Page 1 of 26


              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 June 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 August 14, 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 26


<PAGE>


                 PART I  -  FINANCIAL INFORMATION


Item 1.  Financial Statements  --  See Pages 3 through 12









                               - 2 -
<PAGE>
<TABLE>
 
                 SOUTH JERSEY GAS COMPANY

 STATEMENTS OF CONSOLIDATED INCOME AND RETAINED EARNINGS
----------------------------------------------------------------------------------------
           (In Thousands Except for Share Data)
<CAPTION>
                                                                 Three Months Ended
                                                                       June 30,
                                                             ---------------------------
                                                                  1997           1996
----------------------------------------------------------------------------------------
<S>                                                          <C>            <C>
OPERATING REVENUES:
   Utility . . . . . . . . . . . . . . . . . . . . . . . .   $    57,822    $    52,816
   Other . . . . . . . . . . . . . . . . . . . . . . . . .           521            770
                                                             ------------   ------------
      Total Operating Revenues . . . . . . . . . . . . . .        58,343         53,586
                                                             ------------   ------------
OPERATING EXPENSES:
   Gas Purchased for Resale. . . . . . . . . . . . . . . .        31,951         30,313
   Operation - Utility . . . . . . . . . . . . . . . . . .         9,471          9,652
             - Other . . . . . . . . . . . . . . . . . . .           500            586
   Maintenance . . . . . . . . . . . . . . . . . . . . . .         1,534          1,310
   Depreciation. . . . . . . . . . . . . . . . . . . . . .         3,967          3,681
   Federal Income Taxes. . . . . . . . . . . . . . . . . .          (390)        (1,236)
   Deferred and Non-current Federal Income Taxes . . . . .           975            574
   Investment Tax Credit Deferred - Net. . . . . . . . . .           (99)           (97)
   Gross Receipts and Franchise Taxes. . . . . . . . . . .         4,646          4,897
   Other Taxes . . . . . . . . . . . . . . . . . . . . . .           631            621
                                                             ------------   ------------
      Total Operating Expenses . . . . . . . . . . . . . .        53,186         50,301
                                                             ------------   ------------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . .         5,157          3,285

INTEREST CHARGES . . . . . . . . . . . . . . . . . . . . .         4,395          4,842
                                                             ------------   ------------
INCOME(LOSS) BEFORE PREFERRED DIVIDEND REQUIREMENTS. . . .           762         (1,557)
Preferred Stock Dividend Requirements. . . . . . . . . . .            43             44
Preferred Securities Dividend Requirements . . . . . . . .           471              0
                                                             ------------   ------------
NET INCOME(LOSS) APPLICABLE TO COMMON STOCK. . . . . . . .           248         (1,601)
RETAINED EARNINGS AT BEGINNING OF PERIOD . . . . . . . . .        62,821         60,492
                                                             ------------   ------------
      TOTAL. . . . . . . . . . . . . . . . . . . . . . . .        63,069         58,891
COMMON STOCK DIVIDENDS DECLARED. . . . . . . . . . . . . .         3,825          3,750
                                                             ------------   ------------
RETAINED EARNINGS AT END OF PERIOD . . . . . . . . . . . .   $    59,244    $    55,141
                                                             ============   ============
AVERAGE SHARES OF COMMON STOCK OUTSTANDING . . . . . . . .     2,339,139      2,339,139

EARNINGS (LOSS) PER COMMON SHARE . . . . . . . . . . . . .   $      0.11    $     (0.68)
                                                             ============   ============
DIVIDENDS PAID PER COMMON SHARE. . . . . . . . . . . . . .   $     1.635    $     1.603
                                                             ============   ============


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

                          - 3 -
<PAGE>

                 SOUTH JERSEY GAS COMPANY

 STATEMENTS OF CONSOLIDATED INCOME AND RETAINED EARNINGS
----------------------------------------------------------------------------------------
           (In Thousands Except for Share Data)
<CAPTION>
                                                                    Six Months Ended
                                                                       June 30,
                                                             ---------------------------
                                                                  1997           1996
----------------------------------------------------------------------------------------
<S>                                                          <C>            <C>
OPERATING REVENUES:
   Utility . . . . . . . . . . . . . . . . . . . . . . . .   $   183,888    $   192,330
   Other . . . . . . . . . . . . . . . . . . . . . . . . .         1,042          1,462
                                                             ------------   ------------
      Total Operating Revenues . . . . . . . . . . . . . .       184,930        193,792
                                                             ------------   ------------
OPERATING EXPENSES:
   Gas Purchased for Resale. . . . . . . . . . . . . . . .       101,821        109,929
   Operation - Utility . . . . . . . . . . . . . . . . . .        18,851         18,755
             - Other . . . . . . . . . . . . . . . . . . .           935          1,110
   Maintenance . . . . . . . . . . . . . . . . . . . . . .         3,001          2,564
   Depreciation. . . . . . . . . . . . . . . . . . . . . .         7,852          7,307
   Federal Income Taxes. . . . . . . . . . . . . . . . . .         7,288          7,486
   Deferred and Non-current Federal Income Taxes . . . . .         1,822          1,165
   Investment Tax Credit Deferred - Net. . . . . . . . . .          (198)          (195)
   Gross Receipts and Franchise Taxes. . . . . . . . . . .        17,025         19,370
   Other Taxes . . . . . . . . . . . . . . . . . . . . . .         1,384          1,372
                                                             ------------   ------------
      Total Operating Expenses . . . . . . . . . . . . . .       159,781        168,863
                                                             ------------   ------------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . .        25,149         24,929

INTEREST CHARGES . . . . . . . . . . . . . . . . . . . . .         9,220          9,564
                                                             ------------   ------------
INCOME BEFORE PREFERRED DIVIDEND REQUIREMENTS. . . . . . .        15,929         15,365
Preferred Stock Dividend Requirements. . . . . . . . . . .            86             88
Preferred Securities Dividend Requirements . . . . . . . .           471              0
                                                             ------------   ------------
NET INCOME APPLICABLE TO COMMON STOCK. . . . . . . . . . .        15,372         15,277
RETAINED EARNINGS AT BEGINNING OF PERIOD . . . . . . . . .        51,522         47,364
                                                             ------------   ------------
      TOTAL. . . . . . . . . . . . . . . . . . . . . . . .        66,894         62,641
COMMON STOCK DIVIDENDS DECLARED. . . . . . . . . . . . . .         7,650          7,500
                                                             ------------   ------------
RETAINED EARNINGS AT END OF PERIOD . . . . . . . . . . . .   $    59,244    $    55,141
                                                             ============   ============
AVERAGE SHARES OF COMMON STOCK OUTSTANDING . . . . . . . .     2,339,139      2,339,139

EARNINGS PER COMMON SHARE. . . . . . . . . . . . . . . . .   $      6.57    $      6.53
                                                             ============   ============
DIVIDENDS PAID PER COMMON SHARE. . . . . . . . . . . . . .   $     3.270    $     3.206
                                                             ============   ============


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


                          - 4 -
<PAGE>
 
                 SOUTH JERSEY GAS COMPANY

                CONSOLIDATED BALANCE SHEET
---------------------------------------------------------------------------------------------
                      (In Thousands)
<CAPTION>
                                                                   June 30,      December 31,
                                                            --------------------- -----------
                                                               1997       1996        1996
---------------------------------------------------------------------- ---------- -----------
<S>                                                         <C>        <C>        <C>
ASSETS
------
PROPERTY, PLANT AND EQUIPMENT:
   Utility Plant, at original cost . . . . . . . . . . . .  $ 598,301  $ 555,906  $  577,304
      Accumulated Depreciation . . . . . . . . . . . . . .   (163,267)  (151,536)   (157,682)
   Gas Plant Acquisition Adjustment - Net. . . . . . . . .      1,963      2,038       2,000
                                                            ---------- ---------- -----------
          Property, Plant and Equipment - Net. . . . . . .    436,997    406,408     421,622
                                                            ---------- ---------- -----------
CURRENT ASSETS:
   Cash & Cash Equivalents . . . . . . . . . . . . . . . .      3,274      1,192       7,469
   Accounts Receivable:
      Customers. . . . . . . . . . . . . . . . . . . . . .     27,571     29,454      28,733
      Unbilled Revenues. . . . . . . . . . . . . . . . . .      3,552      3,629      17,855
      Merchandise. . . . . . . . . . . . . . . . . . . . .      1,854      2,184       2,260
      Other. . . . . . . . . . . . . . . . . . . . . . . .        715      4,083         508
      Provision for Uncollectibles . . . . . . . . . . . .     (1,032)    (1,032)     (1,032)
   Natural Gas in Storage, average cost. . . . . . . . . .     15,038     11,581      22,638
   Materials and Supplies, average cost. . . . . . . . . .      4,046      3,903       4,055
   Prepaid Gross Recpts and Franchise Taxes. . . . . . . .     10,980     13,217       1,602
   Prepayments and Other . . . . . . . . . . . . . . . . .      1,995      2,707       1,562
                                                            ---------- ---------- -----------
          Total Current Assets . . . . . . . . . . . . . .     67,993     70,918      85,650
                                                            ---------- ---------- -----------
ACCOUNTS RECEIVABLE - Merchandise. . . . . . . . . . . . .      1,852      2,296       1,999
                                                            ---------- ---------- -----------
DEFERRED DEBITS:
   Environmental Remediation Costs:
     Expended - Net. . . . . . . . . . . . . . . . . . . .     17,060     13,516      15,566
     Liability for Future Expenditures . . . . . . . . . .     52,400     23,099      41,700
   Gross Receipts and Franchise Taxes. . . . . . . . . . .      4,250      4,668       4,468
   Income Taxes - Flowthrough Depreciation . . . . . . . .     14,488     15,466      14,977
   Deferred Postretirement Benefit Costs . . . . . . . . .      5,705      5,000       5,153
   Deferred Fuel Costs . . . . . . . . . . . . . . . . . .          0          0         404
   Other . . . . . . . . . . . . . . . . . . . . . . . . .      7,839      7,681       8,387
                                                            ---------- ---------- -----------
          Total Deferred Debits. . . . . . . . . . . . . .    101,742     69,430      90,655
                                                            ---------- ---------- -----------
               TOTAL . . . . . . . . . . . . . . . . . . .  $ 608,584  $ 549,052  $  599,926
                                                            ========== ========== ===========

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

                           - 5 -

<PAGE>

                 SOUTH JERSEY GAS COMPANY

                CONSOLIDATED BALANCE SHEET
---------------------------------------------------------------------------------------------
                      (In Thousands)
<CAPTION>
                                                                   June 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 . . . . . . . . . . . . . . . . . . .     59,244     55,141      51,522
                                                            ---------- ---------- -----------
          Total Common Equity. . . . . . . . . . . . . . .    167,909    138,183     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 . . . . . . . . . . . . . . . . . . . . . .    178,002    151,879     149,736
                                                            ---------- ---------- -----------
CURRENT LIABILITIES:
   Notes Payable to Banks. . . . . . . . . . . . . . . . .     14,500     89,200     108,300
   Current Maturities of Long-Term Debt. . . . . . . . . .      8,876      6,603       6,603
   Accounts Payable. . . . . . . . . . . . . . . . . . . .     27,016     23,469      48,347
   Customer Deposits . . . . . . . . . . . . . . . . . . .      5,918      5,545       6,050
   Environmental Remediation Costs . . . . . . . . . . . .      7,735      6,996       9,377
   Interest and Other Accrued Current Liabilities. . . . .      8,927     11,697       2,161
                                                            ---------- ---------- -----------
          Total Current Liabilities. . . . . . . . . . . .     72,972    143,510     180,838
                                                            ---------- ---------- -----------
DEFERRED CREDITS AND OTHER NON-CURRENT LIABILITIES:
   Deferred Income Taxes - Net . . . . . . . . . . . . . .     79,596     69,259      78,415
   Investment Tax Credits. . . . . . . . . . . . . . . . .      5,827      6,222       6,025
   Deferred Revenues . . . . . . . . . . . . . . . . . . .      6,125      6,636           0
   Pension and Other Postretirement Benefits . . . . . . .     10,190      8,982       9,551
   Environmental Remediation Costs . . . . . . . . . . . .     44,665     16,103      32,323
   Other . . . . . . . . . . . . . . . . . . . . . . . . .      6,074      5,964       6,160
                                                            ---------- ---------- -----------
          Total Deferred Credits and
            Other Non-Current Liabilities. . . . . . . . .    152,477    113,166     132,474
                                                            ---------- ---------- -----------
COMMITMENTS AND CONTINGENCIES

               TOTAL . . . . . . . . . . . . . . . . . . .  $ 608,584  $ 549,052  $  599,926
                                                            ========== ========== ===========

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

                           - 6 -
<PAGE>
 
                SOUTH JERSEY GAS COMPANY

         STATEMENTS OF CONSOLIDATED CASH FLOWS
------------------------------------------------------------------------------------
                     (In Thousands)
<CAPTION>
                                                                Six Months Ended
                                                                     June 30,
                                                              ----------------------
                                                                 1997         1996
                                                              ---------    ---------
<S>                                                           <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income Applicable to Common Stock . . . . . . . . . .     $ 15,372     $ 15,277

Adjustments to Reconcile Net Income to Cash Flows
 Provided by Operating Activities:
  Depreciation and Amortization . . . . . . . . . . . . .        8,803        8,751
  Provision for Losses on Accounts Receivable . . . . . .          417          653
  Revenues and Fuel Costs Deferred - Net. . . . . . . . .        6,529         (679)
  Deferred and Non-Current Federal Income Taxes
   and Credits - Net. . . . . . . . . . . . . . . . . . .        1,624          970
  Environmental Remediation Costs - Net . . . . . . . . .       (1,494)      (1,743)
  Changes in:
    Accounts Receivable . . . . . . . . . . . . . . . . .       15,247       13,908
    Inventories . . . . . . . . . . . . . . . . . . . . .        7,609        3,121
    Prepayments and Other Current Assets. . . . . . . . .         (433)        (695)
    Accounts Payable and Other Accrued Liabilities. . . .      (14,697)      (9,862)
    Prepaid Gross Receipts and Franchise Taxes. . . . . .       (9,378)      (9,568)
  Other - Net . . . . . . . . . . . . . . . . . . . . . .          159          949
                                                              ---------    ---------
Net Cash Provided by Operating Activities . . . . . . . .       29,758       21,082
                                                              ---------    ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures, Cost of Removal & Salvage . . . . .      (23,575)     (17,280)
                                                              ---------    ---------
Net Cash Used in Investing Activities . . . . . . . . . .      (23,575)     (17,280)
                                                              ---------    ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (Repayments of) Borrowings from Lines of Credit . . .      (93,800)      12,900
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 . . . . . . . . . . . . . . . .       (7,650)      (7,500)
                                                              ---------    ---------
Net Cash Used in Financing Activities . . . . . . . . . .      (10,378)      (4,803)
                                                              ---------    ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS . . . . . . . .       (4,195)      (1,001)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD. . . . .        7,469        2,193
                                                              ---------    ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD. . . . . . . .     $  3,274     $  1,192
                                                              =========    =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash paid during the period for:
    Interest (Net of Amounts Applicable to LGAC
     Overcollections and Amounts Capitalized) . . . . . .     $  9,423     $  9,450
    Income Taxes (Net of Refunds) . . . . . . . . . . . .     $  2,110     $    679

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

                         - 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.

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
     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.

                               - 8 -
<PAGE>

                     SOUTH JERSEY GAS COMPANY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   RECENT REGULATORY ACTIONS:  (Continued)

          These sharing formula improvements are expected to
     result in additional rate relief of approximately $.2 million
     in 1997 and $1.8 million in 1998.  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.

          In addition to the rate increase, the BPU approved a
     revenue reduction in SJG's Temperature Adjustment Clause, a
     mechanism designed to reduce the impact of extreme
     fluctuations in temperatures on SJG and its customers.  For
     the period ended 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 will
     initiate 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 June 30, 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.

3.   RELATED PARTY TRANSACTIONS:

          SJG has contracted with R & T Group, Inc., a wholly
     owned subsidiary of Industries, for general utility
     construction and environmental remediation services costing
     approximately $75,100 and $1,630,900 for the three months
     ended and $1,901,000 and $2,600,800 for the six months ended
     June 30, 1997 and 1996, respectively.  Amounts payable to
     R & T Group, Inc. relating to these services were $136,600
     and $999,000 at June 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
     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

                               - 9 -
<PAGE>

                     SOUTH JERSEY GAS COMPANY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            (Continued)

3.   RELATED PARTY TRANSACTIONS:  (Continued)

     approximated $ -0- and $184,700 for the six months ended June
     30, 1997 and 1996, respectively.  There were no sales to SJE
     during the three months ended June 30, 1997 and 1996.  Sales
     to SJF approximated $20,500 for the three months ended and
     $684,300 for the six months ended June 30, 1996.  There have
     been no sales to SJF during the three and six months ended
     June 30, 1997.

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, 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
     $57.3 million at June 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 1998.  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 $5.1
     million per month which is recovered on a current basis
     through the LGAC.

          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

                              - 10 -
<PAGE>

                     SOUTH JERSEY GAS COMPANY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            (Continued)

 6.   COMMITMENTS AND CONTINGENCIES:  (Continued)

     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 $84.6 million, of which $32.2 million
     has been expended as of June 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 June 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
     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.


                              - 11 -
<PAGE>

                     SOUTH JERSEY GAS COMPANY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            (Continued)

 6.   COMMITMENTS AND CONTINGENCIES:  (Continued)

          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 June 30, 1997, SJG has
     unamortized remediation expenditures of $17.1 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 $10.9 million
     through rates as of June 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.  SUBSEQUENT EVENTS:

          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.  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 gas and electric facilities.  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
     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.

                              - 12 -
<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 257,400
customers at June 30, 1997, compared with 250,700 customers at
June 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 June 30, 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
income, financial condition or margins.  In addition, because the

                              - 13 -
<PAGE>

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

Pilot Program - Choice of Gas Supplier (Continued)

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.
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 Six Months Ended June 30, 1997
Compared to Three and Six Months Ended June 30, 1996

Operating Revenues

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

                              - 14 -

<PAGE>

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

Operating Revenues - Utility (Continued)

                                       Period Ended June 30,
                                  ------------------------------
                                  Three Months      Six Months
                                  1997 vs. 1996    1997 vs. 1996
                                  -------------    -------------
Operating Revenues (Thousands):
  Firm
    Residential                       $  1,380         $   (877)
    Commercial                            (412)          (2,792)
    Industrial                            (573)          (1,107)
    Cogeneration & Electric
     Generation                         (3,509)          (6,799)
    Firm Transportation                    550            1,022
                                  ------------     ------------
      Total Firm                        (2,564)         (10,553)

  Interruptible                         (1,266)            (725)
  Interruptible Transportation             107              520
  Off-System                             7,492             (913)
  Capacity Release & Storage               856            2,559
  Other Revenues                           132              250
                                  ------------     ------------
      Total Operating Revenues        $  4,757         $ (8,862)
                                  ============     ============
Throughput (MMcf):
  Firm
    Residential                             11           (1,409)
    Commercial                             (94)            (943)
    Industrial                            (128)            (247)
    Cogeneration & Electric
     Generation                         (1,230)          (2,334)
    Firm Transportation                  1,972            3,541
                                  ------------     ------------
      Total Firm Throughput                531           (1,392)

  Interruptible                           (305)            (211)
  Interruptible Transportation             397            1,173
  Off-System                             3,093            1,497
  Capacity Release & Storage             3,195           10,258
                                  ------------     ------------
      Total Throughput                   6,911           11,325
                                  ============     ============

     Firm revenues in both 1997 periods were negatively impacted
by the effects of warmer temperatures, partially offset by
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.

                              - 15 -
<PAGE>

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

Gas Purchased for Resale

     Gas purchased for resale increased $1.6 million in the second
quarter of 1997 compared with the 1996 quarter, principally due to
increased off-system sales, partially offset by decreased
cogeneration and electric generation unit sales.  Gas purchased
for resale decreased by $8.1 million for the six months ended June
30, 1997, compared with 1996, principally due to 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 1998.  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 $5.1 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 June 30,
                                    ------------------------------
                                    Three Months      Six Months
                                    1997 vs. 1996    1997 vs. 1996
                                    -------------    -------------

     Other Production Expense          $   (6)          $  (25)
     Transmission                          (2)              (9)
     Distribution                         126              180
     Customer Accounts and Services      (367)            (347)
     Sales                                  1               51
     Administration and General            65              246
     Other                                (84)            (175)
                                       ------           ------
                                       $ (267)          $  (79)
                                       ======           ======

     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 salary costs.
Administrative and General costs increased in 1997 principally due
to increased salary and employee benefit costs, partially offset
by decreases in insurance and outside service costs.

                              - 16 -
<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 June 30,
                                    ------------------------------
                                    Three Months      Six Months
                                    1997 vs. 1996    1997 vs. 1996
                                    -------------    -------------

     Maintenance                       $  224           $  437
     Depreciation                         286              545
     Federal Income Taxes - Net         1,245              456
     Gross Receipts & Franchise
       and Other Taxes                   (241)          (2,333)

     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 an equal amount of 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 $447,000 and $344,000
in the 1997 three and six 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 the application of net proceeds from the sale of
$35.0 million of 8.35% SJG obligated Mandatorily Redeemable
Preferred Securities (See "Capital Resources").

Net Income Applicable to Common Stock

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



                              - 17 -
<PAGE>

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

Net Income Applicable to Common Stock (Continued)

                                          Period Ended June 30,
                                     -----------------------------
                                     Three Months     Six Months
                                     1997 vs. 1996   1997 vs. 1996
                                     -------------   -------------
     Net Income                            $1,849             $95
                                     ============    ============
     Earnings per Common Share              $0.79           $0.04
                                     ============    ============

     The details affecting the increase in net income and earnings
per share are discussed under the appropriate captions above.  The
increases in net income and earnings per share principally reflect
increased operating income in the 1997 periods resulting from
increased residential rates, and increased off-system and capacity
release and storage revenues.

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 $120.0 million of which $105.5 million was
available at June 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
six months ended June 30, 1997, compared with the same period in
1996, are as follows (in thousands):
                                               Six Months Ended
                                                   June 30,
                                               ----------------
                                                 1997 vs. 1996
                                               ----------------
     Increases/(Decreases):
     Net Income                                   $     95
     Depreciation and Amortization                      52
     Revenues and Fuel Costs Deferred - Net          7,208
     Deferred and Non-Current Federal
      Income Taxes - Net                               654
     Environmental Remediation Costs-Net               249
     Accounts Receivable                             1,339
     Inventories                                     4,488
     Prepayments and Other Current Assets              262
     Prepaid Gross Receipts & Franchise Taxes          190
     Accts Payable and Other Accrued Liabilities    (4,835)
     Other - Net                                    (1,026)
                                                  --------
           Increase in Net Cash Provided by
            Operating Activities                  $  8,676
                                                  ========

                              - 18 -
<PAGE>

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

Liquidity (Continued)

     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
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 12, 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 May 15 of each year.  SJG is required to file a petition with the
BPU, on or before September 14, 1997, to reflect the impact of this
tax change on base rates.

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

                                - 19 -
<PAGE>

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

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.

     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
million in natural gas costs, which is 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

                              - 20 -
<PAGE>

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

Regulatory Matters (Continued)

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.  Contributions to the trust amounted to $2.1
million in 1996.  The balance of this regulatory asset amounted to
$5.7 million at June 30, 1997.

     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 $84.6 million, of which $32.2
million has been expended as of June 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 June 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

                              - 21 -
<PAGE>

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

Regulatory Matters (Continued)

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 FAS 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 FAS 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 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 June 30, 1997, SJG has
unamortized remediation expenditures of $17.1 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 $10.9 million through rates as of June 30, 1997.

     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.

     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.

                              - 22 -
<PAGE>

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

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
are estimated at $58.5 million, of which $26.7 million was
expended through June 30, 1997.  The costs for 1998 and 1999 are
estimated at approximately $55.4 million and $61.6 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.

                              - 23 -
<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 10 through 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.





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<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:  August 14, 1997      By:  /s/ William J. Smethurst, Jr.
                                   William J. Smethurst, Jr.
                                   Vice President & Treasurer





Dated:  August 14, 1997      By:  /s/ George L. Baulig
                                   George L. Baulig
                                   Secretary



                              - 25 -
<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).




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