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**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      D. C. 20549**

**FORM      10-K**

**December      31, 2006**

**000-22211**

**SOUTH      JERSEY GAS COMPANY**

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

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

**(609)      561-9000**

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**Forward-Looking      Statement - **

**Available      Information - **

**PART      I**

**Item      1. Business**

**Units      of Measurement**

|   | For                Natural Gas: |                                    |
|--------|---------------------------------|-----------------------------------------|
|   | 1                dth            | =                decatherm              |
|   | 1                MMdth          | =                One million decatherms |
|   |                            |                                    |

**Description      of Business**

**Financial      Information About Industry Segments**

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**Rates      and Regulation**

**.**

**Sources      and Availability of Raw Materials**

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**Patents      and Franchises**

**Seasonal      Aspects**

**Working      Capital Practices**

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**Customers**

**Backlog**

**Government      Contracts**

**Competition**

**Research**

**Environmental      Matters**

**Employees**

**Financial      Information About Foreign and Domestic Operations and Export      Sales**

**Item      1A. Risk Factors**

-  **    SJG’s          business activities are concentrated in southern New          Jersey.**          Changes in the economies of southern New Jersey and surrounding regions          could          negatively impact the growth opportunities available to SJG and the financial          condition of customers and prospects of SJG. 

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-  **    Changes          in          the regulatory environment or unfavorable rate regulation may have an          unfavorable impact on SJG’s financial performance or          condition.**           SJG’s business is regulated by the New Jersey Board of Public Utilities which          has authority over many of the activities of the business including, but          not          limited to, the rates it charges to its customers, the amount and type          of          securities it can issue, the nature of investments it can make, the nature          and          quality of services it provides, safety standards and other matters. The          extent to which the actions of regulatory commissions restrict or delay          SJG’s          ability to earn a reasonable rate of return on invested capital and/or          fully          recover operating costs may adversely affect its results of operations,          financial condition and cash flows.  
-  **    SJG          may not          be able to respond effectively to competition, which may negatively impact          SJG’s financial performance or condition.**Regulatory          initiatives may provide or enhance opportunities for competitors that could          reduce utility income obtained from existing or prospective customers.          Also,          competitors may be able to provide superior or less costly products or          services based upon currently available or newly developed          technologies. 
-  **    Warm          weather, high commodity costs, or customer conservation initiatives could          result in reduced demand for natural gas.**While          SJG currently has a conservation incentive program clause that protects          its          revenues and gross margin against usage that is lower than a set level,          the          clause is currently approved as a three-year pilot program. Should this          clause          expire without replacement, lower customer energy utilization levels would          likely reduce SJG’s net income. 
-  **    High          natural gas prices could cause more of SJG’s receivables to be uncollectible.**Higher          levels of uncollectibles from either residential or commercial customers          would          negatively impact SJG’s income and could result in higher working capital          requirements. 
-  **    SJG’s          net          income could decrease if it is required to incur additional costs to          comply with new governmental safety, health or environmental legislation.**SJG          is          subject to extensive and changing federal and state laws and regulations          that          impact many aspects of its business; including the storage, transportation          and          distribution of natural gas, as well as the remediation of environmental          contamination at former manufactured gas plant facilities. 
-     **Increasing          interest rates will negatively impact the net income of          SJG.**          SJG is          capital intensive, resulting in the incurrence of significant amounts of          debt          financing. SJG has issued all long-term debt either at fixed rates or has          utilized interest rate swaps to effectively fix rates. However, new issues          of          long-term debt and all variable rate short-term debt are exposed to the          impact          of rising interest rates.  
-  **    A          downgrade          in SJG’s credit rating could negatively affect its ability to access adequate          and cost effective capital.**SJG’s          ability to obtain adequate and cost effective capital depends largely on          its          credit ratings, which are greatly influenced by financial condition and          results of operations.          If the          rating agencies downgrade SJG’s credit ratings, particularly below investment          grade, SJG’s borrowing costs would increase. In addition, SJG would likely be          required to pay higher interest rates in future financings and potential          funding sources would likely decrease.  
-   **    The          inability to obtain natural gas would negatively impact the financial          performance of SJG.**           SJG’s business is based upon the ability to deliver natural gas to          customers. Disruption in the production of natural gas or transportation          of          that gas to SJG from its suppliers, could prevent SJG from completing sales          to          its customers. 
-  **    Transporting          and          storing natural gas involves numerous risks that may result in accidents          and          other operating risks and costs.**SJG’s          gas distribution activities involve a variety of inherent hazards and          operating risks, such as leaks, accidents and mechanical problems, which          could          cause substantial financial losses. In addition, these risks could result          in          loss of human life, significant damage to property, environmental pollution          and impairment of operations, which in turn could lead to substantial losses.          In accordance with customary industry practice, SJG maintains insurance          against some, but not all, of these risks and losses. The occurrence of          any of          these events not fully covered by insurance could adversely affect SJG’s          financial position and results of operations. 
-  **    Adverse          results in legal proceedings could be detrimental to the financial condition          of SJG.**          Management does not expect the disposition of any known claims to have          a          material adverse effect on its financial position or income. However, the          outcomes of legal proceedings can be unpredictable and can result in adverse          judgments. 

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**Item      1B. Unresolved Staff Comments**

**Item      2. Properties**

**Item      3. Legal Proceedings**

**Item      4. Submission Of Matters To A Vote of Security Holders**

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**PART      II**

**Item      5. Common Equity, Related Shareholder Matters and Issuer Purchases of Equity      Securities**

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**Item      6. Selected Financial Data**

|                                                                                                                                                                                                                                                              |   | Year                Ended December 31, |      |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------|-----------|
|                                                                                                                                                                                                                                                              |   |                                   |           |   |   |  |   |   |  |   |   |  |   |   |   |   |
|                                                                                                                                                                                                                                                              |   |                                   | 2006      |   |   | 2005 |   |   | 2004 |   |   | 2003 |   |   | 2002 |   |
|                                                                                                                                                                                                                                                              |   |                                   |      |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Operating                Revenues                                                                                                                                                                                                                                 |   | $                                      | 642,671   |   | $ | 587,212 |   | $ | 508,827 |   | $ | 536,442 |   | $ | 424,027 |   |
|                                                                                                                                                                                                                                                              |   |                                   |      |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Operating                Income                                                                                                                                                                                                                                   |   | $                                      | 81,209    |   | $ | 77,676 |   | $ | 71,451 |   | $ | 65,420 |   | $ | 60,874 |   |
|                                                                                                                                                                                                                                                              |   |                                   |      |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Income                before Preferred Dividend                                                                                                                                                                                                                   |   |                                   |      |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Requirement                and Discontinued Operations                                                                                                                                                                                                            |   | $                                      | 35,779    |   | $ | 34,592 |   | $ | 31,597 |   | $ | 26,743 |   | $ | 23,357 |   |
|                                                                                                                                                                                                                                                              |   |                                   |      |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Preferred                Dividend Requirements (3)                                                                                                                                                                                                                |   |                                   | -         |   |   | (45 | ) |   | (135 | ) |   | (135 | ) |   | (135 | ) |
|                                                                                                                                                                                                                                                              |   |                                   |      |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Income                from Continuing Operations                                                                                                                                                                                                                  |   |                                   | 35,779    |   |   | 34,547 |   |   | 31,462 |   |   | 26,608 |   |   | 23,222 |   |
|                                                                                                                                                                                                                                                              |   |                                   |      |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Loss                from Discontinued Operations                                                                                                                                                                                                                  |   |                                   | -         |   |   | - |   |   | - |   |   | - |   |   | (29 | ) |
|                                                                                                                                                                                                                                                              |   |                                   |      |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Net                Income Applicable to Common Stock                                                                                                                                                                                                              |   | $                                      | 34,547    |   | $ | 34,547 |   | $ | 31,462 |   | $ | 26,608 |   | $ | 23,193 |   |
|                                                                                                                                                                                                                                                              |   |                                   |      |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Average                Shares of Common Stock Outstanding                                                                                                                                                                                                         |   |                                   | 2,339,139 |   |   | 2,339,139 |   |   | 2,339,139 |   |   | 2,339,139 |   |   | 2,339,139 |   |
|                                                                                                                                                                                                                                                              |   |                                   |      |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Ratio                of Earnings to Fixed Charges (1)                                                                                                                                                                                                             |   |                                   | 3.8x      |   |   | 4.0x |   |   | 3.9x |   |   | 3.3x |   |   | 2.9x |   |
|                                                                                                                                                                                                                                                              |   |                                   |           |   |   |  |   |   |  |   |   |  |   |   |   |   |
|                                                                                                                                                                                                                                                                   |   | As                of December 31,      |
|                                                                                                                                                                                                                                                              |   |                                   |           |   |   |  |   |   |  |   |   |  |   |   |   |   |
|                                                                                                                                                                                                                                                              |   |                                   | 2006      |   |   | 2005 |   |   | 2004 |   |   | 2003 |   |   | 2002 |   |
|                                                                                                                                                                                                                                                              |   |                                   |      |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Property,                Plant and Equipment, Net                                                                                                                                                                                                                 |   | $                                      | 821,833   |   | $ | 788,787 |   | $ | 732,781 |   | $ | 684,823 |   | $ | 651,486 |   |
|                                                                                                                                                                                                                                                              |   |                                   |      |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Total                Assets                                                                                                                                                                                                                                       |   | $                                      | 1,228,076 |   | $ | 1,170,975 |   | $ | 1,007,733 |   | $ | 956,537 |   | $ | 926,318 |   |
|                                                                                                                                                                                                                                                              |   |                                   |      |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Capitalization:                                                                                                                                                                                                                                                   |   |                                   |      |   |   |  |   |   |  |   |   |  |   |   |  |   |
|  Common                Equity (2)                                                                                                                                                                                                                            |   | $                                      | 360,353   |   | $ | 344,568 |   | $ | 302,827 |   | $ | 266,953 |   | $ | 212,621 |   |
|  Preferred                Stock (3)                                                                                                                                                                                                                          |   |                                   | -         |   |   | - |   |   | 1,690 |   |   | 1,690 |   |   | 1,690 |   |
|  Long-Term                Debt                                                                                                                                                                                                                               |   |                                   | 294,893   |   |   | 272,235 |   |   | 282,008 |   |   | 263,781 |   |   | 235,098 |   |
|                                                                                                                                                                                                                                                              |   |                                   |      |   |   |  |   |   |  |   |   |  |   |   |  |   |
|     Total                                                                                                                                                                                                                                     |   | $                                      | 655,246   |   | $ | 616,803 |   | $ | 586,525 |   | $ | 532,424 |   | $ | 449,409 |   |
|                                                                                                                                                                                                                                                              |   |                                   |           |   |   |  |   |   |  |   |   |  |   |   |  |   |
|                                                                                                                                                                                                                                                              |   |                                   |           |   |   |  |   |   |  |   |   |  |   |   |  |   |
| (1)                The ratio of earnings to fixed charges represents, on a pre-tax basis,                the                number of times earnings cover fixed charges. Earnings consist of                net                income, to which has been added   |
|  fixed                charges and taxes based on income                of the company before discontinued operations. Fixed charges consist                of                interest charges and preferred                securities dividend requirements. |
|                                                                                                                                                                                                                                                              |   |                                        |      |
| (2)                Included are cash contributions to capital as follows: 2006 - none;                2005 -                $30.0 million; 2004 - $15.0 million; 2003 - $20.0 million; 2002 -                $2.5                million.                         |
|                                                                                                                                                                                                                                                              |   |                                   |           |   |   |  |   |   |  |   |   |  |   |   |  |   |
| (3)                On May 2, 2005, we redeemed all of our 8% Redeemable Cumulative                Preferred Stock.                                                                                                                                           |   |                                        |      |
|                                                                                                                                                                                                                                                              |   |                                   |           |   |   |  |   |   |  |   |   |  |   |   |  |   |

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| SOUTH                  JERSEY GAS COMPANY COMPARATIVE OPERATING STATISTICS |   |
|----------------------------------------------------------------------------|--------|
|                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                       |   |   | 2006 |   |   | 2005 |   |   | 2004 |   |   | 2003 |   |   | 2002 |   |
|                                                                       |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Operating                  Revenues (Thousands):                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Firm                  Sales -                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                                                |   | $ | 334,201 |   | $ | 252,150 |   | $ | 182,826 |   | $ | 193,725 |   | $ | 174,252 |   |
| Commercial                                                                 |   |   | 99,578 |   |   | 88,321 |   |   | 57,826 |   |   | 58,749 |   |   | 52,300 |   |
| Industrial                                                                 |   |   | 6,590 |   |   | 4,428 |   |   | 5,223 |   |   | 5,635 |   |   | 4,512 |   |
| Cogeneration                  & Electric Generation                    |   |   | 10,746 |   |   | 17,916 |   |   | 9,496 |   |   | 6,513 |   |   | 9,363 |   |
| Firm                  Transportation -                                     |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Residential                                                                |   |   | 4,768 |   |   | 25,296 |   |   | 42,375 |   |   | 40,067 |   |   | 23,172 |   |
| Commercial                                                                 |   |   | 12,621 |   |   | 14,043 |   |   | 22,142 |   |   | 22,464 |   |   | 15,958 |   |
| Industrial                                                                 |   |   | 12,599 |   |   | 12,999 |   |   | 15,732 |   |   | 11,500 |   |   | 10,065 |   |
| Cogeneration                  & Electric Generation                    |   |   | 193 |   |   | 259 |   |   | 323 |   |   | 49 |   |   | 241 |   |
|                                                                       |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Total                  Firm Revenues                                       |   |   | 481,296 |   |   | 415,412 |   |   | 335,943 |   |   | 338,702 |   |   | 289,863 |   |
|                                                                       |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Interruptible                                                              |   |   | 1,109 |   |   | 1,498 |   |   | 1,641 |   |   | 1,682 |   |   | 1,142 |   |
| Interruptible                  Transportation                              |   |   | 1,868 |   |   | 1,898 |   |   | 1,462 |   |   | 1,121 |   |   | 1,567 |   |
| Off-System                                                                 |   |   | 147,180 |   |   | 153,637 |   |   | 151,161 |   |   | 176,555 |   |   | 115,714 |   |
| Capacity                  Release & Storage                            |   |   | 9,656 |   |   | 12,808 |   |   | 10,157 |   |   | 6,686 |   |   | 5,365 |   |
| Appliance                  Service                                         |   |   | - |   |   | - |   |   | 6,362 |   |   | 9,596 |   |   | 8,386 |   |
| Other                                                                      |   |   | 1,562 |   |   | 1,959 |   |   | 2,101 |   |   | 2,100 |   |   | 1,990 |   |
|                                                                       |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Total                  Operating Revenues                                  |   | $ | 642,671 |   | $ | 587,212 |   | $ | 508,827 |   | $ | 536,442 |   | $ | 424,027 |   |
|                                                                       |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Throughput                  (Thousands of dths):                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Firm                  Sales -                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                                                |   |   | 19,830 |   |   | 19,464 |   |   | 15,312 |   |   | 16,477 |   |   | 16,140 |   |
| Commercial                                                                 |   |   | 6,958 |   |   | 7,607 |   |   | 5,406 |   |   | 5,565 |   |   | 5,484 |   |
| Industrial                                                                 |   |   | 296 |   |   | 204 |   |   | 194 |   |   | 220 |   |   | 210 |   |
| Cogeneration                  & Electric Generation                    |   |   | 1,103 |   |   | 1,743 |   |   | 1,139 |   |   | 808 |   |   | 2,065 |   |
| Firm                  Transportation -                                     |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Residential                                                                |   |   | 956 |   |   | 5,755 |   |   | 9,422 |   |   | 9,124 |   |   | 5,381 |   |
| Commercial                                                                 |   |   | 4,536 |   |   | 5,267 |   |   | 7,690 |   |   | 7,945 |   |   | 6,081 |   |
| Industrial                                                                 |   |   | 14,226 |   |   | 16,174 |   |   | 17,099 |   |   | 16,404 |   |   | 15,903 |   |
| Cogeneration                  & Electric Generation                    |   |   | 253 |   |   | 350 |   |   | 245 |   |   | 29 |   |   | 164 |   |
|                                                                       |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Total                  Firm Throughput                                     |   |   | 48,158 |   |   | 56,564 |   |   | 56,507 |   |   | 56,572 |   |   | 51,428 |   |
|                                                                       |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Interruptible                                                              |   |   | 93 |   |   | 119 |   |   | 179 |   |   | 229 |   |   | 206 |   |
| Interruptible                  Transportation                              |   |   | 3,474 |   |   | 2,836 |   |   | 2,562 |   |   | 2,337 |   |   | 3,317 |   |
| Off-System                                                                 |   |   | 18,221 |   |   | 15,045 |   |   | 22,146 |   |   | 28,123 |   |   | 31,179 |   |
| Capacity                  Release & Storage                            |   |   | 66,458 |   |   | 86,119 |   |   | 56,768 |   |   | 42,764 |   |   | 39,570 |   |
|                                                                       |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Total                  Throughput                                          |   |   | 136,404 |   |   | 160,683 |   |   | 138,162 |   |   | 130,025 |   |   | 125,700 |   |
|                                                                       |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Number                  of Customers at Year End:                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                                                |   |   | 307,919 |   |   | 300,652 |   |   | 292,185 |   |   | 283,722 |   |   | 275,979 |   |
| Commercial                                                                 |   |   | 21,652 |   |   | 21,322 |   |   | 20,939 |   |   | 20,405 |   |   | 19,966 |   |
| Industrial                                                                 |   |   | 478 |   |   | 450 |   |   | 455 |   |   | 435 |   |   | 429 |   |
|                                                                       |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Total                  Customers                                           |   |   | 330,049 |   |   | 322,424 |   |   | 313,579 |   |   | 304,562 |   |   | 296,374 |   |
|                                                                       |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Maximum                  Daily Sendout (Thousands of dths)                 |   |   | 356 |   |   | 424 |   |   | 428 |   |   | 422 |   |   | 358 |   |
|                                                                       |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Annual                  Degree Days                                        |   |   | 3,943 |   |   | 4,777 |   |   | 4,641 |   |   | 4,929 |   |   | 4,380 |   |
|                                                                       |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |

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**Item        7. Management’s Discussion and Analysis of Financial        Condition**

**and        Results of Operations **

**OVERVIEW:**

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*Business        Model*

*Customer        Growth*

*Regulatory        Environment*

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*Weather        Conditions and Customer Usage Patterns*

*Changes        in Natural Gas Prices*

*Changes        in Interest Rates*

*Labor        and Benefit Costs*

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*Balance        Sheet Strength*

**Critical        Accounting Policies**
**Estimates        and Assumptions**

----

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**New        Accounting Pronouncements - **

**Rates        and Regulation - **

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|                                                           | 2006                                 | 2005                                | 2004                                |
|----------------------------------------------------------------|--------------------------------------|-------------------------------------|-------------------------------------|
| Net                  Income Benefit/(Reduction)                | $5.1                  million        | $(0.2)                  million     | $0.2                  million       |
|  Weather                  Compared to 20-Year TAC Average |  15.0                  % warmer |  3.0                  % colder |  1.0                  % warmer |
|  Weather                  Compared to Prior Year          |  17.5                  % warmer |  2.9                  % colder |  5.8                  % warmer |

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**Environmental        Remediation**

**Competition**
**        - **

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

----

**RESULTS        OF OPERATIONS:**

|                                                                                                                                                                                                                          |   | **2006** |    | **2005** |   | **2004** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|---------|----------|--------|----------|--------|
| Utility                  Volumes - dth:                                                                                                                                                                                       |   |     |    |     |   |     |   |   |   |   |   |   |   |
| Residential                                                                                                                                                                                                                   |   |     | 20,786  |     |   | 15       | %      |   | 25,219 |   |   | 16 | % |   | 24,734 |   |   | 18 | % |
| Commercial                  and industrial                                                                                                                                                                                    |   |     | 26,016  |     |   | 19       | %      |   | 29,252 |   |   | 18 | % |   | 30,389 |   |   | 22 | % |
| Cogeneration                  and electric generation                                                                                                                                                                         |   |     | 1,356   |     |   | 1        | %      |   | 2,093 |   |   | 1 | % |   | 1,384 |   |   | 1 | % |
| Interruptible                                                                                                                                                                                                                 |   |     | 3,567   |     |   | 3        | %      |   | 2,955 |   |   | 2 | % |   | 2,741 |   |   | 2 | % |
| Off-system,                  capacity release & storage                                                                                                                                                                   |   |     | 84,679  |     |   | 62       | %      |   | 101,164 |   |   | 63 | % |   | 78,914 |   |   | 57 | % |
| Total                  Throughput                                                                                                                                                                                             |   |     | 136,404 |     |   | 100      | %      |   | 160,683 |   |   | 100 | % |   | 138,162 |   |   | 100 | % |
|                                                                                                                                                                                                                          |   |     |    |     |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Utility                  Operating Revenues:                                                                                                                                                                                  |   |     |    |     |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                                                                                                                                                                                                   |   | $        | 338,969 |     |   | 53       | %      | $ | 277,446 |   |   | 47 | % | $ | 225,201 |   |   | 44 | % |
| Commercial                  and industrial                                                                                                                                                                                    |   |     | 131,388 |     |   | 20       | %      |   | 119,791 |   |   | 21 | % |   | 100,923 |   |   | 20 | % |
| Cogeneration                  and electric generation                                                                                                                                                                         |   |     | 10,939  |     |   | 2        | %      |   | 18,175 |   |   | 3 | % |   | 9,819 |   |   | 2 | % |
| Interruptible                                                                                                                                                                                                                 |   |     | 2,977   |     |   | -        |   |   | 3,396 |   |   | 1 | % |   | 3,103 |   |   | 1 | % |
| Off-system,                  capacity release & storage                                                                                                                                                                   |   |     | 156,836 |     |   | 25       | %      |   | 166,445 |   |   | 28 | % |   | 161,318 |   |   | 32 | % |
| Other                  revenues                                                                                                                                                                                               |   |     | 1,562   |     |   | -        |   |   | 1,959 |   |   | - |   |   | 8,463 |   |   | 1 | % |
| Total                  Utility Operating Revenues                                                                                                                                                                             |   |     | 642,671 |     |   | 100      | %      |   | 587,212 |   |   | 100 | % |   | 508,827 |   |   | 100 | % |
| Less:                                                                                                                                                                                                                         |   |     |    |     |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost                  of sales                                                                                                                                                                                                |   |     | 472,286 |     |   |     |   |   | 414,952 |   |   |   |   |   | 340,860 |   |   |   |   |
| Conservation                  recoveries *                                                                                                                                                                                    |   |     | 6,862   |     |   |     |   |   | 7,933 |   |   |   |   |   | 8,056 |   |   |   |   |
| RAC                  recoveries *                                                                                                                                                                                             |   |     | 1,807   |     |   |     |   |   | 2,180 |   |   |   |   |   | 2,508 |   |   |   |   |
| Revenue                  taxes                                                                                                                                                                                                |   |     | 7,890   |     |   |     |   |   | 9,089 |   |   |   |   |   | 8,704 |   |   |   |   |
| Utility                  Net Operating Revenues (margin)                                                                                                                                                                      |   | $        | 153,826 |     |   |     |   | $ | 153,058 |   |   |   |   | $ | 148,699 |   |   |   |   |
|                                                                                                                                                                                                                          |   |     |    |     |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Margin:                                                                                                                                                                                                                       |   |     |    |     |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                                                                                                                                                                                                   |   | $        | 90,442  |     |   | 59       | %      | $ | 102,706 |   |   | 67 | % | $ | 93,228 |   |   | 62 | % |
| Commercial                  and industrial                                                                                                                                                                                    |   |     | 38,129  |     |   | 25       | %      |   | 40,862 |   |   | 27 | % |   | 37,903 |   |   | 26 | % |
| Cogeneration                  and electric generation                                                                                                                                                                         |   |     | 2,189   |     |   | 1        | %      |   | 2,514 |   |   | 2 | % |   | 5,029 |   |   | 4 | % |
| Interruptible                                                                                                                                                                                                                 |   |     | 226     |     |   | -        |   |   | 249 |   |   | - |   |   | 236 |   |   | - |   |
| Off-system,                  capacity release & storage                                                                                                                                                                   |   |     | 4,711   |     |   | 3        | %      |   | 4,697 |   |   | 3 | % |   | 5,386 |   |   | 4 | % |
| Other                  revenues                                                                                                                                                                                               |   |     | 1,871   |     |   | 1        | %      |   | 2,319 |   |   | 1 | % |   | 1,979 |   |   | 1 | % |
| Margin                  before weather normalization & decoupling                                                                                                                                                         |   |     | 137,568 |     |   | 89       | %      |   | 153,347 |   |   | 100 | % |   | 143,761 |   |   | 97 | % |
| TAC                  mechanism                                                                                                                                                                                                |   |     | 8,511   |     |   | 6        | %      |   | (289 | ) |   | - |   |   | 403 |   |   | - |   |
| CIP                  mechanism                                                                                                                                                                                                |   |     | 7,747   |     |   | 5        | %      |   | - |   |   | - |   |   | - |   |   | - |   |
| Appliance                  Service                                                                                                                                                                                            |   |     | -       |     |   | -        |   |   | - |   |   | - |   |   | 4,535 |   |   | 3 | % |
| Utility                  Net Operating Revenues (margin)                                                                                                                                                                      |   | $        | 153,826 |     |   | 100      | %      | $ | 153,058 |   |   | 100 | % | $ | 148,699 |   |   | 100 | % |
|                                                                                                                                                                                                                          |   |     |    |     |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Number                  of Customers at Year End:                                                                                                                                                                             |   |     |    |     |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                                                                                                                                                                                                   |   |     | 307,919 |     |   | 93       | %      |   | 300,652 |   |   | 93 | % |   | 292,185 |   |   | 93 | % |
| Commercial                                                                                                                                                                                                                    |   |     | 21,652  |     |   | 7        | %      |   | 21,322 |   |   | 7 | % |   | 20,939 |   |   | 7 | % |
| Industrial                                                                                                                                                                                                                    |   |     | 478     |     |   | -        |   |   | 450 |   |   | - |   |   | 455 |   |   | - |   |
| Total                  Customers                                                                                                                                                                                              |   |     | 330,049 |     |   | 100      | %      |   | 322,424 |   |   | 100 | % |   | 313,579 |   |   | 100 | % |
|                                                                                                                                                                                                                          |   |     |    |     |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                          |
| *                  Represent revenues for which there is a corresponding charge in                  operating                  expenses. Therefore, such recoveries have no impact on our financial                  results. |

----

**Volumes**

**Operating        Revenues**

----

**Margin        (pre-tax)**
**        - **

**Operating        Expenses**

|                                    |   | 2006                  vs. 2005 |   | 2005                  vs. 2004 |   |
|-----------------------------------------|--------|--------------------------------|--------|--------------------------------|--------|
|                                    |   |                           |   |                           |   |
| Operations                              |   | $                              | (4,992 | )                              | $      | (1,255 | ) |
| Maintenance                             |   |                           | (276   | )                              |   | 42 |   |
| Depreciation                            |   |                           | 1,602  |                           |   | (1,142 | ) |
| Energy                  and Other Taxes |   |                           | (1,742 | )                              |   | 423 |   |
|                                    |   |                           |   |                           |   |   |   |

----

**Other        Income and Expense**

----

**Interest        Charges**

**LIQUIDITY        AND CAPITAL RESOURCES**

----

----

|                             |   |   | 2006   |   |   | 2005   |   |
|----------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                             |   |   |   |   |   |   |   |
| Common Equity               |   |   | 47.4   | %      |   | 49.0   | %      |
| Long-Term                  Debt  |   |   | 38.7   | %      |   | 38.7   | %      |
| Short-Term                  Debt |   |   | 13.9   | %      |   | 12.4   | %      |
|                             |   |   |   |   |   |   |   |
| Total                            |   |   | 100.0  | %      |   | 100.0  | %      |

**COMMITMENTS        AND CONTINGENCIES:**

|                                                      |   |   |    | Up                  to  |   | Years                      |   | Years                      |    | More                  than |   |
|-----------------------------------------------------------|--------|--------|---------|-------------------------|--------|----------------------------|--------|----------------------------|---------|----------------------------|--------|
| **Contractual                  Cash Obligations**         |   | Total  |    | 1                  Year |   | 2                  & 3 |   | 4                  & 5 |    | 5                  Years   |   |
|                                                      |   |   |         |                    |   |                            |   |                       |         |                       |   |  |   |   |  |   |
| Principal                  Payments on Long-Term Debt     |   | $      | 297,163 |                    | $      | 2,270                      |   | $                          | -       |                       | $      | 35,000 |   | $ | 259,893 |   |
| Interest                  on Long-Term Debt               |   |   | 235,518 |                    |   | 17,095                     |   |                       | 34,003  |                       |   | 33,391 |   |   | 151,029 |   |
| Operating                  Leases                         |   |   | 207     |                    |   | 127                        |   |                       | 65      |                       |   | 15 |   |   | - |   |
| Construction                  Obligations                 |   |   | 98      |                    |   | 98                         |   |                       | -       |                       |   | - |   |   | - |   |
| Commodity                  Supply Purchase Obligations    |   |   | 196,241 |                    |   | 45,148                     |   |                       | 72,842  |                       |   | 19,511 |   |   | 58,740 |   |
| New                  Jersey Clean Energy Program (Note 2) |   |   | 15,000  |                    |   | 7,000                      |   |                       | 8,000   |                       |   | - |   |   | - |   |
| Other                  Purchase Obligations               |   |   | 393     |                    |   | 393                        |   |                       | -       |                       |   | - |   |   | - |   |
|                                                      |   |   |         |                    |   |                            |   |                       |         |                       |   |  |   |   |  |   |
| Total                  Contractual Cash Obligations       |   | $      | 744,620 |                    | $      | 72,131                     |   | $                          | 114,910 |                       | $      | 87,917 |   | $ | 469,662 |   |

----

**Off-Balance        Sheet Arrangements**
**        - **

**Pending        Litigation**

**Item        7a. Quantitative and Qualitative Disclosures about Market        Risks**

**MARKET        RISKS:**

**Commodity        Market Risks**

| Assets:                                 |   |   |                                        | Maturity |   | Maturity                    |   |   |                         |
|-----------------------------------------|--------|--------|---------------------------------------------|----------|--------|-----------------------------|--------|--------|------------------------------|
|                                    |   |   | Source                  of Fair Value  |     |   | <1                  Year |   |   | 1                  - 3 Years |   |   | Total |   |
|                                    |   |   |                                             |     |   |                             |   |   |                              |   |   |  |   |
| Prices                  Actively Quoted |   |   | NYMEX                                       |     | $      | 806                         |   | $      | 19                           |   | $ | 825 |   |
| Other                  External Sources |   |   | Basis                                       |     |   | 886                         |   |   | -                            |   |   | 886 |   |
| Total                                   |   |   |                                             |     | $      | 1,692                       |   | $      | 19                           |   | $ | 1,711 |   |
|                                    |   |   |                                             |     |   |                             |   |   |                              |   |   |  |   |
| Liabilities:                            |   |   |                                             |     |   | Maturity                    |   |   | Maturity                     |   |   |  |   |
|                                         |   |   | Source                  of Fair Value       |     |   | <1                  Year |   |   | 1                  - 3 Years |   |   | Total |   |
|                                    |   |   |                                             |     |   |                             |   |   |                              |   |   |  |   |
| Prices                  Actively Quoted |   |   | NYMEX                                       |     | $      | 18,006                      |   | $      | 374                          |   | $ | 18,380 |   |

----

| Net                  Derivatives — Energy Related Asset, January 1, 2006                       |   | $      | 486     |    |
|------------------------------------------------------------------------------------------------------|--------|--------|---------|---------|
| Contracts                  Settled During 2006, Net                                                  |   |   | (299    | )       |
| Other                  Changes in Fair Value from Continuing and New Contracts,                  Net |   |   | (16,856 | )       |
| Net                  Derivatives — Energy Related Liability, December 31, 2006                 |   | $      | (16,669 | )  |

**Interest        Rate Risk**

----

**Item      8. Financial Statements and Supplementary Data**

**REPORT      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

*Share-Based      Payment. *
*Employers’      Accounting for Defined Benefit Pension and Other Postretirement      Plans*
*Accounting      for Conditional Asset Retirement Obligations. *

----

|  **SOUTH                JERSEY GAS COMPANY**                                                      |   |
|--------------------------------------------------------------------------------------------------------|--------|
|  **STATEMENTS                OF INCOME**                                                          |   |
|  (In                Thousands)                                                                    |   |
|                                                                                                   |   |   |   Year                Ended December                31,  |   |
|                                                                                                   |   |   | 2006 |   |   | 2005 |   |   | 2004 |   |
|                                                                                                   |   |   |   |   |   |   |   |   |   |   |
| **Operating                Revenues**                                                                  |   | $ | 642,671 |   | $ | 587,212 |   | $ | 508,827 |   |
|                                                                                                   |   |   |  |   |   |  |   |   |  |   |
| **Operating                Expenses:**                                                                 |   |   |   |   |   |   |   |   |   |   |
| Cost                of Sales (Excluding depreciation)                                                  |   |   | 472,286 |   |   | 414,952 |   |   | 340,860 |   |
| Operations                                                                                             |   |   | 49,991 |   |   | 54,983 |   |   | 56,238 |   |
| Maintenance                                                                                            |   |   | 5,538 |   |   | 5,814 |   |   | 5,772 |   |
| Depreciation                                                                                           |   |   | 23,508 |   |   | 21,906 |   |   | 23,048 |   |
| Energy                and Other Taxes                                                                  |   |   | 10,139 |   |   | 11,881 |   |   | 11,458 |   |
|                                                                                                   |   |   |  |   |   |  |   |   |  |   |
| Total                Operating Expenses                                                                |   |   | 561,462 |   |   | 509,536 |   |   | 437,376 |   |
|                                                                                                   |   |   |  |   |   |  |   |   |  |   |
| **Operating                Income**                                                                    |   |   | 81,209 |   |   | 77,676 |   |   | 71,451 |   |
|                                                                                                   |   |   |   |   |   |   |   |   |   |   |
| **Other                Income and Expense**                                                            |   |   | 1,480 |   |   | 212 |   |   | 886 |   |
|                                                                                                   |   |   |   |   |   |   |   |   |   |   |
| **Interest                Charges**                                                                    |   |   | (22,099 | ) |   | (18,156 | ) |   | (17,906 | ) |
|                                                                                                   |   |   |  |   |   |  |   |   |  |   |
| **Income                Before Income Taxes**                                                          |   |   | 60,590 |   |   | 59,732 |   |   | 54,431 |   |
|                                                                                                   |   |   |   |   |   |   |   |   |   |   |
| **Income                Taxes**                                                                        |   |   | (24,811 | ) |   | (25,185 | ) |   | (22,969 | ) |
|                                                                                                   |   |   |  |   |   |  |   |   |  |   |
| **Net                Income Applicable to Common Stock**                                               |   | $ | 35,779 |   | $ | 34,547 |   | $ | 31,462 |   |
|                                                                                                   |   |   |  |   |   |  |   |   |  |   |
| The                accompanying notes are an integral part of the financial                statements. |   |   |   |   |   |   |   |   |   |   |

----

| **SOUTH                JERSEY GAS COMPANY**                                                            |   |
|--------------------------------------------------------------------------------------------------------|--------|
| **STATEMENTS                OF CASH FLOWS**                                                            |   |
| (In                Thousands)                                                                          |   |
|                                                                                                   |   |  Year                Ended December 31, |   |
|                                                                                                   |   |  2006 |   | 2005 |   | 2004 |   |
|                                                                                                   |   |    |   |   |   |   |   |
| **Cash                Flows from Operating Activities:**                                               |   |    |   |   |   |   |   |
| Net                Income                                                                              |   | $ | 35,779 |   | $ | 34,547 |   | $ | 31,462 |   |
| Adjustments                to Reconcile Net Income to Net Cash                                         |   |   |   |   |   |   |   |   |   |   |
| Provided                by Operating Activities:                                                       |   |   |   |   |   |   |   |   |   |   |
| Depreciation                and Amortization                                                           |   |   | 28,140 |   |   | 27,303 |   |   | 28,691 |   |
| Provision                for Losses on Accounts Receivable                                             |   |   | 1,284 |   |   | 2,073 |   |   | 816 |   |
| TAC/CIP                Receivable                                                                      |   |   | (15,740 | ) |   | 291 |   |   | 4,173 |   |
| Deferred                Gas Costs - Net of Recoveries                                                  |   |   | 18,694 |   |   | (34,585 | ) |   | 14,582 |   |
| Deferred                SBC Costs - Net of Recoveries                                                  |   |   | (4,221 | ) |   | 1,871 |   |   | 2,967 |   |
| Environmental                Remediation Costs - Net of Recoveries                                     |   |   | (10,840 | ) |   | (6,655 | ) |   | (5,494 | ) |
| Deferred                and Noncurrent Income Taxes and Credits - Net                                  |   |   | 4,426 |   |   | 25,662 |   |   | 13,982 |   |
| Additional                Pension Contributions                                                        |   |   | - |   |   | (1,390 | ) |   | (8,028 | ) |
| Gas                Plant Cost of Removal                                                               |   |   | (1,369 | ) |   | (985 | ) |   | (1,107 | ) |
| Changes                in:                                                                             |   |   |   |   |   |   |   |   |   |   |
| Accounts                Receivable                                                                     |   |   | 9,501 |   |   | (23,052 | ) |   | 3,698 |   |
| Inventories                                                                                            |   |   | 11,099 |   |   | (23,579 | ) |   | (7,713 | ) |
| Prepaid                and Accrued Taxes - Net                                                         |   |   | 4,997 |   |   | (5,934 | ) |   | (11,536 | ) |
| Other                Prepayments and Current Assets                                                    |   |   | 594 |   |   | (780 | ) |   | (311 | ) |
| Gas                Purchases Payable                                                                   |   |   | (40,270 | ) |   | 59,001 |   |   | 3,148 |   |
| Accounts                Payable and Other Accrued Liabilities                                          |   |   | 11,605 |   |   | (13,246 | ) |   | 6,963 |   |
| Other                Assets                                                                            |   |   | 2,500 |   |   | 965 |   |   | (2,544 | ) |
| Other                Liabilities                                                                       |   |   | (5,120 | ) |   | 1,423 |   |   | 811 |   |
|                                                                                                   |   |   |  |   |   |  |   |   |  |   |
|  Net                Cash Provided by Operating Activities                                         |   |   | 51,059 |   |   | 42,930 |   |   | 74,560 |   |
|                                                                                                   |   |   |  |   |   |  |   |   |  |   |
| **Cash                Flows from Investing Activities:**                                               |   |   |   |   |   |   |   |   |   |   |
| Capital                Expenditures                                                                    |   |   | (61,440 | ) |   | (70,120 | ) |   | (66,308 | ) |
| Purchase                of Available-for-Sale Securities                                               |   |   | - |   |   | - |   |   | (338 | ) |
| Proceeds                from Sale of Appliance Service Operations                                      |   |   | - |   |   | - |   |   | 2,668 |   |
| Net                Purchase of Restricted Investments                                                  |   |   | (8,586 | ) |   | - |   |   | - |   |
|                                                                                                   |   |   |  |   |   |  |   |   |  |   |
|  Net                Cash Used in Investing Activities                                             |   |   | (70,026 | ) |   | (70,120 | ) |   | (63,978 | ) |
|                                                                                                   |   |   |  |   |   |  |   |   |  |   |
| **Cash                Flows from Financing Activities:**                                               |   |   |   |   |   |   |   |   |   |   |
| Net                Borrowings (Repayments) of Lines of Credit                                          |   |   | 16,500 |   |   | 34,000 |   |   | (34,200 | ) |
| Proceeds                from Issuance of Long-Term Debt                                                |   |   | 25,000 |   |   | 10,000 |   |   | 40,000 |   |
| Principal                Repayments of Long-Term Debt                                                  |   |   | (2,345 | ) |   | (22,773 | ) |   | (21,773 | ) |
| Redemption                of Preferred Stock                                                           |   |   | - |   |   | (1,690 | ) |   | - |   |
| Dividends                on Common Stock                                                               |   |   | (19,902 | ) |   | (22,502 | ) |   | (9,123 | ) |
| Premium                for Early Retirement of Debt                                                    |   |   | - |   |   | (184 | ) |   | - |   |
| Payments                for Issuance of Long-Term Debt                                                 |   |   | (1,051 | ) |   | (420 | ) |   | (386 | ) |
| Additional                Investment by Shareholder                                                    |   |   | - |   |   | 30,000 |   |   | 15,000 |   |
| Excess                Tax Benefit from Restricted Stock Plan                                           |   |   | 181 |   |   | - |   |   | - |   |
|                                                                                                   |   |   |  |   |   |  |   |   |  |   |
|  Net                Cash Provided by (Used in) Financing Activities                               |   |   | 18,383 |   |   | 26,431 |   |   | (10,482 | ) |
|                                                                                                   |   |   |  |   |   |  |   |   |  |   |
| **Net                (Decrease) Increase in Cash and Cash Equivalents**                                |   |   | (584 | ) |   | (759 | ) |   | 100 |   |
| **Cash                and Cash Equivalents at Beginning of Period**                                    |   |   | 2,551 |   |   | 3,310 |   |   | 3,210 |   |
|                                                                                                   |   |   |  |   |   |  |   |   |  |   |
| **Cash                and Cash Equivalents at End of Period**                                          |   | $ | 1,967 |   | $ | 2,551 |   | $ | 3,310 |   |
|                                                                                                   |   |   |  |   |   |  |   |   |  |   |
| **Supplemental                Disclosures of Cash Flow Information:**                                  |   |   |   |   |   |   |   |   |   |   |
| Interest                (Net of Amounts Applicable to Gas Cost                                         |   |   |   |   |   |   |   |   |   |   |
| Overcollections                and Amounts Capitalized)                                                |   | $ | 21,832 |   | $ | 18,899 |   | $ | 17,467 |   |
| Income                Taxes (Net of Refunds)                                                           |   | $ | 11,309 |   | $ | 8,434 |   | $ | 14,594 |   |
|                                                                                                   |   |   |   |   |   |   |   |   |   |   |
| **Supplemental                Disclosures of Noncash Investing Activities:**                           |   |   |   |   |   |   |   |   |   |   |
| Capital                property and equipment acquired on                                              |   |   |   |   |   |   |   |   |   |   |
| account                but not paid at year-end                                                        |   | $ | 2,819 |   | $ | 8,990 |   | $ | 4,531 |   |
|                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| The                accompanying notes are an integral part of the financial                statements. |   |   |   |   |   |   |   |   |   |   |
|                                                                                                   |   |   |   |   |   |   |   |   |   |   |

----

| **SOUTH                JERSEY GAS COMPANY**                                                            |   |
|--------------------------------------------------------------------------------------------------------|--------|
| **BALANCE                SHEETS**                                                                      |   |
| (In                Thousands)                                                                          |   |
|                                                                                                   |   |   | December                31, |   |
|                                                                                                   |   |   | 2006 |   |   | 2005 |   |
| **Assets**                                                                                             |   |   |   |   |   |   |   |
|                                                                                                   |   |   |   |   |   |   |   |
| **Property,                Plant and Equipment:**                                                      |   |   |   |   |   |   |   |
| Utility                Plant, at original cost                                                         |   | $ | 1,079,614 |   | $ | 1,030,029 |   |
| Accumulated                Depreciation                                                                |   |   | (257,781 | ) |   | (241,242 | ) |
|                                                                                                   |   |   |  |   |   |  |   |
| Property,                Plant and Equipment - Net                                                     |   |   | 821,833 |   |   | 788,787 |   |
|                                                                                                   |   |   |  |   |   |  |   |
| **Investments:**                                                                                       |   |   |   |   |   |  |   |   |
| Available-for-Sale                Securities                                                           |   |   | 6,342 |   |   | 5,628 |   |
| Restricted                Investments                                                                  |   |   | 8,586 |   |   | - |   |
|                                                                                                   |   |   |   |   |   |   |   |
| Total                Investments                                                                       |   |   | 14,928 |   |   | 5,628 |   |
|                                                                                                   |   |   |  |   |   |  |   |
| **Current                Assets:**                                                                     |   |   |   |   |   |   |   |
| Cash                and Cash Equivalents                                                               |   |   | 1,967 |   |   | 2,551 |   |
| Accounts                Receivable                                                                     |   |   | 47,928 |   |   | 41,040 |   |
| Accounts                Receivable - Related Parties                                                   |   |   | 3,939 |   |   | 3,186 |   |
| Unbilled                Revenues                                                                       |   |   | 34,502 |   |   | 53,648 |   |
| Provision                for Uncollectibles                                                            |   |   | (2,741 | ) |   | (3,461 | ) |
| Natural                Gas in Storage, average cost                                                    |   |   | 81,039 |   |   | 89,957 |   |
| Materials                and Supplies, average cost                                                    |   |   | 1,685 |   |   | 3,866 |   |
| Prepaid                Taxes                                                                           |   |   | 7,774 |   |   | 12,972 |   |
| Derivatives                - Energy Related Assets                                                     |   |   | 1,692 |   |   | 6,496 |   |
| Other                Prepayments and Current Assets                                                    |   |   | 2,264 |   |   | 2,858 |   |
|                                                                                                   |   |   |  |   |   |  |   |
| Total                Current Assets                                                                    |   |   | 180,049 |   |   | 213,113 |   |
|                                                                                                   |   |   |  |   |   |  |   |
| **Regulatory                and Other Noncurrent Assets:**                                             |   |   |   |   |   |   |   |
| Regulatory                Assets                                                                       |   |   | 196,962 |   |   | 122,486 |   |
| Unamortized                Debt Issuance Costs                                                         |   |   | 6,835 |   |   | 6,251 |   |
| Prepaid                Pension                                                                         |   |   | - |   |   | 26,202 |   |
| Accounts                Receivable - Merchandise                                                       |   |   | 5,950 |   |   | 6,472 |   |
| Derivatives                - Energy Related Assets                                                     |   |   | 19 |   |   | 271 |   |
| Derivatives                - Other                                                                     |   |   | 148 |   |   | - |   |
| Other                                                                                                  |   |   | 1,352 |   |   | 1,765 |   |
|                                                                                                   |   |   |  |   |   |  |   |
| Total                Regulatory and Other Noncurrent Assets                                            |   |   | 211,266 |   |   | 163,447 |   |
|                                                                                                   |   |   |  |   |   |  |   |
| Total                Assets                                                                            |   | $ | 1,228,076 |   | $ | 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)                                                |   |
|                                                                                                   |   |   |   |
|                                                                                                        |   |  Year                Ended 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                                                    |   |   | (4,429 | ) |   | (4,337 | ) |
| Retained                Earnings                                                                       |   |   | 158,617 |   |   | 142,740 |   |
|                                                                                                   |   |   |  |   |   |  |   |
| Total                Common Equity                                                                     |   |   | 360,353 |   |   | 344,568 |   |
|                                                                                                   |   |   |  |   |   |  |   |
| **Long-Term                Debt**                                                                      |   |   | 294,893 |   |   | 272,235 |   |
|                                                                                                   |   |   |  |   |   |  |   |
| Total                Capitalization                                                                    |   |   | 655,246 |   |   | 616,803 |   |
|                                                                                                   |   |   |  |   |   |  |   |
| **Current                Liabilities:**                                                                |   |   |   |   |   |   |   |
| Notes                Payable                                                                           |   |   | 103,500 |   |   | 87,000 |   |
| Current                Maturities of Long-Term Debt                                                    |   |   | 2,270 |   |   | 2,273 |   |
| Accounts                Payable - Commodity                                                            |   |   | 43,687 |   |   | 83,957 |   |
| Accounts                Payable - Other                                                                |   |   | 8,786 |   |   | 17,236 |   |
| Accounts                Payable - Related Parties                                                      |   |   | 12,134 |   |   | 7,879 |   |
| Derivatives                - Energy Related Liabilities                                                |   |   | 18,006 |   |   | 6,197 |   |
| Deferred                Income Taxes - Net                                                             |   |   | 4,049 |   |   | 2,295 |   |
| Customer                Deposits and Credit Balances                                                   |   |   | 23,016 |   |   | 12,145 |   |
| Environmental                Remediation Costs                                                         |   |   | 26,048 |   |   | 17,873 |   |
| Taxes                Accrued                                                                           |   |   | 1,961 |   |   | 2,162 |   |
| Pension                and Other Postretirement Benefits                                               |   |   | 776 |   |   | - |   |
| Interest                Accrued                                                                        |   |   | 6,112 |   |   | 6,032 |   |
| Other                Current Liabilities                                                               |   |   | 4,904 |   |   | 6,045 |   |
|                                                                                                   |   |   |  |   |   |  |   |
| Total                Current Liabilities                                                               |   |   | 255,249 |   |   | 251,094 |   |
|                                                                                                   |   |   |  |   |   |  |   |
| **Regulatory                and Other Noncurrent Liabilities:**                                        |   |   |   |   |   |   |   |
| Regulatory                Liabilities                                                                  |   |   | 50,797 |   |   | 54,002 |   |
| Deferred                Income Taxes - Net                                                             |   |   | 164,797 |   |   | 162,542 |   |
| Environmental                Remediation Costs                                                         |   |   | 41,746 |   |   | 38,844 |   |
| Asset                Retirement Obligations                                                            |   |   | 23,743 |   |   | 22,505 |   |
| Pension                and Other Postretirement Benefits                                               |   |   | 29,354 |   |   | 16,633 |   |
| Investment                Tax Credits                                                                  |   |   | 2,470 |   |   | 2,795 |   |
| Derivatives                - Energy Related Liabilities                                                |   |   | 374 |   |   | 84 |   |
| Derivatives                - Other                                                                     |   |   | - |   |   | 306 |   |
| Other                                                                                                  |   |   | 4,300 |   |   | 5,367 |   |
|                                                                                                   |   |   |  |   |   |  |   |
| Total Regulatory                and Other Noncurrent Liabilities                                  |   |   | 317,581 |   |   | 303,078 |   |
|                                                                                                   |   |   |  |   |   |  |   |
| Commitments                and Contingencies (Note 12)                                                 |   |   |   |   |   |   |   |
|                                                                                                   |   |   |   |   |   |   |   |
| Total                Capitalization and Liabilities                                                    |   | $ | 1,228,076 |   | $ | 1,170,975 |   |
|                                                                                                   |   |   |  |   |   |  |   |
| The                accompanying notes are an integral part of the financial                statements. |   |   |   |   |   |   |   |
|                                                                                                   |   |   |   |   |   |   |   |

----

|                                                                                                                                      |   |   |         |   |   |                                                                                                                       |   |   |                                                        |   |   |                                                 |   |
|-------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------------|--------|--------|----------------------------------------------------------------------------------------------------------------------------|--------|--------|-------------------------------------------------------------|--------|--------|------------------------------------------------------|--------|
| **SOUTH                JERSEY GAS COMPANY**                                                                                               |   |
|                                                                                                                                      |   |   |         |   |   |                                                                                                                       |   |   |                                                        |   |   |                                                 |   |
| **STATEMENTS                OF CHANGES IN COMMON EQUITY AND COMPREHENSIVE                INCOME**                                         |   |
| (In                Thousands)                                                                                                             |   |
|                                                                                                                                      |   |   |         |   |   |                                                                                                                       |   |   |                                                        |   |   |                                                 |   |
|                                                                                                                                           |   |   | CommonStock  |   |   | Other                Paid-In                Capital &                Premium on Common                Stock  |   |   | Accumulated                Other Comprehensive Loss         |   |   | RetainedEarnings                                     |   |   | Total |   |
|                                                                                                                                      |   |   |              |   |   |                                                                                                                            |   |   |                                                             |   |   |                                                      |   |   |  |   |
| **Balance                at January 1, 2004**                                                                                             |   | $      | 5,848        |   | $      | 155,317                                                                                                                    |   | $      | (2,568                                                      | )      | $      | 108,356                                              |   | $ | 266,953 |   |
| Net                Income Applicable to Common Stock                                                                                      |   |   |              |   |   |                                                                                                                            |   |   |                                                             |   |   | 31,462                                               |   |   | 31,462 |   |
| Other                Comprehensive Loss, Net of Tax:*                                                                                     |   |   |              |   |   |                                                                                                                            |   |   |                                                             |   |   |                                                      |   |   |  |   |
| Minimum                Pension Liability Adjustment                                                                                       |   |   |              |   |   |                                                                                                                            |   |   | (1,074                                                      | )      |   |                                                      |   |   | (1,074 | ) |
| Unrealized                Loss on Equity Investments                                                                                      |   |   |              |   |   |                                                                                                                            |   |   | (192                                                        | )      |   |                                                      |   |   | (192 | ) |
| Unrealized                Loss on Derivatives                                                                                             |   |   |              |   |   |                                                                                                                            |   |   | (199                                                        | )      |   |                                                      |   |   | (199 | ) |
| Other                Comprehensive Loss, Net of Tax:*                                                                                     |   |   |         |   |   |                                                                                                                            |   |   |                                                             |   |   |                                                      |   |   | (1,465 | ) |
| *Comprehensive                Income*                                                                                                     |   |   |              |   |   |                                                                                                                            |   |   |                                                             |   |   |                                                      |   |   | 29,997 |   |
| Additional                Investment by Shareholder                                                                                       |   |   |              |   |   | 15,000                                                                                                                     |   |   |                                                             |   |   |                                                      |   |   | 15,000 |   |
| Cash                Dividends Declared - Common Stock                                                                                     |   |   |         |   |   |                                                                                                                  |   |   |                                                   |   |   | (9,123                                               | )      |   | (9,123 | ) |
|                                                                                                                                      |   |   |              |   |   |                                                                                                                            |   |   |                                                             |   |   |                                                      |   |   |  |   |
| **Balance                at December 31, 2004**                                                                                           |   |   | 5,848        |   |   | 170,317                                                                                                                    |   |   | (4,033                                                      | )      |   | 130,695                                              |   |   | 302,827 |   |
| Net                Income Applicable to Common Stock                                                                                      |   |   |         |   |   |                                                                                                                       |   |   |                                                        |   |   | 34,547                                               |   |   | 34,547 |   |
| Other                Comprehensive Income (Loss), Net of Tax:*                                                                            |   |   |              |   |   |                                                                                                                            |   |   |                                                             |   |   |                                                      |   |   |  |   |
| Minimum                Pension Liability Adjustment                                                                                       |   |   |              |   |   |                                                                                                                            |   |   | 423                                                         |   |   |                                                      |   |   | 423 |   |
| Unrealized                Gain on Equity Investments                                                                                      |   |   |              |   |   |                                                                                                                            |   |   | 63                                                          |   |   |                                                      |   |   | 63 |   |
| Unrealized                Loss on Derivatives                                                                                             |   |   |              |   |   |                                                                                                                            |   |   | (790                                                        | )      |   |                                                      |   |   | (790 | ) |
| Other                Comprehensive Loss, Net of Tax:*                                                                                     |   |   |         |   |   |                                                                                                                            |   |   |                                                             |   |   |                                                      |   |   | (304 | )  |
| *Comprehensive                Income*                                                                                                     |   |   |              |   |   |                                                                                                                            |   |   |                                                             |   |   |                                                      |   |   | 34,243 |   |
| Additional              Investment by Shareholder                                                                                    |   |   |         |   |   | 30,000                                                                                                                     |   |   |                                                        |   |   |                                                 |   |   | 30,000 |   |
| Cash                Dividends Declared - Common Stock                                                                                     |   |   |    |   |   |                                                                                                                       |   |   |                                                        |   |   | (22,502                                              | )      |   | (22,502 | ) |
|                                                                                                                                      |   |   |              |   |   |                                                                                                                            |   |   |                                                             |   |   |                                                      |   |   |  |   |
| **Balance                at December 31, 2005**                                                                                           |   |   | 5,848        |   |   | 200,317                                                                                                                    |   |   | (4,337                                                      | )      |   | 142,740                                              |   |   | 344,568 |   |
| Net                Income Applicable to Common Stock                                                                                      |   |   |              |   |   |                                                                                                                            |   |   |                                                             |   |   | 35,779                                               |   |   | 35,779 |   |
| Other                Comprehensive Income (Loss), Net of Tax:*                                                                            |   |   |              |   |   |                                                                                                                            |   |   |                                                             |   |   |                                                      |   |   |  |   |
| Minimum                Pension Liability Adjustment                                                                                       |   |   |              |   |   |                                                                                                                            |   |   | (442                                                        | )      |   |                                                      |   |   | (442 | ) |
| Unrealized                Gain on Equity Investments                                                                                      |   |   |              |   |   |                                                                                                                            |   |   | 54                                                          |   |   |                                                      |   |   | 54 |   |
| Unrealized                Gain on Derivatives                                                                                             |   |   |              |   |   |                                                                                                                            |   |   | 296                                                         |   |   |                                                      |   |   | 296 |   |
| Other                Comprehensive Loss, Net of Tax:*                                                                                     |   |   |         |   |   |                                                                                                                            |   |   |                                                             |   |   |                                                      |   |   | (92 | )  |
| *Comprehensive                Income*                                                                                                     |   |   |              |   |   |                                                                                                                            |   |   |                                                             |   |   |                                                      |   |   | 35,687 |   |
| Cash                Dividends Declared - Common Stock                                                                                     |   |   |         |   |   |                                                                                                                       |   |   |                                                        |   |   | (19,902                                              | )      |   | (19,902 | ) |
|                                                                                                                                      |   |   |              |   |   |                                                                                                                            |   |   |                                                             |   |   |                                                      |   |   |  |   |
| **Balance                at December 31, 2006**                                                                                           |   | $      | 5,848        |   | $      | 200,317                                                                                                                    |   | $      | (4,429                                                      | )      | $      | 158,617                                              |   | $ | 360,353 |   |
|                                                                                                                                      |   |   |         |   |   |                                                                                                                       |   |   |                                                        |   |   |                                                 |   |   |   |   |
|                                                                                                                                      |   |   |         |   |   |                                                                                                                       |   |   |                                                        |   |   |                                                 |   |   |   |   |
| Disclosure                of Changes in Accumulated Other Comprehensive Loss                Balances*                                     |   |        |         |   |        |                                                                                                                       |
| (In                Thousands)                                                                                                             |   |   |              |   |   |                                                                                                                            |   |   |                                                             |   |   |                                                      |   |   |  |   |
|                                                                                                                                      |   |   |              |   |   | MinimumPensionLiabilityAdjustment                                                                                     |   |   | Unrealized                Gain (Loss) on Equity Investments |   |   | Unrealized                (Loss) Gain on Derivatives |   |   | Accumulated                Other Comprehensive Loss |   |
|                                                                                                                                      |   |   |              |   |
|                                                                                                                                      |   |   |              |   |   |                                                                                                                            |   |   |                                                             |   |   |                                                      |   |   |  |   |
| Balance                at January 1, 2004                                                                                                 |   |   |              |   | $      | (2,847                                                                                                                     | )      | $      | 283                                                         |   | $      | (4                                                   | )      | $ | (2,568 | ) |
| Changes                During Year                                                                                                        |   |   |              |   |   | (1,074                                                                                                                     | )      |   | (192                                                        | )      |   | (199                                                 | )      |   | (1,465 | ) |
| Balance                at December 31, 2004                                                                                               |   |   |              |   |   | (3,921                                                                                                                     | )      |   | 91                                                          |   |   | (203                                                 | )      |   | (4,033 | ) |
| Changes                During Year                                                                                                        |   |   |              |   |   | 423                                                                                                                        |   |   | 63                                                          |   |   | (790                                                 | )      |   | (304 | ) |
| Balance                at December 31, 2005                                                                                               |   |   |              |   |   | (3,498                                                                                                                     | )      |   | 154                                                         |   |   | (993                                                 | )      |   | (4,337 | ) |
| Changes                During Year                                                                                                        |   |   |              |   |   | (442                                                                                                                       | )      |   | 54                                                          |   |   | 296                                                  |   |   | (92 | ) |
| Balance                at December 31, 2006                                                                                               |   |   |              |   | $      | (3,940                                                                                                                     | )      | $      | 208                                                         |   | $      | (697                                                 | )      | $ | (4,429 | ) |
|                                                                                                                                      |   |   |              |   |   |                                                                                                                            |   |   |                                                             |   |   |                                                      |   |   |  |   |
| *Determined                using a combined statutory tax rate of 41.08% in 2006 and 40.85%                in prior                years. |   |        |         |   |        |                                                                                                                       |   |        |                                                        |   |        |                                                 |
|                                                                                                                                      |   |   |              |   |   |                                                                                                                            |   |   |                                                             |   |   |                                                      |   |   |  |   |
| The                accompanying notes are an integral part of the financial                statements.                                    |   |        |         |   |        |                                                                                                                       |   |        |                                                        |
|                                                                                                                                      |

----

**NOTES        TO FINANCIAL STATEMENTS**

**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**

|                                           |   | 2006   |      | 2005   |   |
|------------------------------------------------|--------|--------|-----------|--------|--------|
| Utility                  Plant:                |   |   |           |   |   |  |   |
| Production                  Plant              |   | $      | 302       |   | $      | 302 |   |
| Storage                  Plant                 |   |   | 11,576    |   |   | 11,755 |   |
| Transmission                  Plant            |   |   | 147,891   |   |   | 134,234 |   |
| Distribution                  Plant            |   |   | 878,168   |   |   | 831,732 |   |
| General                  Plant                 |   |   | 35,529    |   |   | 34,563 |   |
| Intangible                  Plant         |   |   | 3,394     |   |   | 3,394 |   |
| Utility                  Plant in Service      |   |   | 1,076,860 |   |   | 1,015,980 |   |
| Construction                  Work in Progress |   |   | 2,754     |   |   | 14,049 |   |
|                                           |   |   |      |   |   |  |   |
| Total                  Utility Plant           |   | $      | 1,079,614 |   | $      | 1,030,029 |   |

**Asset        Retirement Obligations**

| AROs                  as of January 1, 2006   |   | $22,5055 |   |
|-----------------------------------------------|--------|----------|--------|
| Accretion                                     |   |     | 953    |   |
| Additions                                     |   |     | 290    |   |
| Settlements                                   |   |     | (5     | ) |
| AROs                  as of December 31, 2006 |   | $        | 23,743 |   |

**Depreciation        **

----

**Capitalized        Interest**

**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%                           |
|                       |   |        |   |                                  |   |       |   |                           |

----

|                                                                                                                                                                                                      |   |   |    |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|
| Nonvested                  Shares Outstanding, January 1, 2006                                                                                                                                            |   |   | 49,816  |   |
|                                                                                                                                                                                                      |   |   |         |   |
| Granted                                                                                                                                                                                                   |   |   | 10,991  |   |
| Vested*                                                                                                                                                                                                   |   |   | (27,924 | ) |
| Cancelled/Forfeited                                                                                                                                                                                       |   |   | (6,145  | ) |
|                                                                                                                                                                                                      |   |   |         |   |
| Nonvested                  Shares Outstanding, December 31, 2006                                                                                                                                          |   |   | 26,738  |   |
|                                                                                                                                                                                                      |   |   |         |   |
| *                  Actual shares awarded upon vesting, including dividend equivalents                  and                  adjustments for performance measures, totaled 44,575                  shares. |

**Income        Taxes **

**Cash        and Cash Equivalents**

**New        Accounting Pronouncements**

----

**Reclassifications**

**2.        RATES AND REGULATORY ACTIONS**

**Base        Rates**

----

**Rate        Mechanisms**

| · | February                  2004 - We filed notice with the BPU to reduce our gas cost recoveries                  by                  approximately $5.0 million, via a rate reduction, in addition to                  providing                  for a $21.8 million bill credit to customers. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | March                  2004 - Both the rate reduction and bill credit were approved and                  implemented. |
|--------|-----------------------------------------------------------------------------------------------------------------------|

| · | June                  2004 - We made our annual periodic BGSS filing with the BPU requesting                  a                  $4.9 million increase in gas cost recoveries. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | October                  2004 - The increase in gas cost recoveries requested in June 2004                  was                  approved on a provisional basis. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | February                  2005 - We filed notice with the BPU to provide for an $11.4 million                  bill                  credit to customers. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | March                  2005 - The bill credit was approved and implemented. |
|--------|-----------------------------------------------------------------------------|

| · | June                  2005 - We made our annual periodic BGSS filing with the BPU requesting                  a                  $17.1 million, or 6.3%, increase in gas cost recoveries in response                  to                  increasing wholesale gas costs. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | August                  2005 - The BPU approved our requested June 2005 increase, effective                  September 1, 2005, on an interim                  basis. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | November                  2005 - We filed a BGSS Motion for Emergent Rate Relief in conjunction                  with                  the other natural gas utilities in New Jersey. This filing was                  necessary                  due to substantial increases in wholesale natural gas prices across                  the                  country. We requested a $103.2 million increase. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| · | December                  2005 - The BPU approved an $85.7 million increase to our rates,                  effective                  December 15, 2005. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | March                  2006 - The BPU approved a global settlement, effective April 1,                  2006,                  which among other items, fully resolved our 2004-2005 BGSS filing                  and                  certain issues in our 2005-2006 BGSS filing. The net impact of                  our global                  settlement was a $4.4 million reduction to annual revenues; however,                  this                  reduction had no impact on net income as there was a corresponding                  reduction in expense. In addition, a pilot storage incentive program                  was                  approved. This program began during the second quarter of 2006                  and will                  continue for three summer injection periods through 2008. It is                  designed                  to provide us with the opportunity to achieve BGSS price reductions                  and                  additional price stability. It will also provide us with an opportunity                  to                  share in storage-related gains and losses, with 20% being retained                  by us,                  and 80% being credited to customers. Total storage-related gains                  for 2006                  were $1.6 million. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | June                  2006 - We made our annual periodic BGSS filing with the BPU requesting                  a                  $19.7 million, or 4.4%, decrease in gas cost recoveries in response                  to                  decreasing wholesale gas costs, an $11.5 million benefit derived                  from the                  release of a storage facility and the liquidation of some low-cost                  base                  gas during the second quarter. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | September                  2006 - The BPU approved a $38.7 million, or 8.6%, annual decrease                  in gas                  cost recoveries due to the continuing decrease in wholesale gas                  costs                  subsequent to our June 2006 filing, an agreement to utilize gas                  from a                  released storage facility for the upcoming winter, and a credit                  to gas                  costs for previously overcollected state                  taxes. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | November                  2005 - We made our annual TAC filing, requesting a $1.0 million                  increase                  in annual revenues, to recover the cash related to the net TAC                  deficiency                  resulting from warmer-than-normal weather for the 2003-2004 winter,                  partially offset by colder-than-normal weather for the 2004-2005                  winter. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | March                  2006 - The BPU approved a global settlement, effective April 1,                  2006,                  fully resolving our 2003-2004 TAC filing. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | October                   2006 - The TAC was replaced by the Conservation Incentive Program                  (CIP). |
|--------|--------------------------------------------------------------------------------------------------------------------------|

----

| · | October                  2006 - We made our annual TAC filing, requesting recovery of an                  $8.3                  million net deficiency associated with weather being 12.5%                  warmer-than-normal for the TAC year ended May 31,                  2006. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | September                  2004 - We filed for a $2.6 million reduction to our annual SBC                  recovery                  level. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------|

| · | November                  2005 - We made our annual SBC filing, requesting a $6.1 million                  reduction                  in annual recoveries. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | March                  2006 - As part of the global settlement discussed under BGSS above,                  our                  September 2004 SBC filing was fully resolved effective April 1,                  2006. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | October                  2006 - We made our annual SBC filing, superseding our 2005 SBC                  filing,                  requesting a $0.4 million reduction in annual SBC recoveries. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Remediation        Adjustment Clause (RAC)*

----

*New        Jersey Clean Energy Program (NJCEP)*

*Universal        Service Fund (USF)*

| · | April                  2005 - We made our annual USF filing, along with the state’s other                  electric and gas utilities, proposing no rate change to the statewide                  program. This rate proposal was approved by the BPU in June 2005. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | July                  2006 - We made our annual USF filing, along with the state’s other                  electric and gas utilities, proposing to increase annual statewide                  gas                  revenues to $115.3 million, an increase of $68.5 million. This                  rate                  proposal was approved by the BPU in October 2006, on an interim                  basis, and                  will increase our annual USF revenues by $7.7 million. The revised                  rates                  are effective from November 1, 2006 through September 30,                  2007. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Consumer        Education Program (CEP)*

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

----

**3.**
**REGULATORY        ASSETS AND LIABILITIES**
**:**

| Regulatory                  Assets at December 31 consisted of the following items (in                  thousands): |   |
|---------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                |   |   |   |    |   |
|                                                                                                                |   | 2006 |   |  2005 |   |
| Environmental                  Remediation Costs:Expended                  - Net                                    |   | $ | 17,743 |   | $ | 9,350 |   |
| Liability                  for Future Expenditures                                                                  |   |   | 67,905 |   |   | 56,717 |   |
| Income                  Taxes-Flowthrough Depreciation                                                              |   |   | 4,685 |   |   | 5,663 |   |
| Deferred                  Asset Retirement Obligation Costs                                                         |   |   | 21,009 |   |   | 19,986 |   |
| Deferred                  Fuel Costs - Net                                                                          |   |   | 19,698 |   |   | 21,237 |   |
| Deferred                  Pension and Other Postretirement Benefit Costs                                            |   |   | 39,359 |   |   | 2,646 |   |
| Temperature                  Adjustment Clause Receivable                                                           |   |   | 8,996 |   |   | 1,003 |   |
| Conservation                  Incentive Program Receivable                                                          |   |   | 7,747 |   |   | - |   |
| Societal                  Benefit Costs Receivable                                                                  |   |   | 6,912 |   |   | 2,691 |   |
| Premium                  for Early Retirement of Debt                                                               |   |   | 1,532 |   |   | 1,694 |   |
| Other                  Regulatory Assets                                                                            |   |   | 1,376 |   |   | 1,499 |   |
|                                                                                                                |   | $ | 196,962 |   | $ | 122,486 |   |

----

** **

----

|                                          |   | 2006   |   | 2005   |   |
|-----------------------------------------------|--------|------------------|--------|--------|--------|
| Excess                  Plant Removal Costs   |   | $                | 48,377 |   | $      | 48,071 |   |
| Overcollected                  State Taxes    |   |             | -      |   |   | 4,025 |   |
| Other                                         |   |             | 2,420  |   |   | 1,906 |   |
|                                          |   |             |   |   |   |   |   |
| Total                  Regulatory Liabilities |   | $                | 50,797 |   | $      | 54,002 |   |

----

**4.**
**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                  that                  acquires and markets natural gas and electricity to retail end                  users and                  provides total energy management services to commercial and industrial                  customers. We previously sold 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, LLC (SJRG)                  -                  a wholly owned subsidiary of SJI and a wholesale gas and risk management                  business that supplies natural gas storage, commodity and transportation                  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 (dth)                  of gas to                  SJRG for $13.1 million. The proceeds from the sale were credited                  to the                  BGSS clause and did not impact                  earnings. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Marina                  Energy LLC (Marina)                  -                  a wholly owned subsidiary of SJI and developer, owner and operator                  of                  energy related projects. We provide natural gas transportation                  services to                  Marina under BPU-approved tariffs. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

----

|                                                                                            |   | 2006         |      | 2005         |    | 2004         |   |
|-------------------------------------------------------------------------------------------------|--------|--------------|-----------|--------------|---------|--------------|--------|
|                                                                                                 |   |    |      |    |    |    |   |
| Operating                  Revenues:                                                       |   |         |      |         |    |         |   |   |   |   |
|  SJIS                                                                                 |   |  $      |  450 |         | $  | -       |   | $  | - |   |
|  SJI                                                                                       |   |         | 901       |         |    | 1,234        |   |   | 820 |   |
|  SJES                                                                                 |   |         | 113       |         |    | -            |   |   | - |   |
|  SJE                                                                                       |   |         | 177       |         |    | 635          |   |   | 8,427 |   |
|  SJRG                                                                                      |   |         | 67,262    |         |    | 10,680       |   |   | 6,137 |   |
|  Marina                                                                                    |   |         | 249       |         |    | 266          |   |   | 222 |   |
|  SJESP                                                                                     |   |         | 412       |         |    | 893          |   |   | 282 |   |
|          Total                  Operating Revenues |   |  $      | 69,564    |         |  $ | 13,708       |   | $  | 15,888 |   |

|                                                                  |   |    | 2006  |   |    | 2005  |   |    | 2004  |   |
|-----------------------------------------------------------------------|--------|---------|------------|--------|---------|------------|--------|---------|------------|--------|
|  Costs                  of Sales (Excluding depreciation):  |   |    |       |   |    |       |   |    |       |   |
|   SJRG                                                      |   |  $ | 53,196     |   |  $ | 13,140     |   |  $ | 22,120     |   |
|  Total                  Cost of Sales                            |   |  $ | 53,196     |   |  $ | 13,140     |   |  $ | 22,120     |   |
|                                                                  |   |    |       |   |    |       |   |    |       |   |
| Operations                                                       |   |    |       |   |    |       |   |    |       |   |
|  SJI                                                        |   |    | 7,434      |   |    | 5,811      |   |    | 4,222      |   |
|  SJIS                                                            |   |    | 5,373      |   |    | -     |   |    | -     |   |
|  Millennium                                                      |   |    | 2,743      |   |    | 2,626      |   |    | 2,600      |   |
|  Total                  Cost of Sales                            |   |  $ | 15,550     |   |  $ | 8,437      |   |  $ | 6,822      |   |

----

**5.**
**PREFERRED        STOCK**

**6.**
**INCOME        TAXES AND CREDITS**

|                                                                                                           |   |   | 2006    |   |   | 2005   |   |   | 2004        |   |
|----------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|--------|--------|-------------|--------|
| Tax                  at Statutory Rate                                                                         |   | $      | 21,206  |   | $      | 20,906 |   | $      | 19,051      |   |
| Increase                  (Decrease) Resulting from:                                                           |   |   |    |   |   |   |   |   |        |   |
| State                  Income Taxes                                                                            |   |   | 4,107   |   |   | 4,035  |   |   | 3,738       |   |
| Amortization                  of Investment Tax Credits                                                        |   |   | (325    | )      |   | (334   | )      |   | (342        | )      |
| ESOP                  Dividend                                                                                 |   |   | (674    | )      |   | -      |   |   | -           |   |
| Amortization                  of Flowthrough Depreciation                                                      |   |   | 664     |   |   | 664    |   |   | 664         |   |
| Other                  - Net                                                                                   |   |   | (167    | )      |   | (86    | )      |   | (142        | )      |
| Net                  Income Taxes                                                                              |   | $      | 24,811  |   | $      | 25,185 |   | $      | 22,969      |   |
|                                                                                                           |   |   |    |   |   |   |   |   |        |   |
| The                  provision for Income Taxes is comprised of the following (in                  thousands): |   |   |    |
|                                                                                                           |   |   | 2006    |   |   | 2005   |   |   | 2004        |   |
| Current:                                                                                                       |   |   |    |   |   |   |   |   |        |   |
| Federal                                                                                                        |   | $      | 16,556  |   | $      | (1,819 | )      | $      | 4,078       |   |
| State                                                                                                          |   |   | 3,829   |   |   | 1,342  |   |   | 4,632       |   |
| Total                  Current                                                                                 |   |   | 20,385  |   |   | (477   | )      |   | 8,710  |   |
| Deferred:                                                                                                      |   |   |    |   |   |   |   |   |        |   |
| Federal:                                                                                                       |   |   |    |   |   |   |   |   |        |   |
| Excess                  of Tax Depreciation Over                                                               |   |   |    |   |   |   |   |   |        |   |
| Book                  Depreciation - Net                                                                       |   |   | 7,979   |   |   | 4,832  |   |   | 14,323      |   |
| Deferred                  Fuel Costs - Net                                                                     |   |   | (12,646 | )      |   | 17,567 |   |   | (3,229      | )      |
| Environmental                  Costs - Net                                                                     |   |   | 1,808   |   |   | 970    |   |   | 752         |   |
| Prepaid                  Pension                                                                               |   |   | 202     |   |   | 346    |   |   | 2,289       |   |
| Deferred                  Regulatory Costs                                                                     |   |   | 3,525   |   |   | (1,156 | )      |   | (804        | )      |
| Other                  - Net                                                                                   |   |   | 1,394   |   |   | (1,429 | )      |   | 151         |   |
| State                                                                                                          |   |   | 2,489   |   |   | 4,866  |   |   | 1,119       |   |
| Total                  Deferred                                                                                |   |   | 4,751   |   |   | 25,996 |   |   | 14,601      |   |
| Investment                  Tax Credits                                                                        |   |   | (325    | )      |   | (334   | )      |   | (342        | )      |
| Net                  Income Taxes                                                                              |   | $      | 24,811  |   | $      | 25,185 |   | $      | 22,969      |   |

----

|                                                                   |   | 2006   |    | 2005   |   |
|------------------------------------------------------------------------|--------|--------|---------|--------|--------|
| Current:                                                               |   |   |         |   |   |  |   |
| Deferred                  Fuel Costs - Net                             |   | $      | 4,121   |   | $      | 4,098 |   |
| Uncollectibles                                                         |   |   | (956    | )      |   | (1,194 | ) |
| NJ                  Alternate Minimum Assessment/Net Operating Loss    |   |   | -       |   |   | (1,624 | ) |
| Section                  461 Prepayments                               |   |   | 967     |   |   | 1,311 |   |
| Other                                                                  |   |   | (83     | )      |   | (296 | ) |
| Current                  Deferred Tax Liability - Net                  |   | $      | 4,049   |   | $      | 2,295 |   |
| Noncurrent:                                                            |   |   |    |   |   |  |   |
|                                                                   |   |   |    |   |   |  |   |
| Book                  Versus Tax Basis of Property                     |   | $      | 147,296 |   | $      | 132,236 |   |
| Deferred                  Fuel Costs - Net                             |   |   | 6,733   |   |   | 22,891 |   |
| Prepaid                  Pension                                       |   |   | -       |   |   | 11,959 |   |
| Environmental                                                          |   |   | 6,546   |   |   | 4,018 |   |
| Deferred                  Regulatory Costs                             |   |   | 3,370   |   |   | 1,644 |   |
| Deferred                  State Tax                                    |   |   | (4,238  | )      |   | (4,761 | ) |
| Minimum                  Pension Liability                             |   |   | -       |   |   | (2,602 | ) |
| Investment                  Tax Credit Basis Gross-Up                  |   |   | (1,272  | )      |   | (1,440 | ) |
| Deferred                  Pension & Other Post Retirement Benefits |   |   | 15,239  |   |   | - |   |
| Pension                  & Other Post Retirement Benefits          |   |   | (11,672 | )      |   | - |   |
| Deferred                  Revenues                                     |   |   | 2,376   |   |   | - |   |
| Other                                                                  |   |   | 419     |   |   | (1,403 | ) |
| Noncurrent                  Deferred Tax Liability - Net               |   | $      | 164,797 |   | $      | 162,542 |   |

----

**7.**
**LONG-TERM        DEBT**
**:        **

|                                                           |   |                             |   | 2006    |    |   | 2005    |   |
|----------------------------------------------------------------|--------|----------------------------------|--------|---------|---------|--------|---------|--------|
| First                  Mortgage Bonds: (B)                     |   |                             |   |    |    |   |
| 8.19%                                                          |   | Series                  due 2007 | $      | 2,270   |    | $      | 4,543   |   |
| 6.12%                                                          |   | Series                  due 2010 |   | 10,000  |    |   | 10,000  |   |
| 6.74%                                                          |   | Series                  due 2011 |   | 10,000  |    |   | 10,000  |   |
| 6.57%                                                          |   | Series                  due 2011 |   | 15,000  |    |   | 15,000  |   |
| 4.46%                                                          |   | Series                  due 2013 |   | 10,500  |    |   | 10,500  |   |
| 5.027%                                                         |   | Series                  due 2013 |   | 14,500  |    |   | 14,500  |   |
| 4.52%                                                          |   | Series                  due 2014 |   | 11,000  |    |   | 11,000  |   |
| 5.115%                                                         |   | Series                  due 2014 |   | 10,000  |    |   | 10,000  |   |
| 5.387%                                                         |   | Series                  due 2015 |   | 10,000  |    |   | 10,000  |   |
| 6.50%                                                          |   | Series                  due 2016 |   | 9,893   |    |   | 9,965   |   |
| 4.60%                                                          |   | Series                  due 2016 |   | 17,000  |    |   | 17,000  |   |
| 5.437%                                                         |   | Series                  due 2016 |   | 10,000  |    |   | 10,000  |   |
| 4.657%                                                         |   | Series                  due 2017 |   | 15,000  |    |   | 15,000  |   |
| 7.97%                                                          |   | Series                  due 2018 |   | 10,000  |    |   | 10,000  |   |
| 7.125%                                                         |   | Series                  due 2018 |   | 20,000  |    |   | 20,000  |   |
| 5.587%                                                         |   | Series                  due 2019 |   | 10,000  |    |   | 10,000  |   |
| 7.7%                                                           |   | Series                  due 2027 |   | 35,000  |    |   | 35,000  |   |
| 5.55%                                                          |   | Series                  due 2033 |   | 32,000  |    |   | 32,000  |   |
| 6.213%                                                         |   | Series                  due 2034 |   | 10,000  |    |   | 10,000  |   |
| 5.45%                                                          |   | Series                  due 2035 |   | 10,000  |    |   | 10,000  |   |
| Series                  A 2006 Tax-Exempt First Mortgage Bonds |   |                             |   |    |    |   |
| Variable                  Rate, due 2036 (C)                   |   | 25,000                           |   |    | -       |   |
|                                                           |   |                             |   |    |    |   |    |   |
| Total                  Long-Term Debt Outstanding              |   | 297,163                          |   |    | 274,508 |   |
| Less                  Current Maturities                       |   | (2,270                           | )      |    | (2,273  | )      |
| Long-Term                  Debt                                |   |                             | $      | 294,893 |    | $      | 272,235 |   |

----

| (A) | Long-term                  debt maturities and sinking funds requirements for the succeeding                  five                  years are as follows (in thousands): 2007, $2,270; 2008, $-0-;                  2009, $-0-;                  2010, $10,000; 2011, $25,000.  Our long-term debt agreements contain                  no financial covenants. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (B) | Our                  First Mortgage dated October 1, 1947, as supplemented, securing                  the First                  Mortgage Bonds constitutes a direct first mortgage lien on substantially                  all utility plant. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (C) | In                  April 2006, we issued $25.0 million of secured tax-exempt, auction-rate                  debt through the New Jersey Economic Development Authority (NJEDA)                  to                  finance infrastructure costs that qualify for tax-exempt financing.                  As of                  December 31, 2006, $115.0 million remains available under the MTN                  program.  The auction rate, which resets weekly, was set at 3.80% as                  of December 31, 2006. As of December 31, 2006, $8.6 million, including                  interest thereon, remains in escrow pending the incurrence of capital                  costs that qualify for tax-exempt financing. We entered into interest                  rate                  swap agreements that effectively fixed the interest rate on this                  debt at                  3.43%, from December 1, 2006 through January 2036. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**8.        **
**FINANCIAL        INSTRUMENTS**
**:**

**Restricted        Investments**

**Other        Financial Instruments**

**9.**
**UNUSED        LINES OF CREDIT**
**:        **

**10.        **
**RETAINED        EARNINGS**
**:        **

----

**11.**
** **
**PENSION        AND OTHER POSTRETIREMENT BENEFITS**

|                                                       |   |                            |                           |   |   |                            |   |
|------------------------------------------------------------|--------|---------------------------------|--------------------------------|--------|--------|---------------------------------|--------|
|                                                       |   | Before                          |                           |   |   | After                           |   |
|                                                       |   | Application                  of |                           |   |   | Application                  of |   |
|                                                            |   |                            | Statement                  158 |   |   | Adjustments                     |   |   | Statement                  158 |   |
| Regulatory                  Assets                         |   | $                               | 159,871                        |   | $      | 37,091                          |   | $ | 196,962 |   |
| Prepaid                  Pension                           |   |                            | 23,069                         |   |   | (23,069                         | )      |   | - |   |
| Total                  Assets                              |   | $                               | 182,940                        |   | $      | 14,022                          |   | $ | 196,962 |   |
|                                                       |   |                            |                           |   |   |                            |   |   |   |   |
| Pension                  and Other Postretirement Benefits |   | $                               | 15,332                         |   | $      | 14,022                          |   | $ | 29,354 |   |
| Total                  Liabilities                         |   | $                               | 15,332                         |   | $      | 14,022                          |   | $ | 29,354 |   |
|                                                       |   |                            |                           |   |   |                            |   |   |   |   |

----

|                                                |   |    |   | Pension                  Benefits  |   |    |   | OtherPostretirement                  Benefits  |   |
|-----------------------------------------------------|--------|--------------|--------|-----------------------------------------|--------|--------------|--------|-----------------------------------------------------|--------|
|                                                |   |         | 2006   |                                    |   | 2005         |   |                                                | 2004   |   |   | 2006 |   |   | 2005 |   |   | 2004 |   |
| Service                  Cost                       |   | $            | 2,322  |                                    | $      | 2,704        |   | $                                                   | 2,545  |   | $ | 656 |   | $ | 732 |   | $ | 1,160 |   |
| Interest                  Cost                      |   |         | 5,988  |                                    |   | 5,970        |   |                                                | 5,246  |   |   | 2,279 |   |   | 1,963 |   |   | 2,173 |   |
| Expected                  Return on Plan Assets     |   |         | (7,518 | )                                       |   | (7,494       | )      |                                                | (5,793 | ) |   | (1,617 | ) |   | (1,482 | ) |   | (1,302 | ) |
| Amortizations:                                      |   |         |   |                                    |   |         |   |                                                |   |   |   |   |   |   |   |   |   |   |   |
| Transition                  Obligation              |   |         | -      |                                    |   | -            |   |                                                | -      |   |   | - |   |   | - |   |   | 592 |   |
| Prior                  Service Cost (Credits)       |   |         | 389    |                                    |   | 522          |   |                                                | 490    |   |   | (264 | ) |   | (361 | ) |   | (154 | ) |
| Actuarial                  Loss                     |   |         | 2,032  |                                    |   | 2,349        |   |                                                | 1,576  |   |   | 789 |   |   | 570 |   |   | 284 |   |
| Net                  Periodic Benefit Cost          |   |         | 3,213  |                                    |   | 4,051        |   |                                                | 4,064  |   |   | 1,843 |   |   | 1,422 |   |   | 2,753 |   |
| ERIP                  Cost                          |   |         | -      |                                    |   | 459          |   |                                                | 711    |   |   | - |   |   | 1,187 |   |   | 134 |   |
| Capitalized                  Benefit Costs          |   |         | (1,574 | )                                       |   | (1,823       | )      |                                                | (1,474 | ) |   | (903 | ) |   | (640 | ) |   | (991 | ) |
| Total                  Net Periodic Benefit Expense |   | $            | 1,639  |                                    | $      | 2,687        |   | $                                                   | 3,301  |   | $ | 940 |   | $ | 1,969 |   | $ | 1,896 |   |

|                                           |   |  PensionBenefits |   | OtherPostretirementBenefits |   |
|------------------------------------------------|--------|-----------------------|--------|-----------------------------|--------|
| Prior                  Service Costs (Credits) |   | $                     | 240    |                        | $      | (264 | ) |
| Net                  Actuarial Loss            |   | $                     | 1,066  |                        | $      | 648 |   |

|                                |   |   |   Pension Benefits  |   |   | OtherPostretirementBenefits |   |
|-------------------------------------|--------|--------|-----------------------------------------|--------|--------|-----------------------------|--------|
| Net                  Actuarial Loss |   | $      | 627                                     |   | $      | -                           |   |

----

|                                                            |   |                                    |                                     |   |   | Other   |   |
|-----------------------------------------------------------------|--------|-----------------------------------------|------------------------------------------|--------|--------|---------|--------|
|                                                                 |   | Pension                  Benefits  | Postretirement                  Benefits |
|                                                            |   |                                    | 2006                                     |   |   | 2005    |   |   | 2006 |   |   | 2005 |   |
| **Change                  in Benefit Obligations**:             |   |                                    |                                          |   |   |         |   |   |  |   |   |  |   |
| Benefit                  Obligation at Beginning of Year        |   | $                                       | 111,767                                  |   | $      | 105,668 |   | $ | 39,062 |   | $ | 34,966 |   |
| Transferred                  to Affiliate                       |   |                                    | (5,356                                   | )      |   | -       |   |   | (1,639 | ) |   | - |   |
| Service                  Cost                                   |   |                                    | 2,322                                    |   |   | 2,704   |   |   | 656 |   |   | 732 |   |
| Interest                  Cost                                  |   |                                    | 5,988                                    |   |   | 5,971   |   |   | 2,279 |   |   | 1,963 |   |
| Plan                  Amendments                                |   |                                    | -                                        |   |   | -       |   |   | 1,408 |   |   | - |   |
| Actuarial                  Loss                                 |   |                                    | 711                                      |   |   | 2,297   |   |   | 2,014 |   |   | 3,538 |   |
| Retiree                  Contributions                          |   |                                    | -                                        |   |   | -       |   |   | 305 |   |   | 300 |   |
| Benefits                  Paid                                  |   |                                    | (5,697                                   | )      |   | (4,873  | )      |   | (2,813 | ) |   | (2,437 | ) |
| Benefit                  Obligation at End of Year              |   | $                                       | 109,735                                  |   | $      | 111,767 |   | $ | 41,272 |   | $ | 39,062 |   |
|                                                            |   |                                    |                                          |   |   |         |   |   |  |   |   |  |   |
| **Change                  in Plan Assets:**                     |   |                                    |                                          |   |   |         |   |   |  |   |   |  |   |
| Fair                  Value of Plan Assets at Beginning of Year |   | $                                       | 94,311                                   |   | $      | 87,887  |   | $ | 23,373 |   | $ | 20,711 |   |
| Transferred                  to Affiliate                       |   |                                    | (5,137                                   | )      |   | -       |   |   | (882 | ) |   | - |   |
| Actual                  Return on Plan Assets                   |   |                                    | 10,360                                   |   |   | 6,219   |   |   | 2,822 |   |   | 1,196 |   |
| Employer                  Contributions                         |   |                                    | 766                                      |   |   | 5,078   |   |   | 3,469 |   |   | 3,603 |   |
| Retiree                  Contributions                          |   |                                    | -                                        |   |   | -       |   |   | 305 |   |   | 300 |   |
| Benefits                  Paid                                  |   |                                    | (5,697                                   | )      |   | (4,873  | )      |   | (2,813 | ) |   | (2,437 | ) |
| Fair                  Value of Plan Assets at End of Year       |   | $                                       | 94,603                                   |   | $      | 94,311  |   | $ | 26,274 |   | $ | 23,373 |   |

| **Funded                  Status at End of Year**:                 |   | $      | (15,132 | )      | $      | (17,456 | )      | $      | (14,998 | )      | $      | (15,688 | )      |
|--------------------------------------------------------------------|--------|--------|---------|--------|--------|---------|--------|--------|---------|--------|--------|---------|--------|
| Unrecognized                  Prior Service Cost                   |   |   | -       |   |   | 2,401   |   |   | -       |   |   | (2,898  | )      |
| Unrecognized                  Net Loss and Other                   |   |   | -       |   |   | 35,815  |   |   | -       |   |   | 13,435  |   |
| (Accrued)                  Prepaid Net Benefit Cost at End of Year |   | $      | (15,132 | )      | $      | 20,760  |   | $      | (14,998 | )      | $      | (5,151  | )      |
|                                                               |   |   |         |   |   |         |   |   |         |   |   |         |   |
| **Amounts                  Recognized in the Statement**           |   |   |         |   |   |         |   |   |         |   |   |         |   |
| **of                  Financial Position Consist of:**        |   |   |         |   |   |         |   |   |         |   |   |         |   |
| Noncurrent                  Asset                                  |   | $      | -       |   | $      | 26,202  |   | $      | -       |   | $      | -       |   |
| Current                  Liabilities                               |   |   | (776    | )      |   | -       |   |   | -       |   |   | -       |   |
| Noncurrent                  Liabilities                            |   |   | (14,356 | )      |   | (11,482 | )      |   | (14,998 | )      |   | (5,151  | )      |
| Intangible                  Asset                                  |   |   | -       |   |   | 127     |   |   | -       |   |   | -       |   |
| Accumulated                  Other Comprehensive Loss              |   |   | -       |   |   | 5,913   |   |   | -       |   |   | -       |   |
| Net                  Amount Recognized at End of Year              |   | $      | (15,132 | )      | $      | 20,760  |   | $      | (14,998 | )      | $      | (5,151  | )      |
|                                                               |   |   |    |   |   |    |   |   |    |   |   |    |   |
| **Amounts                  Recognized in Regulatory Assets**       |   |   |         |   |   |         |   |   |         |   |   |         |   |
| **Consist                  of:**                              |   |   |         |   |   |         |   |   |         |   |   |         |   |
| Prior                  Service Costs (Credit)                      |   | $      | 1,859   |   |   |    |   | $      | (1,231  | )      |   |    |   |
| Net                  Actuarial Loss                                |   |   | 23,376  |   |   |    |   |   | 13,087  |   |   |    |   |
|                                                               |   | $      | 25,235  |   |   |    |   | $      | 11,856  |   |   |    |   |
|                                                               |   |   |    |   |   |    |   |   |    |   |   |    |   |
| **Amounts                  Recognized in Accumulated Other**       |   |   |         |   |   |    |   |   |         |   |   |    |   |
| **Comprehensive                  Loss Consist of:**           |   |   |         |   |   |    |   |   |         |   |   |    |   |
| Net                  Actuarial Loss                                |   | $      | 6,661   |   |   |    |   | $      | -       |   |   |    |   |
|                                                               |   |   |    |   |   |    |   |   |    |   |   |    |   |

----

|                                           |   | Pension                  Benefits  |   | OtherPostretirement                  Benefits  |   |
|------------------------------------------------|--------|-----------------------------------------|--------|-----------------------------------------------------|--------|
|                                           |   | 2006                                    |   | 2005                                                |   | 2006 |   | 2005 |   |
|                                           |   |                                         |   |                                                     |   |  |   |  |   |
| Discount                  Rate                 |   | 6.04                                    | %      | 5.84                                                | %      | 6.04 | % | 5.84 | % |
| Rate                  of Compensation Increase |   | 3.60                                    | %      | 3.60                                                | %      | - |   | - |   |

|                                                      |   |   |   |  Pension                  Benefits    |   |   |   | OtherPostretirement                  Benefits  |   |
|-----------------------------------------------------------|--------|--------|--------|-----------------------------------------------------------|--------|--------|--------|-----------------------------------------------------|--------|
|                                                      |   |   | 2006   |                                                      |   | 2005   |   |                                                | 2004   |   |   | 2006 |   |   | 2005 |   |   | 2004 |   |
|                                                      |   |   |        |                                                      |   |        |   |                                                |        |   |   |  |   |   |  |   |   |  |   |
| Discount                  Rate                            |   |   | 5.84   | %                                                         |   | 5.75   | %      |                                                | 6.25   | % |   | 5.84 | % |   | 5.75 | % |   | 6.25 | % |
| Expected                  Long-Term Return on Plan Assets |   |   | 8.75   | %                                                         |   | 8.75   | %      |                                                | 8.75   | % |   | 7.25 | % |   | 7.25 | % |   | 7.25 | % |
| Rate                  of Compensation Increase            |   |   | 3.60   | %                                                         |   | 3.60   | %      |                                                | 3.60   | % |   | - |   |   | - |   |   | - |   |
|                                                      |   |   |   |                                                      |   |   |   |                                                |   |   |   |   |   |   |   |   |   |   |   |

----

|                                                                        |   | 2005   |   |  2005 |   |
|-----------------------------------------------------------------------------|--------|--------|--------|------------|--------|
|                                                                        |   |   |   |       |   |
| Post-65                  Medical Care Cost Trend Rate Assumed for Next Year |   | 6.67   | %      | 7.5        | %      |
| Pre-65                  Medical Care Cost Trend Rate Assumed for Next Year  |   |   | 9.0    | %          |   | 11.0 | % |
| Dental                  Care Cost Trend Rate Assumed for Next Year          |   |   | 6.67   | %          |   | 7.5 | % |
| Rate                  to which Cost Trend Rates are Assumed to Decline      |   |   |   |       |   |  |   |
| (the                  Ultimate Trend Rate)                                  |   |   | 5.0    | %          |   | 5.0 | % |
| Year                  that the Rate Reaches the Ultimate Trend Rate         |   |   | 2013   |       |   | 2013 |   |

|                                                              |   | 1-Percentage-                   |   | 1-Percentage-                   |   |
|-------------------------------------------------------------------|--------|---------------------------------|--------|---------------------------------|--------|
|                                                              |   | Point                  Increase |   | Point                  Decrease |   |
|                                                              |   |                            |        |                            |   |  |   |
| Effect                  on the Total of Service and Interest Cost |   | $                               | 131    |                            | $      | (115 | ) |
| Effect                  on Postretirement Benefit Obligation      |   |                            | 2,157  |                            |   | (1,900 | ) |

|                                             |   |                              |   |                                     |   | Other      |   |
|--------------------------------------------------|--------|-----------------------------------|--------|------------------------------------------|--------|------------|--------|
|                                             |   | Pension                  Benefits |   | Postretirement                  Benefits |   |
|                                             |   | 2006                              |   |  2005                               |   |  2006 |   |  2005 |   |
| Asset                  Category:                 |   |                              |        |                                     |   |            |   |   |  |   |   |  |   |
| U.S.                  Equity Securities          |   |                              | 51     | %                                        |   | 50         | %      |   | 48 | % |   | 48 | % |
| International                  Equity Securities |   |                              | 16     |                                     |   | 15         |   |   | 17 |   |   | 16 |   |
| Fixed                  Income                    |   |                              | 33     |                                     |   | 35         |   |   | 35 |   |   | 36 |   |
|                                             |   |                              |   |                                     |   |            |   |   |   |   |   |  |   |
| Total                                            |   |                              | 100    | %                                        |   | 100        | %      |   | 100 | % |   | 100 | % |

----

|                         |   |                              |   | Other                                    |   |
|------------------------------|--------|-----------------------------------|--------|------------------------------------------|--------|
|                         |   | Pension                  Benefits |   | Postretirement                  Benefits |   |
|                         |   |                              |   |                                     |   |
| 2007                         |   | $                                 | 6,064  |                                     | $      | 2,884 |   |
| 2008                         |   |                              | 6,067  |                                     |   | 3,002 |   |
| 2009                         |   |                              | 6,064  |                                     |   | 3,089 |   |
| 2010                         |   |                              | 6,144  |                                     |   | 3,240 |   |
| 2011                         |   |                              | 6,257  |                                     |   | 3,322 |   |
| 2012                  - 2016 |   |                              | 35,565 |                                     |   | 15,861 |   |

----

**12.**
**COMMITMENTS        AND CONTINGENCIES**

|                                                      |   |   |    | Up                  to  |   | Years                      |   | Years                      |    | More                  than |   |
|-----------------------------------------------------------|--------|--------|---------|-------------------------|--------|----------------------------|--------|----------------------------|---------|----------------------------|--------|
| **Contractual                  Cash Obligations**         |   | Total  |    | 1                  Year |   | 2                  & 3 |   | 4                  & 5 |    | 5                  Years   |   |
|                                                      |   |   |    |                    |   |                       |   |                       |    |                       |   |
| Principal                  Payments on Long-Term Debt     |   | $      | 297,163 |                    | $      | 2,270                      |   | $                          | -       |                       | $      | 35,000 |   | $ | 259,893 |   |
| Interest                  on Long-Term Debt               |   |   | 235,518 |                    |   | 17,095                     |   |                       | 34,003  |                       |   | 33,391 |   |   | 151,029 |   |
| Operating                  Leases                         |   |   | 207     |                    |   | 127                        |   |                       | 65      |                       |   | 15 |   |   | - |   |
| Construction                  Obligations                 |   |   | 98      |                    |   | 98                         |   |                       | -       |                       |   | - |   |   | - |   |
| Commodity                  Supply Purchase Obligations    |   |   | 196,241 |                    |   | 45,148                     |   |                       | 72,842  |                       |   | 19,511 |   |   | 58,740 |   |
| New                  Jersey Clean Energy Program (Note 2) |   |   | 15,000  |                    |   | 7,000                      |   |                       | 8,000   |                       |   | - |   |   | - |   |
| Other                  Purchase Obligations               |   |   | 393     |                    |   | 393                        |   |                       | -       |                       |   | - |   |   | - |   |
|                                                      |   |   |         |                    |   |                            |   |                       |         |                       |   |  |   |   |  |   |
| Total                  Contractual                        |   |   |         |                    |   |                            |   |                       |         |                       |   |  |   |   |  |   |
| Cash                  Obligations                         |   | $      | 744,620 |                    | $      | 72,131                     |   | $                          | 114,910 |                       | $      | 87,917 |   | $ | 469,662 |   |

**Gas        Supply Contracts**

**Pending        Litigation**

**Collective        Bargaining Agreements**
** **

**Environmental        Remediation Costs**

----

|                                                       |   | 2006   |    | 2005   |   |
|------------------------------------------------------------|--------|--------|---------|--------|--------|
|                                                       |   |   |         |   |   |  |   |
| Beginning                  of Year                         |   | $      | 56,717  |   | $      | 51,046 |   |
|  Accruals                                             |   |   | 20,663  |   |   | 11,710 |   |
|  Expenditures                  Net of Rate Recoveries |   |   | (10,840 | )      |   | (6,655 | ) |
| Insurance                  Recoveries                      |   |   | (1,493  | )      |   | (358 | ) |
| Amortization                  of Cash Outflows             |   |   | 2,747   |   |   | 974 |   |
|                                                       |   |   |         |   |   |  |   |
| End                  of Year                               |   | $      | 67,794  |   | $      | 56,717 |   |

----

**13.**
**QUARTERLY        RESULTS OF OPERATIONS - UNAUDITED:**

|                                                                                                                                                                                           |   | 2006                  Quarter Ended |                      | 2005                  Quarter Ended |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|---------------------------|-------------------------------------|--------|
|                                                                                                                                                                                           |   |                                |                           |                                |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
|                                                                                                                                                                                                |   |                                | March                  31 |                                |   | June                  30 |   |   | Sept.                  30 |   |   | Dec.                  31 |   |   | March                  31 |   |   | June                  30 |   |   | Sept.                  30 |   |   | Dec.                  31 |   |
|                                                                                                                                                                                           |   |                                |                           |                                |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
|                                                                                                                                                                                           |   |                                |                           |                                |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Operating                  Revenues                                                                                                                                                            |   | $                                   | 277,081                   |                                | $      | 105,006 |   | $ | 87,715 |   | $ | 172,869 |   | $ | 214,537 |   | $ | 86,083 |   | $ | 89,702 |   | $ | 196,890 |   |
|                                                                                                                                                                                           |   |                                |                           |                                |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Expenses:                                                                                                                                                                                      |   |                                |                           |                                |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Cost                  of Sales                                                                                                                                                                 |   |                                | 208,621                   |                                |   | 76,040 |   |   | 65,014 |   |   | 122,611 |   |   | 144,345 |   |   | 55,111 |   |   | 67,076 |   |   | 148,420 |   |
| Operation                  and Maintenance                                                                                                                                                     |   |                                |                           |                                |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Including                  Fixed Charges                                                                                                                                                       |   |                                | 26,146                    |                                |   | 22,914 |   |   | 24,194 |   |   | 27,882 |   |   | 26,580 |   |   | 23,080 |   |   | 22,162 |   |   | 28,923 |   |
| Income                  Taxes (Benefit)                                                                                                                                                        |   |                                | 15,530                    |                                |   | 1,938 |   |   | (1,062 | ) |   | 8,405 |   |   | 16,125 |   |   | 2,577 |   |   | (334 | ) |   | 6,817 |   |
| Energy                  and Other Taxes                                                                                                                                                        |   |                                | 4,286                     |                                |   | 1,673 |   |   | 1,336 |   |   | 2,844 |   |   | 4,893 |   |   | 1,952 |   |   | 1,580 |   |   | 3,456 |   |
|                                                                                                                                                                                           |   |                                |                           |                                |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Total                  Expenses                                                                                                                                                                |   |                                | 254,583                   |                                |   | 102,565 |   |   | 89,482 |   |   | 161,742 |   |   | 191,943 |   |   | 82,720 |   |   | 90,484 |   |   | 187,616 |   |
|                                                                                                                                                                                           |   |                                |                           |                                |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Other                  Income and Expense                                                                                                                                                      |   |                                | (20                       | )                                   |   | 158 |   |   | 232 |   |   | 1,110 |   |   | (30 | ) |   | (9 | ) |   | 11 |   |   | 126 |   |
|                                                                                                                                                                                           |   |                                |                           |                                |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Net                  Income (Loss) Applicable                                                                                                                                                  |   |                                |                           |                                |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| to                  Common Stock                                                                                                                                                               |   | $                                   | 22,478                    |                                | $      | 2,599 |   | $ | (1,535 | ) | $ | 12,237 |   | $ | 22,564 |   | $ | 3,354 |   | $ | (771 | ) | $ | 9,400 |   |
|                                                                                                                                                                                           |   |                                |                           |                                |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
|                                                                                                                                                                                           |   |                                |                           |                                |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| NOTE:                  Because of the seasonal nature of our business, statements for                  the 3-month                  periods are not indicative of the results for a full year. |   |                                     |                      |

----

**Item      9. Changes in and Disagreements with Accountants on**

**Accounting      and Financial Disclosure**

**Item      9A. Controls and Procedures**

**Evaluation      of Disclosure Controls and Procedures**

**Item      9B. Other Information**

**PART      III**

**Item      10. Directors and Executive Officers of the Registrant**

**Item      11. Executive Compensation**

----

**Item        12. Security Ownership of Certain Beneficial Owners and        Management**

**Item      13. Certain Relationships and Related Transactions**

**Item      14. Principal Accounting Fees and Services**

*Audit      Fees*

*Audit-Related      Fees*

*Tax      Fees*

*All      Other Fees*

* *

**PART      IV**

**Item      15. Exhibits and Financial Statement Schedule**

**(a)**

----

**(b)**

| ExhibitNumber     | Description                                                                                                                                 | Reference                                                                                                                      |
|-------------------|---------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------|
|  (3)(a)      |  Certificate                of Incorporation of South Jersey Gas Company.                                                              |  Incorporated                by reference from Exhibit (3)(a) of Form 10-K filed March 7,                1997.            |
|  (3)(b)      |  Bylaws                of South Jersey Gas Company, as amended and restated through May 25,                2007 (filed herewith). |                                                                                                                           |
|  (4)(a)      |  Form                of Stock Certificate for Common Stock.                                                                            |  Incorporated                by reference from Exhibit (4)(a) of Form 10 filed March 7,                1997.              |
|  (4)(b)(i)   |  First                Mortgage Indenture dated October 1, 1947.                                                                        |  Incorporated                by reference from Exhibit (4)(b)(i) of Form 10-K of SJI for 1987                (1-6364).    |
|  (4)(b)(ii)  |  Nineteenth                Supplemental Indenture dated as of April 1, 1992.                                                           |  Incorporated                by reference from Exhibit (4)(b)(xvii) of Form 10-K of SJI for 1992                (1-6364). |
|  (4)(b)(iii) |  Twenty-First                Supplemental Indenture dated as of March 1, 1997.                                                         |  Incorporated                by reference from Exhibit (4)(b)(xviv) of Form 10-K of SJI for 1997                (1-6364). |

|  (4)(b)(iv)                                                               |  Twenty-Second                Supplemental Indenture dated as of October 1, 1998.                                                                 |  Incorporated                by reference from Exhibit (4)(b)(ix) of Form S-3                (333-62019).                        |
|--------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------|
|  (4)(b)(v)                                                                |  Twenty-Third                Supplemental Indenture dated as of September 1, 2002.                                                                |  Incorporated                by reference from Exhibit (4)(b)(x) of Form S-3                (333-98411)                          |
|                                       (4)(b)(vi) |                                       Twenty-Fourth Supplemental Indenture dated as of September 1,                2005. |                     Incorporated by reference from Exhibit (4)(b)(vi) of Form S-3                (333-126822).    |
|    (4)(b)(vii)                                                  |  Amendment                to Twenty-Fourth Supplemental Indenture dated as of March 31,                2006.                                      |  Incorporated                by reference from Exhibit 4 of Form 8-K of SJG as filed April 26,                2006.              |
| (4)(b)(viii)                                                                   |  Loan                Agreement by and between New Jersey Economic Development  Authority                as SJG dated April 1, 2006.          |  Incorporated                by reference from Exhibit 10 of Form 8-K of SJG as filed April 26,                2006.             |
|  (4)(c)(i)                                                                |  Medium                Term Note Indenture of Trust dated October 1, 1998.                                                                        |  Incorporated                by reference from Exhibit (4)(e) of Form S-3                (333-62019).                            |
|                (4)(c)(ii)                                                 |  First                Supplement to Indenture of Trust dated as of June 29,                2000.                                                  |                Incorporated                by reference from Exhibit 4.1 of Form 8-K of SJG dated July, 12,                2001. |
|                (4)(c)(iii)                                                |                Second                Supplement to Indenture of Trust dated as of July 5, 2000.                                                   |                Incorporated                by reference from Exhibit 4.2 of Form 8-K of SJG dated July, 12,                2001. |
|                (4)(c)(iv)                                                 |                Third                Supplement to Indenture of Trust dated as of July 9, 2001.                                                    |                Incorporated                by reference from Exhibit 4.3 of Form 8-K of SJG dated July, 12,                2001. |

----

| ExhibitNumber | Description | Reference |
|---------------|-------------|-----------|

|  (10)(a)(i)                 |  Gas                storage agreement (GSS) between South Jersey Gas Company and Transco                dated                October 1, 1993.                                                                             |  Incorporated                by reference from Exhibit (10)(d) of Form 10-K of SJI for 1993                (1-6364).                |
|----------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------|
|                (10)(a)(ii)  |                Gas                storage agreement (LG-A) between South Jersey Gas Company and Transco                dated June 3, 1974.                                                                           |  Incorporated                by reference from Exhibit (5)(f) of Form S-&                (2-56233).                             |
|                (10)(a)(iii) |                Gas                storage agreement (WSS) between South Jersey Gas Company and Transco                dated                August 1, 1991.                                                                |                Incorporated                by reference from Exhibit (10)(h) of Form 10-K for 1991                (1-6364).    |
|                (10)(a)(iv)  |                Gas                storage agreement (LSS) between South Jersey Gas Company and Transco                dated                October 1, 1993.                                                               |                Incorporated                by reference from Exhibit (10)(i) of Form 10-K for 1993                (1-6364).    |
|                (10)(a)(v)   |                Gas                storage agreement (SS-1) between South Jersey Gas Company and Transco                dated May 10, 1987 (effective April 1, 1988).                                                      |                Incorporated                by reference from Exhibit (10)(i)(a) of Form 10-K for 1988                (1-6364). |
|  (10)(b)(i)                 |  Gas                storage agreement (SS-2) between South Jersey Gas Company and Transco                dated July 25, 1990.                                                                                             |  Incorporated                by reference from Exhibit (10)(i)(i) of Form 10-K for                1991 (1-6364).               |
|  (10)(b)(ii)                |  Gas                transportation service agreement (LG-A) between South Jersey Gas                Company                and Transco dated December 20, 1991.                                                           |  Incorporated                by reference from Exhibit (10)(i)(j) of Form 10-K for                1993 (1-6364).               |
|  (10)(b)(iii)               |  Amendment                to gas transportation agreement dated December 20,                1991 between                 South Jersey Gas Company and Transco dated October 5,                1993.        |  Incorporated                by reference from Exhibit (10)(i)(k) of Form 10-K for 1993                (1-6364).               |
|  (10)(b)(iv)                |  CNJEP                Service agreement between South Jersey Gas Company and Transco dated                June                27, 2005.                                                                                   |  Incorporated                by reference from Exhibit (10)(i)(l) of Form 10-K for 2005                (1-6364).               |
|  (10)(b)(v)                 |  Gas                transportation service agreement (TF) between South Jersey Gas                Company and CNG Transmission Corporation dated October 1,                1993.                                     |  Incorporated                by reference from Exhibit (10)(k)(h) of Form 10-K for 1993                (1-6364).               |
|  (10)(c)(i)                 |  Gas                transportation service agreement (FTS-1) between South Jersey Gas                Company                and Columbia Gulf Transmission Company dated November 1,                 1993. |  Incorporated                by reference from Exhibit (10)(k)(k) of Form 10-K for 1993 (1-6364).                                   |
|  (10)(c)(ii)                |  FTS                Service Agreement No. 39556 between South Jersey Gas Company and                Columbia                Gas Transmission Corporation dated November 1, 1993.                                          |  Incorporated                by reference from Exhibit (10)(k)(m) of Form 10-K for 1993(1-6364).                                    |
|                (10)(c)(iii) |                FTS                Service Agreement No. 38099 between South Jersey Gas Company and                Columbia                Gas Transmission Corporation dated November 1, 1993.                            |                Incorporated                by reference from Exhibit (10)(k)(n) of Form 10-K for 1993(1-6364).                      |
|                (10)(c)(iv)  |                NTS                Service Agreement No. 39305 between South Jersey Gas Company and                Columbia                Gas Transmission Corporation dated November 1, 1993.                            |                Incorporated                by reference from Exhibit (10)(k)(o) of Form 10-K for 1993(1-6364).                      |
|                (10)(c)(v)   |                FSS                Service Agreement No. 38130 between South Jersey Gas Company and                Columbia                Gas Transmission Corporation dated November 1, 1993.                            |                Incorporated                by reference from Exhibit (10)(k)(p) of Form 10-K for 1993(1-6364).                      |
|                (10)(d)(i)   |                SST                Service Agreement No. 38086 between South Jersey Gas Company and                Columbia                Gas Transmission Corporation dated November 1, 1993.                            |                Incorporated                by reference from Exhibit (10)(k)(q) of Form 10-K for 1993(1-6364).                      |

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| ExhibitNumber                               | Description                                                                                                                                                                                                                                                                                                 | Reference                                                                                                                                                                                                                                       |
|---------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  (10)(h)(i)*                           |  Deferred                Payment Plan for Directors of South Jersey Industries, Inc., South                Jersey                Gas Company, Energy & Minerals, Inc., R&T Group, Inc. and South                Jersey Energy Company as amended and restated October 21,                1994. |  Incorporated                by reference from Exhibit (10)(l) of Form 10-K of SJI for 1994                (1-6364).                                                                                                                       |
|  (10)(h)(ii)*                          |  Form                of Deferred Compensation Agreement between South Jersey Industries,                Inc.                and/or a subsidiary and seven of its officers.                                                                                                                             |  Incorporated                by reference from Exhibit (10)(j)(a) of Form 10-K of SJI for 1980                (1-6364).                                                                                                                    |
|  (10)(h)(iii)*                         |  Schedule                of Deferred Compensation Agreements.                                                                                                                                                                                                                                          |  Incorporated                by reference from Exhibit (10)(l)(b) of Form 10-K of SJI for 1997                (1-6364).                                                                                                                    |
|  (10)(h)(iv)*                          |  Supplemental                Executive Retirement Program, as amended and restated effective July                1,                1997, and Form of Agreement between certain South Jersey Industries,                Inc.                or subsidiary Company officers.                             |  Incorporated                by reference from Exhibit (10)(l)(i) of Form 10-K of SJI for 1997                (1-6364).                                                                                                                    |
|  (10)(h)(v)*                           |  Form                of Officer Employment Agreement between certain officers and either                South                Jersey Industries, Inc. or its subsidiaries.                                                                                                                              |  Incorporated                by reference from Exhibit (10)(l)(d) of Form 10-K of SJI for 1994                (1-6364).                                                                                                                    |
|  (10)(h)(vi)*  (10)(h)(vii)* |  Schedule                of Officer Employment Agreements.  Officer                Severance Benefit Program for all officers.                                                                                                                                                               |  Incorporated                by reference from Exhibit (10)(h)(vi) of Form 10-K of SJI for                2003. Incorporated                by reference from Exhibit (10)(l)(g) of Form 10-K of SJI for                1985(1-6364). |
|  (10)(i)(i)                            |  Five-year                Revolving Credit Agreement for SJG.                                                                                                                                                                                                                                          |  Incorporated                by reference from Exhibit 10 of Form 8-K as filed on August 22, 2006                (000-22211).                                                                                                              |

|  (12) |  Calculation                of Ratio of Earnings to Fixed Charges (Before Federal Income Taxes)                (filed                herewith). |                                                                                                                   |
|------------|------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------|
|  (14) |  Code                of Ethics                                                                                                                  |  Incorporated                by reference from Exhibit (14) of Form 10-K of SJI as filed for                2003. |
|  (21) |  Subsidiaries                of the Registrant (filed herewith).                                                                                |                                                                                                                   |
|  (23) |  Independent                Registered Public Accounting Firm’s Consent (filed                herewith).                                  |                                                                                                                   |

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| ExhibitNumber | Description | Reference |
|---------------|-------------|-----------|

|  (31.1) |  Certification                of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley                Act of 2002 (filed herewith). |   |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|  (31.2) |  Certification                of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley                Act of 2002 (filed herewith). |   |
|  (32.1) |  Certification                of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley                Act of 2002 (filed herewith). |   |
|  (32.2) |  Certification                of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley                Act of 2002 (filed herewith). |   |

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**SIGNATURES**

**SOUTH      JERSEY GAS COMPANY**

| Signature                                                                                                                        | Title                                                                         | Date                         |
|----------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------|------------------------------|
|                                                                                                                             |                                                                          |                         |
|                                                                                                                             |                                                                          |                         |
|                                                                                                                             |                                                                          |                         |
|  /s/                Edward J.                Graham             | Chairman                of the Board, President & Chief Executive Officer | March                6, 2007 |
|  (Edward                J. Graham)                                                                                          | (Principal                Executive Officer)                                  |                         |
|                                                                                                                             |                                                                          |                         |
|                                                                                                                             |                                                                          |                         |
|                                                                                                                             |                                                                          |                         |
|  /s/                David A.                Kindlick                      | Senior                Vice President & Chief Financial Officer            | March                6, 2007 |
| (David                A. Kindlick)                                                                                               | (Principal                Financial and Accounting Officer)                   |                         |
|                                                                                                                             |                                                                          |                         |
|                                                                                                                             |                                                                          |                         |
|                                                                                                                             |                                                                          |                         |
|  /s/                Richard H. Walker, Jr.                                                                                  | Senior                Vice President, General Counsel & Secretary    | March                6, 2007 |
|  (Richard                H. Walker, Jr.)                                                                                    |                                                                          |                         |
|                                                                                                                             |                                                                          |                         |
|                                                                                                                             |                                                                          |                         |
|                                                                                                                             |                                                                          |                         |
| /s/                Shirli M.                Billings                                     | Director                                                                      | March                6, 2007 |
| (Shirli                M. Billings)                                                                                              |                                                                          |                         |
|                                                                                                                             |                                                                          |                         |

----

| Signature                                                                                       |   | Title    | Date                         |
|-------------------------------------------------------------------------------------------------|--------|----------|------------------------------|
|                                                                                            |   |     |                         |
|                                                                                            |   |     |                         |
|                                                                                            |   |     |                         |
|                                                                                            |   |     |                         |
|                                                                                            |   | Director |                              |
| (Sheila                Hartnett-Devlin)                                                         |   |     |                         |
|                                                                                            |   |     |                         |
|                                                                                            |   |     |                         |
|                                                                                            |   |     |                         |
|                                                                                            |   | Director |                              |
| (William                J. Hughes)                                                              |   |     |                         |
|                                                                                            |   |     |                         |
|                                                                                            |   |     |                         |
|                                                                                            |   |     |                         |
| /s/                Frederick R.                Raring        |   | Director | March                6, 2007 |
| (Frederick                R. Raring)                                                            |   |     |                         |
|                                                                                            |   |     |                         |
|                                                                                            |   |     |                         |

----

| **SOUTH                JERSEY GAS COMPANY**                                                            |
|--------------------------------------------------------------------------------------------------------|
| **SCHEDULE                II - VALUATION AND QUALIFYING ACCOUNTS**                                     |   |
| **(In                Thousands)**                                                                      |   |
|                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Col.                A                                                                                  |   |   | Col.                B |   |   | Col.                C |   |   | Col.                D |   |   | Col.                E |   |
|                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                   |   |   |   |   |   | Additions |   |   |   |   |   |   |   |
|                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                   |   |   | Balance                at |   |   | Charged                to |   |   | Charged                to |   |   |   |   |   | Balance                at |   |
|                                                                                                   |   |   | Beginning |   |   | Costs                and |   |   | Other                Accounts - |   |   | Deductions                - |   |   | End |   |
| Classification                                                                                         |   |   | of                Period |   |   | Expenses |   |   | Describe                (a) |   |   | Describe                (b) |   |   | of                Period |   |
|                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Provision                for Uncollectible                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Accounts                for the Year Ended                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **December                31, 2006**                                                                   |   | $ | 3,461 |   | $ | 1,284 |   | $ | (428 | ) | $ | 1,576 |   | $ | 2,741 |   |
|                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Provision                for Uncollectible                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Accounts                for the Year Ended                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **December                31, 2005**                                                                   |   | $ | 2,871 |   | $ | 2,073 |   | $ | 85 |   | $ | 1,568 |   | $ | 3,461 |   |
|                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Provision                for Uncollectible                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Accounts                for the Year Ended                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **December                31, 2004**                                                                   |   | $ | 3,263 |   | $ | 816 |   | $ | 1,716 |   | $ | 2,924 |   | $ | 2,871 |   |
|                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (a)                Recoveries of accounts previously written off and minor                adjustments. |   |   |   |   |   |   |   |
|                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (b)                Uncollectible accounts written off.                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----