of principal changes in other expenses for 1997
compared with 1996 is as follows (in thousands):

                                      Period Ended September 30,
                                    ------------------------------
                                    Three Months      Nine Months
                                    1997 vs. 1996    1997 vs. 1996
                                    -------------    --------------

     Maintenance                       $  250           $  687
     Depreciation                         289              834
     Federal Income Taxes - Net            21              477
     Gross Receipts & Franchise
       and Other Taxes                   (277)          (2,610)

     The increase in maintenance expense is principally due to
increased utility production plant maintenance, which includes the
amortization of increased environmental remediation costs (such
increases are offset by revenue recovery under SJG's RAC).
Depreciation is higher in 1997 principally due to increased
investment in property, plant and equipment by SJG.  Federal
Income Tax changes reflect the impact of changes in pre-tax
income.  The changes in Gross Receipts & Franchise Taxes in 1997
are due to changes in volumes of gas sold, which are subject to
those taxes, in addition to lower tax rates applicable to certain
customer classes in 1997.

Interest and Other Charges

     Interest and other charges decreased by $540,000 and $884,000
in the 1997 three and nine month periods, respectively,
principally due to the effects of lower levels of short-term debt
outstanding, partially offset by the effect of increased long-term
interest due to increased levels of long-term debt outstanding.
Preferred Securities Dividend Requirements reflect the issuance of
$35.0 million of SJG obligated Mandatorily Redeemable Preferred
Securities in May 1997 (See Note 4 on page 10).  Short-term debt
levels were reduced in March 1997 by the use of proceeds resulting
from the sale of $35.0 million of first mortgage bonds; the
application of a $25.6 million equity infusion from SJG's parent
company; and, in May 1997, the application of net proceeds from
the sale of $35.0 million of 8.35% SJG obligated Mandatorily
Redeemable Preferred Securities (See "Capital Resources").

                              SJG-19
<PAGE>

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

Net Income Applicable to Common Stock

     A summary of changes in net income (in thousands) and
earnings per average common share is as follows:

                                      Period Ended September 30,
                                     -----------------------------
                                     Three Months     Nine Months
                                     1997 vs. 1996   1997 vs. 1996
                                     -------------   -------------

     Net Income                            $ (470)         $ (375)
                                     ============    ============

     Earnings per Common Share             $(0.20)         $(0.16)
                                     ============    ============

     The details affecting the decrease in net income and earnings
per share are discussed under the appropriate captions above.  The
decreases in net income and earnings per share in 1997 principally
reflect the negative effect of warmer temperatures on higher
margin firm sales, increased operating costs and preferred
securities dividend requirements, partially offset by the effect
of increased revenues resulting from increased residential rates,
increased off-system and capacity release and storage revenues and
lower short-term interest.

Liquidity

     The seasonal nature of gas operations, the timing of
construction and remediation expenditures and related permanent
financing, as well as mandated tax and sinking fund payment dates
require large short-term cash requirements.  These are generally
met by cash from operations and short-term lines of credit.  The
Company maintains short-term lines of credit with a number of
banks, aggregating $115.0 million of which $86.4 million was
available at September 30, 1997.  The credit lines are uncommitted
and unsecured with interest rates below the prime rate.

     The changes in cash flows from operating activities for the
nine months ended September 30, 1997, compared with the same
period in 1996, are as follows (in thousands):

                              SJG-20
<PAGE>

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

Liquidity (Continued)
                                               Nine Months Ended
                                                 September 30,
                                               -----------------
                                                 1997 vs. 1996
                                               -----------------
     Increases/(Decreases):
     Net Income                                   $   (375)
     Depreciation and Amortization                     155
     Revenues and Fuel Costs Deferred - Net          6,717
     Deferred and Non-Current Federal
      Income Taxes - Net                             1,037
     Environmental Remediation Costs-Net             1,033
     Accounts Receivable                            (5,611)
     Inventories                                     6,857
     Prepayments and Other Current Assets             (833)
     Prepaid Gross Receipts & Franchise Taxes         (115)
     Accts Payable and Other Accrued Liabilities    (6,199)
     Other - Net                                    (2,027)
                                                  --------
           Increase in Net Cash from Operating
            Activities                            $    639
                                                  ========

     Depreciation and Amortization are non-cash charges to income
and do not impact cash flow. Changes in depreciation cost reflect
the effect of additions and reductions to fixed assets.

     Increases in Revenues and Fuel Costs Deferred - Net reflect
the impact of overcollection of fuel costs or the recovery of
previously deferred fuel costs.  Decreases reflect the impact of
payments or credits to customers for amounts previously
overcollected or the undercollection of fuel costs resulting from
increases in natural gas costs.

     Increases in Deferred and Non-Current Federal Income Taxes
and Credits - Net represent the excess of taxes accrued over
amounts paid.  Decreases reflect the impact of taxes paid in
excess of amounts accrued.  Generally, deferred income taxes
related to deferred fuel costs will be paid in the next year.

     Changes in Environmental Remediation Costs - Net represent
the difference between amounts collected under the RAC and through
insurance recoveries and remediation expenditures.

     Changes in Accounts Receivable are generally weather and
price related.  Increases generate cash flows when collected in
subsequent periods.

     Changes in Inventory reflect the impact of seasonal
requirements, temperatures and price changes.

     Changes in Prepaid Gross Receipts & Franchise Taxes reflect the
impact of the excess of taxes paid over taxes accrued.  However,
there are significant timing differences in cash flows during the
year since SJG must pay the full year's tax on April 1 of each year

                               SJG-21
<PAGE>

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

Liquidity (Continued)

and amortize any prepaid tax over the remainder of the year, on the
basis of gas volumes sold.  SJG uses short-term borrowings to make
these tax payments and, accordingly, this results in a temporary
increase in the short-term debt level.  The carrying costs for these
timing differences are recognized in base utility rates.

     As stated in Note 8 on page 13, on January 1, 1998, the gross
receipts and franchise taxes are being replaced with a 6 percent
State Sales and Use Tax, a 9 percent State Corporation Business Tax
on net income and a Transitional Energy Facilities Assessment (TEFA)
on gas facilities.  TEFA will be phased out over five years
beginning January 1, 1999.  Approximately fifty percent of the new
taxes will be paid in monthly installments during the first six
months of the year and the principal portion of the remaining taxes
will be paid on June 25, 1998 and May 15 of each year thereafter.
In September 1997, SJG filed a petition with the BPU to reflect the
impact of this tax change in base rates.

     Changes in Accounts Payable and Other Accrued Liabilities
reflect the impact of timing differences between the accrual and
payment of costs.

Regulatory Matters

     On January 27, 1997, the BPU granted SJG a rate increase of
$6.0 million based on a 9.62 percent rate of return on rate base,
which included an 11.25 percent return on equity.  Revenue
requirements for ratemaking purposes are established on the basis
of firm and interruptible sales projections.  The majority of this
increase will come from residential and small commercial customers.
In addition, part of the increase will be recovered from customers
through new service fees which charge specific customers for costs
which they cause SJG to incur.  As part of this rate increase, SJG
is allowed to retain the first $5.4 million of pre-tax margins
generated by interruptible and off-system sales and transportation
and 20 percent of pre-tax margins above that level.  In 1997 and
1998, this $5.4 million threshold will be increased by the annual
revenue requirement associated with specified major construction
projects.  These sharing formula improvements are expected to
result in additional rate relief of approximately $0.2 million in
1997 and $1.8 million in 1998.

     Rates of return are calculated by weighting SJG's individual
capital cost rates by the proportion of each respective type of
capital.  This requires the selection of appropriate capital
structure ratios and a determination of the cost rate for each
capital component which are determined in each rate proceeding.

     In setting a rate of return, the BPU must provide a utility
and its investors with a return that is commensurate with the risk
to which the invested capital is exposed so that the utility has
access to the capital required to meet its public service
responsibility.

                              SJG-22
<PAGE>

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

Regulatory Matters (Continued)

     Also on January 27, 1997, the BPU approved SJG's request for a
$2.5 million revenue reduction through the TAC, which is the
standard BPU procedure used to credit customers with excess
revenues, previously collected from customers, which were in excess
of allowed revenues determined under the TAC (See "Energy Adjustment
Clauses").  This revenue reduction reflects the normal operation of
the TAC, as does the BPU's confirmation of the decrease.

     In April 1996, SJG received BPU approval to increase its
rates to recover approximately $8.0 million of increased natural
gas costs through the LGAC.  On August 31, 1996, SJG made its
1996-97 LGAC filing to reduce rates to reflect a decrease of $1.4
natural gas costs.  Updated projections of the 1996-97 LGAC year
results have been rolled into the 1997-98 LGAC year, which was filed
with the BPU on September 12, 1997.  The 1997-98 LGAC filing
requested an increase in rates to reflect an increase of $4.4
million in natural gas costs, inclusive of the $1.4 million
reduction related to the 1996-97 LGAC filing.  Both filings are
still pending at the BPU.

     The adoption of FASB No. 109, "Accounting for Income Taxes"
in 1993 primarily resulted in the creation of a regulatory asset
and a deferred income tax liability.  As a result of positions
taken in the 1994 rate case, the amortization of the asset is
being recovered through rates over an 18-year period which began
in December 1994.  Also, FASB No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions", adopted by SJG in
1993, requires an accrual basis of accounting for retiree benefit
payments during the years of employment.  SJG has elected to
recognize the unfunded transition obligation over a 20-year period
which began in 1993.  SJG had previously recovered these costs
through rates on a pay-as-you-go basis.  A December 1994 BPU order
provided for partial recovery of costs associated with FASB No.
106 and prescribes continued deferral of unrecovered costs.  SJG
was initially seeking recovery of this asset in its recently
completed rate proceeding; however, the BPU initiated a generic
proceeding to address the recovery of these costs by all utilities
in the State.  Phase I of the generic proceeding was completed in
January 1997 and SJG, in May 1997, has made a prescribed filing
with the BPU to recover additional postretirement benefit costs of
approximately $1.2 million annually, beginning in 1998.  Also,
beginning in 1995, an external trust was established towards
funding postretirement benefit costs for the purpose of
contributing costs recovered from ratepayers as authorized by the
BPU.  Rate recovery in excess of SJG's pay-as-you-go requirement
is contributed to the trust and provides no operating benefit to
SJG except to the extent that trust income would reduce future net
periodic cost.  Gross contributions to the trust amounted to $5.7
million as of September 30, 1997.  The balance of this regulatory
asset amounted to $5.9 million at September 30, 1997.

                              SJG-23
<PAGE>

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

Regulatory Matters (Continued)

     SJG has incurred and recorded certain costs for environmental
remediation of sites where SJG or predecessor companies operated
gas manufacturing plants.  Manufactured gas operations were
terminated at all SJG sites more than 30 years ago.

     Since the early 1980's, the Company has recorded environmental
remediation costs of $86.1 million, of which $33.7 million has been
expended as of September 30, 1997.  The major portion of the
recorded environmental remediation costs relate to the remediation
of SJG's former gas manufacturing sites.  SJG, with the assistance
of an outside consulting firm, estimates that total future
expenditures to remediate the sites will range from $52.4 million
to $165.6 million.  The lower end of this range has been recorded
as a liability and is reflected on the balance sheet under the
captions "Current Liabilities" and "Deferred Credits and Other
Non-Current Liabilities".  Recorded environmental remediation costs
of SJG do not directly affect earnings because those costs are
deferred and, when expended, recovered through rates over 7-year
amortization periods as authorized by the BPU.  Amounts accrued for
future expenditures have not been adjusted for future insurance
recoveries, which management is pursuing.  SJG has received $4.2
million of insurance recoveries as of September 30, 1997.  These
proceeds were first used to offset legal fees incurred in
connection with those recoveries and the excess was used to reduce
the balance of deferred environmental remediation costs. Recorded
amounts include estimated costs to be incurred based on projected
investigation and remediation work plans using existing
technologies. Actual expenditures could differ from the estimates
due to the long-term nature of the projects and changing
technology, government regulations and site specific requirements.

     As a result of the 7-year recovery mechanism, SJG does not
expense environmental costs for former gas manufacturing sites
when incurred and defers costs to be recovered.  SJG has two
regulatory assets associated with environmental cost.  The first
regulatory asset is titled "Environmental Remediation Cost:
Expended - Net".  These expenditures represent actual costs
incurred to remediate former gas manufacturing plant sites.  These
costs meet the requirements of FASB No. 71, "Accounting for the
Effects of Certain Types of Regulation".  The BPU has allowed
recovery of these expenditures through July 1995 and petitions to
recover these costs through July 1997 are pending before the BPU.

     The other regulatory asset titled "Environmental Remediation
Cost: Liability for Future Expenditures" relates to estimated
future expenditures determined under the guidance of FASB 5
"Accounting for Contingencies".  This amount, which relates to
former manufactured gas plant sites has been recorded as a
deferred debit with the corresponding amount reflected in Current
Liabilities and Deferred Credits and Other Non-Current
Liabilities, as appropriate.  The deferred debit is a regulatory
asset under FASB 71 because the BPU's intent, as evidenced by its
current practice, is to provide recovery sufficient in amount to
recover the deferred costs after they have been expended.

                              SJG-24
<PAGE>

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

Regulatory Matters (Continued)

     SJG makes annual filings with the BPU to recover expended
remediation costs in rates.  The BPU has consistently allowed the
full recovery over such seven-year periods, and SJG believes the
BPU will continue to do so.  As of September 30, 1997, SJG has
unamortized remediation expenditures of $17.8 million which are
reflected on the balance sheet under the caption "Deferred
Debits."  Since BPU approval of the RAC mechanism in August 1992,
SJG has recovered $11.7 million through rates as of
September 30, 1997.

     On May 5, 1997, SJG made a filing with the BPU to update rates
related to appliance service charges, including therein a design
profit margin.  The new rates are competitive with other providers
of such services in South Jersey and are designed to provide
increased earnings and cash flows to SJG over the current cost-based
appliance service charge system.  This filing is pending before the
BPU.

     On July 31, 1997, SJG made a filing with the BPU requesting
an increase in the level of its annual recoveries through the RAC
of $1.5 million.  This increase primarily reflects costs incurred
pursuant to agreements with the NJDEP for cleanup of such sites
during the period of August 1996 through July 1997.  The amount
sought to be recovered during the 1997-1998 Recovery Year, $3.9
million, consists of the amortization of Remediation Costs
incurred during the 1996-1997 Remediation Year of $0.9 million and
the amortization of Remediation Costs incurred prior to the
1996-1997 Remediation year of $3.2 million.  It also consists of a
credit for carrying costs on Deferred Tax Benefits of $0.7 million
and the addition of an underrecovery from the 1996-1997 Recovery
Year of $0.5 million.

     On September 9, 1997, SJG made a filing with the BPU to adjust
rates by replacing the current State Gross Receipts and Franchise
Tax components with a Sales and Use Tax, a Corporation Business Tax
and a Transitional Energy Facilities Assessment.  The new rates are
expected to become effective January 1, 1998 (See "Liquidity").

     SJG is subject to claims which arise in the ordinary course
of its business and other legal proceedings.  A group of Atlantic
City casinos filed a petition with the BPU on January 16, 1996
alleging overcharges of over $10.0 million, including interest.
Management believes that charges to the casinos were based on
applicable tariffs and that the casinos were not qualified under
less expensive rate schedules as claimed.  Management believes
that the ultimate impact of these actions will not materially
affect SJG's financial position or results of operations.

Capital Resources

     SJG has a continuing need for cash resources and capital,
primarily to invest in new and replacement facilities and
equipment for the remediation of former coal gas manufacturing
sites.  Total construction and remediation expenditures for 1997

                              SJG-25
<PAGE>

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

Capital Resources (Continued)

are estimated at $60.0 million, of which $40.1 million was
expended through September 30, 1997.  The costs for 1998 and 1999
are estimated at approximately $61.8 million and $58.6 million,
respectively.  These investments are expected to be funded from
several sources, which may include cash generated by operations,
temporary use of short-term debt, sale of first mortgage bonds and
capital leases.

     On March 21, 1997, SJG sold $35.0 million of its First
Mortgage Bonds, 7.7% Series due 2027.

     On March 26, 1997, SJG received a capital contribution of
$25.6 million from South Jersey Industries, Inc., SJG's parent
company.

     On May 2, 1997, SJG's Delaware statutory trust subsidiary,
SJG Capital Trust, sold $35.0 million of 8.35% SJG-obligated
Mandatorily Redeemable Preferred Securities.  The Trust solely
holds as an asset the 8.35% Deferrable Interest Subordinated
Debentures issued by SJG which mature on April 30, 2037.  The
Debentures and Preferred Securities are redeemable at the option
of SJG at a redemption price equal to 100% of the principal amount
thereof at any time on or after April 30, 2002.

     In January 1996, SJG redeemed a total of $5,258,000 of its
8-1/4% Series First Mortgage Bonds maturing in 1996 and 1998. In
April 1996, SJG redeemed the remaining balance of its 9.2% Series
First Mortgage Bonds due 1998 amounting to $2,667,000.

Inflation

     The ratemaking process provides that only the original cost
of utility plant is recoverable in revenues as depreciation.
Therefore, the excess cost of utility plant, stated in terms of
current cost over the original cost of utility plant, is not
presently recoverable.  While the ratemaking process gives no
recognition to the current cost of replacing utility plant, based
on past practices, SJG believes it will be allowed to earn on the
increased cost of its net investment as replacement of facilities
actually occurs.

Summary

     The company is confident it will have sufficient cash flow to
meet its operating, capital and dividend needs and is taking and
will take such actions necessary to employ its resources effectively.

                              SJG-26
<PAGE>



                  PART II  --  OTHER INFORMATION



Item l.   Legal Proceedings

          Information required by this Item is incorporated by
     reference to Part I, Item 1, Note 6, on pages 11 and 12,
     excluding the first paragraph of the Note, regarding
     contingencies, including pending litigation and the
     remediation and clean-up of certain sites which included
     manufactured gas operations.


Item 6.   Exhibits and Reports on Form 8-K

     b.   No reports on Form 8-K were filed during the quarter for
          which this report is filed.


                              SJG-27
<PAGE>



                            SIGNATURES




     Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.



                                   SOUTH JERSEY GAS COMPANY
                                        (Registrant)





Dated:  November 13, 1997    By:  /s/ William J. Smethurst, Jr.
                                   William J. Smethurst, Jr.
                                   Vice President & Treasurer





Dated:  November 13, 1997    By:  /s/ David A. Kindlick
                                   David A. Kindlick
                                   Vice President, Rates and
                                    Budgeting



                              SJG-28
<PAGE>



                     SOUTH JERSEY GAS COMPANY

                         Index to Exhibits



  Exhibit
  Number                             Description
  -------                            -----------

    27                Financial Data Schedule

                      (Submitted only in electronic format to the
                      Securities and Exchange Commission).



                              SJG-29