----

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**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, 2005**

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

**NORTHERN      ILLINOIS GAS COMPANY**

**(Doing      Business as NICOR GAS COMPANY)**

| **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) |

| Large                  accelerated filer [ ] | Accelerated                  filer [ ] | Non-accelerated                  filer [X] |
|----------------------------------------------|----------------------------------------|--------------------------------------------|

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**Nicor        Gas Company**

**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                               | 48                          |
| 9A.                                   | Controls                and Procedures                                                                                                           | 48                          |
| 9B.                                   | Other                Information                                                                                                                 | 50                          |
|                                  |                                                                                                                                             |                        |
|                                  | **Part                III**                                                                                                                      |                        |
| 10.                                   | Directors                and Executive Officers of the Registrant                                                                                | *                           |
| 11.                                   | Executive                Compensation                                                                                                            | *                           |
| 12.                                   | Security                Ownership of Certain Beneficial Owners and Management and Related                Stockholder Matters                     | *                           |
| 13.                                   | Certain                Relationships and Related Transactions                                                                                    | *                           |
| 14.                                   | Principal                Accountant Fees and Services                                                                                            | 50                          |
|                                  |                                                                                                                                             |                        |
|                                  | **Part                IV**                                                                                                                       |                        |
| 15.                                   | Exhibits                and Financial Statement Schedules                                                                                        | 50                          |
|                                  | Signatures                                                                                                                                       | 53                          |
|                                  | Supplemental                Information                                                                                                          | 54                          |
|                                  | Exhibit                Index                                                                                                                     | 55                          |

| * | 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. |
|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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**Nicor      Gas Company**

**Glossary**

**Chicago      Hub. **

**Degree      day.**

**FERC.      **

**ICC.      **

**Mcf,      MMcf, Bcf. **

**PBR.      **

----

**PART      I **

**Item      1.**
**Business**

**GENERAL**

**SOURCES      OF NATURAL GAS SUPPLY**

----

**Natural      gas supply.**

**Pipeline      transportation. **

|                                                      |   |   | Availability  |   |   | Contract                Expiration |   |
|------------------------------------------------------|--------|--------|--------------------|--------|--------|------------------------------------|--------|
| Natural                Gas Pipeline Company (NGPL)   |   |   | 698,000            |   |   | March                2009          |   |
| Horizon                Pipeline                      |   |   | 300,000            |   |   | May                2012            |   |
| Tennessee                Gas Pipeline Company (TGPC) |   |   | 300,000            |   |   | October                2009        |   |
| Midwestern                Gas Transmission Company   |   |   | 297,000            |   |   | October                2009        |   |
| Northern                Natural Gas Company          |   |   | 206,000            |   |   | October                2008        |   |
| Natural                Gas Pipeline Company (NGPL)   |   |   | 140,000            |   |   | March                2007          |   |
| Natural                Gas Pipeline Company (NGPL)   |   |   | 60,000             |   |   | March                2008          |   |
| ANR                Pipeline                          |   |   | 25,000             |   |   | October                2009        |   |

**Storage.**

**COMPETITION/DEMAND**

----

**REGULATION**

| **·  ** | 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 12 - 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 customer                premises. The ICC annually reviews 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. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The                ICC also has other rules that impact the company’s operations. Changes in                these rules can impact operating and capital costs. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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**AVAILABLE      INFORMATION**

**Item      1A.**
**Risk      Factors**

***Regulation      of Nicor Gas, including changes in the regulatory environment in general, may      adversely affect the company’s results of operations, cash flows and financial      condition.***

***A      change in the ICC’s approved rate mechanisms for recovery of environmental      remediation costs at former manufactured gas sites, or adverse decisions      with respect to the prudence of costs actually incurred, could adversely affect      the company’s results of operations, cash flows and financial      condition.***

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***An      adverse decision in the proceedings concerning Nicor Gas’ Performance-Based Rate      Plan could result in a refund obligation which could adversely affect the      company’s results of operations, cash flows and financial      condition.***

***Nicor      Gas relies on direct connections to eight interstate pipelines and extensive      underground storage capacity. If these pipelines or storage facilities were      unable to deliver for any reason it could impair Nicor Gas’ ability to meet its      customers’ full requirements.***

***Fluctuations      in weather have the potential to adversely affect the company’s results of      operations, cash flows and financial condition.***

***Natural      gas commodity price changes may affect the company’s operating costs and      competitive position, which could adversely affect its results of operations,      cash flows and financial condition.***

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***Nicor      Gas’ use of derivative instruments could adversely affect the company’s results      of operations.***

***Adverse      decisions in lawsuits seeking a variety of damages allegedly caused by mercury      spillage could adversely affect the company’s results of operations, cash flows      and financial condition.***

***Transporting      and storing natural gas involves numerous risks that may result in accidents      and      other operating risks and costs that could adversely affect the company’s      results of operations, cash flows and financial      condition.***

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***An      inability to access financial markets could affect the execution of Nicor Gas’business plan and could adversely affect the company’s results of operations,      cash flows and financial condition.***

***The      company is involved in legal or administrative proceedings before various courts      and agencies that could adversely affect the company’s results of operations,      cash flows and financial condition.***

**Item      1B.**
**Unresolved      Staff Comments**

**Item      2.**
**Properties**

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**Item      3.**
**Legal      Proceedings**

**PART      II**
** **

**Item      5.**
**Market      for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases      of Equity Securities**

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

**SUMMARY**

----

*Rate      proceeding. *

**RESULTS      OF OPERATIONS**

**Operating      revenues. **

----

**Margin.      **

|                               |         |   | **2005**  |         |  2004   |   |  2003   |   |
|------------------------------------|--------------|--------|----------------|--------------|--------------|--------|--------------|--------|
|                               |    |   |      |         |    |   |    |   |
| Revenues                           |         |   | **$**          | **2,909.6**  |         | $      | 2,363.9      |   | $ | 2,351.6 |   |
| Cost                of gas         |         |   |           | **(2,212.4** | **)**        |   | (1,695.0     | )      |   | (1,692.7 | ) |
| Revenue                tax expense |         |   |           | **(152.0**   | **)**        |   | (139.4       | )      |   | (130.9 | ) |
| Margin                             |         |   | $              | **545.2**    |         | $      | 529.5        |   | $ | 528.0 |   |

**Operating      and maintenance expense.**
** **
** **

**Mercury-related      costs (recoveries), net. **

----

**Other      income (expense), net. **

**Income      tax expense. **

**Interest      expense.**

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|  **Nicor Gas Company**                                                                                                                                                                                                                                                                                                                                         |   |   |   |   |   |        |   |   |    |   |   |    |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|-------------|--------|--------|---------|--------|--------|---------|--------|
|                                                                                                                                                                                                                                                                                                                                                                |   |   |   |   |   |        |   |   |    |   |   |    |   |
| **Operating                    Statistics**                                                                                                                                                                                                                                                                                                                    |   |   |   |   |   |        |   |   |    |   |   |    |   |
|                                                                                                                                                                                                                                                                                                                                                                |   |   |   |   |   | **2005**    |   |   | 2004    |   |   | 2003    |   |
|                                                                                                                                                                                                                                                                                                                                                                |   |   |   |   |   |        |   |   |    |   |   |    |   |
| **Operating                    revenues**(millions)                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |        |   |   |    |   |   |    |   |
| Sales                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |        |   |   |    |   |   |    |   |
| Residential                                                                                                                                                                                                                                                                                                                                                    |   |   |   |   | **$**  | **2,031.4** |   | $      | 1,625.5 |   | $      | 1,611.9 |   |
| Commercial                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   | **453.5**   |   |   | 349.9   |   |   | 351.7   |   |
| Industrial                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   | **61.8**    |   |   | 49.3    |   |   | 51.2    |   |
|                                                                                                                                                                                                                                                                                                                                                                |   |   |   |   |   | **2,546.7** |   |   | 2,024.7 |   |   | 2,014.8 |   |
| Transportation                                                                                                                                                                                                                                                                                                                                                      |   |   |   |   |   |        |   |   |    |   |   |    |   |
| Residential                                                                                                                                                                                                                                                                                                                                                    |   |   |   |   |   | **27.9**    |   |   | 23.6    |   |   | 22.7    |   |
| Commercial                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   | **73.1**    |   |   | 69.9    |   |   | 71.6    |   |
| Industrial                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   | **39.2**    |   |   | 39.9    |   |   | 41.7    |   |
| Other                                                                                                                                                                                                                                                                                                                                                          |   |   |   |   |   | **11.7**    |   |   | 14.0    |   |   | 12.0    |   |
|                                                                                                                                                                                                                                                                                                                                                                |   |   |   |   |   | **151.9**   |   |   | 147.4   |   |   | 148.0   |   |
| Other                    revenues                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |   |        |   |   |    |   |   |    |   |
| Revenue                    taxes                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   | **156.4**   |   |   | 143.5   |   |   | 134.0   |   |
| Environmental                    cost recovery                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   | **21.0**    |   |   | 20.6    |   |   | 31.3    |   |
| Chicago                    Hub                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   | **11.5**    |   |   | 7.9     |   |   | 7.3     |   |
| Other                                                                                                                                                                                                                                                                                                                                                          |   |   |   |   |   | **22.1**    |   |   | 19.8    |   |   | 16.2    |   |
|                                                                                                                                                                                                                                                                                                                                                                |   |   |   |   |   | **211.0**   |   |   | 191.8   |   |   | 188.8   |   |
|                                                                                                                                                                                                                                                                                                                                                                |   |   |   |   | **$**  | **2,909.6** |   | $      | 2,363.9 |   | $      | 2,351.6 |   |
|                                                                                                                                                                                                                                                                                                                                                                |   |   |   |   |   |        |   |   |    |   |   |    |   |
| **Deliveries**(Bcf)                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |        |   |   |    |   |   |    |   |
| Sales                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |        |   |   |    |   |   |    |   |
| Residential                                                                                                                                                                                                                                                                                                                                                    |   |   |   |   |   | **200.2**   |   |   | 204.8   |   |   | 214.9   |   |
| Commercial                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   | **44.7**    |   |   | 44.3    |   |   | 46.7    |   |
| Industrial                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   | **6.3**     |   |   | 6.4     |   |   | 7.0     |   |
|                                                                                                                                                                                                                                                                                                                                                                |   |   |   |   |   | **251.2**   |   |   | 255.5   |   |   | 268.6   |   |
| Transportation                                                                                                                                                                                                                                                                                                                                                      |   |   |   |   |   |        |   |   |    |   |   |    |   |
| Residential                                                                                                                                                                                                                                                                                                                                                    |   |   |   |   |   | **18.9**    |   |   | 16.6    |   |   | 16.6    |   |
| Commercial                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   | **87.5**    |   |   | 84.1    |   |   | 87.8    |   |
| Industrial                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   | **113.0**   |   |   | 117.0   |   |   | 121.2   |   |
|                                                                                                                                                                                                                                                                                                                                                                |   |   |   |   |   | **219.4**   |   |   | 217.7   |   |   | 225.6   |   |
|                                                                                                                                                                                                                                                                                                                                                                |   |   |   |   |   | **470.6**   |   |   | 473.2   |   |   | 494.2   |   |
|                                                                                                                                                                                                                                                                                                                                                                |   |   |   |   |   |        |   |   |    |   |   |    |   |
| **Year-end                    customers**(thousands)                                                                                                                                                                                                                                                                                                                |   |   |   |   |   |        |   |   |    |   |   |    |   |
| Sales                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |        |   |   |    |   |   |    |   |
| Residential                                                                                                                                                                                                                                                                                                                                                    |   |   |   |   |   | **1,796.2** |   |   | 1,777.3 |   |   | 1,745.2 |   |
| Commercial                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   | **120.3**   |   |   | 116.5   |   |   | 114.5   |   |
| Industrial                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   | **7.4**     |   |   | 7.4     |   |   | 7.3     |   |
|                                                                                                                                                                                                                                                                                                                                                                |   |   |   |   |   | **1,923.9** |   |   | 1,901.2 |   |   | 1,867.0 |   |
| Transportation                                                                                                                                                                                                                                                                                                                                                      |   |   |   |   |   |        |   |   |    |   |   |    |   |
| Residential                                                                                                                                                                                                                                                                                                                                                    |   |   |   |   |   | **157.1**   |   |   | 147.9   |   |   | 145.1   |   |
| Commercial                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   | **58.2**    |   |   | 59.5    |   |   | 58.3    |   |
| Industrial                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   | **5.9**     |   |   | 6.0     |   |   | 6.2     |   |
|                                                                                                                                                                                                                                                                                                                                                                |   |   |   |   |   | **221.2**   |   |   | 213.4   |   |   | 209.6   |   |
|                                                                                                                                                                                                                                                                                                                                                                |   |   |   |   |   | **2,145.1** |   |   | 2,114.6 |   |   | 2,076.6 |   |
|                                                                                                                                                                                                                                                                                                                                                                |   |   |   |   |   |        |   |   |    |   |   |    |   |
| **Other                    statistics**                                                                                                                                                                                                                                                                                                                             |   |   |   |   |   |        |   |   |    |   |   |    |   |
| Degree                    days                                                                                                                                                                                                                                                                                                                                      |   |   |   |   |   | **5,783**   |   |   | 5,637   |   |   | 6,068   |   |
| Colder                    (warmer) than normal*                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   | **(1**      | **)%** |   | (6      | )%     |   | 1       | %      |
| Average                    gas cost per Mcf sold                                                                                                                                                                                                                                                                                                                    |   |   |   |   | **$**  | **8.74**    |   | $      | 6.56    |   | $      | 6.24    |   |
|                                                                                                                                                                                                                                                                                                                                                                |   |   |   |   |   |        |   |   |    |   |   |    |   |
| *                    Normal weather for Nicor Gas' service territory, for purposes                    of this                    report, is considered to be 5,830 degree days per year for 2005 and                    6,000 degree days for 2004 and 2003.  On a 6,000 degree day basis,                    2005 would have been 4% warmer than normal. |   |   |   |   |   |        |   |   |    |   |   |    |   |

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**FINANCIAL      CONDITION AND LIQUIDITY**

**Operating      cash flows. **

**Investing      activities. **
** **

----

**Financing      activities. **

|                                   |   |   | Standard &                Poor’s  |   |   | Moody’s |   |   | Fitch  |   |
|----------------------------------------|--------|--------|-------------------------------------------------------|--------|--------|---------------|--------|--------|--------|--------|
|                                   |   |   |                                                  |   |   |          |   |   |   |   |
| Commercial                Paper        |   |   | A-1+                                                  |   |   | P-1           |   |   | F-1+   |   |
| First                Mortgage Bonds    |   |   | AA                                                    |   |   | Aa3           |   |   | AA-    |   |
| Senior                Unsecured Debt   |   |   | AA-                                                   |   |   | A1            |   |   | A+     |   |
| Corporate                Credit Rating |   |   | AA                                                    |   |   | n/a           |   |   | n/a    |   |

|                                                                                                           |   |   | **2005** |   |   | 2004 |   |   | 2003 |   |
|----------------------------------------------------------------------------------------------------------------|--------|--------|----------|--------|--------|------|--------|--------|------|--------|
| Long-term                obligations, net of current maturities, as                a percent of capitalization |   |   | **40.7** | **%**  |   | 43.9 | %      |   | 44.4 | %      |
| Times                interest earned, before income taxes                                                      |   |   | **2.8**  |   |   | 3.5  |   |   | 4.5  |   |

*Long-term      debt.*

* *

----

*Short-term      debt.*

*Common      stock.*

*Change      in accounting policy for cash and cash equivalents.*

----

**Contractual      obligations.**

|                                                                |   |   | LessThan                1Year  |   |   | 1-3years |   |   | 3-5years |   |   | Morethan                5years |   |   | Total   |   |
|----------------------------------------------------------------|--------|--------|-------------------------------------|--------|--------|----------|--------|--------|----------|--------|--------|--------------------------------|--------|--------|---------|--------|
|                                                           |   |   |                                |   |   |     |   |   |     |   |   |                           |   |   |    |   |
| Purchase                obligations                            |   | $      | 940.2                               |   | $      | 751.5    |   | $      | 86.6     |   | $      | 16.0                           |   | $      | 1,794.3 |   |
| Long-term                debt                                  |   |   | 50.0                                |   |   | 75.0     |   |   | 50.0     |   |   | 325.0                          |   |   | 500.0   |   |
| Fixed                interest on long-term                debt |   |   | 30.4                                |   |   | 53.8     |   |   | 41.5     |   |   | 245.9                          |   |   | 371.6   |   |
| Operating                leases                                |   |   | 1.1                                 |   |   | 2.2      |   |   | .8       |   |   | 8.3                            |   |   | 12.4    |   |
| Other                long-term obligations                     |   |   | .5                                  |   |   | 1.0      |   |   | .9       |   |   | 1.9                            |   |   | 4.3     |   |
|                                                           |   | $      | 1,022.2                             |   | $      | 883.5    |   | $      | 179.8    |   | $      | 597.1                          |   | $      | 2,682.6 |   |

**OUTLOOK**

**CONTINGENCIES**

----

*Performance-based      rate (“PBR”) plan*

*,*

----

*SEC      and U.S. Attorney Inquiries.*

----

*Gas      Line ComfortGuard Service. *

*Mercury.*

*Manufactured      gas plant sites.*

*Other      contingencies.*
** **

**CRITICAL      ACCOUNTING ESTIMATES**

**Loss      contingencies. **

----

**Derivative      instruments. **

**Pension      and other postretirement benefits. **

**Credit      risk. **

**Unbilled      revenues. **

----

**NEW      ACCOUNTING PRONOUNCEMENTS**

*Accounting      Changes and Error Corrections - a replacement of APB Opinion No. 20 and FASB      Statement No. 3. *
*.      *

**CAUTION      CONCERNING FORWARD-LOOKING STATEMENTS**

**Item      7A.**
**Quantitative      and Qualitative Disclosures about Market Risk**

*Commodity      price risk.*

----

*Credit      risk.*

*Interest      rate risk. *

----

**Nicor      Gas Company**

**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     |

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**REPORT      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM **

*Internal Control—Integrated Framework*

----

**REPORT      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM      (concluded)**

*Internal Control—Integrated Framework*
*Internal Control—Integrated Framework*

*/s/      DELOITTE & TOUCHE LLP*

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| **Nicor                Gas Company**                                                    |   |                                              |        |   |   |    |   |   |    |   |
|-----------------------------------------------------------------------------------------|--------|---------------------------------------------------|-------------|--------|--------|---------|--------|--------|---------|--------|
|                                                                                    |   |                                              |        |   |   |    |   |   |    |   |
| **Consolidated                Statements of Operations**                                |   |                                              |        |   |   |    |   |   |    |   |
| **(millions)**                                                                          |   |                                              |        |   |   |    |   |   |    |   |
|                                                                                    |   |  Year                ended December 31  |        |
|                                                                                    |   |                                              | **2005**    |   |   | 2004    |   |   | 2003    |   |
| Operating                revenues (includes revenue taxes of                            |   |                                              |        |   |   |    |   |   |    |   |
| $156.4,                $143.5, and $134.0, respectively)                                |   | **$**                                             | **2,909.6** |   | $      | 2,363.9 |   | $      | 2,351.6 |   |
|                                                                                    |   |                                              |        |   |   |    |   |   |    |   |
| Operating                expenses                                                       |   |                                              |        |   |   |    |   |   |    |   |
| Cost                of gas                                                              |   |                                              | **2,212.4** |   |   | 1,695.0 |   |   | 1,692.7 |   |
| Operating                and maintenance                                                |   |                                              | **253.6**   |   |   | 233.6   |   |   | 220.1   |   |
| Depreciation                                                                            |   |                                              | **154.5**   |   |   | 148.8   |   |   | 143.5   |   |
| Taxes,                other than income taxes                                           |   |                                              | **171.0**   |   |   | 158.5   |   |   | 147.3   |   |
| Income                tax expense, net                                                  |   |                                              | **24.6**    |   |   | 31.7    |   |   | 47.4    |   |
| Mercury-related                costs (recoveries), net                                  |   |                                              | **.5**      |   |   | -       |   |   | (17.8   | )      |
|                                                                                    |   |                                              | **2,816.6** |   |   | 2,267.6 |   |   | 2,233.2 |   |
|                                                                                    |   |                                              |        |   |   |    |   |   |    |   |
| Operating                income                                                         |   |                                              | **93.0**    |   |   | 96.3    |   |   | 118.4   |   |
|                                                                                    |   |                                              |        |   |   |    |   |   |    |   |
| Other                income (expense), net                                              |   |                                              |        |   |   |    |   |   |    |   |
| Property                sale gains                                                      |   |                                              | **.4**      |   |   | 5.9     |   |   | .4      |   |
| Interest                income                                                          |   |                                              | **4.3**     |   |   | 1.0     |   |   | 1.5     |   |
| Other                income                                                             |   |                                              | **.8**      |   |   | .8      |   |   | .9      |   |
| Other                expense                                                            |   |                                              | **(1.5**    | **)**  |   | (1.5    | )      |   | (.8     | )      |
| Performance-based                rate plan                                              |   |                                              | **-**       |   |   | (1.8    | )      |   | -       |   |
| Income                tax (expense) on other income                                     |   |                                              | **(1.5**    | **)**  |   | (1.4    | )      |   | (.6     | )      |
|                                                                                    |   |                                              | **2.5**     |   |   | 3.0     |   |   | 1.4     |   |
|                                                                                    |   |                                              |        |   |   |    |   |   |    |   |
| Interest                expense                                                         |   |                                              |        |   |   |    |   |   |    |   |
| Interest                on debt, net of amounts capitalized                             |   |                                              | **37.0**    |   |   | 36.9    |   |   | 35.2    |   |
| Other                                                                                   |   |                                              | **5.0**     |   |   | .3      |   |   | 1.6     |   |
|                                                                                    |   |                                              | **42.0**    |   |   | 37.2    |   |   | 36.8    |   |
|                                                                                    |   |                                              |        |   |   |    |   |   |    |   |
| Net                income                                                               |   |                                              | **53.5**    |   |   | 62.1    |   |   | 83.0    |   |
|                                                                                    |   |                                              |        |   |   |    |   |   |    |   |
| Dividends                on preferred stock                                             |   |                                              | **.1**      |   |   | .1      |   |   | .2      |   |
|                                                                                    |   |                                              |        |   |   |    |   |   |    |   |
| Earnings                applicable to common stock                                      |   | **$**                                             | **53.4**    |   | $      | 62.0    |   | $      | 82.8    |   |
|                                                                                    |   |                                              |        |   |   |    |   |   |    |   |
|                                                                                    |   |                                              |        |   |   |    |   |   |    |   |
| The                accompanying notes are an integral part of these statements. 26 |   |                                              |        |   |   |    |   |   |    |   |

----

| **Nicor                Gas Company**                                                    |   |                                   |       |   |   |   |   |   |   |   |
|-----------------------------------------------------------------------------------------|--------|----------------------------------------|------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                                    |   |                                   |       |   |   |   |   |   |   |   |
| **Consolidated                Statements of Cash Flows**                                |   |                                   |       |   |   |   |   |   |   |   |
| **(millions)**                                                                          |   |                                   |       |   |   |   |   |   |   |   |
|                                                                                    |   |  December                31  |       |
|                                                                                    |   |                                   | **2005**   |   |   | 2004   |   |   | 2003   |   |
| Operating                activities                                                     |   |                                   |       |   |   |   |   |   |   |   |
| Net                income                                                               |   | **$**                                  | **53.5**   |   | $      | 62.1   |   | $      | 83.0   |   |
| Adjustments                to reconcile net income to net cash flow                     |   |                                   |       |   |   |   |   |   |   |   |
| provided                from operating activities:                                      |   |                                   |       |   |   |   |   |   |   |   |
| Depreciation                                                                       |   |                                   | **154.5**  |   |   | 148.8  |   |   | 143.5  |   |
| Deferred                income tax expense (benefit)                               |   |                                   | **(79.3**  | **)**  |   | 20.2   |   |   | 136.7  |   |
| Gain                on sale of property, plant and equipment                       |   |                                   | **(.4**    | **)**  |   | (5.9   | )      |   | (.4    | )      |
| Changes                in assets and liabilities:                                  |   |                                   |       |   |   |   |   |   |   |   |
|  Receivables,                less allowances                                       |   |                                   | **(270.9** | **)**  |   | (104.4 | )      |   | (7.4   | )      |
|  Gas                in storage                                                     |   |                                   | **(32.0**  | **)**  |   | 18.1   |   |   | (190.5 | )      |
|  Deferred/accrued                gas costs                                         |   |                                   | **155.1**  |   |   | 21.2   |   |   | (20.3  | )      |
|  Prepaid                pension costs                                              |   |                                   | **(6.1**   | **)**  |   | (4.4   | )      |   | -      |   |
|  Other                assets                                                       |   |                                   | **(1.1**   | **)**  |   | 6.0    |   |   | 4.3    |   |
|  Accounts                payable                                                   |   |                                   | **137.7**  |   |   | 101.4  |   |   | (157.6 | )      |
|  Other                liabilities                                                  |   |                                   | **1.2**    |   |   | 16.4   |   |   | (44.6  | )      |
| Other                noncash items                                                 |   |                                   | **5.2**    |   |   | 4.8    |   |   | .9     |   |
| Net                cash flow provided from (used for) operating activities              |   |                                   | **117.4**  |   |   | 284.3  |   |   | (52.4  | )      |
|                                                                                    |   |                                   |       |   |   |   |   |   |   |   |
| Investing                activities                                                     |   |                                   |       |   |   |   |   |   |   |   |
| Capital                expenditures                                                     |   |                                   | **(188.2** | **)**  |   | (178.2 | )      |   | (172.9 | )      |
| Decrease                in deposits in Nicor cash management pool                       |   |                                   | **.1**     |   |   | 97.4   |   |   | 17.8   |   |
| Net                proceeds from the sale of property, plant and equipment              |   |                                   | **.8**     |   |   | 7.6    |   |   | .4     |   |
| Other                investing activities                                               |   |                                   | **3.1**    |   |   | -      |   |   | -      |   |
| Net                cash flow used for investing activities                              |   |                                   | **(184.2** | **)**  |   | (73.2  | )      |   | (154.7 | )      |
|                                                                                    |   |                                   |       |   |   |   |   |   |   |   |
| Financing                activities                                                     |   |                                   |       |   |   |   |   |   |   |   |
| Net                proceeds from issuing long-term debt                                 |   |                                   | **-**      |   |   | -      |   |   | 147.8  |   |
| Disbursements                to retire long-term obligations                            |   |                                   | **(.5**    | **)**  |   | (.5    | )      |   | (152.4 | )      |
| Commercial                paper issuances with maturities over 90 days                  |   |                                   | **-**      |   |   | -      |   |   | 730.0  |   |
| Commercial                paper repayments with maturities over 90 days                 |   |                                   | **-**      |   |   | (540.0 | )      |   | (190.0 | )      |
| Net                issuances (repayments) of commercial paper with                      |   |                                   |       |   |   |   |   |   |   |   |
| maturities                of 90 days or less                                            |   |                                   | **115.0**  |   |   | 340.0  |   |   | (280.0 | )      |
| Dividends                paid                                                           |   |                                   | **(37.1**  | **)**  |   | (54.1  | )      |   | (71.3  | )      |
| Other                financing activities                                               |   |                                   | **(.4**    | **)**  |   | -      |   |   | (.4    | )      |
| Net                cash flow provided from (used for) financing activities              |   |                                   | **77.0**   |   |   | (254.6 | )      |   | 183.7  |   |
|                                                                                    |   |                                   |       |   |   |   |   |   |   |   |
| Net                increase (decrease) in cash and cash equivalents                     |   |                                   | **10.2**   |   |   | (43.5  | )      |   | (23.4  | )      |
|                                                                                    |   |                                   |       |   |   |   |   |   |   |   |
| Cash                and cash equivalents, beginning of year                             |   |                                   | **-**      |   |   | 43.5   |   |   | 66.9   |   |
|                                                                                    |   |                                   |       |   |   |   |   |   |   |   |
| Cash                and cash equivalents, end of year                                   |   | **$**                                  | **10.2**   |   | $      | -      |   | $      | 43.5   |   |
|                                                                                    |   |                                   |       |   |   |   |   |   |   |   |
| Supplemental                information                                                 |   |                                   |       |   |   |   |   |   |   |   |
| Income                taxes paid (refunded), net                                        |   | **$**                                  | **102.6**  |   | $      | 14.1   |   | $      | (59.5  | )      |
| Interest                paid, net of amounts capitalized                                |   |                                   | **34.8**   |   |   | 34.7   |   |   | 39.1   |   |
|                                                                                    |   |                                   |       |   |   |   |   |   |   |   |
| The                accompanying notes are an integral part of these statements. 27 |   |                                   |       |   |   |   |   |   |   |   |

----

| **Nicor                  Gas Company**                                                    |   |                                     |        |   |   |    |   |
|-------------------------------------------------------------------------------------------|--------|------------------------------------------|-------------|--------|--------|---------|--------|
|                                                                                      |   |                                     |        |   |   |    |   |
| **Consolidated                  Balance Sheets**                                          |   |                                     |        |   |   |    |   |
| **(millions)**                                                                            |   |                                     |        |   |   |    |   |
|                                                                                      |   |                                     |        |   |   |    |   |
|                                                                                      |   |  December                  31  |        |
|                                                                                      |   |                                     | **2005**    |   |   | 2004    |   |
| **Assets**                                                                                |   |                                     |        |   |   |    |   |
|                                                                                      |   |                                     |        |   |   |    |   |
| Gas                  distribution plant, at cost                                          |   | **$**                                    | **4,043.2** |   | $      | 3,831.5 |   |
| Less                  accumulated depreciation                                       |   |                                     | **1,513.1** |   |   | 1,415.1 |   |
| Gas                  distribution plant, net                                              |   |                                     | **2,530.1** |   |   | 2,416.4 |   |
|                                                                                      |   |                                     |        |   |   |    |   |
| Current                  assets                                                           |   |                                     |        |   |   |    |   |
| Cash                  and cash equivalents                                           |   |                                     | **10.2**    |   |   | -       |   |
| Deposits                  in Nicor cash management pool                              |   |                                     | **-**       |   |   | .1      |   |
| Receivables,                  less allowances of $30.1 and $19.7, respectively       |   |                                     | **753.0**   |   |   | 473.8   |   |
| Receivables                  - affiliates                                            |   |                                     | **18.5**    |   |   | 26.8    |   |
| Gas                  in storage, at last-in, first-out cost                          |   |                                     | **221.0**   |   |   | 189.0   |   |
| Deferred                  income taxes                                               |   |                                     | **-**       |   |   | 41.5    |   |
| Other                                                                                |   |                                     | **53.1**    |   |   | 33.6    |   |
| Total                  current assets                                                     |   |                                     | **1,055.8** |   |   | 764.8   |   |
|                                                                                      |   |                                     |        |   |   |    |   |
| Prepaid                  pension costs                                                    |   |                                     | **187.6**   |   |   | 181.5   |   |
| Other                  assets                                                             |   |                                     | **46.8**    |   |   | 67.3    |   |
|                                                                                      |   |                                     |        |   |   |    |   |
| Total                  assets                                                             |   | **$**                                    | **3,820.3** |   | $      | 3,430.0 |   |
|                                                                                      |   |                                     |        |   |   |    |   |
| **Capitalization                  and Liabilities**                                       |   |                                     |        |   |   |    |   |
|                                                                                      |   |                                     |        |   |   |    |   |
| Capitalization                                                                            |   |                                     |        |   |   |    |   |
| Long-term                  obligations                                               |   |                                     |        |   |   |    |   |
|  Long-term                  bonds and notes                                          |   | **$**                                    | **445.8**   |   | $      | 495.3   |   |
|  Mandatorily                  redeemable preferred stock                             |   |                                     | **4.1**     |   |   | 4.5     |   |
| Total                  long-term obligations                                         |   |                                     | **449.9**   |   |   | 499.8   |   |
|                                                                                      |   |                                     |        |   |   |    |   |
| 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                                                  |   |                                     | **470.7**   |   |   | 455.3   |   |
|  Accumulated                  other comprehensive loss, net                          |   |                                     | **(.3**     | **)**  |   | (1.5    | )      |
| Total                  common equity                                                 |   |                                     | **654.7**   |   |   | 638.1   |   |
| Total                  capitalization                                                     |   |                                     | **1,106.0** |   |   | 1,139.3 |   |
|                                                                                      |   |                                     |        |   |   |    |   |
| Current                  liabilities                                                      |   |                                     |        |   |   |    |   |
| Long-term                  obligations due within one year                           |   |                                     | **50.5**    |   |   | .5      |   |
| Short-term                  borrowings                                               |   |                                     | **490.0**   |   |   | 375.0   |   |
| Accounts                  payable                                                    |   |                                     | **543.7**   |   |   | 406.0   |   |
| Accrued                  gas costs                                                   |   |                                     | **223.3**   |   |   | 68.2    |   |
| Deferred                  income taxes                                               |   |                                     | **24.4**    |   |   | -       |   |
| Dividends                  payable                                                   |   |                                     | **11.0**    |   |   | 10.0    |   |
| Other                                                                                |   |                                     | **58.4**    |   |   | 47.3    |   |
| Total                  current liabilities                                                |   |                                     | **1,401.3** |   |   | 907.0   |   |
|                                                                                      |   |                                     |        |   |   |    |   |
| Deferred                  credits and other liabilities                                   |   |                                     |        |   |   |    |   |
| Regulatory                  retirement cost liability                                |   |                                     | **631.7**   |   |   | 706.4   |   |
| Deferred                  income taxes                                               |   |                                     | **296.1**   |   |   | 437.0   |   |
| Asset                  retirement obligation                                         |   |                                     | **164.0**   |   |   | -       |   |
| Regulatory                  income tax liability                                     |   |                                     | **41.3**    |   |   | 44.8    |   |
| Unamortized                  investment tax credits                                  |   |                                     | **31.7**    |   |   | 33.8    |   |
| Other                  liabilities                                                   |   |                                     | **148.2**   |   |   | 161.7   |   |
| Total                  deferred credits and other liabilities                             |   |                                     | **1,313.0** |   |   | 1,383.7 |   |
|                                                                                      |   |                                     |        |   |   |    |   |
| Commitments                  and contingencies                                            |   |                                     |        |   |   |    |   |
|                                                                                      |   |                                     |        |   |   |    |   |
| Total                  liabilities and capitalization                                     |   | **$**                                    | **3,820.3** |   | $      | 3,430.0 |   |
|                                                                                      |   |                                     |        |   |   |    |   |
| The                  accompanying notes are an integral part of these statements. 28 |

----

| **Nicor                    Gas Company**                                                               |   |   |   |   |                                 |        |       |   |      |   |   |    |   |   |   |   |
|--------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------------------------------------|-------------|------------|--------|-----------|--------|--------|---------|--------|--------|--------|--------|
|                                                                                                   |   |   |   |   |                                 |        |       |   |      |   |   |    |   |   |   |   |
| **Consolidated                    Statements of Capitalization**                                       |   |   |   |   |                                 |        |       |   |      |   |   |    |   |   |   |   |
| **(millions,                    except share data)**                                                   |   |   |   |   |                                 |        |       |   |      |   |   |    |   |   |   |   |
|                                                                                                   |   |   |   |   |  December                    31 |        |
|                                                                                                   |   |   |   |   |  **2005**                       |        |  2004 |   |
| First                    Mortgage Bonds                                                                |   |   |   |   |                                 |        |       |   |      |   |   |    |   |   |   |   |
| 5.55%                    Series due 2006                                                               |   |   |   |   | **$**                                | **50.0**    |       |   |      |   | $      | 50.0    |   |   |   |   |
| 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    |   |   |   |   |
|                                                                                                   |   |   |   |   |                                 | **500.0**   |       |   |      |   |   | 500.0   |   |   |   |   |
| Less:                    Amount due within one year                                                    |   |   |   |   |                                 | **50.0**    |       |   |      |   |   | -       |   |   |   |   |
|  Unamortized                    debt discount, net of premium                                     |   |   |   |   |                                 | **4.2**     |       |   |      |   |   | 4.7     |   |   |   |   |
|                                                                                                   |   |   |   |   |                                 | **445.8**   |       |   | **40.3**  | **%**  |   | 495.3   |   |   | 43.5   | %      |
|                                                                                                   |   |   |   |   |                                 |        |       |   |      |   |   |    |   |   |   |   |
| Preferred                    stock, cumulative, $100 par value, 800,000                                |   |   |   |   |                                 |        |       |   |      |   |   |    |   |   |   |   |
| shares                    authorized                                                                   |   |   |   |   |                                 |        |       |   |      |   |   |    |   |   |   |   |
| Mandatorily                    redeemable preferred stock, 4.48% and 5.00%                        |   |   |   |   |                                 |        |       |   |      |   |   |    |   |   |   |   |
|  series,                    46,000 shares outstanding in 2005                                     |   |   |   |   |                                 |        |       |   |      |   |   |    |   |   |   |   |
|  and                    51,000 shares outstanding in 2004                                         |   |   |   |   |                                 | **4.6**     |       |   |      |   |   | 5.0     |   |   |   |   |
| Less:                    Amount due within one year                                               |   |   |   |   |                                 | **.5**      |       |   |      |   |   | .5      |   |   |   |   |
|                                                                                                   |   |   |   |   |                                 | **4.1**     |       |   | **.4**    |   |   | 4.5     |   |   | .4     |   |
|                                                                                                   |   |   |   |   |                                 |        |       |   |      |   |   |    |   |   |   |   |
| 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 conversion                              |   |   |   |   |                                 |        |       |   |      |   |   |    |   |   |   |   |
| and                    15,232,414 shares outstanding                                              |   |   |   |   |                                 | **76.2**    |       |   |      |   |   | 76.2    |   |   |   |   |
| Paid-in                    capital                                                                     |   |   |   |   |                                 | **108.1**   |       |   |      |   |   | 108.1   |   |   |   |   |
| Retained                    earnings                                                                   |   |   |   |   |                                 | **470.7**   |       |   |      |   |   | 455.3   |   |   |   |   |
| Accumulated                    other comprehensive loss                                                |   |   |   |   |                                 |        |       |   |      |   |   |    |   |   |   |   |
| Minimum                    pension liability                                                      |   |   |   |   |                                 | **(.3**     | **)**      |   |      |   |   | (1.5    | )      |   |   |   |
|                                                                                                   |   |   |   |   |                                 | **654.7**   |       |   | **59.2**  |   |   | 638.1   |   |   | 56.0   |   |
|                                                                                                   |   |   |   |   |                                 |        |       |   |      |   |   |    |   |   |   |   |
|                                                                                                   |   |   |   |   | **$**                                | **1,106.0** |       |   | **100.0** | **%**  | $      | 1,139.3 |   |   | 100.0  | %      |
|                                                                                                   |   |   |   |   |                                 |        |       |   |      |   |   |    |   |   |   |   |
| The                    accompanying notes are an integral part of these                    statements. |   |   |

----

| **Nicor                  Gas Company**                                                    |   |                                                |      |   |   |   |   |   |   |   |
|-------------------------------------------------------------------------------------------|--------|-----------------------------------------------------|-----------|--------|--------|--------|--------|--------|--------|--------|
|                                                                                      |   |                                                |      |   |   |   |   |   |   |   |
| **Consolidated                  Statements of Retained Earnings**                         |   |                                                |      |   |   |   |   |   |   |   |
| **(millions)**                                                                       |   |                                                |      |   |   |   |   |   |   |   |
|                                                                                      |   |  Year                  ended December 31  |      |
|                                                                                      |   |                                                | **2005**  |   |   | 2004   |   |   | 2003   |   |
|                                                                                      |   |                                                |      |   |   |   |   |   |   |   |
| Balance                  at beginning of year                                             |   | **$**                                               | **455.3** |   | $      | 442.3  |   | $      | 424.5  |   |
| Net                  income                                                               |   |                                                | **53.5**  |   |   | 62.1   |   |   | 83.0   |   |
| Dividends                  declared on common stock                                       |   |                                                | **(38.0** | **)**  |   | (49.0  | )      |   | (65.0  | )      |
| Dividends                  declared on preferred stock                                    |   |                                                | **(.1**   | **)**  |   | (.1    | )      |   | (.2    | )      |
|                                                                                      |   |                                                |      |   |   |   |   |   |   |   |
| Balance                  at end of year                                                   |   | **$**                                               | **470.7** |   | $      | 455.3  |   | $      | 442.3  |   |
|                                                                                      |   |                                                |      |   |   |   |   |   |   |   |
|                                                                                      |   |                                                |      |   |   |   |   |   |   |   |
|                                                                                      |   |                                                |      |   |   |   |   |   |   |   |
| **Consolidated                  Statements of Comprehensive Income**                      |   |                                                |      |   |   |   |   |   |   |   |
| **(millions)**                                                                            |   |                                                |      |   |   |   |   |   |   |   |
|                                                                                      |   | Year                  ended December 31   |      |
|                                                                                      |   |                                                | **2005**  |   |   | 2004   |   |   | 2003   |   |
|                                                                                      |   |                                                |      |   |   |   |   |   |   |   |
| Net                  income                                                               |   | **$**                                               | **53.5**  |   | $      | 62.1   |   | $      | 83.0   |   |
| Other                  comprehensive income (loss), before tax                            |   |                                                |      |   |   |   |   |   |   |   |
| Loss                  on cash flow hedges                                                 |   |                                                | -         |   |   | -      |   |   | (2.8   | )      |
| Reclassifications                  of hedge losses to net income                          |   |                                                | -         |   |   | -      |   |   | 1.9    |   |
| Decrease                  (increase) to minimum pension liability                         |   |                                                | **2.2**   |   |   | -      |   |   | (.1    | )      |
|                                                                                      |   |                                                | **2.2**   |   |   | -      |   |   | (1.0   | )      |
| Related                  income tax benefit (expense)                                     |   |                                                | **(.9**   | **)**  |   | -      |   |   | .4     |   |
| Other                  comprehensive income (loss), net of tax                            |   |                                                | **1.3**   |   |   | -      |   |   | (.6    | )      |
|                                                                                      |   |                                                |      |   |   |   |   |   |   |   |
| Comprehensive                  income                                                     |   | **$**                                               | **54.8**  |   | $      | 62.1   |   | $      | 82.4   |   |
|                                                                                      |   |                                                |      |   |   |   |   |   |   |   |
|                                                                                      |   |                                                |      |   |   |   |   |   |   |   |
|                                                                                      |   |                                                |      |   |   |   |   |   |   |   |
| The                  accompanying notes are an integral part of these statements. 30 |   |                                                |      |   |   |   |   |   |   |   |

----

**Notes      to the Consolidated Financial Statements**

**1.       **
**ACCOUNTING      POLICIES**

**General.      **

**Consolidation.**

**Use      of estimates.**

**Reclassifications.**

**Cash      and cash equivalents.**

**Change      in accounting policy for Deposits in Nicor Cash Management Pool.**

----

|                                                                                            |   |   | 2004   |   |   | 2003   |   |
|-------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                                            |   |   |   |   |   |   |   |
| Cash                used for investing activities as previously presented                       |   | $      | (170.6 | )      | $      | (172.5 | )      |
| Cash                withdrawals with Nicor                                                      |   |   | 97.4   |   |   | 17.8   |   |
| Cash                used for investing activities, as currently reported                        |   | $      | (73.2  | )      | $      | (154.7 | )      |
|                                                                                            |   |   |   |   |   |   |   |
|                                                                                            |   |   |   |   |   |   |   |
| Net                decrease in cash and cash equivalents as previously                presented |   | $      | (140.9 | )      | $      | (41.2  | )      |
| Cash                withdrawals with Nicor                                                      |   |   | 97.4   |   |   | 17.8   |   |
| Net                decrease in cash and cash equivalents, as currently                reported  |   | $      | (43.5  | )      | $      | (23.4  | )      |

**Regulatory      assets and liabilities.**

|                                                             |   |   | **2005**  |   |   | 2004   |   |
|------------------------------------------------------------------|--------|--------|-----------|--------|--------|--------|--------|
| **Regulatory                assets**                             |   |   |      |   |   |   |   |
| Deferred                environmental costs                      |   | **$**  | **15.1**  |   | $      | 35.4   |   |
| Unamortized                losses on reacquired debt             |   |   | **18.7**  |   |   | 19.9   |   |
| Deferred                rate case costs                          |   |   | **3.5**   |   |   | 2.9    |   |
| Other                                                            |   |   | **.3**    |   |   | -      |   |
|                                                             |   | **$**  | **37.6**  |   | $      | 58.2   |   |
|                                                             |   |   |      |   |   |   |   |
| **Regulatory                liabilities**                        |   |   |      |   |   |   |   |
| Regulatory                retirement cost liability - current    |   | **$**  | **9.0**   |   | $      | 11.6   |   |
| Regulatory                retirement cost liability - noncurrent |   |   | **631.7** |   |   | 706.4  |   |
| Accrued                gas costs                                 |   |   | **223.3** |   |   | 68.2   |   |
| Regulatory                income tax liability                   |   |   | **41.3**  |   |   | 44.8   |   |
| Other                                                            |   |   | **1.8**   |   |   | .7     |   |
|                                                             |   | **$**  | **907.1** |   | $      | 831.7  |   |

**Asset      retirement obligations.**
*Accounting      for Asset Retirement Obligations*

----

**Derivative      instruments. **

**Credit      risk.**

**Operating      revenues and gas costs.**

----

**Legal      defense costs.**

**Depreciation.      **

**Revenue      taxes.**

**Income      taxes. **

**2.**
**NEW      ACCOUNTING PRONOUNCEMENTS**

**Accounting      changes and error corrections. **
*Accounting      Changes and Error Corrections - a replacement of APB Opinion No. 20 and FASB      Statement No. 3.*
* *

**Asset      retirement obligations. **
*Accounting      for Conditional Asset Retirement Obligations *

----

**3.**
**GAS      IN STORAGE **

**4.**
**SHORT-TERM      AND LONG-TERM DEBT**

**5.**
**FAIR      VALUE OF FINANCIAL INSTRUMENTS**

----

|                                        |   |   | **2005** |   |   | 2004   |   |
|---------------------------------------------|--------|--------|----------|--------|--------|--------|--------|
|                                        |   |   |     |   |   |   |   |
| Current                other assets         |   | **$**  | **25.7** |   | $      | 4.4    |   |
| Noncurrent                other assets      |   |   | **1.0**  |   |   | .3     |   |
|                                        |   | **$**  | **26.7** |   | $      | 4.7    |   |
|                                        |   |   |     |   |   |   |   |
| Current                other liabilities    |   | **$**  | **.8**   |   | $      | .8     |   |
| Noncurrent                other liabilities |   |   | **.1**   |   |   | .3     |   |
|                                        |   | **$**  | **.9**   |   | $      | 1.1    |   |

**6.**
**INCOME      AND OTHER TAXES**

|                                                       |   | **2005**  |        |   | 2004   |        |   | 2003   |   |
|------------------------------------------------------------|--------|-----------|--------|--------|--------|--------|--------|--------|--------|
| Current                                                    |   |      |   |   |   |   |   |   |   |
| Federal                                                    | $      | **87.1**  |   | $      | 11.7   |   | $      | (73.0  | )      |
| State                                                      |   | **20.4**  |   |   | 3.0    |   |   | (13.7  | )      |
|                                                       |   | **107.5** |   |   | 14.7   |   |   | (86.7  | )      |
| Deferred                                                   |   |      |   |   |   |   |   |   |   |
| Federal                                                    |   | **(64.0** | **)**  |   | 16.4   |   |   | 113.5  |   |
| State                                                      |   | **(15.3** | **)**  |   | 3.8    |   |   | 23.2   |   |
|                                                       |   | **(79.3** | **)**  |   | 20.2   |   |   | 136.7  |   |
|                                                       |   |      |   |   |   |   |   |   |   |
| Amortization                of investment tax credits, net |   | **(2.1**  | **)**  |   | (1.8   | )      |   | (2.0   | )      |
| Income                tax expense, net                     | $      | **26.1**  |   | $      | 33.1   |   | $      | 48.0   |   |

|                                              | **2005** |      |   | 2004   |   |
|---------------------------------------------------|----------|-----------|--------|--------|--------|
| Deferred                tax liabilities           |     |      |   |   |   |   |   |
| Property,                plant and equipment      | **$**    | **350.3** |   |   | $      | 425.8 |   |
| Employee                benefits                  |     | **24.6**  |   |   |   | 27.1 |   |
| Other                                             |     | **21.1**  |   |   |   | 22.9 |   |
|                                              |     | **396.0** |   |   |   | 475.8 |   |
| Deferred                tax assets                |     |      |   |   |   |   |   |
| Unamortized                investment tax credits |     | **20.9**  |   |   |   | 22.3 |   |
| Alternative                minimum tax credits    |     | **14.4**  |   |   |   | 17.5 |   |
| Other                                             |     | **40.2**  |   |   |   | 40.5 |   |
|                                              |     | **75.5**  |   |   |   | 80.3 |   |
| Net                deferred tax liability         | **$**    | **320.5** |   |   | $      | 395.5 |   |

----

|                                                                | **2005** |     | 2004   |   | 2003   |
|---------------------------------------------------------------------|----------|----------|--------|--------|--------|
|                                                                |     |     |   |   |   |   |   |   |   |   |   |
| Federal                statutory rate                               |     | **35.0** | **%**  |   |   | 35.0 | % |   |   | 35.0 | % |
| State                income taxes, net                              |     | **4.6**  |   |   |   | 5.2 |   |   |   | 5.0 |   |
| Amortization                of investment tax credits               |     | **(3.0** | **)**  |   |   | (2.4 | ) |   |   | (1.8 | ) |
| Amortization                of regulatory income tax liability      |     | **(2.3** | **)**  |   |   | (2.0 | ) |   |   | (1.6 | ) |
| Other,                net                                           |     | **(1.5** | **)**  |   |   | (1.0 | ) |   |   | .1 |   |
| Effective                combined federal and state income tax rate |     | **32.8** | **%**  |   |   | 34.8 | % |   |   | 36.7 | % |

**7.**
**POSTRETIREMENT      BENEFITS**

----

|                                                     |  Pension                benefits |      | Health                care and other                benefits |
|----------------------------------------------------------|---------------------------------------|-----------|--------------------------------------------------------------|
|                                                     | **2005**                              |      | 2004                                                         |   | **2005** |   | 2004 |
| **Change                in benefit obligation**          |                                  |      |                                                         |   |   |   |   |
| Benefit                obligation at beginning of period | **$**                                 | **282.6** |                                                         |   | $ | 273.1 |   |   | **$** | **184.7** |   |   | $ | 173.6 |   |
| Service                cost                              |                                  | **9.3**   |                                                         |   |   | 9.0 |   |   |   | **2.7** |   |   |   | 2.4 |   |
| Interest                cost                             |                                  | **15.6**  |                                                         |   |   | 15.7 |   |   |   | **10.3** |   |   |   | 10.1 |   |
| Actuarial                loss                            |                                  | **7.1**   |                                                         |   |   | 10.6 |   |   |   | **4.9** |   |   |   | 8.2 |   |
| Participant                contributions                 |                                  | **-**     |                                                         |   |   | - |   |   |   | **.8** |   |   |   | .9 |   |
| Plan                amendments                           |                                  | **-**     |                                                         |   |   | - |   |   |   | **-** |   |   |   | (1.9 | ) |
| Benefits                paid                             |                                  | **(30.2** | **)**                                                        |   |   | (25.8 | ) |   |   | **(10.9** | **)** |   |   | (8.6 | ) |
| Benefit                obligation at end of period       |                                  | **284.4** |                                                         |   |   | 282.6 |   |   |   | **192.5** |   |   |   | 184.7 |   |

| **Change                in plan assets**                        |   |      |   |   |   |   |   |
|-----------------------------------------------------------------|--------|-----------|--------|--------|--------|--------|--------|
| Fair                value of plan assets at beginning of period |   | **402.0** |   |   |   | 383.6  |   |   |   | **10.6** |   |   |   | 11.7 |   |
| Actual                return on plan assets                     |   | **52.2**  |   |   |   | 44.2   |   |   |   | **1.0** |   |   |   | 1.2 |   |
| Employer                contributions                           |   | **-**     |   |   |   | -      |   |   |   | **5.4** |   |   |   | 5.4 |   |
| Participant                contributions                        |   | **-**     |   |   |   | -      |   |   |   | **.8** |   |   |   | .9 |   |
| Benefits                paid                                    |   | **(30.2** | **)**  |   |   | (25.8  | )      |   |   | **(10.9** | **)** |   |   | (8.6 | ) |
| Fair                value of plan assets at end of period       |   | **424.0** |   |   |   | 402.0  |   |   |   | **6.9** |   |   |   | 10.6 |   |

| Funded                status                             |   | **139.6** |   |   |   | 119.4 |   |   |   | **(185.6** | **)**  |   |   | (174.1 | )      |
|----------------------------------------------------------|--------|-----------|--------|--------|--------|-------|--------|--------|--------|------------|--------|--------|--------|--------|--------|
| Unrecognized                net actuarial loss           |   | **44.9**  |   |   |   | 58.4  |   |   |   | **88.5**   |   |   |   | 88.6   |   |
| Unrecognized                prior service cost           |   | **3.1**   |   |   |   | 3.7   |   |   |   | **(.7**    | **)**  |   |   | (.8    | )      |
| Other                                                    |   | **-**     |   |   |   | -     |   |   |   | **(3.8**   | **)**  |   |   | (2.7   | )      |
| Recognized                prepaid (accrued) benefit cost | **$**  | **187.6** |   |   | $      | 181.5 |   |   | **$**  | **(101.6** | **)**  |   | $      | (89.0  | )      |

----

|                                                              | Pension                benefits |      | Health                care andother                benefits |
|-------------------------------------------------------------------|---------------------------------|-----------|-------------------------------------------------------------|
|                                                              | **2005**                        |      | 2004                                                        |   | 2003 |   | **2005** |   | 2004 |   | 2003 |
|                                                              |                            |      |                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Service                cost                                       | **$**                           | **9.3**   |                                                        |   | $ | 9.0 |   |   | $ | 7.4 |   |   | **$** | **2.7** |   |   | $ | 2.4 |   |   | $ | 2.0 |   |
| Interest                cost                                      |                            | **15.6**  |                                                        |   |   | 15.7 |   |   |   | 16.3 |   |   |   | **10.3** |   |   |   | 10.1 |   |   |   | 11.1 |   |
| Expected                return on plan assets                     |                            | **(33.2** | **)**                                                       |   |   | (31.7 | ) |   |   | (28.7 | ) |   |   | **(.9** | **)** |   |   | (1.0 | ) |   |   | (1.2 | ) |
| Recognized                net actuarial loss                      |                            | **1.6**   |                                                        |   |   | 2.0 |   |   |   | 4.3 |   |   |   | **4.9** |   |   |   | 4.6 |   |   |   | 2.9 |   |
| Amortization                of unrecognized transition obligation |                            | **-**     |                                                        |   |   | - |   |   |   | - |   |   |   | **-** |   |   |   | .1 |   |   |   | 3.1 |   |
| Amortization                of prior service cost                 |                            | **.6**    |                                                        |   |   | .6 |   |   |   | .7 |   |   |   | **(.1** | **)** |   |   | - |   |   |   | - |   |
| Net                periodic benefit cost (credit)                 | **$**                           | **(6.1**  | **)**                                                       |   | $ | (4.4 | ) |   | $ | - |   |   | **$** | **16.9** |   |   | $ | 16.2 |   |   | $ | 17.9 |   |

|                                         |  Pension                benefits |     | Health                care andother                benefits |
|----------------------------------------------|---------------------------------------|----------|-------------------------------------------------------------|
|                                         | **2005**                              |     | 2004                                                        |   | **2005** |   | 2004 |
|                                         |                                  |     |                                                        |   |   |   |   |   |   |   |   |   |   |   |   |
| Discount                rate                 |                                  | **5.50** | **%**                                                       |   |   | 5.75 | % |   |   | **5.50** | **%** |   |   | 5.75 | % |
| Rate                of compensation increase |                                  | **3.75** |                                                        |   |   | 4.00 |   |   |   | **3.75** |   |   |   | 4.00 |   |

|                                         | Pension                benefits |     | Health                care andother                benefits |
|----------------------------------------------|---------------------------------|----------|-------------------------------------------------------------|
|                                         | **2005**                        |     | 2004                                                        |   | 2003 |   | **2005** |   | 2004 |   | 2003 |
|                                         |                            |     |                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Discount                rate                 |                            | **5.75** | **%**                                                       |   |   | 6.00 | % |   |   | 6.75 | % |   |   | **5.75** | **%** |   |   | 6.00 | % |   |   | 6.75 | % |
| Expected                return on assets     |                            | **8.50** |                                                        |   |   | 8.50 |   |   |   | 8.75 |   |   |   | **8.50** |   |   |   | 8.50 |   |   |   | 8.75 |   |
| Rate                of compensation increase |                            | **4.00** |                                                        |   |   | 4.00 |   |   |   | 4.00 |   |   |   | **4.00** |   |   |   | 4.00 |   |   |   | 4.00 |   |

|                                                                                                      | **2005** |    | 2004   |
|-----------------------------------------------------------------------------------------------------------|----------|---------|--------|
|                                                                                                      |     |    |   |   |   |   |   |
| Health                care cost trend rate                                                                |     | **9.5** | **%**  |   |   | 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                                                               |     | **5**   |   |   |   | 4 |   |

----

|                                                                                                      | **2005** |    | 2004   |   | 2003   |
|-----------------------------------------------------------------------------------------------------------|----------|---------|--------|--------|--------|
|                                                                                                      |     |    |   |   |   |   |   |   |   |   |   |
| Health                care cost trend rate                                                                |     | **9.5** | **%**  |   |   | 9.5 | % |   |   | 11.0 | % |
| 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                                                               |     | **4**   |   |   |   | 4 |   |   |   | 4 |   |

|                                                                   | One-percent |
|------------------------------------------------------------------------|-------------|
|                                                                   | Increase    |   | Decrease |
| Effect                on total of service and interest cost components | $           | 1.3 |   |   | $ | (1.1 | ) |
| Effect                on benefit obligation                            |        | 18.1 |   |   |   | (15.4 | ) |

*Accounting      and Disclosure Requirements Related to the Medicare Prescription Drug,      Improvement and Modernization Act of 2003 *

|                                   |   |  Target                allocation |    |   |  Percentage                of plan assetsat                October 1 |
|----------------------------------------|--------|----------------------------------------|---------|--------|---------------------------------------------------------------------------|
| Asset                category          |   |                                   |    |   | **2005**                                                                  |   |   | 2004 |   |
|  Equity                securities |   |  69                               |  % |   |  **69**                                                              |  **%** |   |  69 |  % |
| Debt                securities         |   | 31                                     |    |   | **31**                                                                    |   |   | 30 |   |
| Real                estate and other   |   | -                                      |    |   | **-**                                                                     |   |   | 1 |   |
|                                   |   | 100                                    | %       |   | **100**                                                                   | **%** |   | 100 | % |

----

|  Twelve                months ending October 1 |   |   |  Pension                benefits |   |   | Health                care and other benefits |   |   | Expected                Medicare subsidy |   |
|-----------------------------------------------------|--------|--------|---------------------------------------|--------|--------|-----------------------------------------------|--------|--------|------------------------------------------|--------|
|                                                |   |   |                                  |   |   |                                          |   |   |                                     |   |
| 2006                                                |   | $      | 27.4                                  |   | $      | 11.9                                          |   | $      | (1.5                                     | )      |
| 2007                                                |   |   | 18.4                                  |   |   | 12.6                                          |   |   | (1.6                                     | )      |
| 2008                                                |   |   | 17.5                                  |   |   | 13.1                                          |   |   | (1.8                                     | )      |
| 2009                                                |   |   | 18.8                                  |   |   | 13.7                                          |   |   | (1.9                                     | )      |
| 2010                                                |   |   | 20.0                                  |   |   | 14.2                                          |   |   | (2.0                                     | )      |
| 2011-2015                                           |   |   | 129.7                                 |   |   | 76.9                                          |   |   | (10.7                                    | )      |

**8.**
**DIVIDEND      AND OTHER RESTRICTIONS**

**9.**
**BUSINESS      SEGMENT INFORMATION**

|   |                         | **2005**                     |   | 2004                     |   | 2003                     |
|--------|------------------------------|------------------------------|--------|--------------------------|--------|--------------------------|
|   |                         |                         |   |                     |   |                     |
|   | Bundled                sales | **$                2,546.7** |   | $                2,024.7 |   | $                2,014.8 |
|   | Transportation               | **151.9**                    |   | 147.4                    |   | 148.0                    |
|   | Revenue                taxes | **156.4**                    |   | 143.5                    |   | 134.0                    |
|   | Other                        | **54.6**                     |   | 48.3                     |   | 54.8                     |
|   |                         | **$                2,909.6** |   | $                2,363.9 |   | $                2,351.6 |

----

**10.**
**RELATED      PARTY TRANSACTIONS**

----

**11.**
**COMMITMENTS**

|                      |   |   Purchase                obligations |   |   Operating                leases |   |  Other                long-term obligations |   |
|---------------------------|--------|-------------------------------------------------|--------|---------------------------------------------|--------|--------------------------------------------------|--------|
|                      |   |                                            |   |                                        |   |                                             |   |   |   |   |
| 2006                      |   | $                                               | 22.4   |                                        | $      | 1.1                                              |   | $ | .5 |   |
| 2007                      |   |                                            | 10.4   |                                        |   | 1.1                                              |   |   | .5 |   |
| 2008                      |   |                                            | 10.4   |                                        |   | 1.1                                              |   |   | .5 |   |
| 2009                      |   |                                            | 10.4   |                                        |   | .4                                               |   |   | .5 |   |
| 2010                      |   |                                            | 10.4   |                                        |   | .4                                               |   |   | .4 |   |
| After                2010 |   |                                            | 14.0   |                                        |   | 8.3                                              |   |   | 1.9 |   |
|                      |   | $                                               | 78.0   |                                        | $      | 12.4                                             |   | $ | 4.3 |   |

** **

**12.**
**RATE      PROCEEDING **

**13.**
**GUARANTEES**

----

**14.**
**CONTINGENCIES      **

**Performance-Based      Rate (“PBR”) Plan. **

----

----

**SEC      and U.S. Attorney Inquiries.**
** **

**Gas      Line ComfortGuard Service. **
*Rivera      v. Nicor Inc., Nicor Gas and Nicor Services*

**Mercury**

----

**Manufactured      Gas Plant Sites.**

----

**Other.      **

**15.      QUARTERLY RESULTS (UNAUDITED)**

|                              | Quarter                ended |
|-----------------------------------|------------------------------|
|                              | Mar.                31       |   | June                30 |   | Sept.                30 |   | Dec.                31 |
| 2005                              |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating                revenues | **$**                        | **1,078.8** |   |   | **$** | **372.2** |   |   | **$** | **241.5** |   |   | **$** | **1,217.0** |   |
| Operating                income   |                         | **43.2** |   |   |   | **11.5** |   |   |   | **3.8** |   |   |   | **34.5** |   |
| Net                income (loss)  |                         | **32.5** |   |   |   | **3.6** |   |   |   | **(5.4** | **)** |   |   | **22.8** |   |
|                              |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 2004                              |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating                revenues | **$**                        | 1,035.1 |   |   | $ | 338.4 |   |   | $ | 226.9 |   |   | $ | 763.6 |   |
| Operating                income   |                         | 47.2 |   |   |   | 13.8 |   |   |   | 3.1 |   |   |   | 32.2 |   |
| Net                income (loss)  |                         | 36.5 |   |   |   | 11.0 |   |   |   | (7.3 | ) |   |   | 21.9 |   |
|                              |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

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

**Item      9A.**
**Controls      and Procedures**

**Evaluation      of Disclosure Controls and Procedures**

----

**Management’s      Report on Internal Control Over Financial Reporting**

| 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. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Item      9B.**
**Other      Information**

**PART      III**

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

| Fee                Category       |   | **2005**                 |   | 2004                 |
|-----------------------------------|--------|--------------------------|--------|----------------------|
|                              |   |                     |   |                 |
| Audit                fees         |   | **$                1.5** |   | $                1.4 |
| Audit-related                fees |   | **.1**                   |   | .1                   |
| Tax                fees           |   | **-**                    |   | -                    |
| All                other fees     |   | **-**                    |   | -                    |
| Total                fees         |   | **$                1.6** |   | $                1.5 |

*Audit      Fees.*

*Audit-Related      Fees.*

**Audit      Committee Pre-Approval Policies and Procedures**

**PART      IV**

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

----

| Schedule |                                                                   |   |
|----------|------------------------------------------------------------------------|--------|
| Number   |                                                                   | Page   |
|     | Report                of Independent Registered Public Accounting Firm | 24     |
| II       | Valuation                and Qualifying Accounts                       | 52     |

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

----

| **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 |
|                                                                                                                          |   |   |                            |   |            |                      |   |   |                      |   |   |   |       |   |   |   |                     |
| 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**                 |
|                                                                                                                          |   |   |                            |   |            |                      |   |   |                      |   |   |   |       |   |   |   |                     |
| 2004                                                                                                                          |   |   |                            |   |            |                      |   |   |                      |   |   |   |       |   |   |   |                     |
|                                                                                                                          |   |   |                            |   |            |                      |   |   |                      |   |   |   |       |   |   |   |                     |
| Allowance                for doubtful                                                                                         |   |   |                            |   |            |                      |   |   |                      |   |   |   |       |   |   |   |                     |
| accounts                receivable                                                                                            |   | $      | 19.4                            |   | $               | 32.5                      |   | $      | -                         |   |   | $      | 32.2       | (a     | )      | $      | 19.7                     |
|                                                                                                                          |   |   |                            |   |            |                      |   |   |                      |   |   |   |       |   |   |   |                     |
| Accrued                mercury-related costs                                                                                  |   |   | 21.9                            |   |            | -                         |   |   | -                         |   |   |   | 1.7        | (b     | )      |   | 20.2                     |
|                                                                                                                          |   |   |                            |   |            |                      |   |   |                      |   |   |   |       |   |   |   |                     |
| Accrued                manufactured gas plant                                                                                 |   |   |                            |   |            |                      |   |   |                      |   |   |   |       |   |   |   |                     |
| environmental                costs                                                                                            |   |   | 33.2                            |   |            | -                         |   |   | 18.8                      | (c     | )      |   | 15.2       | (b     | )      |   | 36.8                     |
|                                                                                                                          |   |   |                            |   |            |                      |   |   |                      |   |   |   |       |   |   |   |                     |
| 2003                                                                                                                          |   |   |                            |   |            |                      |   |   |                      |   |   |   |       |   |   |   |                     |
|                                                                                                                          |   |   |                            |   |            |                      |   |   |                      |   |   |   |       |   |   |   |                     |
| Allowance                for doubtful                                                                                         |   |   |                            |   |            |                      |   |   |                      |   |   |   |       |   |   |   |                     |
| accounts                receivable                                                                                            |   | $      | 14.4                            |   | $               | 29.8                      |   | $      | -                         |   |   | $      | 24.8       | (a     | )      | $      | 19.4                     |
|                                                                                                                          |   |   |                            |   |            |                      |   |   |                      |   |   |   |       |   |   |   |                     |
| Accrued                mercury-related costs                                                                                  |   |   | 23.4                            |   |            | -                         |   |   | -                         |   |   |   | 1.5        | (b     | )      |   | 21.9                     |
|                                                                                                                          |   |   |                            |   |            |                      |   |   |                      |   |   |   |       |   |   |   |                     |
| Accrued                manufactured gas plant                                                                                 |   |   |                            |   |            |                      |   |   |                      |   |   |   |       |   |   |   |                     |
| environmental                costs                                                                                            |   |   | 61.9                            |   |            | -                         |   |   | 14.2                      | (c     | )      |   | 42.9       | (b     | )      |   | 33.2                     |
|                                                                                                                          |   |   |                            |   |            |                      |   |   |                      |   |   |   |       |   |   |   |                     |
| (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.  |

----

**Signatures**

|                                                                                                                                                |   | Nicor                Gas Company                       |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------|
|                                                                                                                                                |   |                                                   |
| Date                    February                24, 2006                                                                        |   | /s/                RICHARD L.HAWLEY                    |
|                                                                                                                                                |   | Richard                L. Hawley                       |
|                                                                                                                                                |   | Executive                Vice President and            |
|                                                                                                                                                |   | Chief                Financial 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 24, 2006.            |
|                                                                                                                                                |   |                                                   |
| 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                 |
| *and                Principal Accounting Officer)*                                                                                                  |   |                                                   |
|                                                                                                                                                |   |                                                   |
|                                                                                                                                                |   |                                                   |
|                                                                                                                                                |   |                                                   |
| ROBERT                M. BEAVERS, JR.*                                                                                                              |   | Director                                               |
|                                                                                                                                                |   |                                                   |
| BRUCE                P. BICKNER*                                                                                                                    |   | Director                                               |
|                                                                                                                                                |   |                                                   |
| JOHN                H. BIRDSALL, III*                                                                                                               |   | Director                                               |
|                                                                                                                                                |   |                                                   |
| THOMAS                A. DONAHOE*                                                                                                                   |   | Director                                               |
|                                                                                                                                                |   |                                                   |
| RAYMOND                A. JEAN*                                                                                                                     |   | Director                                               |
|                                                                                                                                                |   |                                                   |
| JOHN                E. JONES*                                                                                                                       |   | Director                                               |
|                                                                                                                                                |   |                                                   |
| DENNIS                J. KELLER*                                                                                                                    |   | Director                                               |
|                                                                                                                                                |   |                                                   |
| R.                EDEN MARTIN*                                                                                                                      |   | Director                                               |
|                                                                                                                                                |   |                                                   |
| GEORGIA                R. NELSON*                                                                                                                   |   | Director                                               |
|                                                                                                                                                |   |                                                   |
| WILLIAM                A. OSBORN*                                                                                                                   |   | Director                                               |
|                                                                                                                                                |   |                                                   |
| JOHN                RAU*                                                                                                                            |   | Director                                               |
|                                                                                                                                                |   |                                                   |
| JOHN                F. RIORDAN*                                                                                                                     |   | Director                                               |
|                                                                                                                                                |   |                                                   |
|                                                                                                                                                | *      | By                /s/                RICHARD L. HAWLEY |
|                                                                                                                                                |   | Richard                L. Hawley                       |
|                                                                                                                                                |   | (Attorney-in-fact)                                     |

----

**Supplemental        Information**

----

**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 January                15, 2004. (File No. 1-7296, Form 10-K for 2003, Exhibit                3.03.)                                                                                                |
|    |   |                                                                                                                                                                                                                                                                                              |
| 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 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-K for 2001, Exhibit 4.20.)               |
|    |   |                                                                                                                                                                                                                                                                                              |
| 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                4.09.) |

----

| Exhibit     |    |                                                                                                                                                                                                                                                                               |
|-------------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Number      |    | Description                of Document                                                                                                                                                                                                                                             |
|        |    |                                                                                                                                                                                                                                                                               |
| 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 4.10.) |
|        |    |                                                                                                                                                                                                                                                                               |
| 4.11        | *       | 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.) |
|        |    |                                                                                                                                                                                                                                                                               |
| 10.01       | *       | Directors’                Deferred Compensation Plan. (File No. 1-7296, Form 10-K for December                31,                1983, Northern Illinois Gas Company, Exhibit 10.10.)                                                                                        |
|        |    |                                                                                                                                                                                                                                                                               |
| 10.02       | *       | Directors                Compensation. (File No. 1-7296, Form 8-K for September 21, 2005,                Northern                Illinois Gas Company.)                                                                                                                            |
|        |    |                                                                                                                                                                                                                                                                               |
| 10.03       | *       | 210-Day                Credit Agreement dated as of September 13, 2005. (File No. 1-7296,                Form                10-Q for September 30, 2005, Northern Illinois Gas Company, Exhibit                10.02.)                                                            |
|        |    |                                                                                                                                                                                                                                                                               |
| 10.04       | *       | 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.)                                                             |
|        |    |                                                                                                                                                                                                                                                                               |
| 10.05       |    | First                Amendment to the Northern Illinois Gas Company Supplemental Retirement                Plan.                                                                                                                                                                   |
|        |    |                                                                                                                                                                                                                                                                               |
| 12.01       |    | Computation                of Consolidated Ratio of Earnings to Fixed Charges.                                                                                                                                                                                                     |
|        |    |                                                                                                                                                                                                                                                                               |
|  18.01 |  * | Letter              regarding change in accounting principles.  (File No. 1-7296, Form              10-Q for June 2005, Exhibit 18.01.)                                                                                                                                       |
|        |    |                                                                                                                                                                                                                                                                               |
| 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. |
|---------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|