FORM 10-K
                     SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C.  20549



(Mark One)

[ X ] For the fiscal year ended December 31, 1995
                          or
[   ] For the transition period from            to            

Commission file number 1-7296


                NORTHERN ILLINOIS GAS COMPANY       
   (Exact name of registrant as specified in its charter)
 
              Illinois                        36-2863847     
  (State or other jurisdiction of          (I.R.S. Employer
   incorporation or organization)        Identification No.)
        
               1844 Ferry Road                               
            Naperville, Illinois              60563-9600   
  (Address of principal executive offices)    (Zip Code)       
         
 

Registrant's telephone number, including area code  (708) 983-8888

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

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

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days.  Yes  X  No    .
 
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K.  [ X ]

Shares of common stock, par value $5, outstanding at February 29, 1996, were
15,232,414, all of which are owned by NICOR Inc.

                                                                            

Northern Illinois Gas                                                Page i 

Table of Contents

Item No.                                                             Page
        Part I
  1.    Business...................................................    1
                                                       
  2.    Properties.................................................    6

  3.    Legal Proceedings..........................................    6
   
  4.    Submission of Matters to a Vote of Security Holders........    *

        Part II
  5.    Market for Registrant's Common Equity and Related
          Stockholder Matters......................................    6

  6.    Selected Financial Data....................................    *

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

  8.    Financial Statements and Supplementary Data................   14

  9.    Changes in and Disagreements with Accountants on
          Accounting and Financial Disclosure......................   30

        Part III
 10.    Directors and Executive Officers of the Registrant.........    *

 11.    Executive Compensation.....................................    *

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

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

        Part IV
 14.    Exhibits, Financial Statement Schedule, and Reports
          on Form 8-K..............................................   30

        Signatures.................................................   32

        Supplemental Information...................................   33

        Exhibit Index..............................................   34

Selected abbreviations:

FERC - Federal Energy Regulatory Commission
Ill.C.C. - Illinois Commerce Commission
Mcf, MMcf, Bcf - Thousand cubic feet, million cubic feet,
                 billion cubic feet

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



Northern Illinois Gas                                                Page 1 

PART I

Item 1. Business

Northern Illinois Gas, formed in 1954, is a wholly owned subsidiary of
NICOR Inc., a diversified holding company.

GENERAL

Northern Illinois Gas is one of the nation's largest gas distribution
utilities, serving more than 1.8 million customers.  The company has
approximately 2,300 employees, of which about 70 percent are covered by
provisions of a collective bargaining agreement which expires on
February 28, 1997.  The company's service territory spans over 17,000 square
miles, covering more than 600 communities and adjacent areas in 35 counties
and encompasses most of the northern third of Illinois, excluding the city
of Chicago.  Northern Illinois Gas maintains franchise agreements with 475
municipalities with terms ranging up to 50 years.  More than 50%, or
approximately 250 franchise agreements, will expire in 20 years or more. 
Only seven agreements, or approximately 1%, will expire in less than five
years.  These agreements allow the company to construct, operate and
maintain distribution facilities in the municipalities served.

The Northern Illinois Gas service territory has a stable economic base that
provides strong and balanced demand among residential, commercial and
industrial customers.  Residential customers account for about 45 percent of
the company's total gas deliveries, while industrial and commercial
customers account for approximately 30 percent and 25 percent of deliveries,
respectively (refer to Operating Statistics on page 11).  In addition, the
company's industrial and commercial customer base is well-diversified,
lessening the impact of industry-specific swings.

Gas deliveries are seasonal since nearly 50 percent are used for space
heating.  Typically, 70 to 75 percent of deliveries and revenues occur from
October 1 to March 31.

CUSTOMER SERVICES

In addition to gas sales to all customer classes, Northern Illinois Gas
provides transportation, storage and backup services to commercial and
industrial customers who purchase their own gas supplies.  Transportation
service provides customers the opportunity to lower their overall costs by
purchasing gas directly and transporting it to their facilities through the
company's distribution system.  The company provides transportation
customers with supply backup which may vary from zero to 100 percent.

Northern Illinois Gas continues to make additional underground storage
capacity available to its transportation customers.  About 21 Bcf, or
15 percent of company-owned storage capacity, is available under the
company's two existing programs and approximately 4,500 customers, brokers
and marketers contracted to use the company's storage-for-fee services
during the 1995-1996 heating season.  In addition to these two programs, in
1995 the company entered into one-year agreements to lease 2 Bcf of storage
capacity to two gas marketers.



Northern Illinois Gas                                                Page 2 

Item 1.Business (continued)

Northern Illinois Gas is continuing to explore ways of enhancing
profitability through nontraditional opportunities that benefit ratepayers
and shareholders alike.  During 1995, these nontraditional activities
included:  selling storage services for a fee to various customers as noted
above; providing transportation service to pipelines and gas distribution
companies adjacent to its facilities; owning a hub which serves as a market
center for various transactions between buyers and sellers of natural gas
and related services; selling space for advertising material to be inserted
in gas bill envelopes; and offering account management services to
transportation customers. While the combined operating results from these
activities are modest, these ventures demonstrate the company's commitment
to developing nontraditional sources of income.

SOURCES OF GAS SUPPLY

As a result of FERC Order 636, Northern Illinois Gas contracts separately
for gas supply, pipeline transportation and leased storage services.  The
company purchases gas supplies on a deregulated basis directly from
producers, marketers and affiliates of pipelines.  Pipeline transportation
and storage services are contracted for at rates regulated by the FERC.  For
further information on FERC Order 636, see page 22.

Northern Illinois Gas owns extensive underground storage facilities located
within its service territory.  The company's gas supply, pipeline
transportation and storage service contracts, when combined with company-
owned storage, were sufficient to meet peak day, seasonal and annual
requirements during 1995.

Northern Illinois Gas has been able to obtain sufficient supplies of natural
gas to meet customer requirements.  The company, however, is unable to make
specific representations as to natural gas supply availability, but believes
supply will be sufficient to meet market demands in the foreseeable future.

Gas supply.  Northern Illinois Gas maintains a diversified portfolio of gas
supply contracts.  Firm direct gas supply contracts are diversified by
supplier, producing region, quantity, available transportation, contract
length and contract expiration date.  Contract pricing is generally tied to
published price indices so as to approximate current market rates for spot
gas.  The contracts also generally provide for the payment of fixed demand
charges to ensure the availability of supplies on any given day.  At the end
of 1995, the company had approximately 40 firm direct gas supply contracts
with terms generally ranging from three months to five years. Nearly
60 percent of the contracted volumes expire in 1996.  The company also
purchases gas supplies on the spot market to fulfill its supply requirements
or to take advantage of favorable short-term pricing.



Northern Illinois Gas                                                Page 3 

Item 1.Business (continued)

The sources of gas purchased for the past three years were:


                               Year ended December 31              
                         1995             1994             1993    
       Source         Bcf      %       Bcf     %        Bcf     %  

Firm direct supply   237.4    78.2    246.8   84.6     139.3   46.8
Spot gas              66.2    21.8     44.8   15.4     115.8   38.9
Pipeline suppliers       -       -        -      -      42.8   14.3

                     303.6   100.0    291.6  100.0     297.9  100.0


The company's transportation customers also purchase gas supplies.  Nearly
45 percent of the gas that the company delivered in 1995 was purchased by
transportation customers directly from producers and marketers rather than
from the company.

Pipeline transportation contracts.  Northern Illinois Gas is directly
connected to five interstate pipelines which provide access to most of the
major natural gas producing regions in the United States and Canada.  The
company's primary firm transportation contracts with these pipelines are
summarized below:
                                                Total maximum
                         Year of service       daily contract
                             agreement            capacity
      Major pipelines       expiration              (Bcf)    

Natural Gas Pipeline Company
of America (NGPL)               2000                  .92(a)
Midwestern Gas Transmission
Company (Midwestern)            2000                  .33
Northern Natural Gas Company
(Northern Natural)              1997                  .19

                                                     1.44

(a) Excludes .49 Bcf of delivered storage service.


The company contracts for transportation capacity necessary to meet peak day
requirements.  Contracted capacity that is not needed during off-peak
periods can be released to other shippers under FERC-mandated capacity
release provisions, with proceeds directly reducing the company's cost of
gas charged to customers.  



Northern Illinois Gas                                                Page 4 

Item 1.Business (continued)

Storage.  Northern Illinois Gas owns and operates seven underground gas
storage facilities.  This storage system is one of the largest in the gas
distribution industry and is able to meet up to 60 percent of the company's
peak day deliveries and approximately 30 percent of its normal winter
deliveries.  On an annual basis, the company cycles about 130 Bcf in and out
of storage.  In addition to the company-owned facilities, Northern Illinois
Gas leases about 43 Bcf of storage from interstate pipelines and other
storage facility operators.  Storage facilities provide supply flexibility,
improve reliability of deliveries and help reduce costs.

In 1994 and 1995, the company significantly enhanced its transmission and
storage capabilities with construction of the Elgin-Volo project, a two-
year, $65 million system improvement.  The project improved withdrawal
capacities at its storage field in Troy Grove, Illinois and added 17 miles
of parallel main to increase the capacity of the transmission system that
delivers gas from Troy Grove to the market.  In addition, 28 miles of
transmission main was added in the northern region of the company's service
territory.

COMPETITION/DEMAND

Northern Illinois Gas is one of the largest utility energy suppliers in
Illinois, delivering about one-third of all utility energy consumed in the
state.  More than 95 percent of all single-family homes in Northern Illinois
Gas' service territory are heated with natural gas.  The company's gas
services compete with other forms of energy, such as electricity and oil. 
Demand for gas may be influenced by such factors as weather, the economy,
new sources and uses of energy, customer conservation efforts, technological
advances, pricing of gas and competitive fuels, environmental
considerations, state and federal regulatory policies and the customers'
overall expectations about the future. 

Changes are expected to occur in the electric utility industry, the result
of which will lead to more competitive pricing between natural gas and
electric utilities.  Retail prices for electricity will become more market
driven and vary based on such factors as demand, available capacity and the
variable costs associated with bringing incremental generating capacity on
line.  Customers will benefit from the increase in competition, and the
energy providers that fare well will be the ones that provide the best
service at the lowest cost.

Additional information on competition and demand is presented in Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, on page 7.



Northern Illinois Gas                                                Page 5 

Item 1.Business (concluded)

REGULATION

Northern Illinois Gas is regulated by the Ill.C.C., which establishes the
rules and regulations governing utility rates and services in Illinois. 
Rates are designed to allow Northern Illinois Gas to recover its costs and
provide an opportunity to earn a fair return on investment.

The cost of gas the company purchases for customers is recovered through a
monthly gas supply charge, which accounts for approximately 70 percent of a
typical residential customer's annual bill.  The company's cost of gas is
passed on to the customer with no markup.

On May 8, 1995, Northern Illinois Gas filed with the Ill.C.C. for a
5.4 percent, $73 million general rate increase.  For further information,
see Rate Proceeding on page 22.

ENVIRONMENTAL MATTERS

Information with respect to environmental matters is presented in the
Contingencies section of the Notes to the Consolidated Financial Statements
on page 28.

OPERATING STATISTICS
                                      Year ended December 31      
                                    1995        1994         1993  
Percent of customers with gas
space heating                        97%         97%          97%
Peak-day sendout (Bcf)               3.8         4.6          3.4
Average temperature on peak day 
(degrees in Fahrenheit)                3         (14)           6
Degree days* (Normal 6,117)        6,111       5,865        6,129
Customers per employee (average)     777         775          748

* Degree days - The number of degrees by which the daily mean temperature
  falls below 65 degrees Fahrenheit.

See Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations, page 11, for operating revenues, deliveries and
customers by class.



Northern Illinois Gas                                                Page 6  

Item 2.  Properties

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

The gas distribution, transmission and storage system includes approximately
28,000 miles of steel, plastic and cast iron main; approximately 24,000
miles of steel, plastic/aluminum composite, plastic and copper service pipe
connecting the mains to customers' premises; and seven underground storage
fields.  Other properties include buildings, land, motor vehicles, meters,
regulators, compressors, construction equipment, tools, and communication,
computer and office equipment.

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

Item 3.  Legal Proceedings

On December 20, 1995, Northern Illinois Gas filed suit against certain
insurance carriers in the Circuit Court of Cook County.  This suit seeks to
declare the insurance carriers liable under policies in effect primarily
between the years 1954 and 1985 for costs associated with environmental
cleanup of former manufactured gas plant sites.


PART II

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

All of the outstanding common stock of Northern Illinois Gas is owned by
NICOR Inc.  There is no public trading market for the company's common
stock.  During 1995 and 1994, the company declared quarterly common
dividends totaling $70.9 million and $77.7 million, respectively.



Northern Illinois Gas                                                Page 7 

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

FACTORS AFFECTING BUSINESS PERFORMANCE

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

Since nearly 50 percent of gas deliveries are used for space heating,
fluctuations in weather can have a significant impact on year-to-year
comparisons of operating income and cash flow.  In addition, significant
changes in gas prices or economic conditions can impact gas usage.  However,
Northern Illinois Gas' large residential customer base provides relative
stability during weak economic periods.  Also, the industrial and commercial
customer base is well-diversified, lessening the impact of industry-specific
economic swings.

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

Direct connection to five interstate pipelines and extensive underground
storage capacity allow the company to maintain rates that are among the
lowest in the nation, while providing transportation customers with direct
access to gas supplies and storage services.  In 1995, Northern Illinois
Gas' storage capabilities enabled the company to reduce purchases of
premium-cost pipeline services.  In addition, in an effort to ensure supply
reliability, the company purchases gas from several different producing
regions under varied contract terms.

In April 1992, the FERC issued Order 636.  This order, which required
implementation by the pipelines for the 1993-1994 heating season,
substantially restructured the interstate sale and transportation of gas. 
For further information, see page 22, FERC Order 636.

Northern Illinois Gas has significantly enhanced its transmission and
storage capabilities with the Elgin-Volo project.  The project improved
withdrawal capacities at the company's storage field in Troy Grove,
Illinois, and added 17 miles of parallel main to increase the capacity of
the transmission system that delivers gas from Troy Grove to the market.  In
addition, 28 miles of main was added in the northern region of the Northern
Illinois Gas service territory between the towns of Elgin, Crystal Lake and
Volo.  The project is expected to provide an estimated $28 million in annual
gas cost savings to customers, enable the company to meet future demand and
provide the opportunity to sell additional transportation and storage
services.



Northern Illinois Gas                                                Page 8 

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

Northern Illinois Gas has been able to increase gas deliveries in recent
years in part because of more diversified uses of natural gas.  While the
majority of the company's growth in the past has been driven by customer
additions, diversified uses, such as electric power generation, large-
tonnage gas air conditioning and gas-fired cogeneration, are expected to
continue to account for a significant portion of Northern Illinois Gas'
growth in deliveries.

In 1993, Northern Illinois Gas began a 10-year contract to transport natural
gas for electric generation.  Deliveries under this contract, which may vary
widely from year to year depending on demand for electricity, operation of
other plants and the cost of natural gas relative to other fuels,
contributed significantly to the overall growth in deliveries in each of the
last two years.  Northern Illinois Gas delivered 34.4 Bcf and 31.4 Bcf of
gas for electric power generation in 1995 and 1994, respectively.

Beyond efforts to increase natural gas deliveries in its service territory,
Northern Illinois Gas is working to increase profitability through
nontraditional opportunities.  During 1995, these nontraditional activities
included:  selling storage services for a fee to various customers;
providing transportation service to pipelines and gas distribution companies
adjacent to its facilities; owning a hub which serves as a market center for
various transactions between buyers and sellers of natural gas and related
services; selling space for advertising materials to be inserted in gas bill
envelopes; and offering account management services to transportation
customers.  These activities generated approximately $6 million in pretax
income in 1995 and 1994, and approximately $3 million in 1993.  These
ventures demonstrate the company's commitment to developing nontraditional
sources of income.

Northern Illinois Gas is examining its operations in light of the changing
regulatory environment.  With efficiency and customer service in mind, the
company has made several organizational changes.  The company's sales and
marketing departments were centralized to enhance the level of service to
existing markets and to focus resources on markets with the most potential
to increase natural gas deliveries.  In field operations, Northern Illinois
Gas has reorganized from a "division" structure based on geography to a
company-wide "process" approach based on closely related activities and
customer services.  The more centralized structure improves the planning and
prioritization of work throughout the company's service territory, leading
to increased efficiency on service calls, maintenance of the operating
system and installation of new services and main.  The company has also
taken steps to streamline its gas storage and transmission operations and is
in the process of reviewing its support and administrative functions.

Northern Illinois Gas also initiated a program in 1994 to reduce the level
of capital expenditures on an ongoing basis while continuing to maintain a
high level of service and reliability.  The company made progress toward
this objective in 1995 as spending on capital items other than the Elgin-
Volo project was significantly below the 1994 level.



Northern Illinois Gas                                                Page 9 

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

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

On May 8, 1995, Northern Illinois Gas filed with the Ill.C.C. for a
5.4 percent, $73 million general rate increase.  The filing requested a rate
of return on original-cost rate base of 10.67 percent, reflecting a
12.95 percent cost of common equity.  The increase is needed to recover
costs associated with enhancements to the company's transmission and storage
system, other capital costs and rising operating costs.  The filing also
proposes revisions to some services provided to commercial and industrial
customers.  The last time the company filed for a general rate increase was
1981.

On January 12, 1996, the Ill.C.C. hearing examiners issued a proposed order
under which Northern Illinois Gas would receive a general rate increase of
approximately $31 million, of which $12 million is due to the proposed
change in the company's depreciation rate.  The proposed order reflects a
rate of return on original-cost rate base of 9.77 percent and an 11.3
percent cost of common equity.  The Ill.C.C. is expected to issue a final
decision by April 4, 1996, which could be different from the proposed order.

As a result of a bill passed by the Illinois legislature in 1995,
performance-based ratemaking is now allowed in the state on an experimental
basis.  Northern Illinois Gas' rate case filing in 1995 was based on the
traditional cost-of-service approach, but the company is studying
performance-based rate opportunities and is considering appropriate actions.

The company is conducting environmental investigations at former gas
manufacturing plant sites.  Although unable to determine the outcome of
these contingencies, management believes that appropriate accruals have been
recorded.  Final disposition of these matters is not expected to have a
material impact on the company's financial condition or results of
operations.  For further information, see page 28, Contingencies.

RESULTS OF OPERATIONS

Net income decreased $7.7 million in 1995 to $85.4 million due mainly to
higher depreciation and higher operating and maintenance expenses, which
more than offset additional margin.  A higher effective tax rate also had a
negative impact on 1995 earnings.  In 1994, net income decreased $1.8
million to $93.1 million as higher operating and maintenance expenses and
depreciation more than offset the impact of additional margin and lower
interest expense.

Revenues.  Operating revenues of $1,312.7 were down 10 percent in 1995 as a
result of the recovery from customers of lower gas costs.  In 1994,
operating revenues decreased 5 percent to $1,455 million as a result of the
recovery from customers of lower gas costs, customers switching from sales
to transportation service and the effect of 4 percent warmer weather.



Northern Illinois Gas                                                Page 10

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

Margin.  Margin, defined as operating revenues less cost of gas and revenue
taxes which are both passed directly through to customers, rose $6 million
in both 1995 and 1994 to $442.3 million and $436.3 million, respectively. 
Factors contributing to the change in margin included the positive impact of
increased deliveries unrelated to weather, the effect of variations in
weather and a nonrecurring $4.2 million gain on the sale of interests in oil
and gas properties in 1994.  Margin per Mcf delivered in 1995 and 1994 was
adversely affected by increases in lower margin deliveries for electric
power generation.

                                    1995      1994       1993  

Margin (Millions)                 $ 442.3   $ 436.3    $ 430.3
Margin per Mcf delivered              .83       .87        .88
Average gas cost per Mcf sold        2.52      3.14       3.26
Degree days (Normal 6,117)          6,111     5,865      6,129


Operating and maintenance.  Operating and maintenance expenses rose
$6.1 million in 1995 to $155.1 million.  The increase was due to several
factors, including a higher pension provision, increased expenditures for
information technology and the incurrence of costs associated with the
company's rate filing.  In 1994, operating and maintenance expenses rose
$7.6 million to $149 million.  The increase related to several items, the
largest being payroll, a new system maintenance program and damage claims.

Depreciation.  Depreciation expense rose 10 percent in 1995 to $98.8
million, and 8 percent in 1994 to $90 million, mainly as a result of plant
additions.

Interest expense.  In 1995, interest expense increased $.7 million to
$38.9 million largely as a result of the impact of higher interest rates
which more than offset higher interest capitalized.  Interest expense
declined to $38.2 million in 1994 from $41.6 million in 1993 because of
reduced borrowing levels and lower interest on potential income tax
adjustments.

Income taxes.  The effective combined federal and state income tax rate was
36.9 percent, 35.4 percent and 35.8 percent for 1995, 1994 and 1993,
respectively.  The increase in 1995 was primarily the result of less excess
deferred taxes turning around.



Northern Illinois Gas                                                Page 11

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

Operating Statistics

                                           Year ended December 31       
                                        1995        1994         1993  
Operating revenues (Millions) 
Sales
 Residential                        $  849.8     $  939.2     $  989.2
 Commercial                            217.8        260.0        292.1
 Industrial                             35.9         50.2         55.4
                                     1,103.5      1,249.4      1,336.7  
Transportation
 Commercial                             50.3         41.8         38.8 
 Industrial                             62.5         51.2         48.1
                                       112.8         93.0         86.9

Revenue taxes and other                 96.4        112.6        109.7 

                                    $1,312.7     $1,455.0     $1,533.3

Deliveries (Bcf)
Sales                                                         
 Residential                           231.4        215.8        222.7
 Commercial                             59.3         60.5         67.0
 Industrial                             10.5         12.4         13.7
                                       301.2        288.7        303.4
Transportation
 Commercial                             64.0         54.2         50.0 
 Industrial                            165.6        156.9        135.4
                                       229.6        211.1        185.4 

                                       530.8        499.8        488.8


Customers at end of period (Thousands)
Sales                                                         
 Residential                         1,660.6      1,632.0      1,601.2
 Commercial                            141.7        141.5        141.7
 Industrial                             11.6         11.6         11.6
                                     1,813.9      1,785.1      1,754.5
Transportation
 Commercial                             17.1         15.3         13.2 
 Industrial                              2.5          2.3          2.1
                                        19.6         17.6         15.3 

                                     1,833.5      1,802.7      1,769.8



Northern Illinois Gas                                                Page 12

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

FINANCIAL CONDITION AND LIQUIDITY   

Overall, Northern Illinois Gas' financial condition is sound.  Long-term
debt continues to be about 40 percent of capitalization.  The company's
ratio of earnings to fixed charges was 4.4, 4.8 and 4.6 for the years ended
December 31, 1995, 1994 and 1993, respectively.

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

Operating.  Net cash flow from operating activities, the company's primary
source of cash, was $254.1 million in 1995, $280.6 million in 1994 and
$207.1 million in 1993.  The changes between years were due primarily to the
timing of the recovery of gas costs from customers.

The working capital component of net cash flow from operating activities can
swing sharply from year to year due primarily to certain factors including
weather, the timing of collections from customers and gas-purchasing
practices.  The company generally relies on short-term financing to meet
temporary increases in working capital needs.

In 1996, net cash flow from operating activities is expected to decrease
significantly because of working capital changes.  Factors contributing to
this decrease include the impact of an increase in company storage
requirements, timing of gas cost recoveries, a return to normal levels of
customer advance payments and the impact of a 1995 gas pipeline refund.

Investing.  Capital expenditures were $152.2 million in 1995 compared with
$160.3 million in 1994 and $127.4 million in 1993.  Capital expenditures in
1995 and 1994 included amounts related to construction of the Elgin-Volo
project, a two-year, $65 million transmission and storage system
improvement.  In 1995, capital spending on projects other than the Elgin-
Volo project was below historical levels, reflecting, in part, efforts to
reduce capital expenditures.

Capital spending in 1996 is anticipated to be about $115 million.  Capital
expenditures are expected to decrease as a result of the completion of the
Elgin-Volo project and company-wide efforts to reduce capital expenditures.

Financing.  Northern Illinois Gas' long-term debt outstanding was $446.2
million at December 31, 1995 and $446.4 million for the years ended
December 31, 1994 and 1993.  Long-term debt as a percentage of
capitalization was 38.6 percent, 39 percent and 39.5 percent at year-end
1995, 1994 and 1993, respectively.

Long-term debt.  In October 1995, Northern Illinois Gas issued $50 million
of 7.26% First Mortgage Bonds due in 2025.  The net proceeds of the sale
replenished corporate funds which were used for the maturity of $50 million
of 5-1/2% unsecured notes due in July 1995.



Northern Illinois Gas                                                Page 13

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

In August 1994, Northern Illinois Gas issued $50 million of 8-1/4% First
Mortgage Bonds due in 2024, which represented the remaining $50 million of a
December 1992 shelf registration statement.  The net proceeds from the sale
of the bonds were used for general corporate purposes, including
construction programs.

In July 1994, Northern Illinois Gas redeemed $50 million of 8.70% First
Mortgage Bonds due in 1995 with proceeds from the issuance of $50 million of
5-1/2% unsecured notes due in July 1995.

In April 1994, Northern Illinois Gas filed a $225 million First Mortgage
Bond shelf registration statement with the Securities and Exchange
Commission, of which $175 million remained available for issuance at
December 31, 1995.  The net proceeds from any securities issued are expected
to be used for the refinancing of certain outstanding debt, for construction
programs to the extent not provided by internally generated funds and for
general corporate purposes.

During 1993, the company refinanced about half of its long-term debt at
lower interest rates, reducing annual interest expense by approximately
$5.5 million on the portion of the debt refinanced.

In 1996, Northern Illinois Gas anticipates issuing, depending upon market
conditions, $50 million of debt to finance maturing debt and $25 million of
debt to replenish funds used in 1995 to finance the Elgin-Volo project.

Short-term debt.  Northern Illinois Gas maintains short-term credit
agreements with major domestic and foreign banks.  At December 31, 1995,
these agreements, which serve as backup for the issuance of commercial
paper, totaled $250 million and the company had $151.6 million and
$188.2 million of commercial paper outstanding at year-end 1995 and 1994,
respectively.  At December 31, 1995, the unused lines of credit under these
credit agreements were $98.4 million.

Common and preferred stock.  The company paid dividends of $71.4 million,
$78.3 million and $70.6 million in 1995, 1994 and 1993, respectively.

ACCOUNTING PRONOUNCEMENT

In 1995, the Financial Accounting Standards Board (FASB) issued Statement
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of.  Implementation of this statement is not
expected to have a material impact on the company's financial condition or
results of operations.  For further information, see New Accounting
Pronouncement on page 21.



Northern Illinois Gas                                                Page 14

Item 8.  Financial Statements and Supplementary Data



                                                                  Page

Report of Independent Public Accountants                           15

Financial Statements:

Consolidated Statement of Income                                   16

Consolidated Statement of Cash Flows                               17

Consolidated Balance Sheet                                         18

Consolidated Statement of Capitalization                           19

Consolidated Statement of Retained Earnings                        20

Notes to the Consolidated Financial Statements                     21



Northern Illinois Gas                                                Page 15

Report of Independent Public Accountants




To Northern Illinois Gas Company:


We have audited the accompanying consolidated balance sheet and statement of
capitalization of NORTHERN ILLINOIS GAS COMPANY (an Illinois corporation and
a wholly owned subsidiary of NICOR Inc.) and subsidiary company as of
December 31, 1995 and 1994, and the related consolidated statements of
income, retained earnings and cash flows for each of the three years in the
period ended December 31, 1995.  These financial statements and the schedule
referred to below are the responsibility of the company's management.  Our
responsibility is to express an opinion on these financial statements and
the schedule based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Northern Illinois Gas
Company and subsidiary company as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1995, in conformity with generally accepted
accounting principles.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole.  The financial statement schedule
listed in the accompanying index (page 30) is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not
part of the basic financial statements.  This schedule has been subjected to
the auditing procedures applied in the audits of the basic financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.


                                                                      
                                     ARTHUR ANDERSEN LLP
                                     Arthur Andersen LLP

Chicago, Illinois
January 24, 1996


<TABLE>
Northern Illinois Gas                                                                                  Page 16

Consolidated Statement of Income
(Millions)
<CAPTION>

                                                                         Year ended December 31         
                                                                  1995            1994           1993   

<S>                                                            <C>             <C>            <C>
Operating revenues                                             $ 1,312.7       $ 1,455.0      $ 1,533.3

Operating expenses
 Cost of gas                                                       787.2           924.9        1,007.1
 Operating and maintenance                                         155.1           149.0          141.4
 Depreciation                                                       98.8            90.0           83.7
 Taxes, other than income taxes                                    100.9           112.0          113.5
 Income taxes                                                       48.6            49.8           52.3     

                                                                 1,190.6         1,325.7        1,398.0

Operating income                                                   122.1           129.3          135.3

Other income (expense)
 Interest income                                                     2.5             1.3             .6
 Other, net                                                          1.0             1.9            1.2
 Income taxes on other income                                       (1.3)           (1.2)           (.6)

                                                                     2.2             2.0            1.2
Interest expense
 Interest on debt, net of amounts capitalized                       38.1            37.7           40.0
 Other                                                                .8              .5            1.6

                                                                    38.9            38.2           41.6

Net income                                                          85.4            93.1           94.9

Dividends on preferred stock                                          .5              .6             .5

Earnings applicable to common stock                            $    84.9       $    92.5      $    94.4



<F1>
Note: Northern Illinois Gas is a wholly owned subsidiary of NICOR Inc.  Earnings and dividends per share
      information is therefore omitted.
<F2>
The accompanying notes are an integral part of this statement.
</TABLE>
 
<TABLE>
Northern Illinois Gas                                                                                  Page 17

Consolidated Statement of Cash Flows
(Millions)
<CAPTION>
                                                                            Year ended December 31        
                                                                     1995           1994           1993 
Operating activities
 <S>                                                               <C>            <C>            <C>
 Net income                                                        $  85.4        $  93.1        $  94.9
 Adjustments to reconcile net income to net 
   cash flow provided from operating activities:
     Depreciation                                                     98.8           90.0           83.7
     Deferred income tax expense                                       5.0             .8            4.7 
     Change in working capital items and other:
       Accounts receivable, less allowances                          (40.6)          59.3           14.1
       Gas in storage                                                  7.0            6.6           23.0
       Deferred/accrued gas costs                                     25.9           22.3          (14.5)
       Accounts payable                                               50.3           26.7            8.4
       Accrued taxes                                                   2.8          (18.9)          (4.4)
       Gas refunds due customers                                      21.9             .7            1.1
       Other                                                          (2.4)             -           (3.9)
  
 Net cash flow provided from operating activities                    254.1          280.6          207.1

Investing activities
 Capital expenditures                                               (152.2)        (160.3)        (127.4)
 Other                                                                  .3             .5             .6

 Net cash flow used for investing activities                        (151.9)        (159.8)        (126.8)
   
Financing activities
 Net proceeds from issuing long-term debt                             49.5           99.1          223.1
 Disbursements to retire long-term debt                              (50.0)         (50.0)        (262.0)
 Short-term borrowings, net                                          (36.6)         (84.8)          29.0 
 Dividends paid                                                      (71.4)         (78.3)         (70.6)
 Other                                                                 (.5)           (.5)           (.4)
  
 Net cash flow used for financing activities                        (109.0)        (114.5)         (80.9)

Net increase (decrease) in cash and cash equivalents                  (6.8)           6.3            (.6)

Cash and cash equivalents, beginning of year                           6.8             .5            1.1

Cash and cash equivalents, end of year                             $     -        $   6.8        $    .5


<F1>
The accompanying notes are an integral part of this statement.
</TABLE>
 
<TABLE>
Northern Illinois Gas                                                                                  Page 18

Consolidated Balance Sheet
(Millions, except share data)
<CAPTION>
                                                                                      December 31        
                          Assets                                                1995              1994  

<S>                                                                          <C>               <C>
Gas distribution plant, at cost                                              $ 2,851.8         $ 2,693.4
 Less accumulated depreciation                                                 1,182.2           1,094.8

                                                                               1,669.6           1,598.6
Other property and investments, net of accumulated
 depletion of $34.4                                                                8.4               7.9       
                                                                                
                                                                                                  
Current assets
 Cash and cash equivalents                                                           -               6.8
 Accounts receivable, less allowances of $4.7
   and $4.4, respectively                                                        242.8             202.2
 Gas in storage, at last-in, first-out cost                                       63.0              91.2
 Deferred gas costs                                                                8.7              34.6
 Other                                                                            25.1              25.7

                                                                                 339.6             360.5

Other assets                                                                      69.1              50.5

                                                                             $ 2,086.7         $ 2,017.5

               Capitalization and Liabilities

Capitalization                                                             
 Long-term debt                                                              $   446.2         $   446.4
 Preferred stock
   Redeemable                                                                      9.1               9.6
   Nonredeemable                                                                   1.4               1.4
 Common equity                                                                
   Common stock, par value $5, authorized 25,000,000 shares
     (reserved for conversion 32,365 shares), outstanding
     15,232,414 shares                                                            76.2              76.2
   Paid-in capital                                                               107.9             107.8
   Retained earnings                                                             516.0             502.0

                                                                               1,156.8           1,143.4
Current liabilities
 Long-term obligations due within one year                                        50.5              50.5
 Short-term borrowings                                                           151.6             188.2
 Accounts payable                                                                281.0             230.7
 Accrued interest                                                                 37.4              37.7
 Gas refunds due customers                                                        24.2               2.3
 Accrued taxes                                                                    14.2              11.4

                                                                                 558.9             520.8
Deferred credits and other liabilities
 Deferred income taxes                                                           172.8             163.4
 Regulatory income tax liability                                                  86.5              89.9
 Unamortized investment tax credits                                               50.8              53.5
 Other                                                                            60.9              46.5

                                                                                 371.0             353.3

                                                                             $ 2,086.7         $ 2,017.5


<F1>
The accompanying notes are an integral part of this statement.             
</TABLE>
 

<TABLE>
Northern Illinois Gas                                                                                  Page 19

Consolidated Statement of Capitalization
(Millions, except share data)
<CAPTION>
                                                                            December 31                 
                                                                  1995                      1994       

Long-term debt
 First mortgage bonds
   Maturity             Interest rate
     <S>                    <S>                           <C>  <C>                  <C>  <C>
     1996                   4.50 %                        $    50.0                 $    50.0
     1997                   5.50                               25.0                      25.0
     1998                   5.875                              25.0                      25.0
     1999                   6.25                               25.0                      25.0
     2000                   5.875                              50.0                      50.0
     2019                   9.0                                50.0                      50.0
     2021                   8.875                              50.0                      50.0
     2022                   8.25                               75.0                      75.0
     2023                   7.375                              50.0                      50.0
     2024                   8.25                               50.0                      50.0
     2025                   7.26                               50.0                         -
                                                              500.0                     450.0
 Less:  Amount due within one year                             50.0                         -
        Unamortized debt discount, net of premium               3.8                       3.6

                                                              446.2     38.6%           446.4     39.0%

 Other long-term debt
   Notes payable due 1995, 5.50%                                  -                      50.0
   Less amount due within one year                                -                      50.0

                                                                  -        -                -        - 

Preferred stock, cumulative, par value $100, authorized
 800,000 shares
   Redeemable preferred stock, 4.48% and 5.00% series,
     outstanding 66,000 and 30,000 shares, respectively,
     in 1995, and 69,000 and 32,000 shares, respectively,
     in 1994                                                    9.6                      10.1
   Less amount due within one year                               .5                        .5    

                                                                9.1       .8              9.6       .9
   Nonredeemable preferred stock, 4.60% and 5.00%
     convertible series, outstanding 8,750 and 5,258
     shares, respectively, in 1995 and 1994                     1.4       .1              1.4       .1

Common equity
 Common stock                                                  76.2                      76.2
 Paid-in capital                                              107.9                     107.8
 Retained earnings                                            516.0                     502.0

                                                              700.1     60.5            686.0     60.0 

                                                          $ 1,156.8    100.0%       $ 1,143.4    100.0%



<F1>
The accompanying notes are an integral part of this statement.
</TABLE>

<TABLE>
Northern Illinois Gas                                                                                  Page 20

Consolidated Statement of Retained Earnings
(Millions)
<CAPTION>

                                                                            Year ended December 31       
                                                                      1995          1994           1993 

<S>                                                                 <C>           <C>            <C>
Balance at beginning of year                                        $ 502.0       $ 487.2        $ 462.9

 Net income                                                            85.4          93.1           94.9

                                                                      587.4         580.3          557.8

 Dividends declared on:
   Common stock                                                        70.9          77.7           70.1
   Preferred stock                                                       .5            .6             .5

                                                                       71.4          78.3           70.6

Balance at end of year                                              $ 516.0       $ 502.0        $ 487.2






<F1>
The accompanying notes are an integral part of this statement.
</TABLE>


Northern Illinois Gas                                                Page 21

Notes to the Consolidated Financial Statements

Northern Illinois Gas is one of the nation's largest gas distribution
companies, serving over 1.8 million customers in a service territory that
encompasses most of the northern third of Illinois, excluding the city of
Chicago.

ACCOUNTING POLICIES

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

Consolidation.  The consolidated financial statements include the accounts
of Northern Illinois Gas and its subsidiary.  All significant intercompany
balances and transactions have been eliminated.  The preparation of the
consolidated financial statements requires management to make estimates that
affect the reported amounts.  Actual results could differ from those
estimates.  Certain reclassifications were made to conform the prior years'
financial statements to the current year presentation.

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

Depreciation.  Property, plant and equipment are depreciated over estimated
useful lives on a straight-line basis using a composite depreciation rate of
3.7 percent.

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

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

Receivable credit risk.  The company has a diversified base of customers,
typical for its industry, and prudent creditworthiness policies which limit
risk.

NEW ACCOUNTING PRONOUNCEMENT

Impairment of long-lived assets.  In March 1995, the Financial Accounting
Standards Board issued Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.  This
statement requires recognition of impairment losses on long-lived assets
when an asset's book value exceeds its expected future undiscounted cash
flows.  This statement requires adoption no later than the company's 



Northern Illinois Gas                                                Page 22

Notes to the Consolidated Financial Statements (continued)

1996 fiscal year and must be adopted as a cumulative effect of a change in
accounting principle.  The company adopted Statement No. 121 on January 1,
1996.  Implementation of this statement is not expected to have a material
impact on the company's financial condition or results of operations.

CASH FLOW INFORMATION

Income taxes paid, net of refunds, and interest paid, net of amounts
capitalized, for the periods ended December 31 were:

  (Millions)                         1995       1994       1993 

  Income taxes paid                 $ 45.0     $ 69.2     $ 51.3
  Interest paid                       38.3       36.7       42.0


REGULATORY MATTERS

Rate proceeding.  On May 8, 1995, Northern Illinois Gas filed with the
Ill.C.C. for a 5.4 percent, $73 million general rate increase.  The filing
requested a rate of return on original-cost rate base of 10.67 percent,
reflecting a 12.95 percent cost of common equity.  The increase is needed to
recover costs associated with enhancements to the company's transmission and
storage system, other capital costs and rising operating costs.  The filing
also proposes revisions to some services provided to commercial and
industrial customers.  The last time the company filed for a general rate
increase was 1981.

On January 12, 1996, the Ill.C.C. hearing examiners issued a proposed order
under which Northern Illinois Gas would receive a general rate increase of
approximately $31 million, of which $12 million is due to the proposed
change in the company's depreciation rate.  The proposed order reflects a
rate of return on original-cost rate base of 9.77 percent and an 11.3
percent cost of common equity.  The Ill.C.C. is expected to issue a final
decision by April 4, 1996, which could be different from the proposed order.

FERC Order 636.  In April 1992, the FERC issued Order 636.  This order,
which required implementation by the pipelines for the 1993-1994 heating
season, substantially restructured the interstate sale and transportation of
gas.  The FERC also authorized pipelines to recover transition costs, such
as gas supply realignment and certain other costs, caused by compliance with
Order 636.  The company estimates that the total transition costs from all
pipeline transporters could exceed $300 million.  However, the ultimate
level of costs is dependent upon the future market price of natural gas,
pipeline negotiations with producers and other factors.  Approximately
$171 million of such costs has been recorded, of which $151 million has been
paid to the pipeline transporters, subject to refund.  Since 1994, the
company has been recovering these costs through the PGA in accordance with
Ill.C.C. authorization.

The company believes that the changes required by Order 636 will not have a
material impact on its financial condition or results of operations.



Northern Illinois Gas                                                Page 23

Notes to the Consolidated Financial Statements (continued)

GAS IN STORAGE

Based on the average cost of gas purchased in December 1995 and 1994, the
estimated current replacement cost of gas in inventory at December 31, 1995
and 1994 exceeded the last-in, first-out cost by approximately $161 million
and $236 million, respectively.

INCOME TAXES

The components of income tax expense are presented below:


  (Millions)                           1995        1994       1993 

  Current
    Federal                           $ 40.1      $ 44.3     $ 42.1
    State                                7.5         8.3        8.4
                                        47.6        52.6       50.5
  Deferred
    Federal                              3.2         (.1)       3.2
    State                                1.8          .9        1.5
                                         5.0          .8        4.7

  Amortization of ITC, net              (2.7)       (2.4)      (2.3)

  Income tax expense                  $ 49.9      $ 51.0     $ 52.9


The temporary differences which gave rise to significant portions of the net
deferred tax liability at December 31, 1995 and 1994 were as follows:

 (Millions)                                     1995        1994 

 Deferred tax liabilities
   Plant                                      $ 236.4     $ 232.2
   Other                                          3.9         9.4
                                                240.3       241.6

 Deferred tax assets
   Unamortized investment tax credits            33.6        35.2
   Regulatory income tax liability               21.0        21.7
   Other                                         26.5        34.1
                                                 81.1        91.0

 Net deferred tax liability                   $ 159.2     $ 150.6



Northern Illinois Gas                                                Page 24

Notes to the Consolidated Financial Statements (continued)

The effective combined federal and state income tax rate was 36.9 percent,
35.4 percent and 35.8 percent in 1995, 1994 and 1993, respectively. 
Differences between federal income taxes computed using the statutory rate
and reported income tax expense are shown below:

  (Millions)                           1995       1994       1993 

  Federal income taxes using
    statutory rate                    $ 47.4     $ 50.4     $ 51.7
  State income taxes, net                6.7        6.3        6.7
  Timing differences reversed
    at originating tax rates            (2.4)       (.7)       (.4)
  Amortization of investment
    tax credits                         (2.6)      (2.7)      (2.7)
  Other, net                              .8       (2.3)      (2.4)

  Income tax expense                  $ 49.9     $ 51.0     $ 52.9


POSTEMPLOYMENT BENEFITS

Pension benefits.  Northern Illinois Gas maintains noncontributory defined
benefit pension plans covering substantially all employees.  Pension
benefits consider job level or the highest average salary earned during five
consecutive years of employment and years of service.  The plans are funded
currently to the extent deductible for federal income tax purposes.  Plan
assets are invested primarily in corporate and government securities.

Net periodic pension cost (benefit) included:


  (Millions)                           1995       1994       1993 

  Service cost                        $  6.4     $  7.0     $  6.7
  Interest cost                         19.3       18.5       20.4
  Loss (return) on plan assets         (61.5)     (17.1)     (41.9)
  Net amortization and deferral         27.0      (19.4)       3.7

                                      $ (8.8)    $(11.0)    $(11.1)
  Expected long-term rate of return
    on plan assets                      9.0%       8.5%       8.5%



Northern Illinois Gas                                                Page 25

Notes to the Consolidated Financial Statements (continued)

The following table reflects the funded status of the pension plans at
October 1, 1995 and 1994 reconciled to amounts recorded in the financial
statements at December 31, 1995 and 1994, respectively:


  (Millions)                                     1995        1994 

  Vested benefits                              $ 217.8     $ 202.9
  Nonvested benefits                              25.7        21.2
  Accumulated benefit obligation                 243.5       224.1
  Effect of assumed increase in
    compensation level                            32.5        29.4
  Projected benefit obligation                   276.0       253.5
  Plan assets at market value                    379.4       352.0
  Plan assets in excess of projected
    benefit obligation                           103.4        98.5
  Unrecognized net gain                          (40.7)      (42.5)
  Unrecognized net transition asset              (23.9)      (27.8)
  Unrecognized prior service cost                  4.5         5.0
  Other                                            3.4         2.9

  Prepaid pension cost                         $  46.7     $  36.1

  Weighted average discount rate                  7.5%        8.0%
  Rate of compensation increase                   4-5         4-5


Northern Illinois Gas has historically amended the collectively bargained
pension plan every two to three years so that such pension benefits are
based on the most current wages.  Northern Illinois Gas intends, subject to
collective bargaining, to continue making similar amendments to the plan. 
These future amendments have been anticipated and are reflected in the
projected benefit obligation and pension expense.

Other postretirement benefits.  Health care and life insurance benefits are
provided for retired employees if they become eligible for retirement while
working for Northern Illinois Gas.  The plans are funded currently to the
extent deductible for federal income tax purposes.  Plan assets are invested
primarily in corporate and government securities.



Northern Illinois Gas                                                Page 26

Notes to the Consolidated Financial Statements (continued)

Net periodic postretirement benefit cost included:


  (Millions)                                1995     1994     1993 

  Service cost                            $   2.3  $   2.3  $   1.9
  Interest cost                               9.0      8.1      7.5
  Loss (return) on plan assets               (1.8)     (.4)    (1.0)
  Amortization of transition obligation       3.7      3.7      3.7
  Net amortization and deferral               1.0      (.1)      .3

                                          $  14.2  $  13.6  $  12.4
  Expected long-term rate of return
    on plan assets                           9.0%     8.5%     8.5%


The following table reflects the funded status of the postretirement health
care and life insurance plans at October 1, 1995 and 1994 reconciled to
amounts recorded in the financial statements at December 31, 1995 and 1994,
respectively:

  (Millions)                                      1995        1994  

  Accumulated postretirement benefit
    obligation (APBO):
      Retirees                                  $   76.9    $   71.2
      Fully eligible active plan participants       16.9        17.2
      Other active plan participants                29.6        28.0    
  Total APBO                                       123.4       116.4
  Plan assets at market value                       11.5         9.7
  APBO in excess of plan assets                   (111.9)     (106.7)
  Unrecognized transition obligation                63.5        67.3
  Unrecognized prior service cost                   (1.2)       (1.3)
  Unrecognized net loss                             12.8        11.9
  Other                                             (2.1)       (2.3)

  Accrued postretirement benefit cost           $  (38.9)   $  (31.1)

  Weighted average discount rate                    7.5%        8.0%
  Rate of compensation increase                     4-5         4-5


The health care cost trend rate for pre-Medicare benefits was assumed to be
10 percent for 1996, gradually declining to 5 percent for 2001 and remaining
at that level thereafter.  The health care cost trend rate for post-Medicare
benefits was assumed to be 7 percent for 1996, gradually declining to
5 percent for 1998 and remaining at that level thereafter.  The health care
cost trend rate assumption has a significant effect on the amounts reported. 
Increasing the assumed health care cost trend rate by 1 percentage point
would increase the APBO as of December 31, 1995, by about $16 million, the
aggregate of the service and interest cost components of 1995 net
postretirement health care costs by $1.9 million, and operating expense by
$1.4 million, after capitalization.



Northern Illinois Gas                                                Page 27

Notes to the Consolidated Financial Statements (continued)

SHORT- AND LONG-TERM DEBT

The company's short-term borrowings consisted of commercial paper.  The
balance and weighted average interest rate at December 31 are as follows:

                                         1995     1994     1993 

  Balance at year-end (Millions)       $ 151.6  $ 188.2  $ 273.0
  Weighted average interest rate
    on year-end balance                  5.68%    5.92%    3.26%


The company establishes lines of credit with major domestic and foreign
banks to support outstanding commercial paper to satisfy short-term
borrowing needs.  At December 31, 1995, lines of credit totaled $250
million, of which $151.6 million served as backup for commercial paper
borrowings.  Commitment fees of 7 basis points per annum were paid on these
lines.  All credit agreements have variable interest-rate options tied to
short-term markets.

Bank cash balances averaged $2.8 million during 1995, which partially
compensated for the cost of maintaining accounts and other banking services. 
Such demand balances may be withdrawn at any time.

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

Interest on debt was net of amounts capitalized of $.9 million, $.2 million
and $.1 million in 1995, 1994 and 1993, respectively.

FAIR VALUE OF FINANCIAL INSTRUMENTS

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

SINKING FUND AND MATURITIES

The amounts necessary to fulfill mandatory sinking fund requirements and
maturities are shown below:


  (Millions)                1996     1997    1998     1999    2000 

  Long-term debt           $ 50.0   $ 25.0  $ 25.0   $ 25.0  $ 50.0
  Preferred stock              .5       .5      .5       .5      .5

                           $ 50.5   $ 25.5  $ 25.5   $ 25.5  $ 50.5



Northern Illinois Gas                                                Page 28

Notes to the Consolidated Financial Statements (continued)

REDEEMABLE PREFERRED STOCK

A description of redeemable preferred stock follows:

                                                                 
                                                 Optional
                       Annual cumulative        redemption
                         sinking fund              and
                          requirement          liquidation
           Series     Shares       Price          price   

            4.48%      3,000      $101.00        $ 102.12
            5.00       2,000       101.00          102.00


The default provisions generally state that no redemption may take place
unless all shares of each respective series are redeemed.  They also provide
that no shares may be purchased except pursuant to offers of sale made by
holders of shares in response to an invitation for tenders.

CONTINGENCIES

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

Until the early 1950s, manufactured gas facilities were operated in the
Northern Illinois Gas service territory.  Manufactured gas is now known to
have created various by-products that may still be present at these sites. 
Current environmental laws may require cleanup of these former manufactured
gas plant sites ("MGPs").  The company has identified up to 40 properties in
its service territory believed to be the location of such sites.  Of these
40 properties, Northern Illinois Gas currently owns 15 and formerly owned or
leased 13.  The remaining 12 were never owned or leased by the company. 
Information has been presented regarding preliminary reviews of the
company's currently owned and formerly owned or leased properties to the
Illinois Environmental Protection Agency.  More detailed investigations are
currently in progress or planned at many of these sites.  At four of the
sites, the current owners are seeking to allocate cleanup costs to all
former owners or lessees, including Northern Illinois Gas.

The results of continued testing and analysis should determine to what
extent remediation is necessary and may provide a basis for estimating any
additional future costs, which based on industry experience, could be
significant.  Costs are currently being recovered pursuant to Ill.C.C.
authorization.

In December 1995, Northern Illinois Gas filed suit against certain insurance
carriers seeking recovery of environmental cleanup costs of former MGPs. 
Presently, management cannot predict the timing or outcome of this lawsuit. 
Any recoveries from such litigation or other sources will be flowed back to
the company's customers.



Northern Illinois Gas                                                Page 29

Notes to the Consolidated Financial Statements (concluded)

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

QUARTERLY RESULTS (Unaudited)

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


                                      1995 Quarter ended          
  (Millions)               Mar. 31   June 30   Sept. 30  Dec. 31
  
  Operating revenues        $569.4    $208.9     $117.5   $416.9
  Operating income            47.1      22.7       12.3     39.9
  Net income                  36.7      15.1        4.0     29.7



                                      1994 Quarter ended          
                           Mar. 31   June 30   Sept. 30  Dec. 31

  Operating revenues        $743.2    $231.3     $129.2   $351.3
  Operating income            55.3      21.4       14.2     38.3
  Net income                  45.8      12.9        4.9     29.5



Northern Illinois Gas                                                Page 30

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

None.


PART IV

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

(a)   1)Financial Statements:

       For the following information, see Part II, Item 8 on page 14.

       Report of Independent Public Accountants
       Consolidated Financial Statements:
         As of December 31, 1995 and 1994 -
           Balance Sheet
           Statement of Capitalization
         For the years ended December 31, 1995, 1994 and 1993 -
           Statement of Income
           Statement of Cash Flows
           Statement of Retained Earnings
       Notes to the Consolidated Financial Statements

      2)Financial Statement Schedule:

       Schedule
        Number                                                  Page

                 Report of Independent Public Accountants        15
          II     Valuation and Qualifying Accounts               31

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

    3) Exhibits Filed:

       See Exhibit Index on pages 34 through 36 filed herewith.

(b)    The company did not file a report on Form 8-K during the fourth
       quarter of 1995.


<TABLE>
Northern Illinois Gas                                                                 Page 31

Schedule II

VALUATION AND QUALIFYING ACCOUNTS
(Millions)
<CAPTION>


         Column A          Column B          Column C            Column D     Column E 
                                             Additions      
                          Balance at  Charged to   Charged                   Balance at
                           beginning   costs and   to Other                    end of
        Description        of period   expenses    accounts   Deductions(a)    period  

1995

Allowance
 for uncollectible
 <S>                       <C>  <C>    <C>  <C>    <C>    <C>    <C>  <C>     <C>  <C>
 accounts receivable       $    4.4    $    7.3    $      -      $    7.0     $    4.7


1994

Allowance
 for uncollectible
 accounts receivable       $    5.5    $    8.2    $      -      $    9.3     $    4.4


1993

Allowance
 for uncollectible
 accounts receivable       $    6.1    $    8.2    $      -      $    8.8     $    5.5



<F1>
(a) Accounts receivable written off, net of recoveries.
</TABLE>


Northern Illinois Gas                                                Page 32

Signatures



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

                                    NORTHERN ILLINOIS GAS COMPANY


Date    March 22, 1996              By       DAVID L. CYRANOSKI      
                                             David L. Cyranoski
                                           Senior Vice President, 
                                          Secretary and Controller

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.

       Signature                    Title                    Date     


    THOMAS L. FISHER      Chairman, President, Chief
    Thomas L. Fisher    Executive Officer and Director

   DAVID L. CYRANOSKI       Senior Vice President,
   David L. Cyranoski    Secretary and Controller and
                         Principal Financial Officer

ROBERT M. BEAVERS, JR.*          Director

JOHN H. BIRDSALL, III*           Director

W. H. CLARK*                     Director

JOHN E. JONES*                   Director               March 22, 1996

DENNIS J. KELLER*                Director

CHARLES S. LOCKE*                Director

SIDNEY R. PETERSEN*              Director

DANIEL R. TOLL*                  Director

PATRICIA A. WIER*                Director




                        *By           THOMAS D. GREENBERG         
                            Thomas D. Greenberg (Attorney-in-fact)



Northern Illinois Gas                                                Page 33

Supplemental Information

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

No annual report has been sent to security holders as Northern Illinois Gas
is a wholly owned subsidiary of NICOR Inc.  The proxy statement, dated
January 26, 1996, provided to holders of all series of Northern Illinois Gas
First Mortgage Bonds for the purpose of voting on the adoption of certain
proposed amendments to the Indenture dated as of January 1, 1954, is
included herewith as Exhibit 99.01 but shall not be deemed to be "filed"
with the Commission for purposes of the Securities Exchange Act of 1934.



Northern Illinois Gas                                                Page 34

                                 Exhibit Index

Exhibit
 Number                         Description of Document                     

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

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

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

  4.01     Indenture of Commonwealth Edison Company to Continental Illinois
           National Bank and Trust Company of Chicago, Trustee, dated as of
           January 1, 1954.

  4.02     Indenture of Adoption of the company to Continental Illinois
           National Bank and Trust Company of Chicago, Trustee, dated
           February 9, 1954.

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

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

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

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

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

  4.08   * Supplemental Indenture, dated July 1, 1989, of the company to
           Continental Bank, National Association, Trustee, under Indenture
           dated as of January 1, 1954.  (File No. 1-7296, Form 8-K for June
           1989, Exhibit 4-01.)



Northern Illinois Gas                                                Page 35

                                 Exhibit Index

Exhibit
 Number                         Description of Document                     

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

  4.10   * Supplemental Indenture, dated July 15, 1992, of the company to
           Continental Bank, National Association, Trustee, under Indenture
           dated as of January 1, 1954.  (File No. 1-7296, Form 10-Q for
           June 1992,  Exhibit 4-01.)

  4.11   * Supplemental Indenture, dated February 1, 1993, of the company to
           Continental Bank, National Association, Trustee, under Indenture
           dated as of January 1, 1954.  (File No. 1-7296, Form 10-K for
           1992, Exhibit 4-17.)

  4.12   * Supplemental Indenture, dated March 15, 1993, of the company to
           Continental Bank, National Association, Trustee, under Indenture
           dated as of January 1, 1954.  (File No. 1-7296, Form 10-Q for
           March 1993,  Exhibit 4-01.)

  4.13   * Supplemental Indenture, dated May 1, 1993, of the company to
           Continental Bank, National Association, Trustee, under Indenture
           dated as of January 1, 1954.  (File No. 1-7296, Form 10-Q for
           March 1993,  Exhibit 4-02.)

  4.14   * Supplemental Indenture, dated July 1, 1993, of the company to
           Continental Bank, National Association, Trustee, under Indenture
           dated as of January 1, 1954.  (File No. 1-7296, Form 10-Q for
           June 1993,  Exhibit 4-01.)

  4.15   * Supplemental Indenture, dated August 15, 1994, of the company to
           Continental Bank, Trustee, under Indenture dated as of January 1,
           1954.  (File No. 1-7296, Form 10-Q for September 1994,
           Exhibit 4.01.)

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

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

 12.01     Computation of Consolidated Ratio of Earnings to Fixed Charges.

 23.01     Consent of Independent Public Accountants.

 24.01     Powers of Attorney.



Northern Illinois Gas                                                Page 36

                                 Exhibit Index

Exhibit
 Number                         Description of Document                     

 27.01     Financial Data Schedule.

 99.01     Proxy Solicitation Material, dated January 26, 1996 and March 11, 
           1996, for the purpose of voting on the adoption of certain 
           proposed amendments to the Indenture dated as of January 1, 1954.



* 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.

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