----

----

**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      DC 20549**

**FORM      10-Q**

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

**June      30, 2006**

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

**000-22211**

**SOUTH      JERSEY GAS COMPANY**

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

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

**(609)      561-9000**

----

----

**PART      I — FINANCIAL INFORMATION**

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

----

| **SOUTH                  JERSEY GAS COMPANY**                                                              |   |                                |    |   |   |
|------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|---------|--------|--------|
|                                                                                                       |   |                                |    |   |   |
| **STATEMENTS                  OF INCOME (UNAUDITED)**                                                      |   |                                |    |   |   |
| (In                  Thousands)                                                                            |   |                                |    |   |   |
|                                                                                                       |   |                                |    |   |   |
|                                                                                                       |   | Three                  Months Ended |    |
|                                                                                                       |   | June                  30,           |    |
|                                                                                                       |   | 2006                                |    | 2005   |   |
|                                                                                                       |   |                                |    |   |   |
|                                                                                                       |   |                                |    |   |   |
| **Operating                  Revenues**                                                                    |   | $                                   | 105,006 |   | $      | 86,083 |   |
|                                                                                                       |   |                                |    |   |   |   |   |
| **Operating                  Expenses:**                                                                   |   |                                |    |   |   |   |   |
|     Cost                  of                  Sales                                    |   |                                | 76,040  |   |   | 55,111 |   |
|     Operations                                                                         |   |                                | 10,520  |   |   | 11,939 |   |
|     Maintenance                                                                        |   |                                | 1,365   |   |   | 1,511 |   |
|     Depreciation                                                                       |   |                                | 5,848   |   |   | 5,437 |   |
|     Energy                  and Other Taxes                                            |   |                                | 1,673   |   |   | 1,952 |   |
|                                                                                                       |   |                                |    |   |   |   |   |
|         Total                  Operating Expenses                  |   |                                | 95,446  |   |   | 75,950 |   |
|                                                                                                       |   |                                |    |   |   |   |   |
| **Operating                  Income**                                                                      |   |                                | 9,560   |   |   | 10,133 |   |
|                                                                                                       |   |                                |    |   |   |   |   |
| **Other                  Income and Expense**                                                              |   |                                | 158     |   |   | (9 | ) |
|                                                                                                       |   |                                |    |   |   |   |   |
| **Interest                  Charges**                                                                      |   |                                | (5,181  | )      |   | (4,193 | ) |
|                                                                                                       |   |                                |    |   |   |   |   |
| **Income                  Before Income Taxes**                                                            |   |                                | 4,537   |   |   | 5,931 |   |
|                                                                                                       |   |                                |    |   |   |   |   |
| **Income                  Taxes**                                                                          |   |                                | (1,938  | )      |   | (2,577 | ) |
|                                                                                                       |   |                                |    |   |   |   |   |
| **Net                  Income**                                                                            |   | $                                   | 2,599   |   | $      | 3,354 |   |
|                                                                                                       |   |                                |    |   |   |   |   |
|                                                                                                       |   |                                |    |   |   |   |   |
| The                  accompanying notes are an integral part of the financial                  statements. |   |                                |    |   |   |   |   |
|                                                                                                       |   |                                |    |   |   |   |   |

----

|                                                                                                       |   |   |                              |   |   |    |   |
|------------------------------------------------------------------------------------------------------------|--------|--------|-----------------------------------|--------|--------|---------|--------|
|                                                                                                       |   |   |                              |   |   |    |   |
| **SOUTH                  JERSEY GAS COMPANY**                                                              |   |   |                              |   |   |    |   |
|                                                                                                       |   |   |                              |   |   |    |   |
| **STATEMENTS                  OF INCOME (UNAUDITED)**                                                      |   |   |                              |   |   |    |   |
| (In                  Thousands)                                                                            |   |   |                              |   |   |    |   |
|                                                                                                       |   |   |                              |   |   |    |   |
|                                                                                                            |   |   | Six                  Months Ended |   |
|                                                                                                            |   |   | June                  30,         |   |
|                                                                                                       |   |   | 2006                              |   |   | 2005    |   |
|                                                                                                       |   |   |                              |   |   |    |   |
|                                                                                                       |   |   |                              |   |   |    |   |
| **Operating                  Revenues**                                                                    |   | $      | 382,087                           |   | $      | 300,620 |   |
|                                                                                                       |   |   |                              |   |   |    |   |
| **Operating                  Expenses:**                                                                   |   |   |                              |   |   |    |   |
|     Cost                  of                  Sales                                    |   |   | 284,661                           |   |   | 199,455 |   |
|     Operations                                                                         |   |   | 24,351                            |   |   | 27,228  |   |
|     Maintenance                                                                        |   |   | 2,770                             |   |   | 3,004   |   |
|     Depreciation                                                                       |   |   | 11,606                            |   |   | 10,795  |   |
|     Energy                  and Other Taxes                                            |   |   | 5,959                             |   |   | 6,846   |   |
|                                                                                                       |   |   |                              |   |   |    |   |
|         Total                  Operating Expenses                  |   |   | 329,347                           |   |   | 247,328 |   |
|                                                                                                       |   |   |                              |   |   |    |   |
| **Operating                  Income**                                                                      |   |   | 52,740                            |   |   | 53,292  |   |
|                                                                                                       |   |   |                              |   |   |    |   |
| **Other                  Income and Expense**                                                              |   |   | 138                               |   |   | (38     | )      |
|                                                                                                       |   |   |                              |   |   |    |   |
| **Interest                  Charges**                                                                      |   |   | (10,333                           | )      |   | (8,633  | )      |
|                                                                                                       |   |   |                              |   |   |    |   |
| **Income                  Before Income Taxes**                                                            |   |   | 42,545                            |   |   | 44,621  |   |
|                                                                                                       |   |   |                              |   |   |    |   |
| **Income                  Taxes**                                                                          |   |   | (17,468                           | )      |   | (18,702 | )      |
|                                                                                                       |   |   |                              |   |   |    |   |
| **Net                  Income**                                                                            |   | $      | 25,077                            |   | $      | 25,919  |   |
|                                                                                                       |   |   |                              |   |   |    |   |
|                                                                                                       |   |   |                              |   |   |    |   |
|                                                                                                       |   |   |                              |   |   |    |   |
| The                  accompanying notes are an integral part of the financial                  statements. |   |   |                              |   |   |    |   |

----

| **SOUTH                JERSEY GAS COMPANY**                                                                   |   |                              |                            |   |   |
|---------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|---------------------------------|--------|--------|
|                                                                                                          |   |                              |                            |   |   |
| **STATEMENTS                OF COMPREHENSIVE INCOME (UNAUDITED)**                                             |   |                              |                            |   |   |
| (In                Thousands)                                                                                 |   |                              |                            |   |   |
|                                                                                                          |   |                              |                            |   |   |
|                                                                                                          |   | Three                Months Ended |                            |
|                                                                                                          |   | June                30,           |                            |
|                                                                                                          |   | 2006                              |                            | 2005   |   |
|                                                                                                          |   |                              |                            |   |   |
|                                                                                                          |   |                              |                            |   |   |
|                                                                                                          |   |                              |                            |   |   |
| **Net                Income**                                                                                 |   | $                                 | 2,599                           |   | $      | 3,354 |   |
|                                                                                                          |   |                              |                            |   |   |   |   |
| **Other                Comprehensive Income (Loss), Net of Tax:**                                             |   |                              |                            |   |   |   |   |
|                                                                                                          |   |                              |                            |   |   |   |   |
|     Change                in Fair Value of Investments                                    |   |                              | (67                             | )      |   | 121 |   |
|     Change                in Fair Value of Derivatives                                    |   |                              | 396                             |   |   | (615 | ) |
|                                                                                                          |   |                              |                            |   |   |   |   |
|         Other                Comprehensive Income (Loss) - Net of Tax |   |                              | 329                             |   |   | (494 | ) |
|                                                                                                          |   |                              |                            |   |   |   |   |
| **Comprehensive                Income**                                                                       |   | $                                 | 2,928                           |   | $      | 2,860 |   |
|                                                                                                          |   |                              |                            |   |   |   |   |
|                                                                                                          |   |                              |                            |   |   |   |   |
|                                                                                                          |   |                              |                            |   |   |   |   |
|                                                                                                               |   |                              | Six                Months Ended |   |
|                                                                                                               |   |                              | June                30,         |   |
|                                                                                                          |   |                              | 2006                            |   |   | 2005 |   |
|                                                                                                          |   |                              |                            |   |   |   |   |
|                                                                                                          |   |                              |                            |   |   |   |   |
|                                                                                                          |   |                              |                            |   |   |   |   |
| **Net                Income**                                                                                 |   | $                                 | 25,077                          |   | $      | 25,919 |   |
|                                                                                                          |   |                              |                            |   |   |   |   |
| **Other                Comprehensive Income (Loss), Net of Tax:**                                             |   |                              |                            |   |   |   |   |
|                                                                                                          |   |                              |                            |   |   |   |   |
|     Change                in Fair Value of Investments                                    |   |                              | 90                              |   |   | 78 |   |
|     Change                in Fair Value of Derivatives                                    |   |                              | 953                             |   |   | (718 | ) |
|                                                                                                          |   |                              |                            |   |   |   |   |
|         Other                Comprehensive Income (Loss) - Net of Tax |   |                              | 1,043                           |   |   | (640 | ) |
|                                                                                                          |   |                              |                            |   |   |   |   |
| **Comprehensive                Income**                                                                       |   | $                                 | 26,120                          |   | $      | 25,279 |   |
|                                                                                                          |   |                              |                            |   |   |   |   |
|                                                                                                          |   |                              |                            |   |   |   |   |
|                                                                                                          |   |                              |                            |   |   |   |   |
| The                accompanying notes are an integral part of the financial                statements.        |   |                              |                            |   |   |   |   |

----

| **SOUTH                JERSEY GAS COMPANY**                                                                                                                        |   |                            |    |   |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|---------|--------|--------|
|                                                                                                                                                               |   |                            |    |   |   |
| **STATEMENTS                OF CASH FLOWS (UNAUDITED)**                                                                                                            |   |                            |    |   |   |
| (In                Thousands)                                                                                                                                      |   |                            |    |   |   |
|                                                                                                                                                               |   |                            |    |   |   |
|                                                                                                                                                               |   | Six                Months Ended |    |
|                                                                                                                                                               |   | June                30,         |    |
|                                                                                                                                                               |   | 2006                            |    | 2005   |   |
|                                                                                                                                                               |   |                            |    |   |   |
| **Cash                Flows from Operating Activities:**                                                                                                           |   |                            |    |   |   |   |   |
|     Net                Income                                                                                                                  |   | $                               | 25,077  |   | $      | 25,919 |   |
|     Adjustments                to                Reconcile Net Income to Net Cash                                                              |   |                            |    |   |   |   |   |
|         Provided                by                Operating Activities:                                                    |   |                            |    |   |   |   |   |
|                           Depreciation and Amortization                                                          |   |                            | 12,524  |   |   | 12,238 |   |
|                           Provision for Losses on Accounts Receivable                                            |   |                            | 251     |   |   | 838 |   |
|                           Revenues and Fuel Costs Deferred - Net                                                 |   |                            | 5,204   |   |   | (4,943 | ) |
|                           Deferred and Noncurrent Income Taxes and Credits - Net                                 |   |                            | (2,012  | )      |   | 5,526 |   |
|                           Environmental Remediation Costs - Net                                                  |   |                            | (3,510  | )      |   | (797 | ) |
|                           Gas Plant Cost of Removal                                                              |   |                            | (670    | )      |   | (443 | ) |
|                           Changes in:                                                                            |   |                            |    |   |   |   |   |
|             Accounts                Receivable                                                         |   |                            | 29,414  |   |   | 16,512 |   |
|             Inventories                                                                                |   |                            | 22,053  |   |   | 16,049 |   |
|             Other                Prepayments and Current Assets                                        |   |                            | (550    | )      |   | (1,678 | ) |
|             Prepaid                and Accrued Taxes - Net                                             |   |                            | (4,234  | )      |   | (2,233 | ) |
|             Accounts                Payable and Other Accrued Liabilities                              |   |                            | (54,542 | )      |   | (6,673 | ) |
|             Other                Assets                                                                |   |                            | 806     |   |   | 5,808 |   |
|             Other                Liabilities                                                           |   |                            | 208     |   |   | (1,586 | ) |
|                                                                                                                                                               |   |                            |    |   |   |   |   |
|                 Net                Cash Provided by Operating Activities           |   |                            | 30,019  |   |   | 64,537 |   |
|                                                                                                                                                               |   |                            |    |   |   |   |   |
| **Cash                Flows from Investing Activities:**                                                                                                           |   |                            |    |   |   |   |   |
|     Capital                Expenditures                                                                                                        |   |                            | (34,062 | )      |   | (29,512 | ) |
|     Purchase                of                Restricted Investments                                                                           |   |                            | (14,316 | )      |   | - |   |
|                                                                                                                                                               |   |                            |    |   |   |   |   |
|                 Net                Cash Used in Investing Activities               |   |                            | (48,378 | )      |   | (29,512 | ) |
|                                                                                                                                                               |   |                            |    |   |   |   |   |
| **Cash                Flows from Financing Activities:**                                                                                                           |   |                            |    |   |   |   |   |
|     Net                Borrowings from (Repayments of) Lines of Credit                                                                         |   |                            | 3,900   |   |   | (15,500 | ) |
|     Proceeds                from                Issuance of Long-Term Debt                                                                     |   |                            | 25,000  |   |   | - |   |
|     Principal                Repayments of Long-Term Debt                                                                                      |   |                            | (2,288  | )      |   | (12,773 | ) |
|     Redemption                of                Preferred Stock                                                                                |   |                            | -       |   |   | (1,690 | ) |
|     Dividends                on                Common Stock                                                                                    |   |                            | (4,975  | )      |   | (5,626 | ) |
|     Payments                for                Issuance of Long-Term Debt                                                                      |   |                            | (956    | )      |   | (100 | ) |
|     Premium                for Early Retirement of Debt                                                                                        |   |                            | -       |   |   | (184 | ) |
|                                                                                                                                                               |   |                            |    |   |   |   |   |
|                 Net                Cash Provided by (Used in) Financing Activities |   |                            | 20,681  |   |   | (35,873 | ) |
|                                                                                                                                                               |   |                            |    |   |   |   |   |
| **Net                Increase (Decrease) in Cash and Cash Equivalents**                                                                                            |   |                            | 2,322   |   |   | (848 | ) |
| **Cash                and Cash Equivalents at Beginning of Period**                                                                                                |   |                            | 2,551   |   |   | 3,310 |   |
|                                                                                                                                                               |   |                            |    |   |   |   |   |
| **Cash                and Cash Equivalents at End of Period**                                                                                                      |   |                            | 4,873   |   |   | 2,462 |   |
|                                                                                                                                                               |   |                            |    |   |   |   |   |
| **Supplemental                Disclosures of Noncash Investing Activities:**                                                                                       |   |                            |    |   |   |   |   |
|     Capital                property and equipment acquired on account but                                                                      |   |                            |    |   |   |   |   |
|                       not paid as of June 30                                                                                         |   | $                               | 4,178   |   | $      | 5,314 |   |
|                                                                                                                                                               |   |                            |    |   |   |   |   |
| The                accompanying notes are an integral part of the financial                statements.                                                             |   |                            |    |   |   |   |   |

----

| **SOUTH                  JERSEY GAS COMPANY**                                                                         |   |                      |      |                          |   |
|-----------------------------------------------------------------------------------------------------------------------|--------|---------------------------|-----------|-------------------------------|--------|
|                                                                                                                  |   |                      |      |                          |   |
| **BALANCE                  SHEETS**                                                                                   |   |                      |      |                          |   |
| (In                  Thousands)                                                                                       |   |                      |      |                          |   |
|                                                                                                                  |   | (Unaudited)               |      |                          |   |
|                                                                                                                  |   | June                  30, |      | December                  31, |   |
|                                                                                                                  |   | 2006                      |      | 2005                          |   |
| **Assets**                                                                                                            |   |                      |      |                          |   |
|                                                                                                                  |   |                      |      |                          |   |
| **Property,                  Plant and Equipment:**                                                                   |   |                      |      |                          |   |   |   |
|     Utility                  Plant, at original cost                                              |   | $                         | 1,055,207 |                          | $      | 1,030,029 |   |
|                        Accumulated Depreciation                                              |   |                      | (248,236  | )                             |   | (241,242 | ) |
|                                                                                                                  |   |                      |      |                          |   |   |   |
|         Property,                  Plant                  and Equipment - Net |   |                      | 806,971   |                          |   | 788,787 |   |
|                                                                                                                  |   |                      |      |                          |   |   |   |
| **Investments:**                                                                                                      |   |                      |      |                          |   |   |   |
|     Available-for-Sale                  Securities                                                |   |                      | 5,803     |                          |   | 5,628 |   |
|     Restricted                  Investments                                                       |   |                      | 14,316    |                          |   | - |   |
|                                                                                                                  |   |                      |      |                          |   |   |   |
|         Total                  Investments                                    |   |                      | 20,119    |                          |   | 5,628 |   |
|                                                                                                                  |   |                      |      |                          |   |   |   |
| **Current                  Assets:**                                                                                  |   |                      |      |                          |   |   |   |
|     Cash                  and Cash Equivalents                                                    |   |                      | 4,873     |                          |   | 2,551 |   |
|     Accounts                  Receivable                                                          |   |                      | 55,115    |                          |   | 42,043 |   |
|     Accounts                  Receivable - Related Parties                                        |   |                      | 16,003    |                          |   | 3,186 |   |
|     Unbilled                  Revenues                                                            |   |                      | 10,599    |                          |   | 53,648 |   |
|     Provision                  for                  Uncollectibles                                |   |                      | (2,902    | )                             |   | (3,461 | ) |
|     Natural                  Gas in Storage, average cost                                         |   |                      | 69,767    |                          |   | 89,957 |   |
|     Materials                  and                  Supplies, average cost                        |   |                      | 2,003     |                          |   | 3,866 |   |
|     Prepaid                  Taxes                                                                |   |                      | 17,553    |                          |   | 12,972 |   |
|     Derivatives                  -                  Energy Related Assets                         |   |                      | 2,999     |                          |   | 6,496 |   |
|     Other                  Prepayments and Current Assets                                         |   |                      | 3,408     |                          |   | 2,858 |   |
|                                                                                                                  |   |                      |      |                          |   |   |   |
|         Total                  Current Assets                                 |   |                      | 179,418   |                          |   | 214,116 |   |
|                                                                                                                  |   |                      |      |                          |   |   |   |
| **Regulatory                  Assets:**                                                                               |   |                      |      |                          |   |   |   |
|     Environmental                  Remediation Costs:                                             |   |                      |      |                          |   |   |   |
|                         Expended - Net                                                  |   |                      | 12,860    |                          |   | 9,350 |   |
|                         Liability for Future Expenditures                               |   |                      | 52,863    |                          |   | 56,717 |   |
|     Income                  Taxes - Flowthrough Depreciation                                      |   |                      | 5,174     |                          |   | 5,663 |   |
|     Deferred                  Asset                  Retirement Obligation Costs                  |   |                      | 20,498    |                          |   | 19,986 |   |
|     Deferred                  Fuel                  Costs - Net                                   |   |                      | 18,562    |                          |   | 21,237 |   |
|     Deferred                  Postretirement Benefit Costs                                        |   |                      | 2,457     |                          |   | 2,646 |   |
|     Societal                  Benefit Costs                                                       |   |                      | 4,000     |                          |   | 2,691 |   |
|     Premium                  for Early Retirement of Debt                                         |   |                      | 1,613     |                          |   | 1,694 |   |
|     Other                  Regulatory Assets                                                      |   |                      | 1,356     |                          |   | 1,499 |   |
|                                                                                                                  |   |                      |      |                          |   |   |   |
|         Total                  Regulatory Assets                              |   |                      | 119,383   |                          |   | 121,483 |   |
|                                                                                                                  |   |                      |      |                          |   |   |   |
| **Other                  Noncurrent Assets:**                                                                         |   |                      |      |                          |   |   |   |
|     Unamortized                  Debt Issuance Costs                                              |   |                      | 6,980     |                          |   | 6,251 |   |
|     Prepaid                  Pension                                                              |   |                      | 23,861    |                          |   | 26,202 |   |
|     Accounts                  Receivable - Merchandise                                            |   |                      | 5,919     |                          |   | 6,472 |   |
|     Derivatives                  -                  Energy Related Assets                         |   |                      | 74        |                          |   | 271 |   |
|     Derivatives                  -                  Other                                         |   |                      | 1,282     |                          |   | - |   |
|     Other                                                                                         |   |                      | 1,885     |                          |   | 1,765 |   |
|                                                                                                                  |   |                      |      |                          |   |   |   |
|         Total                  Other Noncurrent Assets                        |   |                      | 40,001    |                          |   | 40,961 |   |
|                                                                                                                  |   |                      |      |                          |   |   |   |
|             Total                  Assets                 |   | $                         | 1,165,892 |                          | $      | 1,170,975 |   |
|                                                                                                                  |   |                      |      |                          |   |   |   |
| The                  accompanying notes are an integral part of the financial                  statements.            |   |                      |      |                          |   |   |   |
|                                                                                                                  |   |                      |      |                          |   |   |   |

----

|                                                                                                                          |   |   |                      |   |   |                          |   |
|-------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------------------------|--------|--------|-------------------------------|--------|
| **SOUTH                  JERSEY GAS COMPANY**                                                                                 |   |   |                      |   |   |                          |   |
|                                                                                                                          |   |   |                      |   |   |                          |   |
| **BALANCE                  SHEETS**                                                                                           |   |   |                      |   |   |                          |   |
| (In                  Thousands, except per share amounts)                                                                     |   |   |                      |   |   |                          |   |
| (Unaudited)                                                                                                                   |   |   |                      |   |   |                          |   |
|                                                                                                                               |   |   | June                  30, |   |   | December                  31, |   |
|                                                                                                                          |   |   | 2006                      |   |   | 2005                          |   |
|                                                                                                                          |   |   |                      |   |   |                          |   |
| **Capitalization                  and Liabilities**                                                                           |   |   |                      |   |   |                          |   |
|                                                                                                                          |   |   |                      |   |   |                          |   |
| **Common                  Equity:**                                                                                           |   |   |                      |   |   |                          |   |
|     Common                  Stock, Par Value $2.50 per share:                                             |   |   |                      |   |   |                          |   |
|                         Authorized - 4,000,000 shares                                           |   |   |                      |   |   |                          |   |
|                         Outstanding - 2,339,139 shares                                          |   | $      | 5,848                     |   | $      | 5,848                         |   |
|     Other                  Paid-In Capital and Premium on Common Stock                                    |   |   | 200,317                   |   |   | 200,317                       |   |
|     Accumulated                  Other Comprehensive Loss                                                 |   |   | (3,294                    | )      |   | (4,337                        | )      |
|     Retained                  Earnings                                                                    |   |   | 157,866                   |   |   | 142,740                       |   |
|                                                                                                                          |   |   |                      |   |   |                          |   |
|         Total                  Common Equity                                          |   |   | 360,737                   |   |   | 344,568                       |   |
|                                                                                                                          |   |   |                      |   |   |                          |   |
| **Long-Term                  Debt**                                                                                           |   |   | 294,950                   |   |   | 272,235                       |   |
|                                                                                                                          |   |   |                      |   |   |                          |   |
|         Total                  Capitalization                                         |   |   | 655,687                   |   |   | 616,803                       |   |
|                                                                                                                          |   |   |                      |   |   |                          |   |
| **Current                  Liabilities:**                                                                                     |   |   |                      |   |   |                          |   |
|     Notes                  Payable                                                                        |   |   | 90,900                    |   |   | 87,000                        |   |
|     Current                  Maturities of Long-Term Debt                                                 |   |   | 2,270                     |   |   | 2,273                         |   |
|     Accounts                  Payable - Commodity                                                         |   |   | 23,691                    |   |   | 83,957                        |   |
|     Accounts                  Payable - Other                                                             |   |   | 11,383                    |   |   | 17,236                        |   |
|     Accounts                  Payable - Related Parties                                                   |   |   | 10,366                    |   |   | 7,879                         |   |
|     Derivatives                  -                  Energy Related Liabilities                            |   |   | 18,293                    |   |   | 6,197                         |   |
|     Deferred                  Income                  Taxes - Net                                         |   |   | 3,045                     |   |   | 2,295                         |   |
|     Customer                  Deposits and Credit Balances                                                |   |   | 19,464                    |   |   | 12,145                        |   |
|     Environmental                  Remediation Costs                                                      |   |   | 24,140                    |   |   | 17,873                        |   |
|     Taxes                  Accrued                                                                        |   |   | 2,509                     |   |   | 2,162                         |   |
|     Dividends                  Payable                                                                    |   |   | 4,975                     |   |   | -                             |   |
|     Interest                  Accrued                                                                     |   |   | 5,961                     |   |   | 6,032                         |   |
|     Other                  Current Liabilities                                                            |   |   | 3,076                     |   |   | 6,045                         |   |
|                                                                                                                          |   |   |                      |   |   |                          |   |
|         Total                  Current Liabilities                                    |   |   | 220,073                   |   |   | 251,094                       |   |
|                                                                                                                          |   |   |                      |   |   |                          |   |
| **Deferred                  Credits and Other Noncurrent Liabilities:**                                                       |   |   |                      |   |   |                          |   |
|     Deferred                  Income                  Taxes - Net                                         |   |   | 160,065                   |   |   | 162,542                       |   |
|     Environmental                  Remediation Costs                                                      |   |   | 28,723                    |   |   | 38,844                        |   |
|     Regulatory                  Liabilities                                                               |   |   | 55,159                    |   |   | 54,002                        |   |
|     Asset                  Retirement Obligations                                                         |   |   | 23,140                    |   |   | 22,505                        |   |
|     Pension                  and Other Postretirement Benefits                                            |   |   | 15,249                    |   |   | 16,633                        |   |
|     Investment                  Tax                  Credits                                              |   |   | 2,633                     |   |   | 2,795                         |   |
|     Derivatives                  -                  Energy Related Liabilities                            |   |   | 1,154                     |   |   | 84                            |   |
|     Derivatives                  -                  Other                                                 |   |   | -                         |   |   | 306                           |   |
|     Other                                                                                                 |   |   | 4,009                     |   |   | 5,367                         |   |
|                                                                                                                          |   |   |                      |   |   |                          |   |
|         Total                  Deferred Credits and Other Noncurrent Liabilities      |   |   | 290,132                   |   |   | 303,078                       |   |
|                                                                                                                          |   |   |                      |   |   |                          |   |
|     Commitments                  and                  Contingencies (Note 9)                              |   |   |                      |   |   |                          |   |
|                                                                                                                          |   |   |                      |   |   |                          |   |
|             Total                  Capitalization and Liabilities |   | $      | 1,165,892                 |   | $      | 1,170,975                     |   |
|                                                                                                                          |   |   |                      |   |   |                          |   |
| The                  accompanying notes are an integral part of the financial                  statements.                    |   |   |                      |   |   |                          |   |

----

**NOTES      TO FINANCIAL STATEMENTS (UNAUDITED**
**)**

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

**The      Entity**

**Equity      Investments**

**Estimates      and Assumptions**

**Regulation**
** **

**Operating      Revenues**

----

**Accounts      Receivable and Provision for Uncollectible Accounts**

**Property,      Plant & Equipment**

**Depreciation**

**Capitalized      Interest**

|                            |   | June                30,2006 |   | June                30, 2005 |
|---------------------------------|--------|-----------------------------|--------|------------------------------|
|                            |   |                        |   |                         |   |   |
| Quarter                Ended    |   | $                           | 109    |                         | $ | 253 |
| Six                Months Ended |   |                        | 208    |                         |   | 543 |

**Impairment      of Long-Lived Assets**

**Derivative      Instruments**

----

**Stock-Based      Compensation Plans**

----

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

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

----

**New      Accounting Pronouncement**
** **

**Regulatory      Assets & Liabilities**

|                                                      |   |                           Years Remaining |                          |
|-----------------------------------------------------------|--------|----------------------------------------------------------------------------------------|-------------------------------|
| Regulatory                Asset                           |   |                          As of June 30, 2006   |                          |
|                                                      |   |                                                                                   |                          |
| Environmental                Remediation Costs:      |   |                                                                                   |                          |   |
| Expended                - Net                             |   |                                                                                   | Various                       |   |
| Liability                for Future Expenditures          |   |                                                                                   | Not                Applicable |   |
| Income                Taxes - Flowthrough Depreciation    |   |                                                                                   | 5                             |   |
| Deferred                Asset Retirement Obligation Costs |   |                                                                                   | Not                Applicable |   |
| Deferred                Fuel Costs - Net                  |   |                                                                                   | Various                       |   |
| Deferred                Postretirement Benefit Costs      |   |                                                                                   | 7                             |   |
| Societal                Benefit Costs                     |   |                                                                                   | Various                       |   |
| Premium                for Early Retirement of Debt       |   |                                                                                   | Various                       |   |

----

|                                        |   | June                30, 2006   |   |    |  December                31,2005 |    |   |
|---------------------------------------------|--------|------------------------------------------|--------|--------------|---------------------------------------|--------------|--------|
| Excess                Plant Removal Costs   |   | $                                        | 48,271 |         |                                  | $            | 48,071 |   |
| Overcollected                State Taxes    |   |                                     | 4,111  |         |                                  |         | 4,025  |   |
| Other                                       |   |                                     | 2,777  |         |                                  |         | 1,906  |   |
|                                        |   |                                     |        |         |                                  |         |   |   |
| Total                Regulatory Liabilities |   | $                                        | 55,159 |         |                                  | $            | 54,002 |   |

**Reclassifications**
** -      **

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

**Base      Rates**
**      - **

**Pending      Audits**

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

----

----

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

**SJI      Services, LLC (SJIS)**

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

|   | · | South                Jersey Energy Company (SJE)                -                a wholly owned subsidiary of SJI and a third party energy marketer                supplying natural gas to customers within our territory. We sell                natural                gas for resale to SJE and also provide them with billing services.                For                SJE’s residential customers, for which we perform billing services, we                purchase the related accounts receivable at book value less a factor                for                potential uncollectible accounts and assume all risk associated with                collection. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | South                Jersey Resources Group (SJRG)                -                a wholly owned subsidiary of SJI and a wholesale gas and risk management                business that supplies natural gas to retail marketers, utility businesses                and electricity generators in the mid-Atlantic and southern regions.                We                sell natural gas for resale and capacity release to SJRG and also                meet                some of our gas purchasing requirements by purchasing natural gas                from                SJRG. Additionally, SJRG manages our market risk associated with                price                fluctuations in the cost of natural gas, by entering into financial                derivative contracts on our behalf. The gain or loss associated with                these                derivative contracts is included in our BGSS and in the SJRG receivable                and payable amounts shown below. In addition to our normal gas purchases                and sales with SJRG, during the second quarter of 2006, we sold 1,710,903                decatherms of gas to SJRG for $13.1 million. This sale was conducted                in                compliance with all applicable regulatory requirements. The proceeds                from                the sale were credited to the BGSS clause and did not impact earnings                during the quarter. The amount due from SJRG for this transaction                is to be                paid to us during the third and fourth quarters of                2006. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Marina                Energy LLC (Marina)                -                a wholly owned subsidiary of SJI and an owner and operator of on-site                energy production facilities for the commercial and industrial markets.                We                provide natural gas transportation services to Marina under BPU approved                tariffs. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | South                Jersey Energy Service Plus (SJESP)                -                a wholly owned subsidiary of SJI and an appliance service and installation                of heating and cooling systems company. We lease vehicles and also                provide                billing services to SJESP. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

**Measurement      Solutions International**

----

|                                               |   | Three                MonthsEnded                June 30, |   | Six                MonthsEnded                June 30, |   |
|----------------------------------------------------|--------|----------------------------------------------------------|--------|--------------------------------------------------------|--------|
| *Sales                and Services Provided to:*   |   |                                                     |   |                                                   |   |   |   |
|                                               |   |                                                     | 2006   |                                                   |   | 2005 |   |   | 2006 |   |   | 2005 |   |
|                                               |   |                                                     |   |                                                   |   |   |   |   |   |   |   |   |   |
| SJIS                                               |   | $                                                        | 91     |                                                   | $      | - |   | $ | 181 |   | $ | - |   |
| SJI                                                |   |                                                     | 88     |                                                   |   | 172 |   |   | 634 |   |   | 739 |   |
| SJE                Solutions                       |   |                                                     | 27     |                                                   |   | - |   |   | 50 |   |   | 1 |   |
| SJE                                                |   |                                                     | 36     |                                                   |   | 194 |   |   | 91 |   |   | 396 |   |
| SJRG                                               |   |                                                     | 22,926 |                                                   |   | 1,303 |   |   | 29,991 |   |   | 3,622 |   |
| Marina                                             |   |                                                     | 46     |                                                   |   | 54 |   |   | 120 |   |   | 151 |   |
| SJESP                                              |   |                                                     | 89     |                                                   |   | 109 |   |   | 214 |   |   | 225 |   |
|                                               |   |                                                     |   |                                                   |   |   |   |   |   |   |   |   |   |
|                                               |   |                                                     |   |                                                   |   |   |   |   |   |   |   |   |   |
|                                               |   |                                                     |   |                                                   |   |   |   |   |   |   |   |   |   |
| *Sales                and Services Received from:* |   |                                                     |   |                                                   |   |   |   |   |   |
| SJRG                                               |   | $                                                        | 10,853 |                                                   | $      | 1,101 |   | $ | 29,027 |   | $ | 2,727 |   |
| SJI                                                |   |                                                     | 1,353  |                                                   |   | 2,527 |   |   | 4,679 |   |   | 3,428 |   |
| SJIS                                               |   |                                                     | 1,261  |                                                   |   | - |   |   | 2,719 |   |   | - |   |
| Millenium                                          |   |                                                     | 683    |                                                   |   | 668 |   |   | 1,356 |   |   | 1,296 |   |
|                                               |   |                                                     |   |                                                   |   |   |   |   |   |   |   |   |   |
|                                               |   |                                                     |   |                                                   |   |   |   |   |   |   |   |   |   |

|                                 |   | June                  30, |   | December                  31, |   |
|--------------------------------------|--------|---------------------------|--------|-------------------------------|--------|
|                                 |   | 2006                      |   | 2005                          |   |
| *Amounts                  due to:*   |   |                      |   |                          | $      | - |   |
| SJIS                                 |   | $                         | 562    |                          |   |   |   |
| SJI                                  |   |                      | 1,077  |                          |   | 1,470 |   |
| SJE                                  |   |                      | 2,429  |                          |   | 1,691 |   |
| SJRG                                 |   |                      | 4,528  |                          |   | 3,242 |   |
| SJESP                                |   |                      | 1,102  |                          |   | 993 |   |
| Millenium                            |   |                      | 231    |                          |   | 220 |   |
| MSI                                  |   |                      | 437    |                          |   | 263 |   |
|                                 |   | $                         | 10,366 |                          | $      | 7,879 |   |
|                                 |   |                      |   |                          |   |   |   |
| *Amounts                  due from:* |   |                      |   |                          |   |   |   |
| SJIS                                 |   | $                         | 172    |                          | $      | - |   |
| SJI                                  |   |                      | 138    |                          |   | 631 |   |
| SJE                  Solutions       |   |                      | 44     |                          |   | - |   |
| SJE                                  |   |                      | 20     |                          |   | 35 |   |
| SJRG                                 |   |                      | 15,371 |                          |   | 2,184 |   |
| SJESP                                |   |                      | 186    |                          |   | 242 |   |
| Marina                               |   |                      | 4      |                          |   | 20 |   |
| Millenium                            |   |                      | 68     |                          |   | 74 |   |
|                                 |   | $                         | 16,003 |                          | $      | 3,186 |   |

----

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

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

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

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

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

----

|                                          |   | Pension                Benefits                          |   |
|-----------------------------------------------|--------|----------------------------------------------------------|--------|
|                                          |   | Three                Months EndedJune                30, |   |   |   | Six                Months EndedJune                30, |   |
|                                          |   |                                                     |   |
|                                          |   | 2006                                                     |   | 2005 |   |   |   | 2006 |   | 2005 |   |
| Service                Cost                   |   | $                                                        | 471    |   | $ | 748 |   |   |   |   | $ | 1,149 |   | $ | 1,426 |   |
| Interest                Cost                  |   |                                                     | 1,524  |   |   | 1,517 |   |   |   |   |   | 2,940 |   |   | 2,933 |   |
| Expected                Return on Plan Assets |   |                                                     | (1,964 | ) |   | (1,944 | ) |   |   |   |   | (3,759 | ) |   | (3,739 | ) |
| Amortization                of Loss and Other |   |                                                     | 523    |   |   | 661 |   |   |   |   |   | 1,152 |   |   | 1,290 |   |
| Net                Periodic Benefit Cost      |   |                                                     | 554    |   |   | 982 |   |   |   |   |   | 1,482 |   |   | 1,910 |   |
| Capitalized                Benefit Costs      |   |                                                     | (238   | ) |   | (230 | ) |   |   |   |   | (637 | ) |   | (629 | ) |
| Net                Periodic Benefit Expense   |   | $                                                        | 316    |   | $ | 752 |   |   |   |   | $ | 845 |   | $ | 1,281 |   |
|                                          |   |                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

|                                          |   | Other                Postretirement Benefits             |   |
|-----------------------------------------------|--------|----------------------------------------------------------|--------|
|                                          |   | Three                Months EndedJune                30, |   |   |   | Six                Months EndedJune                30, |   |
|                                          |   |                                                     |   |
|                                          |   | 2006                                                     |   | 2005 |   |   |   | 2006 |   | 2005 |   |
| Service                Cost                   |   | $                                                        | 129    |   | $ | 19 |   |   |   |   | $ | 258 |   | $ | 366 |   |
| Interest                Cost                  |   |                                                     | 307    |   |   | 385 |   |   |   |   |   | 614 |   |   | 982 |   |
| Expected                Return on Plan Assets |   |                                                     | (228   | ) |   | (394 | ) |   |   |   |   | (456 | ) |   | (741 | ) |
| Amortization                of Loss and Other |   |                                                     | 20     |   |   | 71 |   |   |   |   |   | 40 |   |   | 104 |   |
| Net                Periodic Benefit Cost      |   |                                                     | 228    |   |   | 81 |   |   |   |   |   | 456 |   |   | 711 |   |
| Capitalized                Benefit Costs      |   |                                                     | (98    | ) |   | (28 | ) |   |   |   |   | (196 | ) |   | (249 | ) |
| Net                Periodic Benefit Expense   |   | $                                                        | 130    |   | $ | 53 |   |   |   |   | $ | 260 |   | $ | 462 |   |
|                                          |   |                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

**Future      Benefit Payments**

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

----

**Contributions**
**      -**

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

|                                                 |   |    |          | Up                to  |    | Years                    |   | Years                    |    | More                than |    |
|------------------------------------------------------|--------|---------|---------------|-----------------------|---------|--------------------------|--------|--------------------------|---------|--------------------------|---------|
| Contractual                Cash Obligations          |   | Total   |          | 1                Year |    | 2                & 3 |   | 4                & 5 |    | 5                Years   |    |
|                                                 |   |    |          |                  |    |                     |   |                     |    |                     |    |
| Long-Term              Debt                          |   |  $ | 297,220  |                  |  $ | 2,270               |   |  $                  | -  |                     |  $ | 10,000  |   |  $ | 284,950  |   |
| Interest                on Long-Term Debt            |   |    | 244,114       |                  |    | 17,191                   |   |                     | 34,003  |                     |    | 33,697 |   |   | 159,223 |   |
| Operating                Leases                      |   |    | 281           |                  |    | 91                       |   |                     | 149     |                     |    | 41 |   |   | - |   |
| Construction                Obligations              |   |    | 106,842       |                  |    | 37,013                   |   |                     | 69,829  |                     |    | - |   |   | - |   |
| Commodity                Supply Purchase Obligations |   |    | 223,610       |                  |    | 24,987                   |   |                     | 87,176  |                     |    | 45,231 |   |   | 66,216 |   |
| New                Jersey Clean Energy Program       |   |    | 16,770        |                  |    | 5,270                    |   |                     | 11,500  |                     |    | - |   |   | - |   |
| Other                Purchase Obligations            |   |    | 17,580        |                  |    | 8,487                    |   |                     | 8,193   |                     |    | 900 |   |   | - |   |
|                                                 |   |    |          |                  |    |                     |   |                     |    |                     |    |   |   |   |   |   |
| Total                Contractual                     |   |    |          |                  |    |                     |   |                     |    |                     |    |   |   |   |   |   |
| Cash                Obligations                      |   | $       | 906,417       |                  | $       | 95,309                   |   | $                        | 210,850 |                     | $       | 89,869 |   | $ | 510,389 |   |

**Gas      Supply Contracts**

**Pending      Litigation**

**Union      Contract - **

**Environmental      Remediation Costs**

----

|                                            |   | Six                  Months Ended |   | Year                  Ended        |   |
|-------------------------------------------------|--------|-----------------------------------|--------|------------------------------------|--------|
|                                            |   | June                  30, 2006    |   | December                  31, 2005 |   |
|                                            |   |                              |   |                               |   |
| Beginning                  Balance              |   | $                                 | 56,717 |                               | $      | 51,046 |   |
|  Accruals                  and Adjustments |   |                              | 1,359  |                               |   | 11,710 |   |
|  Expenditures                              |   |                              | (4,524 | )                                  |   | (6,039 | ) |
|  Insurance                  Recoveries     |   |                              | (689   | )                                  |   | - |   |
|                                            |   |                              |   |                               |   |   |   |
| Ending                  Balance                 |   | $                                 | 52,863 |                               | $      | 56,717 |   |

----

----

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

**and      Results of Operations (Unaudited**
**)**

**Overview**

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

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

**Forward-Looking      Statement & Risk Factors**

**Critical      Accounting Policies**

**Estimates      and Assumptions**

----

**New      Accounting Pronouncements - **

**Temperature      Adjustment Clause -**

**Regulatory      Actions - **

**Environmental      Remediation - **

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

**Results      of Operations**

----

|                                                  |   | Three                Months Ended |    | Six                Months Ended |   |
|-------------------------------------------------------|--------|-----------------------------------|---------|---------------------------------|--------|
|                                                  |   | June                30,           |    | June                30,         |   |
|                                                  |   | 2006                              |    | 2005                            |   | 2006 |   | 2005 |   |
| Operating                Revenues (thousands):        |   |                              |    |                            |   |   |   |   |   |   |   |   |   |
| Firm                Sales                             |   |                              |         |                            |   |   |   |   |   |   |   |   |   |
| Residential                                           |   | $                                 | 46,948  |                            | $      | 29,943 |   | $ | 213,384 |   | $ | 127,114 |   |
| Commercial                                            |   |                              | 12,844  |                            |   | 10,234 |   |   | 64,253 |   |   | 45,438 |   |
| Industrial                                            |   |                              | 948     |                            |   | 566 |   |   | 2,962 |   |   | 2,144 |   |
| Cogeneration                & Electric Generation |   |                              | 2,303   |                            |   | 3,813 |   |   | 3,360 |   |   | 5,139 |   |
| Firm                Transportation                    |   |                              |    |                            |   |   |   |   |   |   |   |   |   |
| Residential                                           |   |                              | 781     |                            |   | 5,440 |   |   | 2,143 |   |   | 20,926 |   |
| Commercial                                            |   |                              | 2,252   |                            |   | 2,514 |   |   | 6,473 |   |   | 8,421 |   |
| Industrial                                            |   |                              | 2,992   |                            |   | 3,245 |   |   | 6,262 |   |   | 6,564 |   |
| Cogeneration                & Electric Generation |   |                              | 11      |                            |   | 60 |   |   | 11 |   |   | 105 |   |
|                                                  |   |                              |    |                            |   |   |   |   |   |   |   |   |   |
| Total                Firm Revenues                    |   |                              | 69,079  |                            |   | 55,815 |   |   | 298,848 |   |   | 215,851 |   |
|                                                  |   |                              |    |                            |   |   |   |   |   |   |   |   |   |
| Interruptible                                         |   |                              | 370     |                            |   | 424 |   |   | 769 |   |   | 839 |   |
| Interruptible                Transportation           |   |                              | 358     |                            |   | 516 |   |   | 992 |   |   | 1,115 |   |
| Off-System                                            |   |                              | 33,101  |                            |   | 26,334 |   |   | 74,744 |   |   | 75,239 |   |
| Capacity                Release & Storage         |   |                              | 1,699   |                            |   | 2,414 |   |   | 6,001 |   |   | 6,606 |   |
| Other                                                 |   |                              | 399     |                            |   | 580 |   |   | 733 |   |   | 970 |   |
|                                                  |   |                              |    |                            |   |   |   |   |   |   |   |   |   |
| Total                Operating Revenues               |   | $                                 | 105,006 |                            | $      | 86,083 |   | $ | 382,087 |   | $ | 300,620 |   |

----

| Throughput                (MMcf):                     |   |   |   |   |   |   |   |   |   |
|-------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Firm                Sales -                           |   |   |   |   |   |   |   |   |   |
| Residential                                           |   |   | 2,439  |   |   | 2,287  |   |   | 12,213 |   |   | 10,591 |   |
| Commercial                                            |   |   | 903    |   |   | 907    |   |   | 4,182  |   |   | 4,260 |   |
| Industrial                                            |   |   | 28     |   |   | 26     |   |   | 128    |   |   | 126 |   |
| Cogeneration                & Electric Generation |   |   | 215    |   |   | 422    |   |   | 244    |   |   | 487 |   |
| Firm                Transportation -                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                           |   |   | 135    |   |   | 1,035  |   |   | 447    |   |   | 4,839 |   |
| Commercial                                            |   |   | 745    |   |   | 888    |   |   | 2,339  |   |   | 3,167 |   |
| Industrial                                            |   |   | 3,269  |   |   | 3,912  |   |   | 6,629  |   |   | 8,051 |   |
| Cogeneration                & Electric Generation |   |   | 10     |   |   | 85     |   |   | 12     |   |   | 96 |   |
|                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                Firm Throughput                  |   |   | 7,744  |   |   | 9,562  |   |   | 26,194 |   |   | 31,617 |   |
|                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interruptible                                         |   |   | 33     |   |   | 41     |   |   | 64     |   |   | 79 |   |
| Interruptible                Transportation           |   |   | 812    |   |   | 741    |   |   | 1,784  |   |   | 1,596 |   |
| Off-System                                            |   |   | 4,518  |   |   | 3,467  |   |   | 8,636  |   |   | 10,130 |   |
| Capacity                Release & Storage         |   |   | 16,090 |   |   | 21,150 |   |   | 31,195 |   |   | 38,504 |   |
|                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                Throughput                       |   |   | 29,197 |   |   | 34,961 |   |   | 67,873 |   |   | 81,926 |   |

|                                  |   | Three                MonthsEnded                June 30, |   | Six                Months Ended                June                30, |   |
|---------------------------------------|--------|----------------------------------------------------------|--------|------------------------------------------------------------------------|--------|
|                                  |   | 2006                vs. 2005                             |   | 2006                vs. 2005                                           |   |
|                                  |   |                                                     |   |                                                                   |   |
| Operations                            |   | $                                                        | (1,419 | )                                                                      | $      | (2,877 | ) |
| Maintenance                           |   |                                                     | (146   | )                                                                      |   | (234 | ) |
| Depreciation                          |   |                                                     | 411    |                                                                   |   | 811 |   |
| Energy                and Other Taxes |   |                                                     | (279   | )                                                                      |   | (888 | ) |

----

**Liquidity      and Capital Resources **

----

|                             |   | As                  of    |                                                                                 | As                  of        |   |
|----------------------------------|--------|---------------------------|--------------------------------------------------------------------------------------|-------------------------------|--------|
|                             |   | June                  30, |                                                                                 | December                  31, |   |
|                             |   |  2006                |                                                                                 |  2005                    |   |
|                             |   |                      |                                                                                 |                          |   |   |   |
| Common Equity               |   |                      | 48.3%                                                                                |                          |   | 49.0% |   |
| Long-Term                  Debt  |   |                      | 39.5%                                                                                |                               |   | 38.7% |   |
| Short-Term                  Debt |   |                      | 12.2%                                                                                |                               |   | 12.4% |   |
|                             |   |                      |                                                                                 |                          |   |   |   |
| Total                            |   |                      |                             100.0% |                          |   |            100.0% |   |

----

**Capital      Expenditures, Commitments and Contingencies **

|                                                 |   |   |    | Up                to  |   | Years                    |   | Years                    |    | More                than |   |
|------------------------------------------------------|--------|--------|---------|-----------------------|--------|--------------------------|--------|--------------------------|---------|--------------------------|--------|
| Contractual                Cash Obligations          |   | Total  |    | 1                Year |   | 2                & 3 |   | 4                & 5 |    | 5                Years   |   |
|                                                 |   |   |    |                  |   |                     |   |                     |    |                     |   |
| Long-Term                Debt                        |   | $      | 297,220 |                  | $      | 2,270                    |   | $                        | -       |                     | $      | 10,000 |   | $ | 284,950 |   |
| Interest                on Long-Term Debt            |   |   | 244,114 |                  |   | 17,191                   |   |                     | 34,003  |                     |   | 33,697 |   |   | 159,223 |   |
| Operating                Leases                      |   |   | 281     |                  |   | 91                       |   |                     | 149     |                     |   | 41 |   |   | - |   |
| Construction                Obligations              |   |   | 106,842 |                  |   | 37,013                   |   |                     | 69,829  |                     |   | - |   |   | - |   |
| Commodity                Supply Purchase Obligations |   |   | 223,610 |                  |   | 24,987                   |   |                     | 87,176  |                     |   | 45,231 |   |   | 66,216 |   |
| New                Jersey Clean Energy Program       |   |   | 16,770  |                  |   | 5,270                    |   |                     | 11,500  |                     |   | - |   |   | - |   |
| Other                Purchase Obligations            |   |   | 17,580  |                  |   | 8,487                    |   |                     | 8,193   |                     |   | 900 |   |   | - |   |
|                                                 |   |   |    |                  |   |                     |   |                     |    |                     |   |   |   |   |   |   |
| Total                Contractual                     |   |   |    |                  |   |                     |   |                     |    |                     |   |   |   |   |   |   |
| Cash                Obligations                      |   | $      | 906,417 |                  | $      | 95,309                   |   | $                        | 210,850 |                     | $      | 89,869 |   | $ | 510,389 |   |

----

**Ratio      of Earnings to Fixed Charges**

| Twelve                MonthsEnded                June 30, |   |  Year                Ended December 31, |
|-----------------------------------------------------------|--------|----------------------------------------------|
|                                                      |   |                                         |   |   |   |   |   |   |   |   |   |
| 2006                                                      |   | 2005                                         |   | 2004 |   | 2003 |   | 2002 |   | 2001 |   |
|                                                      |   |                                         |   |   |   |   |   |   |   |   |   |
| 3.7x                                                      |   | 4.0x                                         |   | 3.9x |   | 3.3x |   | 2.9x |   | 2.6x |   |

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

**Market      Risks**

| Assets                                |   |                                |                                | Maturity                  |   | Maturity                                  |   |         |                       |
|---------------------------------------|--------|-------------------------------------|-------------------------------------|---------------------------|--------|-------------------------------------------|--------|--------------|----------------------------|
|                                  |   | Source                of Fair Value |                                | <1                Year |   | 1                -                3 Years |   | Total        |                       |
|                                  |   |                           |                                |                 |   |                                 |   |    |                       |
| Prices                Actively Quoted |   |                                | NYMEX                               |                      | $      | 2,315                                     |   | $            | 74                         |   | $ | 2,389 |   |
| Other                External Sources |   |                                | Basis                               |                      |   | 684                                       |   |         | -                          |   |   | 684 |   |
|                                  |   |                                |                                     |                      |   |                                           |   |         |                            |   |   |  |   |
| Total                                 |   |                                |                                |                      | $      | 2,999                                     |   | $            | 74                         |   | $ | 3,073 |   |
|                                  |   |                                |                                |                      |   |                                      |   |         |                       |   |   |   |   |
| Liabilities                           |   |                                |                                |                      |   | Maturity                                  |   |         | Maturity                   |   |   |   |   |
|                                  |   |                                | Source                of Fair Value |                      |   | <1                Year                 |   |         | 1                - 3 Years |   |   | Total |   |
|                                  |   |                                |                                |                      |   |                                      |   |         |                       |   |   |   |   |
| Prices                Actively Quoted |   |                                | NYMEX                               |                      | $      | 17,817                                    |   | $            | 1,154                      |   | $ | 18,971 |   |
| Other                External Sources |   |                                | Basis                               |                      |   | 476                                       |   |         | -                          |   |   | 476 |   |
|                                  |   |                                |                                     |                      |   |                                           |   |         |                            |   |   |  |   |
| Total                                 |   |                                |                                |                      | $      | 18,293                                    |   | $            | 1,154                      |   | $ | 19,447 |   |

----

| Net                Derivatives — Energy Related Asset, January 1, 2006                     |   | $      | 486     |   |
|--------------------------------------------------------------------------------------------------|--------|--------|---------|--------|
| Contracts                Settled During The Six Months Ended June 30, 2006, Net                  |   |   | 13,898  |   |
| Other                Changes in Fair Value from Continuing and New Contracts,                Net |   |   | (33,831 | )      |
|                                                                                             |   |   |         |   |
| Net                Derivatives — Energy Related Liability, June 30, 2006                   |   | $      | (19,447 | )      |

**Item      4. Controls and Procedures**

----

**PART      II — OTHER INFORMATION**

**Item      l. Legal Proceedings**

**Item        1A. Risk Factors**

**               Non-routine or extraordinary disruptions to SJG’s natural gas distribution        system could significantly affect its results of operations and financial        position. **

**Item      6. Exhibits**

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

----

**SIGNATURES**

**SOUTH      JERSEY GAS COMPANY**

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

----