SECURITIES AND EXCHANGE COMMISSION

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2012
OR

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

For the transition period from to

Commission File Number 1-7296

NORTHERN ILLINOIS GAS COMPANY (Doing Business as NICOR GAS COMPANY)
(Exact name of registrant as specified in its charter)

Illinois	36-2863847
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1844 Ferry Road
Naperville, Illinois 60563	630-983-8888
(Address and zip code of principal executive offices)	(Registrant’s telephone number, including area code)



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 þ No ¨


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer þ Smaller reporting company ¨
(Do not check if smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ¨ No þ


All shares of common stock are owned by AGL Resources Inc.


Northern Illinois Gas Company meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with a reduced disclosure format specified in General Instruction H(2)(b) of Form 10-Q.

~~Washington,~~TABLE ~~D.C.~~OF ~~20549~~CONTENTS

FORM 10-Q

		Page(s)
Glossary of Key Terms		3

Part I	FINANCIAL INFORMATION	5

Item 1.	Condensed Consolidated Financial Statements (Unaudited)	5
	Condensed Consolidated Statements of Financial Position	5
	Condensed Consolidated Statements of Income	6
	Condensed Consolidated Statements of Comprehensive Income	6
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
	Note 1 – Organization and Basis of Presentation	8
	Note 2 – Significant Accounting Policies and Methods of Application	8
	Note 3 – Fair Value Measurements	11
	Note 4 – Derivative Instruments	11
	Note 5 – Employee Benefit Plans	13
	Note 6 – Debt	14
	Note 7 – Commitments, Guarantees and Contingencies	14
	Note 8 – Related Party Transactions	17

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
	Forward-Looking Statements	18
	Executive Summary	18
	Results of Operations	19
	Liquidity and Capital Resources	22
	Contingencies	25
	Critical Accounting Policies and Estimates	26

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26

Item 4.	Controls and Procedures	26

Part II	OTHER INFORMATION	27

Item 1.	Legal Proceedings	27

Item 1A.	Risk Factors	27

Item 6.	Exhibits	27

SIGNATURE		28

~~[X]~~Glossary ~~QUARTERLY~~of ~~REPORT~~Key ~~PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2011~~Terms

or2

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

Commission File Number 1-7296

NORTHERN ILLINOIS GAS COMPANY

(Doing business as Nicor Gas Company)

(Exact name of registrant as specified in its charter)

Illinois	36-2863847
(State of Incorporation)	(I.R.S. Employer
	Identification No.)

1844 Ferry Road
Naperville, Illinois 60563-9600	(630) 983-8888
(Address of principal executive offices) (Zip Code)	(Registrant’s telephone number, including area code)

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months. Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in rule 12b-2 of the Exchange Act.

Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X] Smaller reporting company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

All shares of common stock are owned by Nicor Inc.

Table of Contents

Glossary			ii
Part I – Financial Information
	Item 1.	Financial Statements (Unaudited)
		Condensed Consolidated Statements of Income: Three and nine months ended September 30, 2011 and 2010	1
		Condensed Consolidated Statements of Cash Flows: Nine months ended September 30, 2011 and 2010	2
		Condensed Consolidated Balance Sheets: September 30, 2011 and 2010, and December 31, 2010	3
		Notes to the Condensed Consolidated Financial Statements	4
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
	Item 4.	Controls and Procedures	30
Part II – Other Information
	Item 1.	Legal Proceedings	30
	Item 6.	Exhibits	31
		Signature	32

GLOSSARY OF KEY TERMS

i2011 Form 10-K. Our Annual Report on Form 10-K for the year ended December 31, 2011, filed with the SEC on February 22, 2012.

~~Table~~AGL Resources. AGL Resources Inc., our parent company since the completion of ~~Contents~~the merger between AGL Resources and Nicor on December 9, 2011.

~~Glossary~~Bcf. Billion cubic feet.

~~AGL Resources~~ERC. ~~AGL~~Environmental ~~Resources,~~remediation ~~Inc~~costs.~~, the company with whom Nicor entered into an Agreement and Plan of Merger on December 6, 2010.~~

~~ALJ~~FERC. ~~Administrative~~Federal ~~Law~~Energy ~~Judge~~Regulatory Commission.

~~Chicago Hub~~Fitch. AFitch ~~venture of Nicor Gas, which provides natural gas storage and transmission-related services to marketers and other gas distribution companies~~Ratings.

~~Degree day~~GAAP. ~~The~~Accounting ~~extent~~principles togenerally ~~which~~accepted in the ~~daily~~United ~~average~~States ~~temperature falls below 65 degrees Fahrenheit. Normal weather for Nicor Gas’ service territory, for purposes~~ of ~~this report, is considered to be 5,600 degree days per year~~America.

FERC. Federal Energy Regulatory Commission, the agency that regulates the interstate transportation of natural gas, oil and electricity.

Financial Reform Legislation. Dodd-Frank Wall Street Reform and Consumer Protection Act.

Health Care Act. Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010.

~~Horizon~~Heating ~~Pipeline~~Degree Days. ~~Horizon~~A ~~Pipeline~~measure ~~Company,~~of ~~L.L.C.~~the ~~(“Horizon”)~~effects of weather on our business, acalculated ~~50-percent-owned~~when ~~joint~~the ~~venture~~average ofdaily ~~Nicor,~~temperatures ~~operates~~are anless ~~interstate~~than ~~regulated~~65 ~~natural~~degrees ~~gas~~Fahrenheit. Normal ~~pipeline~~weather offor ~~approximately~~our 70service ~~miles~~territory, ~~stretching~~for ~~from~~purposes ~~Joliet~~of this report, ~~Illinois~~is considered to ~~near~~be ~~the~~5,600 ~~Wisconsin/Illinois~~Heating ~~border~~Degree Days per year.

~~ICC~~Heating Season. ~~Illinois~~The ~~Commerce~~period ~~Commission,~~from ~~the~~November ~~agency~~through ~~that~~March ~~establishes~~when ~~the~~natural ~~rules~~gas usage and ~~regulations~~operating ~~governing~~revenues ~~utility~~are ~~rates~~generally ~~and~~higher ~~services~~because inweather ~~Illinois~~is colder.

~~IDR~~Horizon Pipeline. ~~Illinois~~Horizon ~~Department~~Pipeline Company, L.L.C., a 50% owned joint venture of ~~Revenue~~AGL Resources, operates an interstate regulated natural gas pipeline of approximately 70 miles stretching from Joliet, Illinois to near the Wisconsin/Illinois border.

~~IPA~~Illinois Commission. Illinois ~~Power~~Commerce ~~Agency~~Commission, our state regulatory agency.

~~IRS~~LIBOR. ~~Internal~~London ~~Revenue~~Inter-Bank ~~Service~~Offered Rate.

LIFO. Last-in, first-out.

Mcf~~, MMcf, Bcf~~. Thousand cubic feet~~, million cubic feet, billion cubic feet~~.

~~Nicor~~Moody’s. ~~Nicor~~Moody’s ~~Inc.,~~Investors ~~the parent company of Nicor Gas~~Service.

Nicor ~~Advanced Energy~~. ~~Prairie~~Nicor ~~Point Energy~~Inc., ~~L.L.C.~~our ~~(doing~~parent ~~business~~company asprior ~~Nicor~~to ~~Advanced~~the ~~Energy),~~completion ~~a wholly owned business~~ of ~~Nicor~~the ~~that~~merger ~~provides~~between ~~natural~~AGL ~~gas~~Resources and ~~related~~Nicor ~~services~~ on anDecember ~~unregulated~~9, ~~basis to residential and small commercial customers~~2011.

Nicor ~~Enerchange~~Advanced Energy. ~~Nicor~~Prairie ~~Enerchange~~Point Energy, L.L.C. (doing business as Nicor Advanced Energy), a wholly owned business of ~~Nicor~~AGL Resources that ~~engages~~provides ~~in wholesale marketing of~~ natural gas ~~supply services primarily in the Midwest, administers the Chicago Hub for Nicor Gas, serves commercial~~ and ~~industrial~~related ~~customers~~services inon ~~the~~an ~~northern~~unregulated ~~Illinois~~basis ~~market~~to ~~area,~~residential and ~~manages~~small ~~Nicor~~commercial ~~Solutions’ and Nicor Advanced Energy’s product risks, including the purchase of natural gas supplies~~customers.

Nicor Gas. Northern Illinois Gas Company (doing business as Nicor Gas Company), or the registrant.

iiNicor Services. Nicor Energy Services Company, a wholly owned business of AGL Resources that, directly or through subsidiaries, provides customer move connection services for utilities and product warranty contracts, heating, ventilation and air conditioning repair, maintenance and installation services and equipment to retail markets, including residential and small commercial customers.

Nicor Solutions. Nicor Solutions, L.L.C., a wholly owned business of AGL Resources that offers residential and small commercial customers energy-related products that provide for natural gas cost stability and management of their utility bill.

OCI. Other comprehensive income.

Glossary of Key Terms

Table of Contents

Nicor Services. Nicor Energy Services Company, a wholly owned business of Nicor that, directly or through subsidiaries, provides customer move connection services for utilities and product warranty contracts, heating, ventilation and air conditioning repair, maintenance and installation services and equipment to retail markets, including residential and small commercial customers.

Nicor Solutions. Nicor Solutions, L.L.C., a wholly owned business of Nicor that offers residential and small commercial customers energy-related products that provide for natural gas cost stability and management of their utility bill.

NYMEX. New York Mercantile Exchange.

PBR. Performance-based rate, a regulatory plan which ended on January 1, 2003, that provided economic incentives based on natural gas cost performance.

PGA. Purchased Gas Adjustment, a rate rider that passes natural gas costs directly through to customers without markup, subject to ~~ICC~~Illinois Commission review.

~~Rider~~PP&E. AProperty, ~~rate~~plant ~~adjustment~~and ~~mechanism that is part of a utility’s tariff which authorizes it to provide specific services or assess specific charges~~equipment.

Revenue taxes. Revenue and use taxes.

Rider. A rate adjustment mechanism that is part of a utility's tariff which authorizes it to provide specific services or assess specific charges.

SEC. The United States Securities and Exchange Commission.

Sequent. Sequent Energy Management, L.P., a wholly owned business of AGL Resources that engages in wholesale marketing of natural gas supply services.

SNG. Substitute natural gas, a synthetic form of gas manufactured from coal.

~~iii~~S&P. Standard & Poor’s Ratings Services.

~~Table~~Glossary of ~~Contents~~Key Terms

Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Nicor Gas Company
Condensed Consolidated Statements of Income (Unaudited)
(millions)
	Three months ended						Nine months ended
	September 30						September 30
	2011			2010			2011			2010
Operating revenues (includes revenue taxes of $14.4, $14.0, $120.7 and $111.8, respectively)	$	239.9		$	233.5		$	1,514.6		$	1,601.8
Operating expenses
Cost of gas		92.9			75.5			914.7			982.3
Operating and maintenance		59.9			74.1			209.1			216.2
Depreciation		47.1			45.9			141.3			137.8
Taxes, other than income taxes		18.6			18.3			133.5			124.4
Other		-			(1.3	)		-			(1.3	)
Income tax expense		5.2			4.3			35.2			42.8
Total operating expenses		223.7			216.8			1,433.8			1,502.2
Operating income		16.2			16.7			80.8			99.6
Other income (expense), net
Other income		.5			.4			1.2			1.7
Other expense		(.2	)		(.2	)		(1.1	)		(1.1	)
Income tax expense on other income		(.2	)		(.1	)		(.1	)		(.3	)
Total other income (expense), net		.1			.1			-			.3
Interest expense
Interest on debt, net of amounts capitalized		8.1			9.1			24.7			27.1
Other		-			-			(2.0	)		.2
Total interest expense		8.1			9.1			22.7			27.3
Net income	$	8.2		$	7.7		$	58.1		$	72.6
The accompanying notes are an integral part of these statements.

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Nicor Gas Company
Condensed Consolidated Statements of Cash Flows (Unaudited)
(millions)
	Nine months ended
	September 30
	2011			2010
Operating activities
Net income	$	58.1		$	72.6
Adjustments to reconcile net income to net cash flow provided from operating activities:
Depreciation		141.3			137.8
Deferred income tax expense		17.1			8.4
Changes in assets and liabilities:
Receivables, less allowances		222.1			256.0
Gas in storage		(76.2	)		(80.5	)
Deferred/accrued gas costs		(9.2	)		6.9
Derivative instruments		(19.0	)		12.4
Margin accounts - derivative instruments		29.1			(13.4	)
Other assets		6.8			14.2
Accounts payable		(33.6	)		(70.8	)
Customer credit balances and deposits		(2.0	)		(10.5	)
Other liabilities		24.9			2.3
Other items		(2.5	)		(8.1	)
Net cash flow provided from operating activities		356.9			327.3
Investing activities
Additions to property, plant & equipment		(139.8	)		(124.5	)
Other investing activities		3.9			3.1
Net cash flow used for investing activities		(135.9	)		(121.4	)
Financing activities
Proceeds from issuing long-term debt		75.0			-
Disbursements to retire long-term debt		(75.0	)		-
Net repayments of commercial paper		(115.4	)		(120.7	)
Net repayments of loan from affiliates		(40.0	)		-
Debt issuance costs		(1.5	)		(3.7	)
Dividends paid		(63.8	)		(81.9	)
Other financing activities		(.3	)		-
Net cash flow used for financing activities		(221.0	)		(206.3	)
Net decrease in cash and cash equivalents		-			(.4	)
Cash and cash equivalents, beginning of period		.1			.6
Cash and cash equivalents, end of period	$	.1		$	.2
The accompanying notes are an integral part of these statements.

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Nicor Gas Company
Condensed Consolidated Balance Sheets (Unaudited)
(millions)
	September 30			December 31			September 30
	2011			2010			2010
Assets
Gas distribution plant, at cost	$	4,841.7		$	4,733.6		$	4,680.3
Less accumulated depreciation		1,943.7			1,879.1			1,857.5
Gas distribution plant, net		2,898.0			2,854.5			2,822.8
Current assets
Cash and cash equivalents		.1			.1			.2
Receivables, less allowances of $25.0, $25.2 and $35.6, respectively		158.7			378.4			148.1
Receivables - affiliates		7.1			9.5			6.9
Gas in storage		195.4			119.2			185.2
Derivative instruments		2.7			7.4			3.1
Margin accounts - derivative instruments		27.5			49.8			58.8
Other		99.5			98.7			127.0
Total current assets		491.0			663.1			529.3
Regulatory postretirement asset		181.7			193.3			183.6
Other assets		154.9			144.0			137.9
Total assets	$	3,725.6		$	3,854.9		$	3,673.6
Capitalization and Liabilities
Capitalization
Long-term obligations
Long-term debt, net of unamortized discount	$	498.5		$	498.4		$	423.4
Mandatorily redeemable preferred stock		1.5			1.8			1.8
Total long-term obligations		500.0			500.2			425.2
Non-redeemable preferred stock		1.4			1.4			1.4
Common equity
Common stock		76.2			76.2			76.2
Paid-in capital		108.1			108.1			108.1
Retained earnings		472.9			471.6			468.4
Accumulated other comprehensive loss		(6.6	)		(7.1	)		(7.2	)
Total common equity		650.6			648.8			645.5
Total capitalization		1,152.0			1,150.4			1,072.1
Current liabilities
Long-term obligations due within one year		.3			.3			75.3
Short-term debt - affiliates		-			40.0			-
Short-term debt - other		309.6			425.0			373.3
Accounts payable		205.8			239.0			193.6
Customer credit balances and deposits		108.6			110.6			131.2
Derivative instruments		30.8			50.4			68.6
Other		100.0			112.1			79.9
Total current liabilities		755.1			977.4			921.9
Deferred credits and other liabilities
Regulatory asset retirement liability		878.5			843.9			836.0
Deferred income taxes		392.4			364.7			353.6
Health care and other postretirement benefits		232.6			229.7			201.9
Asset retirement obligation		197.0			190.6			188.4
Other		118.0			98.2			99.7
Total deferred credits and other liabilities		1,818.5			1,727.1			1,679.6
Commitments and contingencies
Total capitalization and liabilities	$	3,725.6		$	3,854.9		$	3,673.6
The accompanying notes are an integral part of these statements.

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Nicor Gas Company

Notes to the Condensed Consolidated Financial Statements (Unaudited)

1. PROPOSED MERGER WITH AGL RESOURCES

In December 2010, Nicor entered into an Agreement and Plan of Merger (the “Merger Agreement”) with AGL Resources, which Nicor expects will be complete in the fourth quarter of 2011. In accordance with the Merger Agreement, each share of Nicor common stock outstanding at the Effective Time (as defined in the Merger Agreement), other than shares to be cancelled and Dissenting Shares (as defined in the Merger Agreement), will be converted into the right to receive consideration consisting of (i) $21.20 in cash and (ii) 0.8382 shares of AGL Resources common stock, subject to adjustments in certain circumstances.

Completion of the proposed merger is conditioned upon, among other things, shareholder approval by both companies and the receipt of various regulatory approvals. AGL Resources filed a registration statement with the SEC to register the AGL Resources common stock to be issued in the merger, and the SEC permitted that registration to become effective on April 29, 2011. AGL Resources and Nicor also filed their pre-merger notifications under the Hart-Scott-Rodino Antitrust Improvements Act and were granted early termination of the waiting period on April 18, 2011. The approvals from Nicor shareholders and AGL Resources shareholders required in connection with the merger were received on June 14, 2011.

In January 2011, Nicor, Nicor Gas and AGL Resources filed a joint application with the ICC for approval of the proposed merger. The approval by the ICC is a condition to completion of the merger. The ICC has eleven months to act upon the application, with their statutory deadline for action being December 16, 2011. The application did not request a rate increase and included a commitment to maintain the number of full-time equivalent employees involved in the operation of Nicor Gas at a level comparable to current staffing for a period of three years following merger completion. The Staff of the ICC and several intervenors who are participating in the proceeding submitted testimony and legal briefs, recommending that the ICC deny the joint application or that it impose various requirements on the joint applicants as conditions of approval. On September 29, 2011, the ALJ assigned by the ICC to preside over the proceeding issued a proposed order recommending approval of the proposed merger. The ALJ also recommended imposing the condition that Nicor Gas no longer be permitted to provide sales solicitation for Nicor Services’ warranty products. On October 13, 2011, briefs were filed to comment on the proposed order. Testimony and legal briefs of the parties and the ALJ’s proposed order are available on the ICC’s website. In ruling on the merger application, the ICC may accept, modify or reject the proposed order recommended by the ALJ.

The merger may also be subject to review by the governmental authorities of various other federal, state or local jurisdictions under the antitrust and utility regulation or other applicable laws of those jurisdictions. For example, AGL Resources provided a voluntary notice of the merger to the New Jersey Board of Public Utilities (“NJBPU”), which included a description of the transaction, described the benefits of the transaction and explained why AGL Resources does not believe that the approval of the NJBPU is required to complete the merger. AGL Resources provided a similar notice to the Maryland Public Service Commission, which then issued a letter stating that it had reviewed the notification of proposed merger filed by AGL Resources and after considering the matter, noted the transaction. It is possible that one or more state commissions will open proceedings to determine whether they have jurisdiction over the merger. In the event that any reviewing authorities are determined to have jurisdiction over the merger transaction, there can be no assurance that the reviewing authorities will permit the applicable statutory waiting periods to expire or that the reviewing authorities will terminate the applicable statutory waiting periods at all, or otherwise approve the merger without restrictions or

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conditions (which are difficult to predict or quantify) that would have a material adverse effect on the combined company if the merger were completed.

Part I - FINANCIAL INFORMATION
Item 1. Financial Statements

Nicor Gas Company
Condensed Consolidated Statements of Financial Position
(Unaudited)
	As of
	March 31,			December 31,			March 31,
In millions	2012			2011			2011
Assets
Gas distribution plant, at cost	$	4,911		$	4,889		$	4,755
Less accumulated depreciation		1,983			1,961			1,902
Gas distribution plant, net		2,928			2,928			2,853
Current assets
Receivables
Billed revenues		220			223			360
Unbilled revenues		39			107			108
Affiliates		6			8			7
Other		15			19			15
Less allowance for uncollectible accounts		(25	)		(21	)		(38	)
Total receivables		255			336			452
Gas in storage		2			116			2
Deferred income taxes		41			41			28
Derivative instruments		2			2			5
Margin accounts - derivative instruments		45			21			44
Other		49			60			50
Total current assets		394			576			581
Regulatory retirement plan asset		248			253			189
Other assets		193			191			139
Total assets	$	3,763		$	3,948		$	3,762

Capitalization and Liabilities
Capitalization
Long-term debt, net of unamortized discount	$	499		$	499		$	499
Mandatorily redeemable preferred stock		2			2			2
Nonredeemable preferred stock		1			1			1
Common equity
Common stock		76			76			76
Paid-in capital		108			108			108
Retained earnings		490			465			489
Accumulated other comprehensive loss		(9	)		(9	)		(7	)
Total common equity		665			640			666
Total capitalization		1,167			1,142			1,168
Current liabilities
Short-term debt - affiliates		-			-			22
Short-term debt - other		105			452			154
Accounts payable - trade		49			91			103
Customer credit balances and deposits		86			102			76
Temporary LIFO inventory liquidation		89			-			233
Accrued gas costs		64			29			14
Derivative instruments		51			25			45
Other		167			147			197
Total current liabilities		611			846			844
Deferred credits and other liabilities
Regulatory asset retirement liability		908			896			856
Deferred income taxes		404			401			377
Retiree medical plan benefits		270			269			231
Asset retirement obligation		202			200			193
Other		201			194			93
Total deferred credits and other liabilities		1,985			1,960			1,750
Commitments, guarantees and contingencies
Total capitalization and liabilities	$	3,763		$	3,948		$	3,762

See Notes to Condensed Consolidated Financial Statements (Unaudited).

~~The~~Glossary ~~Merger Agreement contains certain termination rights for both Nicor and AGL Resources, and further provides for the payment~~ of ~~fees~~Key and expenses upon termination under specified circumstances. For additional information relating to the proposed merger, please see the joint proxy statement / prospectus contained in the registration statement on Form S-4 that was filed with the SEC by AGL Resources on April 29, 2011.Terms

Company personnel are participating in efforts to develop integration plans for the combined entity. No adjustments have been made to the financial statements as a result of the proposed merger.

2. BASIS OF PRESENTATION

The unaudited Condensed Consolidated Financial Statements of Nicor Gas have been prepared by the company pursuant to the rules and regulations of the SEC. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to SEC rules and regulations. The unaudited Condensed Consolidated Financial Statements and Notes should be read in conjunction with the financial statements and the notes thereto included in the company’s 2010 Annual Report on Form 10-K.

The information furnished reflects, in the opinion of the company, all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the results for the interim periods presented. Results for the interim periods presented are not necessarily indicative of the results to be expected for the full fiscal year due to seasonal and other factors.

The company’s management evaluated subsequent events for potential recognition and disclosure through the date the financial statements were issued.

3. ACCOUNTING POLICIES

Gas in storage. Gas inventory is carried at cost on a LIFO basis. Inventory decrements occurring during interim periods that are expected to be restored prior to year-end are charged to cost of gas at the estimated annual replacement cost, and the difference between this cost and the actual LIFO layer cost is recorded on the balance sheet as a temporary LIFO inventory liquidation. Interim inventory decrements not expected to be restored prior to year-end are charged to cost of gas at the actual LIFO cost of the layers liquidated. At September 30, 2011 and 2010, there was no inventory decrement.

Regulatory assets and liabilities. Nicor Gas is regulated by the ICC, which establishes the rules and regulations governing utility rates and services in Illinois. As a rate-regulated company, Nicor Gas is required to recognize the economic effects of rate regulation and, accordingly, has recorded regulatory assets and liabilities. Regulatory assets represent probable future revenue associated with certain costs that are expected to be recovered from customers through rate riders or base rates, upon approval by the ICC. Regulatory liabilities represent probable future reductions in revenues collected from ratepayers through a rate rider or base rates, or probable future expenditures. If Nicor Gas’ operations become no longer subject to rate regulation, a write-off of net regulatory liabilities would be required.

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The company had regulatory assets and liabilities as follows (in millions):

Nicor Gas Company
Condensed Consolidated Statements of Income
(Unaudited)


	Three months ended
	March 31,
In millions	2012		2011

Operating revenues (includes revenue taxes of $60 in 2012 and $75 in 2011)	$	622	$	916
Operating expenses
Cost of gas		371		640
Operation and maintenance		88		83
Depreciation		49		47
Taxes, other than income taxes		65		79
Income tax expense		16		23
Total operating expenses		589		872
Operating income		33		44
Interest expense
Interest on debt, net of amounts capitalized		8		9
Other		-		(2	)
Total interest expense		8		7
Net income	$	25	$	37

See Notes to Condensed Consolidated Financial Statements (Unaudited).

	September 30		December 31		September 30
Condensed Consolidated Statements of Comprehensive Income
	2011		2010		2010
(Unaudited)
Regulatory assets - current
	Three months ended
Regulatory postretirement asset	$	21.1	$	21.1	$	20.6
	March 31,
Deferred gas costs		17.7		6.5		18.1
In millions	2012		2011
Bad debt rider		-		-		4.2
Comprehensive income	$	25	$	38
Other		9.7		7.4		7.2
See Notes to Condensed Consolidated Financial Statements (Unaudited).
Regulatory assets - noncurrent
Regulatory postretirement asset		181.7		193.3		183.6
Deferred gas costs		-		1.4		4.3
Deferred environmental costs		46.6		25.0		24.8
Unamortized losses on reacquired debt		12.3		13.1		13.4
Other		6.7		9.6		11.4
	$	295.8	$	277.4	$	287.6

Regulatory liabilities - current
Regulatory asset retirement liability	$	17.2	$	17.2	$	14.5
Bad debt rider		26.9		16.4		-
Other		2.3		7.7		11.5
Regulatory liabilities - noncurrent
Regulatory asset retirement liability		878.5		843.9		836.0
Regulatory income tax liability		13.1		18.2		19.1
Bad debt rider		16.4		11.7		9.3
Other		1.5		.9		.9
	$	955.9	$	916.0	$	891.3

Glossary of Key Terms

All items listed above are classified in Other on the Condensed Consolidated Balance Sheets, with the exception of the noncurrent portions of the Regulatory postretirement asset and the Regulatory asset retirement liability, which are stated separately.

The ICC does not presently allow Nicor Gas the opportunity to earn a return on its regulatory postretirement asset. This regulatory postretirement asset is expected to be recovered from ratepayers over a period of approximately 9 to 12 years. The regulatory assets related to debt are not included in rate base, but are recovered over the term of the debt through the rate of return authorized by the ICC. Nicor Gas is allowed to recover and is required to pay, using short-term interest rates, the carrying costs related to temporary under or overcollections of natural gas costs, certain environmental costs and energy efficiency program costs charged to its customers. However, there is no interest associated with the under or overcollections of bad debt expense.

Revenue recognition. Nicor Gas accrues revenues for estimated deliveries to customers from the date of their last bill until the balance sheet date. Receivables include accrued unbilled revenues of $33.5 million, $141.8 million and $28.6 million at September 30, 2011, December 31, 2010 and September 30, 2010, respectively.

Nicor Gas classifies revenue taxes billed to customers as operating revenues and related taxes incurred as operating expenses. Revenue taxes included in operating expense for the three and nine months ended September 30, 2011 were $14.0 million and $118.7 million, respectively, and $13.8 million and $110.2 million, respectively, for the same periods in 2010.

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Derivative instruments. Cash flows from derivative instruments are recognized in the Condensed Consolidated Statements of Cash Flows, and gains and losses are recognized in the Condensed Consolidated Statements of Income, in the same categories as the underlying transactions.

Nicor Gas Company
Condensed Consolidated Statements of Cash Flows
(Unaudited)

	Three months ended
	March 31,
In millions	2012			2011

Cash flows from operating activities
Net income	$	25		$	37
Adjustments to reconcile net income to net cash flow provided by operating activities:
Depreciation		49			47
Deferred income taxes		5			7
Changes in certain assets and liabilities
Receivables, less allowances		81			(64	)
Gas in storage		114			118
Deferred/accrued gas costs		33			22
Derivative instruments		28			(6	)
Margin accounts - derivative instruments		(26	)		8
Other assets		16			23
Accounts payable		(44	)		(72	)
Customer credit balances and deposits		(16	)		(34	)
Temporary LIFO inventory liquidation		89			233
Other liabilities		29			31
Other items		(2	)		4
Net cash flow provided by operating activities		381			354

Cash flows from investing activities
Expenditures for property, plant and equipment		(36	)		(40	)
Other investing activities		2			1
Net cash flow used in investing activities		(34	)		(39	)

Cash flows from financing activities
Proceeds from issuing long-term debt		-			75
Disbursements to retire long-term obligations		-			(75	)
Net repayments of commercial paper		(347	)		(271	)
Net repayments of loan from affiliates		-			(18	)
Dividends paid		-			(25	)
Other financing activities		-			(1	)
Net cash flow used in financing activities		(347	)		(315	)
Net decrease in cash and cash equivalents		-			-
Cash and cash equivalents at beginning of period		-			-
Cash and cash equivalents at end of period	$	-		$	-

See Notes to Condensed Consolidated Financial Statements (Unaudited).

~~Cash~~Glossary ~~flow hedge accounting may be elected only for highly effective hedges, based upon an assessment, performed at least quarterly,~~ of ~~the~~Key historical and probable future correlation of cash flows from the derivative instrument to changes in the expected future cash flows of the hedged item. To the extent cash flow hedge accounting is applied, the effective portion of any changes in the fair value of the derivative instruments is reported as a component of accumulated other comprehensive income. Ineffectiveness, if any, is immediately recognized in operating income. The amount in accumulated other comprehensive income is reclassified to earnings when the forecasted transaction is recognized in the Condensed Consolidated Statements of Income, even if the derivative instrument is sold, extinguished or terminated prior to the transaction occurring. If the forecasted transaction is no longer expected to occur, the amount in accumulated other comprehensive income is immediately reclassified to operating income.Terms

Derivative instruments, such as futures contracts, options and swap agreements, are utilized primarily in the purchase of natural gas for customers. These derivative instruments are reflected at fair value and are not designated as hedges. Realized gains or losses on such instruments are included in the cost of gas delivered and are passed directly through to customers, subject to ICC review, and therefore have no direct impact on earnings. Unrealized changes in the fair value of these derivative instruments are deferred as regulatory assets or liabilities.

Nicor Gas enters into swap agreements to reduce the earnings volatility of certain forecasted operating costs arising from fluctuations in natural gas prices, such as the purchase of natural gas for use in company operations. These derivative instruments are carried at fair value. To the extent hedge accounting is not elected, changes in such fair values are immediately recorded in the current period as operating and maintenance expense.

Credit risk and concentrations. Nicor Gas has a diversified customer base and the company believes that it maintains prudent credit policies which mitigate customer receivable, supplier performance and derivative counterparty credit risk. The company is exposed to credit risk in the event a customer or supplier defaults on a contract to pay for or deliver product at agreed-upon terms and conditions, or a counterparty to a derivative instrument defaults on a settlement or otherwise fails to perform under contractual terms. To manage this risk, the company has established procedures to determine and monitor the creditworthiness of counterparties, to seek guarantees or collateral back-up in the form of cash or letters of credit and to limit its exposure to any one counterparty. Nicor Gas also, in some instances, enters into netting arrangements to mitigate counterparty credit risk. Fair value measurements consider credit risk. For assets and liabilities not carried at fair value, credit losses are accrued when probable and reasonably estimable.

On February 2, 2010, the ICC approved a bad debt rider that was filed in 2009 by Nicor Gas. The bad debt rider provides for the recovery from (or refund to) customers of the difference between Nicor Gas’ actual bad debt experience on an annual basis and the benchmark bad debt expense included in its rates for the respective year.

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4.Notes ~~SHORT-TERM~~to ~~AND~~Condensed ~~LONG-TERM~~Consolidated ~~DEBT~~Financial Statements (Unaudited)

InNote ~~February~~1 ~~2011,~~– ~~Nicor~~Organization ~~Gas issued $75 million First Mortgage Bonds at 2.86 percent, due in 2016 through a private placement~~ and ~~utilized~~Basis the proceeds to retire the $75 million 6.625 percent First Mortgage Bond series which matured in February 2011. In determining that these bonds qualified for exemption from registration under Section 4(2) of the Securities Act of 1933, Nicor Gas relied on the facts that the bonds were offered only to a limited number of large institutional investors and each institutional investor that purchased the bonds represented that it was purchasing the bonds for its own account and not with a view to distribute them. Presentation

~~In April 2011,~~ General. Nicor Gas ~~established~~is a ~~$400~~natural ~~million,~~gas ~~364-day~~distribution ~~revolving~~company ~~credit~~that ~~facility,~~serves ~~expiring~~approximately ~~April~~2.2 ~~2012 to replace the $400~~ million, ~~364-day~~customers ~~revolving credit facility, which was set to expire~~ in ~~April 2011. In April 2010, Nicor and Nicor Gas established~~ a ~~$600~~service ~~million,~~territory ~~three-year~~that ~~revolving~~encompasses ~~credit~~most ~~facility,~~of ~~expiring April 2013 to replace~~ the ~~$600~~northern ~~million,~~third ~~five-year~~of ~~revolving credit facility~~Illinois, ~~which~~excluding ~~was~~the ~~set~~city toof ~~expire in September 2010~~Chicago. ~~These~~Unless ~~facilities~~the ~~were~~context ~~established~~requires ~~with~~otherwise, ~~major~~references ~~domestic~~to ~~and~~“we,” ~~foreign~~“us,” ~~banks~~“our,” ~~and serve as backup for~~ the ~~issuance of commercial paper. The~~ “company ~~had $309.6 million~~,” ~~$425.0~~or ~~million~~“Nicor ~~and~~Gas” ~~$373.3~~mean ~~million~~consolidated ofNicor ~~commercial~~Gas ~~paper borrowings outstanding at September 30, 2011, December 31, 2010~~ and ~~September~~its ~~30,~~wholly ~~2010,~~owned ~~respectively~~subsidiary.

~~Nicor~~On ~~Gas~~December ~~participates~~9, in2011, aAGL ~~cash~~Resources ~~management~~and ~~system~~Nicor ~~with~~merged ~~other~~and ~~subsidiaries~~we ofbecame ~~Nicor. Under~~a ~~this~~wholly ~~system,~~owned atsubsidiary ~~December~~of ~~31,~~AGL ~~2010,~~Resources. Because ~~Nicor~~of ~~Gas~~our ~~had~~significant ~~owed~~outstanding ~~$40~~public ~~million~~debt, tothe ~~Nicor~~impact ~~which~~of isthe ~~payable~~acquisition on(push-down ~~demand. Interest~~accounting) ~~expense~~is ~~related~~not required to ~~this~~be ~~loan~~and ~~was~~has ~~insignificant~~not ~~for~~been ~~the~~reflected ~~three~~in ~~and~~our ~~nine~~Condensed ~~months~~Consolidated ~~ended~~Financial ~~September 30, 2011~~Statements.

The ~~company~~December ~~believes~~31, it2011 isCondensed Consolidated Statement of Financial Position data was derived from our audited financial statements, but does not include all disclosures required by GAAP. We have prepared the accompanying Condensed Consolidated Financial Statements under the rules and regulations of the SEC. In accordance with such rules and regulations, we have condensed or omitted certain information and notes normally included in ~~compliance~~financial statements prepared in conformity with GAAP. Our Condensed Consolidated Financial Statements reflect all ~~debt~~adjustments ~~covenants~~of a normal recurring nature that are, in the opinion of management, necessary for a fair presentation of our financial results for the interim periods. You should read these Condensed Consolidated Financial Statements in conjunction with our Consolidated Financial Statements and related notes included in Item 8 of our 2011 Form 10-K.

5.Due ~~INCOME~~to ~~TAXES~~the seasonal nature of our business and other factors, our results of operations and our financial condition for the periods presented, are not necessarily indicative of the results of operations and financial condition to be expected as of or for any other period.

~~The~~Basis ~~effective~~of ~~income tax rate for the three months ended September 30, 2011 increased to 39~~presentation.6 Our ~~percent~~Condensed ~~from~~Consolidated ~~36.1~~Financial ~~percent~~Statements ininclude ~~the~~our ~~prior~~accounts ~~year. Both~~and ~~periods reflect~~ the ~~impact~~accounts of ~~changes~~our towholly ~~forecasted~~owned ~~annual pretax income identified in the respective quarters~~subsidiary. ~~The~~We ~~year-to-date~~have ~~adjustment~~eliminated tointercompany ~~income~~profits ~~taxes~~and ~~recognized~~transactions in ~~the quarter resulting from these changes has a larger impact in quarters with lower income~~consolidation. ~~The~~Certain ~~effective~~amounts ~~income tax rate for the nine months ended September 30, 2011 increased to 37.8 percent~~ from ~~37.2 percent in the~~ prior ~~year. The~~periods ~~higher~~have ~~effective~~been ~~income~~reclassified ~~tax~~and ~~rate~~revised ~~for the nine months ended September 30, 2011 is due primarily~~ to ~~the~~conform ~~increase~~ to the ~~Illinois~~current ~~state~~period ~~income tax rate, partially offset by lower forecasted annual pretax income (which causes a lower effective income tax rate since tax credits are a larger share of pretax income)~~presentation. ~~Effective~~ ~~January~~The 1,reclassifications ~~2011,~~and ~~the~~revisions ~~State~~had ofno ~~Illinois~~material ~~raised~~impact ~~the~~on ~~corporate~~our ~~income~~prior ~~tax~~period ~~rate from 7~~balances.~~3 percent to 9.5 percent.~~

~~The~~Note ~~company's~~2 ~~major~~– ~~tax~~Significant ~~jurisdictions~~Accounting ~~include~~Policies ~~the United States~~ and ~~Illinois,~~Methods ~~with~~of tax returns examined by the IRS and IDR, respectively. At September 30, 2011, the years that remain subject to examination include years beginning after 2007 for the IRS and after 2006 for the IDR. The company had no liability for unrecognized tax benefits at September 30, 2011. The company does not believe that it is reasonably possible that a significant change in the liability for unrecognized tax benefits could occur within 12 months.Application

~~The~~Our ~~balance~~accounting ofpolicies ~~unamortized~~are ~~investment~~described ~~tax~~in ~~credits~~Note at2 ~~September~~to ~~30,~~our ~~2011,~~Consolidated ~~December~~Financial ~~31,~~Statements ~~2010~~ and ~~September~~related ~~30,~~notes ~~2010~~included ~~was~~in ~~$22.9~~Item ~~million,~~8 ~~$24.3~~of ~~million~~our ~~and~~2011 ~~$23~~Form 10-K.7 There ~~million~~were no significant changes to our accounting policies during the three months ended March 31, ~~respectively~~2012.

Use of accounting estimates. The preparation of our financial statements in conformity with GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosures. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. We evaluate our estimates on an ongoing basis. Our estimates may involve complex situations requiring a high degree of judgment either in the application and interpretation of existing literature or in the development of estimates that impact our financial statements. The most significant estimates relate to our accrued unbilled revenues, derivative instruments, regulatory assets and liabilities, retirement plan benefit obligations, potential asset impairments, asset retirement obligations, loss contingencies including environmental contingencies, workers’ compensation, credit risk and income taxes. Our actual results could differ from our estimates.

Fair value measurements. The carrying values of cash and cash equivalents, receivables, derivative assets and liabilities, accounts payable, short-term debt, pension plan assets and other current assets and liabilities approximate fair value.

As defined in the authoritative guidance related to fair value measurements and disclosures, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). We utilize market data or assumptions that market participants would use in valuing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. We primarily apply the market approach for recurring fair value measurements to utilize the best available information. Accordingly, we use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. We classify fair value balances based on the observance of those inputs in accordance with the fair value hierarchy.

Glossary of Key Terms

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6Gas in storage. Our ~~FAIR~~inventory ~~VALUE~~is ~~MEASUREMENTS~~carried at cost on a LIFO basis. Inventory decrements occurring during interim periods that are expected to be restored prior to year-end are charged to cost of gas at the estimated annual replacement cost, and the difference between this cost and the actual LIFO layer cost is recorded on the Condensed Consolidated Statements of Financial Position as a temporary LIFO inventory liquidation. The inventory decrement as of March 31, 2012 is expected to be restored prior to year-end. Interim inventory decrements not expected to be restored prior to year-end are charged to cost of gas at the actual LIFO cost of the layers liquidated.

~~The~~Regulatory ~~fair~~assets ~~value~~and liabilities. We account for the financial effects of ~~commodity~~regulation ~~derivative~~in ~~assets~~accordance with authoritative guidance related to regulated entities whose rates are designed to recover the costs of providing service. In accordance with this guidance, incurred costs and ~~liabilities~~estimated future expenditures that ~~are~~would ~~measured~~otherwise onbe acharged ~~recurring~~to ~~basis~~expense in the current period are ~~categorized~~capitalized as regulatory assets when it is probable that such costs or expenditures will be recovered in rates in the ~~table~~future. ~~below~~Similarly, ~~(in~~we ~~millions)~~recognize regulatory liabilities when it is probable that regulators will require customer refunds through future rates or when revenue is collected from customers for expenditures that have not yet been incurred. Generally, regulatory assets are amortized into ~~three~~expense ~~broad~~and ~~levels~~regulatory ~~(with~~liabilities ~~Level~~are 1amortized ~~considered~~into income over the ~~most~~period ~~reliable)~~authorized ~~based~~by ~~upon~~the Illinois Commission. We are not aware of any evidence that these costs will not be recoverable through either rate riders or base rates, and we believe that we will be able to recover these costs, consistent with our historical recoveries. In the ~~valuation~~event ~~inputs~~that the authoritative guidance related to regulated operations were no longer applicable, we would recognize a write-off of regulatory assets and liabilities that would result in net income.

	Quoted prices in active markets		Significant observable inputs		Significant unobservable inputs
	(Level 1)		(Level 2)		(Level 3)		Total
September 30, 2011
Assets	$	-	$	.2	$	4.3	$	4.5
Liabilities	$	20.5	$	9.7	$	1.2	$	31.4

Our regulatory assets and liabilities are summarized in the following table.

December 31, 2010
	March 31,		December 31,		March 31,
Assets	$	1.3	$	2.7	$	4.3	$	8.3
In millions	2012		2011		2011
Liabilities	$	27.0	$	26.9	$	.3	$	54.2
Regulatory assets - current
Regulatory retirement plan asset	$	29	$	29	$	21
Other		6		7		11
Regulatory assets - noncurrent
Regulatory retirement plan asset		248		253		189
Deferred environmental costs		132		134		21
Unamortized losses on reacquired debt		12		12		13
Other		7		5		10
Total regulatory assets	$	434	$	440	$	265

September 30, 2010
Regulatory liabilities - current
Assets	$	-	$	.4	$	3.4	$	3.8
Regulatory asset retirement liability	$	14	$	14	$	17
Liabilities	$	38.8	$	36.4	$	.8	$	76.0
Accrued gas costs		64		29		14
Bad debt rider		32		30		23
Other		10		4		5
Regulatory liabilities - noncurrent
Regulatory asset retirement liability		908		896		856
Regulatory income tax liability		12		13		15
Bad debt rider		20		14		13
Other		1		1		1
Total regulatory liabilities	$	1,061	$	1,001	$	944

~~When~~As ~~available~~of ~~and~~March ~~appropriate~~31, ~~the~~2012, ~~company~~there ~~uses~~have ~~quoted~~been ~~market~~no ~~prices~~new intypes ~~active~~of ~~markets~~regulatory toassets ~~determine~~or ~~fair~~liabilities ~~value~~from ~~and classifies such items within Level 1. For derivatives, Level 1 values include only~~ those ~~derivative~~discussed ~~instruments~~in ~~traded~~Note on2 ~~the~~to ~~NYMEX. The~~our ~~company~~Consolidated ~~enters~~Financial ~~into~~Statements ~~over-the-counter instruments with values that are similar to,~~ and ~~correlate~~related ~~with,~~notes ~~quoted prices for exchange-traded instruments~~ in ~~active~~Item ~~markets;~~8 ~~the fair values~~ of ~~these~~our ~~over-the-counter~~2011 ~~items~~Form ~~consider credit risk and are classified within Level 2~~10-K. ~~In certain instances, the company may be required to determine a fair value using significant unobservable inputs such as indicative broker prices; the resulting valuation is classified as Level 3.~~

AAll ~~description~~items oflisted ~~the~~above ~~company’s~~are ~~objectives~~classified ~~and~~in ~~strategies~~Other ~~for~~on ~~using~~the ~~derivative~~Condensed ~~instruments,~~Consolidated ~~and~~Statements ~~related~~of ~~accounting~~Financial ~~policies~~Position, iswith ~~included~~the inexception ~~Note~~of 3accrued –gas ~~Accounting~~costs, ~~Policies~~the –noncurrent ~~Derivative~~portions ~~instruments~~of ~~and~~the ~~Credit~~regulatory ~~risk~~retirement plan asset and ~~concentrations~~the regulatory asset retirement liability, which are stated separately.

The Illinois Commission does not presently allow us the opportunity to earn a return on our regulatory retirement plan asset. Our regulatory retirement plan asset is expected to be recovered from ratepayers over a period of approximately 9 to 11 years. The regulatory assets related to debt are not included in rate base, but are recovered over the term of the debt through the rate of return authorized by the Illinois Commission. Our rate riders for natural gas costs, certain environmental costs and energy efficiency costs provide a return on investment during the period of recovery. However, there is no interest associated with the under or overcollections of bad debt expense.

Revenue taxes. We charge customers for revenue taxes and remit amounts owed to various governmental authorities. Our policy is to record all such taxes charged to customers as operating revenues and the related taxes incurred as operating expenses in our Condensed Consolidated Statements of Income, regardless of whether the tax is assessed on

Glossary of Key Terms

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~~The~~the ~~following~~company ~~table~~or ~~presents~~the acustomer. Revenue ~~reconciliation~~taxes ofincluded in operating expenses were $60 million for the ~~Level~~three 3months ~~beginning~~ended March 31, 2012 and ~~ending~~$74 ~~net~~million ~~derivative~~for ~~asset~~the ~~(liability)~~three ~~balances~~months ~~(in~~ended ~~millions):~~March 31, 2011.

	Three months ended September 30						Nine months ended September 30
	2011			2010			2011			2010
Beginning of period	$	7.0		$	2.3		$	4.0		$	(.3	)
Net realized/unrealized gains (losses) included in regulatory assets and liabilities		(3.7	)		(.9	)		1.4			(1.7	)
Settlements, net of purchases**		(1.2	)		1.1			(3.3	)		4.5
Transfers out of Level 3		1.0			.1			1.0			.1
End of period	$	3.1		$	2.6		$	3.1		$	2.6
** There were no purchases for the three and nine months ended September 30, 2011.

Derivative instruments. As required by the authoritative guidance, derivative assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. The determination of the fair values incorporates various factors required under the guidance. These factors include not only the credit standing of the counterparties involved and the impact of credit enhancements (such as cash deposits, letters of credit and priority interests), but also the impact of our nonperformance risk on our liabilities. To mitigate the risk that a counterparty to a derivative instrument defaults on settlement or otherwise fails to perform under contractual terms, we have established procedures to monitor the creditworthiness of counterparties, seek guarantees or collateral back-up in the form of cash or letters of credit and, in most instances, enter into netting arrangements.

~~Transfers~~Cash ~~out~~flows offrom ~~Level~~derivative ~~3 reflect~~instruments ~~the~~are ~~liquidity~~recognized atin the ~~relevant~~Condensed ~~natural~~Consolidated ~~gas~~Statements ~~trading~~of ~~locations~~Cash Flows, and ~~dates~~gains ~~which~~and ~~affects~~losses ~~the~~are ~~significance~~recognized ~~of unobservable inputs used~~ in the ~~valuation. Transfers~~Condensed ~~out~~Consolidated Statements of ~~Level~~Income, 3in ~~are determined using values at~~ the ~~end~~same ofcategories ~~the~~as ~~interim period in which~~ the ~~transfer~~underlying ~~occurred~~transactions.

~~Nicor~~Cash ~~Gas~~flow ~~maintains~~hedge ~~margin~~accounting ~~accounts~~may ~~related~~be toelected ~~financial~~only for highly effective hedges, based upon an assessment, performed at least quarterly, of the historical and probable future correlation of cash flows from the derivative ~~transactions~~instrument to changes in the expected future cash flows of the hedged item. ~~The~~To ~~company’s~~the ~~policy~~extent cash flow hedge accounting is ~~not~~applied, tothe ~~offset~~effective portion of any changes in the fair value of ~~assets~~the ~~and~~derivative ~~liabilities~~instruments ~~recognized~~is ~~for~~reported ~~derivative~~as ~~instruments~~a orcomponent of accumulated OCI. Ineffectiveness, if any, ~~related~~is ~~margin~~immediately ~~account~~recognized in operating income. The ~~following~~amount ~~table~~in ~~represents~~accumulated OCI is reclassified to earnings when the ~~balance~~forecasted ~~sheet~~transaction ~~classification~~is recognized in the Condensed Consolidated Statements of ~~margin~~Income, ~~accounts~~even ~~related~~if tothe derivative ~~instruments~~instrument (is sold, extinguished or terminated prior to the transaction occurring. If the forecasted transaction is no longer expected to occur, the amount in ~~millions):~~accumulated OCI is immediately reclassified to operating income.

	September 30		December 31		September 30
	2011		2010		2010
Assets
Margin accounts - derivative instruments	$	27.5	$	49.8	$	58.8
Other - noncurrent		.6		7.4		9.5

We enter into derivative instruments to hedge the impact of market fluctuations in natural gas prices. In accordance with the authoritative guidance related to derivatives and hedging, such derivative transactions are accounted for at fair value each reporting period in our Condensed Consolidated Statements of Financial Position. In accordance with regulatory requirements, realized gains and losses related to these derivatives are reflected in natural gas costs and ultimately included in billings to customers. Thus, hedge accounting is not elected and, in accordance with accounting guidance pertaining to rate-regulated entities, unrealized changes in the fair value of these derivative instruments are deferred or accrued as regulatory assets or liabilities.

InWe ~~addition,~~enter ~~the~~into ~~recorded~~swap ~~amount~~agreements ofto ~~short-term~~reduce ~~borrowings approximates fair value. Long-term debt outstanding, including current maturities, is recorded at~~ the ~~principal~~earnings ~~balance~~volatility ~~outstanding, net~~ of ~~unamortized~~certain ~~discounts. The~~forecasted ~~principal~~operating ~~balance~~costs ofarising ~~Nicor~~from ~~Gas’~~fluctuations ~~First~~in ~~Mortgage~~natural ~~Bonds~~gas ~~outstanding at September 30~~prices, ~~2011,~~such ~~December~~as ~~31,~~the ~~2010~~purchase ~~and~~of ~~September~~natural ~~30,~~gas ~~2010~~for ~~was~~company ~~$500 million~~use. ~~Based~~These onderivative ~~quoted~~instruments ~~prices~~are orcarried ~~market~~at ~~interest rates, the~~ fair value. To of the ~~company’s~~extent ~~First~~hedge ~~Mortgage~~accounting ~~Bonds~~is ~~outstanding~~not ~~was~~elected, ~~approximately~~changes ~~$621~~in ~~million,~~such ~~$554~~fair ~~million~~values ~~and~~are ~~$575~~immediately ~~million~~recorded atin ~~September~~the ~~30,~~current ~~2011,~~period ~~December~~as ~~31,~~operation ~~2010~~ and ~~September~~maintenance ~~30, 2010, respectively~~expense.

7We maintain margin accounts related to financial derivative transactions. Our ~~DERIVATIVE~~policy ~~INSTRUMENTS~~is not to offset the fair value of assets and liabilities recognized for derivative instruments or any related margin account. See Note 4 – Derivative Instruments for additional derivative disclosures.

AAccounting ~~description~~Developments. On ofJanuary ~~the~~1, ~~company’s~~2012, ~~objectives~~we ~~and~~adopted ~~strategies~~authoritative ~~for~~guidance ~~using~~related ~~derivative~~to ~~instruments,~~fair ~~and~~value ~~related~~measurements. ~~accounting~~The ~~policies,~~guidance isexpands ~~included~~the inqualitative ~~Note~~and quantitative disclosures for Level 3 –significant ~~Accounting~~unobservable ~~Policies~~inputs, –permits ~~Derivative~~the ~~instruments~~use of premiums and ~~Credit~~discounts ~~risk~~to ~~and~~value ~~concentrations~~an instrument if it is standard practice. ~~All~~ ~~derivatives~~The ~~recognized~~guidance onalso limits the ~~Condensed~~application ~~Consolidated~~of ~~Balance~~best ~~Sheets~~use ~~are~~valuation ~~measured~~to atnon-financial ~~fair~~assets ~~value,~~and asliabilities. ~~described~~This inguidance had no impact on our unaudited Condensed Consolidated Financial Statements. See Note 63 –for ~~Fair~~additional ~~Value~~fair ~~Measurements~~value disclosures.

On January 1, 2012, we adopted authoritative guidance related to comprehensive income. The guidance eliminates the option to present other comprehensive income in the unaudited Condensed Consolidated Statements of Equity, but allows companies to elect to present net income and other comprehensive income in one continuous statement (unaudited Condensed Consolidated Statements of Comprehensive Income) or in two consecutive statements. This guidance does not change any of the components of net income or other comprehensive income and earnings per share will still be calculated based on net income. This guidance did not have a material impact on our unaudited Condensed Consolidated Financial Statements.

Glossary of Key Terms

Table of Contents

~~Condensed~~Note ~~Consolidated~~3 ~~Balance~~– ~~Sheets. Derivative~~Fair ~~assets~~Value ~~and liabilities are classified as shown in the table below (in millions):~~Measurements

	September 30		December 31		September 30
	2011		2010		2010
Derivatives designated as hedging instruments
Liabilities
Derivative instruments	$	.6	$	.9	$	1.3
Other - noncurrent		.1		-		.2
	$	.7	$	.9	$	1.5
Derivatives not designated as hedging instruments
Assets
Derivative instruments	$	2.7	$	7.4	$	3.1
Other - noncurrent		1.8		.9		.7
	$	4.5	$	8.3	$	3.8
Liabilities
Derivative instruments	$	30.2	$	49.5	$	67.3
Other - noncurrent		.5		3.8		7.2
	$	30.7	$	53.3	$	74.5

The methods used to determine the fair value of our assets and liabilities are described within Note 2 – Significant Accounting Policies and Methods of Application.

~~Volumes~~Derivative instruments. AsA description of ~~September~~our ~~30,~~objectives ~~2011, December 31, 2010~~ and ~~September~~strategies ~~30,~~for ~~2010,~~using ~~Nicor Gas held outstanding~~ derivative ~~contracts of approximately 30 Bcf~~instruments, ~~49 Bcf~~ and 48related ~~Bcf,~~accounting ~~respectively,~~policies toare ~~hedge~~fully ~~natural~~described ~~gas~~within ~~purchases~~Note ~~for~~2 ~~customer~~– ~~use,~~Significant ~~with~~Accounting ~~hedges~~Policies ~~spanning~~and asMethods ~~long~~of ~~as three years~~Application. ~~Commodity~~See ~~price-risk~~Note ~~exposure~~4 ~~arising~~– ~~from~~Derivative ~~Nicor~~Instruments ~~Gas’ natural gas purchases~~ for ~~company~~additional ~~use is mitigated with~~ derivative ~~instruments that total to a net long position of 1~~disclosures.0 The ~~Bcf~~following astable ~~of September 30~~summarizes, ~~2011~~by ~~and~~level ~~2010~~within ~~and~~the ~~0.8~~fair ~~Bcf~~value ~~as of December 31~~hierarchy, ~~2010. The~~our ~~above~~derivative ~~volumes~~assets ~~exclude~~and ~~contracts,~~liabilities ~~such~~that aswere ~~variable-priced contracts, which are~~ accounted for asat ~~derivatives but whose~~ fair ~~values~~value ~~are~~on ~~not~~a ~~directly~~recurring ~~impacted~~basis byas ~~changes~~of inthe ~~commodity~~periods ~~prices~~presented.

Condensed Consolidated Statements of Income - cash flow hedges. Changes in the fair value of derivatives designated as a cash flow hedge are recognized in other comprehensive income until the hedged transaction is recognized in the Condensed Consolidated Statements of Income. Cash flow hedges are used by Nicor Gas to hedge purchases of natural gas for company use. Amounts related to such hedges were immaterial for the three and nine months ended September 30, 2011 and 2010.

	Recurring fair values
	Natural gas derivative instruments
	March 31, 2012					December 31, 2011					March 31, 2011
In millions	Assets		Liabilities			Assets		Liabilities			Assets		Liabilities
Quoted prices in active markets (Level 1)	$	-	$	(33	)	$	-	$	(14	)	$	3	$	(25	)
Significant other observable inputs (Level 2)		2		(21	)		1		(11	)		1		(23	)
Unobservable inputs (Level 3)		2		-			2		-			4		-
Total carrying value	$	4	$	(54	)	$	3	$	(25	)	$	8	$	(48	)

~~Condensed Consolidated Statements of Income - derivatives not designated as hedges.~~ The ~~earnings~~following ofis ~~the~~a ~~company~~reconciliation ~~are subject to volatility for those derivatives not designated as hedges. Non-designated derivatives used by Nicor Gas, to hedge purchases~~ of ~~natural~~our ~~gas~~net ~~for~~derivative ~~company~~instrument ~~use,~~assets ~~are recorded within operating and maintenance expense. Gains and losses recognized~~ in ~~income~~Level ~~were~~3 ~~immaterial~~of ~~for~~ the ~~three~~fair ~~and~~value ~~nine months ended September 30, 2011 and 2010~~hierarchy.

Nicor Gas’ derivatives used to hedge the purchase of natural gas for its customers are also not designated as hedging instruments. Gains or losses on these derivatives are not recognized in pretax earnings, but are deferred as regulatory assets or liabilities until the related revenue is recognized. Net losses deferred for the three and nine months ended September 30, 2011 were $29.0 million and $32.6 million, respectively, and $47.5 million and $121.6 million, respectively, for the same periods in 2010.

	Three months ended
	March 31,
In millions	2012			2011
Beginning balance	$	2		$	4
Net realized/unrealized gains (losses) included in regulatory assets and liabilities		1			3
Settlements		(1	)		(3	)
Ending balance	$	2		$	4

There were no transfers between Level 1 and Level 2 for any of the periods presented.

We maintain margin accounts related to financial derivative transactions. The following table presents the Condensed Consolidated Statements of Financial Position classification of margin accounts related to derivative instruments:

	March 31,		December 31,		March 31,
In millions	2012		2011		2011
Assets
Margin accounts - derivative instruments	$	45	$	21	$	44
Other - noncurrent		2		-		6

Long-term debt. Our long-term debt is recorded at amortized cost. At March 31, 2012 and December 31, 2011, we estimated the fair value of our debt using a discounted cash flow technique that incorporates a market interest yield curve with adjustments for duration, optionality and risk profile. At March 31, 2011, we estimated the fair value of debt for our public first mortgage bonds using quoted market pricing information. The following table presents the amortized cost and fair value of our long-term debt as of the following periods.

	March 31,		December 31,		March 31,
In millions	2012		2011		2011

Long-term debt amortized cost	$	499	$	499	$	499
Long-term debt fair value (1)		600		610		544

(1)	Valued using Level 2 inputs.

Note 4 – Derivative Instruments

A description of our objectives and strategies for using derivative instruments, related accounting policies and methods used to determine their fair value are described in Note 2 – Significant Accounting Policies and Methods of Application. See Note 3 – Fair Value Measurements for additional fair value disclosures.

Credit-risk-related contingent features. Provisions within certain derivative agreements require us to post collateral if our net liability position exceeds a specified threshold. Also, certain derivative agreements contain credit-risk-related contingent features, whereby we would be required to provide additional collateral or pay the amount due to the counterparty when a credit event occurs, such as if our credit rating was lowered. For agreements with such features,

Glossary of Key Terms

Table of Contents

~~Credit-risk-related contingent features. Provisions within certain~~ derivative ~~agreements~~contracts ~~require~~with ~~the company to post collateral if the company’s net~~ liability ~~position~~fair ~~exceeds~~values atotaled ~~specified~~$13 ~~threshold. Also,~~million ~~certain~~at ~~derivative~~March ~~agreements contain credit-risk-related contingent features~~31, ~~whereby the company would be required to provide additional collateral or pay the amount due to the counterparty when a credit event occurs~~2012, ~~such~~$6 asmillion ifat ~~the company’s credit rating was to be lowered. As of September 30, 2011,~~ December 31, ~~2010~~2011 and ~~September 30, 2010 for agreements with such features, derivative contracts with liability fair values totaled approximately~~ $39 million, ~~$12~~at ~~million~~March ~~and $17 million~~31, ~~respectively~~2011, for which ~~the~~we ~~company~~ had posted no collateral to ~~its~~our counterparties. If it was assumed that ~~the~~we ~~company~~ had to post the maximum contractually specified collateral or settle the liability, ~~the~~we ~~company~~ would have been required to pay ~~approximately~~ $313 million, ~~$11~~at ~~million~~March ~~and~~31, 2012, $166 million at ~~September~~December 3031, 2011, ~~December~~and ~~31,~~$9 ~~2010~~million ~~and~~at ~~September~~March 3031, ~~2010, respectively~~2011.

8.Quantitative ~~POSTRETIREMENT~~Disclosures ~~BENEFITS~~Related to Derivative Instruments

~~Nicor~~Our ~~Gas~~derivative ~~maintains~~instruments ~~a noncontributory defined benefit pension plan covering substantially all employees hired prior to 1998. Pension benefits~~ are ~~based~~comprised ~~on years~~ of ~~service~~long ~~and~~natural ~~the~~gas ~~highest average salary for management employees and job level for collectively bargained employees (referred to as pension bands)~~positions. ~~The~~A ~~benefit~~long ~~obligation~~position ~~related~~is toa ~~collectively~~contract ~~bargained~~to ~~benefits~~purchase ~~considers~~natural ~~the company’s past practice of regular benefit increases~~gas. ~~Nicor~~We ~~Gas~~had ~~also~~long ~~provides~~natural ~~health~~gas ~~care~~contracts ~~and~~outstanding ~~life~~in ~~insurance benefits to eligible retired employees under a plan that includes a limit on~~ the ~~company’s~~following ~~share of cost for employees hired after 1982.~~quantities:

The company’s postretirement benefit costs have historically been considered in rate proceedings in the period they are accrued. As a regulated utility, Nicor Gas expects continued rate recovery of the eligible costs of its defined benefit postretirement plans and, accordingly, associated changes in the plan’s funded status have been deferred as a regulatory asset or liability until recognized in net income, instead of being recorded in accumulated other comprehensive income. However, to the extent Nicor Gas employees perform services for non-regulated affiliates and to the extent such employees are eligible to participate in these plans, the affiliates are charged for the cost of these benefits and the changes in the funded status relating to these employees are recorded in accumulated other comprehensive income.

	March 31,		December 31,		March 31,
In Bcf	2012 (1)		2011		2011

Customer use – not designated as hedges		46.3		30.2		53.8
Company use – designated as cash flow hedges		1.3		.9		.9
Company use – not designated as hedges		.7		-		.5
Total		48.3		31.1		55.2

~~About~~(1) ~~one-fourth~~These ofcontracts ~~the~~have ~~net~~durations ~~benefit cost related to these plans has been capitalized as a cost~~ of ~~constructing~~3 ~~gas~~years ~~distribution~~or ~~facilities and the remainder is included in operating and maintenance expense, net of amounts charged to affiliates~~less. ~~Net benefit cost included the following components (in millions):~~

	Pension benefits						Health care and other benefits
	2011			2010			2011		2010
Three months ended September 30
Service cost	$	2.4		$	2.4		$	.6	$	.6
Interest cost		4.1			4.0			3.1		3.0
Expected return on plan assets		(7.7	)		(7.2	)		-		-
Recognized net actuarial loss		2.5			3.0			1.5		1.0
Amortization of prior service cost		.1			.1			-		-
Net benefit cost	$	1.4		$	2.3		$	5.2	$	4.6

The volumes above exclude contracts, such as variable-priced contracts, which are accounted for as derivatives but whose fair values are not directly impacted by changes in commodity prices.

Derivative Instruments on the Condensed Consolidated Statements of Financial Position

The following table presents the fair value and Condensed Consolidated Statements of Financial Position classification of our derivative instruments:

In millions	Condensed Consolidated Statements of Financial Position location	March 31, 2012			December 31, 2011			March 31, 2011
Designated as cash flow hedges

Liability Instruments
Current natural gas contracts	Derivative instruments	$	(1	)	$	(1	)	$	(1	)
Total designated as cash flow hedges			(1	)		(1	)		(1	)

Not designated as cash flow hedges

Asset Instruments
Current natural gas contracts	Derivative instruments		2			2			5
Noncurrent natural gas contracts	Other - noncurrent		2			1			3

Liability Instruments
Current natural gas contracts	Derivative instruments		(50	)		(24	)		(44	)
Noncurrent natural gas contracts	Other - noncurrent		(3	)		-			(3	)
Total not designated as cash flow hedges			(49	)		(21	)		(39	)
Total derivative instruments		$	(50	)	$	(22	)	$	(40	)

Derivative Instruments on the Condensed Consolidated Statements of Income

Changes in the fair value of derivatives (effective portion) designated as a cash flow hedge are recognized in OCI until the hedged transaction is recognized in the Condensed Consolidated Statements of Income. We use cash flow hedges to hedge purchases of natural gas for company use. Amounts related to such hedges were immaterial for the three months ended March 31, 2012 and 2011.

Our earnings are subject to volatility for those derivatives not designated as hedges. Non-designated derivatives used to hedge purchases of natural gas for company use are recorded within operation and maintenance expense. Gains and losses recognized in income were immaterial for the three months ended March 31, 2012 and 2011.

Derivatives used to hedge the purchase of natural gas for our customers are also not designated as hedging instruments. Gains or losses on these derivatives are not recognized in pretax earnings, but are deferred as regulatory assets or liabilities until the related revenue is recognized. Net gains (losses) deferred were $(29) million for the three months ended March 31, 2012 and $4 million for the three months ended March 31, 2011.

Glossary of Key Terms

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	Pension benefits						Health care and other benefits
	2011			2010			2011		2010
Nine months ended September 30
Service cost	$	7.4		$	7.3		$	1.8	$	1.7
Interest cost		12.3			12.0			9.2		8.9
Expected return on plan assets		(23.3	)		(21.7	)		-		-
Recognized net actuarial loss		7.3			8.9			4.5		3.1
Amortization of prior service cost		.3			.3			.1		.1
Net benefit cost	$	4.0		$	6.8		$	15.6	$	13.8

Note 5 - Employee Benefit Plans

~~The~~Overview. We ~~Health~~maintain ~~Care~~a ~~Act~~noncontributory ~~contains~~defined ~~provisions~~benefit ~~that~~pension ~~may~~plan ~~impact~~covering ~~Nicor~~substantially ~~Gas’~~all ~~obligation~~employees ~~for~~hired ~~retiree~~prior ~~health~~to ~~care~~1998. Pension benefits are based on years of service and the highest average salary for management employees and job level for collectively bargained employees (referred to as pension bands). ~~The~~We ~~company~~also ~~does~~provide ~~not~~health ~~currently~~care ~~believe~~and ~~these~~life ~~provisions~~insurance ~~will~~benefits ~~materially~~to ~~increase~~eligible ~~its~~retired ~~postretirement~~employees ~~benefit~~under ~~obligation,~~our ~~but~~retiree ~~will~~medical ~~continue~~plan tothat ~~evaluate~~includes ~~the~~a ~~impact~~limit on our share of ~~future~~cost ~~regulations~~for ~~and~~employees ~~interpretations~~hired after 1982.

9Our pension and retiree medical plan benefit costs have historically been considered in rate proceedings in the period they are accrued. As ~~COMPREHENSIVE~~a ~~INCOME~~regulated utility, we expect continued rate recovery of the eligible costs of these plans and, accordingly, associated changes in the plans’ funded status have been deferred as a regulatory asset or liability until recognized in net income, instead of being recorded in accumulated OCI. However, to the extent our employees perform services for affiliates and to the extent such employees are eligible to participate in these plans, the affiliates are charged for the cost of these benefits and the changes in the funded status relating to these employees are recorded in accumulated OCI.

~~Total~~About ~~comprehensive~~one-fourth ~~income~~of isthe net benefit cost related to these plans has been capitalized as ~~follows~~a (cost of constructing gas distribution facilities and the remainder is included in ~~millions):~~operation and maintenance expense, net of amounts charged to affiliates.

	Three months ended						Nine months ended
	September 30						September 30
	2011			2010			2011		2010
Net income	$	8.2		$	7.7		$	58.1	$	72.6
Other comprehensive income (loss), after tax		(.1	)		(.1	)		.5		(.2	)
Total comprehensive income	$	8.1		$	7.6		$	58.6	$	72.4

The Health Care Act contains provisions that may impact our obligation for retiree health care benefits. We do not currently believe these provisions will materially increase our retiree medical plan benefit obligation, but we will continue to evaluate the impact of future regulations and interpretations.

~~Other~~Pension ~~comprehensive~~benefits. Following ~~income~~are ~~(loss)~~the ~~consists~~cost components of ~~net~~our ~~gains~~defined ~~and~~benefit ~~losses~~pension ~~from~~plan ~~derivative financial instruments accounted~~ for asthe ~~cash~~periods ~~flow hedges and gains and losses from postretirement benefits.~~indicated:

10. RELATED PARTY TRANSACTIONS

	Three months ended March 31,
In millions	2012			2011
Service cost	$	3		$	3
Interest cost		4			4
Expected return on plan assets		(8	)		(8	)
Recognized actuarial loss		4			2
Net benefit cost	$	3		$	1

InRetirement the ordinary course of business, under the terms of an agreement approved by the ICC, Nicor Gas enters into transactions with Nicor and its other wholly owned subsidiaries for the use of facilities and servicesbenefits. ~~The~~Following ~~charges for these transactions~~ are ~~cost-based, except where~~ the ~~charging party has a prevailing price for which the facility or service is provided to the general public. In addition, Nicor charges Nicor Gas and its other wholly owned subsidiaries for the~~ cost ofcomponents corporate overheads. Corporate overheads are allocated to Nicor’s subsidiaries based upon a formula approved by the ICC. For the three and nine months ended September 30, 2011, Nicor Gas had net charges to (from) affiliates of ~~$0.1~~our ~~million~~retiree ~~and~~medical ~~$9.7~~plan ~~million, respectively, and $(0.4) million and $7.8 million, respectively,~~ for the ~~same~~ periods ~~in 2010.~~indicated:

Key executives and managerial employees of Nicor Gas participate in Nicor’s stock-based compensation plans. Nicor Gas recognized compensation expense of $1.4 million and $3.6 million for the three and nine months ended September 30, 2011, respectively, in operating and maintenance expense related to these stock-based compensation plans and $1.6 million and $3.6 million, respectively, for the same periods in 2010.

	Three months ended March 31,
In millions	2012		2011
Service cost	$	1	$	1
Interest cost		3		3
Recognized actuarial loss		2		1
Net benefit cost	$	6	$	5

~~Nicor~~Glossary ~~Gas participates in a cash management system with other subsidiaries~~ of ~~Nicor. Under~~Key ~~this system, Nicor Gas may make deposits or advances to or receive deposits or advances from Nicor. By virtue of~~ Terms

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~~making~~ Note ~~deposits~~6 or advances to Nicor, Nicor Gas is exposed to credit risk to the extent it is unable to secure the return of such deposits for any reason. Such deposits are due on demand. There are ICC regulations addressing the amount and circumstances under which Nicor Gas can deposit with the cash management pool or advance to and from Nicor. In addition, Nicor Gas may not extend cash advances to Nicor if Nicor Gas has any outstanding short-~~term~~ borrowings. Nicor Gas’ practice also provides that the balance of cash deposits or advances from Nicor Gas to Nicor at any time shall not exceed the unused balance of funds actually available to Nicor under its existing bank credit agreements or its commercial paper facilities with unaffiliated third parties. Similarly, the balance of cash advances from Nicor to Nicor Gas may not exceed the unused balance of funds actually available to Nicor Gas under its existing credit agreements or commercial paper facilities with unaffiliated third parties. Nicor Gas’ positive cash deposits, if any, may be applied by Nicor to offset negative balances of other Nicor subsidiaries and vice versa.Debt

~~Nicor~~The ~~Gas~~following ~~had~~table noprovides ~~deposits~~maturity ~~in the Nicor cash management pool at September 30~~dates, ~~2011,~~year-to-date ~~December~~weighted ~~31,~~average ~~2010 and September 30, 2010. Nicor Gas records~~ interest ~~income~~rates ~~from~~and ~~deposits~~amounts inoutstanding ~~the~~for ~~Nicor~~our ~~cash~~various ~~management~~debt ~~pool~~securities atthat aare ~~rate~~included ofin ~~interest~~our ~~equal~~Condensed toConsolidated ~~the~~Statements ~~higher~~ of ~~Nicor’s~~Financial ~~commercial~~Position. For ~~paper~~additional ~~rate~~information oron aour ~~market~~debt, ~~rate~~see ofNote ~~return~~6 onin aour ~~short-term~~Consolidated ~~investment. For~~Financial ~~the~~Statements ~~three~~ and ~~nine~~related ~~months~~notes ~~ended~~in ~~September~~Item ~~30,~~8 ~~2011~~of ~~and~~our ~~2010,~~2011 ~~Nicor~~Form ~~Gas recorded no interest income~~10-K.

At December 31, 2010, Nicor Gas had owed $40.0 million to Nicor. Nicor Gas records interest expense from such loans at the lower of Nicor Gas’ commercial paper rate or Nicor’s actual interest cost for the funds obtained or used to provide the cash advance to Nicor Gas. Interest expense on advances from Nicor for the three and nine months ended September 30, 2011 was insignificant.

	March 31, 2012								March 31, 2011
Dollars in millions	Year(s) due	Weighted average interest rate (1)			Outstanding		Outstanding at December 31, 2011		Weighted average interest rate (1)			Outstanding
Commercial paper	2012		0.47	%	$	105	$	452		0.23	%	$	154

Long-term debt
First mortgage bonds	2016-2038		5.56	%	$	500	$	500		5.75	%	$	500
Less: Unamortized debt discount, net of premium	n/a		n/a			1		1		n/a			1
Total long-term debt			5.56	%	$	499	$	499		5.75	%	$	499

Total debt			4.68	%	$	604	$	951		4.45	%	$	653

~~Under~~(1) ~~their~~Interest ~~utility-bill~~rates ~~management~~are ~~products,~~calculated ~~Nicor~~based Solutions pays Nicor Gas for the utility bills issued to the utility-bill management customers. For the three and nine months ended September 30, 2011, Nicor Gas recorded revenues of $3.4 million and $24.3 million, respectively, associated with the payments Nicor Solutions makes to Nicor Gas on ~~behalf of its customers. For~~ the ~~three~~daily ~~and~~average ~~nine~~balance ~~months ended September 30, 2010, such revenues were $3~~outstanding.~~2 million and $25.6 million, respectively.~~

AsFinancial ~~a natural gas supplier, Nicor Advanced Energy pays Nicor Gas for delivery charges, administrative charges~~ and ~~applicable~~Non-Financial taxes. For the three and nine months ended September 30, 2011, Nicor Advanced Energy paid Nicor Gas $1.2 million and $4.5 million, respectively, and $1.2 million and $4.7 million, respectively, for the same periods in 2010. Additionally, Nicor Advanced Energy may pay or receive inventory imbalance adjustments. For both the three and nine months ended September 30, 2011, Nicor Advanced Energy received $0.1 million from Nicor Gas. For both the three and nine months ended September 30, 2010, Nicor Advanced Energy received $0.3 million from Nicor Gas for such items.Covenants

~~Nicor~~Our ~~Gas~~credit ~~enters~~facility ~~into~~includes ~~routine~~a ~~transactions~~financial ~~with~~covenant ~~Nicor~~that ~~Enerchange~~requires ~~that~~us ~~are~~to ~~governed~~maintain bya ~~terms~~ratio of antotal ~~ICC~~debt ~~order. For~~to ~~the~~total ~~three~~capitalization ~~months~~of ~~ended~~no ~~September~~more ~~30,~~than ~~2011, net commodity-based charges from Nicor Enerchange were $0~~70%.~~2 million.~~ ~~Such~~Our ~~charges for the nine months ended September 30~~ratio, ~~2011~~as ~~were~~calculated insignificant. For the three and nine months ended September 30, 2010, net commodity-based charges to (from) Nicor Enerchange were $0.6 million and $(3.1) million, respectively. Additionally, Nicor Enerchange administers the Chicago Hub for Nicor Gas in accordance with anour ~~agreement~~debt ~~approved~~covenant byincludes ~~the~~standby ~~ICC. For~~letters ~~the three and nine months ended September 30, 2011, charges from Nicor Enerchange for administration~~ of ~~the~~credit ~~Chicago Hub were $0.1 million~~ and ~~$0.4~~surety ~~million,~~bonds ~~respectively,~~ and ~~$0.2~~excludes ~~million~~accumulated ~~and $0~~OCI.~~5 million, respectively, for the same periods in 2010.~~ ~~Nicor~~Adjusting ~~Gas also charged Nicor Enerchange~~ for ~~certain~~these ~~storage~~items, ~~services~~our atdebt-to-capitalization ~~the~~ratio ~~Chicago Hub. Such charges~~ for ~~the~~March ~~three~~31, ~~and~~2012 ~~nine~~was ~~months ended September 30~~47%, ~~2011~~which ~~and~~is ~~2010~~within ~~were~~our ~~insignificant~~required range.

The credit facility contains certain non-financial covenants that, among other things, restrict liens and encumbrances, loans and investments, acquisitions, dividends and other restricted payments, asset dispositions, mergers and consolidations and other matters customarily restricted in such agreements.

Default Provisions

Our credit facility and other financial obligations include provisions that, if not complied with, could require early payment or similar actions. The most important default events include:

·	a maximum leverage ratio

·	insolvency events and nonpayment of scheduled principal or interest payments

·	acceleration of other financial obligations

·	change of control provisions

We have no trigger events in our debt instruments that are tied to changes in our specified credit ratings. We were in compliance with all existing debt provisions and covenants, both financial and non-financial, as of March 31, 2012.

Note 7 - Commitments, Guarantees and Contingencies

There were no significant changes to our contractual obligations described in Note 7 to our Consolidated Financial Statements and related notes in Item 8 of our 2011 Form 10-K.

We have incurred various contractual obligations and financial commitments in the normal course of our operating and financing activities that are reasonably likely to have a material effect on liquidity or the availability of capital resources. Contractual obligations include future cash payments required under existing contractual arrangements, such as debt and lease agreements. These obligations may result from both general financing activities and from commercial arrangements that are directly supported by related revenue-producing activities.

Substitute Natural Gas Plant Legislation. In 2011, Illinois enacted laws that required us and other large utilities in Illinois to elect to either sign contracts to purchase SNG from coal gasification plants to be constructed in Illinois or instead file rate cases with the Illinois Commission in 2012, 2014 and 2016.

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InOn ~~both~~September 30, 2011, we signed an agreement to purchase approximately 25 Bcf of SNG annually for a 10-year term beginning as early as 2015. The counterparty intends to construct a 60 Bcf per year coal gasification plant in southern Illinois. The price of the SNG could significantly exceed market prices and ~~2010~~is dependent upon a variety of factors. However, ~~Horizon~~currently ~~Pipeline~~under ~~charged~~the ~~Nicor~~provisions ~~Gas~~of this contract the price could potentially be $29.695 ~~million~~per Mcf or more. The project is also expected to be financed by the counterparty with external debt and $7equity.8 This ~~million~~agreement complies with an Illinois statute that authorizes full recovery of the purchase costs; therefore we expect to recover such costs. Since the purchase agreement is contingent upon various milestones to be achieved by the counterparty to the agreement, ~~respectively~~our obligation is not certain at this time. The contract automatically terminates if construction does not commence by July 1, ~~for~~2012. While the ~~three~~purchase ~~and~~agreement ~~nine~~is ~~months~~a ~~ended~~variable ~~September~~interest 30in ~~for~~the ~~natural~~counterparty, ~~gas~~we ~~transportation~~have ~~under~~concluded, ~~rates~~based on a qualitative evaluation, that we are not the primary beneficiary required to consolidate the counterparty because we had no power to dictate the key terms of this agreement and we have no power to direct any of the activities of the seller. No amount has been ~~accepted~~recognized byon our Condensed Consolidated Statements of Financial Position in connection with the ~~FERC~~purchase agreement.

Additionally, on October 11, 2011, the Illinois Power Agency (“IPA”) approved the form of a draft 30-year contract for the purchase by us of approximately 20 Bcf per year of SNG from a second proposed plant beginning as early as 2018. In ~~addition~~November 2011, we filed a lawsuit against the IPA and the developer of this second proposed plant contending that the draft contract approved by the IPA does not conform to certain ~~related~~requirements ~~parties~~of ~~may~~the ~~acquire~~enabling ~~regulated~~legislation. ~~utility~~The ~~services~~lawsuit atis ~~rates~~pending in circuit court in DuPage County, Illinois. In accordance with the enabling legislation, the draft contract approved by the ~~ICC~~IPA for the second proposed plant was submitted to the Illinois Commission for further approvals by that regulatory body. The Illinois Commission issued an order on January 10, 2012 approving a final form of the contract for the second plant. The final form of contract approved by the Illinois Commission modified the draft contract submitted by the IPA in various respects. Both we and the developer of the plant filed applications for a rehearing with the Illinois Commission seeking changes to the final form of the contract. The Illinois Commission agreed to grant a rehearing on this contract and is expected to issue its ruling during the second quarter of 2012.

11The purchase price of the SNG that may be produced from both of the coal gasification plants may significantly exceed market prices for natural gas and is dependent upon a variety of factors, including plant construction costs and volumes sold, and is currently unknown. The ~~REGULATORY~~Illinois ~~MATTERS~~laws provide that prices paid for SNG purchased from the plants are to be considered prudent and not subject to review or disallowance by the Illinois Commission. As such, Illinois law effectively requires Nicor Gas’ customers to provide subordinated financial support to the developers.

~~Bad~~Contingencies ~~debt~~and rider. In September 2009, Nicor Gas filed for approval of a bad debt rider with the ICC under an Illinois state law which took effect in July 2009. On February 2, 2010, the ICC issued an order approving the company’s proposed bad debt rider. This rider provides for recovery from customers of the amount over the benchmark for bad debt expense established in the company’s rate cases. It also provides for refunds to customers if bad debt expense is below such benchmarks.Guarantees

AsIndemnities. In acertain ~~result~~instances, ofwe ~~the~~have ~~February~~undertaken ~~2010~~to ~~order,~~indemnify ~~Nicor~~current ~~Gas~~property ~~recorded~~owners inand ~~income~~others aagainst ~~net~~costs ~~recovery~~associated ~~related~~with tothe ~~2008~~effects and/or ~~2009~~remediation of ~~$31.7~~contaminated ~~million~~sites infor ~~the~~which ~~first~~we ~~quarter~~may ofbe ~~2010,~~responsible ~~all~~under ofapplicable ~~which~~federal ~~has~~or ~~been~~state ~~collected. The~~environmental ~~benchmark~~laws, ~~against~~generally ~~which~~with ~~2011~~no ~~and~~limitation ~~2010~~as ~~actual~~to ~~bad~~the ~~debt~~amount. These ~~experience~~indemnifications isrelate ~~compared,~~primarily isto remediation ~~approximately~~of ~~$63~~MGP ~~million. The~~sites, ~~company’s~~as ~~actual~~discussed ~~2010~~in ~~bad~~Environmental ~~debt~~Remediation ~~experience was $35~~Costs.7 We ~~million,~~believe ~~resulting~~that inthe alikelihood ~~refund~~of topayment ~~customers~~under ofour ~~$27.3~~other ~~million~~environmental ~~which~~indemnifications is ~~being~~remote. No ~~refunded~~liability ~~over~~has abeen ~~12-month~~recorded ~~period~~for ~~that~~such ~~began June 2011~~indemnifications.

~~SNG~~We ~~plant~~have ~~legislation. Nicor~~also ~~Gas~~indemnified, ~~signed an agreement in the third quarter of 2011~~ to purchase approximately 25 Bcf of SNG annually for a 10-year term beginning as early as 2015. The counterparty intends to construct a 60 Bcf per year coal gasification plant in southern Illinois. The project is expected to be financed by the ~~counterparty~~fullest ~~with~~extent ~~external~~permitted ~~debt~~under ~~and equity. In addition,~~ the ~~final~~laws ~~price~~ of the ~~SNG~~State ~~may~~of ~~exceed~~Illinois ~~market prices~~ and isany ~~dependent~~other ~~upon~~applicable ~~a variety of factors~~laws, ~~including~~our ~~plant~~present ~~construction costs,~~ and isformer ~~not estimable. However~~directors, ~~this~~officers ~~agreement~~and ~~complies~~employees ~~with~~against anexpenses ~~Illinois~~they ~~statute~~may ~~that~~incur ~~authorizes~~in ~~full~~connection ~~recovery~~with oflitigation ~~the~~to ~~purchase~~which ~~costs;~~they ~~therefore~~are ~~the~~a ~~company~~party ~~expects~~by toreason ~~recover~~of ~~such~~their ~~costs~~association with us. ~~Since~~There ~~the purchase agreement~~ is ~~contingent~~generally ~~upon~~no ~~various~~limitation ~~milestones~~as to ~~be achieved by~~ the ~~counterparty to the agreement, the company’s obligation is not certain at this time~~amount. While ~~the~~we ~~purchase~~do ~~agreement~~not isexpect ato ~~variable~~incur ~~interest~~significant incosts ~~the~~under ~~counterparty,~~these ~~Nicor Gas has concluded~~indemnifications, ~~based on a qualitative evaluation, that~~ it is not ~~the~~possible ~~primary beneficiary required~~ to ~~consolidate~~estimate the ~~counterparty. No~~maximum ~~amount~~future ~~has~~potential ~~been recognized on Nicor Gas’ balance sheet in connection with the purchase agreement~~payments.

OnEnvironmental ~~October~~remediation ~~11,~~costs. We ~~2011,~~are ~~the~~subject ~~IPA~~to ~~approved~~federal, ~~the~~state ~~form~~and oflocal alaws ~~draft~~and ~~30-year~~regulations ~~contract~~governing ~~for~~environmental ~~the~~quality ~~purchase~~and ofpollution ~~20 Bcf per year of SNG from a second proposed plant~~control. ~~The~~These ~~draft~~laws ~~contract~~and ~~approved~~regulations byrequire ~~the~~us ~~IPA~~to ~~has~~remove ~~been~~or ~~submitted~~remedy to the ~~ICC~~effect ~~for~~on ~~further~~the ~~approvals~~environment byof ~~that~~the ~~regulatory~~disposal ~~body. The~~or ~~ICC~~release ~~is expected to approve a final form~~ of ~~contract~~specified ~~for~~substances ~~the~~at ~~second~~current ~~plant~~and informer ~~2012~~operating sites.

12We have identified 26 former manufactured gas plant sites in Illinois for which we may have some responsibility. Most ~~GUARANTEES~~of ~~AND~~these ~~INDEMNITIES~~sites are not presently owned by us. We and Commonwealth Edison Company (“ComEd”) are parties to an agreement to cooperate in cleaning up residue at many of these sites. The agreement allocates to us 51.73% of cleanup costs for 23 sites, no portion of the cleanup costs for 14 other sites and 50% of general remediation program costs that do not relate exclusively to particular sites. In addition to the sites from the agreement with ComEd, there are 3 sites in which we have sole responsibility. Information regarding preliminary site reviews has been presented to the Illinois Environmental Protection Agency for certain sites. More detailed investigations and remedial activities are complete, in progress or planned at many of these sites. The results of the detailed site-by-site investigations will determine the extent additional remediation is necessary and provide a basis for estimating additional future costs.

InGlossary ~~certain instances, Nicor Gas has undertaken to indemnify current property owners and others against costs associated with the effects and/or remediation~~ of ~~contaminated~~Key sites for which the company may be responsible under applicable federal or state environmental laws, generally with no limitation as to the amount. These indemnifications relate primarily to ongoing coal tar cleanup, as discussed in Note 13 – Contingencies – Manufactured Gas Plant Sites. Nicor Gas believes that the likelihood of payment under its other environmental indemnifications is remote. No liability has been recorded for such indemnifications.Terms

Nicor Gas has also indemnified, to the fullest extent permitted under the laws of the State of Illinois and any other applicable laws, its present and former directors, officers and employees against expenses they may incur in connection with litigation they are a party to by reason of their association with the company. There is generally no limitation as to the amount. While the company does not expect to incur

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~~significant~~We report estimates of future environmental remediation costs ~~under~~on ~~these~~an ~~indemnifications,~~undiscounted itbasis. Our isERC liabilities for certain of our sites are estimated based on probabilistic models of potential costs. These probabilistic models have not ~~possible~~yet been performed on all of our sites, but are expected to ~~estimate~~be completed in 2012. Based on the ~~maximum~~estimates ~~future~~that ~~potential~~we ~~payments~~have performed, the cleanup cost estimates range from $136 million to $218 million. Our liability for environmental remediation costs at March 31, 2012 is $136 million, of which $21 million is expected to be paid over the next twelve months.

~~13. CONTINGENCIES~~Litigation

~~The~~We ~~following~~are ~~contingencies~~involved ofin ~~Nicor~~litigation ~~Gas~~arising ~~are~~ in ~~various~~the ~~stages~~normal course of ~~investigation or disposition~~business. Although in some cases ~~the~~we ~~company~~are is unable to estimate the amount of loss reasonably possible in addition to any amounts already recognized, it is possible that the resolution of these contingencies, either individually or in aggregate, will require ~~the~~us ~~company~~ to take charges against, or will result in reductions in, future earnings. It is the opinion of management that the resolution of these contingencies, either individually or in aggregate, could be material to earnings in a particular period but iswill not ~~expected to~~ have a material adverse ~~impact~~effect on ~~Nicor~~our ~~Gas’~~financial ~~liquidity~~position or ~~financial~~cash ~~condition~~flows. For additional litigation information, see Note 7 in our Consolidated Financial Statements and related notes in Item 8 of our 2011 Form 10-K.

PBR Plan. Our ~~Nicor Gas’~~ PBR plan for natural gas costs went into effect in 2000 and was terminated by ~~the~~us ~~company~~ effective January 1, 2003. Under the PBR plan, ~~Nicor~~our ~~Gas’~~ total gas supply costs were compared to a market-sensitive benchmark. Savings and losses relative to the benchmark were determined annually and shared equally with sales customers. The PBR plan is currently under ~~ICC~~ review~~. There~~ by the Illinois Commission as there are allegations that ~~the~~we ~~company~~ acted improperly in connection with the PBR plan~~, and the ICC and others are reviewing these allegations~~. On June 27, 2002, the Citizens Utility Board (“CUB”) filed a motion to reopen the record in the ~~ICC~~Illinois Commission’s proceedings to review the PBR plan ~~(the “ICC Proceedings”)~~. As a result of the motion to reopen, ~~Nicor~~we ~~Gas,~~entered into a stipulation with the staff of the ~~ICC~~Illinois Commission and CUB ~~entered into a stipulation~~ providing for additional discovery. The Illinois Attorney General’s Office (“IAGO”) has also intervened in this matter. In addition, the IAGO issued Civil Investigation Demands (“CIDs”) to CUB and the ~~ICC~~Illinois Commission staff. The CIDs ordered that CUB and the ~~ICC~~Illinois Commission staff produce all documents relating to any claims that ~~Nicor~~we ~~Gas~~ may have presented, or caused to be presented, regarding false information related to ~~its~~our PBR plan. The ~~company~~staff ~~has~~of the Illinois Commission, IAGO and CUB submitted direct testimony to the Illinois Commission in April 2009 and rebuttal testimony in October 2011. In rebuttal testimony, the staff of the Illinois Commission, IAGO and CUB requested refunds of $85 million, $255 million and $305 million, respectively. We have committed to cooperate fully in the reviews of the PBR plan.

In ~~response~~February 2012, we committed to ~~these~~a ~~allegations,~~stipulated onresolution ~~July~~of ~~18,~~issues ~~2002,~~with the ~~Nicor~~staff ~~Board~~ of ~~Directors~~the ~~appointed~~Illinois aCommission, ~~special~~which ~~committee~~includes ofcrediting ~~independent~~our customers $64 million, ~~non-management~~but ~~directors~~does tonot ~~conduct~~constitute an ~~inquiry~~admission ~~into~~of ~~issues~~fault. This ~~surrounding~~liability ~~natural~~is ~~gas~~reflected ~~purchases,~~in ~~sales,~~our ~~transportation~~Condensed Consolidated Statements of Financial Position at March 31, ~~storage~~2012 and ~~such~~December ~~other~~31, ~~matters~~2011. The asstipulated ~~may~~resolution ~~come~~is not final and is subject to ~~the~~review ~~attention~~and ofapproval by the ~~special~~Illinois ~~committee~~Commission. CUB inand IAGO are not parties to the ~~course~~stipulated ofresolution ~~its~~and ~~investigation~~continue to pursue their claims in this proceeding. ~~The~~Evidentiary ~~special~~hearings ~~committee~~before ~~presented~~the Administrative Law Judge were held during the ~~report~~first quarter of ~~its~~2012 ~~counsel~~and ~~(“Report”)~~post totrial ~~Nicor’s~~legal ~~Board~~briefs from the parties are being submitted during the second quarter of ~~Directors~~2012. Following onthe ~~October~~submission 28of legal briefs, ~~2002~~the Administrative Law Judges will issue a proposed decision. There is no date scheduled for the issuance of that proposed decision.

InWe ~~response,~~are ~~the~~unable ~~Nicor Board of Directors directed the company’s management~~ to, ~~among~~predict ~~other things, make appropriate adjustments to account for, and fully address,~~ the ~~adverse~~outcome ~~consequences to ratepayers~~ of the ~~items~~Illinois ~~noted in the Report, and conduct a detailed study of the adequacy of internal accounting and regulatory controls. The adjustments were made in prior years~~Commission’s ~~financial~~review ~~statements~~or ~~resulting~~our inpotential ~~a $24~~exposure.~~8 million liability.~~ ~~Included~~Since inthe ~~such~~PBR ~~$24.8~~plan ~~million~~and ~~liability~~historical isgas acosts ~~$4.1~~are ~~million~~still ~~loss~~under ~~contingency. A~~Illinois ~~$1.8~~Commission ~~million adjustment to the previously recorded liability~~review, ~~which is discussed below, was made in 2004 increasing~~ the ~~recorded~~final ~~liability~~outcome tocould ~~$26.6~~be ~~million. Nicor~~materially ~~Gas~~different ~~estimates that there is $26.9 million due to the company~~ from the ~~2002 PBR plan year, which has not been recognized in the financial statements due to uncertainties surrounding the PBR plan. In addition, interest due to the company on certain components of these~~ amounts ~~has~~reflected ~~not been recognized~~ in ~~the~~our financial statements ~~due~~as ~~to the same uncertainties. By the end~~ of ~~2003~~March 31, ~~the company completed steps to correct the weaknesses and deficiencies identified in the detailed study of the adequacy of internal controls~~2012.

~~Pursuant~~Other. We are also involved in service warranty product actions, municipal tax matters and an IAGO investigation. While we are unable to predict the ~~agreement~~outcome of ~~all~~these ~~parties,~~matters ~~including~~or ~~the~~to ~~company,~~reasonably ~~the~~estimate ~~ICC~~our ~~re-opened~~potential ~~the~~exposure ~~1999~~related thereto, if any, and ~~2000~~have ~~purchased~~not ~~gas~~recorded ~~adjustment~~a ~~filings~~liability ~~for~~associated ~~review~~with these contingencies, the final disposition of ~~certain~~these ~~transactions~~matters ~~related~~is not expected to ~~the~~have ~~PBR~~a ~~plan~~material ~~and~~adverse ~~consolidated~~impact ~~the~~on ~~reviews~~our ofliquidity ~~the~~or ~~1999-2002~~financial ~~purchased~~condition. For ~~gas~~additional ~~adjustment~~litigation ~~filings~~information ~~with~~on ~~the~~these ~~PBR~~matters, ~~plan~~see ~~review~~Note 7 in our Consolidated Financial Statements and related notes in Item 8 of our 2011 Form 10-K.

OnIn ~~February~~addition 5,to ~~2003,~~the ~~CUB~~matters ~~filed~~set aforth ~~motion~~above, ~~for~~we ~~$27~~are ~~million~~involved in ~~sanctions~~legal ~~against~~or ~~the~~administrative ~~company~~proceedings inbefore ~~the~~various ~~ICC~~courts ~~Proceedings. In~~and ~~that~~agencies ~~motion,~~with ~~CUB~~respect ~~alleged~~to ~~that~~general ~~Nicor~~claims, ~~Gas’~~taxes, ~~responses~~environmental, togas ~~certain~~cost ~~CUB~~prudence ~~data~~reviews ~~requests~~and ~~were~~other ~~false~~matters. ~~Also~~Although onwe ~~February~~are 5,unable ~~2003,~~to ~~CUB~~determine ~~stated~~the inultimate aoutcome ~~press~~of ~~release~~these ~~that~~other contingencies, inwe ~~addition~~believe tothat ~~$27~~these ~~million~~amounts inare ~~sanctions,~~appropriately itreflected ~~would~~in ~~seek~~our ~~additional~~financial ~~refunds to consumers. On March 5~~statements, ~~2003,~~including the ~~ICC~~recording ~~staff~~of ~~filed~~appropriate aliabilities when reasonably estimable.

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~~response~~Note ~~brief~~8 in– ~~support~~Related ofParty CUB’s motion for sanctions. On May 1, 2003, the ALJs assigned to the proceeding issued a ruling denying CUB’s motion for sanctions. CUB has filed an appeal of the motion for sanctions with the ICC, and the ICC has indicated that it will not rule on the appeal until the final disposition of the ICC Proceedings. It is not possible to determine how the ICC will resolve the claims of CUB or other parties to the ICC Proceedings.Transactions

In ~~2004,~~ the ~~company~~ordinary ~~became~~course ~~aware~~ of ~~additional~~business, ~~information~~under ~~relating to~~ the ~~activities~~terms of ~~individuals~~agreements ~~affecting~~approved by the ~~PBR~~Illinois ~~plan~~Commission, ~~for~~we ~~the~~enter ~~period~~into ~~from~~transactions ~~1999~~with ~~through~~our ~~2002,~~affiliates ~~including~~for ~~information~~the ~~consisting~~use of ~~third~~facilities ~~party documents~~ and ~~recordings~~services. The ofcharges ~~telephone~~for ~~conversations~~these ~~from~~transactions ~~Entergy-Koch~~are ~~Trading~~cost-based, LPexcept ~~(“EKT”),~~in acertain ~~natural~~circumstances ~~gas,~~where ~~storage~~the ~~and~~charging ~~transportation~~party ~~trader~~has ~~and~~a ~~consultant~~prevailing ~~with~~price ~~whom~~for ~~Nicor~~which ~~did~~the ~~business~~facility ~~under~~or service is provided to the ~~PBR~~general ~~plan~~public. ~~Review~~We ofhad ~~additional~~net ~~information~~charges ~~completed~~from inaffiliates ~~2004~~of ~~resulted~~$3 inmillion for the ~~$1.8~~first ~~million~~three ~~adjustment~~months of 2012 and net charges to affiliates of $7 million for the ~~previously~~first ~~recorded~~three ~~liability~~months ~~referenced~~of ~~above~~2011.

~~The~~Our ~~evidentiary~~key ~~hearings~~executives onand ~~this~~managerial ~~matter~~employees ~~were~~participate ~~stayed~~ in ~~2004~~our inparent ~~order~~company’s tostock-based ~~permit~~compensation ~~the parties to undertake additional third party discovery from EKT~~plans. InWe ~~December~~recognized ~~2006,~~ the ~~additional~~compensation ~~third~~expense ~~party~~related ~~discovery~~to ~~from~~these ~~EKT~~plans ~~was~~in ~~obtained~~operation and ~~the~~maintenance ~~ALJs issued a scheduling order that provided for Nicor Gas to submit direct testimony by April 13, 2007~~expense. InCharges ~~its~~related ~~direct~~to ~~testimony,~~these ~~Nicor~~plans ~~Gas~~from ~~sought~~AGL aServices ~~reimbursement~~Company ofwere ~~approximately~~less $6than ~~million, which included interest due to the company, as noted above, of~~ $1.6 million, asfor ~~of March 31, 2007, and it reaffirmed this position in rebuttal testimony submitted in April 2011. The staff of~~ the ~~ICC,~~first ~~IAGO~~three ~~and~~months ~~CUB submitted direct testimony to the ICC in April 2009 and rebuttal testimony in October 2011. In rebuttal testimony, the staff~~ of ~~the~~2012 ~~ICC, IAOG,~~ and ~~CUB~~charges ~~requested~~from ~~refunds~~Nicor ofwere $851 million, ~~$255 million and $305 million, respectively. No date has been set~~ for ~~evidentiary~~the ~~hearings~~first onthree ~~this~~months ~~matter~~of 2011.

~~Nicor~~We ~~Gas~~currently isare ~~unable~~prohibited toby ~~predict~~regulations of the ~~outcome~~Illinois Commission from loaning money to affiliates. However, we are permitted under these regulations to receive cash advances from AGL Resources. The balance of any such advances may not exceed the ~~ICC’s~~balance ~~review~~of funds available to us under our existing credit agreements or ~~the~~commercial ~~company’s~~paper ~~potential~~facilities ~~exposure~~with ~~thereunder~~unaffiliated third parties. ~~Because~~Interest is charged from such loans at the ~~PBR~~lower ~~plan~~of ~~and~~our ~~historical~~commercial ~~gas~~paper ~~costs~~rate ~~are~~or ~~still~~our ~~under~~actual ~~ICC~~interest ~~review,~~cost for the ~~final~~funds ~~outcome~~obtained ~~could~~or beused ~~materially~~to ~~different~~provide ~~than~~us the ~~amounts~~cash ~~reflected~~advance. We inreceived no cash advances from AGL Resources during the ~~company’s~~first ~~financial~~quarter ~~statements~~of as2012. Prior to the completion of ~~September~~the 30merger between AGL Resources and Nicor, we participated in a cash management system with other subsidiaries of Nicor. At March 31, 2011 we owed $22 million to Nicor which was repaid in 2011. Interest expense on advances from Nicor for the first three months of 2011 was immaterial.

~~Mercury. Nicor~~Under ~~Gas~~its ~~remains~~utility-bill amanagement ~~defendant~~products, inNicor ~~several~~Solutions ~~private~~pays ~~lawsuits~~us ~~that~~for ~~were~~the ~~filed~~utility onbills ~~August~~issued ~~29,~~to ~~2000,~~the ~~all~~utility-bill inmanagement ~~the~~customers. We ~~Circuit~~recorded ~~Court~~revenues of ~~Cook~~$10 ~~County,~~million ~~Illinois,~~for ~~seeking~~the afirst ~~variety~~three months of ~~unquantified~~2012 ~~damages (including bodily injury~~ and ~~property~~$14 ~~damages)~~million ~~allegedly~~for ~~caused~~the byfirst ~~mercury~~three ~~spillage~~months ~~resulting from the removal~~ of ~~mercury-containing~~2011 ~~regulators. Potential~~associated ~~liabilities~~with ~~relating~~the topayments ~~these~~Nicor ~~claims~~Solutions ~~have~~makes ~~been assumed by a contractor’s insurer, subject~~ to ~~certain~~us ~~limitations. The~~on ~~final~~behalf ~~disposition~~ of ~~these~~its ~~mercury-related matters is not expected to have a material adverse impact on the company’s liquidity or financial condition~~customers.

~~Manufactured~~As ~~Gas~~a ~~Plant~~natural ~~Sites~~gas supplier, Nicor Advanced Energy pays us for delivery charges, administrative charges and applicable taxes. ~~Manufactured~~Nicor ~~gas~~Advanced ~~plants~~Energy ~~were~~paid ~~used~~us $2 million in the ~~1800s~~first ~~and~~three ~~early~~months toof ~~mid~~2012 ~~1900s~~and to2011 ~~produce~~for ~~manufactured~~such ~~gas~~items. Additionally, ~~from~~Nicor ~~coal,~~Advanced ~~creating~~Energy amay ~~coal~~pay ~~tar~~or ~~byproduct~~receive inventory imbalance adjustments. ~~Current~~The ~~environmental~~amount ~~laws~~Nicor ~~may~~Advanced ~~require~~Energy received from us for the ~~cleanup~~first three months of ~~coal~~2012 ~~tar~~was atinsignificant. There ~~certain~~were ~~former~~no ~~manufactured~~such ~~gas~~charges ~~plant~~for ~~sites~~the first three months of 2011.

~~Nicor~~We ~~Gas~~enter ~~has~~into ~~identified~~natural ~~properties~~gas ~~for~~purchases ~~which~~and itsales ~~may~~with ~~have~~Sequent ~~some~~as ~~responsibility. Most~~authorized ~~of these properties are not presently owned~~ by ~~the~~terms ~~company. Nicor~~of ~~Gas and Commonwealth Edison Company (“ComEd”) are parties to~~ an ~~agreement~~Illinois toCommission ~~cooperate in cleaning up residue at many of these properties~~order. ~~The~~Net ~~agreement~~charges ~~allocates~~from toSequent ~~Nicor Gas 51.73 percent of cleanup costs~~ for ~~24 sites, no portion of~~ the ~~cleanup~~first ~~costs~~three ~~for~~months ~~14 other sites and 50 percent~~ of ~~general~~2012 ~~remediation~~were ~~program costs that do not relate exclusively to particular sites~~insignificant. Information regarding preliminary site reviews has been presented to the Illinois Environmental Protection Agency for certain properties. More detailed investigations and remedial activities are complete, in progress or planned at many of these sites. The results of the detailed site-by-site investigations will determine the extent additional remediation is necessary and provide a basis for estimating additional future costs.

InHorizon ~~April~~Pipeline ~~2002,~~charged ~~Nicor~~us ~~Gas~~$3 ~~was~~million ~~named~~for ~~as a defendant, together with ComEd, in a lawsuit brought by~~ the ~~Metropolitan~~first ~~Water~~three ~~Reclamation~~months ~~District~~ of ~~Greater~~2012 ~~Chicago (the “MWRDGC”) under the Federal Comprehensive Environmental Response, Compensation~~ and ~~Liability~~2011 ~~Act~~for ~~seeking~~natural ~~recovery~~gas oftransportation ~~past~~under ~~and~~rates ~~future~~that ~~remediation~~have ~~costs~~been ~~and~~accepted aby ~~declaration of~~ the ~~level of appropriate cleanup for a former manufactured~~ FERC.

In addition, certain related parties may acquire regulated utility services at rates approved by the Illinois Commission.

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~~gas~~Item ~~plant site in Skokie, Illinois now owned by the MWRDGC~~2. InManagement’s ~~January~~Discussion ~~2003, the suit was amended to include a claim under the Federal Resource Conservation~~ and ~~Recovery~~Analysis ~~Act. The suit was filed in the United States District Court for the Northern District~~ of ~~Illinois. In~~Financial ~~September~~Condition ~~2011, Nicor Gas~~ and ~~ComEd~~Results ~~entered into a settlement with the MWRDGC addressing the appropriate level~~ of ~~cleanup for this former manufactured gas plant site and the lawsuit has been dismissed.~~Operations

AsThe offollowing ~~September~~discussion ~~30,~~and ~~2011,~~analysis ~~the~~should ~~company~~be ~~had~~read ~~recorded a liability~~ in ~~connection~~conjunction with ~~these~~our ~~matters~~Condensed ofConsolidated ~~$52.7~~Financial ~~million. In~~Statements ~~accordance~~and ~~with~~the ~~ICC~~notes ~~authorization,~~to the ~~company~~Condensed ~~has~~Consolidated ~~been~~Financial ~~recovering,~~Statements ~~and~~in ~~expects~~this toquarterly ~~continue~~filing, toas ~~recover,~~well ~~these~~as ~~costs~~our ~~from~~2011 ~~its~~Form ~~customers~~10-K. ~~Since~~Results ~~costs~~for ~~and recoveries relating to~~ the ~~cleanup~~interim ofperiods ~~manufactured~~presented ~~gas plant sites~~ are ~~passed~~not ~~directly~~necessarily ~~through~~indicative toof ~~customers,~~the ~~subject~~results to anbe ~~annual~~expected ~~ICC~~for ~~prudence review,~~ the ~~final~~full ~~disposition~~fiscal ofyear ~~manufactured~~due ~~gas plant matters is not expected~~ to ~~have~~seasonal aand ~~material~~other ~~impact on the company’s financial condition or results of operations~~factors.

~~Municipal~~FORWARD-LOOKING Tax Matters. Many municipalities in Nicor Gas’ service territory have enacted ordinances that impose taxes on gas sales to customers within municipal boundaries. Most of these municipal taxes are imposed on Nicor Gas based on revenues generated by Nicor Gas within the municipality. Other municipal taxes are imposed on natural gas consumers within the municipality but are collected from consumers and remitted to the municipality by Nicor Gas. A number of municipalities have instituted audits of Nicor Gas’ tax remittances. In May 2007, five of those municipalities filed an action against Nicor Gas in state court in DuPage County, Illinois relating to these tax audits. Following a dismissal of this action without prejudice by the trial court, the municipalities filed an amended complaint. The amended complaint seeks, among other things, compensation for alleged unpaid taxes. Nicor Gas is contesting the claims in the amended complaint. In December 2007, 25 additional municipalities, all represented by the same audit firm involved in the lawsuit, issued assessments to Nicor Gas claiming that it failed to provide information requested by the audit firm and owed the municipalities back taxes. Nicor Gas believes the assessments are improper and has challenged them. While the company is unable to predict the outcome of these matters or to reasonably estimate its potential exposure related thereto, if any, and has not recorded a liability associated with this contingency, the final disposition of these matters is not expected to have a material adverse impact on the company’s liquidity or financial condition.STATEMENTS

~~Nicor~~Certain ~~Services~~expectations ~~Warranty~~and ~~Product~~projections ~~Actions. In~~regarding ~~the~~our ~~first~~future ~~quarter~~performance ofreferenced ~~2011,~~in ~~three~~this ~~putative~~section ~~class actions were filed against Nicor Services~~ and ~~Nicor~~elsewhere ~~Gas, and~~ in ~~one~~this ~~case against Nicor. In September 2011~~report, ~~the~~as ~~three~~well ~~cases~~as ~~were consolidated into a single class action pending~~ in ~~state~~other ~~court~~reports inwe ~~Cook~~file ~~County,~~with ~~Illinois. The~~the ~~plaintiffs~~SEC ~~purport to represent a class of customers of Nicor Gas who purchased appliance warranty and service plans from Nicor Services and/~~or aotherwise ~~class~~release ofto ~~customers of Nicor Gas who purchased~~ the ~~Gas~~public ~~Line~~and ~~Comfort~~on ~~Guard~~our ~~product~~website ~~from~~are ~~Nicor~~forward-looking ~~Services. In~~statements ~~the~~within ~~consolidated action,~~ the ~~plaintiffs~~meaning ~~variously allege that the marketing, sale and billing~~ of the ~~Nicor~~United ~~Services~~States ~~appliance~~federal ~~warranty~~securities ~~and~~laws ~~service plans~~ and ~~Gas~~are ~~Line~~subject ~~Comfort~~to ~~Guard~~uncertainties ~~violate the Illinois Consumer Fraud~~ and ~~Deceptive~~risks. ~~Business~~Senior ~~Practices~~officers ~~Act, constitute common law fraud~~ and ~~result~~other inemployees ~~unjust~~may ~~enrichment~~also ofmake ~~Nicor~~verbal ~~Gas~~statements ~~and Nicor Services. The plaintiffs seek, on behalf of the classes they purport~~ to ~~represent~~analysts, ~~actual and punitive damages~~regulators, ~~interest, costs, attorneys fees and injunctive relief. While~~ the ~~company~~media ~~is unable to predict the outcome of this matter or to reasonably estimate its potential exposure related thereto, if any,~~ and ~~has~~others ~~not~~that ~~recorded~~are ~~a liability associated with this contingency, the final disposition of this matter is not expected to have a material adverse impact on the company’s liquidity or financial condition~~forward-looking.

~~Other. In~~Forward-looking ~~addition~~statements toinvolve ~~the~~ matters ~~set~~that ~~forth~~are ~~above~~not historical facts, ~~the~~and ~~company~~because isthese ~~involved~~statements ininvolve ~~legal~~anticipated events or ~~administrative~~conditions, ~~proceedings~~forward-looking ~~before~~statements ~~various~~often ~~courts~~include ~~and~~words ~~agencies~~such ~~with~~as ~~respect~~"anticipate," to"assume," ~~general~~“believe,” ~~claims~~"can," ~~taxes~~"could," ~~environmental~~"estimate," ~~gas~~"expect," ~~cost~~"forecast," ~~prudence~~"future," ~~reviews~~“goal,” ~~and~~"indicate," ~~other~~"intend," ~~matters~~"may," “outlook,” "plan," “potential,” "predict," "project,” “proposed,” "seek," "should," "target," "would," or similar expressions. ~~Although~~You ~~unable~~are cautioned not to ~~determine~~place ~~the~~undue ~~ultimate~~reliance ~~outcome~~on ofour ~~these~~forward-looking ~~other~~statements. Our ~~contingencies~~expectations are not guarantees and are based on currently available competitive, ~~management~~financial ~~believes~~and economic data along with our operating plans. While we believe that ~~these~~our ~~amounts~~expectations are ~~appropriately~~reasonable ~~reflected~~ in ~~the~~view ~~financial~~of ~~statements~~currently available information, ~~including~~our ~~the~~expectations ~~recording~~are ofsubject ~~appropriate~~to ~~liabilities~~future ~~when~~events, ~~reasonably~~risks ~~estimable~~and uncertainties, and there are numerous factors - many beyond our control - that could cause our actual results to vary significantly from our expectations.

Such events, risks and uncertainties include, but are not limited to, changes in price, supply and demand for natural gas and related products; the impact of changes in state and federal legislation and regulation including any changes related to climate change; actions taken by government agencies on rates and other matters; concentration of credit risk; utility and energy industry consolidation; the impact on cost and timeliness of construction projects by government and other approvals, development project delays, adequacy of supply of diversified vendors, unexpected changes in project costs, including the cost of funds to finance these projects; the impact of acquisitions and divestitures; direct or indirect effects on our business, financial condition or liquidity resulting from any change in our credit ratings as a result of the recent merger between AGL Resources and Nicor or otherwise, or any change in the credit ratings of our counterparties or competitors; interest rate fluctuations; financial market conditions, including disruptions in the capital markets and lending environment and the economic downturn; general economic conditions; uncertainties about environmental issues and the related impact of such issues; the impact of changes in weather, including climate change; the impact of natural disasters such as hurricanes on the supply and price of natural gas; acts of war or terrorism; the outcome of litigation; and other factors discussed elsewhere herein and in our filings with the SEC.

We caution readers that, in addition to the important factors described elsewhere in this report, among others, could cause our business, results of operations or financial condition to differ significantly from those expressed in any forward-looking statements. There also may be other factors that we cannot anticipate or that are not described in this report that could cause our actual results to differ significantly from our expectations.

Forward-looking statements are only as of the date they are made. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of future events, new information or otherwise, except as required under United States federal securities law.

EXECUTIVE SUMMARY

We are a natural gas distribution company. Our operations are subject to regulation and oversight by the Illinois Commission. The Illinois Commission approves natural gas rates designed to provide us the opportunity to generate revenues to recover the cost of natural gas delivered to our customers and our fixed and variable costs such as depreciation, interest, maintenance and overhead costs, and to earn a reasonable return. Our earnings can be affected by customer consumption patterns that are a function of weather conditions, price levels for natural gas and general economic conditions.

Glossary of Key Terms

Table of Contents

~~Item~~On ~~2. Management’s~~December ~~Discussion~~9, 2011, AGL Resources and ~~Analysis~~Nicor merged and we became a wholly owned subsidiary of ~~Financial~~AGL ~~Condition~~Resources. As ~~and~~a ~~Results~~condition to the Illinois Commission’s approval of ~~Operations~~the merger, we are not allowed to initiate a rate case proceeding that would increase our rates effective prior to December 9, 2014.

~~The~~Because ~~following~~of ~~discussion~~our ~~should~~significant beoutstanding ~~read~~public indebt, ~~conjunction with~~ the ~~Management’s~~impact ~~Discussion and Analysis section~~ of the ~~Nicor~~acquisition ~~Gas 2010 Annual Report on Form 10~~(push-~~K. Results~~down ~~for~~accounting) ~~the~~is ~~interim periods presented are~~ not ~~necessarily~~required ~~indicative of the results~~ to be ~~expected~~and ~~for~~has ~~the~~not ~~full~~been ~~fiscal~~reflected ~~year~~in ~~due~~our toCondensed ~~seasonal~~Consolidated ~~and~~Financial ~~other factors~~Statements.

RESULTS OF OPERATIONS

~~Operating~~We ~~income~~generate substantially all our operating revenues through the sale and ~~net~~distribution ~~income~~of ~~are~~natural ~~presented~~gas. We ~~below~~include (in ~~millions):~~our consolidated revenues an estimate of revenues from natural gas distributed, but not yet billed, from the date of the last bill to the end of the reporting period. No individual customer or industry accounts for a significant portion of our revenues. The following table provides our operating income and net income.

	Three months ended				~~Nine months ended~~
	September 30				September 30
	March 31,
	2011		2010		2011			2010
In millions	2012		2011		Change
Operating income	$	~~16.2~~33	$	~~16.7~~44	$	~~80.8~~(11	)	$	~~99.6~~
Net income	$	~~8.2~~25	$	~~7.7~~37	$	~~58.1~~(12	)	$	~~72.6~~

Net income ~~increased~~decreased $~~0.5~~12 million for the three months ended ~~September~~March 3031, ~~2011~~2012 compared to the prior year due to lower ~~operating and maintenance expense ($14.2 million pretax decrease) and lower interest expense ($1.0 million pretax decrease), partially offset by lower~~ margin ($11.2 million pretax decrease), ~~the absence of a favorable mercury-related reserve adjustment recorded in 2010 ($1.3 million pretax),~~ higher ~~depreciation~~operation ~~expense ($1.2 million pretax increase)~~ and amaintenance higher effective income tax rate. Net income decreased $14.5 million for the nine months ended September 30, 2011 compared to the prior year due to lower margin ($28.1 million pretax decrease), higher depreciation expense ($3.5 million pretax increase), ~~the absence of a favorable mercury-related reserve adjustment recorded in 2010 ($1.3 million pretax)~~ and a higher ~~effective~~depreciation ~~income tax rate, partially offset by lower operating and maintenance~~ expense ($~~7.1~~2 million pretax ~~decrease~~increase) ~~and lower interest expense ($4~~.~~6 million pretax decrease).~~

~~Proposed~~The ~~merger~~following ~~with~~discussion ~~AGL~~summarizes ~~Resources. In December 2010, Nicor entered into an Agreement and Plan of Merger (~~the ~~“Merger~~major ~~Agreement”)~~items ~~with~~impacting ~~AGL~~our ~~Resources,~~operating ~~which Nicor expects will be complete in the fourth quarter of 2011~~income. In accordance with the Merger Agreement, each share of Nicor common stock outstanding at the Effective Time (as defined in the Merger Agreement), other than shares to be cancelled and Dissenting Shares (as defined in the Merger Agreement), will be converted into the right to receive consideration consisting of (i) $21.20 in cash and (ii) 0.8382 shares of AGL Resources common stock, subject to adjustments in certain circumstances.

~~Completion~~Operating ofrevenues. Operating ~~the~~revenues ~~proposed~~are ~~merger~~impacted isby ~~conditioned~~changes ~~upon,~~in ~~among~~natural ~~other~~gas ~~things~~costs, ~~shareholder~~which ~~approval~~are bypassed ~~both~~directly ~~companies~~through ~~and~~to ~~the~~customers ~~receipt~~without ofmarkup, ~~various~~subject ~~regulatory approvals. AGL Resources filed a registration statement with the SEC~~ to ~~register~~Illinois ~~the~~Commission ~~AGL~~review, ~~Resources~~and ~~common~~cost ~~stock~~recovery toriders, bewhich ~~issued~~are ingenerally ~~the~~offset ~~merger,~~by operation and ~~the~~maintenance ~~SEC~~expense ~~permitted~~with ~~that~~no ~~registration~~impact ~~to become effective~~ on ~~April~~operating ~~29, 2011~~income. ~~AGL~~Operating ~~Resources~~revenues ~~and~~decreased ~~Nicor~~$294 ~~also~~million ~~filed~~for ~~their pre-merger notifications under~~ the ~~Hart-Scott-Rodino~~three ~~Antitrust~~months ~~Improvements~~ended ~~Act~~March ~~and~~31, ~~were~~2012 ~~granted~~compared ~~early~~to ~~termination~~the ofprior ~~the~~year ~~waiting~~due ~~period~~to onlower ~~April~~natural ~~18,~~gas ~~2011. The~~costs ~~approvals~~(approximately ~~from~~$150 ~~Nicor~~million ~~shareholders~~decrease) and ~~AGL~~the ~~Resources~~impact ~~shareholders~~of ~~required~~warmer weather in ~~connection~~2012 ~~with~~(approximately ~~the~~$150 ~~merger~~million ~~were received on June 14, 2011~~decrease).

InMargin. We ~~January~~utilize ~~2011,~~a ~~Nicor,~~measure ~~Nicor~~referred ~~Gas~~to ~~and~~as ~~AGL~~“margin” ~~Resources~~to ~~filed~~evaluate the operating income impact of revenues. Margin is a ~~joint~~non-GAAP ~~application~~measure ~~with~~that ~~the~~is ~~ICC~~calculated ~~for~~as ~~approval~~revenues minus cost of ~~the~~gas ~~proposed~~and ~~merger~~revenue tax expense, which excludes operation and maintenance expense, depreciation, taxes other than income taxes and income tax expense. ~~The~~These ~~approval~~items byare ~~the~~included ~~ICC~~in isour acalculation ~~condition~~of tooperating ~~completion~~income ofas ~~the~~reflected ~~merger~~in our Condensed Consolidated Statements of Income. ~~The~~Revenues ~~ICC~~include ~~has~~natural ~~eleven~~gas ~~months~~costs, towhich ~~act~~are ~~upon~~passed ~~the~~directly ~~application~~through to customers without markup, ~~with~~subject ~~their~~to ~~statutory~~Illinois ~~deadline~~Commission review, and revenue taxes, for ~~action~~which ~~being~~we ~~December~~earn ~~16,~~a ~~2011~~small administrative fee. ~~The~~We ~~application~~believe ~~did~~margin ~~not~~is ~~request~~ a ~~rate~~better ~~increase~~indicator than operating revenues because these items often cause significant fluctuations in revenues, with equal and ~~included~~offsetting afluctuations ~~commitment~~in cost of gas and revenue tax expense, and no direct impact on margin. Margin should not be considered an alternative to, ~~maintain~~or ~~the~~more ~~number~~meaningful indication of ~~full-time~~our ~~equivalent~~operating ~~employees~~performance ~~involved~~than operating revenues, as determined in ~~the~~accordance ~~operation~~with ofGAAP. In ~~Nicor~~addition, ~~Gas~~our atmargin amay ~~level~~not be comparable to ~~current~~a ~~staffing~~similarly ~~for~~titled measure of another company. We have a ~~period~~franchise ofgas ~~three~~cost ~~years~~recovery ~~following~~rider, ~~merger~~a ~~completion. The~~rider ~~Staff~~to ofrecover the ~~ICC~~costs ~~and~~associated ~~several~~with ~~intervenors~~energy ~~who~~efficiency ~~are~~programs ~~participating~~and a bad debt rider. Changes in ~~the~~revenue ~~proceeding~~included ~~submitted~~in ~~testimony~~margin ~~and~~attributable ~~legal~~to ~~briefs,~~these ~~recommending~~riders ~~that~~are ~~the~~expected ~~ICC~~to ~~deny~~generally ~~the~~be ~~joint~~offset ~~application~~by orchanges ~~that~~within itoperation ~~impose~~and ~~various~~maintenance ~~requirements~~expense onwith ~~the~~generally ~~joint~~no ~~applicants~~impact ason operating income.

A reconciliation of revenues and margin follows:

	Three months ended
	March 31,
In millions	2012			2011			Change

Revenues	$	622		$	916		$	(294	)
Cost of gas		(371	)		(640	)		269
Revenue tax expense		(60	)		(74	)		14
Margin	$	191		$	202		$	(11	)

Glossary of Key Terms

Table of Contents

~~conditions~~Margin ofdecreased ~~approval. On~~$11 ~~September~~million ~~29,~~for ~~2011,~~ the ~~ALJ~~three ~~assigned~~months byended ~~the~~March ~~ICC~~31, to2012 ~~preside~~compared ~~over~~to the ~~proceeding~~prior ~~issued~~year adue ~~proposed~~primarily ~~order recommending approval of the proposed merger. The ALJ also recommended imposing the condition that Nicor Gas no longer be permitted~~ to ~~provide~~warmer ~~sales~~weather ~~solicitation~~in ~~for~~2012 ~~Nicor~~(approximately ~~Services’~~$17 ~~warranty~~million ~~products. On October 13~~decrease), ~~2011,~~partially ~~briefs~~offset ~~were~~by ~~filed to comment on~~ the ~~proposed~~cost ~~order. Testimony~~recovery ~~and~~riders ~~legal~~noted ~~briefs~~above of($7 ~~the~~million ~~parties and the ALJ’s proposed order are available on the ICC’s website~~increase). ~~In ruling on the merger application, the ICC may accept, modify or reject the proposed order recommended by the ALJ.~~

~~The~~Operation ~~merger may also be subject to review by the governmental authorities of various other federal, state or local jurisdictions under the antitrust~~ and ~~utility~~maintenance ~~regulation or other applicable laws of those jurisdictions~~expense. ~~For~~Operation ~~example,~~and ~~AGL~~maintenance ~~Resources~~expense ~~provided~~increased a$5 ~~voluntary~~million ~~notice~~for of the ~~merger~~three tomonths ~~the~~ended ~~New~~March ~~Jersey Board of Public Utilities (“NJBPU”)~~31, ~~which~~2012 ~~included~~compared ~~a description of the transaction, described the benefits of the transaction and explained why AGL Resources does not believe that the approval of the NJBPU is required~~ to ~~complete~~ the ~~merger. AGL~~prior ~~Resources~~year ~~provided~~due ~~a similar notice~~ to the ~~Maryland~~cost ~~Public~~recovery ~~Service~~riders ~~Commission, which then issued a letter stating that it had reviewed the notification of proposed merger filed by AGL Resources and after considering the matter,~~ noted ~~the~~above ~~transaction. It~~($7 ismillion possible that one or more state commissions will open proceedings to determine whether they have jurisdiction over the merger. In the event that any reviewing authorities are determined to have jurisdiction over the merger transactionincrease), ~~there~~partially ~~can~~offset beby nolower ~~assurance~~bad ~~that~~debt ~~the~~expense reviewing authorities will permit the applicable statutory waiting periods to expire or that the reviewing authorities will terminate the applicable statutory waiting periods at all, or otherwise approve the merger without restrictions or conditions (~~which~~$2 ~~are~~million ~~difficult to predict or quantify~~decrease). The ~~that~~following ~~would~~table ~~have~~presents ~~a material adverse effect on~~ the ~~combined~~components ~~company~~of iftotal ~~the~~bad ~~merger~~debt ~~were completed.~~expense:

The Merger Agreement contains certain termination rights for both Nicor and AGL Resources, and further provides for the payment of fees and expenses upon termination under specified circumstances. For additional information relating to the proposed merger, please see the joint proxy statement / prospectus contained in the registration statement on Form S-4 that was filed with the SEC by AGL Resources on April 29, 2011.

	Three months ended
	March 31,
In millions	2012			2011		Change

Bad debt expense (1)	$	25		$	27	$	(2	)
Refund of prior periods overcollect		(7	)		-		(7	)
Total bad debt expense	$	18		$	27	$	(9	)

~~Company~~(1) ~~personnel~~Represents ~~are~~the ~~participating~~portion inof ~~efforts~~the toapproximately ~~develop~~$63 ~~integration~~million ~~plans~~annual ~~for~~bad ~~the~~debt ~~combined~~expense ~~entity. No~~assumed ~~adjustments~~to ~~have~~be ~~been~~collected ~~made~~through tobase ~~the~~rates, ~~financial~~based ~~statements~~on asrevenues arecognized ~~result~~in of the ~~proposed merger~~quarter.

~~Bad~~Income ~~debt~~tax ~~rider~~expense. InIncome ~~September~~tax ~~2009,~~expense ~~Nicor~~decreased ~~Gas~~by ~~filed~~$7 million for ~~approval of a bad debt rider with~~ the ~~ICC~~three ~~under~~months anended ~~Illinois~~March ~~state law which took effect in July 2009. On February 2~~31, ~~2010,~~2012 ~~the~~compared ~~ICC~~to ~~issued an order approving~~ the ~~company’s~~prior ~~proposed~~year ~~bad~~due ~~debt~~primarily ~~rider. This rider provides for recovery from customers of the amount over the benchmark for bad debt expense established in the company’s rate cases. It also provides for refunds~~ to ~~customers~~lower ~~if bad debt expense is below such benchmarks~~earnings.

AsInterest aexpense. Interest ~~result~~expense ofincreased ~~the~~$1 ~~February~~million ~~2010~~for ~~order,~~the ~~Nicor~~three ~~Gas~~months ~~recorded~~ended inMarch ~~income~~31, a2012 ~~net~~compared ~~recovery related~~ to ~~2008~~the ~~and~~prior ~~2009~~year ofdue ~~$31.7~~to ~~million in~~ the ~~first~~absence ~~quarter~~ of ~~2010,~~an ~~all~~interest ofrefund ~~which~~related ~~has~~to ~~been~~income ~~collected. The~~tax ~~benchmark,~~matters ~~against~~received ~~which~~in 2011 ~~and 2010 actual bad debt experience is compared, is approximately~~ ($632 million~~. The~~ ~~company’s actual 2010 bad debt experience was $35.7 million~~increase), ~~resulting~~partially inoffset aby ~~refund~~lower tobank ~~customers~~commitment offees ($~~27.3~~1 million ~~which is being refunded over a 12-month period that began June 2011~~decrease).

~~Capital~~Operating ~~market environment~~metrics. ~~The~~ Selected ~~volatility~~weather, inrevenue, ~~the~~customer ~~capital~~and ~~markets~~volume ~~over~~metrics for the ~~past~~ three ~~years~~months ~~has~~ended ~~caused~~March ~~general~~31, ~~concern~~2012 ~~over~~and ~~the~~2011, ~~valuations~~which we consider to be some of ~~investments,~~the ~~exposure~~key toperformance ~~increased~~indicators ~~credit~~for ~~risk~~our ~~and~~business, ~~pressures~~are onpresented ~~liquidity~~in the following tables. ~~The~~We ~~company~~measure ~~continues~~the toeffects ~~review~~of ~~its~~weather ~~investments~~on our business through Heating Degree Days. Generally, ~~exposure~~increased toHeating ~~credit~~Degree ~~risk~~Days ~~and~~result ~~sources~~in ofgreater ~~liquidity~~demand for gas on our distribution system. However, extended and ~~does~~unusually ~~not~~warmer ~~currently~~than ~~expect~~normal ~~any~~weather ~~future~~during ~~material~~the ~~adverse~~first ~~impacts~~quarter ~~relating~~of to2012 ~~this~~Heating ~~past~~Season ~~volatility~~had a significant negative impact on demand for natural gas.

Our customer metrics highlight the average number of customers to which we provide services. This number of customers can be impacted by natural gas prices, economic conditions and competition from alternative fuels.

Volume metrics present the effects of weather and our customers’ demand for natural gas.

Glossary of Key Terms

Table of Contents

Operating revenues. Operating revenues are impacted by changes in natural gas costs, which are passed directly through to customers without markup, subject to ICC review, and cost recovery riders which are generally offset by operating and maintenance expense with no impact on operating income. Operating revenues increased $6.4 million for the three months ended September 30, 2011 compared to the prior year and includes higher natural gas costs (approximately $10 million increase), the impact of colder weather (approximately $5 million increase) and lower revenue from cost recovery riders ($13.8 million decrease).


Weather
Heating Degree Days (1)
	Normal		2012		2011		2012 vs. 2011 colder (warmer)			2012 vs. normal colder (warmer)
Three months ended March 31,		2,902		2,358		3,199		(26	)%		(19	)%
(1) Obtained from the Chicago Midway Airport weather station. Normal represents a ten-year average from 1998 through 2007, which was established in our last rate case.

					Three months ended
Operating Revenues					March 31,
In millions						2012		2011		% change
Sales
Residential					$	383	$	603			(36.5	)%
Commercial						95		154			(38.3	)%
Industrial						12		19			(36.8	)%
Total sales						490		776			(36.9	)%
Transportation
Residential						13		13			-
Commercial						22		25			(12.0	)%
Industrial						10		11			(9.1	)%
Other						-		1			(100.0	)%
Total transportation						45		50			(10.0	)%
Other revenues
Revenue taxes						60		75			(20.0	)%
Customer late fees						5		5			-
Energy efficiency plan						13		-			100.0	%
Environmental cost recovery						5		6			(16.7	)%
Other						4		4			-
Total other revenues						87		90			(3.3	)%
Total operating revenues					$	622	$	916			(32.1	)%

In dollars
Average gas cost per Mcf sold					$	3.79	$	5.05			(25.0	)%

					Three months ended
Average Customers					March 31,
In thousands						2012		2011		% change
Sales
Residential						1,793		1,792			.1	%
Commercial						136		135			.7	%
Industrial						8		8			-
Total sales						1,937		1,935			.1	%
Transportation
Residential						206		205			.5	%
Commercial						46		47			(2.1	)%
Industrial						4		4			-
Total transportation						256		256			-
Total customers						2,193		2,191			.1	%

					Three months ended
Volumes					March 31,
In billion cubic feet (Bcf)						2012		2011		% change
Sales
Residential						73		96			(24.0	)%
Commercial						19		25			(24.0	)%
Industrial						2		3			(33.3	)%
Total sales						94		124			(24.2	)%
Transportation
Residential						8		11			(27.3	)%
Commercial						31		38			(18.4	)%
Industrial						31		31			-
Total transportation						70		80			(12.5	)%
Total volumes						164		204			(19.6	)%

~~Operating~~Glossary revenues decreased $87.2 million for the nine months ended September 30, 2011 compared to the prior year due to lower natural gas costs (approximately $145 million decrease) and lower revenue from cost recovery riders ($37.8 million decrease), partially offset by the impact of ~~colder~~Key ~~weather (approximately $75 million increase).~~Terms

Margin. Nicor Gas utilizes a measure it refers to as “margin” to evaluate the operating income impact of revenues. Revenues include natural gas costs, which are passed directly through to customers without markup, subject to ICC review, and revenue taxes, for which Nicor Gas earns a small administrative fee. These items often cause significant fluctuations in revenues, with equal and offsetting fluctuations in cost of gas and revenue tax expense, with no direct impact on margin. The company has a franchise gas cost recovery rider, a rider to recover the costs associated with energy efficiency programs and a bad debt rider. Changes in revenue included in margin attributable to these items are offset by changes within operating and maintenance expense, with generally no impact on operating income.

A reconciliation of revenues and margin follows (in millions):

	Three months ended						Nine months ended
	September 30						September 30
	2011			2010			2011			2010
Revenues	$	239.9		$	233.5		$	1,514.6		$	1,601.8
Cost of gas		(92.9	)		(75.5	)		(914.7	)		(982.3	)
Revenue tax expense		(14.0	)		(13.8	)		(118.7	)		(110.2	)
Margin	$	133.0		$	144.2		$	481.2		$	509.3

Margin decreased $11.2 million for the three months ended September 30, 2011 compared to the prior year. Margin includes the revenue from the riders noted above which totaled $(1.6) million and $12.2 million for the three months ended September 30, 2011 and 2010, respectively. Margin excluding those riders increased $2.6 million for the three months ended September 30, 2011 compared to the prior year due primarily to higher power generation revenue ($2.5 million increase). Margin decreased $28.1 million for the nine months ended September 30, 2011 compared to the prior year. Revenue from the riders noted above totaled $0.3 million and $38.1 million for the nine months ended September 30, 2011 and 2010, respectively. Margin excluding those riders increased $9.7 million for the nine months ended September 30, 2011 compared to the prior year due primarily to the impact of colder weather (approximately $9 million increase).

Operating and maintenance expense. Operating and maintenance expense decreased $14.2 million for the three months ended September 30, 2011 compared to the prior year. Operating and maintenance expense related to riders noted above decreased $13.8 million for the three months ended September 30, 2011 compared to the prior year. Excluding the impact of such riders, operating and maintenance expense decreased $0.4 million for the three months ended September 30, 2011 compared to the prior year due to lower bad debt expense ($1.0 million decrease). Total bad debt expense, including the impact of the bad debt rider, for the three months ended September 30, 2011 was $0.8 million compared to $18.5 million in the prior year. Bad debt expense in 2011 and 2010 includes $7.8 million and $8.8 million, respectively, based on revenues recognized in the quarter, of the approximately $63 million annual

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~~expense~~LIQUIDITY ~~assumed~~AND toCAPITAL ~~be collected through base rates; and $(7.0) million and $9.7 million, respectively, of expense (income) which is equal to the revenue recognized under the bad debt rider.~~RESOURCES

~~Operating~~Overview ~~and~~The ~~maintenance~~acquisition ~~expense~~of ~~decreased $7.1~~natural ~~million~~gas ~~for~~and ~~the~~pipeline ~~nine~~capacity ~~months ended September 30, 2011 compared to the prior year. Operating~~ and ~~maintenance~~working ~~expense~~capital ~~related~~requirements toare ~~riders~~our ~~noted~~most ~~above~~significant ~~decreased~~short-term ~~$37.8~~financing ~~million for the nine months ended September 30, 2011 compared to the prior year~~requirements. ~~Excluding~~The ~~the~~need ~~impact of such riders, operating and maintenance expense increased $30.7 million~~ for ~~the~~long-term ~~nine~~capital ~~months~~is ~~ended~~driven ~~September 30, 2011 compared to the prior year due~~ primarily toby ~~the~~capital ~~absence~~expenditures ofand ~~2010’s~~maturities ~~recovery~~ of ~~2008~~long-term ~~and 2009 bad~~ debt ~~expense under the bad debt rider ($31~~.~~7 million), partially offset by lower bad debt expense ($1.2 million decrease).~~ ~~Total~~The ~~bad~~liquidity ~~debt~~required ~~expense,~~to ~~including~~fund ~~the~~our ~~impact~~working ~~of the bad debt rider~~capital, ~~for~~capital ~~the~~expenditures ~~nine~~and ~~months~~other ~~ended~~cash ~~September~~needs ~~30,~~is ~~2011~~primarily ~~was~~provided ~~$35.5~~by ~~million~~our ~~compared~~operating ~~to $37~~activities.~~2 million in the prior year.~~ ~~Bad~~Our ~~debt~~short-term ~~expense~~cash inrequirements ~~2011~~not ~~and~~met ~~2010~~by ~~includes~~cash ~~$44.9~~from ~~million~~operations ~~and~~are ~~$46.1~~primarily ~~million,~~satisfied ~~respectively,~~with ~~based~~short-term onborrowings ~~revenues~~under ~~recognized~~our incommercial ~~the~~paper ~~period~~program, ~~of the approximately $63 million annual expense assumed to be collected through base rates; and $(9.4) million and $22.8 million, respectively, of expense (income)~~ which is ~~equal~~supported toby ~~the~~our ~~revenue~~credit ~~recognized under the bad debt rider~~facility. ~~Bad~~We ~~debt~~regularly ~~expense~~evaluate inour ~~2010~~funding ~~also~~strategy ~~includes~~and ~~the~~profile ~~recognition~~to ofensure ~~the~~that ~~$31.7~~we ~~million~~have ~~benefit~~sufficient ~~associated~~liquidity ~~with~~for ~~the~~our ~~net~~short-term ~~under~~and ~~recovery~~long-term ofneeds ~~bad~~in ~~debt~~a ~~expense~~cost-effective ~~from 2008 and 2009~~manner.

~~Other~~Our ~~operating~~capital ~~expenses. In~~market ~~the~~strategy ~~third~~has ~~quarter~~continued to focus on maintaining a strong Condensed Consolidated Statements of ~~2010~~Financial Position, ~~the~~ensuring ~~company~~ample ~~recorded~~cash aresources and daily liquidity, accessing capital markets at favorable ~~reserve~~times ~~adjustment~~as ofnecessary, ~~$1.3~~managing ~~million~~critical ~~associated~~business ~~with~~risks and maintaining a balanced capital structure through the ~~company’s~~appropriate ~~mercury~~issuance ~~inspection~~of ~~and~~long-term ~~repair~~debt ~~program~~securities.

~~Income~~Our ~~tax~~issuance ~~expense. The effective income tax rate for the three months ended September 30, 2011 increased to 39.6 percent from 36.1 percent in the prior year. Both periods reflect the impact~~ of ~~changes to forecasted annual pretax income identified in the respective quarters. The year~~long-~~to-date~~term ~~adjustment~~debt to income taxes recognized in the quarter resulting from these changes has a larger impact in quarters with lower income. The effective income tax rate for the nine months ended September 30, 2011 increased to 37.8 percent from 37.2 percent in the prior year. The higher effective income tax rate for the nine months ended September 30, 2011 is ~~due~~subject ~~primarily~~ to ~~the~~customary ~~increase~~approval toor ~~the~~review ~~Illinois~~by state ~~income~~and ~~tax~~federal ~~rate,~~regulatory ~~partially~~bodies ~~offset~~including ~~by lower forecasted annual pretax income (which causes a lower effective income tax rate since tax credits are a larger share of pretax income). Effective January 1, 2011,~~ the ~~State of~~ Illinois ~~raised~~Commission and the ~~corporate income tax rate from 7~~SEC.~~3 percent to 9.5 percent.~~

~~Interest~~We ~~expense. Interest~~believe ~~expense~~the ~~decreased $1.0~~amounts ~~million~~available ~~for~~to us under our credit facility, through the ~~three~~issuance ~~months~~of ~~ended~~debt ~~September~~securities, 30combined with cash provided by operating activities, ~~2011~~will ~~compared~~continue to ~~the~~allow ~~prior~~us ~~year~~to ~~due~~meet ~~primarily~~our toneeds ~~lower~~for ~~average~~working capital, capital expenditures, anticipated debt redemptions, interest ~~rates. Interest~~payments ~~expense~~on ~~decreased~~debt ~~$4.6~~obligations, ~~million~~dividend ~~for~~payments and other cash needs through the ~~nine~~next ~~months~~several ~~ended~~years. ~~September~~Our 30ability to satisfy our working capital requirements and our debt service obligations, ~~2011~~or ~~compared~~fund toplanned ~~the~~capital ~~prior~~expenditures, ~~year~~will ~~due~~substantially ~~primarily~~depend toupon anour ~~interest~~future ~~refund~~operating ~~related~~performance to(which ~~income~~will ~~tax~~be ~~matters~~affected by prevailing economic conditions), and ~~lower~~financial, ~~average~~business ~~interest~~and ~~rates. Lower~~other ~~average~~factors, ~~interest~~some ~~rates~~of ~~were~~which ~~due~~we are unable to ~~the~~control. ~~February~~These ~~2011~~factors ~~refinancing~~include, among others, regulatory changes, the price of ~~$75~~and ~~million~~demand ~~First~~for ~~Mortgage~~natural ~~Bonds~~gas and operational risks.

We will continue to evaluate our need to increase available liquidity based on our view of working capital requirements, including the impact of changes in natural gas prices, liquidity requirements established by rating agencies and other factors. See Item 1A – Risk Factors of our 2011 Form 10-K for additional information on items that could impact our liquidity and capital resource requirements.

Credit Ratings Our borrowing costs and our ability to obtain adequate and cost effective financing are directly impacted by our credit ratings as well as the availability of financial markets. Credit ratings are important to our counterparties when we engage in certain transactions including over-the-counter derivatives. It is our long-term objective to maintain or improve our credit ratings in order to manage our existing financing costs.

Credit ratings and outlooks are opinions subject to ongoing review by the rating agencies and may periodically change. Each rating should be evaluated independently of other ratings. The rating agencies regularly review our performance, prospects and financial condition and reevaluate their ratings of our long-term debt and short-term borrowings, our corporate ratings, including our ratings outlook. There is no guarantee that a rating will remain in effect for any given period of time or that a rating will not be lowered or withdrawn entirely by a rating agency if, in its judgment, circumstances so warrant. A credit rating is not a recommendation to buy, sell or hold securities.

Factors we consider important in assessing our credit ratings include our Condensed Consolidated Statements of Financial Position leverage, capital spending, earnings, cash flow generation, available liquidity and overall business risks. We do not have any trigger events in our debt instruments that are tied to changes in our specified credit ratings. The following table summarizes our credit ratings as of March 31, 2012 and reflects no change from December 31, 2011.

	S&P	Moody’s	Fitch
Corporate rating	BBB+	n/a	A
Commercial paper	A-2	P-2	F-1
Senior unsecured	BBB+	A3	A+
Senior secured	A	A1	AA-
Ratings outlook	Stable	Stable	Stable

Our credit ratings depend largely on our financial performance, and a downgrade in our current ratings, particularly below investment grade, will increase our borrowing costs and could limit our access to the commercial paper market. In addition, we would likely be required to pay a higher interest rate in future financings, and our potential pool of investors and funding sources could decrease.

Glossary of Key Terms

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Nicor Gas Company
Operating Statistics
	Three months ended				Nine months ended
	September 30				September 30
	2011		2010		2011		2010
Operating revenues (millions)
Sales
Residential	$	141.8	$	141.2	$	964.9	$	1,036.6
Commercial		34.7		32.6		242.9		258.6
Industrial		3.5		3.3		28.7		29.4
		180.0		177.1		1,236.5		1,324.6
Transportation
Residential		8.7		9.5		32.0		33.8
Commercial		14.0		14.3		55.0		54.1
Industrial		11.5		11.2		32.0		30.8
Other		.1		-		2.1		1.4
		34.3		35.0		121.1		120.1
Other revenues
Revenue taxes		14.4		14.0		120.7		111.8
Environmental cost recovery		1.1		.9		8.7		9.0
Chicago Hub		.3		.9		1.6		3.0
Other		9.8		5.6		26.0		33.3
		25.6		21.4		157.0		157.1
	$	239.9	$	233.5	$	1,514.6	$	1,601.8
Deliveries (Bcf)
Sales
Residential		12.5		11.6		136.3		122.5
Commercial		3.7		3.3		36.0		32.7
Industrial		.4		.5		4.7		4.1
		16.6		15.4		177.0		159.3
Transportation
Residential		1.5		1.4		15.8		15.0
Commercial		9.5		9.5		60.9		57.0
Industrial		25.2		25.7		80.0		77.5
		36.2		36.6		156.7		149.5
		52.8		52.0		333.7		308.8
Customers at end of period (thousands)
Sales
Residential		1,785		1,769
Commercial		132		129
Industrial		8		8
		1,925		1,906
Transportation
Residential		199		207
Commercial		46		47
Industrial		4		5
		249		259
		2,174		2,165
Other statistics
Degree days		128		58		4,082		3,547
Colder (warmer) than normal (1)		110%		(5)%		14%		(1)%
Average gas cost per Mcf sold	$	5.44	$	4.70	$	5.05	$	6.03
(1) Normal weather for Nicor Gas' service territory, for purposes of this report, is considered to be 5,600 degree days per year.

Default Provisions Our debt instruments and other financial obligations include provisions that, if not complied with, could require early payment or similar actions. Our credit facility contain customary events of default, including, but not limited to, the failure to pay any interest or principal when due, the failure to furnish financial statements within the timeframe established by each debt facility, the failure to comply with certain affirmative and negative covenants, cross-defaults to certain other material indebtedness in excess of specified amounts, incorrect or misleading representations or warranties, insolvency or bankruptcy, fundamental change of control, the occurrence of certain Employee Retirement Income Security Act events, judgments in excess of specified amounts and certain impairments to the guarantee.

Our credit facility contains certain non-financial covenants that, among other things, restrict liens and encumbrances, loans and investments, acquisitions, dividends and other restricted payments, asset dispositions, mergers and consolidations, and other matters customarily restricted in such agreements.

Our credit facility also includes a financial covenant that requires us to maintain a ratio of total debt to total capitalization of no more than 70%. This ratio, as defined within our debt agreements, includes standby letters of credit and surety bonds and excludes accumulated OCI. Adjusting for these items, our debt-to-capitalization ratio for March 31, 2012 was 47%, which is within our required range.

We were in compliance with all of our debt provisions and covenants, both financial and non-financial, as of March 31, 2012.

Our ratio of total debt to total capitalization is typically greater at the beginning of the Heating Season as we make additional short-term borrowings to fund our natural gas purchases and meet our working capital requirements. Maintaining sufficient cash flow is necessary to maintain attractive credit ratings. For more information on our default provisions, see Item 1 – Notes to the Condensed Consolidated Financial Statements – Note 6 – Debt. The components of our total debt to total capitalization ratio, as calculated from our Condensed Consolidated Statements of Financial Position, as of the dates indicated, are provided in the following table.

	March 31,			December 31,			March 31,
	2012			2011			2011
Short-term debt		9	%		29	%		13	%
Long-term debt		39			31			37
Total debt		48			60			50
Equity		52			40			50
Total capitalization		100	%		100	%		100	%

Cash Flows

The following table provides a summary of our operating, investing and financing cash flows for the periods presented.

	Three months ended
	March 31,
In millions	2012			2011
Net cash provided by (used in):
Operating activities	$	381		$	354
Investing activities		(34	)		(39	)
Financing activities		(347	)		(315	)
Net increase (decrease) in cash and cash equivalents	$	-		$	-

Cash flow from operating activities. Year-over-year changes in our operating cash flows are due primarily to working capital changes resulting from the impact of weather, the price of natural gas, natural gas storage, the timing of customer collections, payments for natural gas purchases and deferred gas cost recoveries.

We maintain margin accounts related to financial derivative transactions. These margin accounts may cause large fluctuations in cash needs or sources in a relatively short period of time due to daily settlements resulting from changes in natural gas futures prices. We manage these fluctuations with short-term borrowings and investments.

Glossary of Key Terms

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~~FINANCIAL~~Net ~~CONDITION~~cash ~~AND~~flow ~~LIQUIDITY~~provided from operating activities increased $27 million, or 8%, for the three months ended March 31, 2012 compared to the prior year. The significant factors contributing to the increase in cash flow are declining natural gas prices and warmer weather in 2012 which are reflected in the changes in accounts receivable, temporary LIFO liquidation, margin, accounts payable and accrued gas costs on the Condensed Consolidated Statements of Cash Flow.

~~The~~Cash ~~company~~flow ~~believes~~from itinvesting ~~has access to adequate resources to meet its needs for capital expenditures, debt redemptions, dividend payments and working capital~~activities. ~~These~~Net ~~resources include net~~ cash flow ~~from~~used ~~operating~~for investing activities, ~~access~~which toprimarily ~~capital~~consists ~~markets, lines~~ of ~~credit~~our ~~and~~PP&E ~~short-term~~expenditures, ~~investments. Capital~~decreased ~~market~~$5 ~~conditions~~million, ~~are~~or ~~not~~13%, ~~currently~~for ~~expected~~the tothree ~~have~~months aended ~~material~~March ~~adverse~~31, ~~impact~~2012 oncompared ~~the company’s ability~~ to ~~access~~the ~~capital~~prior year.

~~Operating~~Cash ~~cash flows. The company’s business is highly seasonal and operating cash~~ flow ~~may fluctuate significantly during the year and~~ from ~~year-to-year~~financing ~~due to factors such as weather, natural gas prices, the timing of collections from customers, natural gas purchasing, and storage and hedging practices~~activities. ~~The~~Our ~~company relies on~~ short-term ~~borrowings,~~debt ~~backed~~during ~~by bank lines of credit, to meet seasonal increases in working capital needs. Cash requirements generally increase over~~ the ~~last half of the year due to increases in natural gas purchases, gas in storage and accounts receivable. During the~~ first ~~half~~three ofmonths ~~the year, positive cash flow generally results from the sale~~ of ~~gas~~2012 inwas ~~storage~~comprised ~~and the collection~~ of ~~accounts~~borrowings ~~receivable. This~~under ~~cash~~our iscommercial ~~typically~~paper ~~used to substantially reduce, or eliminate, short-term debt during the first half of the year~~program.

Nicor Gas maintains margin accounts related to financial derivative transactions. These margin accounts may cause large fluctuations in cash needs or sources in a relatively short period of time due to daily settlements resulting from changes in natural gas futures prices. The company manages these fluctuations with short-term borrowings and investments.

In millions		Period end balance outstanding (1)				Daily average balance outstanding (2)				Minimum balance outstanding (2)				Largest balance outstanding (2)
Commercial paper		$	105			$	269			$	105			$	456

~~Net~~(1) ~~cash~~As ~~flow~~of ~~provided~~March ~~from operating activities increased $29.6 million for the nine months ended September 30~~31, ~~2011 compared to the prior year~~2012. ~~The significant factors contributing to the increase in cash flow are primarily a result of changes in natural gas prices and include:~~

·(2) anFor ~~increase~~the ofthree ~~approximately~~months ~~$43~~ended ~~million~~March ~~from~~31, ~~changes in margin accounts as a result of a decrease in unrealized losses on derivative instruments~~2012.

·The anlargest, ~~increase~~minimum and daily average balances borrowed under our commercial paper program are important when assessing the intra-period fluctuation of ~~approximately~~our ~~$37~~short-term ~~million~~borrowings ~~from~~and ~~higher~~any ~~cash~~potential ~~used~~liquidity torisk. Our short-term debt financing generally increases between June and December as we purchase natural gas for storage in advance of the Heating Season. The timing differences of when we pay ~~accounts~~our ~~payable~~suppliers for natural gas purchases and when we recover our costs from our customers through their monthly bills can significantly affect our cash requirements. Our short-term debt balances inare typically reduced during the ~~prior~~Heating ~~year;~~Season as a significant portion of our current assets, primarily natural gas inventories, are converted into cash.

·The atiming ~~decrease~~ of ~~approximately~~natural ~~$48~~gas ~~million~~withdrawals ~~from~~is ~~variations~~dependent ~~associated~~on ~~with~~ the ~~timing~~weather and natural gas market conditions, both of ~~collections~~which impact the price of natural gas. ~~costs~~Increasing ~~under~~natural ~~Nicor~~gas ~~Gas’~~commodity ~~PGA~~prices ~~rider;~~can have a significant impact on our commercial paper borrowings. Based on current natural gas prices and our expected purchases during the upcoming injection season, we believe that we have sufficient liquidity to cover our working capital needs for the upcoming Heating Season.

~~Investing~~The ~~activities. Net~~lenders ~~cash~~under ~~flow~~our ~~used~~credit ~~for~~facility ~~investing~~are ~~activities~~major ~~increased~~financial ~~$14~~institutions with investment grade credit ratings as of March 31, 2012.5 ~~million~~It ~~for~~is possible that one or more lending commitments could be unavailable to us if the ~~nine~~lender ~~months~~defaults ~~ended~~due ~~September~~to 30lack of funds or insolvency. However, ~~2011~~based ~~compared~~on toour current assessment of our lenders’ creditworthiness, we believe the ~~prior~~risk ~~year~~of lender default is minimal.

~~Financing~~Contractual ~~activities. The~~Obligations ~~current~~and credit ratings for Nicor Gas have not changed since the filing of the 2010 Annual Report on Form 10-K. In the second quarter of 2011, Standard & Poor’s affirmed their credit ratings for Nicor Gas. Nicor Gas’ access to financing at competitive rates is, in part, dependent on its credit ratings.Commitments

~~Long-term~~We ~~debt. In~~have ~~February~~incurred ~~2011,~~various ~~Nicor~~contractual ~~Gas~~obligations ~~issued~~and ~~$75~~financial ~~million~~commitments ~~First~~in ~~Mortgage~~the ~~Bonds~~normal atcourse ~~2.86~~of ~~percent,~~business ~~due~~that inare ~~2016~~reasonably ~~through~~likely to have a ~~private~~material ~~placement~~effect ~~and~~on ~~utilized~~liquidity or the ~~proceeds~~availability toof ~~retire~~requirements ~~the~~for ~~$75~~capital ~~million 6~~resources.~~625~~ ~~percent~~Contractual ~~First~~obligations ~~Mortgage~~include ~~Bond~~future ~~series~~cash ~~which~~payments ~~matured~~required inunder ~~February~~existing ~~2011. In~~contractual ~~determining~~arrangements, ~~that~~such ~~these~~as ~~bonds~~debt ~~qualified~~and ~~for~~lease ~~exemption~~agreements. These obligations may result from ~~registration~~both ~~under~~general ~~Section~~financing ~~4(2)~~activities ofand ~~the~~from ~~Securities~~commercial ~~Act~~arrangements ofthat ~~1933,~~are ~~Nicor~~directly ~~Gas~~supported ~~relied~~by onrelated ~~the~~revenue-producing ~~facts~~activities. ~~that~~Contingent ~~the~~financial ~~bonds~~commitments ~~were~~represent ~~offered~~obligations ~~only~~that tobecome apayable ~~limited~~only ~~number~~if ofcertain ~~large~~predefined ~~institutional~~events ~~investors~~occur, ~~and~~such ~~each~~as ~~institutional~~financial ~~investor~~guarantees, ~~that~~and ~~purchased~~include the ~~bonds~~nature ~~represented that~~of ~~it was purchasing~~the guarantee and the ~~bonds~~maximum ~~for~~potential ~~its~~amount ~~own~~of ~~account~~future ~~and~~payments ~~not~~that ~~with~~could abe ~~view~~required toof ~~distribute~~us ~~them~~as the guarantor.

~~Nicor~~There ~~Gas~~were ~~believes~~no itsignificant ischanges to our contractual obligations described in ~~compliance~~Note ~~with~~7 ~~all~~of ~~debt~~our ~~covenants. Nicor~~Consolidated ~~Gas’s~~Financial ~~long-term~~Statements ~~debt~~and ~~agreements~~related donotes ~~not~~as ~~include~~filed ~~rating~~in ~~triggers~~Item or8 ~~material~~of ~~adverse~~our ~~change~~2011 ~~provisions~~Form 10-K.

On September 30, 2011, we signed an agreement to purchase approximately 25 Bcf of SNG annually for a 10-year term beginning as early as 2015. The counterparty intends to construct a 60 Bcf per year coal gasification plant in southern Illinois. The price of the SNG could significantly exceed market prices and is dependent upon a variety of factors. However, currently under the provisions of this contract the price could potentially be $9.95 per Mcf or more. The project is also expected to be financed by the counterparty with external debt and equity. This agreement complies with an Illinois statute that authorizes full recovery of the purchase costs; therefore we expect to recover such costs. Since the purchase agreement is contingent upon various milestones to be achieved by the counterparty to the agreement, our obligation is not certain at this time. The contract automatically terminates if construction does not commence by July 1,

Glossary of Key Terms

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~~Short-term debt~~2012. InWhile ~~April~~the ~~2011,~~purchase ~~Nicor~~agreement ~~Gas~~is ~~established~~ a ~~$400~~variable ~~million,~~interest ~~364-day~~in ~~revolving credit facility, expiring April 2012 to replace~~ the ~~$400 million~~counterparty, ~~364-day~~we ~~revolving~~have ~~credit facility~~concluded, ~~which~~based ~~was~~on ~~set to expire in April 2011. In April 2010, Nicor and Nicor Gas established~~ a ~~$600~~qualitative ~~million~~evaluation, ~~three-year~~that ~~revolving~~we ~~credit~~are ~~facility,~~not ~~expiring~~the ~~April~~primary ~~2013~~beneficiary required to ~~replace~~consolidate the ~~$600~~counterparty ~~million,~~because ~~five-year~~we ~~revolving~~had ~~credit~~no ~~facility,~~power ~~which was set~~ to ~~expire~~dictate inthe ~~September~~key ~~2010. These~~terms ~~facilities~~of ~~were~~this ~~established~~agreement ~~with major domestic~~ and ~~foreign~~we ~~banks~~have ~~and~~no ~~serve~~power asto ~~backup~~direct ~~for~~any of the ~~issuance~~activities of ~~commercial~~the ~~paper~~seller. ~~The~~No ~~company~~amount ~~had~~has ~~$309.6~~been ~~million,~~recognized ~~$425.0~~on ~~million~~our ~~and~~Condensed ~~$373.3~~Consolidated ~~million~~Statements of ~~commercial~~Financial ~~paper~~Position ~~borrowings~~in ~~outstanding~~connection atwith ~~September~~the ~~30,~~purchase ~~2011, December 31, 2010 and September 30, 2010, respectively~~agreement.

~~Nicor~~Additionally, ~~Gas~~on ~~participates~~October in11, 2011, the Illinois Power Agency (“IPA”) approved the form of a ~~cash~~draft ~~management~~30-year ~~system~~contract ~~with~~for ~~other~~the ~~subsidiaries~~purchase by us of ~~Nicor~~approximately 20 Bcf per year of SNG from a second proposed plant beginning as early as 2018. ~~Under~~In November 2011, we filed a lawsuit against the IPA and the developer of this ~~system~~second proposed plant contending that the draft contract approved by the IPA does not conform to certain requirements of the enabling legislation. The lawsuit is pending in circuit court in DuPage County, atIllinois. ~~December~~In 31accordance with the enabling legislation, ~~2010~~the draft contract approved by the IPA for the second proposed plant was submitted to the Illinois Commission for further approvals by that regulatory body. The Illinois Commission issued an order on January 10, ~~Nicor~~2012 ~~Gas~~approving ~~had~~a ~~owed~~final ~~$40~~form ~~million~~of the contract for the second plant. The final form of contract approved by the Illinois Commission modified the draft contract submitted by the IPA in various respects. Both we and the developer of the plant filed applications for a rehearing with the Illinois Commission seeking changes to ~~Nicor~~the ~~which~~final isform ~~payable~~of the contract. The Illinois Commission agreed to grant a rehearing on ~~demand~~this contract and is expected to issue its ruling during the second quarter of 2012.

~~Borrowing~~The ~~levels~~purchase price of the SNG that may be produced from both of the coal gasification plants may significantly exceed market prices for natural gas and is dependent upon a variety of factors, including plant construction costs and volumes sold, and is currently unknown. The Illinois laws provide that prices paid for SNG purchased from the plants are ~~presented~~to ~~below~~be ~~(in~~considered ~~millions):~~prudent and not subject to review or disallowance by the Illinois Commission. As such, Illinois law effectively requires Nicor Gas’ customers to provide subordinated financial support to the developers.

	Three months ended				Nine months ended
	September 30				September 30
	2011		2010		2011		2010
Commercial Paper
Maximum borrowing	$	320.0	$	381.8	$	425.0	$	494.0
Minimum borrowing		18.0		71.0		-		-
Average borrowing		144.1		194.3		157.0		213.2
Loan from Nicor
Maximum borrowing	$	15.3	$	-	$	54.3	$	10.0
Minimum borrowing		-		-		-		-
Average borrowing		7.4		-		20.4		.1

CONTINGENCIES

The ~~average~~following ~~borrowing~~contingencies ~~levels~~ are ~~calculated~~in ~~using~~various ~~average~~stages ~~daily~~of ~~balances~~investigation ~~for~~or ~~each~~disposition. Although ~~day~~in ~~during~~some cases we are unable to estimate the ~~period. The~~amount ~~company~~of ~~expects~~loss ~~that~~reasonably ~~funding~~possible ~~from~~in ~~commercial~~addition ~~paper~~to ~~and~~any ~~related~~amounts ~~backup~~already ~~line-~~recognized, it is possible that the resolution of~~-credit~~ ~~agreements~~these contingencies, either individually or in aggregate, will ~~continue~~require us to betake ~~available~~charges against, or will result in ~~the~~reductions ~~foreseeable~~in, future earnings. It is the opinion of our management that the resolution of these contingencies, either individually or in aggregate, could be material to earnings in a particular period but is not expected to have a material adverse impact on our liquidity or financial condition.

~~OTHER~~PBR ~~MATTERS~~plan. Our PBR plan for natural gas costs went into effect in 2000 and was terminated by us effective January 1, 2003. Under the PBR plan, our total gas supply costs were compared to a market-sensitive benchmark. Savings and losses relative to the benchmark were determined annually and shared equally with sales customers. The PBR plan is currently under review by the Illinois Commission as there are allegations that we acted improperly in connection with the PBR plan. On June 27, 2002, the Citizens Utility Board (“CUB”) filed a motion to reopen the record in the Illinois Commission’s proceedings to review the PBR plan. As a result of the motion to reopen, we entered into a stipulation with the staff of the Illinois Commission and CUB providing for additional discovery. The Illinois Attorney General’s Office (“IAGO”) has also intervened in this matter. In addition, the IAGO issued Civil Investigation Demands (“CIDs”) to CUB and the Illinois Commission staff. The CIDs ordered that CUB and the Illinois Commission staff produce all documents relating to any claims that we may have presented, or caused to be presented, regarding false information related to our PBR plan. The staff of the Illinois Commission, IAGO and CUB submitted direct testimony to the Illinois Commission in April 2009 and rebuttal testimony in October 2011. In rebuttal testimony, the staff of the Illinois Commission, IAGO and CUB requested refunds of $85 million, $255 million and $305 million, respectively. We have committed to cooperate fully in the reviews of the PBR plan.

~~Application~~In ~~for~~February ~~Approval~~2012, ofwe ~~Energy~~committed ~~Efficiency~~to ~~Plan. On~~a ~~September~~stipulated ~~29,~~resolution ~~2010,~~of ~~Nicor~~issues ~~Gas~~with ~~filed~~the anstaff ~~application~~of ~~with~~ the ~~ICC~~Illinois ~~seeking~~Commission, ~~approval~~which ofincludes ancrediting ~~energy~~our ~~efficiency~~customers ~~plan. The~~$64 ~~filing~~million, ~~was~~but ~~made~~does ~~pursuant~~not toconstitute an ~~Illinois~~admission ~~law~~of ~~enacted~~fault. The instipulated ~~2009~~resolution ~~that~~is ~~requires~~not ~~local~~final ~~gas~~and ~~distribution~~is ~~utilities~~subject to ~~establish~~review ~~plans~~and toapproval ~~achieve~~by ~~specified~~the ~~energy~~Illinois ~~savings~~Commission. CUB ~~goals~~and ~~beginning~~IAGO inare ~~June~~not ~~2011~~parties ~~and~~to ~~provides~~the ~~utilities~~stipulated ~~with~~resolution aand ~~rider~~continue to ~~collect~~pursue ~~the~~their ~~costs~~claims ofin ~~the~~this ~~plan from customers~~proceeding. InEvidentiary ~~May~~hearings ~~2011,~~before the ~~ICC~~Administrative ~~approved~~Law anJudges ~~energy~~were ~~efficiency~~held ~~plan~~during ~~for~~the ~~Nicor~~first ~~Gas. Under~~quarter ~~its~~of ~~approved~~2012 ~~plan,~~and ~~the~~post ~~company~~trial ~~estimates~~legal ~~that~~briefs itfrom ~~would~~the ~~bill~~parties ~~approximately~~are ~~$155~~being ~~million~~submitted toduring ~~customers under~~ the ~~rider,~~second ~~over~~quarter aof ~~three~~2012. Following ~~year~~the ~~period~~submission ~~commencing~~of ~~June~~legal 1briefs, ~~2011,~~the toAdministrative ~~fund~~Law ~~the~~Judges ~~costs~~will ofissue ~~various~~a ~~energy~~proposed ~~savings~~decision. There ~~programs~~is ~~identified~~no indate scheduled for the ~~company’s~~issuance ~~filing~~of that proposed decision.

~~Petition~~We ~~for~~are ~~Re-approval~~unable ofto ~~Operating~~predict ~~Agreement. On July 1, 2009, Nicor Gas filed a petition seeking re-approval from~~ the ~~ICC~~outcome of the ~~operating~~Illinois ~~agreement that governs many inter-company transactions between Nicor Gas and its affiliates. The petition was filed pursuant to a requirement contained in the ICC order approving the company~~Commission’s ~~most~~review ~~recent~~or ~~general~~our ~~rate~~potential ~~increase and requested that the operating agreement be re-approved without change~~exposure. ASince ~~number of parties intervened in~~ the ~~proceeding~~PBR ~~(the~~plan ~~“operating agreement proceeding”)~~ and ~~sought~~historical ~~modifications~~gas oncosts aare ~~prospective~~still ~~basis~~under toIllinois ~~the~~Commission ~~operating agreement. Among other things~~review, ~~those~~the ~~parties~~final ~~sought~~outcome ~~changes~~could ~~that~~be ~~would~~materially ~~preclude~~different ~~Nicor Gas~~ from ~~continuing~~the toamounts ~~provide~~reflected ~~sales~~in ~~solicitation~~our ~~services~~financial tostatements ~~support~~as ~~warranty~~of ~~products~~March ~~that~~31, ~~are sold by Nicor Services~~2012. ~~Nicor~~For ~~Gas~~additional ~~has~~information ~~opposed~~on ~~this~~our ~~modification~~PBR toproceedings, ~~the~~see ~~operating~~Note ~~agreement. This~~7 ~~proceeding~~in isour ~~not~~Consolidated ~~expected~~Financial toStatements ~~have~~and arelated ~~material~~notes ~~impact~~in onItem ~~Nicor~~8 ~~Gas’ results~~ of ~~operations,~~our ~~cash~~2011 ~~flows~~Form ~~and financial~~ 10-K.

Glossary of Key Terms

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~~condition~~Environmental remediation costs. AsWe ~~the~~are ~~ICC~~conducting isenvironmental ~~required~~investigations ~~to evaluate future transactions between Nicor Gas~~ and ~~its~~remedial ~~affiliates~~activities inat ~~connection~~former ~~with~~manufactured ~~the~~gas ~~joint~~plant application of AGL Resources, Nicor and Nicor Gas for approval of the merger of AGL Resources and Nicor (the “merger proceeding”), the ICC ALJ assigned to the merger proceeding determined to address the matters raised in the operating agreement proceeding in the merger proceedingsites. OnAdditional ~~September~~information ~~29,~~about ~~2011,~~these ~~the~~sites ~~ALJ~~is ~~issued~~presented ~~a proposed order~~ in ~~the~~Item ~~merger~~1 ~~proceeding~~– ~~that~~Notes ~~recommends~~to the ~~ICC~~Condensed ~~approve~~Consolidated ~~the~~Financial ~~merger~~Statements ~~between~~– ~~AGL~~Note ~~Resources~~7 ~~and~~– ~~Nicor. In that proposed order~~Commitments, ~~the~~Guarantees ~~ALJ~~and ~~recommends that the operating agreement be modified to preclude Nicor Gas from continuing to provide sales solicitation for Nicor Services’ warranty products~~Contingencies.

~~Financial Reform Legislation~~Other. ~~Financial~~ We ~~Reform~~are ~~Legislation~~involved ~~was~~in ~~enacted~~legal ~~into~~or ~~law~~administrative onproceedings ~~July~~before ~~21,~~various ~~2010,~~courts and ~~includes~~agencies awith ~~provision~~respect ~~that~~to ~~requires~~service ~~certain~~warranty ~~over~~product ~~the~~actions, ~~counter~~municipal ~~derivative~~tax ~~transactions to~~matters, ~~be executed through~~ an ~~exchange~~IAGO orsubpoena, ~~centrally~~general ~~cleared~~claims, ~~and~~taxes, ~~also~~environmental, ~~includes~~gas ~~provisions~~cost ~~under~~prudence ~~which~~reviews ~~the~~and ~~Commodity~~other ~~Futures Trading Commission may impose collateral requirements~~matters. ~~Final~~See ~~rules~~Item on1 ~~major~~– ~~provisions~~Notes into the ~~legislation~~Condensed ~~will~~Consolidated beFinancial ~~established~~Statements ~~through~~– ~~rulemakings. While~~Note ~~the~~7 ~~company~~– ~~does not currently believe the legislation will have a material impact on its results of operations~~Commitments, ~~cash~~Guarantees ~~flows~~ and ~~financial condition, the company will continue to evaluate the legislation and future rulemakings~~Contingencies.

~~Health~~CRITICAL ~~Care~~ACCOUNTING ~~Reform~~POLICIES ~~Legislation. In~~AND March 2010, the Health Care Act was signed into law resulting in comprehensive health care reform. The Health Care Act contains provisions that may impact Nicor Gas’ obligation for retiree health care benefits. The company does not currently believe these provisions will materially increase its postretirement benefit obligation, but will continue to evaluate the impact of future regulations and interpretations.ESTIMATES

~~SNG~~The ~~Plant~~preparation ~~Legislation. In the third quarter~~ of ~~2011,~~our ~~the~~financial ~~governor~~statements ofin ~~Illinois~~conformity ~~signed~~with ~~legislation~~GAAP ~~regarding~~requires ~~two~~us ~~proposed SNG plants. The new laws require Nicor Gas and other major Illinois natural gas utilities~~ to ~~either: (a)~~make ~~submit~~estimates ~~to rate cases in 2012, 2014~~ and ~~2016,~~judgments ~~or (b) purchase SNG from the plants under long-term contracts at prices~~ that ~~may~~affect ~~exceed~~ the ~~market~~reported ~~price~~amounts ofin ~~natural~~our ~~gas. The~~Condensed ~~new~~Consolidated ~~laws~~Financial ~~provide~~Statements ~~that prices paid by the utilities for SNG purchased from the plants under approved contracts are to be considered prudent~~ and ~~not~~accompanying ~~subject to review or disallowance by the ICC~~notes. OnThose ~~September~~judgments ~~30, 2011, Nicor Gas~~ and ~~another~~estimates ~~Illinois~~have ~~gas utility each entered into~~ a ~~10-year~~significant ~~contract~~effect ~~for~~on ~~the~~our ~~purchase~~financial ofstatements aprimarily ~~portion~~due ofto the ~~intended~~need 60to ~~Bcf~~make ~~per~~estimates ~~year~~about ~~output~~the ofeffects ~~one~~ of ~~the~~matters ~~two~~that ~~proposed~~are ~~plants~~inherently uncertain. ~~Those~~Actual ~~contracts~~results ~~were~~could ~~approved~~differ byfrom ~~the~~those ~~IPA, as provided for in the legislation~~estimates. ~~Per~~We ~~the~~frequently ~~terms~~reevaluate ofour ~~the~~judgments ~~contract,~~and ~~beginning~~estimates asthat ~~early~~are asbased ~~2015, Nicor Gas will be required to purchase approximately 25 Bcf of SNG annually. The final pricing is dependent~~ upon ahistorical ~~variety~~experience ~~of factors~~ and isvarious ~~not~~other ~~estimable. Since~~assumptions ~~the~~that ~~agreement~~we isbelieve ~~contingent upon various milestones~~ to be ~~achieved~~reasonable byunder the ~~counterparty to the agreement, the company’s obligation is not certain at this time~~circumstances.

OnEach ~~October~~of ~~11,~~our ~~2011,~~critical ~~the~~accounting ~~IPA~~estimates ~~approved~~involves ~~the~~complex ~~form~~situations ofrequiring a ~~draft~~high ~~30-year~~degree ~~contract~~of ~~for~~judgment either in the ~~purchase~~application and interpretation of ~~SNG~~existing ~~from~~literature or in the ~~second~~development ~~proposed~~of ~~plant~~estimates that impact our financial statements. ~~The~~There ~~draft~~have ~~contract~~been ~~approved~~no bysignificant ~~the~~changes ~~IPA~~to ~~has~~our ~~been~~critical ~~submitted~~accounting toestimates ~~the~~from ~~ICC~~those ~~for~~disclosed ~~further~~in ~~approvals~~our byManagement’s ~~that~~Discussion ~~regulatory~~and ~~body~~Analysis of Financial Condition and Results of Operation as ~~provided~~filed inon ~~the~~our ~~legislation~~2011 Form 10-K. ~~The~~Our ~~ICC~~critical isaccounting ~~expected~~estimates toused ~~approve~~in athe ~~final~~preparation ~~form~~ of ~~contract~~our ~~for~~Condensed ~~the~~Consolidated ~~second~~Financial ~~plant~~Statements ininclude ~~2012.~~the following:

~~CONTINGENCIES~~· Contingencies

~~The~~· ~~following~~Environmental ~~contingencies~~remediation of Nicor Gas are in various stages of investigation or disposition. Although in some cases the company is unable to estimate the amount of loss reasonably possible in addition to any amounts already recognized, it is possible that the resolution of these contingencies, either individually or in aggregate, will require the company to take charges against, or will result in reductions in, future earnings. It is the opinion of management that the resolution of these contingencies, either individually or in aggregate, could be material to earnings in a particular period but is not expected to have a material adverse impact on Nicor Gas’ liquidity or financial condition.costs

~~PBR~~· ~~plan. Nicor~~Derivatives ~~Gas’ PBR plan for natural gas costs went into effect in 2000~~ and ~~was~~hedging terminated by the company effective January 1, 2003. Under the PBR plan, Nicor Gas’ total gas supply costs were compared to a market-sensitive benchmark. Savings and losses relative to the benchmark were activities

26· Pension and retiree medical plan benefits

~~Table~~· ofCredit ~~Contents~~risk

~~determined~~· ~~annually~~Unbilled and shared equally with sales customers. The PBR plan is currently under ICC review. There are allegations that the company acted improperly in connection with the PBR plan, and the ICC and others are reviewing these allegations. On June 27, 2002, the Citizens Utility Board (“CUB”) filed a motion to reopen the record in the ICC’s proceedings to review the PBR plan (the “ICC Proceedings”). As a result of the motion to reopen, Nicor Gas, the staff of the ICC and CUB entered into a stipulation providing for additional discovery. The Illinois Attorney General’s Office (“IAGO”) has also intervened in this matter. In addition, the IAGO issued Civil Investigation Demands (“CIDs”) to CUB and the ICC staff. The CIDs ordered that CUB and the ICC staff produce all documents relating to any claims that Nicor Gas may have presented, or caused to be presented, false information related to its PBR plan. The company has committed to cooperate fully in the reviews of the PBR plan.revenues

In· ~~response~~Regulatory toassets these allegations, on July 18, 2002, the Nicor Board of Directors appointed a special committee of independent, non-management directors to conduct an inquiry into issues surrounding natural gas purchases, sales, transportation, storage and such other matters as may come to the attention of the special committee in the course of its investigation. The special committee presented the report of its counsel (“Report”) to Nicor’s Board of Directors on October 28, 2002. A copy of the Report is available at the Nicor website and has been previously produced to all parties in the ICC Proceedings.liabilities

In response, the Nicor Board of Directors directed the company’s management to, among other things, make appropriate adjustments to account for, and fully address, the adverse consequences to ratepayers of the items noted in the Report, and conduct a detailed study of the adequacy of internal accounting and regulatory controls. The adjustments were made in prior years’ financial statements resulting in a $24.8 million liability. Included in such $24.8 million liability is a $4.1 million loss contingency. A $1.8 million adjustment to the previously recorded liability, which is discussed below, was made in 2004 increasing the recorded liability to $26.6 million. Nicor Gas estimates that there is $26.9 million due to the company from the 2002 PBR plan year, which has not been recognized in the financial statements due to uncertainties surrounding the PBR plan. In addition, interest due to the company on certain components of these amounts has not been recognized in the financial statements due to the same uncertainties. By the end of 2003, the company completed steps to correct the weaknesses and deficiencies identified in the detailed study of the adequacy of internal controls.

Pursuant to the agreement of all parties, including the company, the ICC re-opened the 1999 and 2000 purchased gas adjustment filings for review of certain transactions related to the PBR plan and consolidated the reviews of the 1999-2002 purchased gas adjustment filings with the PBR plan review.

On February 5, 2003, CUB filed a motion for $27 million in sanctions against the company in the ICC Proceedings. In that motion, CUB alleged that Nicor Gas’ responses to certain CUB data requests were false. Also on February 5, 2003, CUB stated in a press release that, in addition to $27 million in sanctions, it would seek additional refunds to consumers. On March 5, 2003, the ICC staff filed a response brief in support of CUB’s motion for sanctions. On May 1, 2003, the ALJs assigned to the proceeding issued a ruling denying CUB’s motion for sanctions. CUB has filed an appeal of the motion for sanctions with the ICC, and the ICC has indicated that it will not rule on the appeal until the final disposition of the ICC Proceedings. It is not possible to determine how the ICC will resolve the claims of CUB or other parties to the ICC Proceedings.

In 2004, the company became aware of additional information relating to the activities of individuals affecting the PBR plan for the period from 1999 through 2002, including information consisting of third party documents and recordings of telephone conversations from Entergy-Koch Trading, LP (“EKT”), a natural gas, storage and transportation trader and consultant with whom Nicor did business under the PBR plan. Review of additional information completed in 2004 resulted in the $1.8 million adjustment to the previously recorded liability referenced above.

The evidentiary hearings on this matter were stayed in 2004 in order to permit the parties to undertake additional third party discovery from EKT. In December 2006, the additional third party discovery from

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EKT was obtained and the ALJs issued a scheduling order that provided for Nicor Gas to submit direct testimony by April 13, 2007. In its direct testimony, Nicor Gas sought a reimbursement of approximately $6 million, which included interest due to the company, as noted above, of $1.6 million, as of March 31, 2007, and it reaffirmed this position in rebuttal testimony submitted in April 2011. The staff of the ICC, IAGO and CUB submitted direct testimony to the ICC in April 2009 and rebuttal testimony in October 2011. In rebuttal testimony, the staff of the ICC, IAOG and CUB requested refunds of $85 million, $255 million and $305 million, respectively. No date has been set for evidentiary hearings on this matter.

Nicor Gas is unable to predict the outcome of the ICC’s review or the company’s potential exposure thereunder. Because the PBR plan and historical gas costs are still under ICC review, the final outcome could be materially different than the amounts reflected in the company’s financial statements as of September 30, 2011.

Mercury. Information about mercury contingencies is presented in Item 1 – Notes to the Condensed Consolidated Financial Statements – Note 13 – Contingencies – Mercury.

Manufactured gas plant sites. The company is conducting environmental investigations and remedial activities at former manufactured gas plant sites. Additional information about these sites is presented in Item 1 – Notes to the Condensed Consolidated Financial Statements – Note 13 – Contingencies – Manufactured Gas Plant Sites.

Municipal tax matters. Information about municipal tax contingencies is presented in Item 1 – Notes to the Condensed Consolidated Financial Statements – Note 13 – Contingencies – Municipal Tax Matters.

Nicor Services Warranty Product Actions. Information about warranty product contingencies is presented in Item 1 – Notes to the Condensed Consolidated Financial Statements – Note 13 – Contingencies – Nicor Services Warranty Product Actions.

Other. The company is involved in legal or administrative proceedings before various courts and agencies with respect to general claims, taxes, environmental, gas cost prudence reviews and other matters. See Item 1 – Notes to the Condensed Consolidated Financial Statements – Note 13 – Contingencies – Other.

CRITICAL ACCOUNTING ESTIMATES

See Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates in the 2010 Annual Report on Form 10-K for a discussion of the company’s critical accounting estimates.

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CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

This document includes certain forward-looking statements about the expectations of Nicor Gas. Although Nicor Gas believes these statements are based on reasonable assumptions, actual results may vary materially from stated expectations. Such forward-looking statements may be identified by the use of forward-looking words or phrases such as “anticipate,” “believe,” “expect,” “intend,” “may,” “planned,” “potential,” “should,” “will,” “would,” “project,” “estimate,” “ultimate,” or similar phrases. Actual results may differ materially from those indicated in the company’s forward-looking statements due, among other things, to the outcome of the proposed merger between Nicor and AGL Resources, the direct or indirect effects of legal contingencies (including litigation) and the resolution of those issues, including the effects of an ICC review, and undue reliance should not be placed on such statements.

Specifically with respect to the proposed merger between Nicor and AGL Resources, the company’s expectations are subject to future events, risks and uncertainties, and there are several factors – many beyond the company’s control – that could cause results to differ significantly from its expectations. Such events, risks and uncertainties include, but are not limited to:

· the possibility that the company’s business may suffer as a result of the uncertainty surrounding the merger;

· the possibility that AGL Resources and Nicor will not receive the regulatory approvals required to complete the merger or that the merger will not be consummated for other reasons; and

· the possibility that the company may not be able to maintain relationships with its employees, suppliers, or customers as a result of the uncertainty surrounding the merger.

Other factors that could cause materially different results include, but are not limited to, weather conditions; natural disasters; natural gas prices; fair value accounting adjustments; inventory valuation; health care costs; insurance costs or recoveries; legal costs; borrowing needs; interest rates; credit conditions; economic and market conditions; accidents, leaks, equipment failures, service interruptions, environmental pollution, and other operating risks; energy conservation; legislative and regulatory actions; tax rulings or audit results; asset sales; significant unplanned capital needs; future mercury-related charges or credits; changes in accounting principles, interpretations, methods, judgments or estimates; performance of major customers, transporters, suppliers and contractors; labor relations; and acts of terrorism.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this filing. Nicor Gas undertakes no obligation to publicly release any revision to these forward-looking statements to reflect events or circumstances after the date of this filing.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

~~Nicor~~We ~~Gas~~are is exposed to ~~market~~risks ~~risk~~associated inwith ~~the~~natural ~~normal~~gas ~~course~~prices, ofinterest ~~its~~rates ~~business~~and ~~operations,~~credit. Natural ~~including~~gas ~~the~~price risk ofis defined as the potential loss ~~arising~~that ~~from~~we ~~adverse~~may incur as a result of changes in the fair value of natural gas. Interest ~~commodity~~rate ~~prices~~risk results from our portfolio of debt instruments that we issue to provide financing and ~~interest~~liquidity ~~rates~~for our business. ~~Nicor~~Credit ~~Gas’~~risk results from the extension of credit throughout all aspects of our business. Our practice is to manage these risks utilizing derivative instruments and other methods, as deemed appropriate.

There ~~has~~have been no ~~material~~significant ~~change~~changes in ~~the~~our ~~company's~~ exposure to market risk ~~since~~from ~~the~~those ~~filing~~disclosed ofin ~~the~~our ~~2010~~Quantitative ~~Annual~~and ~~Report~~Qualitative onDisclosures About Market Risk as filed in our 2011 Form 10-K.

Item 4. Controls and Procedures

~~The~~(a) ~~company~~Evaluation ~~maintains~~of disclosure controls and procedures. Under ~~that~~the ~~are~~supervision ~~designed~~and towith ~~ensure~~the ~~that~~participation ~~information~~of ~~required~~our tomanagement, beincluding ~~disclosed~~our byprincipal ~~the~~executive ~~company~~officer inand ~~reports~~principal ~~that~~financial itofficer, ~~files~~we orconducted ~~submits~~an evaluation of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, isas ~~recorded~~amended (the Exchange Act), ~~processed~~as of March 31, ~~summarized~~2012, ~~and~~the ~~reported~~end ~~within~~of the ~~time~~period ~~periods~~covered ~~specified~~by inthis ~~the~~report. Based ~~SEC~~on ~~rules~~this ~~and~~evaluation, ~~forms~~our principal executive officer and ~~that~~our ~~such~~principal ~~information~~financial isofficer ~~accumulated~~concluded ~~and~~that ~~communicated~~our todisclosure ~~the~~controls ~~registrant’s~~and ~~management,~~procedures ~~including~~were ~~the~~effective ~~Chief~~as ~~Executive~~of ~~Officer~~March ~~(principal~~31, ~~executive~~2012, ~~officer)~~in ~~and~~providing ~~Chief~~a ~~Financial~~reasonable ~~Officer~~level ~~(principal~~of ~~financial~~assurance ~~officer),~~that asinformation ~~appropriate~~we are required to ~~allow~~disclose ~~timely~~in ~~decisions~~reports ~~regarding~~that ~~required~~we ~~disclosures. In~~file ~~designing~~or ~~and~~submit ~~evaluating~~under the ~~disclosure~~Exchange ~~controls~~Act ~~and~~is ~~procedures~~recorded, ~~management~~processed, ~~recognizes~~summarized ~~that~~and ~~any~~reported ~~disclosure~~within ~~controls~~the time periods in SEC rules and ~~procedures~~forms, noincluding ~~matter~~a ~~how~~reasonable ~~well~~level ~~designed~~of ~~and~~assurance ~~operated,~~that ~~can~~information ~~provide~~required ~~only~~to ~~reasonable~~be ~~assurance~~disclosed ofby ~~achieving~~us ~~the~~in ~~desired~~such ~~control~~reports ~~objectives,~~is accumulated and communicated to our management, isincluding ~~required~~our toprincipal ~~apply~~executive ~~its~~officer ~~judgment~~and inour ~~evaluating~~principal ~~the~~financial ~~cost-benefit~~officer, ~~relationship~~as ofappropriate ~~possible~~to ~~disclosure~~allow ~~controls~~timely ~~and~~decisions ~~procedures~~regarding required disclosure.

~~The~~(b) ~~company~~Changes ~~carried~~in ~~out~~internal ancontrol ~~evaluation~~over ~~under~~financial ~~the~~reporting. There ~~supervision~~were ~~and~~no ~~with~~changes ~~the~~in ~~participation~~our ofinternal ~~the~~control ~~company’s~~over ~~management,~~financial ~~including~~reporting ~~its~~that ~~Chief~~occurred ~~Executive~~during ~~Officer and Chief Financial Officer, of~~ the ~~effectiveness~~first ofquarter ~~the~~ended ~~design~~March ~~and operation of the company’s disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation”). Based on the Evaluation~~31, ~~the company’s Chief Executive Officer and Chief Financial Officer concluded~~2012, atthat ~~the~~have ~~reasonable~~materially ~~assurance level~~affected, asor ofare ~~the~~reasonably ~~end~~likely ofto ~~the~~materially ~~period covered by this Quarterly Report on Form 10-Q~~affect, ~~that~~our ~~the~~internal ~~company’s~~control ~~disclosure~~over ~~controls~~financial ~~and procedures, were effective~~reporting.

~~There~~Glossary ~~has~~of ~~been~~Key no change in the company’s internal controls over financial reporting during the company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting.Terms

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

~~See~~The ~~Part~~nature I,of ~~Item~~our 1business –ordinarily ~~Notes~~results toin ~~the~~periodic ~~Condensed~~regulatory ~~Consolidated~~proceedings ~~Financial~~before ~~Statements~~the –Illinois ~~Note~~Commission. In 1addition, –we ~~Proposed~~are ~~Merger~~party, ~~with~~as ~~AGL~~both ~~Resources~~plaintiff and ~~Note~~defendant, 13to –a ~~Contingencies~~number ~~and~~of ~~Item~~lawsuits 2related –to our business on an ongoing basis. Management’s ~~Discussion~~believes ~~and~~that ~~Analysis~~the outcome of ~~Financial~~all ~~Condition~~regulatory proceedings and ~~Results~~litigation ofin ~~Operations~~which –we ~~Other~~are ~~Matters~~currently involved will not have a material adverse effect on our consolidated financial condition. For more information regarding some of these proceedings, ~~which~~see ~~are~~Note ~~incorporated~~7 ~~herein~~to byour ~~reference~~Condensed Consolidated Financial Statements under the caption “Litigation.”

30Item 1A. Risk Factors

~~Table~~For information regarding our risk factors see the factors discussed in Item 1A - Risk Factors of ~~Contents~~our 2011 Form 10-K, which could materially affect our business, financial condition or future results. The risks described in our 2011 Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.

Item 6. Exhibits

Exhibit
Number	Description of Document	~~Description of Document~~
3.01	*	Restated Articles of Incorporation of the company as filed with the Illinois Secretary of State on July 21, 2006. (File No. 1-7296, Form 10-Q for June 30, 2006, Nicor Gas Company, Exhibit 3.01.)
12.01	Statement of Computation of Ratio of Earnings to Fixed Charges.
3.02	*	Nicor Gas Company Amended and Restated By-laws effective as of December 1, 2007. (File No. 1-7296, Form 8-K for November 29, 2007, Nicor Gas Company, Exhibit 3.1.)
31.01	Certification of Henry P. Linginfelter pursuant to Rule 13a – 14(a).
12.01		Computation of Consolidated Ratio of Earnings to Fixed Charges.
31.02	Certification of Andrew W. Evans pursuant to Rule 13a – 14(a).
31.01		Rule 13a-14(a)/15d-14(a) Certification.
32.01	Certification of Henry P. Linginfelter pursuant to 18 U.S.C. Section 1350.
31.02		Rule 13a-14(a)/15d-14(a) Certification.
32.02	Certification of Andrew W. Evans pursuant to 18 U.S.C. Section 1350.
32.01		Section 1350 Certification.
101.INS	XBRL Instance Document. (1)
32.02		Section 1350 Certification.
101.SCH	XBRL Taxonomy Extension Schema. (1)
101.INS	**	XBRL Instance Document.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase. (1)
101.SCH	**	XBRL Taxonomy Extension Schema.
101.LAB	XBRL Taxonomy Extension Label Linkbase. (1)
101.CAL	**	XBRL Taxonomy Extension Calculation Linkbase.
101.PRE	XBRL Taxonomy Extension Presentation Linkbase. (1)
101.DEF	**	XBRL Taxonomy Extension Definition Linkbase.
101.LAB	**	XBRL Taxonomy Extension Label Linkbase.
101.PRE	**	XBRL Taxonomy Extension Presentation Linkbase.

*(1) ~~These~~Furnished, ~~exhibits~~not ~~have~~filed ~~been~~Attached ~~previously~~as ~~filed~~Exhibit ~~with~~101 to this Quarterly Report are the ~~SEC~~following asdocuments ~~exhibits~~formatted toin ~~registration~~extensible ~~statements~~business orreporting tolanguage ~~other~~(XBRL): ~~filings~~(i) ~~with~~Document and Entity Information; (ii) Condensed Consolidated Statements of Financial Position (unaudited) at March 31, 2012, December 31, 2011 and March 31, 2011; (iii) Condensed Consolidated Statements of Income (unaudited) for the ~~SEC~~three months ended March 31, 2012 and ~~are~~2011; ~~incorporated~~(iv) ~~herein~~Condensed asConsolidated ~~exhibits~~Statements byof ~~reference.~~Comprehensive ~~The~~Income ~~file~~(unaudited) ~~number~~for the three months ended March 31, 2012 and ~~exhibit~~2011; ~~number~~(v) Condensed Consolidated Statements of ~~each~~Cash ~~such~~Flows ~~exhibit~~(unaudited) for the three months ended March 31, ~~where~~2012 ~~applicable~~and 2011; and (vi) Notes to Condensed Consolidated Financial Statements (unaudited). Pursuant to Rule 406T of Regulation S-T, these interactive data files are ~~stated,~~deemed innot ~~parentheses,~~filed inor part of a registration statement or prospectus for purposes of Sections 11 or 12 of the ~~description~~Securities Act of ~~such~~1933 ~~exhibit~~or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability. We also make available on our web site the Interactive Data Files submitted as Exhibit 101 to this Quarterly Report.

**Glossary ~~Pursuant to Rule 406T~~ of ~~Regulation~~Key ~~S-T, these exhibits are deemed furnished, not filed.~~Terms

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Table of Contents

~~Signature~~SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		Nicor Gas Company
November 1, 2011		/s/ KAREN K. PEPPING
(Date)		Karen K. Pepping
		Vice President and Controller
		(Principal Accounting Officer and
		Duly Authorized Officer)

NICOR GAS COMPANY

32(Registrant)

Date: May 1, 2012		/s/ Andrew W. Evans
		Executive Vice President and Chief Financial Officer

Glossary of Key Terms

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