SECURITIES AND EXCHANGE COMMISSION
                            Washington, D. C. 20549

                                    FORM 10-K

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 1996     Commission File Number 1-9905

                           ATLANTA GAS LIGHT COMPANY
             (Exact name of registrant as specified in its charter)

           GEORGIA                                        58-0145925
(State or other jurisdiction of                        (I.R.S. Employer
 incorporation or organization)                      Identification Number)

303 Peachtree Street, N.E., Atlanta Georgia
                 30308                                   404-584-4000
(Address and zip code of principal             (Registrant's telephone number,
          executive offices)                         including area code)

Securities registered pursuant to Section 12(b) of the Act:

Depositary Preferred Shares                      New York Stock Exchange
    (Title of Class)                     (Name of exchange on which registered)

          Securities registered pursuant to Section 12(g) of the Act:

                   Cumulative Preferred Stock, $100 Par Value
                  Cumulative Preferred Stock, $100 Stated Value
                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months,  and (2) has been subject to such filing  requirements
for the past 90 days. Yes [ X ] No[ ]

The number of shares of Atlanta Gas Light Company Common Stock outstanding as of
November 29, 1996, was one share.  All  outstanding  shares of Atlanta Gas Light
Company Common Stock are held by AGL Resources Inc.

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of each of the registrant's  knowledge,  in definitive proxy or information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [ X ]


<PAGE>

                                TABLE OF CONTENTS

                                                                         Page
PART I
    Item 1.        Business.............................................    1
    Item 2.        Properties...........................................   13
    Item 3.        Legal Proceedings....................................   13
    Item 4.        Submission of Matters to a Vote of Security 
                     Holders............................................   15

PART II
    Item 5.        Market for the Registrant's Common Equity and 
                     Related Stockholder Matters........................   16
    Item 6.        Selected Financial Data..............................   17
    Item 7.        Management's Discussion and Analysis of Results 
                     of Operations and Financial Condition..............   18
    Item 8.        Financial Statements and Supplementary Data..........   26
    Item 9.        Changes in and Disagreements with Accountants on 
                     Accounting and Financial Disclosure................   49

PART III
    Item 10.       Directors and Executive Officers of the Registrant...   50
    Item 11.       Executive Compensation...............................   51
    Item 12.       Security Ownership of Certain Beneficial Owners and 
                     Management.........................................   56
    Item 13.       Certain Relationships and Related Transactions.......   58

PART IV
     Item 14.      Exhibits,  Financial Statement Schedules and Reports 
                     on Form 8-K .......................................   59

Signatures        ......................................................   66













<PAGE>



                                     Part I

Item 1.    Business

GENERAL

       Atlanta Gas Light Company (AGLC) was  incorporated  on February 16, 1856,
by a  special  act of the  Georgia  General  Assembly.  On March 6,  1996,  AGLC
completed a corporate  restructuring in which a new company,  AGL Resources Inc.
(AGL Resources)  became the holding company for AGLC, a natural gas distribution
utility  and its  subsidiaries.  During the third and fourth  quarters of fiscal
1996,  ownership  of  AGLC's  nonregulated  businesses  was  transferred  to AGL
Resources  and its  various  subsidiaries.  See Note 1 in Notes to  Consolidated
Financial  Statements on page 32 of this Form 10-K. Unless noted specifically or
otherwise  required by context,  references to AGLC include the  operations  and
activities  of AGLC and  Chattanooga  Gas Company,  a wholly  owned  natural gas
utility subsidiary of AGLC (Chattanooga).

       AGLC is  engaged  in the  distribution  of natural  gas to  customers  in
central,  northwest,  northeast  and  southeast  Georgia  and  the  Chattanooga,
Tennessee area. AGLC's major service area is the ten county metropolitan Atlanta
area.   Metropolitan   Atlanta  has  an  estimated   population  of  3  million,
constituting approximately 41% of the total population of Georgia. Approximately
66% of AGLC's  customers  are located in the Atlanta  metropolitan  area.  These
customers  consume  48% of the  natural  gas sold and  transported  and  provide
approximately  60% of the gas revenues of AGLC.  AGLC's other principal  service
areas in Georgia are the Athens, Augusta,  Brunswick,  Macon, Rome, Savannah and
Valdosta  areas.  During the fiscal year ended September 30, 1996, AGLC supplied
natural gas service to an average of  approximately  1.3  million  customers  in
Georgia  including 516 centrally  metered  customers  serving  50,098  apartment
units.  AGLC provides natural gas service in 235 cities and surrounding areas in
Georgia. In addition to AGLC's service areas in Georgia, natural gas service was
supplied by  Chattanooga  to an average of  approximately  52,000  customers  in
Chattanooga  and  Cleveland,  Tennessee,  and  surrounding  portions of Hamilton
County and Bradley County,  Tennessee during the fiscal year ended September 30,
1996.  All of AGLC's  natural gas service  area is  certificated  by the Georgia
Public Service  Commission  (Georgia  Commission)  and the Tennessee  Regulatory
Authority (TRA), formerly the Tennessee Public Service Commission.

       The areas  served  by AGLC in  Georgia  outside  the  metropolitan  areas
described in the preceding paragraph were for many years primarily agricultural,
with timber, poultry,  cattle, cotton, tobacco,  peanuts and soy beans among the
principal  products.  However,  both  industry  and  agriculture  are  currently
important to the economies of these areas.  In addition to the  industries  that
use local natural  resources such as pulpwood,  clay,  marble,  talc and kaolin,
AGLC  serves  a  number  of   nationally   known   organizations   that  operate
installations  in  Georgia.   These  operations   increase   substantially   the
diversification of industry in AGLC's service area.

       During fiscal 1996, AGLC added approximately  41,500 customers,  based on
12-month average  calculations,  representing an increase over the prior year of
approximately  3%.  Substantially  all of this growth was in the residential and
small commercial service categories.

       The ten largest  customers of AGLC  accounted  for 1.9% and 1.4% of total
operating revenues and operating margin, respectively, for the fiscal year ended
September 30, 1996. For the same period,  volumes of gas sold and transported to
the ten largest  customers  accounted for 10.6% of total volumes of gas sold and
transported.

       AGLC's  consolidated  operating  revenues  during the  fiscal  year ended
September 30, 1996, were $1.2 billion,  of which  approximately  58% was derived
from residential customers,  24% from commercial customers,  15% from industrial
customers, 2% from transportation customers and 1% from other sources.




                                        1

<PAGE>



       Through September 30, 1996, historic maximum daily sendout of natural gas
was  approximately  2.15 billion cubic feet which  occurred on February 4, 1996.
The mean temperature in the metropolitan Atlanta area that day was 11(degree) F.
AGLC's  business is highly  seasonal in nature and heavily  dependent on weather
because of the substantial use of gas for heating  purposes.  However,  AGLC has
implemented weather  normalization  adjustment riders. The weather normalization
adjustment  riders,  which were approved by the Georgia  Commission and the TRA,
offset the impact that either  unusually  cold or unusually  warm weather has on
operating margin, earnings and cash flow and are designed to stabilize operating
margin and earnings at the levels which would occur with normal weather. For the
effects of seasonal  variations on quarterly  earnings,  see Note 14 in Notes to
Consolidated Financial Statements on page 47 of this Form 10-K.

       On September 30, 1996,  AGLC and its  subsidiaries  had 2,383  employees.
Approximately  640  employees  working  for AGLC are  covered by  provisions  of
collective bargaining agreements with the General Teamsters Local Union No. 528.
The  master  agreement,  among the  Teamsters,  AGLC and AGL  Resources  Service
Company  (Service  Company),  provides  for a $1,000  lump sum  payment  to each
covered  employee in October 1996 and a $500 lump sum payment in September  1997
and 1998. In addition, the pay ranges for all covered positions are scheduled to
increase 3% in  September  1997 and 1998 and 3.5% in 1999.  Based on current pay
levels,  it is  anticipated  that few covered  employees  will see any base rate
increases until 1999. That agreement expires September 17, 2000.

       A five-year  collective  bargaining agreement among AGLC, Service Company
and the  International  Union of  Operating  Engineers,  Local  Union  No.  474,
covering 60 employees in Savannah,  Georgia,  was ratified on November 14, 1996.
The contract  provides for a $1,000 lump sum payment to each covered employee in
November  1996 and a $500  lump sum  payment  in  November  1997  and  1998.  In
addition,  the pay ranges for all covered positions are scheduled to increase 3%
in  September  1997 and 1998,  3.5% in 1999,  and 3% in the year 2000.  Based on
current pay levels,  it is anticipated  that few covered  employees will see any
base rate increases until 1998. That agreement expires November 4, 2001.

       Additionally,  AGLC has approximately 60 employees at its Chattanooga and
Cleveland, Tennessee facilities covered by an agreement with the Utility Workers
Union of  America,  Local  Union No.  461. A new  five-year  agreement  with the
Utility Workers became effective October 15, 1996. The agreement  provides for a
$1,000 lump sum  payment to each  covered  employee in November  1996 and a $500
lump sum payment in October 1997 and 1998.  In addition,  the pay ranges for all
covered  positions are scheduled to increase 3% in September 1997 and 1998, 3.5%
in 1999, and 3% in the year 2000. Based on current pay levels, it is anticipated
that few covered  employees  will see any base rate increases  until 1998.  That
agreement expires October 14, 2001.

       AGLC holds franchises,  permits, certificates and rights which management
believes  are  sufficient  for  the  operation  of its  properties  without  any
substantial  restrictions and adequate for the operation of its gas distribution
business.

FORMATION OF HOLDING COMPANY

       As a  result  of the  formation  of the  holding  company,  ownership  of
nonregulated  businesses was transferred  from AGLC to AGL Resources and various
subsidiaries  of AGL  Resources.  Ownership of Georgia Gas Company  (natural gas
production  activities) has been transferred to AGL Energy  Services,  Inc. (AGL
Energy  Services).  Ownership  of Georgia  Energy  Company  (natural gas vehicle
conversions),  Georgia Gas Service  Company  (retail propane sales) and Trustees
Investments,   Inc.  (real  estate   holdings)  has  been   transferred  to  AGL
Investments, Inc. (AGL Investments).  AGLC's interest in Sonat Marketing Company
L.P. has been transferred to AGL Gas Marketing,  Inc., a wholly owned subsidiary
of AGL  Investments.  In addition,  AGL  Investments  has established two wholly
owned subsidiaries: AGL Power Services, Inc., which owns a 35% interest in Sonat
Power  Marketing,  L.P.,  and AGL Consumer  Services,  Inc.,  an  energy-related
consumer  products and  services  company.  The transfer of AGLC's  nonregulated
businesses to those subsidiaries of AGL Resources was effected through a noncash
dividend of $45.9  million  during  fiscal  1996.  Prior to that  transfer,  the
aggregate net income contributed by nonregulated subsidiaries in fiscal 1996 was
$3.7 million.


                                        2

<PAGE>



       Service  Company  was formed  during  fiscal  1996 to  provide  corporate
support services to AGL Resources and its subsidiaries.  The transfer of related
assets from AGLC to Service  Company  and other  nonregulated  subsidiaries  was
effected  through a noncash  dividend of $34.3 million during the fourth quarter
of fiscal 1996.  Expenses of Service  Company are allocated to AGL Resources and
its subsidiaries.


NEW JOINT VENTURE

       During  December  1996,  AGL  Resources  signed a letter of  intent  with
Transcontinental  Gas Pipe Line  Corporation  (Transco) to form a joint venture,
which  would be known as  Cumberland  Pipeline  Company,  to operate  and market
interstate  pipeline  capacity.  The transaction is subject to various corporate
and regulatory approvals.

       Initially,  the  135-mile  Cumberland  pipeline  will consist of existing
pipeline  infrastructure owned by the two companies.  Projected to enter service
by November 1, 2000,  Cumberland will provide  service to AGLC,  Chattanooga and
other markets throughout the eastern Tennessee Valley.

       Affiliates  of  Transco  and AGL  Resources  each will own 50% of the new
pipeline  company,  and an  affiliate  of Transco  will serve as  operator.  The
project  will be  submitted  to the Federal  Energy  Regulatory  Commission  for
approval in the fourth quarter of 1997.













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                                        3

<PAGE>
<TABLE>
<CAPTION>

Gas Sales and Statistics                                        
FOR THE YEARS ENDED SEPTEMBER 30                                        
                                                            1996         1995         1994         1993         1992
---------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>          <C>          <C>          <C>          <C>         
Operating Revenues (Millions of Dollars)                                        
  Sales of gas
    Residential .................................   $      708.8 $      610.6 $      700.7 $      658.2 $      575.7
    Commercial ..................................          288.8        243.2        285.8        268.1        231.5
    Industrial ..................................          178.8        169.4        172.1        154.2        140.9
  Transportation revenues .......................           21.5         23.9         22.6         33.8         36.6
  Miscellaneous revenues ........................           19.7         15.9         18.7         16.0          9.9
---------------------------------------------------------------------------------------------------------------------
  Total utility operating revenues ..............   $    1,217.6 $    1,063.0 $    1,199.9 $    1,130.3 $      994.6
=====================================================================================================================
Utility Throughput
  Therms sold (Millions)
     Residential ................................        1,165.4        916.8      1,003.1      1,001.4        915.4
     Commercial .................................          538.2        454.0        478.9        478.5        433.9
     Industrial .................................          449.6        526.0        424.8        388.7        445.0
---------------------------------------------------------------------------------------------------------------------
  Therms transported ............................          738.7        722.8        697.4        795.6        901.8
---------------------------------------------------------------------------------------------------------------------
      Total utility throughput ..................        2,891.9      2,619.6      2,604.2      2,664.2      2,696.1
=====================================================================================================================
Average Utility Customers (Thousands)
  Residential ...................................        1,289.4      1,250.4      1,215.2      1,182.7      1,152.2
  Commercial ....................................          102.5        100.0         98.0         95.7         93.7
  Industrial ....................................            2.6          2.6          2.5          2.5          2.5
---------------------------------------------------------------------------------------------------------------------
      Total .....................................        1,394.5      1,353.0      1,315.7      1,280.9      1,248.4
=====================================================================================================================
Sales, Per Average Residential Customer
  Gas sold (Therms) .............................          904          733          825          847          794
  Revenue (Dollars) .............................          550.00       488.32       576.61       556.52       499.65
  Revenue per therm (Cents) .....................           60.8         66.6         69.9         65.7         62.9
Degree Days - Atlanta Area
  30-year normal ................................        2,991        2,991        2,991        3,021        3,021
  Actual ........................................        3,191        2,121        2,565        2,852        2,552
  Percentage of actual to 30-year normal ........          106.7         70.9         85.8         94.4         84.5
Gas Account (Millions of Therms)
  Natural gas purchased .........................        1,632.9      1,406.9      1,453.6      1,629.9      1,555.4
  Natural gas withdrawn from storage ............          596.0        520.7        500.3        276.4        263.3
  Gas transported ...............................          738.7        722.8        697.4        795.6        901.8
---------------------------------------------------------------------------------------------------------------------
      Total send-out ............................        2,967.6      2,650.4      2,651.3      2,701.9      2,720.5
  Less
    Unaccounted for .............................           60.4         20.4         37.2         29.0         16.2
    Company use .................................           15.3         10.4          9.9          8.7          8.2
---------------------------------------------------------------------------------------------------------------------
      Sold and transported to utility customers .        2,891.9      2,619.6      2,604.2      2,664.2      2,696.1
=====================================================================================================================
Cost of Gas (Millions of Dollars)
  Natural gas purchased .........................   $      547.1 $      389.4 $      550.1 $      595.7 $      487.9
  Natural gas withdrawn from storage ............          171.6        182.4        186.7        105.3        102.6
---------------------------------------------------------------------------------------------------------------------
  Cost of gas - utility operations ..............   $      718.7 $      571.8 $      736.8 $      701.0 $      590.5
=====================================================================================================================
Utility Plant - End of Year (Millions of Dollars)
  Gross plant ...................................   $    1,969.0 $    1,919.9 $    1,833.2 $    1,740.6 $    1,634.8
  Net plant .....................................   $    1,361.2 $    1,336.6 $    1,279.6 $    1,217.9 $    1,157.4
  Gross plant investment per customer
    (Thousands of Dollars) ......................   $        1.4 $        1.4 $        1.4 $        1.4 $        1.3
Capital Expenditures (Millions of Dollars) ......   $      132.5 $      121.7 $      122.5 $      122.2 $      132.9
Gas Mains - Miles of 3" Equivalent ..............       29,045       28,520       27,972       27,390       26,936
Employees - Average .............................        2,883        3,191        3,711        3,721        3,764
Average Btu Content of Gas ......................        1,024        1,027        1,032        1,027        1,024
=====================================================================================================================

</TABLE>




                                        4

<PAGE>



                  GAS SUPPLY SERVICES, PRICING AND COMPETITION

                                     General

      AGLC is served directly by four interstate pipelines: Southern Natural Gas
Company   (Southern),   South  Georgia  Natural  Gas  Company  (South  Georgia),
Transcontinental Gas Pipe Line Corporation  (Transco) and East Tennessee Natural
Gas  Company  (East  Tennessee),  in  combination  with its  upstream  pipeline,
Tennessee  Gas  Pipeline  Company  (Tennessee)  ,the parent  company and primary
source of gas for East Tennessee.

      As a  result  of  Order  636,  gas  purchasing  decisions  made  by  local
distribution  companies (LDCs) are subject to greater review by state regulatory
commissions.  However, out of the 1994 Georgia General Assembly, legislation was
enacted which provides for annual review and approval by the Georgia  Commission
of AGLC's gas services portfolio on a prospective basis. On August 1, 1996, AGLC
made its annual gas supply  plan  filing for fiscal  1997 and on  September  13,
1996, the Georgia  Commission issued its order approving the mix of gas services
in the portfolio.

      Additionally,  AGL Energy  Services was formed to provide  consulting  and
energy management services to AGL Resources'  regulated  operations and to other
nonregulated gas marketers.  Through innovative  management of gas supply assets
that maximize  off-system  sales,  AGL Energy  Services is expected to boost AGL
Resources'  operating  margins.  For example,  the TRA has approved a gas supply
incentive  mechanism under which the net margin associated with off-system sales
is shared equally between Chattanooga and its firm customers.

              Firm Pipeline Transportation and Underground Storage

       The table on the following  page shows the amount of firm  transportation
and  describes the types and amounts of  underground  storage that both AGLC and
Chattanooga  have elected or been assigned under Order 636. The table also shows
services that were not affected by the implementation of Order 636.














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                                        5

<PAGE>
<TABLE>
<CAPTION>
                                        Production Area   Supplemental      
                                            Underground   Underground       
                                 Maximum       Storage      Storage
                                    Firm       Maximum      Maximum         
                          Transportation     Withdrawal   Withdrawal    Expiration
                                 Mcf/Day      Mcf/Day(1)   Mcf/Day(2)   Date
                                 -------      -------      -------      -------
ATLANTA GAS LIGHT COMPANY                                               
-------------------------                                               
<S>                              <C>          <C>          <C>          <C>
Southern                                                                
        Firm Transportation        1,000                                June 30, 2007
        Firm Transportation      604,857                                February 28, 1999
        Firm Transportation       45,272                                February 29, 2000
        Firm Transportation      110,905                                April 30, 2007
        CSS                                   382,089                   February 28, 1999
        CSS                                    24,133                   February 29, 2000
        ANR - 50                                           113,000      March 31, 2003
        ANR - 100                                           55,500      March 31, 2003
Transco                                                         
        Firm Transportation      107,600                                March 31, 2010
        Firm Transportation       15,000                                July 1, 2005
        Firm Transportation        6,222                                March 17, 2008
        Firm Transportation        4,500                                October 31, 2009
        WSS                                    70,588                   March 31, 2010
        Eminence Storage                       11,263                   March 31, 1997
        Eminence Storage                       19,034                   October 31, 2013(3)
        GSS                                                 57,016      June 30, 2001(3)
        GSS                                                 67,919      March 31, 2013(3)
        LSS                                                 17,430      March 31, 1994(4)
        SS-1                                                20,211      March 31, 2009
        LGA                                                 41,522      October 31, 1991(4)
        Cove Point LNG                                      66,667      April 15, 1997
        Other                                               14,493      March 31, 2001
        Other                                                4,831      March 31, 1997
Tennessee/East Tennessee                                                
        Firm Transportation       62,000                                November 1, 2000(3)
        FS Storage                             29,485                   November 1, 2000
        CNG                                     3,321                   March 31, 2001
South Georgia                                                           
        Firm Transportation       11,877                                April 30, 2007
        ANR - 100                                              708      March 31, 2003
        CSS                                     6,764                   February 28, 1998
                                 -------      -------      -------
             Total               969,233      546,677      459,297 
                                 =======      =======      ======= 
                                                                   
CHATTANOOGA GAS COMPANY                                            
-----------------------                                            
Southern                                                           
        Firm Transportation        4,649                                February 28, 2000
        Firm Transportation       14,051                                February 28, 2000
        Firm Transportation        3,300                                April 30, 2007
        CSS                                    14,051                   February 28, 2000
Tennessee/East Tennessee                                                  
        Firm Transportation       45,000                                November 1, 2000(3)
        FS Storage                             20,802                   November 1, 2000
        CNG                                     2,411                   March 31, 2001
                                 -------      -------
             Total                67,000       37,264 
                                 =======      =======      
                                                                         
(1)  Production  area  storage  requires  a  complementary  amount  of the  firm
transportation  capacity  identified  in the first  column to move  storage  gas
withdrawals to AGLC's service area.

(2)  Supplemental  underground  storage  withdrawals  include delivery to AGLC's
service  area  and  do not  require  any of  the  firm  transportation  capacity
identified  in the first  column.  Injections  into  supplemental  " underground
storage  require  incremental  transportation,   primarily  from  transportation
identified in Column 1."

(3) Expiration dates are shown for these contracts  although  contracts have not
yet been  executed.  AGLC is operating  under Natural Gas Act (NGA)  certificate
authority while negotiating these contracts.

(4) AGLC is operating under NGA certificate  authority while  negotiating  these
contracts.
                                                                      
</TABLE>

                                        6

<PAGE>




                                 Wellhead Supply

       AGLC and Chattanooga  have entered into firm wellhead supply contracts of
442,973  Mcf/day  and  27,427  Mcf/day,   respectively,  to  supply  their  firm
transportation and underground storage  requirements.  AGLC anticipates entering
into additional firm wellhead supply contracts by the end of December 1996 of up
to  58,851  Mcf/day  for AGLC and  6,342  Mcf/day  for  Chattanooga.  AGLC  also
purchases spot market gas as needed during the year.

                              Liquefied Natural Gas

       To meet the  demand for  natural  gas on the  coldest  days of the winter
months, AGLC must also maintain sufficient  supplemental quantities of liquefied
natural gas (LNG) in its supply portfolio.  AGLC's three  strategically  located
Georgia-based  LNG  plants  -- north  and  south of  Atlanta  and near  Macon --
currently  provide a combined  maximum  daily  supplement  of 665,000  Mcf and a
combined usable storage capacity of 72 million gallons,  equivalent to 6,214,921
Mcf. This combined  maximum daily  supplement is expected to increase to 765,000
Mcf in January 1997 with the  installation  of  additional  equipment at the LNG
plant  north of  Atlanta.  Chattanooga's  LNG plant  provides  a  maximum  daily
supplement  of  90,000  Mcf and has a  usable  storage  capacity  of 13  million
gallons, equivalent to 1,207,574 Mcf.

                                   Competition

       AGLC competes to supply  natural gas to  interruptible  customers who are
capable of switching to alternative  fuels,  including  propane,  fuel and waste
oils,  electricity and, in some cases,  combustible wood by-products.  AGLC also
competes to supply gas to  interruptible  customers who might seek to bypass its
distribution system.

       AGLC can price  distribution  services to  interruptible  customers  four
ways.  First,  multiple rates are established under the rate schedules of AGLC's
tariff approved by the Georgia  Commission.  If an existing tariff rate does not
produce a price competitive with a customer's relevant competitive  alternative,
three alternate pricing mechanisms exist:  Negotiated  Contracts,  Interruptible
Transportation and Sales Maintenance (ITSM) discounts and Special Contracts.

       On February 17, 1995, the Georgia  Commission  approved a settlement that
permits  AGLC to  negotiate  contracts  with  customers  who have the  option of
bypassing AGLC's facilities (Bypass Customers) to receive natural gas from other
suppliers.   The  bypass  avoidance  contracts  (Negotiated  Contracts)  can  be
renewable, provided the initial term does not exceed five years, unless a longer
term specifically is authorized by the Georgia Commission.  The rate provided by
the  Negotiated  Contract may be lower than AGLC's filed rate, but not less than
AGLC's  marginal  cost of  service to the  potential  Bypass  Customer.  Service
pursuant to a  Negotiated  Contract  may  commence  without  Georgia  Commission
action,  after a copy of the  contract  is filed  with the  Georgia  Commission.
Negotiated Contracts may be rejected by the Georgia Commission within 90 days of
filing; absent such action,  however, the Negotiated Contracts remain in effect.
None of the Negotiated  Contracts filed to date with the Georgia Commission have
been rejected.

       The  settlement  also  provides for a bypass loss  recovery  mechanism to
operate until the earlier of September  30, 1998,  or the effective  date of new
rates for AGLC resulting from a general rate case. Under the recovery mechanism,
AGLC is allowed to recover from other  customers 75% of the  difference  between
(a) the nongas cost revenue that was received from the potential Bypass Customer
during the most recent 12- month  period and (b) the nongas cost revenue that is
calculated to be received from the lower Negotiated Contract rate applied to the
same volumetric level.  Concerning the remaining 25% of the difference,  AGLC is
allowed  to  retain a 44% share of  capacity  release  revenues  in excess of $5
million until AGLC is made whole for discounts from Negotiated Contracts. To the
extent there are additional capacity release revenues, AGLC is allowed to retain
15% of such amounts.

       In addition to Negotiated Contracts, which are designed to serve existing
and potential Bypass Customers,  AGLC's ITSM Rider continues to permit discounts
for  short-term   transactions  to  compete  with  alternative  fuels.   Revenue
shortfalls,  if any, from  interruptible  customers as measured by the test-year
interruptible  revenues determined by the Georgia Commission in AGLC's 1993 rate
case will continue to be recovered under the ITSM Rider.


                                        7

<PAGE>



       The settlement approved by the Georgia Commission also provides that AGLC
may file contracts (Special  Contracts) for Georgia  Commission  approval if the
service cannot be provided through the ITSM Rider,  existing rate schedules,  or
Negotiated Contract procedures.  A Special Contract,  for example, could involve
AGLC providing a long-term  service contract to compete with  alternative  fuels
where physical bypass is not the relevant competition.

     Pursuant  to the  approved  settlement,  AGLC has  filed  and is  providing
service  pursuant to approximately 50 Negotiated  Contracts.  Additionally,  the
Georgia  Commission  has  approved  Special  Contracts  between  AGLC  and  five
interruptible customers.

       For additional information regarding competitive  initiatives in Georgia,
see Part I, Item 1, "Business State Regulatory Matters."

       On July 22,  1996,  Chattanooga  filed a plan  with the TRA that  permits
Chattanooga  to  negotiate  contracts  with  customers  in  Tennessee  who  have
long-term  competitive  options,  including bypass. On November 7, 1996, the TRA
hearing officer recommended approval of a settlement that permits Chattanooga to
negotiate  contracts  with large  commercial  or  industrial  customers  who are
capable of bypassing Chattanooga's  distribution system. The settlement provides
for approval on an  experimental  basis,  with the TRA to review the measure two
years from the approval  date.  The pricing terms  provided in any such contract
may be neither less than  Chattanooga's  marginal cost of providing  service nor
greater  than the  filed  tariff  rate  generally  applicable  to such  service.
Chattanooga can recover 50% of the difference  between the contract rate and the
applicable  tariff  rate  through the  balancing  account of the  purchased  gas
adjustment provisions of Chattanooga's rate schedules.


FEDERAL REGULATORY MATTERS

                                    Order 636

       On July 16, 1996,  the United States Court of Appeals for the District of
Columbia Circuit (D.C. Circuit) issued its ruling in UNITED DISTRIBUTION COS. V.
FERC,  concerning  the appeals from Order No. 636, which mandated the unbundling
of  interstate   pipeline  sales  service  and   established   new  open  access
transportation  regulations.  The court  generally  upheld  the  Federal  Energy
Regulatory  Commission's (FERC) orders against a broad array of challenges,  but
remanded the orders to the FERC for reconsideration of certain issues, including
the  FERC's  decision  to  permit  pipelines  to pass  all of their  gas  supply
realignment  (GSR) costs through to their  customers and its decision to require
interruptible  transportation  customers to bear 10% of GSR costs.  The FERC has
not yet issued an order on  remand,  and thus it is not known  whether  the FERC
will change its GSR policies.  On October 29, 1996,  the D.C.  Circuit  rejected
requests for rehearing  filed by AGLC and others,  which sought  reversal of the
court's ruling affirming the FERC's authority over capacity release by LDCs. The
court's  order is  subject to  possible  further  proceedings  before the United
States Supreme Court.

       AGLC,  based on filings  with FERC by its pipeline  suppliers,  currently
estimates  that its portion of  transition  costs,  costs that  previously  were
recovered in the  pipelines'  rate for bundled sales  services,  from all of its
pipeline suppliers would be approximately $109.9 million. Such filings currently
are pending before FERC for final approval,  and the transition  costs are being
collected subject to refund. Approximately $80.6 million of such costs have been
incurred by AGLC as of September  30,  1996,  and are being  recovered  from its
customers   under  the  purchased  gas  provisions  of  AGLC's  rate  schedules.
Transition  costs have not  affected  the total cost of gas to AGLC's  customers
significantly  because (1) AGLC  purchases  its wellhead  gas supplies  based on
market prices that are below the cost of gas previously  embedded in the bundled
pipelines'  sales  service  rates  and (2) many  elements  of  transition  costs
previously were embedded in the rates for the pipelines'  bundled sales service.
See Part I, Item 1, "State Regulatory  Matters - Gas Supply Filing" in this Form
10-K for further discussion of recovery of gas costs.

       Details concerning the status of the Order 636 restructuring  proceedings
involving the pipelines that serve AGLC directly are set forth below.




                                        8

<PAGE>



SOUTHERN 
Restructuring  Proceeding.  
     AGLC  has  filed  several  petitions  for  review  with  the D. C.  Circuit
concerning  various aspects of Southern's  restructuring.  Those aspects include
favorable  treatment of small  customers,  rate  mitigation,  mitigation  of GSR
costs, and tying of firm storage service to firm  transportation  service.  AGLC
has moved to withdraw those petitions for review in light of the FERC's approval
of the restructuring settlement between Southern and its customers, as discussed
below, but the court has not yet acted on AGLC's motion.

GSR Cost Recovery Proceeding. 
     On April 11, 1996, the FERC issued an order  constituting final approval of
the settlement  agreement  between AGLC,  Southern,  and other  customers  which
resolves  virtually  all pending  Southern  proceedings  before the FERC and the
courts.  The settlement  resolves  Southern's  pending general rate proceedings,
which relate to  Southern's  rates  charged  from  January 1, 1991,  through the
present.  The settlement provides for rate reductions and refund offsets against
GSR costs. It also resolves Southern's Order No. 636 transition cost proceedings
and provides for  revisions to  Southern's  tariff.  The FERC's  approval of the
settlement  is  subject  to action on  petitions  for  review  filed by  parties
opposing the settlement.

       On April 25, 1996, the FERC issued an order  accepting  Southern's  March
29, 1996,  filing to reduce its volumetric GSR surcharge for consenting  parties
to the restructuring settlement to reflect actual GSR costs incurred by Southern
through  December 31, 1995.  Southern  continues to make  quarterly  and monthly
transition  cost  filings  to  recover  costs  from  contesting  parties  to the
settlement,  and the FERC has  ordered  that  such  costs  may be  recovered  by
Southern,  subject to the outcome of a hearing for contesting parties.  However,
GSR and  other  transition  cost  charges  to AGLC  are in  accordance  with the
settlement. Assuming the FERC's approval of the settlement is upheld on judicial
review,  AGLC's share of  Southern's  transition  costs is estimated to be $85.5
million.  This  estimate  would not be  affected by the remand of Order No. 636,
unless FERC's approval of the settlement is not upheld on judicial review. As of
September  30, 1996,  $70.9  million of such costs have already been incurred by
AGLC.

TENNESSEE      
Restructuring  Proceeding.   
     AGLC  has  filed  several  petitions  for  review  with  the D. C.  Circuit
concerning various aspects of Tennessee's  restructuring.  Those aspects include
favorable  treatment for small customers,  rate mitigation and others. AGLC also
has filed a petition for review of FERC orders  concerning  Tennessee's  service
obligation to AGLC.  AGLC's  petitions for review currently are pending with the
court.

GSR Cost Recovery  Proceeding.  
     Tennessee has made several quarterly GSR recovery filings. AGLC's estimated
liability as a result of Tennessee's prior GSR recovery filings is approximately
$16.8 million,  assuming that the FERC does not change its GSR policies pursuant
to the Order No. 636  remand and  subject  to  possible  reduction  based on the
hearing FERC  established to  investigate  Tennessee's  costs.  AGLC is actively
participating in Tennessee's GSR cost recovery  proceeding.  As of September 30,
1996, $5.4 million of such costs have been incurred by AGLC.

Columbia  Gas  Transmission  Corporation.  
     AGLC has filed a petition for review of a FERC order approving a settlement
between  Tennessee and Columbia Gas  Transmission  Corporation  (Columbia).  The
settlement   resolves  issues  relating  to  Columbia's   upstream  capacity  on
Tennessee's  system, as well as certain other matters between the two pipelines.
AGLC has sought  review of the order on the  ground  that the FERC has failed to
ensure that Tennessee's customers will be made whole with respect to Tennessee's
agreement  to permit  Columbia  to abandon  certain  contracts  for  capacity on
Tennessee's system.

                              FERC Rate Proceedings

       AGLC also is participating  in various rate  proceedings  before the FERC
involving applications for rate changes filed by its pipeline suppliers.  To the
extent that these cases have not been  settled,  as described  below,  the rates
filed in these  proceedings  have been accepted,  and made effective  subject to
refund and the outcome of the FERC proceedings.




SOUTHERN 
     As  noted  above,  the  FERC  has  approved  the  restructuring  settlement
agreement between AGLC,  Southern,  and other customers that resolves all issues
between AGLC and Southern for Southern's outstanding rate proceedings.


                                        9

<PAGE>



SOUTH  GEORGIA 
     On  December  20,  1995,  the FERC  issued an order  upholding  an  initial
decision by an administrative  law judge (ALJ) in South Georgia's rate case that
South Georgia's interruptible transportation (IT) rate should be based on a load
factor of 100% on a prospective  basis.  AGLC  supported the 100% load factor IT
rate at the hearing in this  proceeding.  No party has sought  rehearing  of the
FERC's ruling, which is therefore final.

TENNESSEE  
     On April 5, 1996, Tennessee filed with the FERC a comprehensive  settlement
to resolve all issues in its current rate case.  The  settlement  provides for a
reduction  of  approximately  $83  million  in the  cost of  service  underlying
Tennessee's  rates in effect since July 1, 1995, and also provides for Tennessee
to share a portion of costs  associated  with firm capacity  relinquished by its
customers.  AGLC filed comments  supporting  the  settlement.  AGLC's  estimated
annual  reduction  in cost is $2.2  million.  The  FERC  approved  the  proposed
settlement  on October 30,  1996,  but the order  approving  the  settlement  is
pending requests for rehearing and therefore is not yet final.

       On July 3, 1996, the FERC issued an order on exceptions  from the rulings
of an ALJ in a prior Tennessee rate case. Among other things,  the FERC's order,
which is to have prospective effect,  rejects a proposal to unbundle Tennessee's
production area rates from its market area rates.  AGLC supported the unbundling
proposal. The order also upholds the ALJ's ruling that Tennessee's interruptible
transportation  rates  should be set at the 100% load factor  derivative  of the
firm  transportation  rate.  AGLC supported the 100% load factor  proposal.  The
order also rejects  proposals to revise  Tennessee's rate zone boundaries.  AGLC
has opposed such proposals. The FERC's rulings may impact the rates contained in
the settlement  agreement in Tennessee's  FERC rate case,  which was approved by
the FERC on  November 1, 1996.  The FERCs  order  approving  the  settlement  is
pending requests for rehearing and therefore is not yet final.

TRANSCO 
     On June 19, 1996,  Transco filed a proposed  partial  settlement to resolve
cost of service  and  throughput  issues in its current  rate case.  The partial
settlement  reserves certain cost allocation and rate design issues for hearing,
including  roll-in of Transco's  incrementally  priced Leidy Line facilities and
Transco's  use of  the  straight-fixed-variable  rate  design  methodology.  The
proposal  provides for a reduction of  approximately  $58 million in the cost of
service  underlying  Transco's rates that have been in effect since September 1,
1995.  The estimated  annual  reduction in costs to AGLC is $2.4  million.  AGLC
filed comments in support of the proposed settlement,  which was approved by the
FERC on November 1, 1996.  The FERC's order  approving the settlement is pending
requests for rehearing and therefore is not yet final.

       On July 3, 1996, the FERC issued an order on exceptions  from the rulings
of an ALJ in a prior Transco rate case.  Among other  things,  the FERC's order,
which is to have prospective effect, rejects Transco's proposal to established a
firm-to-the-wellhead  production area rate design, but permits Transco to file a
rate case to establish firm-to-the-wellhead rates if customers with entitlements
to production area capacity are permitted to determine whether they require such
capacity  in  an  open  season.  AGLC  opposed  Transco's   firm-to-the-wellhead
proposal. The order also reverses the ALJ's ruling that Transco must establish a
separate  production  area cost of service.  AGLC had filed  exceptions  seeking
reversal  of this  aspect of the ALJ's  ruling.  AGLC has joined  other  Transco
customers  in seeking  rehearing  of the July 3, 1996 order with  respect to the
FERC's  determination  that  Transco  may  file  a  new  proposal  to  establish
firm-to-the-wellhead  rates, and also has sought  clarification  that the FERC's
order does not eliminate  protections against abandonment that originated in the
settlements  by which AGLC and other  customers  agreed to convert from sales to
firm transportation service.

       On November 1, 1996, Transco filed to increase its rates by approximately
$83  million  over the last rates  approved  by the FERC.  Among  other  things,
Transco  filed its own proposal to roll into  systemwide  rates the costs of the
incrementally-priced   Leidy  Line  and  Southern  Expansion   facilities  on  a
prospective basis, after a hearing. AGLC filed a protest challenging the roll-in
proposal and the magnitude of the requested rate increase. On November 29, 1996,
the FERC issued an order  accepting  Transco's  filing,  subject to refund and a
hearing, and consolidated Transco's roll-in proposal with its ongoing rate case,
where a Leidy Line roll-in proposal by other parties is being litigated.


ANR PIPELINE 
     ANR Pipeline  (ANR)  provides  transportation  services to Southern under a
case-specific certificate issued by the FERC in 1980. Southern entered into this
transportation  arrangement with ANR in order to provide  Southern's  customers,
including AGLC,  access to storage  facilities owned and operated by ANR Storage
Company.  According  to  Southern,   approximately  96%  of  Southern's  service
entitlement on ANR is used to serve AGLC. AGLC has actively  participated in the
hearing procedures established by the FERC

                                       10

<PAGE>



with   respect  to  ANR's   general  rate   proceeding,   supporting  a  reduced
transportation rate for ANR's services to Southern. That proceeding currently is
pending for decision before an ALJ.


                                  Miscellaneous

SECONDARY MARKETS      
     On July  31,  1996,  the  FERC  issued  a  notice  of  proposed  rulemaking
concerning changes to the FERC's regulations  governing release of firm pipeline
capacity,  as well as the sale by pipelines of interruptible  transportation and
short-term firm capacity. The FERC is not proposing to eliminate the prohibition
against pricing released  capacity at higher than the pipeline's  maximum tariff
rate for  firm  service.  However,  the FERC  has  solicited  applications  from
pipelines and local distribution  companies to participate in a pilot program in
which the prices for released firm capacity,  interruptible transportation,  and
short-term  firm  capacity  are not capped.  AGLC has not sought  permission  to
participate in the pilot program,  but is monitoring the process.  One of AGLC's
pipeline  suppliers,  Transco,  sought  approval  to  participate  in the  pilot
program, but the FERC rejected Transco's application.

NEGOTIATED RATES 
     The FERC has issued a policy statement  authorizing  pipelines to establish
mechanisms by which they may charge  separately  negotiated  rates to particular
customers in lieu of their  tariff  rates.  The FERC has  required  pipelines to
retain in their  tariffs a "recourse  rate," which must be approved by the FERC,
and which must be available to those  customers that do not choose to separately
negotiate a rate with the pipeline.  Of the pipelines that supply AGLC, Transco,
Tennessee,  and East Tennessee have requested authority to separately  negotiate
rates.  The FERC has approved the  applications by Transco,  Tennessee,  and the
application  filed by East  Tennessee.  The  FERC's  policy  statement  has been
appealed to the D. C. Circuit, and AGLC has intervened in that proceeding.


                                    Arcadian

       The FERC has granted final  approval to the settlement  between  Southern
and Arcadian  Corporation  (Arcadian);  see Part I, Item 3, "Legal Proceedings."
The settlement  resolves both  Arcadian's  FERC complaint  against  Southern and
Arcadian's  antitrust lawsuit against Southern and AGLC. The settlement provides
for Southern to provide firm transportation  service to Arcadian at a negotiated
rate for an initial term of five years ending October 31, 1998. In addition, the
settlement  establishes  tariff language  addressing the conditions  under which
Southern will address future requests for direct  transportation  service.  AGLC
sought  rehearing  of the FERC's order  approving  the  settlement  but the FERC
rejected AGLC's rehearing  request on November 26, 1996. AGLC had petitioned for
review of the FERC's prior orders in this  proceeding in the United States Court
of Appeals for the Eleventh  Circuit.  AGLC's appeals have been held in abeyance
pending  action by the FERC on AGLC's  rehearing  request.  If the FERC's orders
approving the  restructuring  settlement  between  Southern,  AGLC and the other
customers are upheld on appeal, it will resolve the undue  discrimination  issue
raised by AGLC in Southern's current rate case.

       On April 22,  1996,  AGLC filed to  withdraw  portions of its request for
rehearing of the FERC's  order  approving  the  November  12,  1993,  settlement
between  Arcadian and Southern.  The portions of the request for rehearing  that
AGLC  proposes  to  withdraw,  pursuant  to the  restructuring  settlement  with
Southern,  are those that allege that  Southern's  discounted  rates to Arcadian
constitute an anticompetitive "price squeeze" against AGLC.

       AGLC  cannot  predict  the  outcome  of  these  federal  proceedings  nor
determine the ultimate effect, if any, such proceedings may have on AGLC.


STATE REGULATORY MATTERS

                            Atlanta Gas Light Company

REGULATORY REFORM INITIATIVES

       Two regulatory reform  initiatives are pending in Georgia,  both designed
to increase competition and reduce the role of regulation within the natural gas
industry.  The first  such  initiative  is the  subject of a  proceeding  at the
Georgia  Commission;  the second  initiative  is before study  committees of the
Georgia General Assembly.




                                       11

<PAGE>



       With respect to the first  initiative,  on November 20, 1995, the Georgia
Commission issued a Natural Gas Notice of Inquiry soliciting  comments on how to
introduce more  competition  into natural gas markets within Georgia.  Following
written comments and oral presentations from numerous parties,  on May 21, 1996,
the Georgia Commission adopted a Policy Statement that, among other things, sets
up a distinction  between  competitive  and natural  monopoly  services;  favors
performance-based  regulation in lieu of traditional cost-of-service regulation;
calls for unbundling interruptible service; directs the Georgia Commission Staff
to develop  standards of conduct for utilities and their  marketing  affiliates;
and invites pilot  programs for  unbundling  services to  residential  and small
business customers.

       Consistent  with  specific  goals  in  the  Georgia  Commission's  Policy
Statement,  on June 10,  1996,  AGLC  filed a  comprehensive  plan  for  serving
interruptible  markets  called the Natural Gas Service  Provider  Selection Plan
(the Plan).  The Plan proposes  further  unbundling of services to provide large
customers  more service  options and the ability to purchase only those services
they  require.  Proposed  tariff  changes  would  allow  AGLC to cease its sales
service  function  and the  associated  sales  obligation  for large  customers;
implement  delivery-only service for large customers on a firm and interruptible
basis;  and  provide  pooling  services  to  marketers.  The Plan also  includes
proposed  standards  of  conduct  for  utilities  and  marketing  affiliates  of
utilities.  Hearings on the proposal began in December 1996 and are scheduled to
resume in January and  February  1997.  A decision is expected  from the Georgia
Commission prior to March 1, 1997.

       The second major initiative to increase competition and decrease the role
of  regulation  in Georgia is before  study  committees  of the Georgia  General
Assembly.  The 1996 Georgia General Assembly considered,  but delayed action on,
The Natural Gas Fair Pricing Act,  which would have allowed  local gas companies
to negotiate  contract  prices and terms for gas services with large  commercial
and industrial customers absent Georgia  Commission-mandated  rates. The Georgia
General  Assembly  stated  through  resolutions  a  desire  to  fashion  a  more
comprehensive approach to deregulation and unbundling of natural gas services in
Georgia. Those resolutions,  adopted during the 1996 session, created Senate and
House  committees  to study and  recommend a  comprehensive  course of action by
December 31, 1996, for deregulating natural gas markets in Georgia.

       The separate Senate and House study  committees  conducted joint meetings
during  September,  October  and  November  1996,  with the goal of  crafting  a
comprehensive deregulation bill for the 1997 General Assembly, which convenes in
January  1997.  The natural gas  deregulation  plan under  consideration  by the
committees would unbundle services to all of AGLC's natural gas customers, would
continue  AGLC's role as the intrastate  transporter of natural gas, would allow
AGLC to assign firm delivery  capacity to certificated  marketers who would sell
the gas  commodity,  and would  create a  secondary  transportation  market  for
interruptible transportation capacity.

       Although AGLC cannot predict the outcome of these two  regulatory  reform
initiatives,  it  supports  both the plan  under  consideration  by the  Georgia
Commission and the plan under  consideration  by the Georgia  General  Assembly.
AGLC  currently  makes no profit on the purchase and sale of gas because  actual
gas costs are passed through to customers  under the purchased gas provisions of
AGLC's rate  schedules.  Earnings are  provided  through  revenues  received for
intrastate transportation of the commodity. Consequently, allowing AGLC to cease
its  sales  service  function  and the  associated  sales  obligation  would not
adversely  affect  AGLC's  ability to earn a return on its  distribution  system
investment.


GAS COST RECOVERY FILING

       Pursuant to legislation  enacted by the Georgia  General  Assembly,  each
investor-owned  local gas distribution  company is required to file on or before
August 1 of each year, a proposed gas supply plan for the  subsequent  year,  as
well as a proposed cost recovery  factor to be used during the same time period.
Costs of natural  gas supply,  interstate  transportation  and storage  incurred
pursuant to an approved plan may be recovered under the purchased gas provisions
of AGLC's rate schedules.

       On August 1, 1996, AGLC filed its 1997 Gas Supply Plan, which consists of
gas supply,  transportation  and storage  options  designed to provide  reliable
service to firm  customers at the best cost. On September 13, 1996,  the Georgia
Commission approved the entire supply portfolio contained in the 1997 Gas Supply
Plan.




                                       12

<PAGE>



       As part of the 1997 Gas  Supply  Plan,  AGLC is  authorized  to  continue
limited  gas  supply  hedging  activities.  The 1997  hedging  program  has been
expanded beyond the program  approved in the 1996 Gas Supply Plan. The financial
results of all hedging  activities are passed through to firm service  customers
under the purchased gas provisions of AGLC's rate schedules.  Accordingly, there
is no earnings impact as a result of the hedging program.


                             Chattanooga Gas Company

RATE FILINGS

       On May 1, 1995,  Chattanooga filed a rate proceeding with the TRA seeking
an increase in revenues of $5.2  million  annually.  On  September  27,  1995, a
settlement  agreement  was  reached  that  provides  for an annual  increase  in
revenues of approximately $2.5 million, effective November 1, 1995.


--------------------------------------------------------------------------------
Item 2.    Properties

      AGLC's properties  consist  primarily of distribution  systems and related
facilities  and local offices  serving 230 cities and  surrounding  areas in the
State of Georgia and 12 cities and surrounding  areas in the State of Tennessee.
As of September  30, 1996,  AGLC had 25,642 miles of mains and  5,952,000 Mcf of
LNG storage  capacity in three LNG plants to  supplement  the gas supply in very
cold weather or emergencies.  Chattanooga had 1,328 miles of mains and 1,076,000
Mcf of LNG storage capacity in its one LNG plant.

      At  September  30,  1996,   AGLC's  gross   utility   plant   amounted  to
approximately $2.0 billion.

--------------------------------------------------------------------------------
Item 3.    Legal Proceedings

      The nature of AGLC's business  ordinarily  results in periodic  regulatory
proceedings  before various state and federal  authorities as well as litigation
incidental to the business.  For information  regarding regulatory  proceedings,
see the  preceding  sections in Part I, Item 1,  "Business - Federal  Regulatory
Matters" and "Business - State Regulatory Matters."

                                    Arcadian

      ARCADIAN CORPORATION V. SOUTHERN NATURAL GAS COMPANY AND ATLANTA GAS LIGHT
COMPANY,  U. S.  District  Court for the Southern  District of Georgia,  Augusta
Division,  Case No.  CV192-006.  On January 10, 1992,  Arcadian,  an  industrial
customer of AGLC, filed a complaint against Southern and AGLC alleging violation
of the  federal  antitrust  laws and  seeking  treble  damages  in excess of $45
million.  In the complaint,  Arcadian alleged that Southern and AGL conspired to
restrain   trade  by  agreeing  not  to  compete  in  the  provision  of  direct
transportation service to end users in the areas served by AGLC. AGLC denied the
allegations of the complaint.

           On November  30,  1993, a proposed  settlement  between  Southern and
Arcadian was filed with FERC that would resolve both  Arcadian's  FERC complaint
against Southern and Arcadian's antitrust lawsuit against Southern and AGLC. The
settlement  provided  for firm and  interruptible  transportation  service  from
Southern to Arcadian at discounted  rates for an initial term of five years.  In
addition,  the settlement  establishes  tariff  conditions for addressing future
requests for direct  transportation  service.  In  connection  with the proposed
settlement,  the antitrust lawsuit has been stayed and administratively  closed.
On May 12, 1994, FERC approved the settlement over AGLC's  objections.  AGLC has
sought  rehearing  of  the  FERC's  order  approving  the  settlement,  and  has
petitioned  for review in the United  States  Court of Appeals for the  Eleventh
Circuit.  AGLC's appeals are currently being held in abeyance  pending action by
the FERC on AGLC's rehearing request.

           On April 22, 1996, AGLC filed to withdraw portions of its request for
rehearing of the FERC's  order  approving  the  November  12,  1993,  settlement
between  Arcadian and Southern.  The  arguments  that AGLC proposes to withdraw,
pursuant to the  restructuring  settlement with Southern,  are those that allege
that  Southern's  discounted  rates to Arcadian  constitute  an  anticompetitive
"price squeeze" against AGLC.


                                       13

<PAGE>




                              Environmental Matters

       AGLC has identified  nine sites in Georgia where it currently owns all or
part of a manufactured  gas plant (MGP) site. These sites are located in Athens,
Augusta,  Brunswick,  Griffin, Macon, Rome, Savannah,  Valdosta and Waycross. In
addition,  AGLC has identified  three other sites in Georgia which AGLC does not
now own, but that may have been associated with the operation of MGPs by AGLC or
its  predecessors.  These  sites  are  located  in  Atlanta  (2)  and  Macon.  A
Preliminary  Assessment (PA) was conducted at each of those twelve sites,  and a
subsequent Site  Investigation  (SI) was conducted at ten sites (all but the two
Atlanta sites).  Results from those investigations  reveal environmental impacts
at and near nine  sites  (all but the two  Atlanta  sites and the  second  Macon
site).

       In addition,  AGLC has  identified  three sites in Florida which may have
been associated with AGLC or its predecessors. One of these, located in Sanford,
Florida,  is now the subject of an Expanded Site  Investigation  (ESI) which has
been or is being conducted by the U.S.  Environmental  Protection  Agency (EPA).
Investigations  at the  site by AGLC and  others  have  indicated  environmental
impacts  on and near the site.  In  addition,  the  current  owner of this site,
Florida Public Utilities Company (FPUC),  had previously filed suit against AGLC
and  others  alleging  that AGLC is a former  "owner"  and  seeking  to obtain a
declaratory  judgment that all defendants  are jointly and severally  liable for
past and future costs of  investigating  and remediating the site. That suit has
since been dismissed by FPUC without prejudice.

       AGLC's  response  to MGP sites in Georgia is  proceeding  under two state
regulatory  programs.  First,  AGLC has  entered  into  consent  orders with the
Georgia  Environmental  Protection  Division  (EPD) with  respect to four sites:
Augusta,  Griffin,  Savannah, and Valdosta.  Under these consent orders, AGLC is
obliged to investigate  and, if necessary,  remediate  impacts at the site. AGLC
developed a proposed  Corrective  Action Plan (CAP) for the Griffin site, is now
conducting certain follow-up  investigations in response to EPD's comments,  and
expects to submit a revised CAP once EPD clarifies certain  regulatory  matters.
Assessment  activities are being conducted at Augusta and Savannah. In addition,
AGLC is in the  process of planning  certain  interim  remedial  measures at the
Augusta MGP site.  Those  measures  are expected to be  implemented  principally
during fiscal 1997.

       Second, AGLC's response to all Georgia sites is proceeding in substantial
compliance with Georgia's  "Hazardous Site Response Act" (HSRA).  AGLC submitted
to EPD formal  notifications  pertaining to all of its owned MGP sites,  and EPD
had listed seven sites (Athens, Augusta, Brunswick,  Griffin, Savannah, Valdosta
and  Waycross) on the state's  "Hazardous  Site  Inventory"  (HSI).  EPD has not
listed the Macon site on the HSI at this time. In addition,  EPD has also listed
the Rome site on the HSI. Under the HSRA regulations,  the four sites subject to
consent  orders are presumed to require  corrective  action;  EPD will determine
whether  corrective  action is required  at the four  remaining  sites  (Athens,
Brunswick,  Rome and Waycross) in due course. In that respect, however, AGLC has
submitted  Compliance  Status Reports (CSRs) for the Athens,  Brunswick and Rome
MGP sites,  and AGLC has concluded that these sites do not meet  applicable risk
reduction standards. Accordingly, some degree of response action is likely to be
required at those sites.

       AGLC has estimated the investigation  and remediation  expenses likely to
be associated with the former MGP sites. First, since such liabilities are often
spread among potentially responsible parties, AGLC's ultimate liability will, in
some cases,  be limited to AGLC's  equitable  share of such  expenses  under the
circumstances.  Therefore,  where  reasonably  possible,  AGLC has  attempted to
estimate the range of AGLC's equitable share,  given AGLC's current knowledge of
relevant facts, including the current methods of equitable apportionment and the
solvency of potential contributors.  Where such an estimation was not reasonably
possible,  AGLC has estimated a range of expenses without  adjustment for AGLC's
equitable share.  Second, the regulatory  structure of the cleanup  requirements
under HSRA has permitted AGLC to estimate future  investigation  and remediation
costs for the Georgia MGP sites, assuming such costs arise under this framework.

       Applying  both of these  concepts to those sites where some future action
presently appears reasonably  possible,  AGLC has estimated that, under the most
favorable  circumstances  reasonably  possible,  the  future  cost  to  AGLC  of
investigating  and  remediating  the former  MGP sites  could be as low as $30.4
million.  Alternatively,  AGLC has estimated  that,  under  reasonably  possible
unfavorable  circumstances,  the  future  cost  to  AGLC  of  investigating  and
remediating the former MGP sites could be as high as $110.8 million. If

                                       14

<PAGE>


additional  sites were added to those for which  action now  appears  reasonably
likely, or if substantially  more stringent  cleanups were required,  or if site
conditions  are markedly  worse than those now  anticipated,  the costs could be
higher. In addition, those costs do not include other expenses, such as property
damage  claims,  for which AGLC may  ultimately  be held  liable,  but for which
neither  the  existence  nor the amount of such  liabilities  can be  reasonably
forecast.  Within the stated range of $30.4 million to $110.8 million, no amount
within the range can be reliably  identified as a better estimate than any other
estimate.   Therefore,  a  liability  at  the  low  end  of  this  range  and  a
corresponding regulatory asset have been recorded in the financial statements.

       AGLC has two means of recovering the expenses  associated with the former
MGP sites.  First,  the Georgia  Commission has approved the recovery by AGLC of
Environmental Response Costs, as defined,  pursuant to an Environmental Response
Cost Recovery Rider (ERCRR). For purposes of the ERCRR,  Environmental  Response
Costs include  investigation,  testing,  remediation  and  litigation  costs and
expenses  or  other  liabilities  relating  to or  arising  from MGP  sites.  In
connection with the ERCRR, the staff of the Georgia  Commission has undertaken a
financial  and  management  process  audit  related  to the MGP  sites,  cleanup
activities at the sites and environmental response costs that have been incurred
for purposes of the ERCRR. On October 10, 1996, the Georgia Commission issued an
order to  prohibit  funds  collected  through  the ERCRR from being used for the
payment of any damage  award,  including  punitive  damages,  as a result of any
litigation associated with any of the MGP sites in which AGLC is involved.  AGLC
is currently pursuing judicial review of the October 10, 1996, order.

       Second,  AGLC  intends to seek  recovery  of  appropriate  costs from its
insurers  and  other  potentially  responsible  parties.  With  respect  to  its
insurers,  in 1991,  AGLC filed a declaratory  judgment action against 23 of its
insurance  companies.  After the trial court entered a judgment  adverse to AGLC
and AGLC appealed that ruling,  the Eleventh  Circuit Court of Appeals held that
the case did not  present a case or  controversy  when  filed,  and the case was
remanded with instructions to dismiss.  Since the Eleventh  Circuit's  decision,
AGLC has  settled  with,  or is  close to  settlement  with,  most of the  major
insurers.  AGLC has not  determined  what  actions it will take with  respect to
non-settling insurers.  During fiscal 1996 AGLC recovered $14.7 million from its
insurance carriers and other potentially responsible parties. In accordance with
provisions  of the ERCRR,  AGLC  recognized  other  income of $2.9  million  and
established regulatory liabilities for the remainder of those recoveries.

                             Other Legal Proceedings

      With regard to other legal proceedings, AGLC is a party, as both plaintiff
and  defendant,  to a number of other  suits,  claims  and  counterclaims  on an
ongoing basis.  Management  believes that the outcome of all litigation in which
it is  involved  will not have a  material  adverse  effect on the  consolidated
financial statements of AGLC.

--------------------------------------------------------------------------------
Item 4.      Submission of Matters to a Vote of Security Holders

      No matters were submitted to a vote of security  holders during the fourth
quarter of the fiscal year covered by this report.
--------------------------------------------------------------------------------




                                       15

<PAGE>


                                     Part II
--------------------------------------------------------------------------------
Item 5.    Market for the Registrants' Common Equity and Related Stockholder
           Matters

      As of September  30,  1996,  all of AGLC's  common stock was  beneficially
owned by AGL  Resources.  Accordingly,  there is no  established  public trading
market for AGLC's common stock.  Further,  as of September 30, 1996,  all of the
outstanding  shares of AGLC common stock were owned of record by AGL  Resources,
the sole shareholder of record.

      The following  table  reflects the quarterly  dividends  paid per share on
AGLC's  common  stock for fiscal  years ended  September  30, 1996 and 1995.  On
November 3, 1995,  the Board of Directors of AGLC declared a  two-for-one  stock
split of the  common  stock  effected  in the form of a 100% stock  dividend  to
shareholders  of record on November 17,  1995,  and payable on December 1, 1995.
All references to per share amounts have been restated  retroactively to reflect
the stock dividend.

      Quarter Ended                                  Dividends Paid Per Share
      1996
      September 30, 1996(a)                                    26.5(cent)
      June 30, 1996(a)                                         26.5(cent)
      March 31, 1996(a)                                        26.5(cent)
      December 31, 1995                                        26.5(cent)

      1995
      September 30, 1995                                       26(cent)
      June 30, 1995                                            26(cent)
      March 31, 1995                                           26(cent)
      December 31, 1994                                        26(cent)

      (a) Amount paid to AGL Resources Inc.

--------------------------------------------------------------------------------









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                                       16

<PAGE>
Item 6.  Selected Financial Data

     Selected  financial  data for AGLC for each  year of the  five-year  period
ended September 30, 1996, is set forth as follows:

<TABLE>
<CAPTION>

ATLANTA GAS LIGHT COMPANY                                                    
                                                                             
Selected Financial Data                                                      
                                                        For the years ended September 30,
                                                        ------------------------------------------------------------------------
In millions, except per share amounts                     1996         1995          1994         1993         1992         1991
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>          <C>           <C>          <C>          <C>          <C>        
Income Statement Data                                                    
   Operating revenues ..........................   $   1,217.6  $   1,063.0   $   1,199.9  $   1,130.3  $     994.6  $     963.8
   Cost of gas .................................         718.7        571.8         736.8        701.0        590.5        579.9
--------------------------------------------------------------------------------------------------------------------------------
   Operating margin ............................         498.9        491.2         463.1        429.3        404.1        383.9
--------------------------------------------------------------------------------------------------------------------------------
   Other operating expenses
      Operation ................................         217.7        213.5         207.0        187.6        170.7        165.2
      Restructuring costs ......................                       70.3
      Maintenance ..............................          29.3         30.4          32.8         30.9         29.5         28.6
      Depreciation .............................          61.6         58.5          55.4         58.8         54.9         50.2
      Income taxes .............................          43.5         16.0          34.3         28.2         25.6         26.2
      Taxes other than income taxes ............          24.9         25.6          26.0         23.9         23.2         19.2
--------------------------------------------------------------------------------------------------------------------------------
          Total other operating expenses .......         377.0        414.3         355.5        329.4        303.9        289.4
--------------------------------------------------------------------------------------------------------------------------------
   Operating income ............................         121.9         76.9         107.6         99.9        100.2         94.5
   Other income - net ..........................           7.8          1.4           3.2          4.3          2.6          1.8
-------------------------------------------------------------------------------------------------------------------------------
   Income before interest charges ..............         129.7         78.3         110.8        104.2        102.8         96.3
   Interest charges ............................          49.1         47.5          47.6         46.7         47.4         46.9
--------------------------------------------------------------------------------------------------------------------------------
   Net Income ..................................          80.6         30.8          63.2         57.5         55.4         49.4
   Dividends on preferred stock ................           4.4          4.4           4.5          4.3          1.0          1.1
--------------------------------------------------------------------------------------------------------------------------------
   Earnings available for common stock .........          76.2         26.4          58.7         53.2         54.4         48.3
   Common dividends paid .......................          58.6         54.2          52.2         51.1         49.6         47.4
--------------------------------------------------------------------------------------------------------------------------------
   Earnings reinvested .........................   $      17.6  $     (27.8)  $       6.5  $       2.1  $       4.8  $       0.9
================================================================================================================================
Balance Sheet Data(1)
   Total assets ................................   $   1,738.1  $   1,674.6   $   1,642.9  $   1,533.0  $   1,428.6  $   1,350.3
   Long-term liabilities
     Take-or-pay charges payable ...............   $       5.0  $      15.0
      Accrued environmental response costs .....   $      30.4  $      28.6   $      24.3  $      19.6  $      25.0
      Accrued pension costs ....................   $       4.9  $      10.3
      Accrued postretirement benefits costs ....   $      36.2  $      30.1   $       3.6
      Deferred Credits .........................   $      60.9  $      65.6   $      66.6  $      42.3  $      43.8  $      47.6
--------------------------------------------------------------------------------------------------------------------------------
   Capitalization
      Long-term debt ...........................   $     554.5  $     554.5   $     569.5  $     500.7  $     476.5  $     458.3
      Preferred stock  - redeemable ............          55.5         55.8          55.8         56.0         11.5         12.8
                       - nonredeemable .........           3.0          3.0           3.0          3.0          3.0          3.0
      Common equity ............................         502.7        557.3         518.5        492.0        472.1        448.2
--------------------------------------------------------------------------------------------------------------------------------
           Total ...............................   $   1,115.7  $   1,170.6   $   1,146.8  $   1,051.7  $     963.1  $     922.3
================================================================================================================================
Financial Ratios(1)
   Capitalization
      Long-term debt ...........................          49.7%        47.4%         49.6%        47.6%        49.5%        49.7%
      Preferred stock  - redeemable ............           5.0          4.8           4.9          5.3          1.2          1.4
                       - nonredeemable .........           0.2          0.2           0.3          0.3          0.3          0.3
      Common equity ............................          45.1         47.6          45.2         46.8         49.0         48.6
--------------------------------------------------------------------------------------------------------------------------------
          Total ................................         100.0%       100.0%        100.0%       100.0%       100.0%       100.0%
================================================================================================================================
   Return on average common equity .............          14.4%         4.9%         11.6%        11.0%        11.8%        11.4%
--------------------------------------------------------------------------------------------------------------------------------
   Times charges earned before income taxes(2)
      Total interest ...........................           3.60         1.99          3.08         2.86         2.66         2.56
      Total interest and preferred dividends ...           3.31         1.83          2.82         2.63         2.60         2.50
      Fixed(3) .................................           3.49         1.95          3.00         2.80         2.62         2.53
================================================================================================================================

(1) Year-End.
(2) Interest charges exclude the debt portion of allowance for funds used during construction.
(3) Fixed charges consist of interest on short- and long-term debt, other interest and the estimated interest component of 
    rentals.

</TABLE>

                                       17

<PAGE>

--------------------------------------------------------------------------------
Item 7.    Management's Discussion and Analysis of Results of Operations
           and Financial Condition


       On March 6, 1996,  Atlanta Gas Light Company (AGLC) completed a corporate
restructuring in which a new company,  AGL Resources Inc. (AGL Resources) became
the holding company for AGLC, a natural gas distribution utility,  AGLC's wholly
owned natural gas utility subsidiary, Chattanooga Gas Company (Chattanooga), and
AGLC's nonregulated  subsidiaries:  AGL Energy Services,  Inc.; AGL Investments,
Inc.; Georgia Gas Company;  Georgia Gas Service Company;  Georgia Energy Company
and Trustees  Investments,  Inc.  During the third and fourth quarters of fiscal
1996,  ownership  of  AGLC's  nonregulated  businesses  was  transferred  to AGL
Resources  and its various  subsidiaries.  (See Note 1 in Notes to  Consolidated
Financial  Statements.)  Unless noted  specifically or otherwise required by the
context,  references to AGLC include the  operations  and activities of AGLC and
Chattanooga.

       The  following  discussion  and analysis  cover events  affecting  AGLC's
results of operations and financial  condition for each of the three years ended
September 30, 1996, and factors expected to impact future operations.


Results of Operations
Fiscal 1996 Compared with Fiscal 1995


OPERATING REVENUES
       Operating  revenues  increased 14.5% in 1996 compared with 1995 primarily
due to (1) an increase in the cost of the gas supply  recovered  from  customers
under the  purchased  gas  provisions  of AGLC's rate  schedules,  (2) increased
volumes of gas sold to firm  service  customers  as a result of weather that was
50% colder in 1996 than in 1995 and (3) an increase of  approximately  41,500 in
the number of customers served.

COST OF GAS
       Cost of gas increased  25.7% in 1996 compared with 1995  primarily due to
(1) an increase in the cost of the gas supply recovered from customers under the
purchased gas provisions of AGLC's rate  schedules and (2) increased  volumes of
gas sold to firm service customers as a result of weather that was 50% colder in
1996 than in 1995.

       AGLC's  cost of  natural  gas per therm  was 32.2  cents in 1996 and 29.7
cents in 1995.  Variations  in the cost of purchased  gas are passed  through to
customers   under  the  purchased  gas  provisions  of  AGLC's  rate  schedules.
Overrecoveries or underrecoveries of purchased gas costs are charged or credited
to cost of gas and are  included  in  current  assets  or  liabilities,  thereby
eliminating  the effect that recovery of gas costs  otherwise  would have on net
income.

OPERATING MARGIN
       Operating  margin increased 1.6% in 1996 compared with 1995 primarily due
to (1) recovery of increased  expenses  related to an  Integrated  Resource Plan
(IRP),  which are recovered  through an IRP Cost Recovery  Rider approved by the
Georgia Public Service Commission (Georgia  Commission),  (2) a revenue increase
granted by the  Tennessee  Regulatory  Authority  (TRA),  formerly the Tennessee
Public Service  Commission,  effective  November 1, 1995, and (3) an increase of
approximately 41,500 in the number of customers served.

RESTRUCTURING COSTS
       In  November  1994  AGLC  announced  a  corporate  restructuring  plan in
response  to  increased  competition  and  changes  in  the  federal  and  state
regulatory  environments  in which  it  operates.  Restructuring  costs of $61.4
million  related to early  retirement  and  severance  programs and $8.9 million
related to office closings and costs to exit AGLC's appliance  merchandising and
real estate investment operations were recorded during 1995.
There were no restructuring costs recorded in 1996.

                                       18

<PAGE>

       During the fourth  quarter of fiscal 1996,  AGLC  reviewed its  remaining
liabilities with respect to its corporate  restructuring plan. As a result, AGLC
adjusted  its  restructuring  accruals  and reduced  operating  expenses by $1.6
million, after income taxes. The remaining balance of restructuring  liabilities
as of September 30, 1996 and 1995 was $1 million and $4.8 million, respectively.

OTHER OPERATING EXPENSES
       Operation and maintenance  expenses  increased 1.3% in 1996 compared with
1995 primarily due to (1) an increase of $3.6 million in expenses  related to an
Integrated  Resource Plan (IRP) and (2) an increase of $1.2 million in franchise
expenses.  IRP and franchise  expenses are recovered from customers through rate
recovery riders  approved by the Georgia  Commission.  As a result,  IRP program
costs and franchise expenses do not affect net income. Operation and maintenance
expenses  excluding IRP and franchise  expenses decreased slightly primarily due
to decreased labor related  expenses.  The decrease in operation and maintenance
expenses  excluding  IRP and  franchise  expenses was offset partly by increased
uncollectible accounts expenses.

       Depreciation  expense increased 5.3% in 1996 compared with 1995 primarily
due to  increased  depreciable  plant in service.  The  composite  straight-line
depreciation  rate  was  approximately  3.2% for  utility  property  other  than
transportation equipment during 1996 and 1995.

       Income taxes increased $27.5 million in 1996 compared with 1995 primarily
due to increased taxable income.

       Taxes other than income taxes  decreased  $0.7 million  primarily  due to
decreased ad valorem taxes.

OTHER INCOME
       Other income  increased $6.4 million in 1996 compared with 1995 primarily
due to (1) income  from  carrying  costs on  increased  deferred  purchased  gas
undercollections  and  (2)  recoveries  of  environmental  response  costs  from
insurance carriers and third parties.

INTEREST CHARGES
       Total interest charges  increased $1.6 million in 1996 compared with 1995
primarily due to increased amounts of short-term debt outstanding.  The increase
was offset partly by decreased amounts of long-term debt outstanding.

EARNINGS AVAILABLE FOR COMMON STOCK
       Earnings available for common stock for 1996 was $76.2 million,  compared
with $26.4 million in 1995. The increase in earnings  available for common stock
was primarily due to (1) corporate  restructuring costs of $43.1 million,  after
income taxes,  recorded in 1995,  (2)  increased  other income and (3) increased
operating  margin  as a result of an  increase  of  approximately  41,500 in the
number of customers served.  The increase in earnings available for common stock
was offset partly by increased depreciation expense.


Results of Operations
Fiscal 1995 Compared with Fiscal 1994

OPERATING REVENUES
       Operating  revenues  decreased 11.4% in 1995 compared with 1994 primarily
due to (1) a decrease  in the cost of the gas supply  recovered  from  customers
under the  purchased gas  provisions of AGLC's rate  schedules and (2) decreased
volumes of gas sold to firm  service  customers  as a result of weather that was
17% warmer in 1995 than in 1994.  The decrease in operating  revenues was offset
partly by an increase of approximately 37,000 in the number of customers served.

COST OF GAS
       Cost of gas decreased  22.4% in 1995 compared with 1994  primarily due to
(1) a decrease in the cost of the gas supply  recovered from customers under the
purchased gas provisions of AGLC's rate  schedules and (2) decreased  volumes of
gas sold to firm service customers as a result of weather that was 17% warmer in
1995 than in 1994.

                                       19

<PAGE>

       AGLC's  cost of  natural  gas per therm  was 29.7  cents in 1995 and 37.7
cents in 1994.  Variations  in the cost of purchased  gas are passed  through to
customers  under  the  purchased  gas  adjustment   provisions  of  AGLC's  rate
schedules.

OPERATING MARGIN
       Operating  margin increased 6.1% in 1995 compared with 1994 primarily due
to an increase of approximately 37,000 in the number of customers served.

RESTRUCTURING COSTS
       In  November  1994  AGLC  announced  a  corporate  restructuring  plan in
response  to  increased  competition  and  changes  in  the  federal  and  state
regulatory environments in which AGLC operates.

       The  restructuring  plan  provided  for  reengineering   AGLC's  business
processes and streamlining AGLC's statewide field organizations.  As a result of
restructuring,  AGLC has combined offices and established  centralized  customer
service  centers.  During 1995,  AGLC reduced the average number of employees by
approximately  500 through  voluntary  retirement  and severance  programs,  and
attrition.

       Restructuring  costs of $61.4  million  related to early  retirement  and
severance programs and $8.9 million related to office closings and costs to exit
AGLC's  appliance  merchandising  and real  estate  investment  operations  were
recorded during 1995.

OTHER OPERATING EXPENSES
       Operation and maintenance  expenses  increased 1.7% in 1995 compared with
1994 primarily due to an increase of $17 million in expenses  related to an IRP,
which are recovered  through an IRP Cost Recovery  Rider approved by the Georgia
Commission.  As a result, IRP program costs do not affect net income.  Operation
and maintenance  expenses excluding IRP expenses decreased 5.4% in 1995 compared
with  1994  primarily  due to (1)  decreased  labor  costs  as a  result  of the
restructuring  plan,  (2)  decreased  uncollectible  accounts  expenses  and (3)
decreased regulatory commission expenses.

       Depreciation  expense increased 5.6% in 1995 compared with 1994 primarily
due to  increased  depreciable  plant in service.  The  composite  straight-line
depreciation  rate  was  approximately  3.2% for  utility  property  other  than
transportation equipment during 1995 and 1994.

       Income taxes decreased $18.3 million in 1995 compared with 1994 primarily
due to decreased taxable income.

       Taxes other than income taxes  decreased  $0.4 million  primarily  due to
decreased payroll taxes as a result of the  restructuring  plan. The decrease in
taxes other than income taxes was offset partly by increased ad valorem taxes.

OTHER INCOME
       Other income  decreased $1.8 million in 1995 compared with 1994 primarily
due to (1)  decreased  income  from  propane  operations  as a result  of warmer
weather and (2) decreased income from merchandise operations.

INTEREST CHARGES
       Total interest charges  decreased $0.1 million in 1995 compared with 1994
primarily due to increased  allowance  for funds used during  construction-debt.
Interest on long-term debt decreased $0.5 million in 1995 compared with 1994 due
to decreased  amounts of long-term  debt  outstanding.  The  decreased  interest
expense  on  long-term  debt was  offset  by a $0.5  million  increase  in other
interest expenses primarily due to increased interest rates on short-term debt.

EARNINGS AVAILABLE FOR COMMON STOCK
       Earnings available for common stock for 1995 was $26.4 million,  compared
with $58.7 million for 1994. The decrease in earnings available for common stock
was  primarily  due to corporate  restructuring  costs of $43.1  million,  after
income taxes,  recorded in 1995.  The decrease in earnings  available for common
stock was  offset  partly by (1)  increased  operating  margin as a result of an
increase  of  approximately  37,000 in the

                                       20

<PAGE>

number of  customers  served and (2)  decreased  other  operating  expenses as a
result of the restructuring plan. Excluding charges recorded during 1995 related
to the restructuring  plan,  earnings available for common stock would have been
approximately $69.5 million.

Impact of Inflation
       Inflation  impacts the prices AGLC must pay for labor and other goods and
services required for operation,  maintenance and capital  improvements.  AGLC's
rate  schedules  include  purchased gas  adjustment  provisions  that permit the
increases in gas costs to be passed on to its customers.  Increases in costs not
recovered through the purchased gas adjustment provisions and other similar rate
riders must be recovered through timely filings for rate relief.


Financial Condition
Financing

LONG-TERM DEBT
       During fiscal 1994,  $194.5  million in principal  amount of  Medium-Term
Notes, Series C, was issued, with maturity dates ranging from 10 to 30 years and
with  interest  rates  ranging from 5.9% to 7.2%.  The notes are issued under an
Indenture  dated  December 1, 1989,  and are unsecured and rank on a parity with
all other unsecured indebtedness. Net proceeds from the notes were used to repay
short-term  debt, to refund $125 million in principal  amount of First  Mortgage
Bonds and for other corporate purposes.  Approximately $105 million in principal
amount of  Medium-Term  Notes,  Series C, was unissued as of September 30, 1996,
and 1995.

SHORT-TERM DEBT
       Because AGLC's  business is highly  seasonal,  short-term debt is used to
meet seasonal working capital  requirements.  In addition,  capital expenditures
are funded  temporarily with short-term debt. Lines of credit with various banks
provide for direct  borrowings from the banks and are subject to annual renewal.
The current  lines of credit vary from $75 million in the summer  months to $253
million for peak winter  financing.  Short-term debt increased $101 million from
the amount outstanding as of September 30, 1995, to $152 million as of September
30,  1996,  primarily as a result of the  increased  use of  short-term  debt to
temporarily fund capital  expenditures.  For additional  information  concerning
short-term debt, see Note 8 in Notes to Consolidated Financial Statements.

Capital Requirements
       Capital   expenditures  for  construction  of  distribution   facilities,
purchase of equipment and other general  improvements were $132.8 million during
1996.

       Capital  requirements are estimated to be approximately  $350 million for
the three years ending September 30, 1999. During the same period, approximately
$1.2 million will be required to fund preferred stock purchase fund obligations.
Funding  for  those  expenditures  will be  provided  through a  combination  of
internal sources and the issuance of short-term and long-term debt.

       The cost of natural gas stored  underground  increased  $32.8  million to
$144 million as of September 30, 1996,  primarily due to an increase in the cost
of the gas that was injected into storage.

Ratios and Coverages
       On September 30, 1996,  AGLC's  capitalization  ratios consisted of 49.7%
long-term debt, 5.2% preferred stock and 45.1% common equity. The times interest
earned and ratio of earnings to fixed  charges  increased in 1996  compared with
1995 primarily due to increased earnings. The times interest earned and ratio of
earnings to fixed charges  decreased in 1995 compared with 1994 primarily due to
decreased earnings.

                                       21

<PAGE>

       The  weighted  average  cost of  long-term  debt  decreased  from 7.7% on
September 30, 1994,  to 7.6% on September 30, 1996.  The decrease was due to the
redemption of $15 million in principal  amount of 8.85%  medium-term  notes. The
weighted  average cost of preferred  stock was 7.5% on September 30, 1994,  1995
and 1996. The return on average common equity was 11.6% for 1994; 4.9% for 1995;
and 14.4% for 1996.  Earnings  available  for  common  stock in 1995  included a
charge for restructuring of $43.1 million, after income taxes.

Regulatory Activity
ORDER 636
       In 1992 the Federal Energy Regulatory Commission (FERC) issued Order 636,
which, among other things,  mandated the unbundling of interstate pipeline sales
service and  established  certain open access  transportation  regulations  that
became effective beginning in the 1993-1994 heating season.

       In Order 636 FERC acknowledged that, without special recovery mechanisms,
certain costs that  previously were recovered in the pipelines' rate for bundled
sales  services no longer could be recovered by the pipelines in a  restructured
environment.  Those costs,  referred to as transition costs, include such things
as  unrecovered  gas  costs,  gas supply  realignment  (GSR)  costs and  various
stranded costs  resulting  from  unbundling.  Accordingly,  Order 636 included a
recovery  mechanism that allows the pipeline  companies to pass through to their
customers any prudently  incurred  transition  costs  attributable to compliance
with Order 636.

       On July 16, 1996,  the United States Court of Appeals for the District of
Columbia  Circuit  issued  its  ruling  in United  Distribution  Cos.  v.  FERC,
concerning  appeals from Order 636. The court  generally  upheld  FERC's  orders
against  a broad  array of  challenges,  but  remanded  the  orders  to FERC for
reconsideration of certain issues, including FERC's decision to permit pipelines
to pass all of their GSR costs  through to their  customers  and its decision to
require  interruptible  transportation  customers to bear 10% of GSR costs. FERC
has not yet issued an order on  remand,  and thus it is not known  whether  FERC
will  change  its  GSR  policies.  The  court's  order  is  subject  to  further
proceedings  before the  District of Columbia  Circuit,  and possibly the United
States Supreme Court.

       AGLC,  based on filings  with FERC by its pipeline  suppliers,  estimates
that its  portion  of such  costs from all of its  pipeline  suppliers  would be
approximately $109.9 million. Such filings currently are pending before FERC for
final approval,  and the transition costs are being collected subject to refund.
Approximately  $80.6  million  of such costs  have been  incurred  by AGLC as of
September  30,  1996,  recovery of which is  provided  under the  purchased  gas
provisions of AGLC's rate schedules.

       Transition  costs  have not  affected  the  total  cost of gas to  AGLC's
customers significantly because (1) purchases of wellhead gas supplies are based
on  market  prices  that are below the cost of gas  previously  embedded  in the
bundled  pipeline sales service rates and (2) many elements of transition  costs
previously were embedded in the rates for the pipelines' bundled sales service.

REGULATORY REFORM INITIATIVES
       Two regulatory reform  initiatives are pending in Georgia,  both designed
to increase competition and reduce the role of regulation within the natural gas
industry.  The first  such  initiative  is the  subject of a  proceeding  at the
Georgia  Commission;  the second  initiative  is before study  committees of the
Georgia General Assembly.

       With respect to the first  initiative,  on November 20, 1995, the Georgia
Commission issued a Natural Gas Notice of Inquiry soliciting  comments on how to
introduce more  competition  into natural gas markets within Georgia.  Following
written comments and oral presentations from numerous parties,  on May 21, 1996,
the Georgia Commission adopted a Policy Statement that, among other things, sets
up a distinction  between  competitive  and natural  monopoly  services;  favors
performance-based  regulation in lieu of traditional cost-of-service regulation;
calls for unbundling interruptible service; directs the Georgia Commission Staff
to develop  standards of conduct for utilities and their  marketing  affiliates;
and invites pilot  programs for  unbundling  services to  residential  and small
business customers.

                                       22

<PAGE>

       Consistent  with  specific  goals  in  the  Georgia  Commission's  Policy
Statement,  on June 10,  1996,  AGLC  filed a  comprehensive  plan  for  serving
interruptible  markets  called the Natural Gas Service  Provider  Selection Plan
(the Plan).  The Plan proposes  further  unbundling of services to provide large
customers  more service  options and the ability to purchase only those services
they  require.  Proposed  tariff  changes  would  allow  AGLC to cease its sales
service function and the associated sales  obligation;  implement  delivery-only
service  for large  customers  on a firm and  interruptible  basis;  and provide
pooling  services to  marketers.  The Plan also includes  proposed  standards of
conduct for  utilities and  marketing  affiliates of utilities.  Hearings on the
proposal have been  scheduled for December 1996 and January and February 1997. A
decision is expected from the Georgia Commission prior to March 1, 1997.

       The second major initiative to increase competition and decrease the role
of  regulation  in Georgia is before  study  committees  of the Georgia  General
Assembly.  The 1996 Georgia General Assembly considered,  but delayed action on,
The Natural Gas Fair Pricing Act,  which would have allowed  local gas companies
to negotiate  contract  prices and terms for gas services with large  commercial
and industrial customers absent Georgia  Commission-mandated  rates. The Georgia
General  Assembly  stated  through  resolutions  a  desire  to  fashion  a  more
comprehensive approach to deregulation and unbundling of natural gas services in
Georgia. Those resolutions,  adopted during the 1996 session, created Senate and
House  committees  to study and  recommend a  comprehensive  course of action by
December 31, 1996, for deregulating natural gas markets in Georgia.

       The separate Senate and House study committees  conducted meetings during
September,  October and November 1996, with the goal of crafting a comprehensive
deregulation bill for the 1997 General Assembly, which convenes in January 1997.
The natural gas  deregulation  plan under  consideration by the committees would
unbundle services to all of AGLC's natural gas customers,  would continue AGLC's
role as the  intrastate  transporter  of natural gas, would allow AGLC to assign
firm  delivery  capacity  to  certificated  marketers  who  would  sell  the gas
commodity,  and would create a secondary transportation market for interruptible
transportation capacity.

       Although AGLC cannot predict the outcome of these two  regulatory  reform
initiatives,  it  supports  both the plan  under  consideration  by the  Georgia
Commission and the plan under  consideration  by the Georgia  General  Assembly.
AGLC  currently  makes no profit on the purchase and sale of gas because  actual
gas costs are passed through to customers  under the purchased gas provisions of
AGLC's rate  schedules.  Earnings are  provided  through  revenues  received for
intrastate transportation of the commodity. Consequently, allowing AGLC to cease
its  sales  service  function  and the  associated  sales  obligation  would not
adversely  affect  AGLC's  ability to earn a return on its  distribution  system
investment.

GAS COST RECOVERY FILING
       Pursuant to legislation  enacted by the Georgia  General  Assembly,  each
investor-owned  local gas distribution  company is required to file on or before
August 1 of each year, a proposed gas supply plan for the  subsequent  year,  as
well as a proposed cost recovery  factor to be used during the same time period.
Costs of natural  gas supply,  interstate  transportation  and storage  incurred
pursuant to an approved plan may be recovered under the purchased gas provisions
of AGLC's rate schedules.

       On August 1, 1996, AGLC filed its 1997 Gas Supply Plan, which consists of
gas supply,  transportation  and storage  options  designed to provide  reliable
service to firm  customers at the best cost. On September 13, 1996,  the Georgia
Commission approved the entire supply portfolio contained in the 1997 Gas Supply
Plan.

       As part of the 1997 Gas  Supply  Plan,  AGLC is  authorized  to  continue
limited  gas  supply  hedging  activities.  The 1997  hedging  program  has been
expanded beyond the program  approved in the 1996 Gas Supply Plan. The financial
results of all hedging  activities are passed through to firm service  customers
under the purchased gas provisions of AGLC's rate schedules.  Accordingly, there
is no earnings impact as a result of the hedging program.

RATE FILINGS
       On May 1, 1995,  Chattanooga filed a rate proceeding with the TRA seeking
an increase in revenues of $5.2  million  annually.  On  September  27,  1995, a
settlement  agreement  was  reached  that  provides  for an annual  increase  in
revenues of approximately $2.5 million, effective November 1, 1995.

                                       23

<PAGE>

       On August 3, 1993, Chattanooga made a rate filing with the TRA seeking an
increase  in  revenues  of $5.7  million  annually.  On  December  31,  1993,  a
settlement  agreement  was reached that  provided for an annual rate increase of
$3.5 million, effective February 1, 1994.

WEATHER NORMALIZATION
       The Georgia Commission and the TRA have authorized weather  normalization
adjustment  riders  (WNARs),  which are  designed  to  offset  the  impact  that
unusually  cold or warm weather has on customer  billings and operating  margin.
Because fiscal 1996 was colder than normal, the WNARs reduced net income and net
cash flow from operating activities to normal levels. Fiscal years 1995 and 1994
were warmer than normal, and the WNARs, therefore,  increased net income and net
cash flow from  operating  activities  to normal levels for those  periods.  The
WNARs  decreased net income by $4.4 million in 1996, and increased net income by
$27.3 million in 1995 and $12.6 million in 1994.

Environmental Matters
       AGLC has identified  nine sites in Georgia where it currently owns all or
part of a  manufactured  gas plant (MGP) site. In addition,  AGLC has identified
three other sites in Georgia  that AGLC does not now own, but that may have been
associated  with the  operation of MGPs by AGLC or its  predecessors.  There are
three sites in Florida that have been investigated by environmental  authorities
in  connection  with which AGLC may be  contacted as a  potentially  responsible
party.  Preliminary assessments and subsequent site investigations have revealed
environmental impacts at and near some of those sites.

       Under a thorough analysis of potentially  applicable  requirements,  AGLC
has estimated that, under the most favorable circumstances  reasonably possible,
the future cost of investigating and remediating the former MGP sites, excluding
sites  for  which no  remediation  is  expected  or the cost of which  cannot be
estimated, could be as low as $30.4 million.  Alternatively,  AGLC has estimated
that, under the least favorable  circumstances  reasonably possible,  the future
cost of investigating and remediating the same former MGP sites could be as high
as $110.8  million,  excluding sites for which no remediation is expected or the
cost of which cannot be estimated.  AGLC cannot estimate at this time the amount
of any other future expenses or liabilities, or the impact on those estimates of
future  environmental  or regulatory  changes,  that may be  associated  with or
related to the MGP sites,  including  expenses  or  liabilities  relating to any
litigation.  At the present  time,  no amount within the $30.4 million to $110.8
million range can be identified  as a better  estimate than any other  estimate.
Therefore,  a  liability  at the  low  end of  this  range  and a  corresponding
regulatory asset have been recorded in the financial statements.

       The Georgia Commission has approved the recovery by AGLC of environmental
response costs,  pursuant to AGLC's  Environmental  Response Cost Recovery Rider
(ERCRR).  For  purposes  of the  ERCRR,  environmental  response  costs  include
investigation,  testing,  remediation and litigation costs and expenses or other
liabilities relating to or arising from MGP sites. In connection with the ERCRR,
the staff of the Georgia  Commission  has  undertaken a financial and management
process  audit  related to the MGP sites,  cleanup  activities  at the sites and
environmental  response costs that have been incurred for purposes of the ERCRR.
On October 10, 1996,  the Georgia  Commission  issued an order to prohibit funds
collected through the ERCRR from being used for the payment of any damage award,
including punitive damages, as a result of any litigation associated with any of
the MGP sites in which AGLC is  involved.  AGLC is currently  pursuing  judicial
review of the October 10, 1996, order.

       AGLC is currently a party to claims and litigation  related to the former
MGP sites.  During fiscal 1996 AGLC  recovered  $14.7 million from its insurance
carriers  and  other  potentially   responsible   parties.  In  accordance  with
provisions of the ERCRR,  AGLC  recognized  other income of $1.6 million,  after
income taxes, and established  regulatory liabilities for the remainder of those
recoveries.   AGLC  intends  to  continue  to  pursue  insurance   coverage  and
contributions from potentially responsible parties.

Competition
       AGLC competes to supply  natural gas to  interruptible  customers who are
capable of switching to alternative  fuels,  including  propane,  fuel and waste
oils,  electricity and, in some cases,  combustible wood by-products.  AGLC also
competes to supply gas to  interruptible  customers who might seek to bypass its
distribution system.

                                       24

<PAGE>

       AGLC can price  distribution  services to  interruptible  customers  four
ways.  First,  multiple rates are established under the rate schedules of AGLC's
tariff approved by the Georgia  Commission.  If an existing tariff rate does not
produce a price competitive with a customer's relevant competitive  alternative,
three alternate pricing mechanisms exist:  Negotiated  Contracts,  Interruptible
Transportation and Sales Maintenance (ITSM) discounts and Special Contracts.

       On February 17, 1995, the Georgia  Commission  approved a settlement that
permits  AGLC to  negotiate  contracts  with  customers  who have the  option of
bypassing AGLC's facilities (Bypass Customers) to receive natural gas from other
suppliers.   The  bypass  avoidance  contracts  (Negotiated  Contracts)  can  be
renewable, provided the initial term does not exceed five years, unless a longer
term specifically is authorized by the Georgia Commission.  The rate provided by
the  Negotiated  Contract may be lower than AGLC's filed rate, but not less than
AGLC's  marginal  cost of  service to the  potential  Bypass  Customer.  Service
pursuant to a  Negotiated  Contract  may  commence  without  Georgia  Commission
action,  after a copy of the  contract  is filed  with the  Georgia  Commission.
Negotiated Contracts may be rejected by the Georgia Commission within 90 days of
filing; absent such action,  however, the Negotiated Contracts remain in effect.
None of the Negotiated  Contracts filed to date with the Georgia Commission have
been rejected.

       The  settlement  also  provides for a bypass loss  recovery  mechanism to
operate until the earlier of September  30, 1998,  or the effective  date of new
rates for AGLC resulting from a general rate case.

       In addition to Negotiated Contracts, which are designed to serve existing
and potential Bypass Customers,  AGLC's ITSM Rider continues to permit discounts
for  short-term   transactions  to  compete  with  alternative  fuels.   Revenue
shortfalls,  if any, from  interruptible  customers as measured by the test-year
interruptible  revenues determined by the Georgia Commission in AGLC's 1993 rate
case will continue to be recovered under the ITSM Rider.

       The settlement approved by the Georgia Commission also provides that AGLC
may file contracts (Special  Contracts) for Georgia  Commission  approval if the
service cannot be provided through the ITSM Rider,  existing rate schedules,  or
Negotiated Contract procedures.  A Special Contract,  for example, could involve
AGLC providing a long-term  service contract to compete with  alternative  fuels
where physical bypass is not the relevant competition.

     Pursuant  to the  approved  settlement,  AGLC has  filed  and is  providing
service  pursuant to approximately 50 Negotiated  Contracts.  Additionally,  the
Georgia  Commission  has  approved  Special  Contracts  between  AGLC  and  five
interruptible customers.

     On July 22,  1996,  Chattanooga  filed a plan  with  the TRA  that  permits
Chattanooga  to  negotiate  contracts  with  customers  in  Tennessee  who  have
long-term  competitive  options,  including bypass. On November 7, 1996, the TRA
hearing officer recommended approval of a settlement that permits Chattanooga to
negotiate  contracts  with large  commercial  or  industrial  customers  who are
capable of bypassing Chattanooga's  distribution system. The settlement provides
for approval on an  experimental  basis,  with the TRA to review the measure two
years from the approval  date.  The pricing terms  provided in any such contract
may be neither less than  Chattanooga's  marginal cost of providing  service nor
greater  than the  filed  tariff  rate  generally  applicable  to such  service.
Chattanooga can recover 50% of the difference  between the contract rate and the
applicable  tariff  rate  through the  balancing  account of the  purchased  gas
adjustment provisions of Chattanooga's rate schedules.

--------------------------------------------------------------------------------

                                       25

<PAGE>




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

      The following financial statements of AGLC are set forth as follows:

     Statements of  Consolidated  Income for the years ended September 30, 1996,
     1995 and 1994 - page 27.

     Statements  of  Consolidated  Cash Flows for the years ended  September 30,
     1996, 1995 and 1994 - page 28.

     Consolidated  Balance  Sheets  as of  September  30,  1996 and 1995 - pages
     29-30.

     Statements  of  Consolidated  Common  Stock  Equity  for  the  years  ended
     September 30, 1996, 1995 and 1994 - page 31.

     Notes to Consolidated Financial Statements - pages 32-47.

     Independent Auditors' Report - page 48.

     The supplementary  financial information required by Item 302 of Regulation
     S-K is set forth in Note 14 in Notes to Consolidated  Financial  Statements
     on page 47 of this Form 10-K.




                                       26

<PAGE>


ATLANTA GAS LIGHT COMPANY

Statements of Consolidated Income

                                            For the years ended September 30, 

                                            ------------------------------------
In millions, except per share amounts             1996        1995        1994
--------------------------------------------------------------------------------
Operating Revenues ......................   $  1,217.6  $  1,063.0  $  1,199.9
Cost of Gas .............................        718.7       571.8       736.8
--------------------------------------------------------------------------------
Operating Margin ........................        498.9       491.2       463.1
--------------------------------------------------------------------------------
Other Operating Expenses
      Operation .........................        217.7       213.5       207.0
      Restructuring costs ...............                     70.3
      Maintenance .......................         29.3        30.4        32.8
      Depreciation of utility plant other
          than transportation equipment .         61.6        58.5        55.4
      Income taxes ......................         43.5        16.0        34.3
      Taxes other than income taxes .....         24.9        25.6        26.0
--------------------------------------------------------------------------------
          Total other operating expenses         377.0       414.3       355.5
--------------------------------------------------------------------------------
Operating Income ........................        121.9        76.9       107.6
--------------------------------------------------------------------------------
Other Income
      Allowance for funds used during
          construction-equity ...........          0.4         0.2         0.2
      Other income and deductions .......         12.2         1.9         5.0
      Income taxes ......................         (4.8)       (0.7)       (2.0)
--------------------------------------------------------------------------------
          Total other income-net ........          7.8         1.4         3.2
--------------------------------------------------------------------------------
Income Before Interest Charges ..........        129.7        78.3       110.8
--------------------------------------------------------------------------------
Interest Charges
      Interest on long-term debt ........         42.2        42.7        43.2
      Allowance for funds used during
          construction-debt .............         (0.4)       (0.3)       (0.2)
      Other interest ....................          7.3         5.1         4.6
--------------------------------------------------------------------------------
          Total interest charges ........         49.1        47.5        47.6
--------------------------------------------------------------------------------
Net Income ..............................         80.6        30.8        63.2
--------------------------------------------------------------------------------
Dividends on Preferred Stock ............          4.4         4.4         4.5
--------------------------------------------------------------------------------
Earnings Available for Common Stock .....   $     76.2  $     26.4  $     58.7
--------------------------------------------------------------------------------

See notes to consolidated financial statements.

                                       27

<PAGE>

ATLANTA GAS LIGHT COMPANY                               
                                
Statements of Consolidated Cash Flows                           
                                
                                
                                              For the years ended September 30,
                                              ----------------------------------
In millions                                           1996      1995      1994  
--------------------------------------------------------------------------------
Cash Flows from Operating Activities
      Net income ..............................   $   80.6  $   30.8  $   63.2
      Adjustments to reconcile net income to
        net cash flow from operating activities
          Depreciation and amortization .......       65.8      62.5      59.2
          Noncash restructuring costs .........                 52.9
          Deferred income taxes ...............       24.3      (1.2)     13.6
          Other ...............................       (0.1)      3.8       6.3
--------------------------------------------------------------------------------
                                                     170.6     148.8     142.3
      Changes in assets and liabilities
          Receivables .........................      (27.3)     14.6       9.4
          Inventories .........................      (32.7)     43.3     (38.5)
          Deferred purchased gas adjustment ...      (11.0)    (13.8)     20.8
          Accounts payable ....................        3.1      14.7      (6.0)
          Other-net ...........................      (12.8)      2.4       4.7
--------------------------------------------------------------------------------
            Net cash flow from operating
              activities ......................       89.9     210.0     132.7
--------------------------------------------------------------------------------
Cash Flows from Financing Activities
      Sale of common stock, net of expenses ...        1.0      50.4       2.4
      Short-term borrowings, net ..............      101.0     (44.4)    (36.0)
      Redemptions and purchase fund
          requirements of preferred stock and
          long-term debt ......................                (15.0)   (125.7)
      Sale of long-term debt ..................                          194.5
      Common stock dividends paid to parent ...      (53.8)    (44.3)    (42.9)
      Preferred stock dividends ...............       (4.4)     (4.4)     (4.5)
--------------------------------------------------------------------------------
            Net cash flow from financing ......       43.8     (57.7)    (12.2)
              activities
--------------------------------------------------------------------------------
Cash Flows from Investing Activities
      Utility plant expenditures ..............     (132.0)   (120.8)   (122.0)
      Investment in joint venture .............                (32.6)
      Nonutility capital expenditures .........        1.1      (0.4)     (0.1)
      Cash received from joint venture ........        2.4
      Cost of removal, net of salvage .........       (1.0)      1.9       1.6
--------------------------------------------------------------------------------
            Net cash flow from investing ......     (129.5)   (151.9)   (120.5)
              activities
--------------------------------------------------------------------------------
            Net increase in cash and cash
              equivalents .....................        4.2       0.4
            Cash and cash equivalents at
              beginning of year ...............        3.7       3.3       3.3
--------------------------------------------------------------------------------
            Cash and cash equivalents at
              end of year .....................   $    7.9  $    3.7  $    3.3
--------------------------------------------------------------------------------
Supplemental Information
      Cash Paid During the Year for
          Interest ............................   $   49.2  $   48.4  $   51.1
          Income taxes ........................   $   19.1  $   28.6  $   18.0
      Noncash dividend paid to parent .........   $   80.2
--------------------------------------------------------------------------------

See notes to consolidated financial statements.                         
                        

                                       28

<PAGE>

ATLANTA GAS LIGHT COMPANY                                                     
                                                        
Consolidated Balance Sheets                                                   

Assets                                                September 30,     
                                                     ---------------------------
In millions                                                1996       1995
--------------------------------------------------------------------------------
Utility Plant .....................................   $  1,969.0 $  1,919.9
  Less accumulated depreciation ...................        607.8      583.3
--------------------------------------------------------------------------------
    Utility plant-net .............................      1,361.2    1,336.6
--------------------------------------------------------------------------------
Other Property and Investments
  (less accumulated depreciation of $2.9 in 1995) .                    13.7
--------------------------------------------------------------------------------
Current Assets
  Cash and cash equivalents .......................          7.9        3.7
  Receivables
    Gas (less allowance for uncollectible accounts
      of $2.1 in 1996 and $2.4 in 1995) ...........         62.4       30.3
    Merchandise (less allowance for uncollectible
      accounts of $.4 in 1996 and $1.9 in 1995) ...          2.5        5.3
    Integrated resource plan loans (less allowance
      for uncollectible accounts of $.2 in 1996 and
      $.1 in 1995) ................................          3.4        1.3
    Other .........................................          2.5        9.6
  Unbilled revenues ...............................         20.5       17.5
  Inventories
    Natural gas stored underground ................        144.0      111.2
    Liquefied natural gas .........................         16.8       14.3
    Materials and supplies ........................          7.9        8.0
    Other .........................................          0.1        2.6
  Deferred purchased gas adjustment ...............          4.7
  Other ...........................................         10.3       10.9
--------------------------------------------------------------------------------
    Total current assets ..........................        283.0      214.7
--------------------------------------------------------------------------------
Deferred Debits and Other Assets
  Investment in joint ventures ....................                    32.6
  Unrecovered environmental response costs ........         38.0       34.9
  Unrecovered integrated resource plan costs ......         10.0        9.9
  Unrecovered postretirement benefits costs .......          9.7        7.2
  Unamortized cost to repurchase long-term debt ...          3.5        4.9
  Other ...........................................         22.8       20.1
--------------------------------------------------------------------------------
    Total deferred debits and other assets ........         84.0      109.6
--------------------------------------------------------------------------------
    Total .........................................   $  1,728.2 $  1,674.6
--------------------------------------------------------------------------------
                
See notes to consolidated financial statements.         
                

                                       29

<PAGE>

ATLANTA GAS LIGHT COMPANY                               
                                                        


Capitalization and Liabilities                        September 30, 
                                                      --------------------------
In millions                                                1996       1995 
--------------------------------------------------------------------------------
Capitalization
  Common stock equity (See accompanying statements
    of consolidated common stock equity) ..........   $    502.7 $    557.3
  Cumulative preferred stock
    Redeemable ....................................         55.5       55.5
    Nonredeemable .................................          3.0        3.0
  Long-term debt ..................................        554.5      554.5
--------------------------------------------------------------------------------
    Total capitalization ..........................      1,115.7    1,170.3
--------------------------------------------------------------------------------
Current Liabilities
  Short-term debt .................................        152.0       51.0
  Accounts payable-trade ..........................         72.7       72.3
  Payable to associated companies .................          2.7
  Take-or-pay charges payable .....................                     8.0
  Customer deposits ...............................         27.8       29.5
  Interest ........................................         25.7       25.4
  Other accrued liabilities .......................         22.5       11.9
  Deferred purchased gas adjustment ...............                     6.3
  Other ...........................................         20.4       26.5
--------------------------------------------------------------------------------
    Total current liabilities .....................        323.8      230.9
--------------------------------------------------------------------------------
Long-Term Liabilities
  Accrued environmental response costs ............         30.4       28.6
  Payable to AGL Resources - accrued pension costs           4.9       10.3
  Payable to AGL Resources - accrued postretirement
    benefits costs ................................         36.2       30.1
--------------------------------------------------------------------------------
    Total long-term liabilities ...................         71.5       69.0
--------------------------------------------------------------------------------
Deferred Credits
  Unamortized investment tax credit ...............         28.8       30.3
  Regulatory tax liability ........................         19.3       23.3
  Other ...........................................         12.8       12.0
--------------------------------------------------------------------------------
    Total deferred credits ........................         60.9       65.6
--------------------------------------------------------------------------------
Accumulated Deferred Income Taxes .................        156.3      138.8
--------------------------------------------------------------------------------
Commitments and Contingencies  (Notes 8 and 10)
--------------------------------------------------------------------------------
    Total .........................................   $  1,728.2 $  1,674.6
--------------------------------------------------------------------------------
                

                                       30


<PAGE>

ATLANTA GAS LIGHT COMPANY                                      
                                                
Statements of Consolidated Common Stock Equity           

                                               For the years ended September 30,
                                               ---------------------------------
In millions, except per share amounts             1996      1995      1994 
--------------------------------------------------------------------------------
Common Stock (Note 4)
  $5 par value; authorized 100.0 shares;
    outstanding, 55.4 in 1996, 54.9 in 1995
    and 50.8 in 1994
  Beginning of year ........................   $  137.3  $  127.1  $  124.2
    Issuance of common stock
      Stock dividend .......................      137.5
      Public sale ..........................                  7.5
      Employees' benefit plans, dividend
        reinvestment and stock purchase plan
        and long-term stock incentive plan .        2.0       2.7       2.9
--------------------------------------------------------------------------------
  End of year ..............................      276.8     137.3     127.1
--------------------------------------------------------------------------------
Premium on Capital Stock (Note 4)
  Beginning of year ........................      297.7     241.3     224.2
    Issuance of common stock
      Stock dividend .......................     (137.5)
      Public sale ..........................                 41.1
      Employees' benefit plans, dividend
        reinvestment and stock purchase plan
        and long-term stock incentive plan .        6.0      15.3      17.1
--------------------------------------------------------------------------------
  End of year ..............................      166.2     297.7     241.3
--------------------------------------------------------------------------------
Earnings Reinvested
  Beginning of year ........................      122.3     150.1     143.6
    Net income .............................       80.6      30.8      63.2
    Cash dividends
    Preferred stock ........................       (4.4)     (4.4)     (4.5)
    Common stock
      Paid to public shareholders ..........      (29.2)    (54.2)    (52.2)
      Paid to AGL Resources ................      (29.4)
    Noncash dividend to parent .............      (80.2)
--------------------------------------------------------------------------------
  End of year ..............................       59.7     122.3     150.1
--------------------------------------------------------------------------------
    Total common stock equity ..............   $  502.7  $  557.3  $  518.5
--------------------------------------------------------------------------------
                        
See notes to consolidated financial statements.                 
        

                                       31


<PAGE>

Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies

PRINCIPLES OF CONSOLIDATION
         On  March 6,  1996,  Atlanta  Gas  Light  Company  (AGLC)  completed  a
corporate  restructuring  in  which a new  company,  AGL  Resources,  Inc.  (AGL
Resources), became the holding company for AGLC, AGLC's wholly owned natural gas
utility   subsidiary,   Chattanooga  Gas  Company   (Chattanooga),   and  AGLC's
nonregulated  subsidiaries.  The holding  company  formation was completed  upon
receipt of shareholder approval on March 6, 1996, when each share of AGLC common
stock was  converted  into one share of AGL  Resources  common  stock,  and AGLC
became the primary  subsidiary  of AGL  Resources.  The  consolidated  financial
statements  of AGLC include the financial  statements  of AGLC and  Chattanooga.
Intercompany  balances and  transactions  between AGLC and Chattanooga have been
eliminated.

SUBSIDIARIES
         AGLC is a public utility that distributes and transports natural gas in
Georgia and Tennessee and is subject to regulation by the Georgia Public Service
Commission (Georgia  Commission) and the Tennessee  Regulatory  Authority (TRA),
formerly the Tennessee Public Service Commission,  with respect to its rates for
service,  maintenance of its accounting  records and various other matters.  The
consolidated  financial  statements  are prepared in accordance  with  generally
accepted  accounting  principles,  which  give  appropriate  recognition  to the
rate-making and accounting  practices and policies of the Georgia Commission and
the TRA.

         Ownership of AGLC's nonregulated business, Georgia Gas Company (natural
gas production  activities),  has been transferred to AGL Energy Services,  Inc.
Ownership  of AGLC's  other  nonregulated  businesses,  Georgia  Energy  Company
(natural gas vehicle  conversions),  Georgia Gas Service Company (retail propane
sales)  and  Trustees  Investments,   Inc.  (real  estate  holdings),  has  been
transferred to AGL Investments.  AGLC's interest in Sonat Marketing Company L.P.
has been  transferred to AGL Gas Marketing,  Inc., a wholly owned  subsidiary of
AGL  Investments.  The  transfer  of  AGLC's  nonregulated  businesses  to those
subsidiaries of AGL Resources was effected  through a noncash  dividend of $45.9
million during fiscal 1996.

         AGL  Resources  Service  Company  (Service  Company) was formed  during
fiscal 1996 to provide corporate support services to AGLC, AGL Resources and its
other subsidiaries.  The transfer of related assets from AGLC to Service Company
and other  nonregulated  subsidiaries was effected through a noncash dividend of
$34.3  million  during the fourth  quarter of fiscal  1996.  Expenses of Service
Company are allocated to AGL Resources and its subsidiaries.

REGULATION
         The consolidated financial statements reflect regulatory actions by the
Georgia  Commission  and the TRA that result in the  recognition of revenues and
expenses  in  different  time  periods  than do  enterprises  that  are not rate
regulated.  In accordance with Statement of Financial  Accounting  Standards No.
71,  "Accounting  for the  Effects of Certain  Types of  Regulation"  (SFAS 71),
regulatory assets and liabilities are recorded and represent  regulator-approved
deferrals resulting from the rate-making process. SFAS 71 assets and liabilities
recorded on September 30 consist of the following:

                                       32
<PAGE>


(Millions of dollars)                                1996    1995
------------------------------------------------------------------
Assets:
  Unrecovered environmental response costs ....   $  38.0 $  34.9
  Unrecovered integrated resource plan costs ..      10.0     9.9
  Unrecovered postretirement benefits costs ...       9.7     7.2
  Deferred purchased gas adjustment ...........       4.7
  Unamortized cost to repurchase long-term debt       3.4     4.9
------------------------------------------------------------------
Total .........................................   $  65.8 $  56.9
------------------------------------------------------------------
Liabilities:
  Unamortized investment tax credit ...........   $  28.8 $  30.3
  Regulatory tax liability ....................      19.3    23.3
  Deferred purchased gas adjustment
                                                              6.3
  Environmental response cost recoveries from
      third parties ...........................       7.4
  Environmental response cost recoveries from
      third parties - customer portion ........       4.5
  Other .......................................       3.7    15.0
------------------------------------------------------------------
Total .........................................   $  63.7 $  74.9
------------------------------------------------------------------

UTILITY PLANT AND DEPRECIATION
         Utility  plant is stated at original  cost.  Direct  labor and material
costs of plant construction and related indirect  construction costs,  including
administrative,  engineering and general  overhead,  taxes, and an allowance for
funds used during construction  (AFUDC), are added to utility plant. The portion
of AFUDC  attributable  to equity  funds is  included in other  income,  and the
portion  attributable  to  borrowed  funds is shown as a  reduction  in interest
charges in the statements of  consolidated  income.  The AFUDC rate of 9.32% for
the three-year period ended September 30, 1996, was the cost of capital approved
by the Georgia Commission in a prior rate proceeding.

         The original cost of utility property retired or otherwise disposed of,
plus  the  cost  of  dismantling,   less  salvage,  is  charged  to  accumulated
depreciation.   Maintenance,   repairs  and  minor  additions,   renewals,   and
betterments to property are charged to operations.

         The composite  straight-line  depreciation rate was approximately  3.2%
for utility  property  other than  transportation  equipment for the  three-year
period ended September 30, 1996.  Transportation equipment is depreciated over a
period of five to 10 years.

DEFERRED PURCHASED GAS ADJUSTMENT
         AGLC's rate schedules include purchased gas adjustment  provisions that
permit the recovery of purchased gas costs. The purchased gas adjustment  factor
is revised  periodically to reflect changes in the cost of purchased gas without
formal rate proceedings.  Any overrecoveries or underrecoveries of gas costs are
charged  or  credited  to cost of gas and are  included  in  current  assets  or
liabilities.

         As part of the 1997 Gas Supply  Plan,  AGLC is  authorized  to continue
limited  gas  supply  hedging  activities.  The 1997  hedging  program  has been
expanded beyond the program approved in the 1996 Gas Supply Plan. Accounting for
hedging  activities  is provided  in  accordance  with  Statement  of  Financial
Accounting  Standards No. 80, "Accounting for Futures  Contracts." The 

  
                                       33


<PAGE>

financial  results of all  hedging  activities  are  passed  through to firm
service  customers  under the purchased gas provisions of AGLC's rate schedules.
Accordingly, there is no earnings impact as a result of the hedging program.

OPERATING REVENUES
         Revenues are based on rates approved by the Georgia  Commission and the
TRA.  Customers'  base rates may not be changed  without formal  approval of the
Georgia  Commission or the TRA.  Revenues are  recognized on the accrual  basis,
which includes estimated amounts for gas delivered, but not yet billed.

         The   Georgia   Commission   and  the  TRA  have   authorized   weather
normalization  adjustment riders.  Such riders are designed to offset the impact
that unusually cold or warm weather has on operating margin.

         Certain   interruptible   customers  purchase  gas  directly  from  gas
producers  and  marketers.  The  Georgia  Commission  and the TRA have  approved
programs whereby transportation charges are billed on those purchases.

INCOME TAXES
         Deferred  income taxes result from temporary  differences  between book
and taxable income and principally relate to depreciation.

         Investment  tax credits have been  deferred and are being  amortized by
credits to income in accordance  with  regulatory  treatment  over the estimated
lives of the related properties.

STATEMENT OF CASH FLOWS
         For purposes of reporting cash flows,  AGLC considers all highly liquid
investments  purchased  with a  maturity  of  three  months  or  less to be cash
equivalents.

USE OF ESTIMATES
         Preparing  financial  statements in conformity with generally  accepted
accounting  principles  requires  management to make estimates and  assumptions.
Those  estimates  and  assumptions  affect  the  reported  amounts of assets and
liabilities,  disclosure on contingent assets and liabilities at the date of the
financial  statements and the reported  amounts of revenues and expenses  during
the reporting period. Actual results could differ from those estimates.

OTHER
         Gas inventories are stated at cost on a principally first-in, first-out
method.  Materials and supplies  inventories are stated at lower of average cost
or market.

         Consistent with the rate treatment prescribed by the Georgia Commission
and the TRA, vacation pay and short-term  disability  benefits are expensed when
those benefits are paid.

     Certain  reclassifications  have been made in 1995 and 1994 to conform with
the 1996 financial statement presentation.


                                       34

<PAGE>


2. Income Tax Expense

         AGLC's  income  taxes  are  included  as  a  part  of  AGL   Resources'
consolidated  income tax return.  The  information  included  herein  relates to
AGLC's allocated portion.

         Deferred  tax  balances  are  measured at the tax rates that will apply
during the period the taxes become  payable and are adjusted  whenever new rates
are  enacted.  Due to the  regulated  nature of AGLC's  business,  a  regulatory
liability has been recorded in accordance with Statement of Financial Accounting
Standards No. 109,  "Accounting  for Income Taxes." The regulatory  liability is
being amortized over approximately 30 years.

         Components  of income  tax  expense  shown in the  consolidated  income
statements are as follows:

(Millions of dollars)                          1996         1995          1994
-------------------------------------------------------------------------------
Included in operating expenses:
  Current income taxes
   Federal                                    $18.1        $16.4         $19.7
   State                                        2.6          2.5           3.1
  Deferred income taxes
   Federal                                     20.4         (1.1)         11.5
   State                                        3.9         (0.2)          1.5
  Amortization of investment tax credits       (1.5)        (1.6)         (1.5)
-------------------------------------------------------------------------------
Total                                          43.5         16.0          34.3
-------------------------------------------------------------------------------
Included in other income:
  Current income taxes
   Federal                                      4.2          0.5           1.2
   State                                        0.6          0.1           0.2
  Deferred income taxes
   Federal                                                   0.1           0.5
   State                                                                   0.1
-------------------------------------------------------------------------------
Total                                           4.8          0.7           2.0
-------------------------------------------------------------------------------
Total income tax expense                      $48.3        $16.7         $36.3
-------------------------------------------------------------------------------

         A reconciliation  between the statutory federal income tax rate and the
effective rate is as follows:

(Millions of dollars)                                           1996
--------------------------------------------------------------------
                                                                % of
                                                              Pretax
                                                 Amount       Income
--------------------------------------------------------------------
Computed tax expense                              $45.1         35.0
State income tax, net of federal
 income tax benefit                                 4.4          3.3
Amortization of investment tax credits             (1.5)        (1.2)
Other-net                                           0.3          0.3
--------------------------------------------------------------------
Total income tax expense                          $48.3         37.4
--------------------------------------------------------------------

                                       35

<PAGE>


(Millions of dollars)                                           1995
--------------------------------------------------------------------
                                                                % of
                                                              Pretax
                                                 Amount       Income
--------------------------------------------------------------------
Computed tax expense                              $16.6        35.0
State income tax, net of federal
 income tax benefit                                 1.3         2.7
Amortization of investment tax credits             (1.6)       (3.4)
Other-net                                           0.4         0.8
--------------------------------------------------------------------
Total income tax expense                          $16.7        35.1
--------------------------------------------------------------------

(Millions of dollars)                                           1994
--------------------------------------------------------------------
                                                                % of
                                                              Pretax
                                                 Amount       Income
--------------------------------------------------------------------
Computed tax expense                              $34.8        35.0
State income tax, net of federal
 income tax benefit                                 3.2         3.2
Amortization of investment tax credits             (1.5)       (1.5)
Other-net                                          (0.2)       (0.2)
--------------------------------------------------------------------
Total income tax expense                          $36.3        36.5
--------------------------------------------------------------------


                                       36

<PAGE>


         Components  that give rise to the net deferred  income tax liability as
of September 30 are as follows:

(Millions of dollars)                                     1996           1995
--------------------------------------------------------------------------------
Deferred tax liabilities:
 Property - accelerated depreciation and other
  property-related items                                  $193.4       $187.1
 Other                                                      15.2         15.8
--------------------------------------------------------------------------------
Total deferred tax liabilities                             208.6        202.9
--------------------------------------------------------------------------------
Deferred tax assets:
 Deferred investment tax credits                            11.1         11.7
 Alternative minimum tax                                    11.8         12.3
 Other                                                      29.4         40.1
--------------------------------------------------------------------------------
Total deferred tax assets                                   52.3         64.1
--------------------------------------------------------------------------------
Net deferred tax liability                                $156.3       $138.8
--------------------------------------------------------------------------------

3. Corporate Restructuring

         In November  1994 AGLC  announced a  corporate  restructuring  plan and
began its  implementation  during fiscal 1995. As a result of the restructuring,
AGLC combined  offices and established  centralized  customer  service  centers.
During 1995 AGLC reduced the average  number of employees by  approximately  500
through voluntary  retirement,  severance programs and attrition.  Restructuring
costs of $43.1 million,  after income taxes,  were recorded by AGLC during 1995.
The principal effects of the restructuring  charges were to increase obligations
with  respect  to  pension  benefits  and  postretirement  benefits  other  than
pensions.

         During the fourth  quarter of fiscal 1996,  AGLC reviewed its remaining
liabilities with respect to its corporate  restructuring plan. As a result, AGLC
adjusted  its  restructuring  accruals  and reduced  operating  expenses by $1.6
million, after income taxes. The remaining balance of restructuring  liabilities
as of September 30, 1996 and 1995 was $1 million and $4.8 million, respectively.

4. Employee Benefit Plans

         Effective July 1, 1996, the Board of Directors  authorized the transfer
of the  sponsorship  of all employee  benefit plans from AGLC to AGL  Resources.
Substantially  all  employees  of AGLC are  eligible to  participate  in the AGL
Resources-sponsored benefit plans.

         AGLC participates in an AGL Resources  noncontributory  defined benefit
retirement plan. The plan's assets consist  primarily of marketable  securities,
corporate obligations,  U.S. government obligations,  insurance contracts,  real
estate investments and cash equivalents. The plan provides pension benefits that
are based on years of service and the employee's highest 36 consecutive  months'
compensation out of the last 60 months worked.  AGL Resources' funding policy is
to  make  the  annual  contribution  required  by  applicable   regulations  and
recommended by its actuary.

         AGLC  participates  in an AGL  Resources  excess  benefit  plan that is
unfunded  and  provides   supplemental   benefits  to  certain   officers  after
retirement.  In September  1994,  AGL 

                                       37

<PAGE>


Resources  established a voluntary early retirement plan for certain officers of
AGL Resources  that is unfunded and provides  supplemental  pension  benefits to
participants  who elected early  retirement.  The annual expense and accumulated
benefits of such plans are not significant.

         Net periodic pension costs for the plans include service cost, interest
cost,  return on pension assets and  straight-line  amortization of unrecognized
initial net assets over  approximately  16 years.  Net  periodic  pension  costs
allocated to AGLC include the following components:

(Millions of dollars)                              1996       1995       1994
--------------------------------------------------------------------------------
Service cost                                      $ 4.0      $ 4.5      $ 5.5
Interest cost                                      15.8       14.9       13.2
Actual return on assets                           (19.3)     (17.0)      (3.3)
Net amortization and deferral                       6.3        5.9       (6.2)
--------------------------------------------------------------------------------
Net periodic pension cost                         $ 6.8      $ 8.3      $ 9.2
--------------------------------------------------------------------------------
Actuarial assumptions used include:
 Discount rate                                      7.8%       8.3%       8.3%
 Rate of increase in compensation levels            4.5%       5.0%       5.0%
 Expected long-term rate of return on assets        8.3%       8.3%       8.3%
--------------------------------------------------------------------------------

         The  following  schedule  sets  forth  the  funded  status  of the  AGL
Resources'  plan as of June 30, 1996,  and 1995,  and amounts  recognized in the
consolidated balance sheets of AGLC as of September 30, 1996 and 1995:

(Millions of dollars)                                    1996             1995
--------------------------------------------------------------------------------
Actuarial present value of benefit obligations
Vested benefit obligation                                  $ 180.5    $ 175.6
--------------------------------------------------------------------------------
Accumulated benefit obligation                             $ 183.2    $ 178.3
--------------------------------------------------------------------------------
Projected benefit obligation                               $(212.9)   $(207.4)
Plan assets at fair value                                    181.8      163.9
--------------------------------------------------------------------------------
Plan assets less than projected benefit obligation           (31.1)     (43.5)
Unrecognized net loss                                         26.8       34.1
Remaining unrecognized net assets at date of
 initial adoption                                             (4.5)      (5.2)
Unrecognized prior service cost                                3.9        4.3
--------------------------------------------------------------------------------
Accrued pension costs                                      $  (4.9)   $ (10.3)
--------------------------------------------------------------------------------

         During 1995 a curtailment loss of $6 million and a loss associated with
incentive  benefits  of $25.3  million  was  incurred as a result of a corporate
restructuring  plan  (see  Note  3).  The  effect  of the  curtailment  loss and
incentive loss was to increase the accumulated  benefit obligation and projected
benefit obligation by $25.3 million and $31.3 million, respectively.

         AGLC participates in AGL Resources'  Retirement  Savings Plus Plan (RSP
Plan),  a 401(k)  plan,  that  provides  participants  a  mechanism  for  making
contributions for retirement savings. Each participant may contribute amounts up
to 15% of eligible compensation. AGL Resources makes a contribution equal to 65%
of the  participant's  contribution  not to  exceed  3.9%  

                                       38

<PAGE>


of the  participant's  compensation for the plan year. The contribution was $3.2
million for 1996, $3.3 million for 1995 and $3.4 million for 1994.

         AGLC participates in AGL Resources' Nonqualified Savings Plan (NSP), an
unfunded,  nonqualified  plan similar to the RSP Plan,  that was  established on
July 1, 1995.  The NSP provides an  opportunity  for eligible  employees to make
contributions for retirement savings.  AGL Resources'  contributions during 1996
and 1995 to the NSP were not significant.

         AGLC participates in AGL Resources'  Leveraged Employee Stock Ownership
Plan  (LESOP).  In January 1988,  in  connection  with the LESOP,  AGL Resources
purchased 2 million  shares of its common  stock for $11.75 per share,  with the
proceeds  of a loan  secured  by  such  common  stock.  AGL  Resources  has  not
guaranteed  the  repayment  of the loan.  The loan is expected to be repaid from
regular cash dividends on AGL Resources' common stock paid to the LESOP and from
contributions  to the LESOP as approved by AGL  Resources'  Board of  Directors.
Contributions  to the LESOP were $0.7 million for 1996 and $0.8 million for 1995
and $0.8 million for 1994. The principal balance of the loan was $2.9 million as
of September 30, 1996,  and $5.3 million as of September  30, 1995.  The loan is
payable on December 31, 1997.

         AGLC's officers and employees  participate in AGL Resources'  Long-Term
Stock Incentive Plan (LTSIP). The LTSIP provides that incentive and nonqualified
stock options,  restricted stock and stock appreciation rights may be granted to
key employees of AGL Resources and its  subsidiaries.  The exercise price of any
shares  under option must be at least equal to the fair market value on the date
of the grant.  The options granted become  exercisable six months after the date
of grant and generally expire 10 years after the date of grant.

         In addition to  providing  pension  benefits,  AGL  Resources  provides
certain  health  care  and  life  insurance   benefits  for  retired  employees.
Substantially  all employees  become  eligible for those  benefits if they reach
retirement age while working for AGLC.

         In 1993  the  Georgia  Commission  approved  a  five-year  phase-in  of
Statement of Financial Accounting Standards No. 106, "Employers'  Accounting for
Postretirement  Benefits Other Than  Pensions"  (SFAS 106) expense that defers a
portion of SFAS 106 expense for future  recovery.  A  regulatory  asset has been
recorded for the deferred portion of SFAS 106 expense. In 1993, the TRA approved
the recovery of SFAS 106 expense that is funded through an external trust.

     Net periodic  postretirement  benefits  costs  allocated to AGLC for fiscal
1996 and 1995 include the following components:

(Millions of dollars)                          1996     1995    1994
---------------------------------------------------------------------
Service cost                                   $0.8    $ 0.9   $ 1.0
Interest cost                                   8.8      7.6     6.5
Actual return on assets                        (0.6)    (0.3)
Amortization of transition obligation           4.2      4.2     4.1
---------------------------------------------------------------------
Net postretirement benefits costs             $13.2    $12.4   $11.6
---------------------------------------------------------------------

         Approximately  $10.7  million,  $8.7  million  and $8.0  million of net
periodic   postretirement  benefits  costs  for  fiscal  1996,  1995  and  1994,
respectively,  were recovered from 

                                       39

<PAGE>


AGLC's customers.  The remaining $2.5 million, $3.7 million and $3.6 million for
1996, 1995 and 1994,  respectively,  were deferred for future  recovery  through
amortization  and recognized as a regulatory  asset in the financial  statements
consistent  with  regulatory  decisions.  AGL  Resources  has funded  through an
external trust SFAS 106 expense  recovered from its utility  customers in excess
of the pay-as-you-go amounts.

         The  following  schedule  sets  forth  the  funded  status  of the  AGL
Resources plan as of September 30, 1996 and 1995:

(Millions of dollars)                                  1996              1995
-------------------------------------------------------------------------------
Retirees                                                   $(85.8)      $(94.1)
Fully eligible active plan participants                      (6.4)        (9.3)
Other active plan participants                              (13.3)       (14.5)
-------------------------------------------------------------------------------
Total accumulated postretirement benefit obligation        (105.5)      (117.9)
Plan assets at fair value                                    10.4          8.0
-------------------------------------------------------------------------------
Accumulated postretirement benefit obligation
 in excess of plan assets                                   (95.1)      (109.9)
Unrecognized transition obligation                           69.5         73.6
Unrecognized (gain) loss                                    (10.6)         6.2
-------------------------------------------------------------------------------
Accrued postretirement benefits costs                      $(36.2)      $(30.1)
-------------------------------------------------------------------------------

         During  1995 a  curtailment  loss of $22.9  million  was  incurred as a
result of a corporate  restructuring  (see Note 3). The assumed health care cost
trend rate used in measuring the accumulated  postretirement  benefit obligation
for pre-Medicare  eligibility is 11% in 1996,  decreasing 0.5% per year to 6% in
the  year  2006  and an  additional  0.25%  to  5.75%  in  2007.  The  rate  for
post-Medicare  eligibility is 9.5% in 1996,  decreasing 0.5% per year to 5.5% in
the year 2004 and an additional  0.25% to 5.25% in 2005.  Increasing the assumed
health care cost trend rate by 1% would increase the accumulated  postretirement
benefit obligation as of September 30, 1996, by approximately $6 million and the
accrued  postretirement  benefits cost by approximately  $0.5 million for fiscal
1996. The assumed discount rate used in determining the  postretirement  benefit
obligation was 7.75% in 1996 and 1995.

5. Common Stock

         On March 6, 1996, AGLC completed a corporate restructuring in which AGL
Resources became the holding company for AGLC and its subsidiaries.  The holding
company formation was completed upon receipt of shareholder approval on March 6,
1996,  when each share of AGLC common stock was converted  into one share of AGL
Resources common stock, and AGLC became the primary subsidiary of AGL Resources.
AGL Resources  holds all shares of common stock of AGLC  outstanding as of March
6, 1996.

         On  November 3, 1995,  the Board of  Directors  declared a  two-for-one
stock split of the common stock effected in the form of a 100% stock dividend to
shareholders  of record on November 17,  1995,  and payable on December 1, 1995.
AGLC  recorded a decrease to premium on capital  stock and an increase to common
stock of $137.5  million  to  transfer  the amount of the par value of the stock
dividend to common stock.  All references to number of shares have been restated
retroactively to reflect the stock dividend.

                                       40

<PAGE>


         Common stock dividends declared during the first and second quarters of
fiscal 1996 were paid to AGLC's public  shareholders.  Dividends declared during
the third and fourth quarters of fiscal 1996 were paid to AGL Resources.

6. Preferred Stock

         AGLC is  required  under its  charter to offer to  purchase or call for
redemption  4,100  shares of  preferred  stock for each of the five years ending
September  30, 2001.  The issues are callable at the option of AGLC, in whole or
in part,  upon 30 days'  notice.  Shares  reacquired  by AGLC to satisfy  future
requirements  and reported as if canceled were 6,715;  7,715;  and 8,715,  as of
September 30, 1996, 1995, and 1994, respectively.

         AGLC's charter contains  provisions limiting the issuance of additional
shares of preferred stock.  The most  restrictive of those  provisions  requires
gross income, as defined,  for a specified  12-month period to be at least equal
to 1.5  times  the  sum  of  annualized  interest  requirements  on  outstanding
indebtedness  and the dividend  requirements  on  outstanding  preferred  stock,
including the preferred  stock being issued.  Based on earnings for fiscal 1996,
AGLC's gross income was 2.48 times the sum of its interest and  preferred  stock
dividend requirements.

         As of September 30, 1996, AGLC had 10 million shares of authorized, but
unissued, preferred stock, no par value.

         The  outstanding  preferred  stock,  net of current  maturities,  as of
September 30 is as follows:

(Millions of dollars)                                    1996   1995
---------------------------------------------------------------------
$100 par or stated value
(callable at option of AGLC)
Redeemable preferred stock
  4.72% - Current call
   price $103.00                                        $ 1.5  $ 1.5
  7.70% - Current call
   price (a)                                             44.5   44.5
  7.84% - Current call
   price
$101.96                                                  4.6     4.6
  8.32% - Current call
   price
$102.08                                                  4.9     4.9
Nonredeemable preferred stock
  4.50% - Current call
   price
$105.25                                                  2.0     2.0
  5.00% - Current call
   price
$105.00                                                  1.0     1.0
---------------------------------------------------------------------
Total                                                   $58.5  $58.5
---------------------------------------------------------------------
(a) Not redeemable prior to December 1, 1997.  Redeemable at par thereafter.

                                       41

<PAGE>


         The outstanding shares of preferred stock net of previously  reacquired
shares and shares  reacquired during the year for purchase fund requirements are
as follows:

                                  1996       1995       1994
-------------------------------------------------------------
4.50% Series
  Outstanding                   20,000     20,000     20,000
4.72% Series
  Outstanding                   15,285     15,285     15,285
5.00% Series
  Outstanding                   10,000     10,000     10,000
7.70% Series
  Outstanding                  445,000    445,000    445,000
7.84% Series
  Outstanding                   47,645     47,797     47,802
  Reacquired                       152          5      1,500
8.32% Series
  Outstanding                   49,854     50,004     50,004
  Reacquired                       150                   215
-------------------------------------------------------------
Total
  Outstanding                  587,784    588,086    588,091
  Reacquired                       302          5      1,715
-------------------------------------------------------------

7. Long-Term Debt

         Medium-term  notes Series A, Series B and Series C were issued under an
Indenture  dated  December 1, 1989. The notes are unsecured and rank on a parity
with all other unsecured indebtedness.  During 1994, $194.5 million in principal
amount of such notes was issued. The annual maturities of long-term debt for the
five years ending September 30, 2001, are $50 million in 2000 and $20 million in
2001.

         The  outstanding  long-term  debt,  net of  current  maturities,  as of
September 30 is as follows:

(Millions of dollars)                             1996      1995
----------------------------------------------------------------
Medium-term notes
  Series A (1)                                  $ 60.0    $ 60.0
  Series B (2)                                   300.0     300.0
  Series C (3)                                   194.5     194.5
----------------------------------------------------------------
Total                                           $554.5    $554.5
----------------------------------------------------------------
(1) Interest  rates from 8.90% to 9.10% with  maturity  dates from 2000 to 2021.
(2) Interest  rates from 7.15% to 8.70% with  maturity  dates from 2000 to 2023.
(3) Interest rates from 5.90% to 7.20% with maturity dates from 2004 to 2024.

8. Short-Term Debt

         Lines of credit with various  banks provide for direct  borrowings  and
are subject to annual  renewal.  The current lines of credit vary throughout the
year from $75  million  in the 

                                       42

<PAGE>


summer  months to $253 million for peak winter  financing.  Certain of the lines
are on a commitment  fee basis.  As of September  30,  1996,  $59.3  million was
available on lines of credit.

Short-term borrowings consisted of the following:

(Millions of dollars)                  1996       1995       1994
-------------------------------------------------------------------
Short-term debt outstanding
 at end of year                    $  152.0   $   51.0   $   95.4
Maximum amounts of short-term
 debt outstanding at any month
 end during the year                  156.3      155.0      229.4
Average amounts of short-term
 debt outstanding
 during the year (a)                   87.5       51.5       69.3
-------------------------------------------------------------------

Weighted Average Interest Rates
                                       1996       1995       1994
-------------------------------------------------------------------
Short-term debt outstanding
 at end of year                         5.7%       5.9%       5.1%
Average amounts of short-term
 debt outstanding
 during the year (a)                    5.8%       5.7%       3.6%
-------------------------------------------------------------------
(a)  Average  amount  outstanding  during  the  year  calculated  based on daily
outstanding balances.  Weighted average interest rate during the year calculated
based on interest expense and average amount outstanding during the year.

9. Commitments and Contingencies

         AGLC has agreements for firm pipeline and storage  capacity that expire
at various dates through 2012. The aggregate  amount of required  payments under
such agreements totals approximately $1.1 billion, with annual required payments
of $225  million in 1997,  $218  million  in 1998,  $156  million in 1999,  $107
million in 2000 and $78 million in 2001.  Total  payments of fixed charges under
all agreements  were $225 million in 1996, $230 million in 1995 and $232 million
in 1994. The purchased gas adjustment provisions of AGLC's rate schedules permit
the recovery of gas costs from customers.

         In 1992 the Federal Energy  Regulatory  Commission  (FERC) issued Order
636, which, among other things,  mandated the unbundling of interstate  pipeline
sales service and  established  certain open access  transportation  regulations
that became  effective  beginning in the  1993-1994  heating  season.  Order 636
permits  AGLC's  pipeline  suppliers  to pass  through  any  prudently  incurred
transition  costs,  such as unrecovered gas costs, gas supply  realignment costs
and stranded  costs.  AGLC  estimates  its portion of such costs from all of its
pipeline  suppliers would approximate  $109.9 million based on filings with FERC
by the pipeline  suppliers.  Approximately $80.6 million of such costs have been
incurred by AGLC as of September 30, 1996,  recovery of which is provided  under
the purchased gas provisions of AGLC's rate schedules.

                                       43

<PAGE>


         As part of the 1997 Gas Supply  Plan,  AGLC is  authorized  to continue
limited  gas  supply  hedging  activities.  The 1997  hedging  program  has been
expanded beyond the program  approved in the 1996 Gas Supply Plan. The financial
results of all hedging  activities are passed through to firm service  customers
under the purchased gas provisions of AGLC's rate schedules.  Accordingly, there
is no earnings impact as a result of the hedging program.  Contracts outstanding
as of September 30, 1996, and during the year then ended, were not significant.

         As of September 30, 1996,  approximately  32% of AGLC's labor force was
covered by collective bargaining  agreements.  A collective bargaining agreement
with the General  Teamsters Local Union No. 528 expired on September 15, 1996. A
new, four-year  contract was finalized on October 13, 1996. In addition,  a new,
five-year agreement with the Utility Workers' Union of America,  Local Union No.
461, became effective October 15, 1996.

         Total rental expense for property and equipment was $3 million in 1996,
$6.3  million in 1995 and $6.5 million in 1994.  Minimum  annual  rentals  under
noncancelable  operating leases are as follows:  1997 - $3 million;  1998 - $3.1
million;  1999 - $3.1  million;  2000 - $3.3 million;  2001 - $3.4 million;  and
thereafter - $6.3 million.

         AGLC is involved in litigation arising in the normal course of business
(see Note 11 regarding  Environmental  Matters).  Management  believes  that the
ultimate  resolution of such litigation will not have a material  adverse effect
on the consolidated financial statements.

10. Customers' and Suppliers' Refunds

         Pursuant  to  orders  of  FERC,  AGLC  has  received  refunds  from its
interstate  natural  gas  suppliers.  Those  refunds are a result of FERC orders
adjusting  the price of various  pipeline  services  purchased  by AGLC from its
suppliers in prior  periods.  AGLC passes the refunds on to its customers  under
purchased gas  provisions of rate schedules  approved by the Georgia  Commission
and the TRA.

         On August 23, 1995,  the Georgia  Commission  approved a $38.5  million
plus interest refund of deferred  purchased gas costs.  The refund resulted from
the  overrecovery  of gas costs through the  purchased gas  provisions of AGLC's
rate schedules. The refund was credited to customers' bills in September 1995.

         On September 7, 1994, the Georgia  Commission  approved a $13.5 million
refund  of  deferred   purchased  gas  costs.   The  refund  resulted  from  the
overrecovery  of gas costs through the  purchased gas  provisions of AGLC's rate
schedules. The refund was credited to customers' bills in September 1994.

11. Environmental Matters

         AGLC has  identified  nine sites in Georgia where it currently owns all
or part of a manufactured gas plant (MGP) site. In addition, AGLC has identified
three other sites in Georgia  that AGLC does not now own, but that may have been
associated  with the  operation of MGPs by AGLC or its  predecessors.  There are
three sites in Florida that have been investigated by environmental  authorities
in  connection  with which AGLC may be  contacted as a  potentially  

                                       44

<PAGE>

responsible party.  Preliminary  assessments and subsequent site  investigations
have revealed environmental impacts at and near some of those sites.

         Under a thorough analysis of potentially applicable requirements,  AGLC
has estimated that, under the most favorable circumstances  reasonably possible,
the future cost of investigating and remediating the former MGP sites, excluding
sites  for  which no  remediation  is  expected  or the cost of which  cannot be
estimated, could be as low as $30.4 million.  Alternatively,  AGLC has estimated
that, under the least favorable  circumstances  reasonably possible,  the future
cost of investigating and remediating the same former MGP sites could be as high
as $110.8  million,  excluding sites for which no remediation is expected or the
cost of which cannot be estimated.  AGLC cannot estimate at this time the amount
of any other future expenses or liabilities, or the impact on those estimates of
future  environmental  or regulatory  changes,  that may be  associated  with or
related to the MGP sites,  including  expenses  or  liabilities  relating to any
litigation.  At the present  time,  no amount within the $30.4 million to $110.8
million range can be identified  as a better  estimate than any other  estimate.
Therefore,  a  liability  at the  low  end of  this  range  and a  corresponding
regulatory asset have been recorded in the financial statements.

         The  Georgia   Commission   has   approved  the  recovery  by  AGLC  of
environmental  response costs,  pursuant to AGLC's  Environmental  Response Cost
Recovery Rider (ERCRR). For purposes of the ERCRR,  environmental response costs
include investigation, testing, remediation and litigation costs and expenses or
other liabilities  relating to or arising from MGP sites. In connection with the
ERCRR,  the staff of the Georgia  Commission  has  undertaken  a  financial  and
management  process  audit related to the MGP sites,  cleanup  activities at the
sites and  environmental  response costs that have been incurred for purposes of
the ERCRR.  On October  10,  1996,  the  Georgia  Commission  issued an order to
prohibit  funds  collected  through the ERCRR from being used for the payment of
any damage award,  including  punitive  damages,  as a result of any  litigation
associated  with  any of the  MGP  sites  in  which  AGLC is  involved.  AGLC is
currently pursuing judicial review of the October 10, 1996, order.

         AGLC is  currently  a party to claims  and  litigation  related  to the
former MGP sites.  During  fiscal 1996 AGLC  recovered  $14.7  million  from its
insurance carriers and other potentially responsible parties. In accordance with
provisions of the ERCRR,  AGLC  recognized  other income of $1.6 million,  after
income taxes, and established  regulatory liabilities for the remainder of those
recoveries.   AGLC  intends  to  continue  to  pursue  insurance   coverage  and
contributions from potentially responsible parties.

12. Fair Value of Financial Instruments

         AGLC has  estimated the fair value of its  financial  instruments,  the
carrying  value of  which  differed  from  fair  value  using  available  market
information and appropriate  valuation  methodologies.  Considerable judgment is
required  in  developing  the  estimates  of fair value  presented  herein  and,
therefore,  the values are not necessarily  indicative of the amounts that could
be realized in a current market exchange.

         The  carrying  amount and the  estimated  fair value of such  financial
instruments as of September 30, 1996 and 1995, consist of the following:

                                       45

<PAGE>


                                                        Carrying    Estimated
(Millions of dollars)                                     Amount   Fair Value
------------------------------------------------------------------------------
1996
Long-term debt including current portion                  $554.5       $566.6
Redeemable cumulative preferred stock of AGLC,
including current portion                                   55.8         56.9
------------------------------------------------------------------------------
1995
Long-term debt including current portion                  $554.5       $571.5
Redeemable cumulative preferred stock of AGLC,
 including current portion                                  55.8         56.6
------------------------------------------------------------------------------
The estimated fair values are determined based on the following:

Long-term  debt - interest  rates that are  currently  available for issuance of
debt with similar terms and remaining maturities.

Redeemable  cumulative  preferred stock - quoted market price and dividend rates
for preferred stock with similar terms.

The fair value estimates presented herein are based on information  available to
management  as of September 30, 1996,  and 1995.  Management is not aware of any
subsequent   factors  that  would  affect  the  estimated   fair  value  amounts
significantly.

13. Related Parties

         During August 1995 AGLC signed an agreement with Sonat Inc.  (Sonat) to
form a joint  venture to acquire the  business  of Sonat  Marketing  Company,  a
wholly  owned  subsidiary  of  Sonat.  AGLC  invested  $32.6  million  for a 35%
ownership interest in Sonat Marketing.  AGLC's 35% investment is being accounted
for under the equity method. The excess of the purchase price over the estimated
fair value of the net  tangible  assets of  approximately  $23  million has been
allocated to intangible assets consisting of customer lists and goodwill,  which
is being amortized over 10 and 35 years, respectively.  During the third quarter
of  fiscal  1996  AGLC's  interest  in Sonat  Marketing  was  dividended  to AGL
Investments.

         During  fiscal 1996 and  September  1995,  AGLC  purchased gas totaling
$247.5 million and $23.7  million,  respectively,  from Sonat  Marketing and its
affiliates. As of September 30, 1996, and 1995, AGLC had outstanding obligations
payable to Sonat Marketing of $18.8 million and $23.7 million, respectively.

         Accounts  receivable and accounts  payable balances as of September 30,
1996, resulting from related party transactions are as follows:

(Millions of dollars)                                       1996
------------------------------------------------------------------
Payable to AGL Resources -- short-term                    $ (4.7)
Payable to AGL Resources -- long-term                      (41.1)
Receivable from nonregulated subsidiaries                    2.0
------------------------------------------------------------------
Total payable to associated companies                     $(43.8)
------------------------------------------------------------------

                                       46

<PAGE>


14. Quarterly Financial Data (Unaudited)

         Quarterly  financial  data for fiscal 1996 and 1995 are  summarized  as
follows:

(Millions)                            Operating       Operating       Net Income
Quarter Ended                          Revenues         Income          (Loss)
--------------------------------------------------------------------------------
1996
December 31, 1995                       $328.8          $42.0           $30.2
March 31, 1996                           478.8           54.5            46.4
June 30, 1996                            240.5           16.5             5.0
September 30, 1996(a)                    169.5            8.9            (1.0)
--------------------------------------------------------------------------------
1995(b)
December 31, 1994                       $328.8          $14.1           $ 1.8
March 31, 1995                           448.2           48.9            37.3
June 30, 1995                            177.5           12.2             1.4
September 30, 1995(c)                    108.5            1.7            (9.7)
--------------------------------------------------------------------------------
(a) During the fourth quarter of fiscal 1996,  AGLC increased net income by $1.6
million as a result of a review of remaining  liabilities  in connection  with a
corporate restructuring plan. (See Note 3).

In addition,  net income was increased  during the fourth quarter of fiscal 1996
by $1.6 million in connection  with  recoveries from insurers in accordance with
provisions of an environmental response cost recovery rider. (See Note 11).

(b) Quarterly  operating  income (loss) for 1995 includes the effects of charges
for restructuring costs as follows: $44.5 million for the quarter ended December
31, 1994;  $23.0 million for the quarter ended March 31, 1995;  $1.7 million for
the  quarter  ended  June 30,  1995;  and $1.1  million  for the  quarter  ended
September 30, 1995.

Quarterly  net  income  (loss) for 1995  includes  the  effects  of charges  for
restructuring costs as follows: $28.4 million for the quarter ended December 31,
1994;  $13.0 million for the quarter ended March 31, 1995;  $1.1 million for the
quarter ended June 30, 1995;  and $0.6 million for the quarter  ended  September
30, 1995.

The wide variance in quarterly  earnings results from the highly seasonal nature
of AGLC's business.

(c) During the fourth  quarter  of fiscal  1995,  AGLC  recorded a refund to its
customers of $38.5 million plus interest. (See Note 10).

                                       47

<PAGE>


Independent Auditors' Report

Shareholder and Board of Directors of Atlanta Gas Light Company:

We have  audited the  accompanying  consolidated  balance  sheets of Atlanta Gas
Light Company and subsidiaries as of September 30, 1996 and 1995 and the related
statements of consolidated income,  common stock equity, and cash flows for each
of the three  years in the period  ended  September  30,  1996.  Our audits also
included the financial  statement schedule listed in the Index at Item 14. These
financial  statements and financial statement schedule are the responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management as well as evaluating the overall financial  statement  presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our  opinion,  such  financial  statements  present  fairly,  in all material
respects,  the financial  position of Atlanta Gas Light Company and subsidiaries
as of September 30, 1996 and 1995 and the results of its operations and its cash
flows for each of the three years in the period ended  September  30,  1996,  in
conformity with generally accepted accounting principles.  Also, in our opinion,
such  financial  statement  schedule,  when  considered in relation to the basic
consolidated  financial  statements  taken as a whole,  presents  fairly  in all
material respects the information set forth therein.


/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP

Atlanta, Georgia
November 5, 1996



                                       48

<PAGE>


--------------------------------------------------------------------------------
Item  9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
          Financial Disclosure

     None

--------------------------------------------------------------------------------





            The remainder of this page was intentionally left blank.

















                                       49


<PAGE>

                                    Part III
--------------------------------------------------------------------------------
Item 10.  Directors and Executive Officers of the Registrants

      Set forth below is certain information regarding AGLC's executive officers
and directors (two of whom are employees of AGLC),  including  their ages, as of
September 30, 1996,  their  principal  occupations  (which have continued for at
least the past five years unless  otherwise  noted),  the year in which each was
elected and any directorships held by them in other public companies.

      DAVID R. JONES,  age 59, is President and Chief Executive  Officer of AGLC
(since  1988) and  President  and Chief  Executive  Officer and  director of AGL
Resources   and  Service   Company   (since   January   1996  and  August  1996,
respectively);  director of the Federal  Reserve Bank of Atlanta.  Mr. Jones has
been a director of AGLC since 1985.

      THOMAS H. BENSON,  age 51, Chief  Operating  Officer of AGLC and Executive
Vice  President of AGL Resources  since August 1996,  Executive  Vice  President
Customer  Operations  of AGLC from 1994  until 1996 and  Senior  Vice  President
Operations  and  Engineering of AGLC from 1988 until 1994. Mr. Benson has been a
director of AGLC since 1996.

      CHARLIE J. LAIL, age 57, Senior Vice President  Operations  Improvement of
AGLC since 1994,  Senior Vice President  Divisions of AGLC from 1992 until 1994,
Vice  President  Divisions of AGLC from 1991 until 1992 and Vice  President  and
Northeast Georgia Division manager of AGLC from 1988 until 1991.

      MICHAEL D. HUTCHINS,  age 45, Vice President Operations and Engineering of
AGLC since 1994, Vice President Engineering of AGLC from 1989 until 1994.

      CHARLES W. BASS,  age 49,  Executive  Vice  President and Chief  Operating
Officer of AGL Resources  since August 1996,  Executive  Vice  President  Market
Service and  Development  of AGLC from 1994 until 1996 and Senior Vice President
Governmental  and Regulatory  Affairs of AGLC from 1988 until 1994. Mr. Bass has
been a director of AGLC since 1996.

      MELANIE M. PLATT, age 42, Corporate Secretary of AGLC since February 1995,
Corporate Secretary of AGL Resources and Service Company (since January 1996 and
August 1996,  respectively),  previously  associated  with the law firm of Long,
Aldridge & Norman, LLP, general counsel for AGLC, from 1985 until December 1994.
Ms. Platt has been a director of AGLC since 1996.

      The By-Laws of AGLC provide that the Board of Directors  shall  consist of
such  number  of  directors  as  shall be fixed  from  time to time  exclusively
pursuant  to a  resolution  adopted by the  Board.  The Board of  Directors  has
established  four  directorships  and has proposed that AGL  Resources,  as sole
shareholder,  elect as directors the four present directors named above to serve
until the next succeeding  Annual Meeting or until their  respective  successors
have been duly  elected.  Each  nominee  presently is a director of AGLC and has
consented to serve as a director if elected.







                                       50

<PAGE>


Section 16(a) Beneficial Ownership Reporting Compliance

      AGLC is required to identify any director, executive officer or person who
owns more than ten percent of any class of  Preferred  Stock of AGLC  registered
pursuant to Section 12 of the Securities  Exchange Act of 1934 (Exchange Act) or
any interest in any such class of  Preferred  Stock of AGLC who failed to timely
file with the Securities  Exchange  Commission  (Commission)  a required  report
under Section 16(a) of the Exchange Act.  Section 16(a) and  regulations  of the
Commission  thereunder  require executive officers and directors and persons who
own more than ten  percent of any such class of  Preferred  Stock of AGLC or any
interest  in any such  class of  Preferred  Stock  of AGLC,  as well as  certain
affiliates of such persons,  to file initial reports of ownership and changes in
ownership  of such  securities  with  the  Commission  and the  New  York  Stock
Exchange. Executive officers, directors and persons owning more than ten percent
of any such class of  Preferred  Stock of AGLC or any interest in any such class
of  Preferred  Stock of AGLC are required by  regulation  of the  Commission  to
furnish AGLC with copies of all Section 16(a) forms that they file. Based solely
on  its  review  of  the  copies  of  such  forms  received  by it  and  written
representations  that no other  reports were  required for those  persons,  AGLC
believes that,  during the fiscal year ended  September 30, 1996, all applicable
filing requirements were complied with.

--------------------------------------------------------------------------------
Item 11.  Executive Compensation

      Table 1  summarizes  by various  categories,  for the fiscal  years  ended
September 30, 1996, 1995 and 1994, the total compensation paid to or accrued for
the  President  and Chief  Executive  Officer of AGLC and each  other  executive
officer of AGLC whose salary and bonus for the fiscal year ended  September  30,
1996  exceeded  $100,000  (collectively  referred  to as  the  "named  executive
officers").

<TABLE>
<CAPTION>

                                                    TABLE 1: SUMMARY COMPENSATION TABLE

                                                             Annual Compensation
                                                                                              Long-Term
                                                                                              Compensation
                                                                              Other
                               Fiscal Year                                    Annual          Securities      All Other
Name and                       Ended                                          Compen-         Underlying      Compensa-
Principal Position             September 30    Salary($)(1)  Bonus ($)(2)     sation($)(3)    Options(#)(4)   tion($)(5)
------------------             ------------    ------------  -------------  ------------      -------------   ----------
<S>                                <C>           <C>         <C>              <C>               <C>            <C>    
David R. Jones                     1996          $474,923    $160,800              -            37,161         $46,080
President and                      1995           444,423     230,000         $11,750           43,126          33,293
Chief Executive Officer            1994           409,981      53,950          26,500           33,536          28,181

Thomas H. Benson                   1996           248,885      83,600               -           20,129          17,497
Chief Operating Officer            1995           214,362      67,500               -           24,510          24,510
                                   1994           176,375      23,205               -           14,424          11,636

Charlie J. Lail                    1996           147,565      49,245               -            7,587          13,146
Senior Vice President              1995           145,962      44,100               -           11,980          12,554
                                   1994           141,742      18,720               -           11,636          11,947

Michael D. Hutchins                1996           132,162      44,570               -           12,276           8,698
Vice President                     1995           107,327      33,600               -            7,000           5,135
                                   1994            96,894      10,342               -            5,306           3,015



</TABLE>

                                       51

<PAGE>



     (1)  Includes before-tax  contributions for the indicated fiscal years made
          to the AGL Resources Inc.  Retirement Savings Plus Plan (RSP Plan) and
          the AGL Resources Inc. Nonqualified Savings Plan (NSP).

     (2)  For fiscal 1996, 1995 and 1994, reflects cash bonus earned pursuant to
          the Variable  Compensation  Plan  (formerly the  Short-Term  Incentive
          Plan) by each of the named  executive  officers  other than Mr. Jones.
          For fiscal  1996,  reflects  for Mr.  Jones a cash bonus  earned.  For
          fiscal 1995 and 1994,  reflects for Mr. Jones a cash bonus and a bonus
          award  of  restricted  stock  which  is not  subject  to  any  vesting
          restrictions. The dollar value of the restricted stock awards is based
          on the number of shares of  restricted  stock  multiplied  by the fair
          market value per share on the date of issuance.

     (3)  Includes  for Mr.  Jones  director's  fees of $11,750 and $26,500 paid
          during fiscal 1995 and 1994, respectively.  Effective January 1, 1995,
          Mr. Jones no longer  receives any  compensation  for his services as a
          director  or as a member of a standing  committee  of the Board.  (See
          "Director Compensation" below.)

     (4)  Options to  purchase  common  stock of AGL  Resources  Inc.;  includes
          grants of reload options pursuant to the AGL Resources Inc.  Long-Term
          Stock Incentive Plan of 1990 (LTSIP).

     (5)  All Other Compensation paid during fiscal 1996 includes the following:
          (i) contributions to the AGL Resources Inc.  Leveraged  Employee Stock
          Ownership  Plan: Mr. Jones - $1,829;  Mr. Benson - $1,829;  Mr. Lail -
          $1,789; and Mr. Hutchins - $1,347; (ii) contributions to the RSP Plan:
          Mr. Jones - $4,275;  Mr. Benson - $5,297;  Mr. Lail - $5,733;  and Mr.
          Hutchins  -  $5,088;  (iii)  contributions  to the  NSP:  Mr.  Jones -
          $13,586;  Mr. Benson - $3,671;  Mr. Lail - $0; and Mr.  Hutchins - $0;
          and (iv) premiums paid for life  insurance  policies,  any proceeds of
          which are payable to the  respective  beneficiaries  designated by the
          named officers:  Mr. Jones - $26,390;  Mr. Benson - $6,700; Mr. Lail -
          $5,624; and Mr. Hutchins - $2,263.

Change in Control Employment Agreements

     During  fiscal 1996,  the Board of Directors of AGL  Resources  approved an
Employment  Continuity  Program  in which each of the named  executive  officers
participates  on one of three tier  levels.  The  purpose  of the  program is to
retain key  management  personnel  and  assure  continued  productivity  of such
personnel in the event of a change in control of AGL Resources.

     For purposes of the program,  a "change in control"  will be deemed to have
occurred in connection with any of the following events:  (i) the acquisition by
a person or group of  persons  of 10% or more of the  voting  securities  of AGL
Resources;  (ii) approval by the shareholders of a merger, business combination,
or sale of 50% or more of AGL  Resources'  assets,  the  result of which is that
less than 80% of the voting securities of the resulting  corporation is owned by
the former  shareholders  of AGL  Resources;  or (iii) the  failure,  during any
period of two years, of incumbent directors to constitute at least a majority of
the Board of Directors of AGL Resources.

     Generally,  no  benefits  are  provided  under the  program for any type of
termination prior to the occurrence of a change in control,  or for terminations
following a change in control due to death,  disability,  voluntary  termination
(other than the Chief  Executive  Officer) or any termination for "cause," which
includes failure to perform duties and responsibilities and fraud or dishonesty.

     Upon becoming operational, and depending on the tier level of participation
and on the timing of employment  termination,  the program  provides a severance
benefit  of between  one and three  years of base  salary  and annual  incentive
compensation to participants whose employment is involuntarily terminated within
twelve months following the occurrence of a change in control.

     Other  benefits  provided  include  the  payout of a pro rata bonus for the
portion  of the  year in which  the  termination  occurs,  full  vesting  of all
long-term  incentives,  a lump-sum payment of between one and three years of age
and service credits under AGL Resources'  pension plan, full vesting and funding
of  nonqualified  retirement  and deferral  plan  benefits,  a one to three year
continuation  of  healthcare  benefits  and  life  insurance,  and  outplacement
assistance. The Chief Executive Officer and the Executive Vice Presidents of AGL
Resources  also will  receive  payments  of legal  fees (up to a maximum  dollar
limit) in connection with the enforcement of payouts under the program.

     For all participants,  total severance  benefits are limited to the maximum
benefit allowable without triggering excise taxes.


                                       52

<PAGE>


Option Grants

     Table 2 sets forth information regarding the number and terms of options to
purchase  shares of AGL Resources  common stock  granted to the named  executive
officers  during the fiscal year ended  September  30,  1996.  In  addition,  in
accordance with the rules and  regulations of the  Commission,  set forth is the
present value of each option granted,  calculated using the Black-Scholes option
pricing model.

<TABLE>
<CAPTION>

                                       TABLE 2: OPTION GRANTS IN LAST FISCAL YEAR


                               Number of          % of Total
                               Securities        Options
                               Underlying        Granted to            Exercise or
                               Options           Employees in          Base Price                            Grant Date
Name                           Granted(#)(1)     Fiscal Year           ($/Sh)(2)        Expiration Date      Present Value($)(3)

<S>                                <C>              <C>                <C>                   <C>               <C>    
David R. Jones                     37,161           12.41%             $19.375               2/2/06            $90,673
Thomas H. Benson                   20,129            6.72               19.375               2/2/06             49,115
Charlie J. Lail                     7,587            *                  19.375               2/2/06             18,512
Michael D. Hutchins                   870            *                  19.750              4/24/02              1,957
                                    1,180            *                  19.750               2/3/05              2,808
                                    7,329            *                  19.375               2/2/06             17,883
                                    2,897            *                  20.500               2/3/05             11,211
------------------
* Less than 1%.
</TABLE>

     (1)  Options were granted to each of the named executive  officers pursuant
          to the LTSIP and became fully exercisable six months after the date of
          grant. Options are subject to early termination upon the occurrence of
          certain events related to termination of employment.  Further,  Reload
          Options  (as  hereinafter  defined)  were  granted to Mr.  Hutchins to
          purchase  the  following  number of shares:  870 shares on November 6,
          1995; 1,180 shares on November 6, 1995; and 2,897 shares on August 16,
          1996.

     (2)  The  exercise  price of options  may be paid in cash,  by  delivery of
          already  owned shares of Common Stock of AGL Resources or by any other
          method approved by the Nominating and  Compensation  Committee,  which
          administers  the LTSIP.  To the extent that the  exercise  price of an
          option is paid with shares of common stock of AGL Resources, a "Reload
          Option" will be granted to the optionee.  A Reload Option is an option
          granted  for the same number of shares as is  exchanged  in payment of
          the  exercise  price  and is  subject  to all of the  same  terms  and
          conditions as the original  option except for the exercise price which
          is  determined  on the basis of the fair  market  value of the  common
          stock of AGL Resources on the date the Reload  Option is granted.  One
          or more  successive  Reload  Options may be granted to an optionee who
          pays for the  exercise of a Reload  Option with shares of common stock
          of AGL Resources.

     (3)  The "Grant Date Present Value" is calculated  using the  Black-Scholes
          Warrant  Valuation  Call Option  Model,  assuming a constant  dividend
          yield.  This model  assumes  no  dilution  effects  and  includes  the
          following  assumptions  for the options granted to the named executive
          officers: expected volatility - 16.15% (14.55%, 14.55% and 21.33% with
          respect  to Mr.  Hutchins'  Reload  Options  for 870,  1,180 and 2,897
          shares, respectively); annual risk free rate of return (represents the
          monthly  average yield on ten year Treasury  notes during the month of
          the  grant) - 5.81%  (5.80%,  5.90%  and  6.58%  with  respect  to Mr.
          Hutchins'   Reload   Options   for  870,   1,180  and  2,897   shares,
          respectively);  annual dividend yield - 5.47% (5.37%,  5.37% and 5.17%
          with respect to Mr.  Hutchins' Reload Options for 870, 1,180 and 2,897
          shares,  respectively).  The model also assumes an exercise period for
          options granted of ten years;  provided,  however, with respect to Mr.
          Hutchins'  Reload  Options to purchase 870,  1,180 and 2,897 shares of
          common  stock,  an exercise  period of  approximately  78 months,  111
          months and 111 months, respectively, was assumed.



                                       53

<PAGE>

Option Exercises

         Table 3 sets forth option exercises to purchase shares of AGL Resources
Inc. common stock by the named  executive  officers during the fiscal year ended
September  30,  1996,  including  the  aggregate  value  of gains on the date of
exercise.  The table also sets forth (i) the number of shares covered by options
(both  exercisable  and  unexercisable)  as of  September  30, 1996 and (ii) the
respective  values for  "in-the-money"  options,  which  represent  the positive
spread between the exercise price of existing  options and the fair market value
of AGL Resources' Common Stock at September 30, 1996.

<TABLE>
<CAPTION>

                                 TABLE 3: AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
                                                 FISCAL YEAR END OPTION VALUES


                         Exercises During Year                                Fiscal Year End
                         ---------------------                                ---------------

                                                            Number of Securities           Value of Unexercised
                                                          Underlying Unexercised           In-the-Money Options
                      Shares Acquired  Value           Options at Fiscal Year End(#)      at Fiscal Year End($)(1)
Name                  on Exercise(#)   Realized($)     Exercisable    Unexercisable    Exercisable     Unexercisable
----                  --------------   -----------     -----------    -------------    -----------     -------------

<S>                        <C>            <C>              <C>               <C>          <C>               <C>
David R. Jones                 -               -           138,695               -        $272,288          -
Thomas H. Benson               -               -            65,055               -          74,888          -
Charlie J. Lail                -               -            41,439               -          46,872          -
Michael D. Hutchins        6,250          26,290            23,799           2,897          12,913          -

     (1)  Certain  exercisable options held by the named executive officers were
          not "in-the-money" at September 30, 1996.
</TABLE>



                                       54

<PAGE>


Retirement Plan

         Table 4 reflects the estimated annual lifetime benefits calculated on a
straight-life  annuity  basis and payable  under the terms of the AGL  Resources
Inc.  Retirement Plan (the "Retirement  Plan") and the AGL Resources Inc. Excess
Benefit Plan (the "Excess Benefit Plan") (as described  below),  as currently in
effect,   to   persons   in   specified   compensation   and  years  of  service
classifications  upon  retirement at age 65. Benefit amounts as reflected in the
table are subject to reductions for a portion of Social Security benefits.

<TABLE>
<CAPTION>

                                                  TABLE 4: PENSION PLAN TABLE

 
 3 Year                                              Years of Service
 Average          ------------------------------------------------------------------------
Earnings          20           25            30            35             40            45
--------          --           --            --            --             --            --

<S>            <C>          <C>           <C>           <C>            <C>           <C>    
 $100,000      $33,333      $41,667       $50,000       $57,500        $65,000       $72,500
  150,000       50,000       62,500        75,000        86,250         97,500       108,750
  200,000       66,667       83,333       100,000       115,000        130,000       145,000
  250,000       83,333      104,167       125,000       143,750        162,500       181,250
  300,000      100,000      125,000       150,000       172,500        195,000       217,500
  350,000      116,667      145,833       175,000       201,250        227,500       253,750
  400,000      133,333      166,667       200,000       230,000        260,000       290,000
  450,000      150,000      187,500       225,000       258,750        292,500       326,250
  500,000      166,667      208,333       250,000       287,500        325,000       362,500

</TABLE>

         The Retirement  Plan is a qualified  defined benefit pension plan which
covers all employees of AGL Resources and its participating  affiliate companies
(except leased  employees) who have satisfied  certain  standards as to hours of
service,  who have  attained  age 21 and who have  been  employed  for one year.
Benefits  under the  Retirement  Plan are based  upon  length of  service,  with
varying  provisions  for employees who are  terminated or take early,  normal or
deferred  retirement.  A  participant's  benefits also vary  depending  upon the
participant's  earnings for the three consecutive years of highest  compensation
during his or her final 60 months of employment.

         The compensation  covered by the Retirement Plan includes generally the
base rate of  earnings  actually  paid to a  participant  (up to  dollar  limits
imposed by the Internal Revenue  Service).  This amount of compensation does not
include the bonuses or  director's  fees that are included in the above  Summary
Compensation  Table.  The  Retirement  Plan also  provides,  subject  to certain
conditions,  for the payment of vested benefits of a deceased employee to his or
her spouse during such spouse's lifetime.

         AGL Resources  makes  contributions  to the Retirement Plan to fund the
benefits which accrue  thereunder.  Annual  contribution  amounts are determined
actuarially. Participant contributions are not permitted.

         In addition,  AGL  Resources  maintains an Excess  Benefit Plan for its
employees,  the purpose of which is to restore pension benefits to employees who
are prevented from receiving  their total accrued  benefits under the Retirement
Plan because of the maximum benefit limitations imposed on qualified  retirement
plans by Sections 415 and  401(a)(17)  of the Internal  Revenue Code of 1986, as
amended  (the  "Code").  The Excess  Benefit  Plan is not  funded,  but  benefit
payments are made directly by AGL  Resources.  Benefits under the Excess Benefit
Plan are payable in the same form and  according to the same  general  terms and
conditions as benefits under the Retirement  Plan. All employees who participate
in the Retirement  Plan whose benefits are limited by the provisions of the Code
will receive restoration of benefits under the Excess Benefit Plan.





                                       55

<PAGE>



         The  amounts  shown  in the  Summary  Compensation  Table  above do not
include AGL Resources's  contributions in connection with the Retirement Plan or
the Excess Benefit Plan for the named executive  officers.  Such amounts are not
and cannot be readily separated or individually calculated. AGL Resources made a
contribution of approximately  $13.4 million to the Retirement Plan for the plan
year ended June 30, 1996.

         As of the plan year ended June 30, 1996, Messrs.  Jones,  Benson,  Lail
and Hutchins had 36, 26, 32 and 23 years of service, respectively.

         The Retirement Plan and the Excess Benefit Plan are  administered by or
are  under  the  direction  of  the  Retirement  Plan  Administrative  Committee
appointed by the Board of  Directors.  Wachovia  Bank of North  Carolina,  N.A.,
serves as Trustee to the Retirement Plan. The Retirement Plan must be amended to
bring it into compliance with recent changes in federal law.


Director Compensation

     Any  director who is an officer or employee of AGLC or AGL  Resources  does
not  receive  any  compensation  for his or her  services  as a director or as a
member of a standing committee of the Board. Each of the directors of AGLC is an
officer of AGLC and/or AGL Resources.


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

      As of September 30, 1996, all of the outstanding shares of common stock of
AGLC are beneficially owned by AGL Resources.  Accordingly,  as of September 30,
1996, AGL Resources is the  beneficial  owner of more than 5% of the AGLC common
stock.

      The  following  table sets forth certain  information  as of September 30,
1996 regarding the ownership of AGL Resources  common stock by each director and
director nominee,  by each executive  officer named in the Summary  Compensation
Table  (collectively,  the "named executive officers") who is not a director and
by all directors and executive  officers as a group,  based on data furnished to
AGLC.


                                       56

<PAGE>





Name and Relationship of Beneficial Owner to        Number of Shares of Common
AGLC                                                Stock Owned Beneficially
                                                    (Percent of Class)(1)
David R. Jones
President, Chief Executive Officer and Director     223,715 (*)(2)(3)(4)(5)

Thomas H. Benson
Chief Operating Officer and Director                94,359  (*)(2)(3)(4)(5)

Charlie J. Lail
Senior Vice President                               62,897 (*)(2)(3)(4)(5)

Michael D. Hutchins
Vice President                                      33,444 (*)(2)(3)(4)(5)

Charles W. Bass
Director                                            103,301 (*)(2)(3)(4)(5)

Melanie M. Platt
Director                                            6,629 (*)(2)(3)(4)(5)

All executive officers and directors as a group
(6 persons)                                         524,345 (1%)(2)(3)(4)(5)
---------------------------
(*)   Less than one percent.

     (1)  As of September 30, 1996, no individual  director or executive officer
          of AGLC owned  beneficially 1% or more of the outstanding common stock
          of AGL  Resources  or any  class  of  Preferred  Stock  of AGLC or any
          interest in any class of Preferred Stock of AGLC. Beneficial ownership
          as reported herein has been determined in accordance with  regulations
          of the  Commission  and  includes  shares of common stock which may be
          acquired  within  60 days  upon  the  exercise  of  outstanding  stock
          options.  Except as otherwise  indicated  in footnote  (4) below,  all
          executive  officers,  directors and director nominees have sole voting
          and investment power with respect to the shares shown.

     (2)  Includes shares held for the accounts of the  above-named  persons and
          the  above-referenced  group as participants in the LESOP and RSP Plan
          as follows: Mr. Jones - 30,747 shares; Mr. Benson - 16,222 shares; Mr.
          Lail - 13,028 shares;  Mr. Hutchins - 5,154 shares;  Mr. Bass - 15,415
          shares; Ms. Platt - 118 shares; and the above-referenced group -80,684
          shares.

     (3)  Includes shares which may be acquired by the  above-named  persons and
          the  above-referenced  group  upon the  exercise  of stock  options as
          follows:  Mr. Jones - 138,695 shares;  Mr. Benson - 65,055 shares; Mr.
          Lail - 41,439 shares;  Mr. Hutchins - 23,799 shares; Mr. Bass - 77,963
          shares;  Ms. Platt - 5,600 shares;  and the above-  referenced group -
          352,551 shares.

     (4)  With regard to Mr. Jones,  the shares shown include  51,648 shares for
          which he shares voting and investment power and 1,322 shares which are
          held of record by the  spouse  of Mr.  Jones as to which he  disclaims
          beneficial  ownership;  with regard to Mr.  Benson,  the shares  shown
          include 13,082 shares for which he shares voting and investment power;
          with regard to Mr.  Lail,  the shares shown  include  3,054 shares for
          which he  shares  voting  and  investment  power;  with  regard to Mr.
          Hutchins,  the shares shown  include  3,671 shares for which he shares
          voting and investment power; with regard to Mr. Bass, the shares shown
          include 3,683 shares for which he shares voting and investment  power;
          with  regard to Ms.  Platt,  the shares  shown  include 911 shares for
          which she shares voting and investment  power;  and with regard to the
          group,  the shares shown include 76,049 shares held with shared voting
          and  investment  power and  1,322  shares  held of  record by  certain
          spouses of members

                                       57

<PAGE>


          of   the  above-referenced  group as to which the respective members 
          of the group disclaim beneficial ownership.

     (5)  Excludes  shares  held by the Trust of the NSP for the  benefit of the
          above-named  persons and the  above-referenced  group as follows:  Mr.
          Jones - 2,252 shares;  Mr. Benson - 849 shares; Mr. Lail - 892 shares;
          Mr.  Hutchins - -0- shares;  Mr. Bass - 577  shares;  Ms.  Platt - -0-
          shares; and the  above-referenced  group - 4,570 shares. As determined
          in accordance with regulations of the Commission,  such shares are not
          deemed to be beneficially  owned and,  accordingly,  are excluded from
          the shares of common  stock shown in the table above.  (See  footnotes
          (1) and (5) to "Table 1: Summary Compensation Table" above.)


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

     Compensation Committee Interlocks and Insider Participation

      Prior to the formation of the AGL Resources holding company in March 1996,
the AGLC Nominating and Compensation Committee was composed of Messrs.  Bradley,
Brumby, Norman,  Tarbutton and Taylor, none of whom is an officer or employee of
AGLC. Mr. Norman is a partner in the law firm of Long,  Aldridge & Norman,  LLP,
General  Counsel to AGLC and AGL Resources.  For the fiscal year ended September
30,  1996,  AGLC  and AGL  Resources  paid  to  Long,  Aldridge  &  Norman,  LLP
approximately  $3.6 million for legal services to AGL Resources,  AGLC and their
subsidiaries.


                                       58


<PAGE>

                                     Part IV
--------------------------------------------------------------------------------
Item 14.    Exhibits, Financial Statement Schedules and Reports on Form 8-K

      (a)   Documents Filed as Part of This Report:

            1.    Financial Statements

               Included under Item 8 are the following financial statements:

               Statements of  Consolidated  Income for the Years Ended September
               30, 1996, 1995 and 1994.

               Statements  of  Consolidated  Cash  Flows  for  the  Years  Ended
               September 30, 1996, 1995 and 1994.

               Consolidated Balance Sheets as of September 30, 1996 and 1995.

               Statements  of  Consolidated  Common  Stock  Equity for the Years
               Ended September 30, 1996, 1995 and 1994.

               Notes to Consolidated Financial Statements.

               Independent Auditors' Report.

            2.    Supplemental  Consolidated  Financial  Schedules  for  Each of
                  the Three Years in the Period Ended September 30, 1996:

               II.   -   Valuation   and   Qualifying   Account--Allowance   for
               Uncollectible Accounts.

               Schedules  other than those referred to above are omitted and are
               not  applicable or not required,  or the required  information is
               shown in the financial statements or notes thereto.

             3.  Exhibits

               Where an  exhibit is filed by  incorporation  by  reference  to a
               previously   filed   registration   statement  or  report,   such
               registration  statement or report is identified  in  parentheses.
               Exhibits  indicated  by an asterisk  are  provided in  electronic
               format only.

          3.1* - Charter of the Company, as amended through February 22, 1993.

          3.2  - Articles  of Merger of the  Company  and AGL  Merger Co.  filed
               March 6,  1996,  with  the  Secretary  of  State of the  State of
               Georgia.

          3.3  -  Articles  of  Amendment  to  the  Articles  of   Incorporation
               (Charter)  of the  Company  filed on October  3,  1996,  with the
               Secretary of State of the State of Georgia.

          3.4  - By-Laws of the Company,  as amended  through  November 17, 1995
               (Exhibit 3(e), Atlanta Gas Light Company Form 10-K for the fiscal
               year ended September 30, 1995).


                                       59

<PAGE>



          4.1  - Indenture,  dated as of December 1, 1989,  between  Atlanta Gas
               Light  Company and Bankers  Trust  Company,  as Trustee  (Exhibit
               4(a), Registration No. 33-32274).

          4.2  - First  Supplemental  Indenture,  dated  as of March  16,  1992,
               between  Atlanta Gas Light  Company and  NationsBank  of Georgia,
               National  Association,   as  Successor  Trustee,  (Exhibit  4(a),
               Registration No. 33-46419).

          10.1 - Executive Compensation Plans and Arrangements;

          10.1.a - Executive  Severance Pay Plan of AGL Resources Inc.  (Exhibit
               10.1.a,  AGL  Resources  Inc. Form 10-K for the fiscal year ended
               September 30, 1996).

          10.1.b - AGL Resources  Inc.  Long-Term  Stock  Incentive Plan of 1990
               (Exhibit  10(ii),  Atlanta  Gas Light  Company  Form 10-K for the
               fiscal year ended September 30, 1991).

          10.1.c - First  Amendment to the AGL Resources  Inc.  Long-Term  Stock
               Incentive  Plan of  1990  (Exhibit  B to the  Atlanta  Gas  Light
               Company Proxy  Statement for the Annual  Meeting of  Shareholders
               held February 5, 1993).

          10.1.d - Third  Amendment to the AGL Resources  Inc.  Long-Term  Stock
               Incentive  Plan of 1990  (Exhibit  C to the Proxy  Statement  and
               Prospectus  filed as a part of  Amendment  No. 1 to  Registration
               Statement on Form S-4, No. 33-99826).

          10.1.e - AGL Resources Inc.  Nonqualified Savings Plan (Exhibit 10(a),
               Atlanta  Gas Light  Company  Form 10-K for the fiscal  year ended
               September 30, 1995).

          10.2 - Service Agreement under Rate Schedule GSS dated April 13, 1972,
               between   the  Company   and   Transcontinental   Gas  Pipe  Line
               Corporation (Exhibit 5(c), Registration No. 2-48297).

          10.3 - Service  Agreement under Rate Schedule LG-A,  effective  August
               16, 1974, between the Company and  Transcontinental Gas Pipe Line
               Corporation (Exhibit 5(d), Registration No. 2-58971).

          10.4 - Storage Transportation  Agreement,  dated June 1, 1979, between
               the Company and  Southern  Natural Gas  Company,  (Exhibit  5(n),
               Registration No. 2-65487).

          10.5 - Letter of Intent dated September 18, 1987,  between the Company
               and Jupiter  Industries,  Inc.  relating  to the  purchase by the
               Company of the assets of the Chattanooga Gas Company  Division of
               Jupiter Industries, Inc. (Exhibit 10(p), Form 10-K for the fiscal
               year ended September 30, 1987).

          10.6 -  Agreement  for the  Purchase  of Assets  dated  April 5, 1988,
               between the Company and Jupiter Industries, Inc., (Exhibit 10(q),
               Form 10-K for the fiscal year ended September 30, 1988).

          10.7 - 100 Day Storage Service Agreement,  dated June 1, 1979, between
               the  Company and South  Georgia  Natural  Gas  Company,  (Exhibit
               10(r), Form 10-K for the fiscal year ended September 30, 1989).




                                       60

<PAGE>



          10.8 - Service  Agreement  under Rate Schedule LSS,  dated October 31,
               1984,  between  the Company  and  Transcontinental  Gas Pipe Line
               Corporation,  (Exhibit 10(s), Form 10-K for the fiscal year ended
               September 30, 1989).

          10.9 - Storage Transportation  Agreement,  dated June 1, 1979, between
               the  Company and South  Georgia  Natural  Gas  Company,  (Exhibit
               10(v), Form 10-K for the fiscal year ended September 30, 1990).

          10.10- Firm Seasonal  Transportation  Agreement,  dated June 29, 1990,
               between   the  Company   and   Transcontinental   Gas  Pipe  Line
               Corporation, (Exhibit 10(bb), Form 10-K for the fiscal year ended
               September 30, 1990).

          10.11- Service  Agreement under Rate Schedule WSS, dated June 1, 1990,
               between   the  Company   and   Transcontinental   Gas  Pipe  Line
               Corporation, (Exhibit 10(cc), Form 10-K for the fiscal year ended
               September 30, 1990).

          10.12-  Limited-Term  Transportation  Agreement  Contract # A970 dated
               April  1,  1988,   between  the  Company  and  CNG   Transmission
               Corporation, (Exhibit 10(bb), Form 10-K for the fiscal year ended
               September 30, 1991).

          10.13- Service  Agreement  System  Contract #.2271 under Rate Schedule
               FT,   dated   August   1,   1991,   between   the   Company   and
               Transcontinental Gas Pipe Line Corporation, (Exhibit 10(dd), Form
               10-K for the fiscal year ended September 30, 1991).

          10.14- Service  Agreement System Contract #.4984 dated August 1, 1991,
               between   the  Company   and   Transcontinental   Gas  Pipe  Line
               Corporation, (Exhibit 10(ee), Form 10-K for the fiscal year ended
               September 30, 1991).

          10.15- Service  Agreement  Contract  #830810  under Rate  Schedule FT,
               dated  March 1,  1992,  between  the  Company  and South  Georgia
               Natural Gas  Company  (Exhibit  10(aa),  Form 10-K for the fiscal
               year ended September 30, 1992).

          10.16- Firm Gas Transportation  Contract #3699 under Rate Schedule FT,
               dated February 1, 1992, between the Company and  Transcontinental
               Gas Pipe  Line  Corporation  (Exhibit  10(dd),  Form 10-K for the
               fiscal year ended September 30, 1992).

          10.17- Firm Gas  Transportation  Agreement  under Rate Schedule  FT-1,
               dated  July 1,  1992,  between  the  Company  and East  Tennessee
               Natural Gas  Company  (Exhibit  10(ff),  Form 10-K for the fiscal
               year ended September 30, 1992).

          10.18- Service  Agreement  Applicable  to the  Storage of Natural  Gas
               under Rate  Schedule  GSS,  dated  October 25, 1993,  between the
               Company and CNG  Transmission  Corporation  (Exhibit 10(y),  Form
               10-K for the fiscal year ended September 30, 1993).

          10.19- Service  Agreement  Applicable  to the  Storage of Natural  Gas
               under  Rate  Schedule  GSS,  dated   September,   1993,   between
               Chattanooga Gas Company and CNG Transmission Corporation (Exhibit
               10(z), Form 10-K for the fiscal year ended September 30, 1993).





                                       61

<PAGE>



          10.20- Firm  Seasonal  Transportation  Agreement,  dated  February  1,
               1992,  between  the Company  and  Transcontinental  Gas Pipe Line
               Corporation  amending  Exhibit  10(bb),  Form 10-K for the fiscal
               year ended September 30, 1990 (Exhibit 10(cc),  Form 10-K for the
               fiscal year ended September 30, 1993).

          10.21- Service  Agreement  under Rate  Schedule  SS-1,  dated April 1,
               1988,  between  the Company  and  Transcontinental  Gas Pipe Line
               Corporation  (Exhibit 10(z),  Form 10-K for the fiscal year ended
               September 30, 1994).

          10.22- Firm Gas  Transportation  Agreement  #5049 under Rate  Schedule
               FT-A,  dated November 1, 1993,  between the Company and Tennessee
               Gas Pipeline Company  (Exhibit  10(aa),  Form 10-K for the fiscal
               year ended September 30, 1994).

          10.23- Firm Gas  Transportation  Agreement  #5051 under Rate  Schedule
               FT-A, dated November 1, 1993, between Chattanooga Gas Company and
               Tennessee Gas Pipeline Company (Exhibit 10(bb), Form 10-K for the
               fiscal year ended September 30, 1994).

          10.24- Gas  Storage  Contract  #3998  under Rate  Schedule  FS,  dated
               November 1, 1993,  between the Company and Tennessee Gas Pipeline
               Company  (Exhibit  10(cc),  Form 10-K for the  fiscal  year ended
               September 30, 1994).

          10.25- Gas  Storage  Contract  #3999  under Rate  Schedule  FS,  dated
               November 1, 1993,  between  Chattanooga Gas Company and Tennessee
               Gas Pipeline Company  (Exhibit  10(dd),  Form 10-K for the fiscal
               year ended September 30, 1994).

          10.26- Gas  Storage  Contract  #3923  under Rate  Schedule  FS,  dated
               November 1, 1993,  between the Company and Tennessee Gas Pipeline
               Company  (Exhibit  10(ee),  Form 10-K for the  fiscal  year ended
               September 30, 1994).

          10.27- Gas  Storage  Contract  #3947  under Rate  Schedule  FS,  dated
               November 1, 1993,  between  Chattanooga Gas Company and Tennessee
               Gas Pipeline Company  (Exhibit  10(ff),  Form 10-K for the fiscal
               year ended September 30, 1994).

          10.28-  Service  Agreement  #902470  under  Rate  Schedule  FT,  dated
               September 1, 1994,  between the Company and Southern  Natural Gas
               Company  (Exhibit  10(hh),  Form 10-K for the  fiscal  year ended
               September 30, 1994).

          10.29-  Service  Agreement  #904460  under  Rate  Schedule  FT,  dated
               November 1, 1994,  between the Company and  Southern  Natural Gas
               Company  (Exhibit  10(ii),  Form 10-K for the  fiscal  year ended
               September 30, 1994).

          10.30-  Service  Agreement  #904480  under  Rate  Schedule  FT,  dated
               November 1, 1994,  between the Company and  Southern  Natural Gas
               Company  (Exhibit  10(jj),  Form 10-K for the  fiscal  year ended
               September 30, 1994).

          10.31- Service  Agreement  #904461  under Rate Schedule  FT-NN,  dated
               November 1, 1994,  between the Company and  Southern  Natural Gas
               Company  (Exhibit  10(kk),  Form 10-K for the  fiscal  year ended
               September 30, 1994).

                                       62

<PAGE>



          10.32- Service  Agreement  #904481  under Rate Schedule  FT-NN,  dated
               November 1, 1994,  between the Company and  Southern  Natural Gas
               Company  (Exhibit  10(ll),  Form 10-K for the  fiscal  year ended
               September 30, 1994).

          10.33- Service  Agreement  #S20140  under  Rate  Schedule  CSS,  dated
               November 1, 1994,  between the Company and  Southern  Natural Gas
               Company  (Exhibit  10(mm),  Form 10-K for the  fiscal  year ended
               September 30, 1994).

          10.34- Service  Agreement  #S20150  under  Rate  Schedule  CSS,  dated
               November 1, 1994,  between the Company and  Southern  Natural Gas
               Company  (Exhibit  10(nn),  Form 10-K for the  fiscal  year ended
               September 30, 1994).

          10.35-  Service  Agreement  #904470  under  Rate  Schedule  FT,  dated
               November 1, 1994,  between  Chattanooga  Gas Company and Southern
               Natural Gas  Company  (Exhibit  10(oo),  Form 10-K for the fiscal
               year ended September 30, 1994).

          10.36- Service  Agreement  #904471  under Rate Schedule  FT-NN,  dated
               November 1, 1994,  between  Chattanooga  Gas Company and Southern
               Natural Gas  Company  (Exhibit  10(pp),  Form 10-K for the fiscal
               year ended September 30, 1994).

          10.37- Service  Agreement  #S20130  under  Rate  Schedule  CSS,  dated
               November 1, 1994,  between  Chattanooga  Gas Company and Southern
               Natural Gas  Company  (Exhibit  10(qq),  Form 10-K for the fiscal
               year ended September 30, 1994).

          10.38- Firm Storage (FS)  Agreement,  dated November 1, 1994,  between
               the Company and ANR Storage Company (Exhibit 10(a), Form 10-Q for
               the quarter ended March 31, 1996).

          10.39- Firm Storage (FS)  Agreement,  dated November 1, 1994,  between
               the Company and ANR Storage Company (Exhibit 10(b), Form 10-Q for
               the quarter ended March 31, 1996).

          10.40- Firm  Transportation  Agreement,  dated March 1, 1996,  between
               the Company and Southern  Natural Gas Company  amending  Exhibits
               10(jj),  10(ll) and  10(mm),  Form 10-K for the fiscal year ended
               September  30,  1994  (Exhibit  10(c),  Form 10-Q for the quarter
               ended March 31, 1996).

          10.41- Firm  Transportation  Agreement,  dated March 1, 1996,  between
               the Company and Southern  Natural Gas Company  amending  Exhibits
               10(hh),  10(ii), 10(kk) and 10(nn), Form 10-K for the fiscal year
               ended  September  30,  1994  (Exhibit  10(d),  Form  10-Q for the
               quarter ended March 31, 1996).

          10.42- Firm  Transportation  Agreement,  dated March 1, 1996,  between
               Chattanooga Gas Company and Southern Natural Gas Company amending
               Exhibits 10(oo), 10(pp) and 10(qq), Form 10-K for the fiscal year
               ended  September  30,  1994  (Exhibit  10(a),  Form  10-Q for the
               quarter ended June 30, 1996).


                                       63

<PAGE>



          10.43- Firm Transportation Agreement,  dated June 1, 1996, between the
               Company and Southern Natural Gas Company amending Exhibit 10(ii),
               Form 10-K for the fiscal year ended  September  30, 1994 (Exhibit
               10(tt), Form 10-K for the fiscal year ended September 30, 1995).

          10.44- Firm Storage  Agreement,  effective  December 1, 1994,  between
               Chattanooga  Gas  Company  and  Tennessee  Gas  Pipeline  Company
               amending  Exhibit  10(ff),  Form 10-K for the  fiscal  year ended
               September 30, 1994 (Exhibit 10(uu), Form 10-K for the fiscal year
               ended September 30, 1995).

          10.45-  Firm  Storage  Agreement,  effective  July  1,  1996,  between
               Chattanooga  Gas  Company  and  Tennessee  Gas  Pipeline  Company
               amending  Exhibit  10(ff),  Form 10-K for the  fiscal  year ended
               September 30, 1994 (Exhibit 10(vv), Form 10-K for the fiscal year
               ended September 30, 1995).

          10.46-  Firm  Storage  Agreement,  effective  July  1,  1996,  between
               Chattanooga  Gas  Company  and  Tennessee  Gas  Pipeline  Company
               amending  Exhibit  10(dd),  Form 10-K for the  fiscal  year ended
               September 30, 1994 (Exhibit 10(ww), Form 10-K for the fiscal year
               ended September 30, 1995).

          10.47-  Firm  Transportation  Agreement,  dated  September  26,  1994,
               between  The  Company  and  South  Georgia  Natural  Gas  Company
               amending  Exhibit  10(s),  Form 10-K for the  fiscal  year  ended
               September 30, 1994 (Exhibit 10(xx), Form 10-K for the fiscal year
               ended September 30, 1995).

          10.48- Firm Storage  Agreement,  effective  July 1, 1996,  between The
               Company and  Tennessee  Gas  Pipeline  Company  amending  Exhibit
               10(ee),  Form 10- K for the fiscal year ended  September 30, 1994
               (Exhibit  10(yy),  Form 10- K for the fiscal year ended September
               30, 1995).

          10.49- Firm Storage  Agreement,  effective  July 1, 1996,  between The
               Company and  Tennessee  Gas  Pipeline  Company  amending  Exhibit
               10(cc),  Form 10- K for the fiscal year ended  September 30, 1994
               (Exhibit  10(zz),  Form 10- K for the fiscal year ended September
               30, 1995).

          10.50- Firm Storage Agreement,  effective January 1, 1996, between the
               Company and Tennessee Gas Pipeline Company amending Exhibit 10(z)
               and replacing  Exhibit 10(u), Form 10-K for the fiscal year ended
               September  30,  1995  (Exhibit  10(a),  Form 10-Q for the quarter
               ended December 31, 1995).

          10.51- Firm  Storage  Agreement,  effective  January 1, 1996,  between
               Chattanooga  Gas  Company  and  Tennessee  Gas  Pipeline  Company
               amending Exhibit 10(aa) and replacing  Exhibit 10(dd),  Form 10-K
               for the fiscal year ended September 30, 1995 (Exhibit 10(b), Form
               10-Q for the quarter ended December 31, 1995).

          10.52- Gas  Sales  Agreement  between  Seller  and  Atlanta  Gas Light
               Company, as Buyer (Exhibit 10(a), Form 10-Q for the quarter ended
               March 31, 1995).




                                       64

<PAGE>



          10.53- FPS-1 Service  Agreement,  dated July 9, 1996,  between Atlanta
               Gas Light Company and Cove Point LNG Limited Partnership (Exhibit
               10(a), Form 10-Q for the quarter ended June 30, 1996).

          10.54- Amendment to FS Agreement,  dated  September 13, 1994,  between
               Atlanta  Gas Light  Company  and  Transcontinental  Gas Pipe Line
               Corporation.

          10.55- Amendment to Letter  Agreement,  dated July 13, 1994, among and
               between Southern  Natural Gas Company,  Atlanta Gas Light Company
               and Chattanooga Gas Company.

          10.56- Three-party agreement between ANR Storage Company,  Atlanta Gas
               Light  Company  and  Southern  Natural  Gas  Company,   effective
               November 1, 1994.

          10.57- Displacement  Service  Agreement,  effective December 15, 1996,
               between  Washington  Gas  Light  Company  and  Atlanta  Gas Light
               Company.

          10.58- Amendment to Firm Storage  Agreement,  effective July 26, 1996,
               between  Chattanooga Gas Company and Southern Natural Gas Company
               amending  Exhibit  10(jj) , Form 10-K for the  fiscal  year ended
               September 30, 1995.

          10.59-  Amendatory  Agreement,  effective  August  23,  1996,  between
               Southern  Natural  Gas  Company  and  Atlanta  Gas Light  Company
               amending Exhibits 10(ee),  10(ff),  10(hh) and 10(kk),  Form 10-K
               for the fiscal year ended September 30, 1995.

          21   - Subsidiaries of the Registrant.

          23   - Independent Auditors' Consent.

          24   - Powers of Attorney (included with Signature Page hereto).

          27   - Financial Data Schedule.

(b)     Reports on Form 8-K

              No Form 8-K was filed  during  the last  quarter of the year ended
              September 30, 1996.

                                       65

<PAGE>

                                   SIGNATURES


         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on November 1, 1996.

                                      ATLANTA GAS LIGHT COMPANY



                              By: /s/ David R. Jones
                                      David R. Jones
                                      President and Chief Executive Officer



                               POWERS OF ATTORNEY

         KNOW  ALL MEN BY THESE  PRESENTS,  that  each  person  whose  signature
appears below  constitutes and appoints David R. Jones and J. Michael Riley, and
each of them, his or her true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him or her and in his or her name,
place and stead,  in any and all  capacities,  to sign the Annual Report on Form
10-K for the fiscal year ended  September 30, 1996 and any and all amendments to
such Annual Report,  and to file the same,  with all exhibits  thereto and other
documents in connection therewith,  with the Securities and Exchange Commission,
granting unto said  attorneys-in-fact  and agents,  and each of them, full power
and  authority  to do and  perform  each and every act and  thing  requisite  or
necessary to be done, as fully to all intents and purposes as he or she might or
could  do  in  person,   hereby   ratifying   and   confirming   all  that  said
attorneys-in-fact  and  agents  or any of them,  or their or his  substitute  or
substitutes, may lawfully do or cause to be done by virtue hereof.

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities indicated as of November 1, 1996.

    Signatures                        Title



/s/ David R. Jones
    David R. Jones                    President and Chief Executive Officer
                                      (Principal Executive Officer) and Director

/s/ J. Michael Riley
    J. Michael Riley                  Vice President and Chief Financial 
                                        Officer
                                      (Principal Accounting and Financial 
                                        Officer)



                                       66

<PAGE>




/s/ Charles W. Bass
    Charles W. Bass                   Director



/s/ Thomas H. Benson
    Thomas H. Benson                  Director


/s/ Melanie M. Platt
    Melanie M. Platt                  Director



*By /s/ J. Michael Riley
        J. Michael Riley,
        as Attorney-in-Fact

                                       67

<PAGE>

                                                                     SCHEDULE II

                           ATLANTA GAS LIGHT COMPANY
                        VALUATION AND QUALIFYING ACCOUNT
                      ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
             FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
                                 (IN MILLIONS)


--------------------------------------------------------------------------------
                                                  1996        1995        1994
--------------------------------------------------------------------------------

Balance, beginning of year .............       $   4.4     $   2.8     $   1.9
Additions:
  Provisions charged to income .........           4.6         5.3         7.5
  Recovery of accounts
    previously written off
    as uncollectible ...................           8.6         6.6         7.1
                                               -------     -------     -------
      Total ............................          17.6        14.7        16.5

Deduction:
  Accounts written off
    as uncollectible ...................          14.9        10.3        13.7
                                               -------     -------     -------

Balance, end of year ...................       $   2.7     $   4.4     $   2.8
                                               =======     =======     =======

                                       68

<PAGE>

                                INDEX TO EXHIBITS



      Exhibit
      Number                                               Description


      3.1*          -    Charter of the Company, as amended through February 22,
                         1993.

      3.2           -    Articles of Merger of the Company and AGL Merger Co.
                         filed March 6, 1996, with the Secretary of State of the
                         State of Georgia.

      3.3           -    Articles of Amendment to the Articles of Incorporation
                         (Charter) of the Company filed on October 3, 1996, with
                         the Secretary of State of the State of Georgia.

      3.4           -    By-Laws of the Company, as amended through November 17,
                         1995 (Exhibit 3(e), Atlanta Gas Light Company Form 10-K
                         for the fiscal year ended September 30, 1995).

      4.1           -    Indenture, dated as of December 1, 1989, between 
                         Atlanta Gas Light Company and Bankers Trust Company, as
                         Trustee (Exhibit 4(a), Registration No. 33-32274).

      4.2           -    First Supplemental Indenture, dated as of  March 16, 
                         1992, between Atlanta Gas Light Company and NationsBank
                         of Georgia, National Association, as Successor Trustee,
                         (Exhibit 4(a), Registration No. 33-46419).

      10.1          -    Executive Compensation Plans and Arrangements;

      10.1.a        -    Executive Severance Pay Plan of AGL Resources Inc.
                         (Exhibit 10.1.a, AGL Resources Inc. Form 10-K for the
                         fiscal year ended September 30, 1996).

      10.1.b             - AGL Resources Inc.  Long-Term Stock Incentive Plan of
                         1990  (Exhibit  10(ii),  Atlanta Gas Light Company Form
                         10-K for the fiscal year ended September 30, 1991).

      10.1.c             - First  Amendment to the AGL Resources Inc.  Long-Term
                         Stock  Incentive Plan of 1990 (Exhibit B to the Atlanta
                         Gas  Light  Company  Proxy  Statement  for  the  Annual
                         Meeting of Shareholders held February 5, 1993).




<PAGE>


      Exhibit
      Number                                               Description


      10.1.d        -    Third Amendment to the AGL Resources Inc. Long-Term
                         Stock Incentive Plan of 1990 (Exhibit C to the Proxy
                         Statement and Prospectus filed as a part of Amendment 
                         No. 1 to Registration Statement on Form S-4, No. 
                         33-99826).

      10.1.e        -    AGL Resources Inc. Nonqualified Savings Plan (Exhibit
                         10(a), Atlanta Gas Light Company Form 10-K for the 
                         fiscal year ended September 30, 1995).

      10.2          -    Service Agreement under Rate Schedule GSS dated April 
                         13, 1972, between the Company and Transcontinental Gas
                         Pipe Line Corporation (Exhibit 5(c), Registration No. 
                         2-48297).

      10.3          -    Service Agreement under Rate Schedule LG-A, effective
                         August 16, 1974, between the Company and 
                         Transcontinental Gas Pipe Line Corporation (Exhibit 
                         5(d), Registration No. 2-58971).

      10.4          -    Storage Transportation Agreement, dated June 1, 1979,
                         between the Company and Southern Natural Gas Company,
                         (Exhibit 5(n), Registration No. 2-65487).

      10.5          -    Letter of Intent dated September 18, 1987, between the
                         Company and Jupiter Industries, Inc. relating to the 
                         purchase by the Company of the assets of the 
                         Chattanooga Gas Company Division of Jupiter Industries,
                         Inc. (Exhibit 10(p), Form 10-K for the fiscal year 
                         ended September 30, 1987).

      10.6          -    Agreement for the Purchase of Assets dated April 5, 
                         1988, between the Company and Jupiter Industries, Inc.,
                         (Exhibit 10(q), Form 10-K for the fiscal year ended 
                         September 30, 1988).

      10.7          -    100 Day Storage Service Agreement, dated June 1, 1979,
                         between the Company and South Georgia Natural Gas
                         Company, (Exhibit 10(r), Form 10-K for the fiscal year
                         ended September 30, 1989).

      10.8          -    Service Agreement under Rate Schedule LSS, dated 
                         October 31, 1984, between the Company and 
                         Transcontinental Gas Pipe Line Corporation, (Exhibit 
                         10(s), Form 10-K for the fiscal year ended September 
                         30, 1989).


<PAGE>


      Exhibit
      Number                                               Description


      10.9          -    Storage Transportation Agreement, dated June 1, 1979,
                         between the Company and South Georgia Natural Gas
                         Company, (Exhibit 10(v), Form 10-K for the fiscal year
                         ended September 30, 1990).

      10.10         -    Firm Seasonal Transportation Agreement, dated June 29,
                         1990, between the Company and Transcontinental Gas Pipe
                         Line Corporation, (Exhibit 10(bb), Form 10-K for the 
                         fiscal year ended September 30, 1990).

      10.11         -    Service Agreement under Rate Schedule WSS, dated June 
                         1, 1990, between the Company and  Transcontinental  Gas
                         Pipe Line Corporation,  (Exhibit 10(cc),  Form 10-K for
                         the fiscal year ended September 30, 1990).

      10.12         -    Limited-Term Transportation Agreement Contract # A970
                         dated  April  1,  1988,  between  the  Company  and CNG
                         Transmission  Corporation,  (Exhibit 10(bb),  Form 10-K
                         for the fiscal year ended September 30, 1991).

      10.13         -    Service Agreement System Contract #.2271 under Rate
                         Schedule FT, dated August 1, 1991,  between the Company
                         and   Transcontinental   Gas  Pipe  Line   Corporation,
                         (Exhibit  10(dd),  Form 10-K for the fiscal  year ended
                         September 30, 1991).

      10.14         -    Service Agreement System Contract #.4984 dated August 
                         1, 1991, between the Company and  Transcontinental  Gas
                         Pipe Line Corporation,  (Exhibit 10(ee),  Form 10-K for
                         the fiscal year ended September 30, 1991).

      10.15         -    Service Agreement Contract #830810 under Rate Schedule
                         FT, dated March 1, 1992,  between the Company and South
                         Georgia Natural Gas Company (Exhibit 10(aa),  Form 10-K
                         for the fiscal year ended September 30, 1992).

      10.16         -    Firm Gas Transportation Contract #3699 under Rate
                         Schedule  FT,  dated  February  1,  1992,  between  the
                         Company and  Transcontinental Gas Pipe Line Corporation
                         (Exhibit  10(dd),  Form 10-K for the fiscal  year ended
                         September 30, 1992).


<PAGE>


      Exhibit
      Number                                               Description


      10.17         -    Firm Gas Transportation Agreement under Rate Schedule
                         FT-1, dated July 1, 1992,  between the Company and East
                         Tennessee  Natural Gas Company  (Exhibit  10(ff),  Form
                         10-K for the fiscal year ended September 30, 1992).

      10.18         -    Service Agreement Applicable to the Storage of Natural
                         Gas under Rate  Schedule  GSS,  dated October 25, 1993,
                         between the Company  and CNG  Transmission  Corporation
                         (Exhibit  10(y),  Form 10-K for the  fiscal  year ended
                         September 30, 1993).

      10.19         -    Service Agreement Applicable to the Storage of Natural
                         Gas under Rate Schedule  GSS,  dated  September,  1993,
                         between  Chattanooga  Gas Company and CNG  Transmission
                         Corporation  (Exhibit  10(z),  Form 10-K for the fiscal
                         year ended September 30, 1993).

      10.20         -    Firm Seasonal Transportation Agreement, dated February
                         1, 1992, between the Company and  Transcontinental  Gas
                         Pipe Line  Corporation  amending  Exhibit 10(bb),  Form
                         10-K for the  fiscal  year  ended  September  30,  1990
                         (Exhibit  10(cc),  Form 10-K for the fiscal  year ended
                         September 30, 1993).

      10.21         -    Service Agreement under Rate Schedule SS-1, dated April
                         1, 1988, between the Company and  Transcontinental  Gas
                         Pipe Line Corporation (Exhibit 10(z), Form 10-K for the
                         fiscal year ended September 30, 1994).

      10.22         -    Firm Gas Transportation Agreement #5049 under Rate
                         Schedule  FT-A,  dated  November  1, 1993,  between the
                         Company and  Tennessee  Gas Pipeline  Company  (Exhibit
                         10(aa),  Form 10-K for the fiscal year ended  September
                         30, 1994).

      10.23         -    Firm Gas Transportation Agreement #5051 under Rate
                         Schedule  FT-A,   dated   November  1,  1993,   between
                         Chattanooga  Gas Company  and  Tennessee  Gas  Pipeline
                         Company (Exhibit 10(bb),  Form 10-K for the fiscal year
                         ended September 30, 1994).

      10.24         -    Gas Storage Contract #3998 under Rate Schedule FS, 
                         dated  November  1,  1993,   between  the  Company  and
                         Tennessee Gas Pipeline Company  (Exhibit  10(cc),  Form
                         10-K for the fiscal year ended September 30, 1994).


<PAGE>

      Exhibit
      Number                                               Description


      10.25         -    Gas Storage Contract #3999 under Rate Schedule FS, 
                         dated November 1, 1993, between Chattanooga Gas Company
                         and Tennessee  Gas Pipeline  Company  (Exhibit  10(dd),
                         Form 10- K for the  fiscal  year  ended  September  30,
                         1994).

      10.26         -    Gas Storage Contract #3923 under Rate Schedule FS, 
                         dated  November  1,  1993,   between  the  Company  and
                         Tennessee Gas Pipeline Company  (Exhibit  10(ee),  Form
                         10-K for the fiscal year ended September 30, 1994).

      10.27         -    Gas Storage Contract #3947 under Rate Schedule FS, 
                         dated November 1, 1993, between Chattanooga Gas Company
                         and Tennessee  Gas Pipeline  Company  (Exhibit  10(ff),
                         Form  10-K for the  fiscal  year  ended  September  30,
                         1994).

      10.28         -    Service Agreement #902470 under Rate Schedule FT, dated
                         September 1, 1994, between the Company and Southern
                         Natural Gas Company (Exhibit 10(hh), Form 10-K for the
                         fiscal year ended September 30, 1994).

      10.29         -    Service Agreement #904460 under Rate Schedule FT, dated
                         November 1, 1994, between the Company and Southern
                         Natural Gas Company (Exhibit 10(ii), Form 10-K for the
                         fiscal year ended September 30, 1994).

      10.30         -    Service Agreement #904480 under Rate Schedule FT, dated
                         November 1, 1994, between the Company and Southern
                         Natural Gas Company (Exhibit 10(jj), Form 10-K for the
                         fiscal year ended September 30, 1994).

      10.31         -    Service Agreement #904461 under Rate Schedule FT-NN,
                         dated  November  1,  1994,   between  the  Company  and
                         Southern Natural Gas Company (Exhibit 10(kk), Form 10-K
                         for the fiscal year ended September 30, 1994).

      10.32         -    Service Agreement #904481 under Rate Schedule FT-NN,
                         dated  November  1,  1994,   between  the  Company  and
                         Southern Natural Gas Company (Exhibit 10(ll), Form 10-K
                         for the fiscal year ended September 30, 1994).

      10.33         -    Service Agreement #S20140 under Rate Schedule CSS, 
                         dated  November  1,  1994,   between  the  Company  and
                         Southern Natural Gas Company (Exhibit 10(mm), Form 10-K
                         for the fiscal year ended September 30, 1994).

<PAGE>


      Exhibit
      Number                                               Description


      10.34         -    Service Agreement #S20150 under Rate Schedule CSS, 
                         dated  November  1,  1994,   between  the  Company  and
                         Southern Natural Gas Company (Exhibit 10(nn), Form 10-K
                         for the fiscal year ended September 30, 1994).

      10.35         -    Service Agreement #904470 under Rate Schedule FT, dated
                         November 1, 1994, between Chattanooga Gas Company  and
                         Southern Natural Gas Company (Exhibit 10(oo), Form 10-K
                         for the fiscal year ended September 30, 1994).

      10.36         -    Service Agreement #904471 under Rate Schedule FT-NN,
                         dated November 1, 1994, between Chattanooga Gas
                         Company and Southern Natural Gas Company (Exhibit
                         10(pp),  Form 10-K for the fiscal year ended  September
                         30, 1994).

      10.37         -    Service Agreement #S20130 under Rate Schedule CSS, 
                         dated November 1, 1994, between Chattanooga Gas Company
                         and Southern Natural Gas Company (Exhibit 10(qq),  Form
                         10-K for the fiscal year ended September 30, 1994).

      10.38         -    Firm Storage (FS) Agreement, dated November 1, 1994,
                         between the Company and ANR Storage Company (Exhibit
                         10(a), Form 10-Q for the quarter ended March 31, 1996).

      10.39         -    Firm Storage (FS) Agreement, dated November 1, 1994,
                         between the Company and ANR Storage Company (Exhibit
                         10(b), Form 10-Q for the quarter ended March 31, 1996).

      10.40         -    Firm Transportation Agreement, dated March 1, 1996,
                         between the Company  and  Southern  Natural Gas Company
                         amending Exhibits 10(jj),  10(ll) and 10(mm), Form 10-K
                         for the fiscal year ended  September  30, 1994 (Exhibit
                         10(c),
                         Form 10-Q for the quarter ended March 31, 1996).

      10.41         -    Firm Transportation Agreement, dated March 1, 1996,
                         between the Company  and  Southern  Natural Gas Company
                         amending  Exhibits 10(hh),  10(ii),  10(kk) and 10(nn),
                         Form 10-K for the fiscal year ended  September 30, 1994
                         (Exhibit  10(d),  Form 10-Q for the quarter ended March
                         31, 1996).


<PAGE>


      Exhibit
      Number                                               Description


      10.42         -    Firm Transportation Agreement, dated March 1, 1996,
                         between  Chattanooga  Gas Company and Southern  Natural
                         Gas  Company  amending  Exhibits  10(oo),   10(pp)  and
                         10(qq),  Form 10-K for the fiscal year ended  September
                         30,  1994  (Exhibit  10(a),  Form 10-Q for the  quarter
                         ended June 30, 1996).

      10.43         -    Firm Transportation Agreement, dated June 1, 1996, 
                         between the Company  and  Southern  Natural Gas Company
                         amending Exhibit 10(ii),  Form 10-K for the fiscal year
                         ended September 30, 1994 (Exhibit 10(tt), Form 10-K for
                         the fiscal year ended
                         September 30, 1995).

      10.44         -    Firm Storage Agreement, effective December 1, 1994,
                         between  Chattanooga  Gas  Company  and  Tennessee  Gas
                         Pipeline Company amending Exhibit 10(ff), Form 10-K for
                         the  fiscal  year ended  September  30,  1994  (Exhibit
                         10(uu),  Form 10-K for the fiscal year ended  September
                         30, 1995).

      10.45         -    Firm Storage Agreement, effective July 1, 1996, between
                         Chattanooga  Gas Company  and  Tennessee  Gas  Pipeline
                         Company  amending  Exhibit  10(ff),  Form  10-K for the
                         fiscal year ended  September 30, 1994 (Exhibit  10(vv),
                         Form  10-K for the  fiscal  year  ended  September  30,
                         1995).

      10.46         -    Firm Storage Agreement, effective July 1, 1996, between
                         Chattanooga  Gas Company  and  Tennessee  Gas  Pipeline
                         Company  amending  Exhibit  10(dd),  Form  10-K for the
                         fiscal year ended  September 30, 1994 (Exhibit  10(ww),
                         Form  10-K for the  fiscal  year  ended  September  30,
                         1995).

      10.47         -    Firm Transportation Agreement, dated September 26, 
                         1994, between The Company and South Georgia Natural Gas
                         Company  amending  Exhibit  10(s),  Form  10-K  for the
                         fiscal year ended  September 30, 1994 (Exhibit  10(xx),
                         Form 10-K for the fiscal year ended September 30,
                         1995).

      10.48         -    Firm Storage Agreement, effective July 1, 1996, between
                         The Company and Tennessee Gas Pipeline Company amending
                         Exhibit  10(ee),  Form 10-K for the  fiscal  year ended
                         September 30, 1994 (Exhibit 10(yy), Form 10-K for the
                         fiscal year ended September 30, 1995).


<PAGE>


      Exhibit
      Number                                               Description


      10.49         -    Firm Storage Agreement, effective July 1, 1996, 
                         between The Company and Tennessee Gas Pipeline  Company
                         amending Exhibit 10(cc),  Form 10-K for the fiscal year
                         ended September 30, 1994 (Exhibit 10(zz), Form 10-K for
                         the fiscal year ended September 30, 1995).

      10.50         -    Firm Storage Agreement, effective January 1, 1996, 
                         between the Company and Tennessee Gas Pipeline  Company
                         amending  Exhibit  10(z) and replacing  Exhibit  10(u),
                         Form 10-K for the fiscal year ended  September 30, 1995
                         (Exhibit  10(a),   Form  10-Q  for  the  quarter  ended
                         December 31, 1995).

      10.51         -    Firm Storage Agreement, effective January 1, 1996,
                         between  Chattanooga  Gas  Company  and  Tennessee  Gas
                         Pipeline  Company amending Exhibit 10(aa) and replacing
                         Exhibit  10(dd),  Form 10-K for the  fiscal  year ended
                         September  30, 1995 (Exhibit  10(b),  Form 10-Q for the
                         quarter ended December 31, 1995).

      10.52         -    Gas Sales Agreement between Seller and Atlanta Gas 
                         Light Company,  as Buyer (Exhibit 10(a),  Form 10-Q for
                         the quarter ended March 31, 1995).

      10.53         -    FPS-1 Service Agreement, dated July 9, 1996, between
                         Atlanta  Gas Light  Company  and Cove Point LNG Limited
                         Partnership  (Exhibit 10(a),  Form 10-Q for the quarter
                         ended June 30, 1996).

      10.54         -    Amendment to FS Agreement, dated September 13, 1994,
                         between Atlanta Gas Light Company and  Transcontinental
                         Gas Pipe Line Corporation.

      10.55         -    Amendment to Letter Agreement, dated July 13, 1994,
                         among and between Southern Natural Gas Company, Atlanta
                         Gas Light Company and Chattanooga Gas Company.

      10.56         -    Three-party agreement between ANR Storage Company,
                         Atlanta Gas Light Company and Southern Natural Gas
                         Company, effective November 1, 1994.

      10.57         -    Displacement Service Agreement, effective December 15,
                         1996, between Washington Gas Light Company and Atlanta
                         Gas Light Company.


<PAGE>


      Exhibit
      Number                                               Description


     10.58          -    Amendment to Firm Storage Agreement, effective July 26,
                         1996,  between  Chattanooga  Gas Company  and  Southern
                         Natural Gas Company amending Exhibit 10(jj) , Form 10-K
                         for the fiscal year ended September 30, 1995.

      10.59         -    Amendatory Agreement, effective August 23, 1996, 
                         between  Southern  Natural  Gas Company and Atlanta Gas
                         Light Company amending Exhibits 10(ee),  10(ff), 10(hh)
                         and  10(kk),  Form  10-K  for  the  fiscal  year  ended
                         September 30, 1995.

      21            -    Subsidiaries of the Registrant.

      23            -    Independent Auditors' Consent.

      24            -    Powers of Attorney (included with Signature Page 
                         hereto).

      27            -    Financial Data Schedule.