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

FORM 10-Q

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

For the Quarterly Period Ended December 31, 2000

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

1-14174 AGL RESOURCES INC. 58-2210952
(A Georgia Corporation)
817 West Peachtree Street, N.E.
Suite 1000
Atlanta, Georgia 30308
404-584-9470

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 the number of shares outstanding of each of the issuer's classes of
common stock, as of December 31, 2000.

Common Stock, $5.00 Par Value
Shares Outstanding at December 31, 2000 ............................. 54,208,371

AGL RESOURCES INC.

Quarterly Report on Form 10-Q
For the Quarter Ended December 31, 2000

Table of Contents

Item Page
Number Number
- ------ ------

PART I-- FINANCIAL INFORMATION

1 Financial Statements (Unaudited)

Condensed Statements of Consolidated Income 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Cash Flows 6
Notes to Condensed Consolidated Financial Statements 7

2 Management's Discussion and Analysis of Results of
Operations and Financial Condition 13

3 Quantitative and Qualitative Disclosure About Market Risk 25

PART II-- OTHER INFORMATION

1 Legal Proceedings 26

2 Changes in Securities and Use of Proceeds 26

3 Defaults Upon Senior Securities 26

4 Submission of Matters to a Vote of Security Holders 26

5 Other Information 26

6 Exhibits and Reports on Form 8-K 27

SIGNATURE 28

Page 2 of 28

PART I -- FINANCIAL INFORMATION

Item 1. Financial Statements
- ------ --------------------

AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
FOR THE THREE-MONTHS ENDED
DECEMBER 31, 2000 AND 1999
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

Three-months
------------------------------
2000 1999
------- --------

Operating Revenues $ 294.8 $ 182.3
Cost of Sales 130.8 54.6
------------------------------
Operating Margin 164.0 127.7

Other Operating Expenses 108.7 94.2
------------------------------
Operating Income 55.3 33.5

Other Income 5.2 6.9
------------------------------
Income Before Interest, Preferred Stock Dividends,
and Income Taxes 60.5 40.4

Interest Expense and Preferred Stock Dividends
Interest expense 23.2 12.2
Dividends on preferred stock of subsidiary 1.5 1.5
------------------------------

Total interest expense and preferred
stock dividends 24.7 13.7
------------------------------
Income Before Income Taxes 35.8 26.7

Income Taxes 13.3 9.6
------------------------------
Net Income $ 22.5 $ 17.1
==============================

Earnings Per Common Share
Basic $ 0.41 $ 0.30
Diluted $ 0.41 $ 0.30

Weighted Average Number of Common
Shares Outstanding
Basic 54.1 56.9
Diluted 54.5 57.0

Cash Dividends Paid Per Share of
Common Stock $ 0.27 $ 0.27

See notes to condensed consolidated financial statements.

Page 3 of 28

AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)

(Unaudited)
December 31, September 30,
ASSETS 2000 2000
- --------------------------------------------------------------------------------------------------------

Current Assets
Cash and cash equivalents $ 2.0 $ 2.0
Receivables
Gas (less allowance for uncollectible
accounts of $2.7 at December 31, 2000
and $3.1 at September 30, 2000) 91.6 29.9
Other (less allowance for uncollectible
accounts of $8.6 at December 31, 2000
and $5.2 at September 30, 2000) 10.5 13.4
Unbilled revenues 55.2 1.7
Refundable income taxes - 8.1
Inventories
Natural gas stored underground 29.2 27.7
Liquefied natural gas 1.4 2.1
Materials and supplies 8.1 6.2
Other 1.2 1.2
Other current assets 8.5 7.4
- --------------------------------------------------------------------------------------------------------
Total current assets 207.7 99.7
- --------------------------------------------------------------------------------------------------------
Property, Plant and Equipment
Utility plant 2,930.8 2,371.5
Less accumulated depreciation 968.4 791.8
- --------------------------------------------------------------------------------------------------------
Utility plant - net 1,962.4 1,579.7
- --------------------------------------------------------------------------------------------------------
Non-utility property 84.5 88.2
Less accumulated depreciation 29.5 30.4
- --------------------------------------------------------------------------------------------------------
Non-utility property - net 55.0 57.8
- --------------------------------------------------------------------------------------------------------
Total property, plant and equipment - net 2,017.4 1,637.5
- --------------------------------------------------------------------------------------------------------
Deferred Debits and Other Assets
Unrecovered environmental response costs 167.2 164.6
Investments in joint ventures 74.4 78.8
Unrecovered postretirement benefits costs 7.7 7.9
Goodwill 159.1 -
Other 68.5 31.4
- --------------------------------------------------------------------------------------------------------
Total deferred debits and other assets 476.9 282.7
- --------------------------------------------------------------------------------------------------------
Total Assets $ 2,702.0 $ 2,019.9
========================================================================================================

See notes to condensed consolidated financial statements.

Page 4 of 28

AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)

(Unaudited)
December 31, September 30,
LIABILITIES AND CAPITALIZATION 2000 2000
- -------------------------------------------------------------------------------------------------------------

Current Liabilities
Short-term debt $ 718.6 $ 141.2
Accounts payable - trade 80.7 34.0
Interest 12.4 21.5
Current portion of long-term debt 20.0 20.0
Wages and salaries 18.1 15.3
Other accrued liabilities 32.6 20.2
Customer deposits 14.8 1.8
Other 52.2 30.8
- -------------------------------------------------------------------------------------------------------------
Total current liabilities 949.4 284.8
- -------------------------------------------------------------------------------------------------------------
Accumulated Deferred Income Taxes 248.1 249.6
- -------------------------------------------------------------------------------------------------------------
Long-Term Liabilities
Accrued environmental response costs 111.7 111.7
Accrued postretirement benefits costs 32.9 31.9
Accrued pension costs 11.6 6.7
- -------------------------------------------------------------------------------------------------------------
Total long-term liabilities 156.2 150.3
- -------------------------------------------------------------------------------------------------------------
Deferred Credits
Unamortized investment tax credit 22.8 23.2
Regulatory tax liability 18.5 15.5
Other 10.2 11.3
- -------------------------------------------------------------------------------------------------------------
Total deferred credits 51.5 50.0
- -------------------------------------------------------------------------------------------------------------
Capitalization
Long-term debt 590.0 590.0
Subsidiary obligated mandatorily redeemable
Preferred securities 74.3 74.3
Common stockholders' equity, $5 par value,
Shares issued of 57.8 at December 31, 2000
and at September 30, 2000 695.3 687.1
Less shares held in treasury, at cost,
3.6 at December 31, 2000 and
3.8 at September 30, 2000 (62.8) (66.2)
- -------------------------------------------------------------------------------------------------------------
Total capitalization 1,296.8 1,285.2
- -------------------------------------------------------------------------------------------------------------
Total Liabilities and Capitalization $ 2,702.0 $ 2,019.9
=============================================================================================================

See notes to condensed consolidated financial statements.

Page 5 of 28

AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE-MONTHS ENDED DECEMBER 31, 2000 AND 1999
(IN MILLIONS)
(UNAUDITED)

Three-months
--------------------
2000 1999
- --------------------------------------------------------------------------------------------------------

Cash Flows from Operating Activities
Net income $ 22.5 $ 17.1
Adjustments to reconcile net income to net
cash flow from operating activities
Depreciation and amortization 26.4 21.2
Deferred income taxes 1.0 4.8
Other (0.4) (0.4)
Changes in certain assets and liabilities,
net of effect of business acquired
Receivables (96.1) (0.7)
Inventories 33.3 31.9
Accounts payable 24.8 3.3
Purchased gas adjustment (7.2) (2.7)
Gas cost credits - (35.9)
Accrued interest (9.1) (13.4)
Other current liabilities 13.0 (10.5)
Other-net 10.4 (4.1)
- --------------------------------------------------------------------------------------------------------
Net cash flow from operating activities 18.6 10.6
- --------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Net borrowings of short-term debt 557.4 17.5
Sale of common stock, net of expenses (1.4) (2.4)
Sale of treasury shares 3.4 2.9
Purchase of treasury shares - (4.5)
Dividends paid on common stock (14.4) (13.0)
- --------------------------------------------------------------------------------------------------------
Net cash flow used in financing activities 545.0 0.5
- --------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Acquisition of Virginia Natural Gas, net of cash acquired (539.7) -
Utility plant expenditures (33.7) (33.7)
Non-utility property expenditures (0.9) (1.6)
Cash received from (provided to) joint ventures 11.1 (9.4)
Other (0.4) 4.9
- --------------------------------------------------------------------------------------------------------
Net cash used in investing activities (563.6) (39.8)
- --------------------------------------------------------------------------------------------------------
Net decrease in cash
and cash equivalents - (28.7)
Cash and cash equivalents at
beginning of period 2.0 32.9
- --------------------------------------------------------------------------------------------------------
Cash and cash equivalents at
end of period $ 2.0 $ 4.2
========================================================================================================
Cash Paid During the Period for
Interest $ 32.3 $ 26.0
Income taxes $ .4 $ 2.9

See notes to condensed consolidated financial statements.

Page 6 of 28

AGL RESOURCES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Nature of Our Business

AGL Resources Inc. is the registered holding company for:

. Atlanta Gas Light Company ("AGLC"), a natural gas local distribution
utility;
. Virginia Natural Gas, Inc. ("VNG"), a natural gas local distribution
utility;
. Chattanooga Gas Company ("Chattanooga"), a natural gas local distribution
utility;
. AGL Energy Services, Inc. ("AGLE"), a gas supply services company;
. AGL Services Company ("AGLS"), a service company established in
accordance with the Public Utilities Holding Company Act of 1935
("PUHCA");
. AGL Capital Corporation, a financing subsidiary; and
. Several other non-utility subsidiaries.

AGL Resources Inc. and its subsidiaries are collectively referred to as "AGL
Resources."

Effective October 1, 2000, AGL Resources acquired all of the outstanding common
stock of VNG, a wholly owned subsidiary of Consolidated Natural Gas Company and
an indirect subsidiary of Dominion Resources, Inc. The purchase price of
approximately $533 million, paid in cash, included approximately $4.8 million in
working capital.

The acquisition of VNG was accounted for as a purchase for financial accounting
purposes and as a result VNG's operations were consolidated with AGL Resources
beginning October 1, 2000. The excess purchase price over the fair value of the
assets acquired and liabilities assumed was allocated to goodwill, which will be
amortized over 40 years. The allocation of the purchase price and acquisition
costs to the assets acquired and liabilities assumed is preliminary at December
31, 2000, and is subject to change.

With the addition of VNG's customer base of approximately 230,000, AGL Resources
is now the second largest natural gas-only distributor in the United States,
serving nearly 1.8 million customers. VNG is headquartered in Norfolk, Virginia,
and serves customers in the Hampton Roads region of southeastern Virginia.

In the opinion of management, the unaudited condensed consolidated financial
statements included herein reflect all normal recurring adjustments necessary
for a fair statement of the results of the interim periods reflected. These
interim financial statements and notes are condensed as permitted by the
instructions to Form 10-Q, and should be read in conjunction with the financial
statements and the notes included in the annual report on Form 10-K of AGL
Resources for the fiscal year ended September 30, 2000. Due to the seasonal
nature of a portion of AGL Resources' businesses, the results of operations for
the three-month period are not necessarily indicative of results of operations
for a twelve-month period.

Management makes estimates and assumptions when preparing financial statements
under accounting principles generally accepted in the United States of America.
Those estimates and assumptions affect various matters, including:

. Reported amounts of assets and liabilities in our Condensed Consolidated
Balance Sheets as of the dates of the financial statements;
. Disclosure of contingent assets and liabilities as of the dates of the
financial statements; and
. Reported amounts of revenues and expenses in our Condensed Statements of
Consolidated Income during the reported periods.

Page 7 of 28

1. Nature of Our Business (continued)

Those estimates involve judgments with respect to, among other things, future
economic factors that are difficult to predict and are beyond management's
control. Consequently, actual amounts could differ from our estimates.

Certain amounts in financial statements of prior years have been reclassified to
conform to the presentation of the current year.

2. Significant Accounting Policies

For a summary of AGL Resources' accounting policies, please refer to AGL
Resources' Annual Report on Form 10-K for the year ended September 30, 2000.

Additional significant accounting policies effective October 1, 2000 as a result
of the acquisition of VNG include:

Regulation of the Utility Business

The Virginia State Corporation Commission ("VSCC") regulates VNG with respect to
the rates, maintenance of accounting records and various other matters.
Consistent with AGLC and Chattanooga, generally the same accounting policies and
practices utilized by non-regulated companies are utilized by VNG for financial
reporting under accounting principles generally accepted in the United States of
America. However, sometimes the VSCC orders an accounting treatment different
from that used by non-regulated companies to determine the rates charged to the
VNG's customers. Additionally, following the consummation of the VNG
acquisition, AGL Resources registered with the Securities and Exchange
Commission as a holding company under the Public Utility Holding Company Act of
1935 ("PUHCA").

Revenue Recognition

Revenues from sales and transportation services are recognized in the same
period in which the related volumes are delivered to customers. Revenues from
VNG's business are based on rates approved by the VSCC. The Company bills and
recognizes sales revenues from residential and certain commercial and industrial
customers on the basis of scheduled meter readings. In addition, revenues are
recorded for estimated deliveries of gas, not yet billed to these customers,
from the meter reading date to the end of the accounting period. For wholesale
and other commercial and industrial customers, revenues are based upon actual
deliveries to the end of the period.

Cost of Sales

VNG charges their customers for the natural gas they consume using purchased gas
adjustment ("PGA") mechanisms set by the VSCC. Under the PGA, VNG defers
(included as a current asset or liability in the Condensed Consolidated Balance
Sheets and excluded from the Condensed Statements of Consolidated Income) the
difference between the utility's actual cost of gas and what it collected from
customers in a given period. Then, VNG either bills or refunds to its customers
the deferred amount.

Depreciation Expense

Depreciation for VNG is computed by applying composite, straight-line rates
approved by the VSCC to the investment of depreciable property. The composite
straight-line depreciation rate was approximately 3.2% for utility property
excluding transportation equipment during the three-months ended December 31,
2000.

Page 8 of 28

2. Significant Accounting Policies (continued)

Allowance for Funds Used During Construction ("AFUDC")

Construction projects in Virginia are financed with borrowed funds and equity
funds. The VSCC allows VNG to record the cost of those funds as part of the cost
of construction projects on AGL Resources' Consolidated Balance Sheets and as
AFUDC in the Statements of Consolidated Income. AFUDC for VNG is calculated
based upon a rate authorized by the VSCC.

Inventory

VNG's gas inventories are stated at the weighted average inventory costing
method. Materials and supplies inventories are stated at lower of average cost
or market.

Chattanooga changed its inventory costing method for its gas inventories from
last-in, first-out to weighted average cost effective October 1, 2000. In
management's opinion, the weighted average inventory costing method provides for
a better matching of costs and revenue from the sale of gas and is more
consistent with AGLC and VNG. Because Chattanooga recovers all of its gas costs
through a PGA mechanism, there was not a cumulative effect resulting from the
change in the inventory costing method.

3. Earnings Per Common Share and Common Stockholders' Equity

Basic earnings per common share is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per common share reflects the potential
dilution that could occur when common share equivalents are added to common
shares outstanding. Diluted earnings per common share is calculated quarterly
and the number of incremental shares to be included at year end is the weighted
average of each quarterly calculation. AGL Resources' common share equivalents
are derived from performance units whose future issuance is contingent upon the
satisfaction of certain performance criteria and stock options whose exercise
prices were less than the average market price of the common shares for the
respective periods. Performance units totaling 6,574 qualified as common stock
equivalents as of December 31, 2000. An average of 377,207 and 22,511
incremental shares qualified as common stock equivalents for the three-month
periods ended December 31, 2000 and 1999, respectively, because the exercise
prices of those options were less than the average market price of the common
shares for the respective periods.

During the three-month periods ended December 31, 2000 and 1999, AGL Resources
issued 195,764 shares and 158,476 shares of common stock, respectively, under
ResourcesDirect, a direct stock purchase and dividend reinvestment plan; the
Retirement Savings Plus Plan; the Long-Term Stock Incentive Plan, the Long-Term
Incentive Plan; and the Non-Employee Directors Equity Compensation Plan.

4. Accounting for Derivative Instruments and Hedging Activities

In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133, as
amended by SFAS 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities" establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. AGL Resources adopted SFAS 133 on
October 1, 2000. The effect of the adoption of SFAS 133, as well as the effect
from the application of SFAS 133 during the three-month period ended December
31, 2000 has been immaterial to AGL Resources' financial statements.

Page 9 of 28

5. Environmental Matters

Before natural gas was widely available in the Southeast, AGLC manufactured gas
from coal and other fuels. Those manufacturing operations were known as
manufactured gas plants ("MGP"), which AGLC ceased operating in the 1950s.
Because of recent environmental concerns, AGLC is required to investigate
possible environmental contamination at those plants and, if necessary, clean up
any contamination.

AGLC has been associated with nine MGP sites in Georgia and three in Florida.
Based on investigations to date, AGLC believes that some cleanup is likely at
most of the sites. In Georgia, the state Environmental Protection Division
supervises the investigation and cleanup of MGP sites. In Florida, the U.S.
Environmental Protection Agency has that responsibility.

For each of the MGP sites, AGLC has estimated, where possible, its share of the
likely costs of investigation and cleanup. AGLC currently estimates that its
total future cost of investigating and cleaning up its MGP sites is between
$111.7 million and $171.8 million. This estimate does not include other
potential expenses, such as unasserted property damage or personal injury
claims, legal expenses or other costs for which AGLC may be held liable, but
with respect to which the amount can not be reasonably forecast. Within that
range, AGLC cannot identify any single number as a "better" estimate of its
likely future costs, because its actual future investigation and cleanup costs
will be affected by a number of contingencies that cannot be quantified at this
time. Consequently, as of December 31, 2000, AGLC has recorded the lower end of
the range, or $111.7 million, as a liability.

AGLC has entered into a contract with ThermoRetec Consulting Corporation
("ThermoRetec") for management of the investigation and cleanup of AGLC's MGP
sites. Under this contract, AGLC's former MGP sites are classified into two
categories. Where AGLC is not the primary responsible party, ThermoRetec will
provide management oversight and coordination between AGLC and other responsible
parties. At all other sites, ThermoRetec will provide all services that will
eventually result in cleanup and regulatory finality for those MGP sites within
specified deadlines. With respect to these latter sites, the agreement between
AGLC and ThermoRetec establishes a performance-based fee arrangement, under
which a portion of ThermoRetec's compensation is tied to the relationship
between certain specified components of the cleanup costs and specified
benchmarks for those cost components. Management does not believe the
outsourcing of the management will have a material effect on the total future
cost of investigating and cleaning up the MGP sites.

AGLC has two ways of recovering investigation and cleanup costs. First, the
Georgia Public Service Commission ("GPSC") has approved an environmental
response cost recovery rider. It allows the recovery of costs of investigation,
testing, cleanup, and litigation. Because of that rider, AGLC has recorded a
regulatory asset for actual and projected future costs related to investigation
and cleanup, to be recovered from the rate payers in future years. During the
three-months ended December 31, 2000, AGLC recovered $3.3 million through its
environmental response cost recovery rider. The asset increased by $2.6 million
due to additional expenses.

The second way AGLC can recover costs is by exercising the legal rights AGLC
believes it has to recover a share of its costs from other potentially
responsible parties, typically former owners or operators of the MGP sites. AGLC
has been actively pursuing those recoveries. There were no material recoveries
during the three-months ended December 31, 2000.

On January 5, 2001, the Environmental Protection Division ("EPD") in Georgia
approved AGLC's corrective action plans ("CAPs") for the Athens, Savannah, and
Macon MGP sites. Coupled with approvals in 2000 for Brunswick (February),
Griffin (June), Waycross (August), Rome and Valdosta (November), AGLC has met
its commitment to the GPSC's timeline for these sites. The Augusta CAP, which is
the only remaining Georgia CAP to be filed, will be submitted by March 30, 2001.

Page 10 of 28

6. Segment Information

AGL Resources is organized into two operating segments: Utility and Non-utility.
Management evaluates segment performance based on net income, which includes the
effects of corporate expense allocations. There were no material inter-segment
sales during the three-month period ended December 31, 2000 or 1999.

Three-months Ended December 31, 2000 December 31, 1999
- ------------------ ---------------------------------- ----------------------------------
(Millions of Dollars) Utility Non-utility Total Utility Non-utility Total
------- ----------- ----- ------- ----------- -----

Operating Revenues $ 290.7 $ 4.1 $ 294.8 $ 171.3 $ 11.0 $ 182.3
Depreciation and Amortization 23.5 2.6 26.1 17.3 3.4 20.7
Interest Expense 11.2 12.0 23.2 11.9 0.3 12.2
Interest Income 0.1 - 0.1 0.1 0.2 0.3
Equity in the Net Income of
Joint Ventures - 4.7 4.7 - 4.8 4.8
Income Tax Expense (Benefit) 19.2 (5.9) 13.3 10.0 (0.4) 9.6
Net Income (Loss) 31.8 (9.3) 22.5 17.6 (0.5) 17.1
Capital Expenditures 33.7 .9 34.6 33.7 1.6 35.3

Balance as of December 31, 2000 September 30, 2000
- ------------- ---------------------------------- ----------------------------------
(Millions of Dollars) Utility Non-utility Total Utility Non-utility Total
------- ----------- ----- ------- ----------- -----

Identifiable Assets $2,554.4 $ 73.2 $ 2,627.6 $ 1,866.3 $ 74.8 $1,941.1
Investments in Joint Ventures - 74.4 74.4 0.4 78.4 78.8

7. Short-term Debt

In connection with the acquisition of VNG, AGL Resources established a $900
million commercial paper program through AGL Capital Corporation. AGL Resources'
commercial paper consists of short-term unsecured promissory notes with
maturities ranging from overnight to 270 days. AGL Resources' commercial paper
program is fully supported by bank back-up credit lines. On October 6, 2000, AGL
Resources issued $660 million in commercial paper, the proceeds of which were
used to finance the VNG acquisition and to refinance existing short-term debt.

During October 2000, the short-term debt outstanding at September 30, 2000 of
$141.2 million was refinanced with commercial paper. As of December 31, 2000,
$181.4 million remained available for borrowing under the commercial paper
program. The weighted average interest rate on short-term debt outstanding was
6.7% for the three-months ended December 31, 2000. Management expects to obtain
long-term financing in fiscal 2001 to replace a portion of the commercial paper.

Page 11 of 28

7. Short-term Debt (continued)

On October 6, 2000, AGL Resources Inc., and AGL Capital Corporation entered into
a Credit Agreement with several lenders ("Lenders") for whom SunTrust Bank
("SunTrust") is acting as Administrative Agent. Pursuant to the Credit
Agreement, the Lenders agree to make available to AGL Capital Corporation, upon
demand, up to $900 million (the "Revolving Commitment"). This Credit Agreement
has been entered into in support of AGL Resources' commercial paper program. The
Revolving Commitment may be borrowed, repaid and reborrowed in the form of
Eurodollar loans, adjustable rate loans (based on SunTrust's Prime Rate, or
based on the Federal Funds Effective Rate plus 1%), letters of credit (up to $50
million), or, in certain circumstances, fixed rate loans for a defined period
agreed upon by AGL Capital Corporation and the Lenders. The Revolving Commitment
expires on October 5, 2001 (the "Revolving Termination Date"). Loans outstanding
on the Revolving Termination Date, up to a maximum aggregate principal amount of
$200 million, may be converted into Term Loans. All Term Loans will mature in
one installment on the date that is one year from the Revolving Termination
Date. Currently, there are no outstanding loans under the Credit Agreement.

Management believes available credit will be sufficient to meet working capital
needs both on a short-term and long-term basis. However, capital needs depend on
many factors, and AGL Resources may seek additional financing through debt or
equity offerings in the private or public markets at any time.

8. Pro Forma Data

The following unaudited pro forma financial data has been prepared as if the
acquisition of VNG took place on October 1, 1999, the beginning of AGL Resources
fiscal year. This pro forma financial data is presented for informational
purposes and is not necessarily indicative of future operations (in millions,
except per share data).

Three-months
Ended
December 31, 1999

Revenue $ 244.5
Net Income $ 14.8
Earnings Per Share- Basic $ 0.26
Earnings Per Share- Diluted $ 0.26

9. Supplemental Cash Flow Information

The following is the sources and uses of cash associated with the acquisition of
VNG (in millions):

Sources of Funds received for the acquisition:
Issuance of commercial paper $ 539.7
=======

Uses of Funds for the acquisition:
The acquisition $ 532.2
Transaction fees and expenses 7.5
-------
Total $ 539.7
=======

Page 12 of 28

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION

Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 allows public companies to
provide cautionary remarks about forward-looking statements that they make in
documents that are filed with the Securities and Exchange Commission ("SEC").
Forward-looking statements in our Management's Discussion and Analysis include,
but are not limited to, statements about the following:

. Deregulation;
. Business prospects;
. Strategic outlook;
. Concentration of credit risk;
. Environmental investigations and cleanups;
. Quantitative and qualitative disclosures about market risk;
. Virginia Natural Gas acquisition;
. Propane operations; and
. Changes required by the Public Utility Holding Company Act of 1935
("PUHCA").

Important factors that could cause our actual results to differ substantially
from those in the forward-looking statements include, but are not limited to,
the following:

. Industrial, commercial, and residential growth in the service territories
of AGL Resources and its subsidiaries;
. Changes in price and demand for natural gas and related products;
. Impact of changes in state and federal legislation and regulation on both
the gas and electric industries;
. Effects and uncertainties of deregulation and competition, particularly
in markets where prices and providers historically have been regulated,
unknown risks related to nonregulated businesses, and unknown issues such
as the stability of certificated marketers;
. Concentration of credit risk in certificated marketers;
. Industry consolidation;
. Impact of acquisitions and divestitures;
. Changes in accounting policies and practices issued periodically by
accounting standard-setting bodies;
. Interest rate fluctuations, financial market conditions, and economic
conditions, generally;
. Uncertainties about environmental issues and the related impact of such
issues;
. Impact of changes in weather upon the temperature sensitive portions the
business; and
. Other factors and the related impact of such factors.

Nature of Our Business

AGL Resources Inc. is the registered holding company for:

. Atlanta Gas Light Company ("AGLC"), a natural gas local distribution
utility;
. Virginia Natural Gas, Inc. ("VNG"), a natural gas local distribution
utility;
. Chattanooga Gas Company ("Chattanooga"), a natural gas local distribution
utility;
. AGL Energy Services, Inc. ("AGLE"), a gas supply services company:
. AGL Services Company ("AGLS"), a service company established in
accordance with PUHCA;
. AGL Capital Corporation, a financing subsidiary; and
. Several other non-utility subsidiaries.

AGL Resources and its subsidiaries are collectively referred to as "AGL
Resources."

Page 13 of 28

Nature of Our Business (continued)

AGLC conducts its primary business, the distribution of natural gas, in Georgia
including Atlanta, Athens, Augusta, Brunswick, Macon, Rome, Savannah, and
Valdosta. Chattanooga distributes natural gas in the Chattanooga and Cleveland
areas of Tennessee. VNG distributes natural gas in the Hampton Roads region of
Virginia. The Georgia Public Service Commission ("GPSC") regulates AGLC, the
Tennessee Regulatory Authority ("TRA") regulates Chattanooga and the Virginia
State Corporation Commission ("VSCC") regulates VNG. AGLE provides wholesale
asset management services for AGL Resources' regulated and unregulated
operations, as well as, for unaffiliated retail gas marketers.

As of December 31, 2000, AGLC, VNG, and Chattanooga comprised substantially all
of AGL Resources' assets, revenues, and earnings. The operations and activities
of AGLC, VNG, Chattanooga, and AGLE, collectively, are referred to as the
"utility." The utility's total other operating expenses include costs allocated
from AGLS.

As of December 31, 2000, AGL Resources owned or had an interest in the following
non-utility businesses:

. SouthStar Energy Services LLC ("SouthStar"), a joint venture among a
subsidiary of AGL Resources and subsidiaries of Dynegy Holdings, Inc. and
Piedmont Natural Gas Company. SouthStar markets natural gas and related
services to residential and small commercial customers in Georgia and to
industrial customers in the Southeast. SouthStar began marketing natural
gas to customers in Georgia during the first quarter of fiscal 1999 under
the trade name Georgia Natural Gas Services;

. AGL Investments, Inc., which manages certain non-utility businesses
including:

. AGL Propane Services, Inc. ("Propane") has a 22.36% ownership
interest in US Propane LLC ("US Propane"). US Propane owns 34% of
Heritage Propane Partners ("Heritage Propane") which engages in the
sale of propane and related products and services in 28 states;

. Utilipro, Inc. ("Utilipro"), in which AGL Resources has a 91.74%
ownership interest and which engages in the sale of integrated
customer care solutions and billing services to energy marketers in
the United States; and

. AGL Networks, LLC ("AGL Networks"), which will install, and lease to
third-party operators, conduit and fiber optic cable. AGL Networks
was formed on August 15, 2000 for the purpose of partnering with
other telecommunication companies to serve Atlanta's rapidly growing
demand for high-speed network capacity.

. AGL Peaking Services, Inc., which owns a 50% interest in Etowah LNG
Company, LLC ("Etowah"), a joint venture with Southern Natural Gas
Company. Etowah was formed for the purpose of constructing, owning, and
operating a liquefied natural gas peaking facility; and

. AGL Capital Corporation, which was established to finance the acquisition
of VNG, refinance existing short-term debt and provide working capital to
AGL Resources and its subsidiaries through a commercial paper program and
other financing mechanisms.

Page 14 of 28

Results of Operations

Three-Month Periods Ended December 31, 2000 and 1999
- ----------------------------------------------------
In this section, the results of operations for the three-month periods ended
December 31, 2000 and 1999 are compared.

Operating Margin Analysis
- -------------------------
(Dollars in Millions)

Three-months Ended
------------------
12/31/2000 12/31/1999 Favorable/(Unfavorable)
---------- ---------- ------------------------
Operating Revenues
Utility $ 290.7 $ 171.3 $ 119.4 69.7%
Non-utility 4.1 11.0 (6.9) (62.7%)
------- ------- -------
Total $ 294.8 $ 182.3 $ 112.5 61.7%
======= ======= =======
Cost of Sales
Utility $ 130.8 $ 51.8 $ (79.0) (152.5%)
Non-utility - 2.8 2.8 100.0%
------- ------- -------
Total $ 130.8 $ 54.6 $ (76.2) (139.6%)
======= ======= =======
Operating Margin
Utility $ 159.9 $ 119.5 $ 40.4 33.8%
Non-utility 4.1 8.2 (4.1) (50.0%)
------- ------- -------
Total $ 164.0 $ 127.7 $ 36.3 28.4%
======= ======= =======

Utility. Utility operating revenues increased $119.4 million and cost of sales
increased $79.0 million primarily due to the following factors:

. Total average customers for the three-month period ended December 31,
2000 increased from 1,496,000 customers to 1,775,000. The increase is
attributable to the addition of approximately 237,000 customers as a
result of the VNG acquisition and customer growth in Georgia and
Tennessee of approximately 42,000 customers;
. Operating revenue of $117.0 million contributed by VNG and cost of sales
of $78.0 million incurred by VNG as result of closing the VNG acquisition
ahead of schedule effective October 1, 2000 in order to take advantage of
the winter-heating season. There were 1,431 degree days actually incurred
by VNG during the three-month period ended December 31, 2000 as compared
to the 30-year normal degree days for the three-month period ended
December 31, 2000 of 1,131;
. Chattanooga's operating revenues increased $17.1 million and cost of
sales increased $16.4 million as a result of 1,454 degree days as
compared to 1,003 degree days during the same period last year and higher
natural gas commodity costs during the three-month period ended December
31, 2000;
. These increases were offset by AGLC's operating revenues decrease of
$14.7 million and cost of sales decrease of $15.4 million as a result of
inventory sales to marketers made at the end of random assignment at the
beginning of fiscal 2000.

Page 15 of 28

Results of Operations (continued)

The utility operating margin increased to $159.9 million for the three-months
ended December 31, 2000 from $119.5 million for the same period last year. The
increase of $40.4 million was a result of the addition of VNG, colder weather
and customer growth, as noted above.

Non-utility. Non-utility operating revenues decreased to $4.1 million for the
three-months ended December 31, 2000 from $11.0 million for the same period last
year. Non-utility cost of sales decreased to $0.0 million for the three-months
ended December 31, 2000 from $2.8 million for the same period last year. The
decrease of $6.9 million in operating revenues and $2.8 in cost of sales was
primarily due to the change in reporting for AGL Propane as a result of the
propane transaction with Heritage Partners in August, 2000. As a joint venture,
Propane is accounted for under the equity method and its financial results are
now reported in other income rather than operating revenues and cost of sales.
Non-utility operating margin decreased to $4.1 million for the three-months
ended December 31, 2000 from $8.2 million for the same period last year. The
decrease of $4.1 million was the result of the factors noted above.

Total Other Operating Expenses Analysis
- ---------------------------------------
(Dollars in Millions)

Three-months Ended
------------------
12/31/2000 12/31/1999 Favorable/(Unfavorable)
---------- ---------- ----------------------
Total Other Operating Expenses
Utility $ 98.0 $ 81.8 $ (16.2) (19.8%)
Non-utility 10.7 12.4 1.7 13.7%
-------- ------- -------
Total $ 108.7 $ 94.2 $ (14.5) (15.4%)
======== ======= =======

Total Other Operating Expenses
- ------------------------------
Total other operating expenses increased to $108.7 million for the three-months
ended December 31, 2000 from $94.2 million for the same period last year, an
increase of 15.4%.

Utility. Utility total other operating expenses increased $16.2 million as
compared with the same period last year due to expenses related to VNG not
incurred in the three-months ended December 31, 1999. The increase in expenses
where offset by lower labor costs, continued implementation of cost controls,
continued work management process improvements and other savings as a result of
AGL Resources' operational excellence initiatives. The variances were primarily
reflected in the following areas:

. An increase of $9.8 million in operating expenses related to VNG;
. An increase of $5.5 million in depreciation and amortization expense
related to VNG;
. An increase of $4.4 million in taxes other than income related to VNG;
. These increases were offset by a decrease of $3.2 million in payroll and
benefit related expenses as a result of reduced staffing levels at AGLC.

Page 16 of 28

Results of Operations (continued)

Non-utility. Non-utility total other operating expenses decreased $1.7 million
as compared with the same period last year primarily due the following:
. A decrease of $2.6 million in operating expenses related to the Propane
joint venture which is now accounted for under the equity method of
accounting as compared to the consolidation method of accounting
. A decrease of $1.1 million in operating expense primarily related to
Utilipro's outside service expenses incurred in the prior year as a
result of deregulation;
. These decreases were offset by a $1.8 million increase in unaffiliated
marketer related reserves.

Other Income
- ------------
Other income totaled $5.2 million for the three-months ended December 31, 2000,
compared with other income of $6.9 million for the same period last year. The
decrease in other income of $1.7 million is primarily due to the following:
. An increase of $2.2 million related to the Propane joint venture which is
now accounted for under the equity method of accounting as compared to
the consolidation method of accounting;
This increase was offset by:
. A decrease of $2.0 million as a result of increased management reserves
related to SouthStar accounts receivables; and
. A decrease of $1.6 million attributable primarily to lower recovery of
carrying costs.

Interest Expense
- ----------------
Interest expense increased to $23.2 million for the three-months ended December
31, 2000 from $12.2 million for the same period last year. The increase of $11.0
million was primarily due to increased amounts of short-term debt outstanding
during the period related to the commercial paper program which was used
primarily to finance the acquisition of VNG.

Income Taxes
- ------------
Income tax expense increased to $13.3 million for the three-months ended
December 31, 2000 from $9.6 million for the same period last year. The increase
in income taxes of $3.7 million was due primarily to an increase in income
before income taxes of $9.1 million compared to the same period last year. The
effective tax rate (income tax expense expressed as a percentage of pretax
income) for the three-months ended December 31, 2000 was 37.2% as compared to
36.0% for the same period last year.

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Page 17 of 28

Financial Condition

Seasonality of Business
- -----------------------
AGLC has Straight Fixed Variable ("SFV") rates for its gas delivery service,
which eliminates the seasonality of both revenues and expenses. However, the
operations of VNG, SouthStar, Chattanooga, as well as AGL Resources' propane
operations, are seasonal, and those businesses will likely experience greater
profitability in the winter months than in the summer months.

Financing
- ---------

In October 2000, AGL Resources established a $900 million commercial paper
program through AGL Capital Corporation. AGL Resources' commercial paper
consists of short-term unsecured promissory notes with maturities ranging from
overnight to 270 days. AGL Resources' commercial paper program is fully
supported by bank back-up credit lines. On October 6, 2000, AGL Resources issued
$660 million in commercial paper, the proceeds of which were used to finance the
VNG acquisition and to refinance existing short-term debt.

Short-term debt increased $577.4 million to $718.6 million as of December 31,
2000 from $141.2 million as of September 30, 2000.

Operating cash flow increased to $18.6 million for the three-months ended
December 31, 2000 as compared to $10.6 million for the same period last year.
The increase was primarily due to increases in accounts receivable of $95.4
million, increases in accounts payable of $21.5 million, decreases in gas cost
credits of $35.9 million, increases in other current liabilities of $23.5
million and changes in various other items.

Management believes available credit will be sufficient to meet working capital
needs both on a short and long-term basis. However, capital needs depend on many
factors and AGL Resources may seek additional financing through debt or equity
offerings in the private or public markets at any time.

Strategic Outlook
- -----------------

VNG's gas sales were a factor in earnings this quarter as a result of closing
the VNG acquisition ahead of schedule, effective October 1, 2000, and AGL
Resources' rapid integration of VNG. Although the acquisition of VNG will
increase the seasonality of AGL Resources' earnings in the future, the primary
factor in AGL Resources' performance is its focus on operational excellence.

The VNG leadership team has identified significant opportunities for cost
reduction and is deploying a number of initiatives in this regard. Such
initiatives include consolidating call operations, consolidating field offices,
reducing headcount and outsourcing of leak survey work. Additionally, many of
AGL Resources' construction practices are being implemented in Virginia,
including standard meter set locations, improved line extension policies, and
the increased use of contractors where possible for construction.

Page 18 of 28

Concentration of Credit Risk
- ----------------------------

AGLC has concentration of credit risk related to the provision of services to
certificated marketers. At September 30, 1998, AGLC billed approximately 1.4
million end-use customers in Georgia for its services. In contrast, at December
31, 2000, AGLC billed 12 certificated and active marketers in Georgia for
services, who, in turn, billed end-use customers.

Several factors are designed to mitigate the risks to AGL Resources of the
increased concentration of credit that has resulted from deregulation. First, in
order to obtain a certificate from the GPSC, a certificated marketer must
demonstrate to the GPSC, among other things, that it possesses satisfactory
financial and technical capability to render the certificated service. Second,
AGLC has instituted certain practices and imposed certain requirements designed
to reduce credit risk. These include:

. Pursuant to AGLC's tariff, each certificated marketer is required to
maintain security for its obligations to AGLC in an amount equal to at
least two times the marketer's estimated maximum monthly bill and in the
form of a cash deposit, letter of credit, surety bond or guaranty from a
creditworthy guarantor; and
. Intrastate delivery service is billed in advance rather than in arrears.

For the quarter ended December 31, 2000, the three largest certificated
marketers based on customer count, one of which was SouthStar, accounted for
approximately 37% of AGL Resources' operating revenues. From October 1, 2000
through December 31, 2000, only gas receivables attributable to Chattanooga and
Virginia were due from end-use customers.

AGLC also faces potential credit risk in connection with assignments to
certificated marketers of interstate pipeline transportation and storage
capacity. Although AGLC has assigned this capacity to the certificated
marketers, in the event that the certificated marketers fail to pay the
interstate pipelines for the capacity, the interstate pipelines would in all
likelihood seek repayment from AGLC. This risk is mitigated somewhat by the fact
that the interstate pipelines require the certificated marketers to maintain
security for their obligations to the interstate pipelines arising out of the
assigned capacity.

On October 26, 1999, Peachtree Natural Gas, LLC ("Peachtree"), the then fifth
largest certificated marketer in Georgia based on customer count, filed for
protection under Chapter 11 of the United States Bankruptcy Code. As of the date
of Peachtree's bankruptcy filing, Peachtree owed AGLC approximately $14 million
for pre-petition delivery service and other services and charges. This amount
represented approximately 15% of AGL Resources' total gas receivables at
December 31, 2000. AGLC holds $11 million of surety bonds as security for
Peachtree's obligations. The amount owed to AGLC does not include amounts owed
by Peachtree to interstate pipelines for assigned capacity. Based upon proofs of
claim filed by interstate pipelines in Peachtree's bankruptcy proceeding, as of
the date of Peachtree's filing, Peachtree owed interstate pipelines
approximately $2.5 million for assigned capacity. In December 1999, Shell Energy
Services Company, L.L.C. began serving the firm customers formerly served by
Peachtree. AGLC has been paid in full for all post-petition delivery and other
services provided by AGLC to Peachtree. Peachtree has filed a declaratory
judgment action against AGLC to determine who has right, title and interest in
and to approximately $6.2 million, constituting the proceeds of the sale of
certain natural gas inventory. In management's opinion, this marketer bankruptcy
will not have a material adverse effect on AGL Resources' financial condition or
results of operations.

Page 19 of 28

Capital Expenditures
- --------------------

Excluding VNG, capital expenditures decreased 15% over the same period last
year. Capital expenditures for construction of distribution facilities, purchase
of equipment, and other general improvements were $34.6 million for the three-
month period ended December 31, 2000 as compared to $35.3 million for the three-
month period ended December 31, 1999. The decrease of $.7 million is primarily
attributable to a $4.8 million decrease in utility capital expenditures as
compared to the same period last year as a result of accelerating AGLC's
mandatory pipeline replacement program in fiscal 2000 and a $.7 million decrease
in non-utility related capital expenditures. These decreases were partially
offset by capital expenditures incurred by VNG of $4.8 million. Typically,
funding for capital expenditures is provided through a combination of internal
and external sources.

Common Stock
- ------------

During the three-months ended December 31, 2000, AGL Resources issued 195,764
shares of common stock under ResourcesDirect, a direct stock purchase and
dividend reinvestment plan; the Retirement Savings Plus Plan; the Long-Term
Stock Incentive Plan; the Long-Term Incentive Plan; and the Non-Employee
Directors Equity Compensation Plan.

During fiscal 2000, AGL Resources repurchased the entire 3.6 million shares
authorized under the repurchase program. As a result, the average number of
shares outstanding at December 31, 2000 as compared to December 31, 1999
decreased from 56.9 million to 54.1 million, respectively.

Ratios
- ------
As of December 31, 2000, AGL Resources' capitalization ratios consisted of:

. 35.6% short-tem debt;
. 29.3% long-term debt (excluding current portion);
. 3.7% preferred securities; and
. 31.4% common equity.

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Page 20 of 28

State Regulatory Activity

Rate Structure. Historically, AGLC and most other gas distribution utilities
have employed a volumetric rate design that allows the utilities to recover the
majority of their costs through gas usage. As a result of the transition to
competition, numerous changes have occurred with respect to the services being
offered by AGLC and with respect to the manner in which AGLC prices and accounts
for those services. Consequently, AGLC's revenues and expenses do not follow
historical patterns due to the provision of delivery services to end-use
customers which are priced based upon SFV rates. The effect of SFV rates is to
spread evenly throughout the year AGLC's recovery of its delivery service costs.

Currently, AGLC bills the marketer for each residential customer's annual SFV
capacity in equal monthly installments. As required by the GPSC, effective
February 1, 2001, AGLC implemented a seasonal rate design for the calculation of
each residential customer's annual SFV capacity charge, which is billed to
certificated marketers and reflects the historic volumetric usage pattern for
the entire residential class. Generally, this change should result in
residential customers being billed by the certificated marketers for a higher
capacity charge in the winter months, and a lower charge in the summer months.
AGLC will continue to recognize its residential SFV capacity revenues for
financial reporting purposes as it has historically. Any difference between the
billings under the new seasonal rate design and the SFV revenue recognized will
be deferred and reconciled on an annual basis.

To help offset the initial impact of the seasonal rate design on end-use
customers, the GPSC approved a $40 million disbursement from the Universal
Service Fund ("USF") to residential customers, which will occur in February and
March 2001. These disbursements also will have no effect on AGLC's earnings.

AGLC Pipeline Safety. On January 8, 1998, the GPSC issued procedures and set a
schedule for hearings about alleged pipeline safety violations. On July 21,
1998, the GPSC approved a settlement between AGLC and the staff of the GPSC that
details a 10-year pipeline replacement program for approximately 2,300 miles of
cast iron and bare steel pipe. Over that 10-year period, AGLC will recover from
end-use customers, through billings to certificated marketers, the costs related
to the program net of any cost savings from the program. In addition to the
program being ahead of schedule at December 31, 2000, the program is operating
under its established budget as a result of efficiencies in engineering,
bidding, construction and project management.

During the three-months ended December 31, 2000, approximately 46 miles of pipe
were replaced pursuant to the program. During that period, AGLC's capital
expenditures and operation and maintenance expenses related to the program were
approximately $9.9 million and $1.2 million, respectively. All such amounts will
be recovered through a combination of SFV rates and a pipeline safety revenue
rider. On October 1, 1999, AGLC began recovering costs of the program through
the pipeline safety revenue rider. The amount recovered during the three-months
ended December 31, 2000 were approximately $.9 million.

Transition to Competition Costs. On October 19, 1999, the GPSC approved an order
allowing AGLC to defer certain transition to competition costs for fiscal 2000
which AGLC considered to be "stranded" as a result of deregulation. In
accordance with the GPSC order, AGLC deferred approximately $10 million in
stranded costs for fiscal 2000. These stranded costs are recorded as a
regulatory asset on AGLC's balance sheet and are being amortized over a five-
year period beginning October 1, 1999. Of the total transition to competition
costs, AGLC amortized $.5 million during the three-months ended December 31,
2000, leaving a net balance of $6.1 million at December 31, 2000.

Page 21 of 28

State Regulatory Activity (continued)

Emergency Order. On January 17, 2001, the GPSC established emergency
rulemaking regarding winter disconnections for residential gas users. This
rulemaking is in response to the high wholesale gas rates and abnormally
cold weather experienced in Georgia. Under the emergency rules adopted by
the GPSC, residential disconnections for non-payment have been suspended
until April 1, 2001. The GPSC's previous rule restricted disconnections for
24 hours when the forecasted weather was below 32 degrees. In addition, the
GPSC removed restrictions requiring delinquent bills to be paid to a
residential customer's existing marketer before a switch was allowed to a
competing marketer. Previously, a residential customer's account with their
existing marketer had to be settled before they were allowed to switch to a
competing marketer. Management does not believe that this rule change will
have a material adverse effect on AGL Resources' financial condition or
results of operations.

Weather Normalization. The TRA has authorized the use of a weather
normalization adjustment rider ("WNAR") to offset the impact of unusually
cold or warm weather on customer billings and operating margin. As a
result, Chattanooga's rates are adjusted up when weather is warmer than
normal, and down when weather is colder than normal.

VNG Acquisition. In addition to approving AGL Resources' acquisition of VNG
on July 28, 2000, the VSCC issued an order on September 25, 2000, approving
transactions between VNG and other subsidiaries of AGL Resources. The
September order permits the use of AGLS to provide VNG with shared support
services including legal, regulatory, finance, accounting, engineering, gas
control, and capacity planning services. Recovery of the costs associated
with such services will continue to be subject to the rate and regulatory
authority of the VSCC.

On November 30, 2000 the VSCC entered an order permitting VNG to obtain gas
procurement and asset management services from AGLE. The agreement covers a
period of five years commencing December 1, 2000 and includes a provision
allowing VNG's customers and AGLE to share in any revenues generated
through the management of VNG's gas assets.

Federal Regulatory Activity

FERC Order 637: Transition Costs Settlement Agreements. The Federal Energy
Regulatory Commission ("FERC") issued Order No. 637 on February 9, 2000,
which revises the FERC's rules governing the operations of the utility's
interstate pipeline suppliers. Among other things, the FERC:

. On an experimental basis through September 30, 2002, permitted
holders of firm pipeline capacity to release the capacity to other
customers at a price greater than the pipeline's maximum rate for
the same capacity;
. Authorized pipelines to propose different rates for services
rendered during periods of peak usage, and to propose rates that
would differ based on the length of a customer's contract; and
. Declined, for the present time, to permit pipelines and their
customers to establish individually negotiated terms and conditions
of service that depart from generally applicable pipeline tariff
rules.

Page 22 of 28

Federal Regulatory Activity (continued)

On May 19, 2000, the FERC issued order No. 637-A, granting and denying rehearing
in part of order No. 637, and making clarifying adjustments to its final rule.
Among other things, the FERC clarified that all capacity release transactions of
more than one month must be subject to posting and bidding as long as waiver of
the maximum rate ceiling is in effect, thereby eliminating the exemption from
posting and bidding that previously applied to certain transactions, including
rollovers of monthly prearranged capacity release transactions set at the
maximum tariff rate. On July 26, 2000, the FERC issued Order No. 637-B, denying
rehearing and granting clarification or Order No. 637-A, as well as other
aspects of its final rule. Among other things, the FERC denied the requests for
hearing of its ruling in Order No. 637-A requiring that all capacity release
transactions of more than one month must be subject to posting and bidding as
long as waiver of the maximum rate ceiling is in effect. Petitions for review of
these orders are pending in federal court. The interstate pipeline suppliers of
AGLC, Chattanooga and VNG have made filings at the FERC in order to comply with
the new rule and the Company is participating in the various Order No. 637
compliance proceedings at FERC involving these suppliers. AGL Resources cannot
predict how these revisions may affect its utility operations.

The FERC has required the utility, as well as other interstate pipeline
customers, to pay transition costs associated with the separation of the
pipeline suppliers' transportation and gas supply services. Based on its
pipeline suppliers' filings with the FERC, the utility has determined that the
total portion of its transition costs from all of its pipeline suppliers was
$108.1 million. As of September 30, 2000, all of those costs had been incurred
and were being recovered from the utility's customers under rates charged for
the distribution of gas.

AGLC is involved in three Transcontinental Gas Pipe Line Corporation rate cases,
which concern rates in effect since September 1, 1995, as well as proposed
changes to take effect prospectively. These rate proceedings are at various
stages of litigation before the FERC, and none of these proceedings are final.
At the present time, AGLC cannot predict the effect of these proceedings on
rates or operations.

On October 31, 2000, the FERC accepted, subject to refund and the outcome of a
technical conference proceeding, and suspended until April 1, 2001, Dominion
Transmission, Inc.'s proposal to collect certain additional under-recovered,
transportation-related costs through its annual Transportation Cost Rate
Adjustment ("TCRA") mechanism. Numerous parties filed protests including AGLC.
The FERC expressed concern about the atypical operation of the TCRA mechanism
and directed that a technical conference be held to address the issues raised by
the filing. A technical conference was held on January 11, 2001 and a post
technical conference comment period has been established.

On May 22, 2000, the FERC issued an order authorizing Transco to construct and
operate natural gas pipeline facilities in Alabama and Georgia, known as the
"SouthCoast Expansions Project," to provide 204,000 dekatherms per day ("dt/d")
of firm transportation service to twelve shippers. The order authorized Transco
to provide 61,160 dt/d of firm transportation service to AGLC which AGLC used to
replace existing firm transportation capacity under contracts with Tennessee Gas
Pipeline Company and East Tennessee Natural Gas Company that expired on November
1, 2000. On October 30, 2000, the FERC granted Transco's request to place the
SouthCoast Expansion facilities in service on November 1, 2000 and, effective as
of this later date, AGLC has been receiving increased service from Transco
through the new facilities.

Page 23 of 28

Environmental Matters

AGLC has two ways of recovering investigation and cleanup costs. First, the GPSC
has approved an environmental response cost recovery rider. It allows the
recovery of costs of investigation, testing, cleanup, and litigation. Because of
that rider, AGLC has recorded a regulatory asset for actual and projected future
costs related to investigation and cleanup, to be recovered from the rate payers
in future years. During the three-months ended December 31, 2000, AGLC recovered
$3.3 million through its environmental response cost recovery rider. The asset
increased by $2.6 million due to additional expenses.

Page 24 of 28

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

All financial instruments and positions held by AGL Resources described below
are held for purposes other than trading.

Interest Rate Risk
- ------------------
AGL Resources' exposure to market risk related to changes in interest rates
relates primarily to its borrowing activities. A hypothetical 10% increase or
decrease in interest rates related to AGL Resources' variable rate debt ($718.6
million outstanding as of December 31, 2000) would have a $71.9 million effect
on results of operations or financial condition over the next 12 months. The
fair value of AGL Resources' long-term debt and capital securities also are
affected by changes in interest rates. A hypothetical 10% increase or decrease
in interest rates would not have a material effect on the estimated fair value
of AGL Resources' long-term debt or capital securities. Additionally, the fair
value of outstanding long-term debt and capital securities has not materially
changed since December 31, 2000. During the three-months ended December 31,
2000, AGL Resources repaid $141.2 million of short-term debt through the
issuance of commercial paper.

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Page 25 of 28

PART II -- OTHER INFORMATION

"Part II -- Other Information" is intended to supplement information contained
in the Annual Report on Form 10-K for the fiscal year ended September 30, 2000,
and should be read in conjunction therewith.

ITEM 1. LEGAL PROCEEDINGS

With regard to legal proceedings, AGL Resources is a party, as both plaintiff
and defendant, to a number of suits, claims and counterclaims on an ongoing
basis. (See State Regulatory Activity, Federal Regulatory Activity, and
Environmental Matters contained in Item 2 of Part I under the caption
"Management's Discussion and Analysis of Results of Operations and Financial
Condition.") Management believes that the outcome of all litigation in which it
is involved will not have a material adverse effect on the consolidated
financial statements of AGL Resources.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

Information related to State Regulatory Activity, Federal Regulatory Activity,
and Environmental Matters is contained in Item 2 of Part I under the caption
"Management's Discussion and Analysis of Results of Operations and Financial
Condition."

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Page 26 of 28

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

18 Independent Auditor's preferability letter concerning a change in
accounting method.

27 Financial Data Schedule.

(b) Reports on Form 8-K.

On November 17, 2000, AGL Resources Inc. filed a Current Report on Form 8-K
dated November 17, 2000, reporting information pursuant to Item 7(a)
(Financial Statements of Business Acquired), Item 7(b) (Pro Forma Financial
Information), Item 7(c) (Exhibits) and Item 9 (Regulation FD Disclosure) of
Form 8-K.

On December 20, 2000, AGL Resources Inc. filed a Current Report on Form 8-
K/A dated December 20, 2000, amending Item 7(a) (Financial Statements of
Businesses Acquired), Item 7(b) (Pro Forma Financial Information) and Item
7(c) (Exhibits) of a Current Report on Form 8-K filed with the Securities
and Exchange Commission on October 18, 2000 in connection with AGL Resources
Inc.'s acquisition of VNG. The October 18, 2000 Report on Form 8-K reported
information pursuant to Item 2 (Acquisition or Disposition of Assets) and
Item 7 (Financial Statements and Exhibits) of Form 8-K in connection with
the acquisition of VNG.

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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.

AGL Resources Inc.
------------------------------
(Registrant)

Date February 9, 2001 /s/ Donald P. Weinstein
-------------------------------
Donald P. Weinstein
Senior Vice President and Chief Financial
Officer
(Principal Accounting and Financial Officer)

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