Filed pursuant to Rule 424(b)(2)
Registration No. 333-53020
Registration No. 333-53020-01

PROSPECTUS SUPPLEMENT
(To prospectus dated February 15, 2001)

$300,000,000
AGL Capital Corporation

7 1/8% Senior Notes due 2011
Guaranteed fully and unconditionally by
AGL Resources Inc.
[AGL Resources Inc. logo]

---------------

We will pay interest on the senior notes on January 14 and July 14 of
each year, beginning July 14, 2001. The senior notes will not be redeemable
prior to maturity and are not entitled to any sinking fund.

The senior notes will be unsecured and will rank equally with all of our
other unsecured, unsubordinated indebtedness. The senior notes will be issued
in book entry form in denominations of $1,000.

---------------

Per Senior Note Total
--------------- -----

Public offering price(1).......................... 99.578% $298,734,000

Underwriting discount............................. .65% $1,950,000

Proceeds, before expenses, to AGL Capital
Corporation...................................... 98.928% $296,784,000

(1) Plus accrued interest from March 1, 2001, if settlement occurs after
that date

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus supplement or the accompanying prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.

The senior notes will be ready for delivery in book-entry form only
through The Depository Trust Company on or about March 1, 2001.

---------------

Merrill Lynch & Co. SunTrust Equitable Securities
Morgan Stanley Dean Witter Wachovia Securities, Inc.
BNY Capital Markets Banc One Capital Markets, Inc.
Credit Lyonnais Securities Fleet Securities, Inc.
Scotia Capital Tokyo-Mitsubishi International plc

---------------

The date of this prospectus supplement is February 23, 2001.

TABLE OF CONTENTS

Prospectus Supplement

Page
----

The Offering............................................................... S-3
The Company................................................................ S-4
Use of Proceeds............................................................ S-5
Capitalization............................................................. S-5
Description of Senior Notes................................................ S-6
Underwriting............................................................... S-7
Legal Matters.............................................................. S-9
Index to Financial Information............................................. F-1

Prospectus
About this Prospectus...................................................... 1
Where You Can Find More Information........................................ 1
Incorporation of Certain Documents by Reference............................ 2
Risk Factors............................................................... 2
Forward-Looking Statements................................................. 3
The Company................................................................ 3
Use of Proceeds............................................................ 5
Ratio of Earnings to Fixed Charges......................................... 5
Description of Debt Securities............................................. 5
Plan of Distribution....................................................... 13
Legal Matters.............................................................. 13
Experts.................................................................... 14

----------------

You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus supplement, the accompanying
prospectus and the documents incorporated by reference is accurate only as of
their respective dates. Our business, financial condition, results of
operations and prospects may have changed since those dates.

S-2

The Offering

The following is a brief summary of certain terms of this offering. For a
more complete description of the terms of the senior notes, see "Description of
Senior Notes" in this prospectus supplement.

Issuer................................. AGL Capital Corporation, guaranteed
fully and unconditionally by AGL
Resources Inc.

Aggregate Principal Amount............. $300,000,000

Interest Rate.......................... 7 1/8% per year.

Maturity Date.......................... January 14, 2011.

Interest Payment Dates................. January 14 and July 14 of each year,
beginning July 14, 2001.

Record Dates........................... December 31 and June 30 of each year.

Interest Calculations.................. Based on a 360-day year of twelve 30-
day months.

Ranking................................ The senior notes will rank equally
with all of our other unsecured and
unsubordinated indebtedness.

Sinking Fund........................... None.

Form and Denominations................. The senior notes initially will be
issued in book-entry form and will be
represented by one or more registered
global securities deposited with or
on behalf of, and registered in the
name of, a nominee of The Depository
Trust Company. The senior notes will
be issued in denominations of $1,000
and integral multiples thereof.

Use of Proceeds........................ The proceeds from the sale of the
senior notes will be used to reduce
outstanding short-term debt
obligations, including debt incurred
through our commercial paper program
and for other proper corporate
purposes.

S-3

THE COMPANY

AGL Resources is the holding company for:

. Atlanta Gas Light Company, a natural gas local distribution utility;

. Virginia Natural Gas, Inc., a natural gas local distribution utility
acquired on October 1, 2000;

. Chattanooga Gas Company, a natural gas local distribution utility;

. AGL Energy Services, LLC, a gas supply services company;

. AGL Services Company, a service company established in accordance
with the Public Utility Holding Company Act of 1935; and

. Several non-utility subsidiaries, including AGL Capital Corporation.

Atlanta Gas Light Company conducts its primary business, the distribution
of natural gas, in Georgia including Atlanta, Athens, Augusta, Brunswick,
Macon, Rome, Savannah and Valdosta. Chattanooga Gas Company distributes natural
gas in the Chattanooga and Cleveland areas of Tennessee. Virginia Natural Gas
distributes natural gas in the Hampton Roads region of Virginia. The Georgia
Public Service Commission regulates Atlanta Gas Light Company, the Tennessee
Regulatory Authority regulates Chattanooga Gas Company and the Virginia State
Corporation Commission regulates Virginia Natural Gas. AGL Energy Services
provides asset management services for AGL Resources' regulated and unregulated
operations, as well as for unaffiliated retail gas marketers. Atlanta Gas Light
Company, Chattanooga Gas Company and Virginia Natural Gas comprise
substantially all of AGL Resources' assets, revenues and earnings.

AGL Resources owns or has an interest in the following non-utility
businesses:

. SouthStar Energy Services LLC (50% owned by AGL Resources), 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., in which AGL Resources has a 100% ownership
interest, manages certain non-utility businesses including:

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

. Utilipro, Inc., in which AGL Resources currently has a 100%
ownership interest, engages in the sale of integrated customer
care solutions and billing services to energy marketers in the
United States; and

. AGL Networks, LLC, which will install, and lease to third-party
operators, conduit and fiber optic cable. AGL Networks was
incorporated 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. (100% owned by AGL Resources), which owns
a 50% interest in Etowah LNG Company, LLC, 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

S-4

. AGL Capital Corporation (100% owned by AGL Resources), which was
established to finance the acquisition of Virginia Natural Gas, to
refinance existing short-term debt and to provide working capital to
AGL Resources and its subsidiaries through a commercial paper program
and other financing mechanisms.

AGL Resources' principal executive offices are located at 817 West
Peachtree Street, N.W., Atlanta, Georgia 30308 (telephone: (404) 584-9470). AGL
Capital Corporation's principal address is 2325-B Renaissance Drive, Las Vegas,
Nevada 89119.

USE OF PROCEEDS

We anticipate using the net proceeds to be received from the sale of the
senior notes of approximately $296,381,500 to reduce outstanding short-term
debt obligations, including debt incurred through our commercial paper program
and for other proper corporate purposes.

CAPITALIZATION

The following table sets forth the capitalization of AGL Resources Inc.
and its subsidiaries as of December 31, 2000 and as adjusted to give effect to
the sale of $300.0 million of senior notes as well as the application of the
net proceeds of the offering to pay short-term debt obligations. The following
information should be read together with the financial information and notes
thereto beginning on page F-1 of this prospectus supplement.

Consolidated Capitalization
(Dollars in Millions)

As of December 31, 2000
---------------------------------
Actual Pro-Forma
---------------- ----------------
Amount Percent Amount Percent
-------- ------- -------- -------

Short-Term Debt(1)(2)....................... $ 718.6 35.3% $ 422.2 20.7%
Current Portion of Long-Term Debt(2)........ 20.0 .9 20.0 .9
Long-Term Debt(1)........................... 590.0 29.0 886.4 43.6
Preferred Securities........................ 74.3 3.7 74.3 3.7
Common Stockholders Equity (less shares held
in Treasury)............................... 632.5 31.1 632.5 31.1
-------- ----- -------- -----
$2,035.4 100.0% $2,035.4 100.0%
======== ===== ======== =====

- --------

(1) Proposed financing of $296.4 million in long-term debt to pay down $296.4
million of short-term commercial paper.

(2) In February 2001, AGL Resources refinanced the $20.0 million current
portion of long-term debt with $20.0 million of short-term commercial
paper. This transaction is not reflected in the table above.

S-5

General

The senior notes will bear interest at the annual rate stated on the
cover page of this prospectus supplement. Interest will be payable on January
14 and July 14, beginning on July 14, 2001. Interest on the senior notes will
accrue from March 1, 2001. Interest will be paid to the person in whose name a
senior note is registered at the close of business on the preceding December 31
and June 30, respectively, subject to certain exceptions. The senior notes will
mature on January 14, 2011.

Denominations

The senior notes will be issued in global form in denominations of $1,000
and integral multiples of $1,000.

DESCRIPTION OF SENIOR NOTES

We will issue the senior notes under the Indenture, dated as of February
20, 2001 (the "Indenture"), by and among AGL Capital Corporation, as Issuer,
ALG Resources Inc. as Guarantor and The Bank of New York, as Trustee. The
Indenture is more fully described under the caption "Description of Debt
Securities" in the accompanying prospectus. The following description of the
particular terms of the senior notes supplements, and to the extent
inconsistent therewith replaces, the description of the general terms and
provisions of our debt securities included in the accompanying prospectus under
the caption "Description of Debt Securities." The senior notes comprise all of
the $300,000,000 aggregate principal amount of debt securities we registered
under the Securities Act of 1933 in December 2000.

Ranking of Senior Notes

The senior notes will rank equally in right of payment with each other
and our other unsecured and unsubordinated obligations.

Book Entry System

The notes initially will be represented by one or more global securities
deposited with The Depository Trust Company and registered in the name of DTC's
nominee. DTC will credit on its book-entry registration and transfer system the
accounts of persons designated by the underwriters with the respective
principal amounts of the notes represented by the global security. Ownership of
beneficial interests in a global security is limited to persons that have
accounts with DTC or its nominee ("participants") or persons that may hold
interests through participants. Ownership of beneficial interests will be shown
on, and the transfer of that ownership may be effected only through, records
maintained by DTC or its nominee (for interests of persons who are
participants) and records maintained by participants (for interests of persons
who are not participants). The laws of some states require that certain
purchasers of securities take physical delivery of the securities in definitive
form. Those limits and laws may impair a purchaser's ability to transfer
beneficial interests in a global security.

DTC or its nominee will be considered the sole owner or holder of the
senior notes represented by a global security for all purposes under the
Indenture. Except as provided below, owners of beneficial interests in a global
security will not be entitled to have notes represented by the global security
registered in their names, will not receive or be entitled to receive physical
delivery of notes, and will not be considered the owners of record or holders
of notes under the Indenture.

We will make principal and interest payments on notes registered in the
name of DTC or its nominee to DTC or its nominee as the registered holder of
the relevant global security. None of us, the Trustee, any paying agent nor the
registrar for the notes will have any responsibility or liability for any
aspect of the records

S-6

relating to, or payment made on account of, beneficial interests in a global
security or for maintaining, supervising or reviewing any records relating to
such beneficial interests.

We expect that DTC or its nominee, upon receipt of any payment of
principal or interest, will credit immediately participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of the relevant global security as shown on the records of
DTC or its nominee. We also expect that payments by participants to owners of
beneficial interests in a global security held through such participants will
be governed by standing instructions and customary practices, as is the case
with securities held for the accounts of customers in bearer form or registered
in "street name," and will be the responsibility of such participants.

If DTC at any time is unwilling or unable to continue as a depository and
we do not appoint a successor depository within 90 days, we will issue notes in
definitive form in exchange for the entire global security. In addition, we may
at any time and in our sole discretion determine not to have notes represented
by a global security and, in such event, we will issue notes in definitive form
in exchange for the entire global security. In any such instance, an owner of a
beneficial interest in a global security will be entitled to physical delivery
in definitive form of notes represented by such global security equal in
principal amount to such beneficial interest and to have such notes registered
in the owner's name. Notes so issued in definitive form will be issued as
registered notes in denominations of $1,000 and integral multiples thereof,
unless we specify otherwise.

The information in this section concerning DTC and its book-entry system
has been obtained from sources that we believe to be reliable, but we do not
take responsibility for its accuracy.

UNDERWRITING

We intend to offer the notes through the underwriters. Merrill Lynch,
Pierce, Fenner & Smith Incorporated and SunTrust Equitable Securities
Corporation are acting as representatives of the underwriters named below.
Subject to the terms and conditions contained in a purchase agreement between
us and the underwriters, we have agreed to sell to the underwriters and the
underwriters severally have agreed to purchase from us, the principal of the
notes listed opposite their names below.

Principal
Underwriter Amount
----------- ---------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.............................................. $ 90,000,000

SunTrust Equitable Securities Corporation.......................... 90,000,000
Morgan Stanley & Co., Incorporated................................. 37,500,000
Wachovia Securities, Inc. ......................................... 37,500,000
BNY Capital Markets, Inc. ......................................... 7,500,000
Banc One Capital Markets, Inc. .................................... 7,500,000
Credit Lyonnais Securities (USA) Inc............................... 7,500,000
Fleet Securities, Inc.............................................. 7,500,000
Scotia Capital (USA) Inc. ......................................... 7,500,000
Tokyo-Mitsubishi International plc................................. 7,500,000
------------
Total......................................................... $300,000,000
============

The several underwriters have agreed, subject to the terms and conditions
included in the underwriting agreement, to purchase all of the senior notes
sold under the agreement, if any of the senior notes being sold under the
agreement are purchased. In the event of a default by an underwriter, the
underwriting agreement

S-7

provides that, in certain circumstances, the purchase commitments of the
nondefaulting underwriters may be increased or the underwriting agreement may
be terminated.

We have agreed to indemnify the underwriters against certain liabilities,
including certain liabilities under the Securities Act, or to contribute to
payments the underwriters may be required to make in respect of those
liabilities.

The underwriters are offering the senior notes, subject to prior sale,
when, as and if issued to and accepted by them, subject to approval of legal
matters by their counsel, including the validity of the senior notes, and other
conditions contained in the purchase agreement, such as the receipt by the
underwriters of officer's certificates and legal opinions. The underwriters
reserve the right to withdraw, cancel or modify offers to the public and to
reject orders in whole or in part.

It is expected that delivery of the senior notes will be made against
payment on or about March 1, 2001, which will be the fourth business day in the
United States following the date of this prospectus supplement ("T+4"). Under
Rule 15c6-1 under the Exchange Act, trades in the secondary market generally
are required to settle in three business days, unless the parties to any such
trade expressly agree otherwise. Accordingly, purchasers who wish to trade the
senior notes on the date of this prospectus supplement will be required, by
virtue of the fact that the senior notes initially will settle in T+4, to
specify an alternate settlement cycle at the time of any such trade to prevent
a failed settlement. Purchasers of the senior notes which wish to trade the
senior notes on the date of this prospectus supplement should consult their own
advisors.

Any sales to U.S. investors by Tokyo-Mitsubishi International plc will be
made through its affiliate, Tokyo-Mitsubishi Securities (USA), Inc.

Commissions and Discounts

The underwriters have advised us that they propose initially to offer the
senior notes to the public at the public offering price on the cover page of
this prospectus supplement, and to dealers at that price less a concession not
in excess of .4% of the principal amount of the senior notes. The underwriters
may allow, and the dealers may reallow, a discount not in excess of .25% of the
principal amount of the senior notes to other dealers. After the initial public
offering, the public offering price, concession and discount may be changed.

The expenses of the offering, not including the underwriting discount,
are estimated to be $402,500 and are payable by us.

New Issue of Notes

The senior notes are a new issue of securities with no established
trading market. We do not intend to apply for listing of the senior notes on
any national securities exchange or for quotation of the senior notes on any
automated dealer quotation system. We have been advised by the underwriters
that they presently intend to make a market in the senior notes after
completion of the offering. However, they are under no obligation to do so and
may discontinue any market-making activities at any time without any notice. We
cannot assure the liquidity of the trading market for the senior notes or that
an active public market for the senior notes will develop. If an active public
trading market for the senior notes does not develop, the market price and
liquidity of the senior notes may be adversely affected.

Price Stabilization and Short Positions

In connection with the offering, the underwriters are permitted to engage
in transactions that stabilize the market price of the senior notes. Such
transactions consist of bids or purchases to peg, fix or maintain the price of
the senior notes. If the underwriters create a short position in the senior
notes in connection with the

S-8

offering, i.e., if they sell more senior notes than are on the cover page of
this prospectus, the underwriters may reduce that short position by purchasing
senior notes in the open market. Purchases of a security to stabilize the price
or to reduce a short position could cause the price of the security to be
higher than it might be in the absence of such purchases.

Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the senior notes. In addition, neither
we nor any of the underwriters makes any representation that the underwriters
will engage in these transactions or that these transactions, once commented,
will not be discontinued without notice.

Other Relationships

Some of the underwriters and their affiliates have engaged in, and may in
the future engage in, investment banking and other commercial dealings in the
ordinary course of business with us. They have received customary fees and
commissions for these transactions.

LEGAL MATTERS

Legal matters regarding the validity of the senior notes offered under
this prospectus supplement will be passed upon on our behalf by our counsel,
Long Aldridge & Norman LLP, Atlanta, Georgia, and with regard to the laws of
the State of Nevada, Marshall Hill Cassas & de Lipkau, Reno, Nevada. Various
legal matters relating to the offering will be passed on for the underwriters
by Simpson Thacher & Bartlett, New York, New York.

S-9

AGL RESOURCES INC. AND SUBSIDIARIES

INDEX TO FINANCIAL INFORMATION

Contents

Page
----

Financial Information Related to the Three-Months Ended December 31, 2000
(Unaudited)
Condensed Statements of Consolidated Income for the Three-Months Ended
December 31, 2000 and 1999 (Unaudited).................................. F-2
Condensed Consolidated Balance Sheets as of December 31, 2000 (Unaudited)
and September 30, 2000.................................................. F-3
Condensed Consolidated Statements of Cash Flows for the Three-Months
Ended December 31, 2000 and 1999 (Unaudited)............................ F-5
Notes to Condensed Consolidated Financial Statements (Unaudited)......... F-6
Selected Financial Analysis of Results of Operations and Financial Condi-
tion Related to the
Three-Months Ended December 31, 2000 (Unaudited)........................ F-12

Consolidated Balance Sheets of AGL Resources Inc. and Subsidiaries as of
September 30, 2000 and 1999 and the Related Statements of Consolidated
Income, Common Stockholders' Equity and Cash Flows for Each of the Three
Years in the Period Ended September 30, 2000
Consolidated Balance Sheets as of September 30, 2000 and 1999............ F-22
Statements of Consolidated Income for the Years Ended September 30, 2000,
1999 and 1998........................................................... F-24
Statements of Consolidated Common Stockholders' Equity for the Years
Ended September 30, 2000, 1999 and 1998................................. F-25
Statements of Consolidated Cash Flows for the Years Ended September 30,
2000, 1999 and 1998..................................................... F-26
Notes to Consolidated Financial Statements related to the Years Ended
September 30, 2000, 1999 and 1998....................................... F-27

F-1

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.

F-2

AGL RESOURCES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)

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

ASSETS
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.

F-3

AGL RESOURCES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)

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

LIABILITIES AND CAPITALIZATION
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.

F-4

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.

F-5

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.

F-6

AGL RESOURCES INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(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.

F-7

AGL RESOURCES INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(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.

F-8

AGL RESOURCES INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued)

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.

F-9

AGL RESOURCES INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued)

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.

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

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

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.

F-10

AGL RESOURCES INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(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
======

F-11

AGL RESOURCES INC. AND SUBSIDIARIES

SELECTED FINANCIAL ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION RELATED TO THE THREE-MONTHS ENDED DECEMBER 31, 2000
(UNAUDITED)

Results of Operations

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.

F-12

AGL RESOURCES INC. AND SUBSIDIARIES

SELECTED FINANCIAL ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION RELATED TO THE THREE-MONTHS ENDED DECEMBER 31, 2000
(UNAUDITED)--(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
were 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.

F-13

AGL RESOURCES INC. AND SUBSIDIARIES

SELECTED FINANCIAL ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION RELATED TO THE THREE-MONTHS ENDED DECEMBER 31, 2000
(UNAUDITED)--(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.

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

F-14

AGL RESOURCES INC. AND SUBSIDIARIES

SELECTED FINANCIAL ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION RELATED TO THE THREE-MONTHS ENDED DECEMBER 31, 2000
(UNAUDITED)--(Continued)

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.

Concentration of Credit Risk

F-15

AGL RESOURCES INC. AND SUBSIDIARIES

SELECTED FINANCIAL ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION RELATED TO THE THREE-MONTHS ENDED DECEMBER 31, 2000
(UNAUDITED)--(Continued)

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.

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

F-16

AGL RESOURCES INC. AND SUBSIDIARIES

SELECTED FINANCIAL ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION RELATED TO THE THREE-MONTHS ENDED DECEMBER 31, 2000
(UNAUDITED)--(Continued)

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

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.

F-17

AGL RESOURCES INC. AND SUBSIDIARIES

SELECTED FINANCIAL ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION RELATED TO THE THREE-MONTHS ENDED DECEMBER 31, 2000
(UNAUDITED)--(Continued)

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.

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

F-18

AGL RESOURCES INC. AND SUBSIDIARIES

SELECTED FINANCIAL ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION RELATED TO THE THREE-MONTHS ENDED DECEMBER 31, 2000
(UNAUDITED)--(Continued)

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.

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.

F-19

AGL RESOURCES INC. AND SUBSIDIARIES

SELECTED FINANCIAL ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION RELATED TO THE THREE-MONTHS ENDED DECEMBER 31, 2000
(UNAUDITED)--(Continued)

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.

Environmental Matters

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

F-20

AGL RESOURCES INC. AND SUBSIDIARIES

SELECTED FINANCIAL ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION RELATED TO THE THREE-MONTHS ENDED DECEMBER 31, 2000
(UNAUDITED)--(Continued)

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 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.

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.

F-21

AGL RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS--ASSETS
(IN MILLIONS)

For the years ended
September 30,
-------------------
2000 1999
--------- ---------

CURRENT ASSETS
Cash and cash equivalents............................................. $ 2.0 $ 32.9

Receivables
Gas (less allowance for uncollectible accounts of $3.1 in 2000 and
$2.4 in 1999)...................................................... 29.9 36.0
Other (less allowance for uncollectible accounts of $5.2 in 2000 and
$1.9 in 1999)...................................................... 13.4 9.8
Unbilled revenues..................................................... 1.7 6.0
Refundable income taxes............................................... 8.1 --

Inventories
Natural gas stored underground...................................... 27.7 47.3
Liquefied natural gas............................................... 2.1 6.7
Materials and supplies.............................................. 6.2 9.3
Other............................................................... 1.2 3.6
Other current assets.................................................. 7.4 7.0
--------- ---------
Total current assets................................................ 99.7 158.6
--------- ---------

PROPERTY, PLANT, AND EQUIPMENT
Utility plant......................................................... 2,371.5 2,274.3
Less accumulated depreciation......................................... 791.8 757.1
--------- ---------
Utility plant--net.................................................. 1,579.7 1,517.2
--------- ---------
Non-utility property.................................................. 88.2 116.7
Less accumulated depreciation......................................... 30.4 35.0
--------- ---------
Non-utility property--net........................................... 57.8 81.7
--------- ---------
Total property, plant, and equipment--net........................... 1,637.5 1,598.9
--------- ---------

DEFERRED DEBITS AND OTHER ASSETS
Unrecovered environmental response costs.............................. 164.6 150.2
Investments in joint ventures......................................... 78.8 28.2
Unrecovered postretirement benefits costs............................. 7.9 8.5
Other................................................................. 31.4 26.0
--------- ---------
Total deferred debits and other assets.............................. 282.7 212.9
--------- ---------

TOTAL ASSETS............................................................ $ 2,019.9 $ 1,970.4
========= =========

See Notes to Consolidated Financial Statements.

F-22

AGL RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS--LIABILITIES AND CAPITALIZATION
(IN MILLIONS)

For the years ended
September 30,
-------------------
2000 1999
--------- ---------

CURRENT LIABILITIES
Short-term debt.......................................... $ 141.2 $ 1.5
Accounts payable--trade.................................. 34.0 31.3
Interest................................................. 21.5 26.0
Current portion of long-term debt........................ 20.0 50.0
Wages and salaries....................................... 15.3 10.5
Other accrued liabilities................................ 20.2 33.2
Customer deposits........................................ 1.8 7.4
Gas cost credits......................................... -- 37.9
Other.................................................... 30.8 26.2
--------- ---------
Total current liabilities.............................. 284.8 224.0
--------- ---------
ACCUMULATED DEFERRED INCOME TAXES.......................... 249.6 211.3
--------- ---------
LONG-TERM LIABILITIES
Accrued environmental response costs..................... 111.7 102.4
Accrued postretirement benefits costs.................... 31.9 32.4
Accrued pension costs.................................... 6.7 5.3
Capital leases........................................... 1.0 --
--------- ---------
Total long-term liabilities............................ 151.3 140.1
--------- ---------
DEFERRED CREDITS
Unamortized investment tax credit........................ 23.2 24.5
Regulatory tax liability................................. 15.5 16.4
Other.................................................... 10.3 8.3
--------- ---------
Total deferred credits................................. 49.0 49.2
--------- ---------

COMMITMENTS AND CONTINGENCIES (Notes 10 and 12)

CAPITALIZATION
Long-term debt........................................... 590.0 610.0
Subsidiary obligated mandatorily redeemable preferred
securities.............................................. 74.3 74.3
Common stockholders' equity (See accompanying statements
of consolidated common stockholders' equity)............ 620.9 661.5
--------- ---------
Total capitalization................................... 1,285.2 1,345.8
--------- ---------
TOTAL LIABILITIES AND CAPITALIZATION....................... $ 2,019.9 $ 1,970.4
========= =========

See Notes to Consolidated Financial Statements.

F-23

AGL RESOURCES INC. AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED INCOME FOR THE THREE YEARS ENDED
SEPTEMBER 30, 2000, 1999 AND 1998
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

2000 1999 1998
------ -------- --------

Operating Revenues................................... $607.4 $1,070.7 $1,340.1
Cost of Sales........................................ 111.9 544.7 796.0
------ -------- --------
OPERATING MARGIN................................... 495.5 526.0 544.1
------ -------- --------
Other Operating Expenses
Operation and maintenance........................... 247.8 268.2 278.0
Depreciation........................................ 83.2 78.8 71.1
Taxes other than income taxes....................... 26.7 24.4 27.4
------ -------- --------
Total other operating expenses..................... 357.7 371.4 376.5
------ -------- --------
OPERATING INCOME................................... 137.8 154.6 167.6
Other Income (Loss).................................. 15.1 (17.6) 12.9
Gain on Sales of Joint Venture Interests............. -- 35.6 --
Gain on Propane Transaction.......................... 13.1 -- --
Interest Expense and Preferred Stock Dividends
Interest expense.................................... 51.6 53.0 54.4
Dividends on preferred stock of subsidiary.......... 6.1 6.1 6.7
------ -------- --------
Total interest expense and preferred stock divi-
dends........................................... 57.7 59.1 61.1
------ -------- --------
INCOME BEFORE INCOME TAXES......................... 108.3 113.5 119.4
Income Taxes......................................... 37.2 39.1 38.8
------ -------- --------
NET INCOME......................................... $ 71.1 $ 74.4 $ 80.6
====== ======== ========
EARNINGS PER COMMON SHARE (NOTE 1)
Basic............................................... $ 1.29 $ 1.30 $ 1.41
Diluted............................................. $ 1.29 $ 1.29 $ 1.41
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
(NOTE 1)
Basic............................................... 55.2 57.4 57.0
Diluted............................................. 55.2 57.4 57.1

See Notes to Consolidated Financial Statements.

F-24

AGL RESOURCES INC. AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED COMMON STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
(IN MILLIONS)

2000 1999 1998
------ ------ ------

COMMON STOCK
$5 par value; authorized 100.0 shares; issued, 57.8
in 2000, 57.8 in 1999, and 57.3 in 1998
Beginning of year.................................... $289.2 $286.6 $283.1
Benefit, stock compensation, stock award
forfeitures, dividend reinvestment, and stock
purchase plans.................................... (0.1) 2.6 3.5
------ ------ ------
End of year.......................................... 289.1 289.2 286.6
------ ------ ------
PREMIUM ON COMMON STOCK
Beginning of year.................................... 200.0 193.0 183.6
Benefit, stock compensation, dividend reinvestment,
and stock purchase plans.......................... -- 7.5 9.4
Gain on issuance of treasury stock................. 0.2 -- --
Minority interest in capital contributed to
subsidiary........................................ -- (0.5) --
------ ------ ------
End of year.......................................... 200.2 200.0 193.0
------ ------ ------
EARNINGS REINVESTED
Beginning of year.................................... 186.7 174.5 155.4
Net income......................................... 71.1 74.4 80.6
Loss on issuance of treasury stock................. (0.2) (0.1) --
Common Stock dividends ($1.08 per share in 2000,
1999, and 1998)................................... (59.8) (62.1) (61.5)
------ ------ ------
End of year.......................................... 197.8 186.7 174.5
------ ------ ------
SHARES HELD IN TREASURY (AT COST)
3.8 shares in 2000 and 0.7 shares in 1999
Beginning of year.................................... (14.4) -- --
Repurchase of shares............................... (62.1) (16.1) --
Issuance of treasury stock......................... 10.3 1.7 --
------ ------ ------
End of year.......................................... (66.2) (14.4) --
------ ------ ------
TOTAL COMMON STOCKHOLDERS' EQUITY...................... $620.9 $661.5 $654.1
====== ====== ======

See Notes to Consolidated Financial Statements.

F-25

AGL RESOURCES, INC. AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED CASH FLOWS FOR THE THREE YEARS ENDED
SEPTEMBER 30, 2000, 1999 AND 1998
(IN MILLIONS)

2000 1999 1998
------- ------- -------

CASH FLOWS FROM OPERATING ACTIVITIES
Net income......................................... $ 71.1 $ 74.4 $ 80.6
Adjustments to reconcile net income to net cash
flow from operating activities
Gain on propane transaction....................... (13.1) -- --
Gain on sale of joint venture interests........... -- (35.6) --
Depreciation and amortization..................... 84.4 81.8 75.7
Deferred income taxes............................. 37.1 9.0 11.3
Provision for write-down of assets................ -- -- 13.9
Other............................................. -- (2.0) 2.0
Changes in certain assets and liabilities
Receivables....................................... (1.3) 71.0 (29.6)
Inventories....................................... 29.7 103.5 13.1
Deferred purchase gas adjustment.................. (2.7) (11.7) 17.4
Gas cost credits.................................. (37.9) 37.9 --
Accounts payable.................................. 2.7 (17.1) (13.8)
Customer deposits................................. (5.6) (23.1) 1.3
Environmental response costs--net................. (5.1) (17.2) (12.9)
Accrued taxes..................................... (13.5) 21.1 (9.0)
Other--net........................................ 5.8 (25.0) 27.5
------- ------- -------
Net cash flow from operating activities.......... 151.6 267.0 177.5
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net payments and borrowings of short-term debt..... 139.7 (75.0) 47.0
Payments of long-term debt......................... (50.0) -- --
Sale of common stock, net of expenses and non-cash
dividends......................................... -- 1.2 0.9
Redemptions of preferred securities................ -- -- (44.5)
Purchase of treasury shares........................ (62.1) (16.1) --
Sale of treasury shares, net of non-cash
dividends......................................... 1.6 0.3 --
Dividends paid on common stock..................... (51.2) (52.8) (51.6)
------- ------- -------
Net cash used in financing activities............ (22.0) (142.4) (48.2)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Utility plant expenditures......................... (145.7) (128.7) (96.7)
Non-utility property expenditures.................. (12.1) (18.6) (22.5)
Cash received from sale of joint venture
interests......................................... -- 65.0 --
Cash received from propane transaction............. 9.1 -- --
Net investment in joint ventures................... (4.5) (4.4) (12.9)
Cash (provided to) received from joint ventures.... (8.7) 1.8 3.0
Other.............................................. 1.4 (7.7) (4.1)
------- ------- -------
Net cash used in investing activities............ (160.5) (92.6) (133.2)
------- ------- -------
Net increase (decrease) in cash and cash
equivalents..................................... (30.9) 32.0 (3.9)
Cash and cash equivalents at beginning of year... 32.9 0.9 4.8
------- ------- -------
Cash and cash equivalents at end of year......... $ 2.0 $ 32.9 $ 0.9
======= ======= =======
CASH PAID DURING THE YEAR FOR
Interest........................................... $ 56.1 $ 60.5 $ 51.5
Income taxes....................................... $ 24.2 $ 17.0 $ 39.2

See Notes to Consolidated Financial Statements.

F-26

AGL RESOURCES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

Nature of Our Business

AGL Resources Inc. is the registered holding company for:

. Atlanta Gas Light Company ("AGLC"), 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;
and

. Several non-utility subsidiaries.

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

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. The Georgia Public Service Commission ("GPSC")
regulates AGLC, and the Tennessee Regulatory Authority ("TRA") regulates
Chattanooga. AGLE is a non-regulated company that bought and sold the natural
gas that was supplied to AGLC's customers during the deregulation transition
period to full competition in Georgia. Currently, AGLE buys and sells natural
gas for Chattanooga's customers.

As of September 30, 2000, AGLC and Chattanooga comprised substantially
all of AGL Resources' assets, revenues, and earnings. The operations and
activities of AGLC, AGLE, and Chattanooga, collectively, are referred to as the
"utility." The utility's total other operating expenses include costs allocated
from AGL Resources Inc.

As of September 30, 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 incorporated 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.

F-27

AGL RESOURCES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

. 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 Virginia Natural Gas, Inc. ("VNG"), refinance existing
short-term debt and provide working capital to AGL Resources and its
subsidiaries through a commercial paper program and other debt
facilities.

Virginia Natural Gas

The acquisition was accounted for as a purchase for financial accounting
purposes and as a result VNG's operations will be 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.

Propane Operations

On February 15, 2000, AGL Resources entered into a definitive agreement
to combine its propane operations with the propane operations of Atmos Energy
Corporation, Piedmont Natural Gas Company, and TECO Energy, Inc. The joint
venture, which is called US Propane, subsequently combined US Propane's
operations with Heritage Propane. The transactions were closed on August 10,
2000. Through these transactions, US Propane acquired ownership of the general
partner, as well as certain limited partner units, of Heritage Propane, a
master limited partnership that distributes propane to over 480,000 customers
in 28 states. As a result of these transactions, AGL Resources recognized a
pre-tax and after-tax gain of $13.1 million and $10.7 million, respectively.

Regulation of the Utility Business

The GPSC and the TRA regulate the utility business with respect to rates,
maintenance of accounting records, and various other matters. Generally, the
same accounting policies and practices utilized by non-utility companies are
utilized by the utility for financial reporting under accounting principles
generally accepted in the United States of America. However, sometimes the GPSC
and the TRA order an accounting treatment different from that used by non-
regulated companies to determine the rates charged to the utility'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"). (See Note 4.
Regulatory Assets and Liabilities.)

F-28

AGL RESOURCES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Consolidation Policy

AGL Resources utilizes two different accounting methods to report its
investments in its subsidiaries and other companies: consolidation and the
equity method.

Consolidation--AGL Resources utilizes the consolidation method of
accounting when it owns a majority of the voting stock of the subsidiary or if
it can otherwise exercise control over the entity. This means that the
accounts of AGL Resources are combined with the subsidiaries' accounts.
Additionally, intercompany balances and transactions are eliminated when the
accounts are consolidated. AGL Resources' consolidated financial statements
include the accounts of the following subsidiaries:

. AGLC;

. Chattanooga;

. AGLE; and

. AGL Investments, Inc. and its subsidiaries.

Utilipro's assets, liabilities, and earnings are included in the
consolidated financial statements. The outside investors' ownership interest
is recorded as minority interest. As of September 30, 2000 and 1999, the
minority interest was immaterial.

The Equity Method--The equity method is utilized to account for and
report corporate joint ventures where AGL Resources holds a 20% to 50% voting
interest, unless control can be exercised over the entity. Under the equity
method, AGL Resources' ownership interest in the entity is reported as an
investment within its Consolidated Balance Sheets. Additionally, AGL
Resources' percentage ownership in the joint venture's earnings or losses is
reported in its Statements of Consolidated Income under "Other Income."

AGL Resources utilizes the equity method to account for and report its
investments in the following:

. US Propane;

. Etowah; and

. SouthStar.

Revenues

Utility revenues are recorded in AGL Resources' Statements of
Consolidated Income when services are provided to customers. Revenues from the
utility business are based on rates approved by the GPSC and the TRA. Those
revenues include estimated amounts for gas delivered, but not yet billed, for
Chattanooga Gas operations.

On July 1, 1998, AGLC began billing for delivery service under a Straight
Fixed Variable ("SFV") rate structure that recovers all fixed delivery service
costs evenly throughout the year consistent with the way the costs are
incurred. (See Note 2. Impact of Deregulation.) AGLC bills marketers on the
seventh business day of each month for all fixed charges to be incurred during
the current month and such bills are due from the marketers ten days later.

F-29

AGL RESOURCES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The TRA has authorized a weather normalization adjustment rider ("WNAR")
for Chattanooga. This rider is designed to offset the impact of unusually cold
or warm weather on customer billings and operating margin.

Non-utility revenues are recorded in AGL Resources' Statements of
Consolidated Income when services are provided to customers.

Cost of Sales

Chattanooga charges their customers for the natural gas they consume
using purchased gas adjustment ("PGA") mechanisms set by the TRA. Under the
PGA, Chattanooga defers (included as a current asset or liability in the
Consolidated Balance Sheets and excluded from the 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, Chattanooga either bills or
refunds to its customers the deferred amount.

Effective October 6, 1998, AGLC discontinued the use of its PGA mechanism
in accordance with Georgia's deregulation plan. During fiscal 1999, AGLC signed
a joint stipulation agreement with the GPSC that limited the profit for the
period from October 6, 1998 to September 30, 1999 related to the sale of gas to
$1 million. Amounts in excess of $1 million were deferred as of September 30,
1999 as Gas Cost Credits and were refunded to customers during the first half
of fiscal 2000. (See Note 2. Impact of Deregulation.)

Corporate Reorganization

AGL Resources undertook an operational excellence project during fiscal
2000. The goal was to improve productivity and profitability through internal
operational activity reassessment supported with external benchmarks. The
project concluded prior to September 30, 2000, and resulted in AGL Resources
reorganizing various functions and identifying specific positions to be
eliminated. A one-time pre-tax charge of $6.3 million was recorded in the
fourth quarter in fiscal 2000.

Risk Management

AGLC's Gas Supply Plan included limited use of gas put and/or call
agreements as part of its gas supply trading activities. During the first
quarter of fiscal 1999, the Company also participated in fixed price option
agreements. As part of the joint stipulation agreement, AGLC discontinued such
agreements. The costs associated with the fiscal 1999 fixed price option
agreements reduced overall gas costs and were recovered from AGLC's customers
in conjunction with the joint stipulation agreement.

In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("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
impact of the adoption of SFAS 133 on AGL Resources' consolidated financial
statements at October 1, 2000 was immaterial, but could increase the volatility
of earnings in future periods.

AGL Resources enters into various gas put and/or call agreements as part
of its trading activities, which primarily focus on: (1) managing AGL
Resources' overall gas cost, (2) generating premium income on options, and (3)
ensuring adequate gas reserves. The contract terms normally last one calendar
month and are designed to protect AGL Resources against the adverse effects
that daily gas index fluctuations may have on gas purchases.

F-30

AGL RESOURCES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Income Taxes

The reporting of AGL Resources' assets and liabilities for financial
accounting purposes differs from the reporting for income tax purposes. The tax
effects of the differences in those items are reported as deferred income tax
assets or liabilities in AGL Resources' Consolidated Balance Sheets. The
utility's investment tax credits have been deferred and are being amortized as
credits to income over the estimated lives of the related properties in
accordance with regulatory treatment.

Evaluation of Assets for Impairment

SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" requires AGL Resources to review long-
lived assets and certain intangibles for impairment when events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Any impairment losses are reported in the period in which the
recognition criteria are first applied based on the fair value of the asset. In
accordance with SFAS 121, AGL Resources has evaluated its long-lived assets for
financial impairment. As of September 30, 2000, AGL Resources believes that no
asset impairments exist.

Utility Plant and Depreciation

Utility plant is the term utilized to describe the utility's business
property and equipment which is in use, being held for future use, and under
construction. Utility plant is reported at its original cost, which includes:

. Material and labor;

. Contractor costs;

. Construction overhead costs (where applicable); and

. An allowance for funds used during construction (described later in
this note).

Retired or otherwise disposed of utility plant is charged to accumulated
depreciation.

Depreciation Expense--The depreciation for the utility is computed by
applying composite, straight-line rates (approved by the GPSC and TRA) to the
investment of depreciable utility property. The composite straight-line
depreciation rate was approximately 3.1%, 3.1%, and 3.0% for depreciable
utility property excluding transportation equipment during fiscal 2000, 1999,
and 1998, respectively. Transportation equipment is depreciated on a straight-
line basis over a period of five to ten years.

Allowance for Funds Used During Construction ("AFUDC")--Construction
projects in Georgia and Tennessee are financed with borrowed funds and equity
funds. The GPSC and the TRA allow AGLC and Chattanooga, respectively, 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. The Georgia portion of AFUDC is calculated based upon a
rate authorized by the GPSC. Beginning July 1, 1998, the GPSC authorized a rate
of 9.11% for AFUDC. For the nine months ended June 30, 1998, the GPSC
authorized AFUDC rate was 9.32%. The Chattanooga portion of AFUDC is calculated
based upon a rate authorized by the TRA. For fiscal 1998, 1999 and 2000, the
TRA authorized a rate of 9.08% for AFUDC.

F-31

AGL RESOURCES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Non-Utility Plant and Depreciation

Non-utility plant is the term utilized to describe AGL Resources' non-
utility business property that is in use and under construction. AGL Resources
reports its non-utility plant at cost. A gain or loss is recorded for retired
or otherwise disposed of non-utility plant. Non-utility depreciation is
computed on a straight-line basis over a period of one to 35 years.

Statement of Cash Flows

For the reporting of cash flows, cash equivalents are defined as highly
liquid investments that mature in three months or less. Non-cash investing and
financing transactions include the following:

. The issuance of common stock for ResourcesDirect, a stock purchase
and dividend reinvestment plan; the Retirement Savings Plus Plan
("RSP Plan"); the Long-Term Stock Incentive Plan ("LTSIP"); the Long-
Term Incentive Plan ("LTIP"); the Nonqualified Savings Plan ("NSP");
Dividend Reinvestment Plan ("DRIP"); and the Non-Employee Directors
Equity Compensation Plan ("Directors Plan") of $9.4 million in fiscal
2000, $11.3 million in fiscal 1999, and $12.0 million in fiscal 1998;

. The impairment of certain long-lived assets in fiscal 1998 of $13.9
million; and

. Capital leases of $1.9 million in fiscal 2000.

Earnings per Common Share

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 7,904
qualified as common stock equivalents during fiscal 2000. An average of 38,761,
92,045, and 91,873 incremental shares qualified as common stock equivalents for
fiscal 2000, 1999, and 1998, respectively, because the exercise prices of those
options were less than the average market price of the common shares for the
respective periods.

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 September 30, 2000, AGLC billed 12 certificated and active
marketers in Georgia for services, who, in turn, billed end-use customers.

F-32

AGL RESOURCES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

technical capability to render the certificated service. Second, AGLC has
instituted certain practices and imposed certain requirements designed to
reduce credit risk. These include:

. Intrastate delivery service is billed in advance rather than in
arrears.

For fiscal 2000, the three largest certificated marketers based on customer
count, one of which was SouthStar, accounted for approximately 69% of AGL
Resources' operating revenues. From October 1, 1999 through September 30, 2000,
only gas receivables attributable to Chattanooga were due from end-use
customers.

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 42% of AGL Resources' total gas
receivables at September 30, 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.

During fiscal 2000, two other marketers filed for protection under
Chapter 11 of the United States Bankruptcy Code.

In management's opinion, these three marketer bankruptcies will not have
a material adverse effect on AGL Resources' financial condition or results of
operations.

F-33

AGL RESOURCES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Use of Accounting Estimates

Estimates and assumptions are made when preparing financial statements
under the accounting principles generally accepted in the United States of
America. Those estimates and assumptions affect various matters:

. Reported amounts of assets and liabilities in AGL Resources'
Consolidated Balance Sheets at the dates of the financial statements;

. Disclosure of contingent assets and liabilities at the dates of the
financial statements; and

. Reported amounts of revenues and expenses in AGL Resources'
Statements of Consolidated Income during the reporting periods.

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 estimates.

Inventory

In Georgia's competitive environment, certificated marketers, including
AGLC's marketing affiliate, SouthStar, began selling natural gas to firm end-
use customers at market-based prices in November 1998. Part of the unbundling
process that provides for this competitive environment is the assignment to
certificated marketers certain pipeline services that AGLC has under contract.
AGLC has assigned the majority of its pipeline storage services that it has
under contract to the certificated marketers along with a corresponding amount
of inventory.

AGLC changed its inventory costing method for its gas inventories from
first-in, first-out to weighted average effective October 1, 1998. In
management's opinion, the weighted average inventory costing method provides
for a better matching of costs and revenue from the sale of gas. Because AGLC
recovered all of its gas costs through a PGA mechanism until October 6, 1998,
there is no cumulative effect resulting from the change in the inventory
costing method. Gas inventories are sold to certificated marketers at the
weighted average cost.

Chattanooga's gas inventories are stated at cost using the last-in,
first-out method. Materials and supplies inventories are stated at lower of
average cost or market.

Chattanooga will change 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. Because Chattanooga recovers all of its gas costs
through a PGA mechanism, there will not be a cumulative effect resulting from
the change in the inventory costing method.

Other

Certain prior year amounts have been reclassified for comparative
purposes. Those reclassifications did not affect consolidated net income for
the years presented.

F-34

AGL RESOURCES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

2. IMPACT OF DEREGULATION

Pursuant to Georgia's 1997 Natural Gas Competition and Deregulation Act
("Deregulation Act"), AGLC's retail rates were restructured to allow its
customers to migrate to one of several marketers who were approved and
certificated by the GPSC ("certificated marketer"). The rate structure assumed
that AGLC's costs associated with providing customer service decreased each
time a customer switched to a certificated marketer for gas sales service at
the time the switch was made. However, AGLC's experience has been that a
significant portion of the costs associated with customer service activities,
including billing, bill inquiry, payment processing and collection services,
cannot be eliminated immediately after a customer switch is made, as prescribed
by the regulated rate structure. Instead, a period of up to several months
existed during which AGLC continued to incur these expenses.

In January 1999, the GPSC accelerated the pace of deregulation.
Specifically, the GPSC ordered that all existing AGLC customers that had not
chosen a gas provider by August 11, 1999, would be randomly assigned to a
certificated marketer. This accelerated pace of deregulation exacerbated the
disparity between the speed at which AGLC was assumed for regulated purposes to
be reducing costs and the speed at which AGLC was actually able to reduce costs
resulting in a negative effect on AGLC's earnings during fiscal 1999.
Specifically, while transition revenues were reduced by $15.8 million for
fiscal 1999, customer service expenses were actually increased to handle a 26%
increase in call center activity. During fiscal 2000, this situation stabilized
itself, and AGLC was able to reduce customer service expenses to a level that
reflected the deregulation changes.

On October 19, 1999, the GPSC approved an order allowing AGLC to defer
certain transition to competition costs for fiscal year 2000 which AGLC
considered to be "stranded" as a result of deregulation ("Order"). In
accordance with the Order, AGLC deferred transition to competition expenses
related to severance, customer service and property. Such deferred expenses are
recorded as regulatory assets under deferred debits and other assets on AGLC's
balance sheet and are being amortized over a five-year period beginning October
1, 1999. In order to be deferred, the cost must also be one that:

. AGLC is still incurring but, as a result of deregulation, is no
longer receiving revenue from the rate or rates which were set based
on that cost;

. Is prudently incurred; and

. Cannot be mitigated.

During fiscal 2000, AGLC deferred approximately $10 million of transition to
competition costs, and a corresponding accumulated deferred income tax
liability of $1.6 million. Of the total transition to competition costs, AGLC
amortized $2 million in fiscal 2000, leaving a net balance of $6.4 million at
September 30, 2000.

During fiscal 1999, AGLC entered into a joint stipulation with the GPSC
to provide gas sales service to customers until such time that they had either
chosen or been assigned a marketer to be their gas provider. The joint
stipulation agreement provided for a true-up of any profit or loss, outside of
a maximum range of $3.3 million in losses to $1.0 million in profit. During
fiscal 1999, AGLC recognized $1.0 million in profit from the sale of gas.
During fiscal 2000, pursuant to the joint stipulation agreement, AGLC remitted
approximately $34 million in over-collected purchase gas costs to the GPSC.
Such costs were included in Gas Cost Credits as of September 30, 1999. During
the second quarter of fiscal 2000, the GPSC instituted a mechanism pursuant to
which certificated marketers were required to provide customers with a credit
on their bill.

F-35

AGL RESOURCES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

3. INCOME TAXES

AGL Resources has two categories of income taxes in its Statements of
Consolidated Income: current and deferred. AGL Resources' current income tax
expense consists of federal and state income tax less applicable tax credits.
AGL Resources' deferred income tax expense generally is equal to the changes in
the deferred income tax liability and regulatory tax liability during the year.

Investment Tax Credits

AGL Resources has deferred investment tax credits associated with its
utility as a regulatory liability in its Consolidated Balance Sheets. (See Note
4. Regulatory Assets and Liabilities.) Those investment tax credits are being
amortized as credits to income in accordance with regulatory treatment over the
estimated life of the related properties. AGL Resources reduces income tax
expense in its Statements of Consolidated Income for the investment tax credits
and other tax credits associated with its non-utility subsidiaries.

Accumulated Deferred Income Tax Assets and Liabilities

AGL Resources reports some of its assets and liabilities differently for
financial accounting purposes than it does for income tax purposes. The tax
effects of the differences in those items are reported as deferred income tax
assets or liabilities in AGL Resources' Consolidated Balance Sheets. The assets
and liabilities are measured utilizing income tax rates that are currently in
effect. Because of the regulated nature of the utility's business, a regulatory
tax liability has been recorded in accordance with SFAS 109, "Accounting for
Income Taxes." The regulatory tax liability is being amortized over
approximately 30 years. (See Note 4. Regulatory Assets and Liabilities.)

Components of income tax expense shown in the Statements of Consolidated
Income for the years ended September 30 are as follows:

2000 1999 1998
----- ----- -----
(in millions)

Included in expenses:
Current income taxes $ 1.2 $27.0 $25.3
Federal.............................................
State............................................... 0.2 4.4 3.6
Deferred income taxes
Federal............................................. 31.3 7.3 9.7
State............................................... 5.8 1.7 1.6
Amortization of investment tax credits................ (1.3) (1.3) (1.4)
----- ----- -----
Total................................................. $37.2 $39.1 $38.8
===== ===== =====

F-36

AGL RESOURCES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Reconciliation between the statutory federal income tax rate and the
effective rate for the years ended September 30 is as follows:

2000
--------------
% of
Pre-
tax
Amount Income
------ ------
(dollars in
millions)

Computed tax expense........................................ $37.9 35.0%
State income tax, net of federal income tax benefit......... 4.2 3.8
Amortization of investment tax credits...................... (1.3) (1.2)
Nontaxable gain............................................. (2.6) (2.4)
Other--net.................................................. (1.0) (0.8)
----- ----
Total income tax expense.................................... $37.2 34.4%
===== ====

1999
--------------
% of
Pre-
tax
Amount Income
------ ------
(dollars in
millions)

Computed tax expense........................................ $39.7 35.0%
State income tax, net of federal income tax benefit......... 3.8 3.3
Amortization of investment tax credits...................... (1.3) (1.1)
Adjustment of prior year's income taxes..................... (2.2) (1.9)
Other--net.................................................. (0.9) (0.8)
----- ----
Total income tax expense.................................... $39.1 34.5%
===== ====

1998
--------------
% of
Pre-
tax
Amount Income
------ ------
(dollars in
millions)

Computed tax expense........................................ $41.8 35.0%
State income tax, net of federal income tax benefit......... 3.5 2.9
Amortization of investment tax credits...................... (1.4) (1.2)
Adjustment of prior year's income taxes..................... (2.3) (1.9)
Other--net.................................................. (2.8) (2.3)
----- ----
Total income tax expense.................................... $38.8 32.5%
===== ====

F-37

AGL RESOURCES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Components that give rise to the net accumulated deferred income tax
liability, as of September 30, are as follows:

2000 1999
------ ------
(in millions)

Accumulated deferred income tax liabilities:
Property--accelerated depreciation and other property-
related items............................................. $243.6 $236.2
Other...................................................... 39.2 28.1
------ ------
Total accumulated deferred income tax liabilities.......... 282.8 264.3
------ ------
Accumulated deferred income tax assets:
Deferred investment tax credits............................ 9.0 9.4
Other...................................................... 24.2 43.6
------ ------
Total accumulated deferred income tax assets............... 33.2 53.0
------ ------
Net accumulated deferred income tax liability.............. $249.6 $211.3
====== ======

4. REGULATORY ASSETS AND LIABILITIES

The GPSC and the TRA regulate the utility business. AGL Resources
generally uses the same accounting policies and practices used by non-regulated
companies for financial reporting under generally accepted accounting
principles. However, sometimes the GPSC and the TRA order an accounting
treatment different from that used by non-regulated companies to determine the
rates the utility charges its customers. When that happens, certain utility
expenses and income must be deferred and reported in the Consolidated Balance
Sheets as regulatory assets and liabilities. These deferred items are then
recognized in the Statements of Consolidated Income through amortization when
the items are included in the rates charged the utility's customers.

AGL Resources has recorded assets and liabilities in its Consolidated
Balance Sheets in accordance with SFAS 71, "Accounting for the Effects of
Certain Types of Regulation." In July 1997, the Emerging Issues Task Force
("EITF") concluded that once legislation is passed to deregulate a segment of a
utility and that legislation includes sufficient detail for the enterprise to
determine how the transition plan will affect that segment, SFAS 71 should be
discontinued for that segment of the utility. The EITF consensus permits assets
and liabilities of a deregulated segment to be retained if they are recoverable
through a segment that remains regulated.

Georgia has enacted legislation, the Deregulation Act, which allows
deregulation of natural gas sales and the separation of some ancillary services
of local natural gas distribution companies. However, the rates local gas
distribution companies charge to transport natural gas through their intrastate
pipe system will continue to be regulated by the GPSC. Therefore, the continued
application of SFAS 71 is appropriate for regulatory assets and liabilities
related to AGLC's delivery services.

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.

F-38

AGL RESOURCES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

During fiscal 2000, approximately 248 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
$49.2 million and $8.4 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 fiscal 2000 was
approximately $2.0 million.

AGL Resources' regulatory assets and liabilities at September 30 are
summarized in the following table:

2000 1999
------ ------
(in millions)

Regulatory Assets:
Unrecovered environmental response costs................... $164.6 $150.2
Unrecovered postretirement benefits costs.................. 7.9 8.5
Deferred transition to competition costs................... 6.4 --
Deferred purchased gas adjustment.......................... 5.5 2.8
Other...................................................... 13.1 13.8
------ ------
Total...................................................... $197.5 $175.3
====== ======
Regulatory Liabilities:
Unamortized investment tax credit.......................... $ 23.2 $ 24.5
Regulatory tax liability................................... 15.5 16.4
Environmental response cost recoveries from third parties-
customer portion.......................................... -- 7.1
Other...................................................... 1.4 3.8
------ ------
Total...................................................... $ 40.1 $ 51.8
====== ======

5. EMPLOYEE BENEFIT PLANS AND STOCK-BASED COMPENSATION PLANS

Substantially all of AGL Resources' employees are eligible to participate
in its employee benefit plans.

Pension Benefits

AGL Resources sponsors a defined benefit retirement plan ("Retirement
Plan") for its employees. A defined benefit plan specifies the amount of
benefits an eligible plan participant eventually will receive using
information about the participant. AGL Resources generally calculates the
benefits under the Retirement Plan based on age, years of service, and pay.
AGL Resources' employees do not contribute to the Retirement Plan. AGL
Resources funds the plan by contributing annually the amount required by
applicable regulations and as recommended by its actuary. AGL Resources
calculates the amount of funding using an actuarial method called the
projected unit credit cost method. The Retirement Plan's assets consist
primarily of marketable securities, corporate obligations, U.S. government
obligations, insurance contracts, mutual funds, and cash equivalents.

F-39

AGL RESOURCES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

AGL Resources has an excess benefit plan that is unfunded and provides
supplemental benefits to some officers after retirement. AGL Resources
maintains a voluntary early retirement plan for some AGL Resources officers
that is unfunded and provides supplemental pension benefits to participants who
elected early retirement. The annual expense and accumulated benefits of such
plans are not significant.

The following tables present details about AGL Resources' pension plans
at September 30 (dollars in millions):

2000 1999
------ ------

Change in Benefit Obligation:
Benefit obligation at beginning of year....................... $223.0 $242.7
Service cost.................................................. 3.4 5.2
Interest cost................................................. 15.9 16.9
Plan amendment................................................ (12.8) --
Actuarial gain................................................ (6.7) (27.1)
Benefits paid................................................. (15.3) (14.7)
------ ------
Benefit obligation at end of year........................... $207.5 $223.0
====== ======
Change in Plan Assets:
Fair value of plan assets at beginning of year................ $236.7 $229.5
Actual return on plan assets.................................. 13.2 17.6
Employer contribution......................................... 0.8 4.3
Benefits paid................................................. (15.4) (14.7)
------ ------
Fair value of plan assets at end of year.................... $235.3 $236.7
====== ======
Funded Status:
Plan assets greater than benefit obligation at end of year.... $ 27.8 $ 13.7
Unrecognized net asset........................................ (1.5) (2.2)
Unrecognized net gain......................................... (24.0) (19.4)
Unrecognized prior service cost (benefit)..................... (9.6) 2.6
------ ------
Accrued pension cost........................................ $ (7.3) $ (5.3)
====== ======

2000 1999 1998
------ ------ ------

Weighted Average Assumptions as of June 30:
Discount rate......................................... 8.0% 7.8% 7.0%
Expected return on plan assets........................ 8.3% 8.3% 8.3%
Rate of compensation increase......................... 3.8% 4.3% 4.3%
Components of Net Annual Pension Cost:
Service cost.......................................... $ 3.4 $ 5.2 $ 4.6
Interest cost......................................... 16.0 16.9 16.6
Expected return on plan assets........................ (18.2) (16.9) (15.8)
Net amortization...................................... (1.3) -- --
------ ------ ------
Net annual pension cost............................... (0.1) 5.2 5.4
Curtailment loss...................................... 2.8 2.3 --
------ ------ ------
Net annual pension cost after curtailments.......... $ 2.7 $ 7.5 $ 5.4
====== ====== ======

F-40

AGL RESOURCES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Effective July 1, 2000, the benefit formula for the Retirement Plan was
amended and changed from a final average earnings formula to a career average
earnings formula for participants under age 50. The final average earnings plan
will continue 10 years for participants over age 50, and then will convert to a
career average earnings formula. Due to the above amendment, the Company's
projected benefit obligation has been reduced.

In fiscal 2000 and 1999, AGL Resources recorded a curtailment loss of
$2.8 million and $2.3 million, respectively, related to the early retirement of
certain officers included in the supplemental retirement plan.

Employee Savings Plan Benefits

AGL Resources also sponsors the RSP Plan, a defined contribution benefit
plan. In a defined contribution benefit plan, the benefits a participant
ultimately receives come from regular contributions to a participant account.
Under the RSP Plan, AGL Resources made matching contributions to participant
accounts in the following amounts:

. $3.0 million in fiscal 2000;

. $3.5 million in fiscal 1999; and

. $3.5 million in fiscal 1998.

AGL Resources' NSP, an unfunded, nonqualified plan similar to the RSP
Plan, established on July 1, 1995, provides an opportunity for eligible
employees to contribute additional amounts for retirement savings once they
have reached the maximum contribution amount in the RSP Plan. AGL Resources'
contributions to the NSP during fiscal 2000, 1999, and 1998 were not
significant.

Effective July 1, 2000, the RSP Plan was amended for participants under
age 50 to increase company matching contributions to 65 cents for each dollar
an employee contributes up to 8% of total compensation (base salary, overtime,
and bonuses). Formerly, AGL Resources matched contributions at the rate of 65
cents for each dollar an employee contributed up to 6% of base salary plus
overtime. Also, the vesting period under the RSP Plan was reduced from five
years to three years.

Employee Stock Ownership Benefits

In January 1988, AGL Resources purchased 2.0 million shares of common
stock at $11.75 per share with the proceeds of a loan secured by the common
stock. AGL Resources did not guarantee the repayment of the loan. The loan was
repaid from regular cash dividends on AGL Resources common stock paid to the
Leveraged Employee Stock Ownership Plan ("LESOP") and from contributions to the
LESOP, as approved by the Board of Directors. Repayment of the loan was
completed on December 31, 1997. Contributions to the LESOP were $0.2 million
for fiscal 1998.

AGL Resources terminated its LESOP and distributed the value of
participants' LESOP account balances as of June 15, 1999. At the election of
the participants, the value of each account was distributed in one of three
forms:

. Direct rollover into the RSP Plan or into another tax-qualified
retirement plan;

. Lump sum payment in the form of a certificate for shares of AGL
Resources common stock; or

. Lump sum cash payment based on the market value of AGL Resources
common stock at the close of business on June 14, 1999, which was
$18.50 per share.

F-41

AGL RESOURCES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

During fiscal 1999, 868,688 LESOP shares were repurchased in cash by AGL
Resources from the LESOP trustee in a non-brokered transaction at a purchase
price of $18.50 per share, and were initially placed by AGL Resources in
treasury. An additional 236,625 shares were transferred to participants'
accounts under the RSP Plan from the respective participants' accounts in the
LESOP. AGL Resources re-issues these treasury shares for the LTIP, LTSIP, DRIP,
Directors Plan, and for direct stock purchases.

Postretirement Benefits

AGL Resources sponsors defined benefit postretirement health care and
life insurance plans, which cover nearly all employees if they reach retirement
age while working for AGL Resources. The benefits under these plans are
generally calculated based on age and years of service.

Some retirees contribute a portion of health care plan costs. Retirees do
not contribute toward the cost of the life insurance plan.

Effective October 1, 1993, AGL Resources adopted SFAS 106, "Employer's
Accounting for Postretirement Benefits Other Than Pensions," which requires
accrual of postretirement benefits other than pensions during the years an
employee provides service. In 1993, the GPSC approved a five-year phase-in that
defers a portion of other postretirement benefits expense for future recovery.
A regulatory asset has been recorded for that amount. In 1993, the TRA approved
the recovery of other postretirement benefits expense that is funded through an
external trust.

The following tables present details about AGL Resources' postretirement
benefits at September 30 (dollars in millions):

2000 1999
------ ------

Change in Benefit Obligation:
Benefit obligation at beginning of year...................... $102.7 $104.8
Service cost................................................. 0.8 0.9
Interest cost................................................ 7.8 7.2
Actuarial loss (gain)........................................ 8.6 (3.7)
Benefits paid................................................ (6.7) (6.5)
------ ------
Benefit obligation at end of year.......................... $113.2 $102.7
====== ======
Change in Plan Assets:
Fair value of plan assets at beginning of year............... $ 28.7 $ 23.6
Actual return on plan assets................................. 1.6 2.9
Employer contribution........................................ 8.2 8.8
Benefits paid................................................ (6.7) (6.5)
------ ------
Fair value of plan assets at end of year................... $ 31.8 $ 28.8
====== ======
Funded Status:
Accumulated benefit obligation in excess of plan assets...... $(81.4) $(73.9)
Unrecognized gain............................................ (3.5) (15.7)
Unrecognized transition amount............................... 53.1 57.2
------ ------
Accrued benefit cost....................................... $(31.8) $(32.4)
====== ======

F-42

AGL RESOURCES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

2000 1999 1998
---- ---- ----

Weighted Average Assumptions as of June 30:
Discount rate............................................... 8.0% 7.8% 7.0%
Expected return on plan assets.............................. 8.3% 8.3% 8.3%

For purposes of measuring the accumulated post-retirement benefit
obligation, the assumed health care inflation rate for pre-Medicare and post-
Medicare eligibility is 9.0% in 2000, decreasing 0.5% per year to 6.0% in the
year 2006, decreasing 0.3% to 5.7% in 2007, and decreasing 0.5% to 5.2% in
2008.

2000 1999 1998
----- ----- -----

Components of Net Periodic Benefit Cost:
Service cost.............................................. $ 0.8 $ 1.0 $ 0.9
Interest cost............................................. 7.7 7.2 7.6
Expected return on plan assets............................ (2.1) (1.7) (1.5)
Amortization of gain...................................... (0.5) (0.5) (0.5)
Amortization of transition amount......................... 4.1 4.1 4.1
Amortization of regulatory asset.......................... 0.6 0.8 0.7
----- ----- -----
Net periodic postretirement benefit cost................ $10.6 $10.9 $11.3
===== ===== =====

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

1-Percentage- 1-Percentage-
Point Increase Point Decrease
-------------- --------------

Effect on total of service and interest cost
components..................................... $0.4 $(0.4)
Effect on postretirement benefit obligation..... $5.6 $(4.9)

Stock-Based Compensation Plans

AGL Resources' LTIP, which became effective January 1, 1999, provides for
grants of performance units, restricted stock and incentive and nonqualified
stock options to key employees. The LTIP currently authorizes the issuance of
up to 2.8 million shares of AGL Resources' common stock. AGL Resources also
maintains a predecessor plan, the LTSIP, which provides for grants of
restricted stock, incentive and nonqualified stock options, and stock
appreciation rights to key employees. The LTSIP currently authorizes issuance
of up to 3.2 million shares of AGL Resources' common stock. In addition, AGL
Resources sponsors the Directors Plan in which all non-employee directors
participate. The Directors Plan provides for the issuance of restricted stock
and nonqualified stock options. The Directors Plan currently authorizes the
issuance of up to 200,000 shares of AGL Resources' common stock. Plan
participants realize value from option grants, only to the extent that the fair
market value of AGL Resources common stock on the date of exercise of the
option exceeds the fair market value of the common stock on the date of grant.

Incentive and Nonqualified Stock Options

Incentive and nonqualified stock options are granted at the fair market
value on the date of grant. The vesting of incentive options is subject to a
statutory limitation of $100,000 per year under Section 422A of the Internal
Revenue Code. Otherwise, nonqualified options generally become fully
exercisable not earlier than six months after the date of grant and generally
expire 10 years after that date.

F-43

AGL RESOURCES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

A summary of activity for key employees and non-employee directors
related to grants of incentive and nonqualified stock options follows:

Number of Weighted Average
Options Exercise Price
--------- ----------------

Outstanding--Sept. 30, 1997......................... 1,404,475 $18.69
Granted........................................... 818,552 19.90
Exercised......................................... (68,684) 16.95
Forfeited......................................... (54,495) 20.11
---------
Outstanding--Sept. 30, 1998......................... 2,099,848 19.19
---------

Granted........................................... 671,333 21.11
Exercised......................................... (91,945) 17.12
Forfeited......................................... (159,558) 20.51
---------
Outstanding--Sept. 30, 1999......................... 2,519,678 19.69
---------

Granted........................................... 1,684,124 18.28
Exercised......................................... (25,674) 17.03
Forfeited......................................... (848,972) 19.49
---------
Outstanding--Sept. 30, 2000......................... 3,329,156 $19.05
=========

Information about outstanding and exercisable options, as of September
30, 2000, follows:

Options Outstanding Options Exercisable
----------------------------------------- ------------------------
Weighted Average
Remaining Weighted Weighted
Number of Contractual Life Average Number of Average
Range of Exercise Prices Options (in years) Exercise Price Options Exercise Price
- ------------------------ --------- ---------------- -------------- --------- --------------

$13.75 to $17.49........ 307,675 4.7 $16.35 242,930 $16.13
$17.50 to $19.99........ 1,793,668 7.5 18.48 878,690 18.76
$20.00 to $23.19........ 1,227,813 6.7 20.55 1,129,735 20.53
--------- ---------
$13.75 to $23.19........ 3,329,156 6.9 $19.05 2,251,355 $19.36
========= =========

A summary of outstanding options that are fully exercisable follows:

Number of Weighted Average
Options Exercise Price
--------- ----------------

Exercisable--September 30, 1998...................... 1,961,864 $19.15
Exercisable--September 30, 1999...................... 2,063,824 $19.39
Exercisable--September 30, 2000...................... 2,251,355 $19.36

F-44

AGL RESOURCES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

AGL Resources applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for AGL Resources' LTIP stock option plans. Accordingly, no
compensation expense has been recognized in connection with AGL Resources'
LTIP, LTSIP, and Directors Plan option grants. If AGL Resources had determined
compensation expense for the issuance of options based on the fair value method
described in SFAS 123, "Accounting for Stock-Based Compensation," net income
and earnings per share would have been reduced to the pro forma amounts
presented below:

For the years
ended
September 30,
-----------------
2000 1999 1998
----- ----- -----

Net income--as reported (millions)...................... $71.1 $74.4 $80.6
Net income--pro forma (millions)........................ $67.3 $72.8 $79.4
Basic earnings per share--as reported................... $1.29 $1.30 $1.41
Basic earnings per share--pro forma..................... $1.22 $1.27 $1.39
Diluted earnings per share--as reported................. $1.29 $1.29 $1.41
Diluted earnings per share--pro forma................... $1.22 $1.27 $1.39

In accordance with the fair value method of determining compensation
expense, the weighted average grant date fair value per share of options
granted was as follows:

. $2.35 in fiscal 2000;

. $2.68 in fiscal 1999; and

. $2.55 in fiscal 1998.

AGL Resources used the Black-Scholes pricing model to estimate the fair
value of each option granted with the following weighted average assumptions
for the years ended September 30:

2000 1999 1998
---- ---- ----

Expected life (years).................................. 7 7 7
Interest rate.......................................... 6.2% 4.9% 5.5%
Volatility............................................. 18.3% 18.3% 17.8%
Dividend yield......................................... 6.0% 5.1% 5.5%

Performance Units

A performance unit is a right of a key employee to receive one share of
common stock in the future subject to certain performance criteria. If
performance criteria are met, vesting of up to 21,076 performance units will
occur at the end of the three-year measurement period on September 30, 2002.

Stock Awards

Stock awards generally are subject to some vesting restrictions. AGL
Resources recognizes compensation expense for those stock awards over the
related vesting periods. AGL Resources awarded shares of stock, net of
forfeitures, to key employees in the following amounts:

. 10,000 shares in fiscal 2000;

. 11,115 shares in fiscal 1999; and

. 25,891 shares in fiscal 1998.

F-45

AGL RESOURCES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

At the date of the award, the weighted average fair value of the shares,
net of forfeitures, was as follows:

. $17.38 in fiscal 2000;

. $20.06 in fiscal 1999; and

. $19.76 in fiscal 1998.

The compensation costs that have been charged against income for
performance units, restricted stock and other stock-based awards, were
immaterial in fiscal 2000, 1999, and 1998.

Directors Plan

Under the Directors Plan, each non-employee director receives an annual
grant of:

. a stock award equal in fair market value to $16,000; and

. a nonqualified stock option to purchase the same number of shares of
common stock as the annual stock award.

The stock award is payable in shares of AGL Resources' common stock or,
at the election of a director, is deferred and is invested in common stock
equivalents.

6. COMMON STOCK

Shareholder Rights Plan

On March 6, 1996, AGL Resources' Board of Directors adopted a Shareholder
Rights Plan. The plan contains provisions to protect AGL Resources'
shareholders in the event of unsolicited offers to acquire AGL Resources or
other takeover bids and practices that could impair the ability of the Board
of Directors to represent shareholders' interests fully. As required by the
Shareholder Rights Plan, the Board of Directors declared a dividend of one
preferred share purchase right (a "Right") for each outstanding share of AGL
Resources' common stock, with distribution made to shareholders of record on
March 22, 1996.

The Rights, which will expire March 6, 2006, are represented by and
traded with AGL Resources common stock. The Rights are not currently
exercisable and do not become exercisable unless a triggering event occurs.
One of the triggering events is the acquisition of 10% or more of AGL
Resources' common stock by a person or group of affiliated or associated
persons. Unless previously redeemed, upon the occurrence of one of the
specified triggering events, each Right will entitle its holder to purchase
one one-hundredth of a share of Class A Junior Participating Preferred Stock
at a purchase price of $60. Each preferred share will have 100 votes, voting
together with the common stock. Because of the nature of the preferred shares'
dividend, liquidation and voting rights, one one-hundredth of a share of
preferred stock is intended to have the value, rights, and preferences of one
share of common stock. As of September 30, 2000, 1.0 million shares of Class A
Junior Participating Preferred Stock were reserved for issuance under that
plan.

Share Repurchase Program

On October 5, 1999, the Board of Directors of AGL Resources authorized a
plan to repurchase up to 3.6 million shares (6.3% of total outstanding as of
September 30, 1999) of AGL Resources' common stock over a period ending no
later than September 30, 2001. Open market purchases of the shares were made
from time to time, subject to availability, and the repurchased shares were
initially placed in treasury. During fiscal

F-46

AGL RESOURCES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

2000, AGL Resources completed the program by repurchasing 3.6 million shares of
common stock for a total of $62.1 million. Subsequent to June 15, 1999, shares
issued under the AGL Resources' benefit plans and DRIP have been issued from
shares initially placed in treasury.

Other

AGL Resources issued the following shares of common stock under
ResourcesDirect, the RSP Plan, the LTSIP, the LTIP, the NSP, and the Directors
Plan:

. 584,284 shares of common stock in fiscal 2000;

. 677,411 shares of common stock in fiscal 1999; and

. 739,380 shares of common stock in fiscal 1998.

As of September 30, 2000, 8,763,359 shares of common stock were reserved
for issuance under ResourcesDirect, the RSP Plan, the LTSIP, the LTIP, the NSP,
and the Directors Plan.

7. PREFERRED STOCK

Subsidiary Obligated Mandatorily Redeemable Preferred Securities ("Capital
Securities")

In June 1997, AGL Resources established AGL Capital Trust I ("Trust"), a
Delaware business trust, and AGL Resources owns all the common voting
securities. The Trust issued and sold $75 million principal amount of 8.17%
Capital Securities (liquidation amount $1,000 per Capital Security) to certain
initial investors. The Trust used the proceeds to purchase 8.17% Junior
Subordinated Deferrable Interest Debentures, which are due June 1, 2037, from
AGL Resources.

The Capital Securities are subject to mandatory redemption at the time of
the repayment of the Junior Subordinated Debentures on June 1, 2037, or the
optional prepayment by AGL Resources after May 31, 2007. AGL Resources fully
and unconditionally guarantees all the Trust's obligations for the Capital
Securities.

Other Preferred Securities

As of September 30, 2000, AGL Resources had 10.0 million shares of
authorized, and unissued, Class A Junior Participating Preferred Stock, no par
value; and 10.0 million shares of authorized, and unissued, preferred stock, no
par value. As of September 30, 2000, AGLC had 10.0 million shares of
authorized, and unissued, preferred stock, no par value.

8. LONG-TERM DEBT

Long-term debt matures more than one year from the date of issuance. AGL
Resources' long-term debt consists of medium-term notes Series A, Series B, and
Series C which were issued under an Indenture dated December 1, 1989. The notes
are unsecured and rank on parity with all other unsecured indebtedness. Net
proceeds from the issuance of medium-term notes were used to fund capital
expenditures, repay short-term debt, and for other corporate purposes. The
annual maturities of long-term debt for the five-year period ending September
30, 2005, are as follows:

. $20.0 million in fiscal 2001;

. $45.0 million in fiscal 2002;

F-47

AGL RESOURCES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

. $48.0 million in fiscal 2003;

. $30.0 million in fiscal 2004; and

. $33.5 million in fiscal 2005.

The outstanding long-term debt as of September 30, net of current
maturities, is as follows:

2000 1999
------ ------
(in millions)

Medium-term notes
Series A(1)................................................ $ 30.0 $ 50.0
Series B(2)................................................ 260.0 260.0
Series C(3)................................................ 300.0 300.0
------ ------
Total...................................................... $590.0 $610.0
====== ======

(1) Interest rate of 9.10% with a maturity date of fiscal 2021.

(2) Interest rates from 7.35% to 8.70% with maturity dates from fiscal 2002 to
fiscal 2023.

(3) Interest rates from 5.90% to 7.30% with maturity dates from fiscal 2004 to
fiscal 2027.

9. SHORT-TERM DEBT

Short-term debt matures within one year from the date of issuance. Lines
of credit with various banks provide for direct borrowings and are subject to
annual renewal. The current lines of credit vary throughout the year from $175
million to $260 million. Certain of the lines are on a commitment-fee basis. As
of September 30, 2000, $63.8 million was available on lines of credit. Weighted
average interest rates on short-term debt outstanding were 7.0%, 5.6%, and 5.8%
as of September 30, 2000, 1999, and 1998, respectively. This short-term debt
was refinanced with commercial paper in October 2000.

In connection with the purchase 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.

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.

F-48

AGL RESOURCES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

10. COMMITMENTS AND CONTINGENCIES

Agreements for Firm Pipeline and Storage Capacity

In connection with its utility business, AGL Resources has agreements for
firm pipeline and storage capacity that expire at various dates through 2014.
The aggregate amounts of required payments for AGLC under such agreements total
approximately $1.1 billion, with annual payments of $184 million in fiscal
2001, $117 million in fiscal 2002, $77 million in fiscal 2003, $48 million in
fiscal 2004, and $47 million in fiscal 2005. Total payments of fixed charges
under all agreements were $194 million in fiscal 2000, $203 million in fiscal
1999, and $220 million in fiscal 1998.

As a result of the Deregulation Act, AGLC's rights to capacity under the
purchase agreements have been temporarily assigned to certificated marketers as
they acquire firm customers. These certificated marketers are responsible for
payment of the fixed charges associated with the assignments. In case of
certificated marketer default, AGLC remains responsible for approximately 70%
of such payments as long as it is the holder of these contracts. AGLC makes
payments for the remaining 30% and then bills to and collects from certificated
marketers all such payments made.

The aggregate amount of required payments for Chattanooga under its firm
pipeline and storage capacity agreements totals approximately $17 million, with
annual payments of $5 million in fiscal 2001, $4 million in fiscal 2002 and
2003, $1 million in fiscal 2004 and 2005. Total payments of fixed charges under
all agreements were $13 million in fiscal 2000, 1999, and 1998. Subsequent to
September 30, 2000, Chattanooga extended certain of these agreements, which
otherwise would have expired in November 2000.

Chattanooga Gas Supply Contracts

AGLE purchases natural gas for Chattanooga. As of September 30, 2000,
AGLE held four gas supply contracts at market rates representing 34,900
decatherms per day of longer term gas supply through fiscal 2001. The remainder
of Chattanooga's gas supply is met by AGLE purchasing gas on the spot market.

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
shippers 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 the customer's contract; and

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

F-49

AGL RESOURCES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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. AGL Resources cannot
predict how these revisions may potentially 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
interstate suppliers' transportation and gas supply services. Based on its
interstate 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.

During fiscal 2000, the utility paid $89.9 million in transition costs to
Southern pursuant to a restructuring settlement that resolves all transition
cost issues for Southern.

On March 10, 2000, Southern filed a settlement to resolve all issues
arising out of its September 1, 1999 general rate case filing. Among other
matters, the settlement provides for the termination of Southern's interstate
pipeline affiliate, South Georgia Natural Gas Company ("South Georgia"), as a
separate entity, with Southern absorbing South Georgia's facilities and
operations. The settlement rates represent a decrease of approximately $6
million per year under the utility's existing contracts for firm interstate
pipeline capacity. In return for the rate reduction, firm contract holders were
required to extend their existing contracts by three years. The utility filed
comments requesting that the FERC approve the settlement and the approval was
granted on May 31, 2000.

Collective Bargaining Agreements

On September 30, 2000, AGL Resources and its subsidiaries had 1,938
employees. Of that total, approximately 500 employees are covered under
collective bargaining agreements. There are currently four collective
bargaining contracts, with the Teamster contract representing the largest group
of 263 employees. The Teamster agreement expired in September 2000, and a new
agreement, which is effective through March 2003, was reached on October 27,
2000. Two additional contracts will expire in fiscal 2001, which represent
about 70 employees.

Rental Expense

Total rental expense for property and equipment was as follows:

. $15.1 million in fiscal 2000;

. $8.5 million in fiscal 1999; and

. $7.7 million in fiscal 1998.

F-50

AGL RESOURCES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Minimum annual rentals under non-cancelable operating leases are as
follows:

. Fiscal 2001--$18.3 million;

. Fiscal 2002--$18.2 million;

. Fiscal 2003--$15.5 million;

. Fiscal 2004--$15.2 million;

. Fiscal 2005--$13.4 million; and

. Thereafter --$5.8 million.

On October 14, 1998, AGL Resources entered into an arrangement to
sublease certain corporate office space, the term of which began on December 1,
1998, and will expire on January 3, 2003. The original lease is an operating
lease. Annual sublease rental receipts are as follows:

. Fiscal 2001--$1.5 million;

. Fiscal 2002--$1.5 million; and

. Fiscal 2003--$0.4 million.

Litigation

AGL Resources is involved in litigation arising in the normal course of
business. (See Note 12. Environmental Matters.) We believe the ultimate
resolution of that litigation will not have a material adverse effect on the
consolidated financial statements.

Related Party Guarantees

In the normal course of business, AGL Resources guarantees, or provides
collateral for, the obligations of its subsidiaries and affiliates.

11. CAPITAL LEASES

Utilipro has seven capital leases principally for data processing,
telephone, and related switching equipment. The expiration dates on these
leases range from October 2000 to February 2003. The total capital lease
liability as of September 30, 2000, is $1.9 million of which $0.9 million is
due within one year.

12. ENVIRONMENTAL MATTERS

F-51

AGL RESOURCES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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 cannot 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 September 30, 2000, AGLC has recorded the lower end
of the range, or $111.7 million, as a liability.

As of September 30, 1999, AGLC had recorded a liability of $102.4
million. During fiscal 2000, the liability increased $9.3 million due to
revised estimates of future costs, which resulted in a corresponding increase
in the unrecovered environmental response cost asset.

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 fiscal 2000, AGLC recovered $4.3
million through its environmental response recovery rider.

F-52

AGL RESOURCES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

13. FAIR VALUE OF FINANCIAL INSTRUMENTS

In the following table, the carrying amounts and fair values of financial
instruments included in AGL Resources' Consolidated Balance Sheets, as of
September 30:

Carrying Estimated
Amount Fair Value
-------- ----------
(in millions)

2000
Long-term debt including current portion............... $610.0 $577.2
Capital Securities..................................... $ 74.3 $ 65.6

1999
Long-term debt including current portion............... $660.0 $640.8
Capital Securities..................................... $ 74.3 $ 70.0

The estimated fair values are determined based on the following:

. Long-term Debt--interest rates that are currently available for
issuance of debt with similar terms and remaining maturities.

. Capital Securities--quoted market price and dividend rates for
preferred stock with similar terms.

Considerable judgment is required to develop the fair value estimates;
therefore, the values are not necessarily indicative of the amounts that could
be realized in a current market exchange. The fair value estimates are based on
information available to management as of September 30, 2000. Management is not
aware of any subsequent factors that would affect significantly the estimated
fair value amounts.

14. RELATED PARTY TRANSACTIONS

The utility recognized revenue totaling $173.6 million in fiscal 2000 for
SouthStar, and had $5.5 million in accounts receivable from SouthStar as of
September 30, 2000. The utility sold gas totaling $5.6 million in fiscal 1999
to SouthStar, and had $0.7 million in accounts receivable from SouthStar as of
September 30, 1999. The utility recognized revenue of $70.7 million in fiscal
1999 related to the assignment of underground storage inventory to SouthStar.

Utilipro recognized revenue of $10.9 million on services provided to
SouthStar during fiscal 2000, and had accounts receivable from SouthStar of
$5.8 million as of September 30, 2000. Utilipro recognized revenue of $6.5
million on services provided to SouthStar during fiscal 1999, and had $2.7
million in accounts receivable from SouthStar as of September 30, 1999.

AGL Resources' investment in SouthStar has a significant impact on AGL
Resources' financial position and results of operations for fiscal 2000 and
fiscal 1999. Summarized financial information for SouthStar at September 30 is
shown below in millions:

2000 1999
------ ------

Total assets.............................................. $149.5 $ 62.9
Total liabilities......................................... $152.7 $ 77.6
For twelve months ended September 30, Income (loss) before
tax...................................................... $ 12.6 $(28.5)

F-53

AGL RESOURCES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

15. SEGMENT INFORMATION

Identifiable assets are those assets used in each segment's operations.
Corporate assets consist primarily of cash and cash equivalents and property,
plant and equipment.

Equity in
the Net Income
Depreciation Income Tax Net Investments
Operating and Interest Interest (Loss) of Expense Income Identifiable in Joint Capital
Revenues Amortization Expense Income Investees (Benefit) (Loss) Assets Ventures Expenditures
--------- ------------ -------- -------- --------- --------- ------ ------------ ----------- ------------
(dollars in millions)

Fiscal 2000
Utility......... $ 571.9 $71.0 $45.2 $0.4 $ -- $39.0 $68.6 $1,866.3 $ 0.4 $145.7
Non-utility..... 35.5 12.2 6.4 0.2 9.3 (1.8) 2.5 74.8 78.4 12.1
-------- ----- ----- ---- ------ ----- ----- -------- ----- ------
$ 607.4 $83.2 $51.6 $0.6 $ 9.3 $37.2 $71.1 $1,941.1 $78.8 $157.8
======== ===== ===== ==== ====== ===== ===== ======== ===== ======
Fiscal 1999
Utility......... $1,041.3 $66.6 $47.9 $ -- $ -- $37.8 $71.9 $1,799.7 $ 0.4 $128.7
Non-utility..... 29.4 12.2 5.1 0.4 (19.9) 1.3 2.5 142.5 27.8 18.6
-------- ----- ----- ---- ------ ----- ----- -------- ----- ------
$1,070.7 $78.8 $53.0 $0.4 $(19.9) $39.1 $74.4 $1,942.2 $28.2 $147.3
======== ===== ===== ==== ====== ===== ===== ======== ===== ======
Fiscal 1998
Utility......... $1,276.3 $62.9 $53.0 $1.0 $ -- $44.2 $87.9 $1,838.9 $ 0.4 $ 96.7
Non-utility..... 63.8 8.2 1.4 0.2 4.6 (5.4) (7.3) 99.7 46.3 22.5
-------- ----- ----- ---- ------ ----- ----- -------- ----- ------
$1,340.1 $71.1 $54.4 $1.2 $ 4.6 $38.8 $80.6 $1,938.6 $46.7 $119.2
======== ===== ===== ==== ====== ===== ===== ======== ===== ======

16. SUBSEQUENT EVENT

Effective with the closing of the VNG acquisition in October 2000, and in
accordance with PUHCA, AGL Resources formed a service company, AGL Services
Company ("AGSC"). AGSC was formed in order to provide shared services to the
subsidiaries of AGL Resources.

F-54

AGL RESOURCES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

17. QUARTERLY FINANCIAL DATA (UNAUDITED)

During the fourth quarter of fiscal 1999, AGL Resources sold its
interests in Sonat Power Marketing and Sonat Marketing for a total after-tax
gain of $22.3 million.

During the fourth quarter of fiscal 2000, AGL Resources recognized a
total after-tax gain of $10.7 million related to the propane transaction and
recorded an after-tax charge of $3.9 million related to the corporate
reorganization.

Quarterly financial data for fiscal 2000 and 1999 is summarized as
follows:

Operating Operating
Revenues Income
--------- ---------
(dollars in
millions, except
per share data)

Fiscal 2000
December 31, 1999.................................... $182.3 $33.5
March 31, 2000....................................... 160.1 37.5
June 30, 2000........................................ 131.8 38.4
September 30, 2000................................... 133.2 28.4
Fiscal 1999
December 31, 1998.................................... $324.4 $47.7
March 31, 1999....................................... 375.6 52.4
June 30, 1999........................................ 186.4 29.5
September 30, 1999................................... 184.3 25.0

Basic Diluted
Net Earnings Per Earnings Per
Income(a) Common Share(a) Common Share(a)
--------- --------------- ---------------

Fiscal 2000
December 31, 1999.............. $17.1 $.30 $.30
March 31, 2000................. 22.7 .41 .41
June 30, 2000.................. 13.9 .26 .26
September 30, 2000............. 17.4 .32 .32
Fiscal 1999
December 31, 1998.............. $15.9 $.28 $.28
March 31, 1999................. 24.2 .42 .42
June 30, 1999.................. 7.2 .12 .12
September 30, 1999............. 27.1 .48 .48

(a) The wide variance in quarterly earnings results from the highly
seasonal nature of AGL Resources' primary business.

Basic and diluted earnings per common share are calculated based on the
weighted average number of common shares and common share equivalents
outstanding during the quarter. Those totals differ from the basic and diluted
earnings per share, as shown on the Statements of Consolidated Income, which
are based on the weighted average number of common shares and common share
equivalents outstanding during the entire year.

F-55

P R O S P E C T U S

$300,000,000

AGL Capital Corporation

debt securities

Guaranteed fully and unconditionally by
AGL Resources Inc.
[AGL Logo]

---------------

The Issuer:

. AGL Capital Corporation was incorporated in Nevada on September 15, 2000. It
is a wholly owned subsidiary of AGL Resources Inc. and was established to
finance acquisitions, refinance existing short-term debt and provide working
capital to AGL Resources and its subsidiaries.

The Guarantor:

. AGL Resources Inc., with its subsidiaries, is the second largest natural gas
distribution company in the United States, with approximately 1.8 million
customers. AGL Resources, through its investments and subsidiaries, also
provides or has an interest in installing and leasing conduit and fiber
optic cable; marketing natural gas and related services; engaging in the
sale of propane and related products and services; engaging in the sale of
integrated customer care solutions and billing services to energy marketers;
and constructing, owning and operating a liquefied natural gas peaking
facility.

The debt securities and the offering:

. AGL Capital Corporation may from time to time issue and offer up to
$300,000,000 of its debt securities.

. The debt securities may be offered in one or more series, with the same or
different maturities, in amounts, prices and on terms to be determined at
the time of the sale. When AGL Capital Corporation offers debt securities,
it will provide you with a prospectus supplement or a term sheet describing
the terms of the specific issue of debt securities including the offering
price of the securities.

. AGL Capital Corporation may sell the debt securities to agents, underwriters
or dealers, or may sell them directly to other purchasers.

. You should read this prospectus and the prospectus supplement or the term
sheet relating to the specific issue of debt securities carefully before you
invest.

The Guarantees:

. The payment of principal, premium, if any, and interest, if any, on the debt
securities will be guaranteed fully and unconditionally by AGL Resources
Inc. as Guarantor.

---------------

Neither the SEC nor any state securities commission has approved these
securities or determined that this prospectus is accurate or complete. It is
illegal for anyone to tell you otherwise.

---------------

The date of this prospectus is February 15, 2001.

ABOUT THIS PROSPECTUS

As used in this prospectus and any prospectus supplement or term sheet,
except as this context otherwise requires, "Guarantor" means AGL Resources
Inc., "Issuer" means AGL Capital Corporation, and references to "we," "us,"
"our" or similar references mean AGL Resources Inc., together with its
subsidiaries, including AGL Capital Corporation. This prospectus is part of a
registration statement that we filed with the Securities and Exchange
Commission, the "SEC," using a "shelf" registration process. Under this shelf
process, we may from time to time sell the debt securities described in this
prospectus in one or more offerings up to a total dollar amount of
$300,000,000.

This prospectus provides you with a general description of the debt
securities we may offer. Each time we sell debt securities, we will provide a
prospectus supplement that will contain specific information about the terms of
that offering. The prospectus supplement may also add, update or change
information contained in this prospectus. If the terms of your debt securities
vary between this prospectus and the accompanying prospectus supplement, you
should rely on the information in the following order of priority:

. the prospectus supplement; and

. the prospectus.

You should read both this prospectus and any prospectus supplement,
together with the additional information described under the heading "Where You
Can Find More Information."

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement under the Securities
Act of 1933 that registers the offer and sale of the securities described in
this prospectus. The registration statement, including the attached exhibits
and schedules, contains additional relevant information about us. The rules and
regulations of the SEC allow us to omit from this prospectus certain
information included in the registration statement.

In addition, we file reports, proxy statements and other information with
the SEC under the Securities Exchange Act of 1934. You may read and copy this
information at the following locations of the SEC:

Public Reference Room Northeast Regional Office Midwest Regional Office
450 Fifth Street, N.W. 7 World Trade Center 550 West Madison Street
Room 1024 Suite 1300 Suite 1400
Washington, D.C. 20549 New York, New York 10048 Chicago, Illinois 60661-2511

You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates.

The SEC also maintains an Internet world wide web site that contains
reports, proxy statements and other information about issuers, like us, who
file electronically with the SEC. The address of that site is:

http://www.sec.gov

You can also inspect reports, proxy statements and other information
about us at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The SEC allows us to "incorporate by reference" information into this
prospectus. This means that we can disclose important information to you by
referring you to another document filed separately with the SEC.

The information incorporated by reference is considered to be part of
this prospectus, except for any information that is superseded by information
that is included directly in this document or in a more recent incorporated
document.

This prospectus incorporates by reference the documents listed below that
we (or our predecessors) have previously filed with the SEC. The documents
contain important information about us and our financial condition.

. Annual Report on Form 10-K for the fiscal year ended September 30,
2000 filed on December 18, 2000;

. Quarterly Report on Form 10-Q for the quarter ended December 31, 2000
filed on February 9, 2001;

. Current Report on Form 8-K filed on November 17, 2000 (event date:
November 17, 2000);

. Current Report on Form 8-K filed on October 18, 2000 (event date:
October 6, 2000), as amended by Form 8-K/A filed on December 20,
2000; and

. Proxy Statement filed December 18, 2000 relating to our 2001 Annual
Meeting of Shareholders.

We incorporate by reference additional documents that we may file with
the SEC between the date of this prospectus and the date we sell all of the
debt securities. These documents include periodic reports, such as Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on
Form 8-K, as well as proxy statements.

You can obtain any of the documents incorporated by reference in this
prospectus from us, or from the SEC through the SEC's Internet world wide web
site at the address described above. Documents incorporated by reference are
available from us without charge, excluding any exhibits to those documents,
unless the exhibit is specifically incorporated by reference in this
prospectus. You can obtain documents incorporated by reference in this
prospectus by requesting them in writing or by telephone from us at the
following address:

Investor Relations
AGL Resources Inc.
P. O. Box 4569
Atlanta, Georgia 30302-4569
Telephone: (404) 584-9470

We have not authorized anyone to give any information or make any
representation about us that is different from, or in addition to, the
information and representations contained in this prospectus or in any of the
materials that we have incorporated into this prospectus. If anyone does give
you information of this sort, you should not rely on it. If you are in a
jurisdiction where offers to sell, or solicitations of offers to purchase, the
securities offered by this document are unlawful, or if you are a person to
whom it is unlawful to direct these activities, then the offer presented in
this document does not extend to you. The information contained in this
document speaks only as of the date of this document unless the information
specifically indicates that another date applies.

RISK FACTORS

Each time that we issue a new series of debt securities, risk factors, if
appropriate, will be included in the prospectus supplement relating to that new
series.

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 SEC. Forward-looking statements
in our Management's Discussion and Analysis include, but are not limited to,
statements about the following:

. Deregulation;

. Business prospects;

. 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.

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 our service
territories;

. 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; and

. Other factors including uncertainties about weather and the related
impact of such factors.

THE COMPANY

AGL Resources is the holding company for:

. Atlanta Gas Light Company, a natural gas local distribution utility;

. Virginia Natural Gas, Inc., a natural gas local distribution utility
acquired on October 1, 2000;

. Chattanooga Gas Company, a natural gas local distribution utility;

. AGL Energy Services, LLC, a gas supply services company;

. AGL Services Company, a service company established in accordance
with the Public Utility Holding Company Act of 1935; and

. Several non-utility subsidiaries, including AGL Capital Corporation.

AGL Resources owns or has an interest in the following non-utility
businesses:

. AGL Investments, Inc., in which AGL Resources has a 100% ownership
interest, manages certain non-utility businesses including:

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

. AGL Networks, LLC, which will install, and lease to third-party
operators, conduit and fiber optic cable. AGL Networks was
incorporated 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;

USE OF PROCEEDS

Unless the prospectus supplement indicates otherwise, the net proceeds we
receive from the sale of the debt securities will be used to reduce
outstanding short-term debt obligations, including debt incurred through our
commercial paper program and for other proper corporate purposes.

RATIO OF EARNINGS TO FIXED CHARGES

The following table shows our consolidated ratio of earnings to fixed
charges for the periods indicated:

Fiscal Year Ended
Three Months September 30
Ended ------------------------
December 31, 2000 2000 1999 1998 1997 1996
----------------- ---- ---- ---- ---- ----

Ratio of Earnings to Fixed
Charges..................... 2.42 2.87 3.00 3.07 3.24 3.37

DESCRIPTION OF DEBT SECURITIES

The debt securities and the guarantees will be issued under an indenture
dated as of February 20, 2001, as supplemented and modified, among AGL Capital
Corporation, AGL Resources Inc. and The Bank of New York, as trustee. The
indenture provides for the issuance from time to time of debt securities in an
unlimited dollar amount and an unlimited number of series. The debt securities
will be guaranteed by the Guarantor under the guarantees described below.

The following description of the terms of the debt securities and the
guarantees summarizes the material terms that will apply to the debt
securities and the guarantees. The description is not complete and we refer
you to the indenture, a copy of which is an exhibit to the registration
statement of which this prospectus is a part. For your reference, in several
cases below, we have noted the section in the indenture that the paragraph
summarizes. The referenced section of the indenture and the definitions of
capitalized terms are incorporated by reference in the following summary.

Prospective purchasers of debt securities should be aware that special
U.S. federal income tax, accounting and other considerations may be applicable
to instruments such as the debt securities. The prospectus supplement or term
sheet relating to an issue of debt securities will describe these
considerations, if they apply.

General

The indenture does not limit the aggregate principal amount of the debt
securities that may be issued thereunder and provides that the debt securities
may be issued from time to time in series. The debt securities will be
unsecured and will rank on a parity with all of our other unsecured and
unsubordinated indebtedness, unless otherwise provided in a prospectus
supplement.

The prospectus supplement and any related pricing supplement will
describe certain terms of the offered debt securities, including:

. the title of the offered debt securities;

. any limit on the aggregate principal amount of the offered debt
securities;

. the person or persons to whom interest on the offered debt securities
shall be payable on any interest payment date if other than the person
in whose name the offered debt security is registered on the regular
record date;

. the date or dates on which the principal of the offered debt
securities is payable;

. the rate or rates (or manner in which interest is to be determined)
at which the offered debt securities will bear interest, if any, and
the date from which such interest, if any, will accrue and the
regular record date for the interest payable on the offered debt
securities on any interest payment date;

. the periods within which, the prices at which and the terms and
conditions upon which the offered debt securities may be redeemed, in
whole or in part, at our option;

. our obligation, if any, to redeem or purchase the offered debt
securities pursuant to any sinking fund or at the option of the
holder and the price or prices at which and the terms and conditions
upon which such offered debt securities will be redeemed or
purchased;

. whether the offered debt securities are to be issued in whole or in
part in the form of one or more global senior notes and, if so, the
identity of the depositary for such global senior notes; and

. any events of default (in addition to those specified in the
indenture) or other terms and conditions with respect to the offered
debt securities that are not inconsistent with the terms of the
indenture.

Unless otherwise provided in the prospectus supplement or a pricing
supplement, the debt securities will be issued only in fully registered form,
without coupons, in denominations of $1,000 or any integral multiple thereof.

One or more series of debt securities may be issued as discounted debt
securities (bearing no interest or interest at a rate which at the time of
issuance is below market rates) to be sold at a substantial discount below
their stated principal amount. Special federal income tax and other
considerations applicable thereto will be described in the prospectus
supplement relating thereto.

The indenture provides that all debt securities of any one series need
not be issued at the same time and that we may, from time to time, issue
additional debt securities of a previously issued series. In addition, the
indenture provides that we may issue debt securities with terms different from
those of any other series of debt securities and, within a series of debt
securities, terms, such as interest rate or manner in which interest is
calculated, original issue date, redemption provisions and maturity date, may
differ.

Payment of Senior Notes; Transfers; Exchanges

Except as may be provided in the applicable prospectus supplement,
interest, if any, on each debt security payable on each interest payment date
will be paid to the person in whose name such debt security is registered as of
the close of business on the regular record date relating to such interest
payment date. However, if there has been a default in the payment of interest
on any debt security, such defaulted interest may be payable to the holder of
such debt security as of the close of business on a date selected by the
trustee not more than 15 days and not less than 10 days prior to the date we
propose for payment of such defaulted interest. (See Section 307.)

Principal of, and premium and interest, if any, on the debt securities
will be payable at the office of the trustee designated for such purpose or at
any paying agency we maintain for such purpose. We may appoint one or more
paying agents and may remove any paying agent, all in our discretion. The
applicable prospectus supplement will identify any paying agent appointed.

The transfer of the debt securities may be registered, and the debt
securities may be exchanged for other debt securities of authorized
denominations and of like tenor and aggregate principal amount at the office of
the trustee designated for such purpose or at any paying agency we maintain for
such purpose. We may appoint one or more additional security registrars or
transfer agents and may remove any security registrar or transfer agent, all in
our discretion. The applicable prospectus supplement will identify any
additional security registrar or transfer agent appointed.

No service charge will be made for any registration of transfer or
exchange of the debt securities, but we may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. We will not be required:

. to issue, register the transfer of or exchange debt securities during
the period of 15 days prior to giving any notice of redemption or

. to issue, register the transfer of or exchange any debt security
selected for redemption in whole or in part, except the unredeemed
portion of any debt security being redeemed in part. (See Section
305.)

Redemption

Any terms for the optional or mandatory redemption of the offered debt
securities will be set forth in the applicable prospectus supplement. In
accordance with the terms of the indenture, debt securities will be redeemable
only upon notice, by mail, not less than 30 nor more than 60 days prior to the
date fixed for redemption and, if less than all of the debt securities of any
series are to be redeemed, the particular debt securities will be selected by
the security registrar by such method as the trustee deems fair and
appropriate. (See Sections 403 and 404.)

Any notice of optional redemption may state that such redemption shall
be conditional upon the receipt by the trustee, on or prior to the date fixed
for such redemption, of money sufficient to pay the principal of and premium
and interest, if any, on such debt securities and that if such money has not
been so received, such notice will be of no force or effect and we will not be
required to redeem such debt securities. (See Section 404.)

Events of Default

The following are events of default under the indenture with respect to
debt securities of any series:

. failure to pay any interest on any debt security within 30 days after
the same becomes due and payable;

. failure to pay principal of or any premium on any debt security
within three (3) business days of when due;

. failure to perform, or breach of, any other covenant or warranty in
the indenture (other than a covenant or warranty included in the
indenture solely for the benefit of one or more series of debt
securities other than that series), continued for 90 days after
written notice to us by the trustee or by the holders of at least 25%
in principal amount of the outstanding debt securities to us and the
trustee as provided in the indenture;

. certain events of bankruptcy, insolvency, conservatorship,
receivership or reorganization; and

. any other event of default provided with respect to the debt
securities of that series. (See Section 801.)

No event of default with respect to the debt securities of one series
necessarily constitutes an event of default with respect to the debt
securities of any other series issued under the indenture.

If an event of default other than certain events of bankruptcy,
insolvency, conservatorship, receivership or reorganization occurs and is
continuing, either the trustee or the holders of at least 33% in aggregate
principal amount of the outstanding debt securities of that series may declare
the principal amount of all the outstanding debt securities of that series to
be due and payable immediately; provided, however, that if such an event of
default occurs and is continuing with respect to more than one series of debt
securities, the trustee or the holders of not less than 33% in aggregate
principal amount of the outstanding debt securities of all such

series, considered as one class, may make such declaration of acceleration and
not the holders of the debt securities of any of such series. If an event of
default involving certain events of bankruptcy, insolvency, conservatorship,
receivership or reorganization occurs and is continuing, the principal amount
of all outstanding debt securities shall automatically become immediately due
and payable. (See Section 802.)

The holders of a majority in aggregate principal amount of the
outstanding debt securities of each series may, on behalf of all holders of the
debt securities of that series, waive any past default under the indenture with
respect to the debt securities of that series, except a default in the payment
of principal or premium or interest, if any, or in respect of a provision of
the indenture which cannot be amended or modified without the consent of the
holder of each outstanding debt security of the series affected. (See Section
813.)

Remedies

At any time after the declaration of acceleration with respect to the
debt securities of any series has been made, but before a judgment or decree
based on acceleration has been obtained, the event or events of default giving
rise to such declaration of acceleration shall, without further act, be deemed
to have been waived, and such declaration and its consequences shall, without
further act, be deemed to have been rescinded and annulled if

. we have paid or deposited with the trustee a sum sufficient to pay:

(1) all overdue interest on all debt securities of such series;

(2) the principal of and premium, if any, on any debt securities
of such series which have become due otherwise than by such
declaration of acceleration and interest thereon at the rate
or rates prescribed hereof in such debt securities;

(3) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate or rates prescribed
therefor in such debt securities;

(4) all amounts due to the trustee under the indenture; and

. any other event or events of default with respect to the debt
securities of such series, other than the nonpayment of the principal
of the debt securities of such series which has become due solely by
such declaration of acceleration, have been cured or waived as
provided in the indenture. (See Section 802.)

The indenture provides that, subject to the duty of the trustee during
the continuance of an event of default to act with the required standard of
care, the trustee will be under no obligation to exercise any of its rights or
powers under the indenture at the request or direction of any of the holders,
unless such holders shall have offered to the trustee reasonable indemnity.
Subject to such provisions for the indemnification of the trustee and subject
to certain other limitations, the holders of a majority in aggregate principal
amount of the outstanding debt securities of any series will have the right to
direct the time, method and place of conducting any proceedings for any remedy
available to the trustee, or exercising any trust or power conferred on the
trustee, with respect to the debt securities of that series; provided, however,
that if an event of default occurs and is continuing with respect to more than
one series of debt securities, the holders of a majority in aggregate principal
amount of the outstanding debt securities of all such series, considered as one
class, will have the right to make such direction, and not the holders of the
debt securities of any one of such series; and provided, further, that:

. such direction will not be in conflict with any rule of law or with
the indenture and would not involve the trustee in personal liability
in circumstances where reasonable indemnity could not be adequate and

. the trustee may take any other action it deems proper which is not
inconsistent with such direction. (See Section 812.)

The right of a holder of any debt security of such series to institute a
proceeding with respect to the indenture is subject to certain conditions
precedent, but each holder has an absolute right to receive payment of
principal and premium and interest, if any, when due and to institute suit for
the enforcement of any such payment. (See Sections 807 and 808.) The indenture
provides that the trustee, within 90 days after the occurrence of any default
thereunder with respect to the debt securities of a series, is required to give
the holders of the indenture securities of such series notice of any default
known to it, unless cured or waived; provided, however, that, except in the
case of a default in the payment of principal of or premium or interest, if
any, on any debt securities of such series, the trustee may withhold such
notice if the trustee determines that it is in the interest of such holders to
do so; and provided, further, that in the case of an event of default of the
character specified above in the third bullet point under "Events of Default,"
no such notice shall be given to such holders until at least 75 days after the
occurrence thereof. (See Section 902.)

The indenture requires us to annually furnish to the trustee a statement
as to our performance of certain obligations and as to any default in such
performance. The indenture also requires us to notify the trustee of any event
of default within ten days after certain of our officers obtain actual
knowledge thereof. (See Section 606.)

Modification, Waiver and Amendment

Certain modifications and amendments of the indenture may be made by us
and the trustee without the consent of the holders, including those which:

. evidence the assumption by any of our successors of our obligations
under the indenture or with respect to the debt securities;

. add to our covenants or surrender any of our rights under the
indenture;

. add any events of default, in addition to those specified in the
indenture, with respect to any series of outstanding debt securities;

. change or eliminate any provision of the indenture or add any new
provision to the indenture; provided, however, that if such change,
elimination or addition will adversely affect the interests of
holders of debt securities of any series in any material respect,
such change, elimination or addition will become effective with
respect to such series only when there is no debt security of such
series remaining outstanding under the indenture;

. provide collateral security for the debt securities;

. establish the form or terms of debt securities of any series;

. evidence the appointment of a successor trustee with respect to the
debt securities of one or more series and to add to or change any of
the provisions of the indenture as shall be necessary to provide for
or to facilitate the administration of the trusts under the indenture
by more than one trustee;

. provide for the procedures required to permit the utilization of a
noncertificated system of registration for any series of debt
securities;

. subject to certain conditions, change the place where debt securities
may be transferred, exchanged or paid; or

. cure any ambiguity or inconsistency or make any other provisions with
respect to matters and questions arising under the indenture,
provided such provisions shall not adversely affect the interests of
the holders of debt securities of any series in any material respect.
(See Section 1201.)

Without limiting the generality of the foregoing, if the Trust Indenture
Act of 1939, as amended, is amended after the date of the indenture to require
changes to the indenture or the incorporation therein of additional provisions
or permit changes to, or the elimination of, provisions which, at the date of
the indenture

or at any time thereafter, are required by the Trust Indenture Act to be
contained in the indenture, the trustee and we may, without the consent of any
holders, enter into one or more supplemental indentures to effect or reflect
any such change, incorporation or elimination.

Modifications and amendments of the indenture may be made by the trustee
and us with the consent of the holders of not less than a majority in aggregate
principal amount of the outstanding debt securities of all series then
outstanding under the indenture and affected by such modification or amendment,
considered as one class; provided, however, that no such modification or
amendment may, without the consent of the holders of each outstanding debt
security affected thereby:

. change the stated maturity of the principal of, or any installment of
principal of or interest, if any, on, any debt security;

. reduce the principal amount of, or premium or interest, if any, on,
any debt security;

. reduce the amount of principal of an original issue discount debt
security payable upon acceleration of the maturity thereof;

. change the currency in which any principal of, or premium or
interest, if any, on, any debt security is payable;

. impair the right to institute suit for the enforcement of any payment
on or with respect to any debt security;

. reduce the percentage in principal amount of the outstanding debt
securities of any series, the consent of whose holders is required
for modification or amendment of the indenture or for waiver of
compliance with certain provisions of the indenture or for waiver of
certain defaults;

. reduce the requirements for quorum or voting; or

. amend certain other provisions of the indenture relating to
amendments and defaults.

A supplemental indenture which changes or eliminates any covenant or
other provision of the indenture which has expressly been included solely for
the benefit of one or more particular series of debt securities, or which
modifies the rights of the holders of debt securities of such series with
respect to such covenant or other provision, shall be deemed not to affect the
rights under the indenture of the holders of any other debt securities. (See
Section 1202.)

Covenants; Consolidation, Merger and Sale of Assets

We will cause (or, with respect to property owned in common with others,
make reasonable effort to cause) all of our properties used or useful in the
conduct of our business to be maintained and kept in good condition, repair and
working order and will cause (or with respect to property owned in common with
others make reasonable effort to cause) all necessary repairs, renewals,
replacements, betterments and improvements thereof to be made, all as, in our
judgment, may be necessary so that our business may be properly conducted;
provided, however, that the foregoing will not prevent us from discontinuing,
or causing the discontinuance of, the operation and maintenance of any of our
properties if such discontinuance is, in our judgment, desirable in the conduct
of our business and will not adversely affect the interests of the holders of
debt securities of any series in any material respect. (See Section 605.)

Subject to the provisions described in the next paragraph, we will do or
cause to be done all things necessary to preserve and keep in full force and
effect our corporate existence and rights (charter and statutory) and our
franchises; provided, however, that we will not be required to preserve any
such right or franchise if, in our judgment, preservation thereof is no longer
desirable in the conduct of our business and the failure to preserve any such
right or franchise will not adversely affect the interests of the holders of
debt securities of any series in any material respect. (See Section 604.)

We may, without the consent of the holders of any of the outstanding debt
securities under the indenture, merge into, consolidate with, or sell, lease or
convey all or substantially all of our assets to a successor company organized
under the laws of the United States, any state thereof or the District of
Columbia, provided, however, that such successor company assumes our
obligations on the debt securities and under the indenture, that after giving
effect to the transaction no event of default, and no event which, after notice
or lapse of time or both would become an event of default, will have occurred
and be continuing, and that we will have delivered to the trustee an opinion of
counsel and an officer's certificate as provided in the indenture. (See Section
1101.)

Satisfaction and Discharge

We may terminate certain of our obligations under the indenture with
respect to debt securities of any series on the terms and subject to the
conditions contained in the indenture, by depositing in trust with the trustee
cash or eligible obligations (as defined below) (or a combination thereof)
sufficient to pay the principal of and premium and interest, if any, due and to
become due on the debt securities of such series on or prior to their maturity
or redemption date in accordance with the terms of the indenture and such debt
securities. (See Section 701.)

The indenture, with respect to any and all series of debt securities
(except for certain specified surviving obligations) will be discharged and
cancelled upon the satisfaction of certain conditions, including:

. the payment in full of the principal of (and premium, if any) and
interest on all of the debt securities of such series or the deposit
with the trustee of an amount in cash or eligible obligations (or a
combination thereof) sufficient for such payment or redemption, in
accordance with the indenture;

. the payment by us of all other sums required under the indenture; and

. the delivery of a certificate by us to the trustee stating that all
conditions relating to the satisfaction and discharge of the
indenture have been complied with. (See Section 702.)

Eligible Obligations include:

. with respect to debt securities denominated in United States dollars,
government obligations (which include direct obligations of, or
obligations unconditionally guaranteed by, the United States of
America entitled to the benefit of the full faith and credit thereof
and certificates, depositary receipts or other instruments which
evidence a direct ownership interest in such obligations or in any
specific interest or principal payments due in respect thereof); and

. with respect to debt securities denominated in a currency other than
United States dollars or in a composite currency, such other
obligations or instruments as shall be specified with respect to such
debt securities, as contemplated by the indenture.

In order to terminate our obligations in respect of any series of debt
securities, we must deliver to the trustee an opinion of counsel to the effect
that the holders of that series of securities will not recognize income, gain
or loss for federal income tax purposes as a result.

For federal income tax purposes, any deposit contemplated by the first
two paragraphs of this section may be treated as a taxable exchange of the
related debt securities for an issue of obligations of the trust or a direct
interest in the cash and securities held in the trust. In that case, holders of
such debt securities would recognize gain or loss as if the trust obligations
or the cash or securities deposited, as the case may be, had actually been
received by them in exchange for their debt securities. Such holders thereafter
would be required to include in income a share of the income, gain or loss of
the trust. The amount so required to be included in

income could be different from the amount that would be includable in the
absence of such deposit. Prospective investors are urged to consult their own
tax advisors as to the specific consequences to them of such deposit.

Governing Law

The debt securities and the indenture will be governed by and construed
in accordance with the laws of the State of New York.

Description of the Guarantees

AGL Resources has unconditionally guaranteed to each holder of debt
securities and to the trustee and its successors the due and punctual payment
of the principal of and premium, if any, and interest, if any, on the debt
securities. The guarantees apply whether the payment is due at the maturity
date of the debt securities, on an interest payment date, or as a result of
acceleration, an offer to purchase or otherwise. The guarantees include payment
of interest on the overdue principal of and interest, if any, on the debt
securities (if lawful) and all other obligations of the Issuer under the
indenture.

The guarantees will remain valid even if the indenture is found to be
invalid. AGL Resources is obligated under the guarantees to pay any guaranteed
amount immediately after AGL Capital Corporation's failure to do so.

AGL Resources is a holding company with no independent business
operations or source of income of its own. It conducts substantially all of its
operations through its subsidiaries and, as a result, AGL Resources depends on
the earnings and cash flow of and dividends or distributions from its
subsidiaries to provide the funds necessary to meet its debt and contractual
obligations. Furthermore, a substantial portion of AGL Resources' consolidated
assets, earnings and cash flow is derived from the operation of its regulated
utility subsidiaries, whose legal authority to pay dividends or make other
distributions to AGL Resources is subject to regulation.

AGL Resources' holding company status also means that the right of AGL
Resources to participate in any distribution of the assets of any of its
subsidiaries upon liquidation, reorganization or otherwise is subject to the
prior claims of the creditors of each of the subsidiaries, except to the extent
that the claims of AGL Resources itself as a creditor of a subsidiary may be
recognized. Since this is true for AGL Resources, it is also true for the
creditors of AGL Resources, including the holders of the debt securities. The
right of AGL Resources' creditors, including the holders of the debt
securities, to participate in the distribution of the stock owned by AGL
Resources in its regulated subsidiaries is also subject to regulation.

Concerning the Trustee

The indenture contains certain limitations on the right of the trustee,
should it become our creditor, to obtain payment of claims in certain cases, or
to realize on certain property received in respect of any such claim as
security or otherwise. The trustee will be permitted to engage in other
transactions with us; provided, however, that if the trustee acquires any
conflicting interest, it must eliminate such conflict or resign.

The indenture provides that, in case an event of default shall occur and
be continuing, the trustee will be required to use the degree of care and skill
of a prudent person in the conduct of his or her own affairs in the exercise of
its power.

PLAN OF DISTRIBUTION

We may sell securities:

. to the public through a group of underwriters managed or co-managed
by one or more underwriters;

. through one or more agents; or

. directly to purchasers.

The distribution of the securities may be effected from time to time in
one or more transactions:

. at a fixed price or prices, which may be changed from time to time;

. at market prices prevailing at the time of sale;

. at prices related to those prevailing market prices; or

. at negotiated prices.

Each prospectus supplement will describe the method of distribution of
the securities and any applicable restrictions.

The prospectus supplement with respect to the securities of a particular
series will describe the terms of the offering of the securities, including the
following:

. the name or names of any agents or underwriters;

. the public offering or purchase price;

. any discounts and commissions to be allowed or paid to dealers; and

. any exchanges on which the securities will be listed.

Only the agents or underwriters named in the prospectus supplement are
agents or underwriters in connection with the securities being offered. We may
agree to enter into an agreement to indemnify the agents and the several
underwriters against certain civil liabilities, including liabilities under the
Securities Act, or to contribute to payments the agents or the underwriters may
be required to make.

Certain of the underwriters and their associates and affiliates may be
customers of, have borrowing relationships with, engage in other transactions
with, and/or perform services, including investment banking services, for us or
one or more of our affiliates in the ordinary course of business.

The debt securities will be new issues of securities and will have no
established trading market. Unless otherwise indicated in the prospectus
supplement relating to a specific issuance of debt securities, the debt
securities will not be listed on a national securities exchange or the Nasdaq
National Market. We can give no assurance as to the liquidity of or the
existence of trading markets for the debt securities.

LEGAL MATTERS

Certain legal matters related to the debt securities and guarantees will
be passed upon for us by our counsel, Long Aldridge & Norman LLP, Atlanta,
Georgia, and with regard to the laws of the State of Nevada, Marshall Hill
Cassas & deLipkau, Reno, Nevada, or other counsel identified in the prospectus
supplement or term sheet.

EXPERTS

The consolidated financial statements and the related financial statement
schedule incorporated in this prospectus by reference from AGL Resources Inc.'s
Annual Report on Form 10-K for the year ended September 30, 2000 have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and have been so
incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.

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$300,000,000

AGL Capital Corporation

7 1/8% Senior Notes due 2011

Guaranteed fully and unconditionally by
AGL Resources Inc.
[AGL Resources Inc. logo]

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PROSPECTUS SUPPLEMENT

--------------------------------

Merrill Lynch & Co.
SunTrust Equitable Securities
Morgan Stanley Dean Witter
Wachovia Securities, Inc.
BNY Capital Markets
Banc One Capital Markets, Inc.
Credit Lyonnais Securities
Fleet Securities, Inc.
Scotia Capital
Tokyo-Mitsubishi International plc

February 23, 2001

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