----

----

| [X]    | ANNUAL      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES |
|--------|---------------------------------------------------------------------|
|   | EXCHANGE      ACT OF 1934                                           |

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

| Illinois                                                           |   | 36-2863847                                 |
|--------------------------------------------------------------------|--------|--------------------------------------------|
| (State      of Incorporation)                                      |   | (I.R.S.      Employer                      |
|                                                               |   | Identification      Number)                |
|                                                               |   |                                       |
| 1844      Ferry Road                                               |   |                                       |
|      Naperville,      Illinois 60563-9600 |   | (630)      983-8888                        |
| (Address      of principal executive offices)                      |   | (Registrant’s      telephone number) |

----

----

----

Table of Contents

| Item      No. |   | Description |                                                                                                                                   | Page      No.                                            |   |
|---------------|--------|-------------|----------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------|--------|
|          |   |        |                                                                                                                                   |                                                     |   |
|          |   | Glossary    |                                                                                                                                   |               ii |   |
|          |   |        |                                                                                                                                   |                                                     |   |
|          |   | Part      I |                                                                                                                                   |                                                     |   |
|          | 1.     |        | Business                                                                                                                               |                                                     |   | 1 |   |
|          | 1A.    |        | Risk Factors                                                                                                                           |                                                     |   | 4 |   |
|          | 1B.    |        | Unresolved Staff Comments                                                                                                              |                                                     |   | 7 |   |
|          | 2.     |        | Properties                                                                                                                             |                                                     |   | 7 |   |
|          | 3.     |        | Legal Proceedings                                                                                                                      |                                                     |   | 8 |   |
|          | 4.     |        | Submission      of Matters to a Vote of Security Holders                                                                               |                                                     |   | * |   |
|          |   |        |                                                                                                                                   |                                                     |   |   |   |
|          |   |        | Part      II                                                                                                                           |                                                     |   |   |   |
|          | 5.     |        | Market      for Registrant’s Common Equity, Related Stockholder Matters      and Issuer      Purchases of Equity Securities |                                                     |   | 8 |   |
|          | 6.     |        | Selected      Financial Data                                                                                                           |                                                     |   | * |   |
|          | 7.     |        | Management’s Discussion and Analysis of Financial Condition      and Results of Operations                                       |                                                     |   | 8 |   |
|          | 7A.    |        | Quantitative and Qualitative Disclosures about Market Risk                                                                             |                                                     |   | 21 |   |
|          | 8.     |        | Financial Statements and Supplementary Data                                                                                            |                                                     |   | 23 |   |
|          | 9.     |        | Changes      in and Disagreements with Accountants on Accounting and      Financial Disclosure                                    |                                                     |   | 50 |   |
|          | 9A.    |        | Controls and Procedures                                                                                                                |                                                     |   | 50 |   |
|          | 9B.    |        | Other Information                                                                                                                      |                                                     |   | 51 |   |
|          |   |        |                                                                                                                                   |                                                     |   |   |   |
|          |   |        | Part      III                                                                                                                          |                                                     |   |   |   |
|          | 10.    |        | Directors,      Executive Officers and Corporate Governance                                                                            |                                                     |   | * |   |
|          | 11.    |        | Executive      Compensation                                                                                                            |                                                     |   | * |   |
|          | 12.    |        | Security      Ownership of Certain Beneficial Owners and Management and Related      Stockholder Matters                               |                                                     |   | * |   |
|          | 13.    |        | Certain      Relationships and Related Transactions, and Director      Independence                                                    |                                                     |   | * |   |
|          | 14.    |        | Principal Accountant Fees and Services                                                                                                 |                                                     |   | 52 |   |
|          |   |        |                                                                                                                                   |                                                     |   |   |   |
|          |   |        | Part      IV                                                                                                                           |                                                     |   |   |   |
|          | 15.    |        | Exhibits and Financial Statement    Schedules                                                                                          |                                                     |   | 53 |   |
|          |   |        | Signatures                                                                                                                             |                                                     |   | 55 |   |
|          |   |        | Supplemental Information                                                                                                               |                                                     |   | 56 |   |
|          |   |        | Exhibit Index                                                                                                                          |                                                     |   | 57 |   |

| * | The      Registrant meets the conditions set forth in General Instruction I(1)(a)      and (b) of Form 10-K and is therefore omitting the information called for      by the otherwise required item. |
|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

Glossary

----

Table of Contents

| Item      1. | Business |
|--------------|----------|

----

Table of Contents

|                                       |   | Availability |    | Contract      Expiration |
|--------------------------------------------|--------|--------------|---------|--------------------------|
| Natural      Gas Pipeline Company (NGPL)   |   |         | 968,000 |                     | Various      dates through March 2012 |
| Horizon      Pipeline                      |   |         | 300,000 |                     | May      2012 |
| Tennessee      Gas Pipeline Company (TGPC) |   |         | 203,000 |                     | October      2009 |
| Midwestern      Gas Transmission Company   |   |         | 247,000 |                     | October      2009 |
| Northern      Natural Gas Company          |   |         | 206,000 |                     | October      2011 |
| ANR      Pipeline                          |   |         | 125,000 |                     | Various      dates through October 2012 |
| Texas      Gas                             |   |         | 47,000  |                     | March      2009 |

----

Table of Contents

| ·   | Base      rates, which are set by the ICC, are designed to allow the company an      opportunity to recover its costs and earn a fair return for      investors.  In the fourth quarter of 2005, the company received      approval from the ICC for a base rate increase.  For additional      information about the rate order, see Item 7 – Management’s Discussion and      Analysis of Financial Condition and Results of Operations and Item 8 –      Notes to the Consolidated Financial Statements – Note 14 – Rate      Proceeding. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The      company’s ICC-approved tariffs provide that the cost of natural gas      purchased for customers will be fully charged to customers without      markup.  Therefore, the company does not profit from the sale of      natural gas.  Rather, the company earns income from fixed      monthly charges and from variable transportation charges for delivering      natural gas to customers.  Annually, the ICC initiates a review      of the company’s natural gas purchasing practices for prudence, and may      disallow the pass-through of costs considered  imprudent. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | As      with the cost of natural gas, the company has a tariff that provides for      the pass-through of prudently incurred environmental costs related to      former manufactured gas plant sites.  This pass-through is also      subject to annual ICC review. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

RiskFactors

----

Table of Contents

----

Table of Contents

----

Table of Contents

| Item      1B. | Unresolved Staff  Comments |
|---------------|----------------------------|

Properties

----

Table of Contents

Legal Proceedings

| Item      5. | Market      for Registrant’s Common Equity, Related Stockholder Matters and Issuer      Purchases of EquitySecurities |
|--------------|-----------------------------------------------------------------------------------------------------------------------------|

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

----

Table of Contents

|                     |   | 2007   |     |   | 2006   |   |     | 2005   |   |
|--------------------------|--------|--------|----------|--------|--------|--------|----------|--------|--------|
|                     |   |   |     |   |   |   |     |   |   |
| Revenues                 |   | $      | 2,627.5  |   |   | $      | 2,452.3  |   |   | $ | 2,909.6 |   |
| Cost      of gas         |   |   | (1,906.5 | )      |   |   | (1,743.7 | )      |   |   | (2,212.4 | ) |
| Revenue      tax expense |   |   | (148.7   | )      |   |   | (144.4   | )      |   |   | (152.0 | ) |
| Margin                   |   | $      | 572.3    |   |   | $      | 564.2    |   |   | $ | 545.2 |   |

----

Table of Contents

----

Table of Contents

----

Table of Contents

| Nicor      Gas Company                                                                                                |   |   |    |   |   |   |    |   |   |
|-----------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|---------|--------|--------|
|                                                                                                                  |   |   |    |   |   |   |    |   |   |
|                                                                                                                  |   |   |    |   |   |   |    |   |   |
| Operating      Statistics                                                                                             |   |   |    |   |   |   |    |   |   |
|                                                                                                                  |   | 2007   |    |   | 2006   |   |    | 2005   |   |
|                                                                                                                  |   |   |    |   |   |   |    |   |   |
| Operating revenues      (millions)                                                                                    |   |   |    |   |   |   |    |   |   |
|           Sales                                                                                   |   |   |    |   |   |   |    |   |   |
|                 Residential                                         |   | $      | 1,791.4 |   |   | $      | 1,671.1 |   |   | $ | 2,031.4 |   |
|                 Commercial                                          |   |   | 426.2   |   |   |   | 373.9   |   |   |   | 453.5 |   |
|                 Industrial                                          |   |   | 47.6    |   |   |   | 42.8    |   |   |   | 61.8 |   |
|                                                                                                                  |   |   | 2,265.2 |   |   |   | 2,087.8 |   |   |   | 2,546.7 |   |
|           Transportation                                                                          |   |   |    |   |   |   |    |   |   |   |   |   |
|                 Residential                                         |   |   | 31.1    |   |   |   | 32.0    |   |   |   | 27.9 |   |
|                 Commercial                                          |   |   | 76.7    |   |   |   | 82.1    |   |   |   | 73.1 |   |
|                 Industrial                                          |   |   | 37.5    |   |   |   | 41.0    |   |   |   | 39.2 |   |
|                 Other                                               |   |   | 10.6    |   |   |   | 3.7     |   |   |   | 11.7 |   |
|                                                                                                                  |   |   | 155.9   |   |   |   | 158.8   |   |   |   | 151.9 |   |
|           Other revenues                                                                          |   |   |    |   |   |   |    |   |   |   |   |   |
|                 Revenue taxes                                       |   |   | 149.6   |   |   |   | 147.7   |   |   |   | 156.4 |   |
|                 Environmental cost recovery                         |   |   | 10.9    |   |   |   | 11.6    |   |   |   | 21.0 |   |
|                 Chicago Hub                                         |   |   | 19.0    |   |   |   | 26.4    |   |   |   | 11.5 |   |
|                 Other                                               |   |   | 26.9    |   |   |   | 20.0    |   |   |   | 22.1 |   |
|                                                                                                                  |   |   | 206.4   |   |   |   | 205.7   |   |   |   | 211.0 |   |
|                                                                                                                  |   | $      | 2,627.5 |   |   | $      | 2,452.3 |   |   | $ | 2,909.6 |   |
|                                                                                                                  |   |   |    |   |   |   |    |   |   |   |   |   |
| Deliveries      (Bcf)                                                                                                 |   |   |    |   |   |   |    |   |   |   |   |   |
|           Sales                                                                                   |   |   |    |   |   |   |    |   |   |   |   |   |
|                 Residential                                         |   |   | 201.8   |   |   |   | 185.9   |   |   |   | 200.2 |   |
|                 Commercial                                          |   |   | 48.7    |   |   |   | 41.8    |   |   |   | 44.7 |   |
|            Industrial                                          |   |   | 5.7     |   |   |   | 5.0     |   |   |   | 6.3 |   |
|                                                                                                                  |   |   | 256.2   |   |   |   | 232.7   |   |   |   | 251.2 |   |
|           Transportation                                                                          |   |   |    |   |   |   |    |   |   |   |   |   |
|            Residential                                         |   |   | 19.7    |   |   |   | 17.0    |   |   |   | 18.9 |   |
|                 Commercial                                          |   |   | 84.6    |   |   |   | 80.4    |   |   |   | 87.5 |   |
|                 Industrial                                          |   |   | 107.8   |   |   |   | 108.6   |   |   |   | 113.0 |   |
|                                                                                                                  |   |   | 212.1   |   |   |   | 206.0   |   |   |   | 219.4 |   |
|                                                                                                                  |   |   | 468.3   |   |   |   | 438.7   |   |   |   | 470.6 |   |
|                                                                                                                  |   |   |    |   |   |   |    |   |   |   |   |   |
| Year-end customers      (thousands) (1)                                                                               |   |   |    |   |   |   |    |   |   |   |   |   |
|           Sales                                                                                   |   |   |    |   |   |   |    |   |   |   |   |   |
|                 Residential                                         |   |   | 1,789   |   |   |   | 1,807   |   |   |   | 1,796 |   |
|                 Commercial                                          |   |   | 128     |   |   |   | 123     |   |   |   | 120 |   |
|                 Industrial                                          |   |   | 7       |   |   |   | 7       |   |   |   | 8 |   |
|                                                                                                                  |   |   | 1,924   |   |   |   | 1,937   |   |   |   | 1,924 |   |
|           Transportation                                                                          |   |   |    |   |   |   |    |   |   |   |   |   |
|                 Residential                                         |   |   | 191     |   |   |   | 166     |   |   |   | 157 |   |
|                 Commercial                                          |   |   | 54      |   |   |   | 57      |   |   |   | 58 |   |
|                 Industrial                                          |   |   | 5       |   |   |   | 6       |   |   |   | 6 |   |
|                                                                                                                  |   |   | 250     |   |   |   | 229     |   |   |   | 221 |   |
|                                                                                                                  |   |   | 2,174   |   |   |   | 2,166   |   |   |   | 2,145 |   |
|                                                                                                                  |   |   |    |   |   |   |    |   |   |   |   |   |
| Other      statistics                                                                                                 |   |   |    |   |   |   |    |   |   |   |   |   |
|           Degree days                                                                             |   |   | 5,756   |   |   |   | 5,174   |   |   |   | 5,783 |   |
|           Warmer than normal (2)                                                                  |   |   | (1%)    |   |   |   | (11%)   |   |   |   | (1%) |   |
|           Average gas cost per Mcf sold                                                           |   | $      | 7.36    |   |   | $      | 7.44    |   |   | $ | 8.74 |   |
|                                                                                                                  |   |   |    |   |   |   |    |   |   |   |   |   |
| (1)      The company redefined the customer count methodology in 2006 in      conjunction with its new                |   |
| customer      care and billing system.                                                                                |   |   |    |   |   |   |    |   |   |   |   |   |
|                                                                                                                  |   |   |    |   |   |   |    |   |   |   |   |   |
| (2)      Normal weather for Nicor Gas' service territory, for purposes of this      report, is considered to be 5,830 |   |
| degree      days per year.                                                                                            |   |   |    |   |   |   |    |   |   |   |   |   |

----

Table of Contents

----

Table of Contents

|                         | Standard&      Poor’s |   | Moody’s   |   | Fitch           |   |
|------------------------------|---------------------------------|--------|-----------------|--------|-----------------|--------|
|                         |                            |   |            |   |            |   |
| Commercial      Paper        |         A-1+          |   |   P-1 |   |  F-1       |   |
| Senior      Secured Debt     |  AA                        |   |  A1        |   |  AA-       |   |
| Senior      Unsecured Debt   |        AA-                 |   |  A2        |   |  A+        |   |
| Corporate      Credit Rating |  AA                        |   |  n/a       |   |   n/a |   |

----

Table of Contents

|                                      |   | Payments      due by period |   |
|-------------------------------------------|--------|-----------------------------|--------|
|                                      |   | Lessthan      1year         |   |   | 1-3years |   |   | 3-5years |   |   | Morethan      5years |   |   |  Total |   |
|                                      |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Purchase      obligations                 |   | $                           | 758.3  |   |   | $ | 212.1 |   |   | $ | 32.7 |   |   | $ | 2.9 |   |   | $ | 1,006.0 |   |
| Long-term      debt                       |   |                        | 75.0   |   |   |   | 50.0 |   |   |   | 75.0 |   |   |   | 300.0 |   |   |   | 500.0 |   |
| Fixed      interest onlong-term      debt |   |                        | 29.0   |   |   |   | 47.4 |   |   |   | 37.6 |   |   |   | 284.1 |   |   |   | 398.1 |   |
| Operating      leases                     |   |                        | 1.1    |   |   |   | .9 |   |   |   | .8 |   |   |   | 8.9 |   |   |   | 11.7 |   |
| Other      long-term obligations          |   |                        | .5     |   |   |   | 1.0 |   |   |   | .4 |   |   |   | 1.4 |   |   |   | 3.3 |   |
|                                      |   | $                           | 863.9  |   |   | $ | 311.4 |   |   | $ | 146.5 |   |   | $ | 597.3 |   |   | $ | 1,919.1 |   |

----

Table of Contents

----

Table of Contents

----

Table of Contents

----

Table of Contents

----

Table of Contents

----

Table of Contents

| Item      7A. | Quantitative and Qualitative Disclosures about Market      Risk |
|---------------|-----------------------------------------------------------------|

----

Table of Contents

----

Table of Contents

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

|                                                                         |   | Page   |   |
|------------------------------------------------------------------------------|--------|--------|--------|
|                                                                         |   |   |   |
| Report of Independent Registered Public Accounting      Firm                 |   |   | 24     |   |
|                                                                         |   |   |   |   |
| Financial      Statements:                                                   |   |   |   |   |
|                                                                         |   |   |   |   |
|     Consolidated Statements of      Operations           |   |   | 26     |   |
|                                                                         |   |   |   |   |
|     Consolidated Statements of Cash      Flows           |   |   | 27     |   |
|                                                                         |   |   |   |   |
|     Consolidated Balance Sheets                          |   |   | 28     |   |
|                                                                         |   |   |   |   |
|     Consolidated Statements of      Capitalization       |   |   | 29     |   |
|                                                                         |   |   |   |   |
|     Consolidated Statements of Retained      Earnings    |   |   | 30     |   |
|                                                                         |   |   |   |   |
|     Consolidated Statements of Comprehensive      Income |   |   | 30     |   |
|                                                                         |   |   |   |   |
|     Notes to the Consolidated Financial      Statements  |   |   | 31     |   |

----

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM

----

Table of Contents

----

Table of Contents

| Nicor      Gas Company                                                   |   |                        |    |   |   |   |    |   |   |
|--------------------------------------------------------------------------|--------|-----------------------------|---------|--------|--------|--------|---------|--------|--------|
|                                                                     |   |                        |    |   |   |   |    |   |   |
| Consolidated Statements of    Operations                                 |   |                        |    |   |   |   |    |   |   |
| (millions)                                                               |   |                        |    |   |   |   |    |   |   |
|                                                                     |   |                        |    |   |   |   |    |   |   |
|                                                                     |   |                        |    |   |   |   |    |   |   |
|                                                                     |   | Year      ended December 31 |    |
|                                                                     |   | 2007                        |    |   | 2006   |   |    | 2005   |   |
| Operating      revenues (includes revenue taxes of                       |   |                        |    |   |   |   |    |   |   |
| $149.6,      $147.7, and $156.4, respectively)                           |   | $                           | 2,627.5 |   |   | $      | 2,452.3 |   |   | $ | 2,909.6 |   |
|                                                                     |   |                        |    |   |   |   |    |   |   |   |   |   |
| Operating      expenses                                                  |   |                        |    |   |   |   |    |   |   |   |   |   |
| Cost      of gas                                                         |   |                        | 1,906.5 |   |   |   | 1,743.7 |   |   |   | 2,212.4 |   |
| Operating      and maintenance                                           |   |                        | 268.3   |   |   |   | 267.2   |   |   |   | 253.6 |   |
| Depreciation                                                             |   |                        | 165.6   |   |   |   | 160.1   |   |   |   | 154.5 |   |
| Taxes,      other than income taxes                                      |   |                        | 166.9   |   |   |   | 163.1   |   |   |   | 171.0 |   |
| Income      tax expense, net                                             |   |                        | 31.8    |   |   |   | 23.6    |   |   |   | 24.6 |   |
| Mercury-related      costs (recoveries), net                             |   |                        | (8.0    | )      |   |   | (3.6    | )      |   |   | .5 |   |
|                                                                     |   |                        | 2,531.1 |   |   |   | 2,354.1 |   |   |   | 2,816.6 |   |
|                                                                     |   |                        |    |   |   |   |    |   |   |   |   |   |
| Operating      income                                                    |   |                        | 96.4    |   |   |   | 98.2    |   |   |   | 93.0 |   |
|                                                                     |   |                        |    |   |   |   |    |   |   |   |   |   |
| Other      income (expense), net                                         |   |                        |    |   |   |   |    |   |   |   |   |   |
| Property      sale gains                                                 |   |                        | 2.0     |   |   |   | 3.3     |   |   |   | .4 |   |
| Interest      income                                                     |   |                        | 5.2     |   |   |   | 6.3     |   |   |   | 4.3 |   |
| Other      income                                                        |   |                        | .8      |   |   |   | .8      |   |   |   | .8 |   |
| Other      expense                                                       |   |                        | (1.8    | )      |   |   | (1.5    | )      |   |   | (1.5 | ) |
| Income      tax expense on other income                                  |   |                        | (2.4    | )      |   |   | (4.2    | )      |   |   | (1.5 | ) |
|                                                                     |   |                        | 3.8     |   |   |   | 4.7     |   |   |   | 2.5 |   |
|                                                                     |   |                        |    |   |   |   |    |   |   |   |   |   |
| Interest      expense                                                    |   |                        |    |   |   |   |    |   |   |   |   |   |
| Interest      on debt, net of amounts capitalized                        |   |                        | 38.8    |   |   |   | 38.6    |   |   |   | 37.0 |   |
|     Other                                            |   |                        | (4.9    | )      |   |   | 5.7     |   |   |   | 5.0 |   |
|                                                                     |   |                        | 33.9    |   |   |   | 44.3    |   |   |   | 42.0 |   |
|                                                                     |   |                        |    |   |   |   |    |   |   |   |   |   |
| Net      income                                                          |   | $                           | 66.3    |   |   | $      | 58.6    |   |   | $ | 53.5 |   |
|                                                                     |   |                        |    |   |   |   |    |   |   |   |   |   |
|                                                                     |   |                        |    |   |   |   |    |   |   |   |   |   |
| The      accompanying notes are an integral part of these    statements. |   |                        |    |   |   |   |    |   |   |

----

Table of Contents

| Nicor      Gas Company                                                       |   |                        |   |   |   |   |   |   |   |
|------------------------------------------------------------------------------|--------|-----------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                         |   |                        |   |   |   |   |   |   |   |
| Consolidated Statements of Cash    Flows                                     |   |                        |   |   |   |   |   |   |   |
| (millions)                                                                   |   |                        |   |   |   |   |   |   |   |
|                                                                         |   |                        |   |   |   |   |   |   |   |
|                                                                         |   |                        |   |   |   |   |   |   |   |
|                                                                         |   | Year      ended December 31 |   |
|                                                                         |   | 2007                        |   |   | 2006   |   |   | 2005   |   |
| Operating      activities                                                    |   |                        |   |   |   |   |   |   |   |
|         Net income                                                 |   | $                           | 66.3   |   |   | $      | 58.6   |   |   | $ | 53.5 |   |
|         Adjustments to reconcile net income to net cash flow       |   |                        |   |   |   |   |   |   |   |   |   |   |
|   provided      from operating activities:                         |   |                        |   |   |   |   |   |   |   |   |   |   |
|         Depreciation                                               |   |                        | 165.6  |   |   |   | 160.1  |   |   |   | 154.5 |   |
|         Deferred income tax benefit                                |   |                        | (.3    | )      |   |   | (48.6  | )      |   |   | (79.3 | ) |
|         Gain on sale of property, plant and equipment              |   |                        | (2.0   | )      |   |   | (3.3   | )      |   |   | (.4 | ) |
|         Changes in assets and liabilities:                         |   |                        |   |   |   |   |   |   |   |   |   |   |
|         Receivables, less allowances                               |   |                        | (70.5  | )      |   |   | 278.2  |   |   |   | (270.9 | ) |
|         Gas in storage                                             |   |                        | 40.1   |   |   |   | 68.0   |   |   |   | (32.0 | ) |
|         Deferred/accrued gas costs                                 |   |                        | .1     |   |   |   | (173.4 | )      |   |   | 155.1 |   |
|         Pension benefits                                           |   |                        | (54.5  | )      |   |   | 26.6   |   |   |   | (6.1 | ) |
|         Regulatory postretirement asset                            |   |                        | 44.1   |   |   |   | (113.5 | )      |   |   | - |   |
|         Other assets                                               |   |                        | (17.3  | )      |   |   | 37.6   |   |   |   | (1.1 | ) |
|         Accounts payable and customer credit balances and deposits |   |                        | 89.7   |   |   |   | (77.2  | )      |   |   | 137.7 |   |
|         Health care and other postretirement benefits              |   |                        | 4.7    |   |   |   | 89.1   |   |   |   | 12.6 |   |
|         Other liabilities                                          |   |                        | (57.8  | )      |   |   | 36.4   |   |   |   | (11.4 | ) |
|         Other items                                                |   |                        | (7.8   | )      |   |   | (4.1   | )      |   |   | 5.2 |   |
|         Net cash flow provided from operating activities           |   |                        | 200.4  |   |   |   | 334.5  |   |   |   | 117.4 |   |
|                                                                         |   |                        |   |   |   |   |   |   |   |   |   |   |
| Investing      activities                                                    |   |                        |   |   |   |   |   |   |   |   |   |   |
|         Additions to property, plant and equipment                 |   |                        | (155.4 | )      |   |   | (164.3 | )      |   |   | (188.2 | ) |
|         Purchases of available-for-sale securities                 |   |                        | (166.6 | )      |   |   | -      |   |   |   | - |   |
|         Proceeds from the sales of available-for-sale securities   |   |                        | 166.6  |   |   |   | -      |   |   |   | - |   |
|         Net proceeds from sale of property, plant and equipment    |   |                        | .6     |   |   |   | 3.6    |   |   |   | .8 |   |
|         Other investing activities                                 |   |                        | 4.0    |   |   |   | 5.7    |   |   |   | 3.2 |   |
|         Net cash flow used for investing activities                |   |                        | (150.8 | )      |   |   | (155.0 | )      |   |   | (184.2 | ) |
|                                                                         |   |                        |   |   |   |   |   |   |   |   |   |   |
| Financing      activities                                                    |   |                        |   |   |   |   |   |   |   |   |   |   |
|         Proceeds from issuing long-term debt                       |   |                        | -      |   |   |   | 50.0   |   |   |   | - |   |
|         Disbursements to retire long-term obligations              |   |                        | (.5    | )      |   |   | (50.5  | )      |   |   | (.5 | ) |
|         Net issuances (repayments) of commercial paper with        |   |                        |   |   |   |   |   |   |   |   |   |   |
|            maturities of 90 days or less            |   |                        | 19.0   |   |   |   | (140.0 | )      |   |   | 115.0 |   |
|         Dividends paid                                             |   |                        | (69.2  | )      |   |   | (47.1  | )      |   |   | (37.1 | ) |
|         Other financing activities                                 |   |                        | -      |   |   |   | (.4    | )      |   |   | (.4 | ) |
|         Net cash flow provided from (used for) financingactivities |   |                        | (50.7  | )      |   |   | (188.0 | )      |   |   | 77.0 |   |
|                                                                         |   |                        |   |   |   |   |   |   |   |   |   |   |
| Net      increase (decrease) in cash and cash equivalents                    |   |                        | (1.1   | )      |   |   | (8.5   | )      |   |   | 10.2 |   |
|                                                                         |   |                        |   |   |   |   |   |   |   |   |   |   |
| Cash      and cash equivalents, beginning of year                            |   |                        | 1.7    |   |   |   | 10.2   |   |   |   | - |   |
|                                                                         |   |                        |   |   |   |   |   |   |   |   |   |   |
| Cash      and cash equivalents, end of year                                  |   | $                           | .6     |   |   | $      | 1.7    |   |   | $ | 10.2 |   |
|                                                                         |   |                        |   |   |   |   |   |   |   |   |   |   |
| Supplemental      information                                                |   |                        |   |   |   |   |   |   |   |   |   |   |
|         Income taxes paid, net                                     |   | $                           | 54.1   |   |   | $      | 84.9   |   |   | $ | 102.6 |   |
|         Interest paid, net of amounts capitalized                  |   |                        | 36.7   |   |   |   | 36.1   |   |   |   | 34.8 |   |
|                                                                         |   |                        |   |   |   |   |   |   |   |   |   |   |
|                                                                         |   |                        |   |   |   |   |   |   |   |   |   |   |
| The      accompanying notes are an integral part of these    statements.     |   |                        |   |   |   |   |   |   |   |   |   |   |

----

Table of Contents

| Nicor      Gas Company                                                             |   |             |    |   |   |   |
|------------------------------------------------------------------------------------|--------|------------------|---------|--------|--------|--------|
|                                                                               |   |             |    |   |   |   |
| Consolidated Balance Sheets                                                        |   |             |    |   |   |   |
| (millions)                                                                         |   |             |    |   |   |   |
|                                                                               |   | December      31 |    |
|                                                                               |   | 2007             |    |   | 2006   |   |
| Assets                                                                             |   |             |    |   |   |   |
|                                                                               |   |             |    |   |   |   |
| Gas      distribution plant, at cost                                               |   | $                | 4,279.7 |   |   | $      | 4,157.1 |   |
|         Less accumulated depreciation                                    |   |             | 1,655.6 |   |   |   | 1,576.4 |   |
| Gas      distribution plant, net                                                   |   |             | 2,624.1 |   |   |   | 2,580.7 |   |
|                                                                               |   |             |    |   |   |   |   |   |
| Current      assets                                                                |   |             |    |   |   |   |   |   |
|         Cash and cash equivalents                                        |   |             | .6      |   |   |   | 1.7 |   |
|         Receivables, less allowances of $32.8 and $30.9,    respectively |   |             | 550.8   |   |   |   | 457.1 |   |
|         Receivables - affiliates                                         |   |             | 13.0    |   |   |   | 36.2 |   |
|         Gas in storage                                                   |   |             | 112.9   |   |   |   | 153.0 |   |
|         Deferred income taxes                                            |   |             | 30.0    |   |   |   | 25.1 |   |
|         Other                                                            |   |             | 49.6    |   |   |   | 26.6 |   |
| Total      current assets                                                          |   |             | 756.9   |   |   |   | 699.7 |   |
|                                                                               |   |             |    |   |   |   |   |   |
| Pension      benefits                                                              |   |             | 215.5   |   |   |   | 161.0 |   |
| Other      assets                                                                  |   |             | 104.8   |   |   |   | 151.1 |   |
|                                                                               |   |             |    |   |   |   |   |   |
| Total      assets                                                                  |   | $                | 3,701.3 |   |   | $      | 3,592.5 |   |
|                                                                               |   |             |    |   |   |   |   |   |
| Capitalization and      Liabilities                                                |   |             |    |   |   |   |   |   |
|                                                                               |   |             |    |   |   |   |   |   |
| Capitalization                                                                     |   |             |    |   |   |   |   |   |
|         Long-term obligations                                            |   |             |    |   |   |   |   |   |
|           Long-term debt, net of unamortized discount          |   | $                | 422.8   |   |   | $      | 497.5 |   |
|           Mandatorily redeemable preferred stock               |   |             | 3.1     |   |   |   | 3.6 |   |
|         Total long-term obligations                                      |   |             | 425.9   |   |   |   | 501.1 |   |
|                                                                               |   |             |    |   |   |   |   |   |
|         Preferred stock                                                  |   |             |    |   |   |   |   |   |
|           Non-redeemable preferred stock                       |   |             | 1.4     |   |   |   | 1.4 |   |
|                                                                               |   |             |    |   |   |   |   |   |
|         Common equity                                                    |   |             |    |   |   |   |   |   |
|           Common stock                                         |   |             | 76.2    |   |   |   | 76.2 |   |
|           Paid-in capital                                      |   |             | 108.1   |   |   |   | 108.1 |   |
|           Retained earnings                                    |   |             | 472.4   |   |   |   | 480.3 |   |
|           Accumulated other comprehensive loss, net            |   |             | (2.2    | )      |   |   | (3.2 | ) |
|         Total common equity                                              |   |             | 654.5   |   |   |   | 661.4 |   |
| Total      capitalization                                                          |   |             | 1,081.8 |   |   |   | 1,163.9 |   |
|                                                                               |   |             |    |   |   |   |   |   |
| Current      liabilities                                                           |   |             |    |   |   |   |   |   |
|         Long-term obligations due within one year                        |   |             | 75.5    |   |   |   | .5 |   |
|         Short-term debt                                                  |   |             | 369.0   |   |   |   | 350.0 |   |
|         Accounts payable                                                 |   |             | 321.7   |   |   |   | 268.6 |   |
|         Customer credit balances and deposits                            |   |             | 234.5   |   |   |   | 197.9 |   |
|         Accrued gas costs                                                |   |             | 50.1    |   |   |   | 50.0 |   |
|         Derivative instruments                                           |   |             | 7.2     |   |   |   | 51.1 |   |
|         Dividends payable                                                |   |             | 15.5    |   |   |   | 13.0 |   |
|         Other                                                            |   |             | 68.7    |   |   |   | 64.9 |   |
| Total      current liabilities                                                     |   |             | 1,142.2 |   |   |   | 996.0 |   |
|                                                                               |   |             |    |   |   |   |   |   |
| Deferred      credits and other liabilities                                        |   |             |    |   |   |   |   |   |
|         Regulatory asset retirement cost liability                       |   |             | 720.7   |   |   |   | 676.7 |   |
|         Deferred income taxes                                            |   |             | 289.5   |   |   |   | 281.7 |   |
|         Health care and other postretirement benefits                    |   |             | 185.1   |   |   |   | 181.6 |   |
|         Asset retirement obligation                                      |   |             | 177.2   |   |   |   | 169.0 |   |
|         Regulatory income tax liability                                  |   |             | 49.5    |   |   |   | 53.8 |   |
|         Unamortized investment tax credits                               |   |             | 27.5    |   |   |   | 29.6 |   |
|         Other                                                            |   |             | 27.8    |   |   |   | 40.2 |   |
| Total      deferred credits and other liabilities                                  |   |             | 1,477.3 |   |   |   | 1,432.6 |   |
|                                                                               |   |             |    |   |   |   |   |   |
| Commitments      and contingencies                                                 |   |             |    |   |   |   |   |   |
|                                                                               |   |             |    |   |   |   |   |   |
| Total      capitalization and liabilities                                          |   | $                | 3,701.3 |   |   | $      | 3,592.5 |   |
|                                                                               |   |             |    |   |   |   |   |   |
| The      accompanying notes are an integral part of these    statements.           |   |             |    |   |   |   |   |   |

----

Table of Contents

| Nicor      Gas Company                                                                         |   |   |             |   |   |   |                               |                             |   |   |    |   |
|------------------------------------------------------------------------------------------------|--------|--------|------------------|--------|--------|--------|------------------------------------|----------------------------------|--------|--------|---------|--------|
|                                                                                           |   |   |             |   |   |   |                               |                             |   |   |    |   |   |
| Consolidated Statements of      Capitalization                                                 |   |   |             |   |   |   |                               |                             |   |   |    |   |
| (millions,      except share data)                                                             |   |   |             |   |   |   |                               |                             |   |   |    |   |
|                                                                                           |   |   |             |   |   |   |                               |                             |   |   |    |   |   |
|                                                                                           |   |   |             |   |   |   |                               |                             |   |   |    |   |   |
|                                                                                           |   |   | December      31 |   |
|                                                                                           |   |   | 2007             |   | 2006   |   |
|                                                                                           |   |   |             |   |   |   |                               |                             |   |   |    |   |   |
| First      Mortgage Bonds                                                                      |   |   |             |   |   |   |                               |                             |   |   |    |   |
|         5.875% Series due 2008                                                       |   | $      | 75.0             |   |   |   |                               |                             | $      | 75.0   |    |   |   |   |
|         5.37% Series due 2009                                                        |   |   | 50.0             |   |   |   |                               |                             |   | 50.0   |    |   |   |   |
|         6.625% Series due 2011                                                       |   |   | 75.0             |   |   |   |                               |                             |   | 75.0   |    |   |   |   |
|         7.20% Series due 2016                                                        |   |   | 50.0             |   |   |   |                               |                             |   | 50.0   |    |   |   |   |
|         5.80% Series due 2023                                                        |   |   | 50.0             |   |   |   |                               |                             |   | 50.0   |    |   |   |   |
|         6.58% Series due 2028                                                        |   |   | 50.0             |   |   |   |                               |                             |   | 50.0   |    |   |   |   |
|         5.90% Series due 2032                                                        |   |   | 50.0             |   |   |   |                               |                             |   | 50.0   |    |   |   |   |
|         5.90% Series due 2033                                                        |   |   | 50.0             |   |   |   |                               |                             |   | 50.0   |    |   |   |   |
|         5.85% Series due 2036                                                        |   |   | 50.0             |   |   |   |                               |                             |   | 50.0   |    |   |   |   |
|                                                                                           |   |   |             | 500.0  |   |   |                               |                             |   |   | 500.0   |   |   |   |   |
|             Less:  Amount      due within one year          |   |   | 75.0             |   |   |   |                               |                             |   | -      |    |   |   |   |
|              Unamortized debt discount, net of premium      |   |   | 2.2              |   |   |   |                               |                             |   | 2.5    |    |   |   |   |
|                                                                                           |   |   |             | 422.8  |   |   |                               | 39.1      %                      |   |   |    | 497.5  |   |   |   | 42.8      % |   |
|                                                                                           |   |   |             |   |   |   |                               |                             |   |   |    |   |   |   |   |   |   |
| Preferred      stock, cumulative, $100 par value, 800,000                                      |   |   |             |   |   |   |                               |                             |   |   |    |   |   |   |   |   |
|         shares authorized                                                            |   |   |             |   |   |   |                               |                             |   |   |    |   |   |   |   |   |
|           Mandatorily redeemable preferred stock, 4.48% and 5.00%          |   |   |             |   |   |   |                               |                             |   |   |    |   |   |   |   |   |
|         series,      36,000 shares outstanding in 2007 |   |   |             |   |   |   |                               |                             |   |   |    |   |   |   |   |   |
|              and 41,000 shares outstanding in 2006          |   |   | 3.6              |   |   |   |                               |                             |   |   | 4.1     |   |   |   |   |   |
|           Less:  Amount due within one year                      |   |   | .5               |   |   |   |                               |                             |   |   | .5      |   |   |   |   |   |
|                                                                                           |   |   |             | 3.1    |   |   |                               | .3      |   |   |    | 3.6    |   |   |   | .3     |   |
|                                                                                           |   |   |             |   |   |   |                               |                             |   |   |    |   |   |   |   |   |   |
|           Nonredeemable preferred stock, 4.60% and 5.00%                   |   |   |             |   |   |   |                               |                             |   |   |    |   |   |   |   |   |
|              convertible series, 14,008 shares outstanding  |   |   | 1.4              |   |   |   | .1             |                             |   |   | 1.4     |   |   |   | .1     |   |
|                                                                                           |   |   |             |   |   |   |                               |                             |   |   |    |   |   |   |   |   |   |
| Common      equity                                                                             |   |   |             |   |   |   |                               |                             |   |   |    |   |   |   |   |   |
|         Common stock, $5 par value, 25,000,000 shares                                |   |   |             |   |   |   |                               |                             |   |   |    |   |   |   |   |   |
|           authorized, 32,365 shares reserved for share-based               |   |   |             |   |   |   |                               |                             |   |   |    |   |   |   |   |   |
|           awards and 15,232,414 shares outstanding                         |   |   | 76.2             |   |   |   |                               |                             |   |   | 76.2    |   |   |   |   |   |
|         Paid-in capital                                                              |   |   | 108.1            |   |   |   |                               |                             |   |   | 108.1   |   |   |   |   |   |
|         Retained earnings                                                            |   |   | 472.4            |   |   |   |                               |                             |   |   | 480.3   |   |   |   |   |   |
|         Accumulated other comprehensive loss, net                                    |   |   |             |   |   |   |                               |                             |   |   |    |   |   |   |   |   |
|           Cash flow hedges                                                 |   |   | (.5              | )      |   |   |                               |                             |   |   | (.1     | )      |   |   |   |   |
|           Postretirement benefit plans (includes SFAS No. 158              |   |   |             |   |   |   |                               |                             |   |   |    |   |   |   |   |   |
|              transition amount of $2.9 recorded in 2006)    |   |   | (1.7             | )      |   |   |                               |                             |   |   | (3.1    | )      |   |   |   |   |
|         Total common equity                                                          |   |   | 654.5            |   |   |   | 60.5      |                             |   |   | 661.4   |   |   |   | 56.8     |    |
|                                                                                           |   |   |             |   |   |   |                               |                             |   |   |    |   |   |   |   |   |   |
| Total      capitalization                                                                      |   | $      | 1,081.8          |   |   |   | 100.0%                             |                             |   | $      | 1,163.9 |   |   |   | 100.0% |   |
|                                                                                           |   |   |             |   |   |   |                               |                             |   |   |    |   |   |   |   |   |   |
|                                                                                           |   |   |             |   |   |   |                               |                             |   |   |    |   |   |   |   |   |   |
| The      accompanying notes are an integral part of these    statements.                       |   |   |             |   |   |   |                               |                             |   |   |    |   |   |   |   |   |

----

Table of Contents

| Nicor      Gas Company                                                                      |   |                        |   |   |   |   |   |   |   |
|---------------------------------------------------------------------------------------------|--------|-----------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                                        |   |                        |   |   |   |   |   |   |   |
|                                                                                        |   |                        |   |   |   |   |   |   |   |
|                                                                                        |   |                        |   |   |   |   |   |   |   |
| Consolidated Statements of Retained      Earnings                                           |   |                        |   |   |   |   |   |   |   |
| (millions)                                                                                  |   |                        |   |   |   |   |   |   |   |
|                                                                                        |   |                        |   |   |   |   |   |   |   |
|                                                                                        |   | Year      ended December 31 |   |
|                                                                                        |   | 2007                        |   |   | 2006   |   |   | 2005   |   |
|                                                                                        |   |                        |   |   |   |   |   |   |   |
| Balance      at beginning of year                                                           |   | $                           | 480.3  |   |   | $      | 470.7  |   |   | $ | 455.3 |   |
| Net      income                                                                             |   |                        | 66.3   |   |   |   | 58.6   |   |   |   | 53.5 |   |
| Cumulative      effect of change in accounting principle - FIN No. 48                       |   |                        | (2.5   | )      |   |   | -      |   |   |   | - |   |
| Dividends      declared on common stock                                                     |   |                        | (71.6  | )      |   |   | (48.9  | )      |   |   | (38.0 | ) |
| Dividends      declared on preferred stock                                                  |   |                        | (.1    | )      |   |   | (.1    | )      |   |   | (.1 | ) |
|                                                                                        |   |                        |   |   |   |   |   |   |   |   |   |   |
| Balance      at end of year                                                                 |   | $                           | 472.4  |   |   | $      | 480.3  |   |   | $ | 470.7 |   |
|                                                                                        |   |                        |   |   |   |   |   |   |   |   |   |   |
|                                                                                        |   |                        |   |   |   |   |   |   |   |   |   |   |
|                                                                                        |   |                        |   |   |   |   |   |   |   |   |   |   |
|                                                                                        |   |                        |   |   |   |   |   |   |   |   |   |   |
|                                                                                        |   |                        |   |   |   |   |   |   |   |   |   |   |
|                                                                                        |   |                        |   |   |   |   |   |   |   |   |   |   |
|                                                                                        |   |                        |   |   |   |   |   |   |   |   |   |   |
|                                                                                        |   |                        |   |   |   |   |   |   |   |   |   |   |
|                                                                                        |   |                        |   |   |   |   |   |   |   |   |   |   |
| Consolidated Statements of Comprehensive      Income                                        |   |                        |   |   |   |   |   |   |   |   |   |   |
| (millions)                                                                                  |   |                        |   |   |   |   |   |   |   |   |   |   |
|                                                                                        |   |                        |   |   |   |   |   |   |   |   |   |   |
|                                                                                        |   | Year      ended December 31 |   |
|                                                                                        |   | 2007                        |   |   | 2006   |   |   | 2005   |   |
|                                                                                        |   |                        |   |   |   |   |   |   |   |   |   |   |
| Net      income                                                                             |   | $                           | 66.3   |   |   | $      | 58.6   |   |   | $ | 53.5 |   |
| Other      comprehensive income (loss)                                                      |   |                        |   |   |   |   |   |   |   |   |   |   |
|     Loss      on cash flow hedges (net of income tax of $(0.3) in 2007) |   |                        | (.4    | )      |   |   | (.1    | )      |   |   | - |   |
|          Postretirement gains (net of income tax of $0.9 in 2007)            |   |                        | 1.4    |   |   |   | -      |   |   |   | - |   |
|          Decrease to minimum pension liability (net of income taxof          |   |                        |   |   |   |   |   |   |   |   |   |   |
|           $0.9 in 2005)                                                 |   |                        | -      |   |   |   | -      |   |   |   | 1.3 |   |
| Other      comprehensive income (loss), net of tax                                          |   |                        | 1.0    |   |   |   | (.1    | )      |   |   | 1.3 |   |
|                                                                                        |   |                        |   |   |   |   |   |   |   |   |   |   |
| Comprehensive      income                                                                   |   | $                           | 67.3   |   |   | $      | 58.5   |   |   | $ | 54.8 |   |
|                                                                                        |   |                        |   |   |   |   |   |   |   |   |   |   |
|                                                                                        |   |                        |   |   |   |   |   |   |   |   |   |   |
|                                                                                        |   |                        |   |   |   |   |   |   |   |   |   |   |
| The      accompanying notes are an integral part of these    statements.                    |   |                        |   |   |   |   |   |   |   |

----

Table of Contents

Notes to theConsolidated Financial Statements

|                                              |   | 2007   |   |   | 2006   |   |
|---------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Regulatory      assets                            |   |   |   |   |   |   |
| Regulatory      postretirement asset - current    |   | $      | 5.2    |   |   | $      | 8.8 |   |
| Regulatory      postretirement asset - noncurrent |   |   | 64.2   |   |   |   | 104.7 |   |
| Deferred      environmental costs                 |   |   | 9.5    |   |   |   | 16.0 |   |
| Unamortized      losses on reacquired debt        |   |   | 16.5   |   |   |   | 17.6 |   |
| Deferred      rate case costs                     |   |   | 2.6    |   |   |   | 3.0 |   |
| Other                                             |   |   | .1     |   |   |   | 1.0 |   |
|                                              |   | $      | 98.1   |   |   | $      | 151.1 |   |

----

Table of Contents

|                                                               |   |   |   |   |   |   |
|--------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
|                                                               |   | 2007   |   |   | 2006   |   |
| Regulatory      liabilities                                        |   |   |   |   |   |   |
| Regulatory      asset retirement cost liability – current    |   | $      | 8.0    |   |   | $      | 8.0 |   |
| Regulatory      asset retirement cost liability – noncurrent |   |   | 720.7  |   |   |   | 676.7 |   |
| Accrued      gas costs                                             |   |   | 50.1   |   |   |   | 50.0 |   |
| Regulatory      income tax liability                               |   |   | 49.5   |   |   |   | 53.8 |   |
| Other                                                              |   |   | 1.1    |   |   |   | - |   |
|                                                               |   | $      | 829.4  |   |   | $      | 788.5 |   |

----

Table of Contents

----

Table of Contents

----

Table of Contents

|                                               |   | 2007   |   |   | 2006   |   |
|----------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Beginning      of period                           |   | $      | 170.2  |   |   | $      | 164.4 |   |
|        Liabilities incurred during the period |   |   | 2.3    |   |   |   | 2.2 |   |
|        Liabilities settled during the period  |   |   | (3.2   | )      |   |   | (3.2 | ) |
|        Accretion                              |   |   | 9.7    |   |   |   | 9.5 |   |
|        Revision in estimated cash flows       |   |   | -      |   |   |   | (2.7 | ) |
| End      of period                                 |   | $      | 179.0  |   |   | $      | 170.2 |   |

----

Table of Contents

|                              |   | 2007   |   |   | 2006   |   |
|-----------------------------------|--------|--------|--------|--------|--------|--------|
|                              |   |   |   |   |   |   |
| Current      other assets         |   | $      | 1.8    |   |   | $      | .3 |   |
| Noncurrent      other assets      |   |   | .3     |   |   |   | .1 |   |
|                              |   | $      | 2.1    |   |   | $      | .4 |   |
|                              |   |   |   |   |   |   |   |   |
| Derivative      instruments       |   | $      | 5.7    |   |   | $      | 48.0 |   |
| Noncurrent      other liabilities |   |   | .1     |   |   |   | .7 |   |
|                              |   | $      | 5.8    |   |   | $      | 48.7 |   |

| 8. | INCOME      TAXES |
|----|-------------------|

|                                             |   | 2007   |   |   | 2006   |   |   | 2005   |   |
|--------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Current                                          |   |   |   |   |   |   |   |   |   |
| Federal                                          |   | $      | 30.9   |   |   | $      | 62.0   |   |   | $ | 87.1 |   |
| State                                            |   |   | 5.7    |   |   |   | 16.5   |   |   |   | 20.4 |   |
|                                             |   |   | 36.6   |   |   |   | 78.5   |   |   |   | 107.5 |   |
| Deferred                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal                                          |   |   | (1.4   | )      |   |   | (37.6  | )      |   |   | (64.0 | ) |
| State                                            |   |   | 1.1    |   |   |   | (11.0  | )      |   |   | (15.3 | ) |
|                                             |   |   | (0.3   | )      |   |   | (48.6  | )      |   |   | (79.3 | ) |
|                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Amortization      of investment tax credits, net |   |   | (2.1   | )      |   |   | (2.1   | )      |   |   | (2.1 | ) |
| Income      tax expense, net                     |   | $      | 34.2   |   |   | $      | 27.8   |   |   | $ | 26.1 |   |

----

Table of Contents

|                                    |   | 2007   |   |   | 2006   |   |
|-----------------------------------------|--------|--------|--------|--------|--------|--------|
| Deferred      tax liabilities           |   |   |   |   |   |   |
| Property,      plant and equipment      |   | $      | 286.2  |   |   | $      | 287.6 |   |
| Employee      benefits                  |   |   | 15.0   |   |   |   | 14.8 |   |
| Other                                   |   |   | 16.4   |   |   |   | 19.4 |   |
|                                    |   |   | 317.6  |   |   |   | 321.8 |   |
| Deferred      tax assets                |   |   |   |   |   |   |   |   |
| Unamortized      investment tax credits |   |   | 18.1   |   |   |   | 19.5 |   |
| Other                                   |   |   | 40.0   |   |   |   | 45.7 |   |
|                                    |   |   | 58.1   |   |   |   | 65.2 |   |
| Net      deferred tax liability         |   | $      | 259.5  |   |   | $      | 256.6 |   |

|                                                      |   | 2007   |                              |   | 2006   |   |                        | 2005   |   |
|-----------------------------------------------------------|--------|--------|-----------------------------------|--------|--------|--------|-----------------------------|--------|--------|
|                                                      |   |   |                              |   |   |   |                        |   |   |
| Federal      statutory rate                               |   |   | 35.0%                             |   |   |   | 35.0%                       |   |   |   | 35.0% |   |
| State      income taxes, net                              |   |   | 4.6      |   |   |   | 4.4     |   |   |   | 4.6    |   |
| Amortization      of investment tax credits               |   |   | (2.2)         |   |   |   | (2.6)        |   |   |   | (3.0)   |   |
| Amortization      of regulatory income tax liability      |   |   | (1.7)         |   |   |   | (1.7)        |   |   |   | (2.3)   |   |
| Medicare      subsidy                                     |   |   | (1.4)         |   |   |   | (2.1)        |   |   |   | (1.1)   |   |
| Other,      net                                           |   |   | (.3)          |   |   |   | (.8)         |   |   |   | (.4)   |   |
| Effective      combined federal and state income tax rate |   |   | 34.0%                             |   |   |   | 32.2%                       |   |   |   | 32.8% |   |

| Balance      at January 1, 2007   |   | $      | .7  |   |
|-----------------------------------|--------|--------|-----|--------|
| Settlements                       |   |   | (.1 | )      |
| Balance      at December 31, 2007 |   | $      | .6  |   |

----

Table of Contents

| 9. | POSTRETIREMENT      BENEFITS |
|----|------------------------------|

|                                           |   | Pension      benefits |   |   | Health      care andother      benefits |   |
|------------------------------------------------|--------|-----------------------|--------|--------|-----------------------------------------|--------|
|                                           |   | 2007                  |   |   | 2006                                    |   |   | 2007 |   |   | 2006 |   |
| Change      in benefit obligation              |   |                  |   |   |                                    |   |   |   |   |   |   |   |
| Benefit      obligation at beginning of period |   | $                     | 271.3  |   |                                    | $      | 284.4 |   |   | $ | 193.7 |   |   | $ | 192.5 |   |
| Service      cost                              |   |                  | 9.1    |   |                                    |   | 9.4 |   |   |   | 2.3 |   |   |   | 2.4 |   |
| Interest      cost                             |   |                  | 15.1   |   |                                    |   | 14.9 |   |   |   | 10.9 |   |   |   | 10.3 |   |
| Actuarial      (gain) loss                     |   |                  | (15.2  | )      |                                    |   | (9.7 | ) |   |   | 1.3 |   |   |   | .4 |   |
| Participant      contributions                 |   |                  | -      |   |                                    |   | - |   |   |   | 1.1 |   |   |   | .7 |   |
| Medicare      Part D reimbursements            |   |                  | -      |   |                                    |   | - |   |   |   | 1.2 |   |   |   | - |   |
| Benefits      paid                             |   |                  | (17.1  | )      |                                    |   | (27.7 | ) |   |   | (13.6 | ) |   |   | (12.6 | ) |
| Benefit      obligation at end of period  |   |                  | 263.2  |   |                                    |   | 271.3 |   |   |   | 196.9 |   |   |   |  193.7 |   |

----

Table of Contents

|                                                  |   | Pension      benefits |   |   | Health      care andother      benefits |   |
|-------------------------------------------------------|--------|-----------------------|--------|--------|-----------------------------------------|--------|
|                                                  |   | 2007                  |   |   | 2006                                    |   |   | 2007 |   |   | 2006 |   |
| Change      in plan assets                            |   |                  |   |   |                                    |   |   |   |   |   |   |   |
| Fair      value of plan assets at beginning of period |   |                  | 432.3  |   |                                    |   | 424.0 |   |   |   | 1.2 |   |   |   | 6.9 |   |
| Actual      return on plan assets                     |   |                  | 63.5   |   |                                    |   | 36.0 |   |   |   | - |   |   |   | .2 |   |
| Employer      contributions                           |   |                  | -      |   |                                    |   | - |   |   |   | 11.3 |   |   |   | 6.0 |   |
| Participant      contributions                        |   |                  | -      |   |                                    |   | - |   |   |   | 1.1 |   |   |   | .7 |   |
| Benefits      paid                                    |   |                  | (17.1  | )      |                                    |   | (27.7 | ) |   |   | (13.6 | ) |   |   | (12.6 | ) |
| Fair      value of plan assets at end of period       |   |                  | 478.7  |   |                                    |   | 432.3 |   |   |   | - |   |   |   | 1.2 |   |
|                                                  |   |                  |   |   |                                    |   |   |   |   |   |   |   |   |   |   |   |
| Funded      status                                    |   |                  | 215.5  |   |                                    |   | 161.0 |   |   |   | (196.9 | ) |   |   | (192.5 | ) |
| Contributions      made after the measurement date    |   |                  | -      |   |                                    |   | - |   |   |   | 2.3 |   |   |   | 3.0 |   |
| Other                                                 |   |                  | -      |   |                                    |   | - |   |   |   | (.9 | ) |   |   | (1.2 | ) |
| Postretirement      benefit asset (liability)         |   | $                     | 215.5  |   |                                    | $      | 161.0 |   |   | $ | (195.5 | ) |   | $ | (190.7 | ) |

|                        |   | Pension      benefits |   |   | Health      care andother      benefits |   |
|-----------------------------|--------|-----------------------|--------|--------|-----------------------------------------|--------|
|                        |   | 2007                  |   |   | 2006                                    |   |   | 2007 |   |   | 2006 |   |
|                        |   |                  |   |   |                                    |   |   |   |   |   |   |   |
| Noncurrent      assets      |   | $                     | 215.5  |   |                                    | $      | 161.0 |   |   | $ | - |   |   | $ | - |   |
| Current      liabilities    |   |                  | -      |   |                                    |   | - |   |   |   | (10.4 | ) |   |   | (9.1 | ) |
| Noncurrent      liabilities |   |                  | -      |   |                                    |   | - |   |   |   | (185.1 | ) |   |   | (181.6 | ) |
|                        |   | $                     | 215.5  |   |                                    | $      | 161.0 |   |   | $ | (195.5 | ) |   | $ | (190.7 | ) |

|                                                  |   | Net      regulatory assets |   |   | Accumulated      othercomprehensiveincome |   |   | Total           |   |
|-------------------------------------------------------|--------|----------------------------|--------|--------|-------------------------------------------|--------|--------|-----------------|--------|
|                                                  |   | Pensionbenefits            |   |   | Healthcare      andotherbenefits          |   |   | Pensionbenefits |   |   | Healthcare      andotherbenefits |   |   | Pensionbenefits |   |   | Healthcare      andotherbenefits |   |
|                                                  |   |                       |   |   |                                      |   |   |            |   |   |   |   |   |   |   |   |   |   |
| January      1, 2007                                  |   | $                          | 34.6   |   |                                      | $      | 78.2   |            |   | $ | 1.8 |   |   | $ | 4.2 |   |   | $ | 36.4 |   |   | $ | 82.4 |   |
| Arising      during period:                           |   |                       |   |   |                                      |   |   |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net actuarial (gain)      loss                        |   |                       | (40.5  | )      |                                      |   | 1.3    |            |   |   | (2.1 | ) |   |   | - |   |   |   | (42.6 | ) |   |   | 1.3 |   |
| Amortized      to net periodic benefit cost (credit): |   |                       |   |   |                                      |   |   |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net actuarial    loss                                 |   |                       | -      |   |                                      |   | (4.5   | )               |   |   | - |   |   |   | (.2 | ) |   |   | - |   |   |   | (4.7 | ) |
| Net prior service (cost)      benefit                 |   |                       | (.5    | )      |                                      |   | .1     |            |   |   | - |   |   |   | - |   |   |   | (.5 | ) |   |   | .1 |   |
| December      31, 2007                                |   | $                          | (6.4   | )      |                                      | $      | 75.1   |            |   | $ | (.3 | ) |   | $ | 4.0 |   |   | $ | (6.7 | ) |   | $ | 79.1 |   |

----

Table of Contents

|                                  |   | Net      regulatory assets |   |   | Accumulated      othercomprehensiveincome |   |   | Total           |   |
|---------------------------------------|--------|----------------------------|--------|--------|-------------------------------------------|--------|--------|-----------------|--------|
|                                  |   | Pensionbenefits            |   |   | Healthcare      andotherbenefits          |   |   | Pensionbenefits |   |   | Healthcare      andotherbenefits |   |   | Pensionbenefits |   |   | Healthcare      andotherbenefits |   |
|                                  |   |                       |   |   |                                      |   |   |            |   |   |   |   |   |   |   |   |   |   |
| Net      actuarial loss               |   | $                          | -      |   |                                      | $      | 4.4    |            |   | $ | - |   |   | $ | .2 |   |   | $ | - |   |   | $ | 4.6 |   |
| Net      prior service cost (benefit) |   |                       | .4     |   |                                      |   | (.1    | )               |   |   | - |   |   |   | - |   |   |   | .4 |   |   |   | (.1 | ) |
|                                  |   | $                          | .4     |   |                                      | $      | 4.3    |            |   | $ | - |   |   | $ | .2 |   |   | $ | .4 |   |   | $ | 4.5 |   |

|                                    |   | Pension      benefits |   |   | Health      care andother      benefits |   |
|-----------------------------------------|--------|-----------------------|--------|--------|-----------------------------------------|--------|
|                                    |   | 2007                  |   |   | 2006                                    |   |   | 2005 |   |   | 2007 |   |   | 2006 |   |   | 2005 |   |
|                                    |   |                  |   |   |                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Service      cost                       |   | $                     | 9.1    |   |                                    | $      | 9.4 |   |   | $ | 9.3 |   |   | $ | 2.3 |   |   | $ | 2.4 |   |   | $ | 2.7 |   |
| Interest      cost                      |   |                  | 15.1   |   |                                    |   | 14.9 |   |   |   | 15.6 |   |   |   | 10.9 |   |   |   | 10.3 |   |   |   | 10.3 |   |
| Expected      return on plan assets     |   |                  | (36.0  | )      |                                    |   | (34.8 | ) |   |   | (33.2 | ) |   |   | - |   |   |   | (.2 | ) |   |   | (.9 | ) |
| Recognized      net actuarial loss      |   |                  | -      |   |                                    |   | .2 |   |   |   | 1.6 |   |   |   | 4.7 |   |   |   | 5.0 |   |   |   | 4.9 |   |
| Amortization      of prior service cost |   |                  | .5     |   |                                    |   | .5 |   |   |   | .6 |   |   |   | (.1 | ) |   |   | (.1 | ) |   |   | (.1 | ) |
| Net      periodic benefit cost (credit) |   | $                     | (11.3  | )      |                                    | $      | (9.8 | ) |   | $ | (6.1 | ) |   | $ | 17.8 |   |   | $ | 17.4 |   |   | $ | 16.9 |   |

|                               | Pension      benefits  |   |   |        Health      care andother benefits |   |
|------------------------------------|-----------------------------|--------|--------|-----------------------------------------------------|--------|
|                               |  2007                  |   |   | 2006                                                |   |   |  2007 |   |   |   2006 |   |
|                               |                        |   |   |                                                |   |   |   |   |   |   |
| Discount      rate                 |  6.25                  | %      |   |   5.75                                    | %      |   | 6.25 | % |   |  5.75 | % |
| Rate      of compensation increase |  3.75                  |   |   | 3.75                                                |   |   | 3.75 |   |   |  3.75 |   |

----

Table of Contents

|                                     |   | Pension      benefits |   |   | Health      care and other benefits |   |
|------------------------------------------|--------|-----------------------|--------|--------|-------------------------------------|--------|
|                                     |   | 2007                  |   |   | 2006                                |   |   | 2005 |   |   | 2007 |   |   | 2006 |   |   | 2005 |   |
|                                     |   |                  |   |   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Discount      rate                       |   |                  | 5.75   | %      |                                |   | 5.50 | % |   |   | 5.75 | % |   |   | 5.75 | % |   |   | 5.50 | % |   |   | 5.75 | % |
| Expected      return on assets           |   |                  | 8.50   |   |                                |   | 8.50 |   |   |   | 8.50 |   |   |   | 8.50 |   |   |   | 8.50 |   |   |   | 8.50 |   |
| Rate      of compensation increase  |   |                  | 3.75   |   |                                |   | 3.75 |   |   |   | 4.00 |   |   |   | 3.75 |   |   |   | 3.75 |   |   |   | 4.00 |   |

|                                                                                  |   | 2007   |   |   | 2006   |   |
|---------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Health      care cost trend rate                                                      |   |   | 9.0    | %      |   |   | 9.5 | % |
| Rate      to which the cost trend rate is assumed to decline (the ultimate      rate) |   |   | 5.0    | %      |   |   | 5.0 | % |
| Years      to reach ultimate rate                                                     |   |   | 6      |   |   |   | 5 |   |

|                                                                                  | 2007 |   |   | 2006            |    |   | 2005 |    |
|---------------------------------------------------------------------------------------|------|--------|--------|-----------------|---------|--------|------|---------|
| Health      care cost trend rate                                                      | 9.5  | %      |   |        9.5 | %  |   | 9.5  | %       |
| Rate      to which the cost trend rate is assumed to decline (the ultimate      rate) | 5.0  | %      |   |        5.0 | %  |   | 5.0  | %  |
| Years      to reach ultimate rate                                                     | 5    |   |   |        5   |    |   | 4    |    |

|                                                         |   | One-percent |       |
|--------------------------------------------------------------|--------|-------------|------------|
|                                                         |   | Increase    |       |   | Decrease |   |
|                                                         |   |        |       |   |   |   |
| Effect      on total of service and interest cost components |   | $           | 1.1        |   |   | $ | (1.0 | ) |
| Effect      on benefit obligation                       |   |        |  18.3 |   |   |   |  (15.6 | )  |

----

Table of Contents

|                   |   | Target     |   |   | Percentage      of plan assetsat      October 1 |   |
|------------------------|--------|------------|--------|--------|-------------------------------------------------|--------|
| Asset      category    |   | allocation |   |   | 2007                                            |   |   | 2006 |   |
|                   |   |       |   |   |                                            |   |   |   |   |
| Equity      securities |   |  69   | %      |   |                                            | 69     | % |   |   | 69 | % |
| Debt      securities   |   |  31   |   |   |                                            | 31     |   |   |   | 31 |   |
|                   |   |  100  | %      |   |                                            | 100    | % |   |   | 100 | % |

|  Twelve      monthsending      October 1 |   | Pensionbenefits |   |   | Health      careand      otherbenefits |   |   | Expected      Medicaresubsidy |   |
|-----------------------------------------------|--------|-----------------|--------|--------|----------------------------------------|--------|--------|-------------------------------|--------|
|                                          |   |            |   |   |                                   |   |   |                          |   |
| 2008                                          |   | $               | 17.9   |   |                                   | $      | 11.7   |                          |   | $ | (1.3 | ) |
| 2009                                          |   |            | 18.5   |   |                                   |   | 12.6   |                          |   |   | (1.4 | ) |
| 2010                                          |   |            | 18.9   |   |                                   |   | 13.5   |                          |   |   | (1.6 | ) |
| 2011                                          |   |            | 20.1   |   |                                   |   | 14.3   |                          |   |   | (1.6 | ) |
| 2012                                          |   |            | 21.3   |   |                                   |   | 15.0   |                          |   |   | (1.7 | ) |
| 2013-2017                                     |   |            | 136.7  |   |                                   |   | 84.2   |                          |   |   | (9.8 | ) |

|               |   | 2007   |    |   | 2006   |   |    | 2005   |   |
|--------------------|--------|--------|---------|--------|--------|--------|---------|--------|--------|
|               |   |   |    |   |   |   |    |   |   |
| Bundled      sales |   | $      | 2,265.2 |   |   | $      | 2,087.8 |   |   | $ | 2,546.7 |   |
| Transportation     |   |   | 155.9   |   |   |   | 158.8   |   |   |   | 151.9 |   |
| Revenue      taxes |   |   | 149.6   |   |   |   | 147.7   |   |   |   | 156.4 |   |
| Other              |   |   | 56.8    |   |   |   | 58.0    |   |   |   | 54.6 |   |
|               |   | $      | 2,627.5 |   |   | $      | 2,452.3 |   |   | $ | 2,909.6 |   |

----

Table of Contents

----

Table of Contents

|            |   | Purchase      obligations |   |   | Operating      leases |   |   | Other      long-term obligations |   |
|-----------------|--------|---------------------------|--------|--------|-----------------------|--------|--------|----------------------------------|--------|
|            |   |                      |   |   |                  |   |   |                             |   |
| 2008            |   | $                         | 11.9   |   |                  | $      | 1.1    |                             |   | $ | .5 |   |
| 2009            |   |                      | 11.7   |   |                  |   | .5     |                             |   |   | .5 |   |
| 2010            |   |                      | 11.7   |   |                  |   | .4     |                             |   |   | .5 |   |
| 2011            |   |                      | 11.7   |   |                  |   | .4     |                             |   |   | .2 |   |
| 2012            |   |                      | 5.3    |   |                  |   | .4     |                             |   |   | .2 |   |
| After      2012 |   |                      | 2.9    |   |                  |   | 8.9    |                             |   |   | 1.4 |   |
|            |   | $                         | 55.2   |   |                  | $      | 11.7   |                             |   | $ | 3.3 |   |

----

Table of Contents

----

Table of Contents

----

Table of Contents

----

Table of Contents

----

Table of Contents

|                    |   | Quarter      ended |    |
|-------------------------|--------|--------------------|---------|
|                    |   | Mar.      31       |    |   | June      30 |   |   | Sept.      30 |   |   | Dec.      31 |   |
| 2007                    |   |               |    |   |   |   |   |   |   |   |   |   |
| Operating      revenues |   | $                  | 1,208.4 |   |   | $ | 431.4 |   |   | $ | 238.9 |   |   | $ | 748.8 |   |
| Operating      income   |   |               | 51.1    |   |   |   | 12.2 |   |   |   | 5.4 |   |   |   | 27.7 |   |
| Net      income (loss)  |   |               | 38.4    |   |   |   | 4.8 |   |   |   | (2.8 | ) |   |   | 25.9 |   |
|                    |   |               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 2006                    |   |               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating      revenues |   | $                  | 1,210.8 |   |   | $ | 338.1 |   |   | $ | 226.7 |   |   | $ | 676.7 |   |
| Operating      income   |   |               | 42.7    |   |   |   | 13.3 |   |   |   | 7.2 |   |   |   | 35.0 |   |
| Net      income (loss)  |   |               | 30.2    |   |   |   | 8.2 |   |   |   | (1.6 | ) |   |   | 21.8 |   |

----

Table of Contents

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

Controls andProcedures

| 1.   | Pertain      to the maintenance of records that in reasonable detail accurately and      fairly reflect the transactions and dispositions of the assets of the      company; |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2.   | Provide      reasonable assurance that transactions are recorded as necessary to permit      preparation of financial statements in accordance with generally accepted      accounting principles, and that receipts and expenditures of the company      are being made only in accordance with authorizations of management and      directors of the company; and |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.   | Provide      reasonable assurance regarding prevention or timely detection of      unauthorized acquisition, use or disposition of the company’s assets that      could have a material effect on the financial  statements. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

| Item      9B. | Other      Information |
|---------------|------------------------|

----

Table of Contents

| Item      14. | Principal Accountant Fees and    Services |
|---------------|-------------------------------------------|

| Fee      Category       |   | 2007   |   |   | 2006   |   |
|-------------------------|--------|--------|--------|--------|--------|--------|
|                    |   |   |   |   |   |   |
| Audit      fees         |   | $      | 1.4    |   |   | $      | 1.5 |   |
| Audit-related      fees |   |   | .1     |   |   |   | .1 |   |
| Total      fees         |   | $      | 1.5    |   |   | $      | 1.6 |   |

Audit Committee Pre-Approval Policies andProcedures

----

Table of Contents

| Item      15. | Exhibits and Financial Statement      Schedules |
|---------------|-------------------------------------------------|

|   | 1) | Financial      Statements: |
|--------|----|----------------------------|

Financial Statements and Supplementary Data

|   | 2) | Financial      Statement Schedules: |
|--------|----|-------------------------------------|

| Schedule |                                                         |   |
|----------|--------------------------------------------------------------|--------|
| Number   |                                                         | Page   |
|     | Report of Independent Registered Public Accounting      Firm | 24     |
| II       | Valuation and Qualifying Accounts                            | 54     |

|   | Schedules      other than those listed are omitted because they are not      applicable. |
|--------|------------------------------------------------------------------------------------------|

|   | 3) | Exhibits      Filed: |
|--------|----|----------------------|

Exhibit Index

----

Table of Contents

| Nicor      Gas Company                                                                              |   |            |   |   |            |   |   |            |   |   |   |       |   |   |   |           |   |
|-----------------------------------------------------------------------------------------------------|--------|-----------------|--------|--------|-----------------|--------|--------|-----------------|--------|--------|--------|------------|--------|--------|--------|----------------|--------|
|                                                                                                |   |            |   |   |            |   |   |            |   |   |   |       |   |   |   |           |   |
| Schedule II                                                                                         |   |            |   |   |            |   |   |            |   |   |   |       |   |   |   |           |   |
|                                                                                                |   |            |   |   |            |   |   |            |   |   |   |       |   |   |   |           |   |
| VALUATION      AND QUALIFYING ACCOUNTS                                                              |   |            |   |   |            |   |   |            |   |   |   |       |   |   |   |
| (millions)                                                                                          |   |            |   |   |            |   |   |            |   |   |   |       |   |   |   |           |   |
|                                                                                                |   |            |   |   |            |   |   |            |   |   |   |       |   |   |   |           |   |
|                                                                                                |   |            |   |   | Additions       |   |   |            |   |   |   |       |   |   |
|                                                                                                |   | Balance      at |   |   | Charged      to |   |   | Charged      to |   |   |   |       |   |   |   | Balance        |   |
|                                                                                                |   | beginning       |   |   | costs      and  |   |   | other           |   |   |   |       |   |   |   | at      end    |   |
| Description                                                                                         |   | of      period  |   |   | expenses        |   |   | accounts        |   |   |   | Deductions |   |   |   | of      period |   |
|                                                                                                |   |            |   |   |            |   |   |            |   |   |   |       |   |   |   |           |   |
|   2007                                                                                    |   |            |   |   |            |   |   |            |   |   |   |       |   |   |   |           |   |
|                                                                                                |   |            |   |   |            |   |   |            |   |   |   |       |   |   |   |           |   |
| Allowance      for doubtful                                                                         |   |            |   |   |            |   |   |            |   |   |   |       |   |   |   |           |   |
|    accounts      receivable                                                          |   | $               | 30.9   |   |            | $      | 53.0   |            |   | $      | -      |       |   |   | $      | 51.1           |   | (a) |   | $ | 32.8 |   |
|                                                                                                |   |            |   |   |            |   |   |            |   |   |   |       |   |   |   |           |   |   |   |   |   |   |
| Accrued      mercury-related costs                                                                  |   |            | 13.2   |   |            |   | -      |            |   |   | -      |       |   |   |   | 10.4           |   | (b) |   |   | 2.8 |   |
|                                                                                                |   |            |   |   |            |   |   |            |   |   |   |       |   |   |   |           |   |   |   |   |   |   |
| Accrued      manufactured gas plant                                                                 |   |            |   |   |            |   |   |            |   |   |   |       |   |   |   |           |   |   |   |   |   |   |
|   environmental      costs                                                                |   |            | 19.9   |   |            |   | -      |            |   |   | 4.5    |       | (c)    |   |   | 9.2            |   | (b) |   |   | 15.2 |   |
|                                                                                                |   |            |   |   |            |   |   |            |   |   |   |       |   |   |   |           |   |   |   |   |   |   |
|   2006                                                                                    |   |            |   |   |            |   |   |            |   |   |   |       |   |   |   |           |   |   |   |   |   |   |
|                                                                                                |   |            |   |   |            |   |   |            |   |   |   |       |   |   |   |           |   |   |   |   |   |   |
| Allowance      for doubtful                                                                         |   |            |   |   |            |   |   |            |   |   |   |       |   |   |   |           |   |   |   |   |   |   |
|    accounts      receivable                                                          |   | $               | 30.1   |   |            | $      | 38.1   |            |   | $      | -      |       |   |   | $      | 37.3           |   | (a) |   | $ | 30.9 |   |
|                                                                                                |   |            |   |   |            |   |   |            |   |   |   |       |   |   |   |           |   |   |   |   |   |   |
| Accrued      mercury-related costs                                                                  |   |            | 17.5   |   |            |   | -      |            |   |   | -      |       |   |   |   | 4.3            |   | (b) |   |   | 13.2 |   |
|                                                                                                |   |            |   |   |            |   |   |            |   |   |   |       |   |   |   |           |   |   |   |   |   |   |
| Accrued      manufactured gas plant                                                                 |   |            |   |   |            |   |   |            |   |   |   |       |   |   |   |           |   |   |   |   |   |   |
|   environmental      costs                                                                |   |            | 19.5   |   |            |   | -      |            |   |   | 12.7   |       | (c)    |   |   | 12.3           |   | (b) |   |   | 19.9 |   |
|                                                                                                |   |            |   |   |            |   |   |            |   |   |   |       |   |   |   |           |   |   |   |   |   |   |
|   2005                                                                                    |   |            |   |   |            |   |   |            |   |   |   |       |   |   |   |           |   |   |   |   |   |   |
|                                                                                                |   |            |   |   |            |   |   |            |   |   |   |       |   |   |   |           |   |   |   |   |   |   |
| Allowance      for doubtful                                                                         |   |            |   |   |            |   |   |            |   |   |   |       |   |   |   |           |   |   |   |   |   |   |
|    accounts      receivable                                                          |   | $               | 19.7   |   |            | $      | 42.6   |            |   | $      | -      |       |   |   | $      | 32.2           |   | (a) |   | $ | 30.1 |   |
|                                                                                                |   |            |   |   |            |   |   |            |   |   |   |       |   |   |   |           |   |   |   |   |   |   |
| Accrued      mercury-related costs                                                                  |   |            | 20.2   |   |            |   | -      |            |   |   | -      |       |   |   |   | 2.7            |   | (b) |   |   | 17.5 |   |
|                                                                                                |   |            |   |   |            |   |   |            |   |   |   |       |   |   |   |           |   |   |   |   |   |   |
| Accrued      manufactured gas plant                                                                 |   |            |   |   |            |   |   |            |   |   |   |       |   |   |   |           |   |   |   |   |   |   |
|   environmental      costs                                                                |   |            | 36.8   |   |            |   | -      |            |   |   | 0.6    |       | (c)    |   |   | 17.9           |   | (b) |   |   | 19.5 |   |
|                                                                                                |   |            |   |   |            |   |   |            |   |   |   |       |   |   |   |           |   |   |   |   |   |   |
| (a)      Accounts receivable written off, net of recoveries.                                        |   |            |   |   |            |   |   |            |   |   |   |       |   |   |   |
| (b)      Expenditures, other adjustments.                                                           |   |            |   |   |            |   |   |            |   |   |   |       |   |   |   |           |   |   |   |
| (c)      Accrual of estimated future remediation costs that are deferred as      regulatory assets. |   |            |   |   |            |   |

----

Table of Contents

Signatures

|                                                                                                                                                                                                                                  |   | Nicor      Gas Company                   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|
|                                                                                                                                                                                                                                  |   |                                     |
| Date  February 25,      2008                                                                                                                                                                                                |   |    /s/      KAREN K. PEPPING   |
|                                                                                                                                                                                                                                  |   | Karen      K. Pepping                    |
|                                                                                                                                                                                                                                  |   | Vice      President and Controller       |
|                                                                                                                                                                                                                                  |   | (Principal      Accounting Officer and   |
|                                                                                                                                                                                                                                  |   | Duly      Authorized Officer)            |
|                                                                                                                                                                                                                                  |
| 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 on February 25, 2008. |
|                                                                                                                                                                                                                                  |   |                                     |
| Signature                                                                                                                                                                                                                             |   | Title                                    |
|                                                                                                                                                                                                                                  |   |                                     |
| /s/ RUSS M.      STROBEL                                                                                                                                                                                                              |   |                                     |
| Russ      M. Strobel                                                                                                                                                                                                                  |   | Chairman,      President and             |
| (Principal      Executive Officer)                                                                                                                                                                                                    |   | Chief      Executive Officer             |
|                                                                                                                                                                                                                                  |   |                                     |
| /s/ RICHARD L.      HAWLEY                                                                                                                                                                                                            |   |                                     |
| Richard      L. Hawley                                                                                                                                                                                                                |   | Executive      Vice President and        |
| (Principal      Financial Officer)                                                                                                                                                                                                    |   | Chief      Financial Officer             |
|                                                                                                                                                                                                                                  |   |                                     |
| /s/ KAREN K.      PEPPING                                                                                                                                                                                                             |   |                                     |
| Karen      K. Pepping                                                                                                                                                                                                                 |   | Vice      President and Controller       |
| (Principal      Accounting Officer)                                                                                                                                                                                                   |   |                                     |
|                                                                                                                                                                                                                                  |   |                                     |
| ROBERT      M. BEAVERS, JR.*                                                                                                                                                                                                          |   | Director                                 |
|                                                                                                                                                                                                                                  |   |                                     |
| BRUCE      P. BICKNER*                                                                                                                                                                                                                |   | Director                                 |
|                                                                                                                                                                                                                                  |   |                                     |
| JOHN      H. BIRDSALL, III*                                                                                                                                                                                                           |   | Director                                 |
|                                                                                                                                                                                                                                  |   |                                     |
| NORMAN      R. BOBINS*                                                                                                                                                                                                                |   | Director                                 |
|                                                                                                                                                                                                                                  |   |                                     |
| THOMAS      A. DONAHOE*                                                                                                                                                                                                               |   | Director                                 |
|                                                                                                                                                                                                                                  |   |                                     |
| BRENDA      J. GAINES*                                                                                                                                                                                                                |   | Director                                 |
|                                                                                                                                                                                                                                  |   |                                     |
| RAYMOND      A. JEAN*                                                                                                                                                                                                                 |   | Director                                 |
|                                                                                                                                                                                                                                  |   |                                     |
| DENNIS      J. KELLER*                                                                                                                                                                                                                |   | Director                                 |
|                                                                                                                                                                                                                                  |   |                                     |
| R.      EDEN MARTIN*                                                                                                                                                                                                                  |   | Director                                 |
|                                                                                                                                                                                                                                  |   |                                     |
| GEORGIA      R. NELSON*                                                                                                                                                                                                               |   | Director                                 |
|                                                                                                                                                                                                                                  |   |                                     |
| JOHN      RAU*                                                                                                                                                                                                                        |   | Director                                 |
|                                                                                                                                                                                                                                  |   |                                     |
| JOHN      F. RIORDAN*                                                                                                                                                                                                                 |   | Director                                 |
|                                                                                                                                                                                                                                  |   |                                     |
|                                                                                                                                                                                                                                  | *      | By  /s/ RICHARD L.      HAWLEY |
|                                                                                                                                                                                                                                  |   | Richard      L. Hawley                   |
|                                                                                                                                                                                                                                  |   | (Attorney-in-fact)                       |

----

Table of Contents

Supplemental Information

----

Table of Contents

ExhibitIndex

| Exhibit |   |                                                                                                                                                                                                                                            |
|---------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Number  |   | Description of      Document                                                                                                                                                                                                                    |
|    |   |                                                                                                                                                                                                                                            |
| 3.01    | *      | Restated      Articles of Incorporation of the company as filed with the Illinois      Secretary of State on July 21, 2006.  (File No. 1-7296, Form      10-Q for June 30, 2006, Exhibit 3.01.)                                       |
|    |   |                                                                                                                                                                                                                                            |
| 3.02    | *      | Nicor      Gas Company Amended and Restated By-laws effective as of December 1,      2007.  (File No. 1-7296, Form 8-K for November 29, 2007, Exhibit      3.1.)                                                                      |
|    |   |                                                                                                                                                                                                                                            |
| 4.01    | *      | Indenture      of Commonwealth Edison Company to Continental Illinois National Bank and      Trust Company of Chicago, Trustee, dated as of January 1,      1954.  (File No. 1-7296, Form 10-K for 1995, Exhibit      4.01.)          |
|    |   |                                                                                                                                                                                                                                            |
| 4.02    | *      | Indenture      of Adoption of the company to Continental Illinois National Bank and Trust      Company of Chicago, Trustee, dated February 9, 1954.  (File No.      1-7296, Form 10-K for 1995, Exhibit 4.02.)                        |
|    |   |                                                                                                                                                                                                                                            |
| 4.03    | *      | Supplemental      Indenture, dated February 15, 1998, of the company to Harris Trust and      Savings Bank, Trustee, under Indenture dated as of January 1,      1954.  (File No. 1-7296, Form 10-K for 1997, Exhibit      4.19.)     |
|    |   |                                                                                                                                                                                                                                            |
| 4.04    | *      | Supplemental      Indenture, dated February 1, 1999, of the company to Harris Trust and      Savings Bank, Trustee, under Indenture dated as of January 1,      1954.  (File No. 1-7296, Form 10-K for 1998, Exhibit      4.19.)      |
|    |   |                                                                                                                                                                                                                                            |
| 4.05    | *      | Supplemental      Indenture, dated February 1, 2001, of the company to BNY Midwest Trust      Company, Trustee, under Indenture dated as of January 1,      1954.  (File No. 1-7296, Form 10-K for 2000, Exhibit      4.17.)          |
|    |   |                                                                                                                                                                                                                                            |
| 4.06    | *      | Supplemental      Indenture, dated May 15, 2001, of the company to BNY Midwest Trust      Company, Trustee, under Indenture dated as of January 1,      1954.  (File No. 1-7296, Form 10-Q for June 2001, Exhibit      4.01.)         |
|    |   |                                                                                                                                                                                                                                            |
| 4.07    | *      | Supplemental      Indenture, dated August 15, 2001, of the company to BNY Midwest Trust      Company, Trustee, under Indenture dated as of January 1,      1954.  (File No. 1-7296, Form 10-Q for September 2001, Exhibit      4.01.) |
|    |   |                                                                                                                                                                                                                                            |
| 4.08    | *      | Supplemental      Indenture, dated December 1, 2003, of the company to BNY Midwest Trust      Company, Trustee, under Indenture dated as of January 1,      1954.  (File No. 1-7296, Form 10-K for 2003, Exhibit      4.09.)          |
|    |   |                                                                                                                                                                                                                                            |
| 4.09    | *      | Supplemental      Indenture, dated December 1, 2003, of the company to BNY Midwest Trust      Company, Trustee, under Indenture dated as of January 1,      1954.  (File No. 1-7296, Form 10-K for 2003, Exhibit      4.10.)          |

| 4.10   | *      | Supplemental      Indenture, dated December 1, 2003, of the company to BNY Midwest Trust      Company, Trustee, under Indenture dated as of January 1,      1954.  (File No. 1-7296, Form 10-K for 2003, Exhibit      4.11.) |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                   |
| 4.11   | *      | Supplemental      Indenture, dated December 1, 2006, of Nicor Gas to BNY Midwest Trust      Company, Trustee, under Indenture dated as of January 1,      1954.  (File No. 1-7296, Form 10-K for 2006, Exhibit      4.11.)   |
|   |   |                                                                                                                                                                                                                                   |

----

Table of Contents

|  Exhibit |   |                                                                                                                                                                                                                             |
|---------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Number        |   | Description of      Document                                                                                                                                                                                                     |
|          |   |                                                                                                                                                                                                                             |
| 10.01         | *      | Amendment      and Restatement of Nicor Gas Supplementary Retirement      Plan.  (File No. 1-7297, Form 10-Q for March 2000, Nicor Inc.,      Exhibit 10.01.)                                                          |
|          |   |                                                                                                                                                                                                                             |
| 10.02         | *      | Directors      Compensation.  (File No. 1-7296, Form 8-K for September 21,      2005, Northern Illinois Gas Company.)                                                                                                  |
|          |   |                                                                                                                                                                                                                             |
| 10.03         | *      | 5-Year      Credit Agreement dated as of September 13, 2005.  (File No.      1-7296, Form 10-Q for September 30, 2005, Northern Illinois Gas Company,      Exhibit 10.03.)                                             |
|          |   |                                                                                                                                                                                                                             |
| 10.04         | *      | First      Amendment to the Northern Illinois Gas Company Supplemental Retirement      Plan. (File No. 1-7296, Form 10-K for December 31, 2005, Northern Illinois      Gas Company, Exhibit 10.05.)                              |
|          |   |                                                                                                                                                                                                                             |
| 10.05         | *      | 2006      Nicor Gas Annual Incentive Compensation Plan for      Officers.  (File No. 1-7296, Form 10-Q for March 31, 2006,      Northern Illinois Gas Company, Exhibit 10.01.)                                         |
|          |   |                                                                                                                                                                                                                             |
| 10.06         | *      | 1993      Interim Cooperative Agreement between Commonwealth Edison Company and      Northern Illinois Gas Company. (File No. 1-7296, Form 10-Q for March 31,      2006, Northern Illinois Gas Company, Exhibit 10.02.)          |
|          |   |                                                                                                                                                                                                                             |
| 10.07         | *      | Amendment      No. 1 to the 1993 Interim Cooperative Agreement. (File No. 1-7296, Form      10-Q for March 31, 2006, Northern Illinois Gas Company, Exhibit      10.03.)                                                         |
|          |   |                                                                                                                                                                                                                             |
| 10.08         | *      | Amendment      No. 2 to the 1993 Interim Cooperative Agreement.  (File No.      1-7296, Form 10-Q for March 31, 2006, Northern Illinois Gas Company,      Exhibit 10.04.)                                              |
|          |   |                                                                                                                                                                                                                             |
| 10.09         | *      | Amendment      No. 3 to the 1993 Interim Cooperative Agreement.  (File No.      1-7296, Form 10-Q for March 31, 2006, Northern Illinois Gas Company,      Exhibit 10.05.)                                              |
|          |   |                                                                                                                                                                                                                             |
| 10.10         | *      | Second      Amendment to the 5-Year Credit Agreement dated as of October 26,      2006.  (File No. 1-7296, Form 10-Q for September 30, 2006,      Northern Illinois Gas Company, Exhibit 10.02.)                       |
|          |   |                                                                                                                                                                                                                             |
| 10.11         | *      | 2007      Nicor Gas Annual Incentive Compensation Plan for      Officers.  (File No. 1-7296, Form 10-Q for March 31, 2007,      Northern Illinois Gas Company, Exhibit 10.01.)                                         |
|          |   |                                                                                                                                                                                                                             |
| 10.12         | *      | Nicor      Gas Directors’ Deferred Compensation Plan, as amended and restated      effective January 1, 2008.  (File No. 1-7296, Form 10-Q for June      30, 2007, Northern Illinois Gas Company, Exhibit10.01.) |
|          |   |                                                                                                                                                                                                                             |
| 10.13         | *      | Memorandum      of Understanding between Nicor Gas and Commonwealth Edison      Company.  (File No. 1-7296, Form 10-Q for June 30, 2007,      Northern Illinois Gas Company, Exhibit 99.01.)                           |
|          |   |                                                                                                                                                                                                                             |
| 10.14         | *      | 210-Day      Credit Agreement dated as of October 18, 2007.  (File No.      1-7296, Form 10-Q for September 30, 2007, Northern Illinois Gas Company,      Exhibit 10.01.)                                              |
|          |   |                                                                                                                                                                                                                             |
| 10.15         |   | Final Allocation Agreement between      Nicor Gas and Commonwealth Edison Company dated as of January 3,      2008.                                                                                                              |

----

Table of Contents

| Exhibit |   |                                                                 |
|---------|--------|----------------------------------------------------------------------|
| Number  |   | Description of Document                                              |
|    |   |                                                                 |
| 12.01   |   | Computation of Consolidated Ratio of Earnings      to Fixed Charges. |
|    |   |                                                                 |
| 23.01   |   | Consent of Independent Registered      Public Accounting Firm.       |
|    |   |                                                                 |
| 24.01   |   | Powers of Attorney.                                                  |
|    |   |                                                                 |
| 31.01   |   | Rule 13a-14(a)/15d-14(a)      Certification.                         |
|    |   |                                                                 |
| 31.02   |   | Rule 13a-14(a)/15d-14(a)      Certification.                         |
|    |   |                                                                 |
| 32.01   |   | Section 1350      Certification.                                     |
|    |   |                                                                 |
| 32.02   |   | Section 1350      Certification.                                     |

| *   | These      exhibits have been previously filed with the Securities and Exchange      Commission as exhibits to registration statements or to other filings with      the Commission and are incorporated herein as exhibits by      reference.  The file number and exhibit number of each such      exhibit, where applicable, are stated, in parentheses, in the description      of such exhibit. |
|---------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|