UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-K


[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
          Act of 1934

              For the fiscal year ended December 31, 1999

                                   or

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
          Act of 1934

<TABLE>
<CAPTION>

                                                                      I.R.S Employer
 Commission File          Registrant, State of Incorporation,         Identification
      Number                 Address and Telephone Number                 Number
-------------------   --------------------------------------------   -----------------

<S>   <C>                                                               <C>
      1-7296          Northern Illinois Gas Company                     36-2863847
                      (Doing business as Nicor Gas Company)
                      (An Illinois Corporation)
                      1844 Ferry Road
                      Naperville, Illinois 60563-9600
                      (630) 983-8888

</TABLE>

Securities registered pursuant to Section 12(b) or 12(g) of the Act:   None
                                                                       ----

The registrant meets the conditions set forth in General Instruction I(1)(a) and
(b) of Form 10-K and is therefore  filing this Form with the reduced  disclosure
format.

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

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

Shares of common stock,  par value $5,  outstanding  at February 29, 2000,  were
15,232,414, all of which are owned by Nicor Inc.




<PAGE>


Nicor Gas Company                                                         Page i

Table of Contents

  Item No.

     Part I
 1.  Business .............................................................  1
 2.  Properties ...........................................................  4
 3.  Legal Proceedings.....................................................  4
 4.  Submission of Matters to a Vote of Security Holders...................  *

     Part II
 5.  Market for Registrant's Common Equity and Related Stockholder Matters   4
 6.  Selected Financial Data ..............................................  *
 7.  Management's Discussion and Analysis of Financial
       Condition and Results of Operations.................................  5
 7A. Quantitative and Qualitative Disclosures about Market Risk............ 10
 8.  Financial Statements and Supplementary Data .......................... 11
 9.  Changes in and Disagreements with Accountants on
       Accounting and Financial Disclosure................................. 24

     Part III
 10. Directors and Executive Officers of the Registrant....................  *
 11. Executive Compensation................................................  *
 12. Security Ownership of Certain Beneficial Owners and Management........  *
 13. Certain Relationships and Related Transactions........................  *

     Part IV
 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...... 24
     Signatures............................................................ 26
     Supplemental Information.............................................. 27
     Exhibit Index......................................................... 28

*   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.


Glossary

Degree day........The  extent to which the daily average  temperature
                  falls below 65 degrees  Fahrenheit.  Normal  weather for Nicor
                  Gas' service territory is about 6,100 degree days.
FERC..............Federal Energy Regulatory Commission, the agency that
                  regulates the interstate transportation of natural gas, oil
                  and electricity.
HVAC..............Heating, ventilating and air conditioning.
ICC...............Illinois Commerce Commission, the agency that regulates
                  investor-owned Illinois utilities.
Mcf, MMcf, Bcf ...Thousand cubic feet, million cubic feet, billion cubic feet.
PBR...............Performance-based rate, a plan that provides economic
                  incentives based on performance.


<PAGE>


Nicor Gas Company                                                         Page 1

PART I

Item 1.    Business

Northern Illinois Gas Company (doing business as Nicor Gas Company), an Illinois
corporation  formed in 1954,  is a wholly  owned  subsidiary  of Nicor  Inc.,  a
holding  company.  Certain terms used herein are defined in the glossary on page
i.

GENERAL

Nicor Gas, a regulated natural gas distribution  utility, is one of the nation's
largest  distributors  of natural gas. The company  serves more than 1.9 million
customers in a service  territory that encompasses most of the northern third of
Illinois,  excluding  the city of Chicago.  The company's  service  territory is
diverse and has grown  steadily  over the years,  providing  the company  with a
well-balanced mix of residential,  commercial and industrial customers. In 1999,
residential  customers accounted for about 41 percent of natural gas deliveries,
while commercial and industrial  customers accounted for about 24 percent and 35
percent,  respectively.  The company's large residential  customer base provides
relative  stability  during  weak  economic  periods.  In  addition,  Nicor Gas'
industrial  and  commercial  customer  base is well  diversified,  lessening the
impact of industry-specific  economic swings. See Operating Statistics on page 9
for operating revenues, deliveries and customers by customer classification.

Gas  deliveries  are seasonal  since about  one-half are used for space heating.
Typically,  about 70 percent  of  deliveries  and  revenues  occur from  October
through  March.  Fluctuations  in  weather  can  have a  significant  impact  on
year-to-year   comparisons  of  operating  income  and  cash  flow.  To  provide
protection  from the  financial  impact of  unusually  warm  weather,  Nicor Gas
purchased a weather  insurance  policy which will protect 2000 earnings and cash
flow if weather for the year is more than 6.5 percent warmer than normal.

Nicor Gas maintains franchise agreements with most of the communities it serves,
allowing it to construct,  operate and maintain distribution facilities in those
communities.  Franchise  agreement terms range up to 50 years.  Currently,  less
than 5 percent of the agreements will expire within five years.  The company has
approximately 2,300 employees.

CUSTOMER SERVICES

In  addition  to  gas  sales  to  all  customer  classes,   Nicor  Gas  provides
transportation service to commercial and industrial customers who purchase their
own gas supplies.  Beginning in 1999, the company's Customer Select(R) voluntary
pilot program  allowed  residential  customers in certain  communities to choose
their  natural gas  supplier.  Nicor Gas supports  full  customer  choice and is
presently evaluating providing all customers the ability to choose their natural
gas  supplier.  Additional  information  on the program is  presented in Factors
Affecting Business  Performance  beginning on page 7.  Transportation  customers
have options that include the use of the company's storage system, the choice of
individual or group  billing,  and the ability to choose  varying  supply backup
levels and service options.  The company receives a margin generally  comparable
to gas sales for transportation service with full supply backup.

In recent years, Nicor Gas has been pursuing several nontraditional  activities.
These activities  include finding innovative ways to utilize its physical assets
by providing natural gas storage and transmission-related services to marketers,
other gas distribution companies and electric power generation facilities.



<PAGE>


Nicor Gas Company                                                         Page 2

Item 1.    Business (continued)

SOURCES OF GAS SUPPLY

Nicor Gas purchases gas supplies on a deregulated  basis directly from producers
and  marketers.  Pipeline  transportation  and  purchased  storage  services are
contracted  for at rates  regulated  by the FERC.  Firm  pipeline  capacity  and
purchased  storage  services held by the company that are temporarily not needed
can be released in the secondary  market under  FERC-mandated  capacity  release
provisions,  with  proceeds  reducing  the  company's  cost  of gas  charged  to
customers.

The company's peak day requirements are met through utilization of company-owned
storage facilities, firm pipeline capacity, purchased storage services and other
supply  arrangements.  Nicor Gas has been able to obtain sufficient  supplies of
natural gas to meet  customer  requirements.  The company  believes  natural gas
supply availability will be sufficient to meet market demands in the foreseeable
future.

Gas supply. Nicor Gas maintains a diversified portfolio of gas supply contracts.
Firm gas  supply  contracts  are  diversified  by  supplier,  producing  region,
quantity and available  transportation.  Contract  pricing is generally  tied to
published  price  indices  so as  to  approximate  current  market  prices.  The
contracts  also  generally  provide for the payment of fixed  demand  charges to
ensure  the  availability  of  supplies  on any  given  day  and  are  generally
negotiated annually.

The company also purchases gas supplies on the spot market to fulfill its supply
requirements  or to take  advantage of favorable  short-term  pricing.  Spot gas
purchases  accounted for about one-half of the company's  total gas purchases in
the last three years.

Customers  served under the company's  transportation  service tariffs  purchase
their own gas supplies.  About one-half of the gas that the company delivered in
1999 was  purchased by  transportation  customers  directly  from  producers and
marketers rather than from the company.

Pipeline  transportation.  Nicor Gas is  directly  connected  to six  interstate
pipelines  which  provide  access to most of the  major  natural  gas  producing
regions in North America.  The company's primary firm  transportation  contracts
are with:  Natural Gas  Pipeline  Company of America,  which  accounts for about
two-thirds of the contracted  capacity,  Midwestern Gas Transmission Company and
Northern Natural Gas Company.  Nearly all of the contracted capacity will expire
by 2004.

Storage.  Nicor Gas owns and operates seven underground gas storage  facilities.
This storage system is one of the largest in the gas  distribution  industry and
is designed to meet about 55 percent of the company's  peak day  deliveries  and
approximately  30 percent of its normal winter  deliveries.  On an annual basis,
about 130 Bcf of gas is cycled through the company's storage fields. In addition
to the  company-owned  facilities,  Nicor Gas purchases  about 40 Bcf of storage
service. Storage provides supply flexibility, improves reliability of deliveries
and  allows  the  company  to  maintain  rates  that are among the lowest in the
nation.

COMPETITION/DEMAND

Nicor Gas is one of the largest utility energy suppliers in Illinois, delivering
about one-third of all utility energy consumed in the state. About 97 percent of
all single-family  homes in Nicor Gas' service territory are heated with natural
gas. The company's gas services compete with other forms of energy, such as

<PAGE>


Nicor Gas Company                                                         Page 3

Item 1.    Business (concluded)

electricity  and oil, based on such factors as price,  service and  reliability.
Significant factors that impact demand for natural gas include weather, economic
conditions and the price of gas relative to competitive fuels.

The energy  industry  has  undergone  fundamental  changes over the past several
years.  In  1997,  Illinois  adopted   legislation   directing  the  process  of
deregulating  the  state's  electric  utility  industry.   Although  Nicor  Gas'
traditional  pricing advantage compared to electricity may decrease as the price
of electricity declines,  the company expects to maintain a pricing advantage in
the foreseeable future.

Additional  information  on  competition  and  demand is  presented  in  Factors
Affecting Business Performance beginning on page 7.

REGULATION

Nicor Gas is regulated by the ICC, which  establishes  the rules and regulations
governing utility rates and services in Illinois.  Rates are generally  designed
to allow the company to recover its costs and provide an  opportunity  to earn a
fair  return for its  investors.  Changes in the  regulatory  environment  could
affect the longer-term performance of Nicor Gas.

The cost of gas the company  purchases  for  customers  is  recovered  through a
monthly gas supply  charge,  which  accounts for  approximately  70 percent of a
typical residential  customer's annual bill. The company's cost of gas is passed
on to the customer without markup.

On January 1, 2000, Nicor Gas' performance-based rate (PBR) plan for natural gas
costs went into effect. Under the PBR, Nicor Gas' total gas supply costs will be
compared to a benchmark tied to a market index.  Savings and losses  relative to
the benchmark  will be shared equally with  customers.  At the end of two years,
the plan will be subject to ICC review.  Additional  information  on the plan is
presented in Factors Affecting Business Performance beginning on page 7.

Customer  Select,  a voluntary  pilot program that offers  customers a choice of
natural gas  suppliers,  is in its third  year.  Additional  information  on the
program is presented in Factors Affecting Business Performance beginning on page
7.

ENVIRONMENTAL MATTERS

For information on environmental  matters,  see Contingencies  beginning on page
22.




<PAGE>


Nicor Gas Company                                                         Page 4

Item 2.    Properties

The company's  properties are located in the territory  described  under Item 1,
Business, and are suitable, adequate and utilized in its operations.

The gas  distribution,  transmission  and storage system includes  approximately
30,000 miles of steel, plastic and cast iron main; approximately 27,000 miles of
steel,  plastic/aluminum  composite,  plastic and copper service pipe connecting
the mains to customers'  premises;  and seven underground storage fields.  Other
properties  include  buildings,   land,  motor  vehicles,   meters,  regulators,
compressors,   construction   equipment,   tools,   communication  and  computer
equipment, software and office equipment.

The principal real properties are held under easements,  permits, licenses or in
fee. Land in fee is owned for  essentially  all  administrative  offices and for
certain  transmission  mains and underground  storage fields.  Substantially all
properties are subject to the lien of the indenture securing the company's first
mortgage bonds.

Item 3.    Legal Proceedings

On December 20, 1995,  Nicor Gas filed suit in the Circuit  Court of Cook County
against certain  insurance  carriers seeking  recovery of environmental  cleanup
costs of certain former  manufactured  gas plant sites.  Nicor Gas has reached a
settlement with one of the insurance carriers. On February 10, 2000, the Circuit
Court of Cook County dismissed the company's case on summary  judgement  motions
by certain defendants. The company plans to appeal. For further information, see
Contingencies beginning on page 22, which is incorporated herein by reference.


PART II

Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters

All of the outstanding common stock of Nicor Gas is owned by Nicor Inc. There is
no public trading market for the company's  common stock.  During 1999 and 1998,
the company  declared  quarterly  dividends on its common stock  totaling  $99.6
million and $96 million, respectively.


<PAGE>


Nicor Gas Company                                                         Page 5

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

The  purpose  of this  financial  review is to  explain  changes  in Nicor  Gas'
operating  results and  financial  condition  from 1997 to 1999,  and to discuss
business trends and uncertainties that might affect Nicor Gas.
Certain terms used herein are defined in the glossary on page i.


RESULTS OF OPERATIONS

Net  income  for 1999  increased  $2  million  to $96.1  million  due to  higher
deliveries of natural gas related  primarily to 9 percent  colder  weather.  The
positive impact of higher deliveries was partially offset by increased operating
and maintenance  expenses.  Net income for 1998 of $94.1 million decreased $12.8
million from 1997 due to the impact of weather  that was 23 percent  warmer that
the prior year,  partially  offset by a 4 percent  reduction  in  operating  and
maintenance expenses.

Operating  revenues.  Operating  revenues  increased  $97.2  million  in 1999 to
$1,326.2 million due to higher deliveries of natural gas, and higher natural gas
prices which are passed directly through to customers. Partially offsetting this
increase  was the impact of  customers  switching  from sales to  transportation
service.  In 1998,  operating revenues of $1,229 million were down significantly
from 1997 due  principally  to lower natural gas prices and lower  deliveries of
natural gas.

Margin.  Margin,  defined as  operating  revenues  less cost of gas and  revenue
taxes,  which are both passed directly through to customers,  and margin per Mcf
delivered are shown in the following table:

                                       1999         1998         1997
                                    ------------ ------------ ------------
Margin (millions)                   $    487.2   $    469.4   $    496.0
Margin per Mcf delivered                   .96          .96          .91

Weather was the largest factor  impacting the  fluctuation in margin during 1999
and 1998,  and margin per Mcf  delivered in 1998.  Margin per Mcf  delivered was
unchanged  in  1999  as the  impact  of a  reduction  in  lower-margin  electric
generation deliveries offset the effect of weather.

Operating and maintenance. In 1999, operating and maintenance expenses increased
$8.5 million to $153.3  million due, in part, to higher  information  technology
spending  levels.  The $6 million  decrease in 1998 to $144.8 million was due to
lower  retirement-benefits  costs,  resulting principally from favorable pension
fund investment returns.

Depreciation.  Depreciation  increased 3 percent in 1999 to $123.9 million and 4
percent in 1998 to $120.8 million due primarily to plant additions.

Nonoperating  items. In 1999, other income decreased $9.4 million as a result of
a decline in real estate sales and the write-off of software development costs.

Interest on debt  decreased 7 percent in 1999 to $40.4  million and 5 percent in
1998 to $43.4 million due primarily to  refinancing  at lower interest rates and
reduced average borrowing  levels.  Other interest declined $2.8 million in 1999
due to the impact of interest benefits on tax-related matters.




<PAGE>


Nicor Gas Company                                                         Page 6

Item 7.    Management's Discussion and Analysis of Financial Condition
           and Results of  Operations (continued)

FINANCIAL CONDITION AND LIQUIDITY

The company  believes it has access to adequate  resources to meet its needs for
capital expenditures,  debt redemptions,  dividend payments and working capital.
These  resources  include  net cash flow from  operating  activities,  access to
capital markets and lines of credit.

Operating  cash flows.  Net cash flow provided  from  operating  activities  was
$170.9  million,  $314.9  million  and $204.3  million  in 1999,  1998 and 1997,
respectively.  Year-to-year  changes in operating  cash flow result largely from
fluctuations in working capital items because of factors including weather,  the
price of gas,  the  timing of  collections  from  customers  and gas  purchasing
practices.  The  company  generally  relies  on  short-term  financing  to  meet
temporary increases in working capital needs.

Capital expenditures.  Capital expenditures were $127.4 million in 1999 compared
with $112.6  million in 1998 and $101.8  million in 1997.  Capital  expenditures
rose in 1999 due primarily to enhancements to the company's operating system. In
1998, the increase was due largely to expenditures  for information  technology.
Capital spending in 2000 is expected to be about $135 million.

Financing  activities.  Nicor Gas has earned the highest  long-term debt ratings
given in the industry and maintains  relatively  low debt  percentages  and high
ratios of earnings to fixed charges.

                                               1999         1998        1997
                                            ------------ ----------- -----------
Long-term debt, net of current maturities,
    as a percent of capitalization               38.2%       43.1%       43.0%
Ratio of earnings to fixed charges                4.9         4.3         4.7

Long-term  debt.  Nicor Gas has $250 million of First Mortgage  Bonds  remaining
available for issuance  under a December  1998 shelf  registration  filing.  Net
proceeds  from  securities  issued are  typically  used for the  refinancing  of
certain  outstanding  First Mortgage  Bonds,  for  construction  programs to the
extent not  provided by  internally  generated  funds and for general  corporate
purposes.

In January 2000, Nicor Gas issued $50 million of adjustable rate unsecured notes
due in 2001 at an initial rate of 6.11% to fund the redemption of $50 million of
unsecured notes at 5.065% due in 2000.

During 1999,  Nicor Gas issued $50 million of First  Mortgage Bonds at 5.37% due
in 2009 and $50 million of unsecured notes at 5.065% due in 2000. Redemptions of
First Mortgage  Bonds during 1999 were as follows:  $50 million at 5.875% due in
2000, $50 million at 7.375% due in 2023 and $50 million at 8.25% due in 2024.

In 1998, Nicor Gas issued First Mortgage Bonds as follows:  $50 million at 5.75%
due in 2003 and $50 million at 6.58% due in 2028.  Redemptions of First Mortgage
Bonds  during  1998 were as  follows:  $25  million at 5.875%  due in 1998,  $25
million at 6.25% due in 1999 and $75 million at 8.25% due in 2022.

During 1997,  Nicor Gas issued First Mortgage  Bonds as follows:  $50 million at
6.75% due in 2002 and $50  million at 7.375% due in 2027.  Redemptions  of First
Mortgage Bonds during 1997 were as follows:  $25 million at 5.5% due in 1997 and
$50 million at 9% due in 2019.



<PAGE>


Nicor Gas Company                                                         Page 7

Item 7.    Management's Discussion and Analysis of Financial Condition
           and Results of  Operations (continued)

Short-term debt.  Nicor Gas maintains  short-term  credit  agreements with major
domestic and foreign banks. At December 31, 1999, these agreements,  which serve
as backup for the  issuance of  commercial  paper,  totaled  $275  million.  The
company had $275 million and $214.5 million of commercial  paper  outstanding at
year-end 1999 and 1998, respectively.

Common and preferred stock. The company paid dividends of $98.1 million,  $107.9
million and $109.1 million in 1999, 1998 and 1997, respectively.


FACTORS AFFECTING BUSINESS PERFORMANCE

The following  factors can impact  year-to-year  comparisons  and may affect the
future performance of Nicor Gas.

Nicor Gas, a regulated  natural gas distribution  utility,  serves more than 1.9
million  customers in a service  territory that encompasses most of the northern
third of  Illinois,  excluding  the city of  Chicago.  The  region's  economy is
diverse  and has  grown  steadily  over the  years,  providing  Nicor Gas with a
well-balanced mix of residential,  commercial and industrial customers. In 1999,
residential, commercial and industrial customers accounted for about 41 percent,
24 percent and 35 percent of natural gas deliveries, respectively.

Since about one-half of gas deliveries are used for space heating,  fluctuations
in  weather  can  have a  significant  impact  on  year-to-year  comparisons  of
operating income and cash flow. To provide  protection from the financial impact
of unusually warm weather,  Nicor Gas purchased a weather insurance policy which
will  protect  2000  earnings and cash flow if weather for the year is more than
6.5 percent warmer than normal.

In  addition  to the  impact of  weather,  significant  changes in gas prices or
economic conditions can impact gas usage. However,  Nicor Gas' large residential
customer base provides relative  stability during weak economic  periods.  Also,
the industrial and commercial  customer base is well diversified,  lessening the
impact of industry-specific economic swings.

Nicor Gas competes with other energy  suppliers  based on such factors as price,
service  and  reliability.  The  company  is well  positioned  to deal  with the
possibility  of fuel  switching by  customers  because it has rates and services
designed to compete against  alternative  fuels and because of its competitively
priced  supply  of  gas.  In  addition,  the  company  has a rate  which  allows
negotiation with potential bypass customers,  and no customer has bypassed since
the  rate  became  effective  in 1987.  Nicor  Gas also  offers  commercial  and
industrial  customers   flexibility  and  alternatives  in  rates  and  service,
increasing its ability to compete in these markets.

Direct connection to six interstate pipelines and extensive  underground storage
capacity  allow the company to  maintain  rates that are among the lowest in the
nation, while also providing  transportation customers with direct access to gas
supplies  and  storage  services.  In  addition,  in an effort to ensure  supply
reliability,  the company purchases gas from several different producing regions
under varied contract terms.



<PAGE>


Nicor Gas Company                                                         Page 8

Item 7.    Management's Discussion and Analysis of Financial Condition
           and Results of  Operations (continued)

Nicor Gas' growth in deliveries  has  traditionally  come from a combination  of
customer additions and increased usage among existing  commercial and industrial
customers.  Deliveries to power  generation  facilities have also contributed to
growth.   While  the  company   anticipates   continued   growth  in  deliveries
attributable  to these  factors,  a partial  offset is  expected  by  customers'
installation of more energy-efficient equipment.

On January 1, 2000, Nicor Gas' performance-based rate (PBR) plan for natural gas
costs went into effect. Under the PBR, Nicor Gas' total gas supply costs will be
compared to a benchmark tied to a market index.  Savings and losses  relative to
the benchmark will be shared equally with  customers.  Transportation  customers
who are responsible for their own gas supplies are not affected by the PBR plan.
Assuming  a  benchmark  of $1  billion,  each  one-percent  deviation  from  the
benchmark would affect net income by about $3 million.  At the end of two years,
the plan will be subject to ICC review.

In another regulatory  development,  Nicor Gas received approval from the ICC in
1999 to expand  Customer  Select(R),  a  voluntary  pilot  program  that  offers
customers a choice of natural  gas  suppliers.  Customer  Select is in its third
year and now all  commercial  and  industrial  customers,  as well as more  than
250,000 residential customers in 16 communities, are eligible to participate. In
the program's first two years,  about 30 percent of eligible business  customers
and 20  percent  of  eligible  residential  customers  signed  up. The choice of
another  natural gas  commodity  supplier has no impact on Nicor Gas'  operating
income,  and in all cases,  Nicor Gas continues to deliver the natural gas, read
meters,  maintain its distribution system,  ensure safety and respond to service
and emergency  calls.  Nicor Gas supports full customer  choice and is presently
evaluating  providing  all  customers  the ability to choose  their  natural gas
supplier.

In order to generate additional  contributions to earnings growth, Nicor Gas has
been pursuing several nontraditional  activities.  The Chicago area has become a
major   market   hub   for   natural   gas,   and   demand   for   storage   and
transmission-related services by marketers, other gas distribution companies and
for  electric  power  generation  is  expected  to  increase  significantly.  In
addition, the company continues to assess its nonstrategic real estate holdings,
and is  evaluating  the  potential  to  maximize  the value from these  holdings
through additional property sales or development over the next several years.

Nicor Gas is regulated by the ICC, which  establishes  the rules and regulations
governing utility rates and services in Illinois.  Rates are generally  designed
to allow the company to recover its costs and provide an  opportunity  to earn a
fair return for its investors.  Further  changes in the  regulatory  environment
could affect the longer-term performance of Nicor Gas.



Nicor Gas Company                                                       Page 9
-------------------------------------------------------------------------------

Item 7.    Management's Discussion and Analysis of Financial Condition
           and Results of Operations (continued)

Operating Statistics

                                                 1999        1998       1997
                                               ---------   ---------  ---------

Operating revenues (millions)
   Sales
     Residential                                $ 899.8     $ 813.6  $ 1,126.0
     Commercial                                   172.3       189.4      314.8
     Industrial                                    24.5        27.5       56.8
                                               ---------   ---------  ---------
                                                1,096.6     1,030.5    1,497.6
                                               ---------   ---------  ---------
   Transportation
     Residential                                    1.7           -          -
     Commercial                                    70.3        57.2       55.3
     Industrial                                    43.7        39.2       48.3
     Other                                          4.2         1.6         .1
                                               ---------   ---------  ---------
                                                  119.9        98.0      103.7
                                               ---------   ---------  ---------
   Revenue taxes and other                        109.7       100.5      129.2
                                               ---------   ---------  ---------
                                              $ 1,326.2   $ 1,229.0  $ 1,730.5
                                               =========   =========  =========

Deliveries (Bcf)
   Sales
     Residential                                  209.0       192.4      233.2
     Commercial                                    39.8        44.3       65.2
     Industrial                                     6.1         7.1       12.9
                                               ---------   ---------  ---------
                                                  254.9       243.8      311.3
                                               ---------   ---------  ---------
   Transportation
     Residential                                     .9           -          -
     Commercial                                    82.1        67.5       66.0
     Industrial                                   170.2       175.7      168.0
                                               ---------   ---------  ---------
                                                  253.2       243.2      234.0
                                               ---------   ---------  ---------
                                                  508.1       487.0      545.3
                                               =========   =========  =========

Year-end customers (thousands)
   Sales
     Residential                                1,753.0     1,737.6    1,710.0
     Commercial                                   108.9       127.9      143.0
     Industrial                                     7.4         9.1       11.1
                                               ---------   ---------  ---------
                                                1,869.3     1,874.6    1,864.1
                                               ---------   ---------  ---------
   Transportation
     Residential                                   16.2           -          -
     Commercial                                    57.2        35.9       18.7
     Industrial                                     6.6         5.0        3.0
                                               ---------   ---------  ---------
                                                   80.0        40.9       21.7
                                               ---------   ---------  ---------
                                                1,949.3     1,915.5    1,885.8
                                               =========   =========  =========

Other statistics
   Degree days (normal 6,116)                     5,272       4,834      6,254
   Colder (warmer) than normal                      (14)%       (21)%        2%
   Average gas cost per Mcf sold                 $ 2.93      $ 2.76     $ 3.54



<PAGE>


Nicor Gas Company                                                        Page 10

Item 7.    Management's Discussion and Analysis of Financial Condition
           and Results of  Operations (concluded)

Market risk. Nicor Gas is generally not exposed to market risk caused by changes
in commodity prices.  This is due to current Illinois rate regulation  governing
the recovery of all prudently  incurred natural gas supply costs from customers.
Although  the company  has a PBR plan for  natural gas costs,  the plan does not
expose the company to commodity price risk because actual gas costs are compared
to a  market-based  benchmark  as  opposed  to  a  fixed  benchmark.  Additional
information  about  the  PBR  plan is  presented  on page  8.  The  company  has
established  policies and  procedures  governing  the  management  of the use of
derivative  commodity  instruments  to hedge its exposure to such risks.  A risk
management  committee  exists  to  oversee  compliance  with such  policies  and
procedures.

The company is exposed to changes in interest  rates,  primarily  as a result of
its short- and  long-term  debt.  The  company  manages its  interest  rate risk
primarily  by issuing  long-term  fixed-rate  debt with varying  maturities  and
refinancing  certain  debt.  For  further  information  about  debt  securities,
interest rates and fair values, see the Consolidated Statement of Capitalization
on page 16 and Fair Value of Financial Instruments and Short- and Long-Term Debt
on page 19.

New accounting pronouncements.  In June 1999, the Financial Accounting Standards
Board  approved an amendment to defer the  effective  date of Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities.  The company plans
to adopt  this  statement  on  January  1, 2001 and does not expect it to have a
material impact on its financial condition or results of operations. For further
information, see New Accounting Pronouncements on page 19.

Year 2000 rollover.  Nicor Gas'  preparation for the rollover to January 1, 2000
proved  successful as no interruptions in service to customers or disruptions of
normal business  operations were  experienced.  Since inception of the company's
efforts in 1996,  about $5.5 million has been incurred for hardware and software
modifications  and  replacements,   internal  information  technology  resources
devoted  solely to the Year 2000 effort and outside  consultants.  Although  the
company does not anticipate any issues  relating to the year 2000 to arise,  the
company  maintains  contingency  plans to address  scenarios  that  could  still
emerge.

Other  contingencies.  The  company  is  involved  in  legal  or  administrative
proceedings  before various courts and agencies with respect to rates, taxes and
other   matters.   In  addition,   the  company  is   conducting   environmental
investigations and remedial  activities at former  manufactured gas plant sites.
Although  unable to  determine  the outcome of these  contingencies,  management
believes that  appropriate  accruals have been  recorded.  Final  disposition of
these  matters  is not  expected  to have a  material  impact  on the  company's
financial  condition  or results of  operations.  For further  information,  see
Contingencies beginning on page 22.

Item 7A.   Quantitative and Qualitative Disclosures about Market Risk

For disclosures about market risk, see Market Risk above,  which is incorporated
herein by reference.


<PAGE>


Nicor Gas Company                                                        Page 11

Item 8.    Financial Statements and Supplementary Data

                                                                        Page

Report of Independent Public Accountants...............................  12

Financial Statements:

    Consolidated Statement of Income...................................  13

    Consolidated Statement of Cash Flows...............................  14

    Consolidated Balance Sheet.........................................  15

    Consolidated Statement of Capitalization...........................  16

    Consolidated Statement of Retained Earnings........................  17

    Notes to the Consolidated Financial Statements.....................  18


<PAGE>


Nicor Gas Company                                                        Page 12

Report of Independent Public Accountants


To Northern Illinois Gas Company (Doing business as Nicor Gas Company):

We have audited the  accompanying  consolidated  balance  sheet and statement of
capitalization of Nicor Gas Company (an Illinois  corporation and a wholly owned
subsidiary  of Nicor Inc.) and  subsidiary  company as of December  31, 1999 and
1998, and the related consolidated  statements of income,  retained earnings and
cash flows for each of the three years in the period  ended  December  31, 1999.
These  financial   statements  and  the  schedule  referred  to  below  are  the
responsibility of the company's management.  Our responsibility is to express an
opinion on these financial statements and the schedule based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  financial  position  of  Nicor  Gas  Company  and
subsidiary  company as of  December  31,  1999 and 1998,  and the results of its
operations  and its cash flows for each of the three  years in the period  ended
December 31, 1999, in conformity with generally accepted accounting principles.

Our  audits  were  made for the  purpose  of  forming  an  opinion  on the basic
financial  statements taken as a whole. The financial statement schedule on page
25 is  presented  for  purposes of complying  with the  Securities  and Exchange
Commission's  rules  and is not part of the  basic  financial  statements.  This
schedule has been subjected to the auditing  procedures applied in the audits of
the  basic  financial  statements  and,  in our  opinion,  fairly  states in all
material  respects  the  financial  data  required  to be set forth  therein  in
relation to the basic financial statements taken as a whole.




ARTHUR ANDERSEN LLP
Arthur Andersen LLP
Chicago, Illinois
January 27, 2000



Nicor Gas Company                                                      Page 13
-------------------------------------------------------------------------------

Consolidated Statement of Income
(millions)


                                                   Year ended December 31
                                               --------------------------------
                                                 1999        1998       1997
                                               ---------   ---------  ---------

Operating revenues                            $ 1,326.2   $ 1,229.0  $ 1,730.5
                                               ---------   ---------  ---------

Operating expenses
   Cost of gas                                    756.2       681.5    1,129.0
   Operating and maintenance                      153.3       144.8      150.8
   Depreciation                                   123.9       120.8      116.6
   Taxes, other than income taxes                 101.1        96.4      124.0
   Income taxes                                    56.4        52.1       61.5
                                               ---------   ---------  ---------
                                                1,190.9     1,095.6    1,581.9
                                               ---------   ---------  ---------

Operating income                                  135.3       133.4      148.6
                                               ---------   ---------  ---------

Other income (expense)
   Other, net                                       (.9)        8.5        8.6
   Income taxes on other income                      .5        (3.2)      (3.2)
                                               ---------   ---------  ---------
                                                    (.4)        5.3        5.4
                                               ---------   ---------  ---------

Interest expense
   Interest on debt, net of amounts capitalized    40.4        43.4       45.9
   Other                                           (1.6)        1.2        1.2
                                               ---------   ---------  ---------
                                                   38.8        44.6       47.1
                                               ---------   ---------  ---------

Net income                                         96.1        94.1      106.9

Dividends on preferred stock                         .4          .4         .4
                                               ---------   ---------  ---------

Earnings applicable to common stock              $ 95.7      $ 93.7    $ 106.5
                                               =========   =========  =========


The accompanying notes are an integral part of this statement.










Nicor Gas Company                                                      Page 14
-------------------------------------------------------------------------------

Consolidated Statement of Cash Flows
(millions)


                                                   Year ended December 31
                                               --------------------------------
                                                 1999        1998       1997
                                               ---------   ---------  ---------
Operating activities
   Net income                                    $ 96.1      $ 94.1    $ 106.9
   Adjustments to reconcile net income
     to net cash flow provided from
     operating activities:
       Depreciation                               123.9       120.8      116.6
       Deferred income tax expense                    -         8.3        8.2
       Changes in assets and liabilities:
         Receivables, less allowances             (80.4)       85.3      (17.8)
         Gas in storage                            83.4        22.3        3.8
         Deferred/accrued gas costs               (45.8)        4.8       76.2
         Accounts payable                            .2        28.9      (77.5)
         Postretirement benefits                  (16.5)      (19.2)      (7.9)
         Other                                     10.0       (30.4)      (4.2)
                                               ---------   ---------  ---------
   Net cash flow provided from
     operating activities                         170.9       314.9      204.3
                                               ---------   ---------  ---------

Investing activities
   Capital expenditures                          (127.4)     (112.6)    (101.8)
   Other                                            1.7         8.4       10.8
                                               ---------   ---------  ---------
   Net cash flow used for investing activities   (125.7)     (104.2)     (91.0)
                                               ---------   ---------  ---------

Financing activities
   Net proceeds from issuing long-term debt        99.5        98.9       99.1
   Disbursements to retire long-term debt        (155.7)     (129.5)     (77.6)
   Short-term borrowings (repayments), net         88.3       (40.1)     (29.6)
   Dividends paid                                 (98.1)     (107.9)    (109.1)
   Other                                            (.4)        (.6)       (.5)
                                               ---------   ---------  ---------
   Net cash flow used for financing activities    (66.4)     (179.2)    (117.7)
                                               ---------   ---------  ---------

Net increase (decrease) in cash
  and cash equivalents                            (21.2)       31.5       (4.4)

Cash and cash equivalents, beginning of year       31.5           -        4.4
                                               ---------   ---------  ---------

Cash and cash equivalents, end of year           $ 10.3      $ 31.5    $     -
                                               =========   =========  =========

Supplemental information
   Income taxes paid, net of refunds             $ 57.3      $ 50.7     $ 56.1
   Interest paid, net of amounts capitalized       40.0        61.2       47.3


The accompanying notes are an integral part of this statement.



Nicor Gas Company                                                      Page 15
-------------------------------------------------------------------------------

Consolidated Balance Sheet
(millions)

                                                               December 31
                                                           --------------------
                                                             1999       1998
                                                           ---------  ---------
                          Assets

Gas distribution plant, at cost                           $ 3,200.3  $ 3,105.2
   Less accumulated depreciation                            1,589.6    1,487.4
                                                           ---------  ---------
                                                            1,610.7    1,617.8
                                                           ---------  ---------

Current assets
   Cash and cash equivalents - Affiliates                         -       29.2
                             - Other                           10.3        2.3
   Receivables, less allowance of $6.1                        316.5      236.1
   Gas in storage, at last-in, first-out cost                  22.1      105.5
   Deferred gas costs                                          15.9          -
   Other                                                       23.0       23.3
                                                           ---------  ---------
                                                              387.8      396.4
                                                           ---------  ---------

Other assets                                                  138.7      111.2
                                                           ---------  ---------

                                                          $ 2,137.2  $ 2,125.4
                                                           =========  =========

              Capitalization and liabilities

Capitalization
   Long-term debt                                           $ 421.7    $ 520.8
   Preferred stock                                              8.5        9.0
   Common equity                                              675.3      679.2
                                                           ---------  ---------
                                                            1,105.5    1,209.0
                                                           ---------  ---------

Current liabilities
   Long-term obligations due within one year                   50.5         .5
   Short-term borrowings                                      302.8      214.5
   Accounts payable                                           243.1      242.9
   Accrued gas costs                                              -       29.9
   Other                                                       49.1       47.0
                                                           ---------  ---------
                                                              645.5      534.8
                                                           ---------  ---------

Deferred credits and other liabilities
   Deferred income taxes                                      202.3      196.2
   Regulatory income tax liability                             74.8       78.6
   Unamortized investment tax credits                          42.7       44.1
   Other                                                       66.4       62.7
                                                           ---------  ---------
                                                              386.2      381.6
                                                           ---------  ---------

                                                          $ 2,137.2  $ 2,125.4
                                                           =========  =========


The accompanying notes are an integral part of this statement.



Nicor Gas Company                                                        Page 16
-------------------------------------------------------------------------------

Consolidated Statement of Capitalization
(millions, except share data)


                                                       December 31
                                          -------------------------------------
                                            1999                1998
                                          ------------------  -----------------

First Mortgage Bonds
   Maturity  Interest rate
   --------  ---------
     2000     5.875%                       $     -              $ 50.0
     2001     6.45                            75.0                75.0
     2002     6.75                            50.0                50.0
     2003     5.75                            50.0                50.0
     2009     5.37                            50.0                   -
     2021     8.875                           50.0                50.0
     2023     7.375                              -                50.0
     2024     8.25                               -                50.0
     2025     7.26                            50.0                50.0
     2027     7.375                           50.0                50.0
     2028     6.58                            50.0                50.0
                                          ---------           ---------
                                             425.0               525.0
   Less:  Unamortized debt discount,
            net of premium                     3.3                 4.2
                                          ---------           ---------
                                             421.7   38.2 %      520.8  43.1 %
                                          ---------           ---------

Other long-term debt
   Notes payable due 2000, 5.065%             50.0                   -
   Less:  Amount due within one year          50.0                   -
                                          ---------           ---------
                                                 -      -            -     -
                                          ---------           ---------

Preferred stock, cumulative, $100 par
   value, 800,000 shares authorized
     Redeemable  preferred  stock,
       4.48% and 5.00%  series,  54,000
       and 22,000 shares outstanding,
       respectively, in 1999, and 57,000
       and 24,000 shares outstanding,
       respectively, in 1998                   7.6                 8.1
     Less:  Amount due within one year          .5                  .5
                                          ---------           ---------
                                               7.1     .6          7.6    .6
                                          ---------           ---------

     Nonredeemable preferred stock,
       4.60% and 5.00% convertible
       series, 8,750 and 5,258 shares
       outstanding, respectively               1.4     .1          1.4    .1
                                          ---------           ---------

Common equity
   Common stock, $5 par value,
     25,000,000 shares authorized,
     32,365 shares reserved for conversion
     and 15,232,414 shares outstanding        76.1                76.1
   Paid-in capital                           108.0               108.0
   Retained earnings                         491.2               495.1
                                          ---------           ---------
                                             675.3   61.1        679.2  56.2
                                          ---------  ----     --------- ----
                                         $ 1,105.5  100.0 %  $ 1,209.0 100.0%
                                          ========= =======   ======== =======


The accompanying notes are an integral part of this statement.



Nicor Gas Company                                                      Page 17
-------------------------------------------------------------------------------

Consolidated Statement of Retained Earnings
(millions)


                                                   Year ended December 31
                                               --------------------------------
                                                 1999        1998       1997
                                               ---------   ---------  ---------

Balance at beginning of year                    $ 495.1     $ 497.4    $ 498.4

Net income                                         96.1        94.1      106.9
Dividends declared on common stock                (99.6)      (96.0)    (107.5)
Dividends declared on preferred stock               (.4)        (.4)       (.4)
                                               ---------   ---------  ---------

Balance at end of year                          $ 491.2     $ 495.1    $ 497.4
                                               =========   =========  =========


The accompanying notes are an integral part of this statement.



<PAGE>


Nicor Gas Company                                                        Page 18

Notes to the Consolidated Financial Statements

Nicor Gas is one of the nation's  largest  distributors of natural gas,  serving
more than 1.9 million  customers in a service territory that encompasses most of
the northern third of Illinois, excluding the city of Chicago.

ACCOUNTING POLICIES

General.  Nicor Gas is a wholly owned subsidiary of Nicor Inc. Nicor Gas and its
affiliates reimburse each other for transactions between the companies.

Consolidation.  The consolidated  financial  statements  include the accounts of
Nicor  Gas  and  its  subsidiary.  All  significant  intercompany  balances  and
transactions have been eliminated.

Use  of  estimates.   The  preparation  of  the  financial  statements  requires
management to make estimates that affect reported amounts.  Actual results could
differ from those estimates.

Reclassifications. Certain reclassifications have been made to conform the prior
years' financial statements to the current year's presentation.

Regulation.  Nicor Gas is regulated by the ICC which  establishes  the rules and
regulations  governing  utility  rates and  services  in  Illinois.  The company
applies  accounting  standards  that  recognize  the  economic  effects  of rate
regulation and, accordingly, has recorded regulatory assets and liabilities. The
company had net  regulatory  liabilities  at December 31, 1999 and 1998 of about
$40 million and $95 million, respectively.

Operating  revenues and gas costs.  Operating  revenues are recorded when gas is
delivered  to  customers.  The cost of gas  purchased,  adjusted  for  inventory
activity,  is reflected in volumetric  charges to customers through operation of
the Uniform  Purchased Gas Adjustment  Clause (PGA). Any difference  between PGA
revenues and  recoverable  gas costs is deferred or accrued with a corresponding
decrease or increase  to cost of gas.  This  difference  is  amortized  as it is
collected from or refunded to customers through the PGA.

Depreciation.  Property,  plant and equipment  are  depreciated  over  estimated
useful lives on a straight-line  basis. The composite  depreciation  rate is 4.1
percent.

Income  taxes.  Deferred  income taxes are provided  for  temporary  differences
between the tax basis of an asset or liability  and its  reported  amount in the
financial  statements.  Although  the  federal  investment  tax  credit has been
eliminated,  Nicor Gas continues to amortize  prior  deferred  amounts to income
over the lives of the applicable properties.

Cash and cash equivalents.  The company considers  investments  purchased with a
maturity of three months or less to be cash equivalents.

Receivable credit risk. The company has a diversified  customer base and prudent
credit policies which mitigate risk.


<PAGE>


Nicor Gas Company                                                        Page 19

Notes to the Consolidated Financial Statements (continued)

NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial  Accounting  Standards Board (FASB) issued Statement
No. 133, Accounting for Derivative  Instruments and Hedging Activities.  In June
1999,  the FASB issued  Statement No. 137,  which deferred the effective date of
FASB Statement No. 133.  Statement No. 133 requires that an entity recognize all
derivatives  as either  assets or  liabilities  on the balance sheet and measure
those  instruments at fair value.  Gains or losses resulting from changes in the
values of those  derivatives are to be accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting.  Statement No. 133, as
amended, requires adoption no later than the first quarter of the company's 2001
fiscal year and must be adopted as a cumulative effect of a change in accounting
principle.  The  company  plans to adopt  this  statement  on  January  1, 2001.
Implementation  is not  expected  to have a  material  impact  on the  company's
financial condition or results of operations.

GAS IN STORAGE

Based on the  average  cost of gas  purchased  in  December  1999 and 1998,  the
estimated  replacement cost of inventory at December 31, 1999 and 1998, exceeded
the last-in, first-out cost by $172.4 million and $159.1 million, respectively.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The recorded amount of short-term borrowings  approximates fair value because of
the short maturity of the  instruments.  Based on quoted market  interest rates,
the recorded amount of long-term debt outstanding, including current maturities,
also approximates fair value.

SHORT- AND LONG-TERM DEBT

The company  maintains  short-term  credit  agreements  with major  domestic and
foreign  banks.  These  agreements,  which  serve as backup for the  issuance of
commercial paper, totaled $275 million at December 31, 1999.  Commitment fees of
up to .07 percent per annum were paid on these lines. All credit agreements have
variable interest rate options tied to short-term markets.

The company had $275 million and $214.5 million of commercial paper  outstanding
with a weighted average interest rate of 5.9 percent and 5.7 percent at December
31, 1999 and 1998, respectively.

Bank cash  balances  averaged  about $1 million  during  1999,  which  partially
compensated  for the cost of  maintaining  accounts and other banking  services.
Such demand balances may be withdrawn at any time.

First mortgage bonds are secured by liens on substantially  all gas distribution
property.


<PAGE>


Nicor Gas Company                                                        Page 20

Notes to the Consolidated Financial Statements (continued)

INCOME TAXES

The components of income tax expense are presented below:

(millions)                               1999         1998         1997
                                      ------------ ------------ ------------
Current
    Federal                           $     47.7   $     40.3   $     48.8
    State                                    9.7          8.8          9.9
                                      ------------ ------------ ------------
                                            57.4         49.1         58.7
                                      ------------ ------------ ------------
Deferred
    Federal                                  (.4)         6.5          6.0
    State                                     .4          1.8          2.2
                                      ------------ ------------ ------------
                                               -          8.3          8.2
                                      ------------ ------------ ------------

Amortization of investment
  tax credits, net                          (1.5)        (2.1)        (2.2)
                                      ------------ ------------ ------------

Income tax expense                    $     55.9   $     55.3   $     64.7
                                      ============ ============ ============

The temporary  differences  which gave rise to the net deferred tax liability at
December 31, 1999 and 1998, are as follows:

(millions)                                            1999         1998
                                                   -----------  -----------
Deferred tax liabilities
    Property, plant and equipment                  $    221.3   $    230.1
    Other                                                28.7         18.0
                                                   ------------ ------------
                                                        250.0        248.1
                                                   ------------ ------------
Deferred tax assets
    Unamortized investment tax credits                   27.8         29.0
    Regulatory income tax liability                      18.6         19.7
    Other                                                15.9         15.6
                                                   ------------ ------------
                                                         62.3         64.3
                                                   ------------ ------------
Net deferred tax liability                         $    187.7   $    183.8
                                                   ============ ============

The effective  combined  federal and state income tax rate was 36.8 percent,  37
percent  and 37.7  percent  in 1999,  1998 and 1997,  respectively.  Differences
between  federal  income taxes  computed  using the statutory  rate and reported
income tax expense are shown below:

(millions)                              1999         1998         1997
                                     ------------ ------------ ------------
Federal income taxes using
  statutory rate                     $     53.2   $     52.3   $     60.1
State income taxes, net                     7.3          7.2          8.2
Other, net                                 (4.6)        (4.2)        (3.6)
                                     ------------ ------------ ------------
Income tax expense                   $     55.9   $     55.3   $     64.7
                                     ============ ============ ============



<PAGE>


Nicor Gas Company                                                        Page 21

Notes to the Consolidated Financial Statements (continued)

POSTRETIREMENT BENEFITS

Nicor Gas maintains  noncontributory  defined  benefit  pension  plans  covering
substantially  all employees  hired prior to January 1, 1998 and provides health
care  and  life  insurance  benefits  to  eligible  retired  employees.  Certain
employees'  postretirement  health care  benefits  have been capped to a defined
annual per capita medical cost. The following table sets forth the components of
the  changes in the plans'  benefit  obligations  and assets for the years ended
October 1 and  reconciles  the October 1 funded status to the prepaid  (accrued)
benefit cost recorded in the financial statements at December 31:

<TABLE>
<CAPTION>


                                        Pension benefits             Other benefits
                                    --------------------------  -------------------------
(millions)                              1999         1998          1999         1998
                                    ------------- ------------  ------------ ------------
Change in benefit obligation
<S>                                 <C>           <C>           <C>          <C>
Benefit obligation at beginning of  $    242.3    $   223.9     $    118.3   $    115.0
period
Service cost                               6.4          6.7            1.3          1.3
Interest cost                             15.7         16.0            7.7          8.3
Actuarial (gain) loss                    (25.8)        18.5           (1.0)          .9
Participant contributions                    -            -             .6           .7
Benefits paid                            (23.8)       (22.8)         (10.8)        (7.9)
                                    ------------- ------------  ------------ ------------
Benefit obligation at end of period      214.8        242.3          116.1        118.3
                                    ------------- ------------  ------------ ------------

Change in plan assets
Fair value of plan assets at
beginning of period                      401.7        422.6           16.6         16.6
Actual return on plan assets              67.1          1.5            2.8            -
Employer contributions                      .3           .4           10.2          7.2
Participant contributions                    -            -             .6           .7
Benefits paid                            (23.8)       (22.8)         (10.8)        (7.9)
                                    ------------- ------------  ------------ ------------
Fair value of plan assets at end of      445.3        401.7           19.4         16.6
period
                                    ------------- ------------  ------------ ------------

Funded status                            230.5        159.4          (96.7)      (101.7)
Unrecognized net actuarial (gain)       (119.0)       (61.7)           3.9          6.4
loss
Unrecognized transition (asset)           (8.6)       (12.5)          40.2         43.2
obligation
Unrecognized prior service cost            3.0          3.3              -            -
Other                                      4.7          3.2           (1.1)          .8
                                    ------------- ------------  ------------ ------------
Prepaid (accrued) benefit cost      $    110.6    $    91.7     $    (53.7)  $    (51.3)
                                    ============= ============  ============ ============

Assumptions used in the computations included the following:

                                         Pension benefits              Other benefits
                                    ---------------------------  ---------------------------
                                        1999          1998           1999          1998
                                    ------------- -------------  -------------  ------------
Discount rate                             7.50%         6.75%          7.50%         6.75%
Expected return on plan assets            9.00          9.00           9.00          9.00
Rate of compensation increase             4.00          4.00           4.00          4.00

</TABLE>


<PAGE>


Nicor Gas Company                                                        Page 22

Notes to the Consolidated Financial Statements (continued)

For  measurement  purposes,  the health  care cost  trend rate for  pre-Medicare
benefits  was assumed to be 7 percent for 2000,  declining  to 5 percent by 2004
and  remaining  at that level  thereafter.  The health  care cost trend rate for
post-Medicare benefits was assumed to be 5 percent.

Net periodic benefit cost (credit) included the following components:

<TABLE>
<CAPTION>


                                      Pension benefits              Other benefits
                                 ---------------------------- ----------------------------
(millions)                         1999      1998     1997      1999     1998      1997
                                 --------- --------- -------- --------- --------  --------
<S>                              <C>       <C>       <C>      <C>       <C>       <C>
Service cost                     $   6.4   $   6.7   $   6.5  $   1.3   $  1.3    $  1.7
Interest cost                       15.7      16.0      17.6      7.7      8.3       8.3
Expected return on plan
  assets                           (35.3)    (35.1)    (31.6)    (1.6)    (1.4)     (1.2)
Recognized net actuarial gain       (1.8)     (4.7)     (1.6)       -        -         -
Amortization of unrecognized
  transition (asset) obligation     (3.8)     (3.8)     (3.8)     3.1      3.1       3.3
Amortization of prior service
cost                                  .3        .4        .4        -        -         -
                                 --------- --------- -------- --------- --------  --------
Net periodic benefit cost
(credit)                         $ (18.5)  $ (20.5)  $ (12.5) $  10.5   $ 11.3    $ 12.1
                                 ========= ========= ======== ========= ========  ========

</TABLE>

Assumed  health  care  cost  trend  rates can have a  significant  effect on the
amounts reported for the health care plans. A one-percentage-point change in the
assumed health care cost trend rates would have the following effects:

                                                          One-percent
                                                    -------------------------
(millions)                                           Increase     Decrease
                                                    -----------  -----------
Effect on total of service and interest cost
  components                                        $      1.1   $     (.9)
Effect on benefit obligation                              12.0       (10.1)


REGULATORY MATTERS

On January 1, 2000, Nicor Gas' performance-based rate (PBR) plan for natural gas
costs went into effect. Under the PBR, Nicor Gas' total gas supply costs will be
compared to a benchmark tied to a market index.  Savings and losses  relative to
the benchmark  will be shared equally with  customers.  At the end of two years,
the plan will be subject to ICC review.

CONTINGENCIES

The company is involved in legal or  administrative  proceedings  before various
courts and agencies with respect to rates, taxes and other matters.

Current  environmental  laws may require cleanup of certain former  manufactured
gas plant sites.  To date,  Nicor Gas has identified more than 40 properties for
which it may, in part, be responsible.  The majority of these properties are not
presently owned by the company.  Information  regarding preliminary site reviews
has been  presented  to the  Illinois  Environmental  Protection  Agency,  which
oversees the  company's  investigations  and  remedial  actions.  More  detailed
investigations  and  remedial  activities  have  either been  completed,  are in
progress or are being  planned at many of these sites.  The results of continued
testing and analysis should determine to what extent  additional  remediation is
necessary and may provide a basis for  estimating  any  additional  future costs
which, based on industry  experience,  could be significant.  In accordance with
ICC  authorization,  the  company  has  been  recovering  these  costs  from its
customers.


<PAGE>


Nicor Gas Company                                                        Page 23

Notes to the Consolidated Financial Statements (concluded)

On December 20, 1995,  Nicor Gas filed suit in the Circuit  Court of Cook County
against certain  insurance  carriers seeking  recovery of environmental  cleanup
costs of certain former  manufactured  gas plant sites.  Nicor Gas has reached a
settlement with one of the insurance carriers. In January 2000, the court stated
it would  dismiss  the  company's  case on summary  judgment  motions by certain
defendants.  If  dismissed  by  written  order,  the  company  plans to  appeal.
Management  cannot  predict  the outcome of the  lawsuit  against the  remaining
insurance carriers. Any recoveries will be refunded to the company's customers.

Although  unable to  determine  the outcome of these  contingencies,  management
believes that  appropriate  accruals have been  recorded.  Final  disposition of
these  matters  is not  expected  to have a  material  impact  on the  company's
financial condition or results of operations.

QUARTERLY RESULTS (UNAUDITED)

Quarterly  results  fluctuate  due  mainly  to the  seasonal  nature  of the gas
distribution business.

                                            Quarter ended
                           ---------------------------------------------------
(millions)                   Mar. 31      June 30     Sept. 30      Dec. 31
                           ------------ ------------ ------------ ------------

1999
    Operating revenues     $    512.6   $    203.4   $    161.8   $    448.3
    Operating income             42.9         28.6         25.8         38.0
    Net income                   31.9         20.5         16.7         27.0

1998
    Operating revenues     $    504.2   $    214.8   $    148.0   $    362.0
    Operating income             42.1         31.2         26.1         34.1
    Net income                   30.5         23.5         17.0         23.1




<PAGE>


Nicor Gas Company                                                        Page 24

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

None.


PART IV

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

(a)   1)  Financial Statements:

          See Item 8, Financial  Statements and  Supplementary  Data, on page 11
          filed herewith, for a list of financial statements.

      2)  Financial Statement Schedules:

          Schedule
           Number                                                         Page

                             Report of Independent Public Accountants      12
               II            Valuation and Qualifying Accounts             25

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

      3)  Exhibits Filed:

          See Exhibit Index beginning on page 28 filed herewith.

(b) The company  did not file a report on Form 8-K during the fourth  quarter of
    1999.




Nicor Gas Company                                                      Page 25
-------------------------------------------------------------------------------

Schedule II

VALUATION AND QUALIFYING ACCOUNTS
(millions)

                                        Additions
                                   --------------------
                       Balance at  Charged to  Charged to              Balance
                       beginning   costs and    other        (a)       at end
   Description         of period   expenses    accounts    Deductions  of period
-------------------    --------    --------    --------    --------    --------

1999
-------

   Allowance
     for uncollectible
     accounts  receivable $ 6.1      $ 11.8         $ -      $ 11.8       $ 6.1


1998
-------

   Allowance
     for uncollectible
     accounts  receivable $ 7.6      $ 12.6         $ -      $ 14.1       $ 6.1


1997
-------

   Allowance
     for uncollectible
     accounts  receivable $ 6.1      $ 15.3         $ -      $ 13.8       $ 7.6


(a)  Accounts receivable written off, net of recoveries.



<PAGE>


Nicor Gas Company                                                        Page 26

Signatures

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

                                           Nicor Gas Company

Date       March 20, 2000                  By       DAVID L. CYRANOSKI
      -------------------------                -----------------------------
                                                    David L. Cyranoski
                                                    Senior Vice President,
                                                    Secretary, Treasurer
                                                    and Controller

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 March 20, 2000.

                 Signature                                    Title
---------------------------------------------        ---------------------------

              THOMAS L. FISHER
---------------------------------------------
              Thomas L. Fisher                       Chairman, President and
       (Principal Executive Officer)                 Chief Executive Officer

            KATHLEEN L. HALLORAN
---------------------------------------------
            Kathleen L. Halloran                     Executive Vice President
       (Principal Financial Officer)                 Finance and Administration

             DAVID L. CYRANOSKI
---------------------------------------------
             David L. Cyranoski                      Senior Vice President,
       (Principal Accounting Officer)                Secretary, Treasurer and
                                                     Controller

ROBERT M. BEAVERS, JR.*                              Director

BRUCE P. BICKNER*                                    Director

JOHN H. BIRDSALL, III*                               Director

THOMAS A. DONAHOE*                                   Director

DENNIS J. KELLER*                                    Director

CHARLES S. LOCKE*                                    Director

WILLIAM A. OSBORN*                                   Director

SIDNEY R. PETERSEN*                                  Director

JOHN RAU*                                            Director

PATRICIA A. WIER*                                    Director

                                                  *  By MARIANNE T. LORENZ
                                                        Marianne T. Lorenz
                                                        (Attorney-in-fact)

Nicor Gas Company                                                        Page 27

Supplemental Information

Supplemental  Information to be Furnished With Reports Filed Pursuant to Section
15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to
Section 12 of the Act:

No annual  report or proxy  material has been sent to security  holders as Nicor
Gas is a wholly owned subsidiary of Nicor Inc.


<PAGE>


Nicor Gas Company                                                        Page 28

Exhibit Index

Exhibit
Number                                      Description of Document

3.01 * Articles of Incorporation of the company. (File No. 1-7296, Form 10-K for
1980, Exhibit 3-01.)

3.02 * Amendment to Articles of Incorporation of the company.  (File No. 1-7296,
Form 10-Q for June 1994, Exhibit 3.01.)

3.03 * By-Laws of the company as amended by the company's  Board of Directors on
May 3, 1995. (File No. 1-7296, Form 10-Q for March 1995, Exhibit 3(ii).01.)

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 June 1, 1963, of the company to Continental
Illinois  National Bank and Trust Company of Chicago,  Trustee,  under Indenture
dated as of January 1, 1954. (File No. 2-21490, Form S-9, Exhibit 2-8.)

4.04 * Supplemental Indenture,  dated May 1, 1966, of the company to Continental
Illinois  National Bank and Trust Company of Chicago,  Trustee,  under Indenture
dated as of January 1, 1954. (File No. 2-25292, Form S-9, Exhibit 2-4.)

4.05 * Supplemental Indenture, dated June 1, 1971, of the company to Continental
Illinois  National Bank and Trust Company of Chicago,  Trustee,  under Indenture
dated as of January 1, 1954. (File No. 2-44647, Form S-7, Exhibit 2-03.)

4.06 *  Supplemental  Indenture,  dated April 30, 1976,  between  Nicor Inc. and
Continental Illinois National Bank and Trust Company of Chicago,  Trustee, under
Indenture  dated as of January 1, 1954.  (File No.  2-56578,  Form S-9,  Exhibit
2-25.)

4.07  *  Supplemental  Indenture,  dated  April  30,  1976,  of the  company  to
Continental Illinois National Bank and Trust Company of Chicago,  Trustee, under
Indenture  dated as of January 1, 1954.  (File No.  2-56578,  Form S-9,  Exhibit
2-21.)

4.08 *  Supplemental  Indenture,  dated  August  15,  1991,  of the  company  to
Continental Bank,  National  Association,  Trustee,  under Indenture dated as of
January 1, 1954. (File No. 1-7296, Form 8-K for August 1991, Exhibit 4-01.)

4.09 * Supplemental Indenture, dated October 15, 1995, of the company to Bank of
America  Illinois,  Trustee,  under Indenture dated as of January 1, 1954. (File
No. 1-7296, Form 10-Q for September 1995, Exhibit 4.01.)


<PAGE>


Nicor Gas Company                                                        Page 29

Exhibit Index (continued)

Exhibit
Number                                      Description of Document

4.10 *  Supplemental  Indenture,  dated May 10,  1996,  of the company to Harris
Trust and Savings Bank,  Trustee,  under  Indenture dated as of January 1, 1954.
(File No. 1-7296, Form 10-Q for June 1996, Exhibit 4.01.)

4.11 *  Supplemental  Indenture,  dated August 1, 1996, of the company to Harris
Trust and Savings Bank,  Trustee,  under  Indenture dated as of January 1, 1954.
(File No. 1-7296, Form 10-Q for June 1996, Exhibit 4.02.)

4.12 *  Supplemental  Indenture,  dated June 1, 1997,  of the  company to Harris
Trust and Savings Bank,  Trustee,  under  Indenture dated as of January 1, 1954.
(File No. 1-7296, Form 10-Q for June 1997, Exhibit 4.01.)

4.13 * Supplemental Indenture,  dated October 15, 1997, of the company to Harris
Trust and Savings Bank,  Trustee,  under  Indenture dated as of January 1, 1954.
(File No. 1-7296, Form 10-Q for September 1997, Exhibit 4.01.)

4.14 * 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.)

4.15 *  Supplemental  Indenture,  dated June 1, 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-Q for June 1998, Exhibit 4.01.)

4.16 * 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.)

Other debt instruments are omitted in accordance with Item  601(b)(4)(iii)(A) of
Regulation  S-K.  Copies of such  agreements will be furnished to the Commission
upon request.

12.01 Computation of Consolidated Ratio of Earnings to Fixed Charges.

23.01 Consent of Independent Public Accountants.

24.01 Powers of Attorney.


<PAGE>


Nicor Gas Company                                                        Page 30

Exhibit Index (concluded)

Exhibit
Number                                      Description of Document

27.01 Financial Data Schedule.


*   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.

    Upon written request,  the company will furnish free of charge a copy of any
    exhibit.  Requests  should be sent to Investor  Relations  at the  corporate
    headquarters.