SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K
                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                  For the fiscal year ended September 30, 1996
                         Commission File Number 1-14174

                               AGL RESOURCES INC.
             (Exact name of registrant as specified in its charter)

      Georgia                                              58-2210952
(State or other jurisdiction of                         (I.R.S. Employer
incorporation or organization)                          Identification No.)
   303 Peachtree Street, N.E., 
   Atlanta, Georgia
   30308                                                           
(Address and zip code of                                404-584-9470
 principal executive offices)                 (Registrant's telephone number,
                                                 including area code) 

Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $5 Par Value               New York Stock Exchange
Preferred Share Purchase Rights          New York Stock Exchange
(Title of Class)                        (Name of exchange on which registered)

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

Aggregate  market  value  of the  voting  stock  held by  non-affiliates  of the
registrant,  computed  by  reference  to the  closing  price of such stock as of
November 29,1996: $1,177,590,035.

The number of shares of Common  Stock  outstanding  as of November  29, 1996 was
55,743,907 shares.

                      DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the 1996 Annual Report to  Shareholders  for AGL Resources  Inc. for
the fiscal year ended September 30, 1996, are  incorporated  herein by reference
in Part II and portions of the Proxy  Statement  for the 1997 Annual  Meeting of
Shareholders are incorporated herein by reference in Part III.

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]












                                TABLE OF CONTENTS

                                                                        Page
PART I
    Item 1.        Business.............................................    1
    Item 2.        Properties...........................................   13
    Item 3.        Legal Proceedings....................................   13
    Item 4.        Submission of Matters to a Vote of 
                     Security Holders...................................   15
    Item 4.(A).    Executive Officers of the Registrant.................   16

PART II
    Item 5.        Market for the Registrant's Common Equity 
                     and Related Stockholder Matters....................   17
    Item 6.        Selected Financial Data..............................   17
    Item 7.        Management's Discussion and Analysis of 
                     Results of Operations and Financial Condition......   17
    Item 8.        Financial Statements and Supplementary Data..........   17
    Item 9.        Changes in and Disagreements with Accountants 
                     on Accounting and Financial Disclosure.............   17

PART III
    Item 10.       Directors and Executive Officers of the 
                     Registrant.........................................   18
    Item 11.       Executive Compensation...............................   18
    Item 12.       Security Ownership of Certain Beneficial 
                     Owners and Management..............................   18
    Item 13.       Certain Relationships and Related Transactions.......   18

PART IV
     Item 14.      Exhibits,  Financial Statement Schedules 
                     and Reports on Form 8-K............................   19

Signatures        ......................................................   21





















                                     Part I
- --------------------------------------------------------------------------------

Item 1.    Business

GENERAL

       AGL Resources Inc. (AGL Resources) is a Georgia corporation  incorporated
on November 27, 1995,  for the primary  purpose of becoming the holding  company
for Atlanta Gas Light Company (AGLC),  a natural gas distribution  utility,  and
its  subsidiaries.  Unless  noted  specifically  or  otherwise  required  by the
context,  references to AGL Resources  include AGLC, AGLC's wholly owned natural
gas  utility  subsidiary,   Chattanooga  Gas  Company  (Chattanooga),   and  AGL
Resources'  nonregulated  subsidiaries:  AGL Energy  Services,  Inc. (AGL Energy
Services);  AGL  Investments,  Inc. (AGL  Investments);  AGL  Resources  Service
Company (Service Company);  and The Energy Spring,  Inc. AGL Energy Services has
one  nonregulated  subsidiary,  Georgia Gas  Company.  AGL  Investments  has six
nonregulated subsidiaries:  Georgia Gas Service Company; Georgia Energy Company;
AGL Consumer Services, Inc.; AGL Gas Marketing,  Inc.; AGL Power Services, Inc.;
and Trustees  Investments,  Inc. Unless noted specifically or otherwise required
by the context, references to AGLC include the operations and activities of AGLC
and Chattanooga.

       AGL Resources'  principal  business is the distribution of natural gas to
customers  in  central,  northwest,  northeast  and  southeast  Georgia  and the
Chattanooga,  Tennessee  area through its natural gas  distribution  subsidiary,
AGLC.  AGLC's major  service area is the ten county  metropolitan  Atlanta area.
Metropolitan  Atlanta has an  estimated  population  of 3 million,  constituting
approximately  41% of the total  population  of  Georgia.  Approximately  66% of
AGLC's customers are located in the Atlanta  metropolitan  area. These customers
consume 48% of the natural gas sold and  transported  and provide  approximately
60% of the gas revenues of AGLC. AGLC's other principal service areas in Georgia
are the Athens,  Augusta,  Brunswick,  Macon, Rome, Savannah and Valdosta areas.
During the fiscal year ended  September  30,  1996,  AGLC  supplied  natural gas
service  to an  average  of  approximately  1.3  million  customers  in  Georgia
including 516 centrally  metered  customers serving 50,098 apartment units. AGLC
provides natural gas service in 235 cities and surrounding areas in Georgia.  In
addition to AGLC's service areas in Georgia, natural gas service was supplied by
Chattanooga to an average of  approximately  52,000 customers in Chattanooga and
Cleveland,  Tennessee,  and surrounding  portions of Hamilton County and Bradley
County, Tennessee during the fiscal year ended September 30, 1996. All of AGLC's
natural  gas  service  area  is  certificated  by  the  Georgia  Public  Service
Commission (Georgia  Commission) and the Tennessee  Regulatory  Authority (TRA),
formerly the Tennessee Public Service Commission.

       The areas  served  by AGLC in  Georgia  outside  the  metropolitan  areas
described in the preceding paragraph were for many years primarily agricultural,
with timber, poultry,  cattle, cotton, tobacco,  peanuts and soy beans among the
principal  products.  However,  both  industry  and  agriculture  are  currently
important to the economies of these areas.  In addition to the  industries  that
use local natural  resources such as pulpwood,  clay,  marble,  talc and kaolin,
AGLC  serves  a  number  of   nationally   known   organizations   that  operate
installations  in  Georgia.   These  operations   increase   substantially   the
diversification of industry in AGLC's service area.

       During fiscal 1996, AGLC added approximately  41,500 customers,  based on
12-month average  calculations,  representing an increase over the prior year of
approximately  3%.  Substantially  all of this growth was in the residential and
small commercial service categories.

       The ten  largest  customers  of AGLC  accounted  for 1.9% and 1.4% of AGL
Resources' total operating revenues and operating margin, respectively,  for the
fiscal year ended  September 30, 1996. For the same period,  volumes of gas sold
and  transported  to the ten  largest  customers  accounted  for  10.6% of total
volumes of gas sold and transported.

       AGL Resources'  consolidated  operating  revenues  during the fiscal year
ended  September 30, 1996,  were $1.2 billion,  of which  approximately  58% was
derived  from  residential  utility  customers,   24%  from  commercial  utility
customers,  14%  from  industrial  utility  customers,  2%  from  transportation
customers and 2% from other sources.




                                        1



       AGL Resources  engages in nonregulated  business  activities  through its
wholly owned subsidiaries,  AGL Energy Services,  a gas supply services company;
AGL  Investments,  a  subsidiary  established  to  develop  and  manage  certain
nonregulated  businesses;  The Energy  Spring,  Inc., a retail energy  marketing
company; Service Company and their subsidiaries.

       During  August 1995 AGLC signed an agreement  with Sonat Inc.  (Sonat) to
form a joint  venture to acquire the  business  of Sonat  Marketing  Company,  a
wholly owned  subsidiary of Sonat.  The joint venture,  Sonat Marketing  Company
L.P.  (Sonat  Marketing),   offers  natural  gas  sales,  transportation,   risk
management  and  storage  services  to natural  gas users and  producers  in key
natural gas producing and consuming areas of the United States.

       AGLC invested  $32.6 million in exchange for a 35% ownership  interest in
Sonat  Marketing.  During the third quarter of fiscal 1996,  AGLC's  interest in
Sonat  Marketing  was  transferred  to AGL Gas  Marketing,  Inc., a wholly owned
subsidiary of AGL  Investments.  AGL Investments has certain rights for a period
of  five  years  to  sell  its  interest  in  Sonat  Marketing  to  Sonat  at  a
predetermined fixed price, as defined, or for fair market value at any time.

       During  June 1996 Sonat Power  Marketing,  Inc.  and AGL Power  Services,
Inc., a wholly owned subsidiary of AGL Investments (AGL Power Services),  formed
a joint  venture,  Sonat  Power  Marketing,  L.P.  AGL Power  Services  invested
approximately  $1  million  in  exchange  for a 35%  ownership  interest  in the
partnership. Sonat Power Marketing L.P. provides power marketing and all related
services in key market areas throughout the United States.

       In addition to its predominant  business of natural gas  distribution and
its  investments  in  joint  ventures,  AGL  Resources,   through  wholly  owned
subsidiaries,  serves  approximately  14,000  customers  in Georgia  and Alabama
through  retail  propane  sales  (Georgia  Gas Service  Company),  and has minor
interests in natural gas  production  activities  (Georgia Gas Company) and real
estate  holdings  (Trustees   Investments,   Inc.).  The  aggregate  net  income
contributed by nonregulated operations in fiscal 1996 was $3.9 million. See Part
I, Item 1, "Business - Subsidiaries."

       Through September 30, 1996, historic maximum daily sendout of natural gas
was  approximately  2.15 billion cubic feet which  occurred on February 4, 1996.
The mean temperature in the metropolitan Atlanta area that day was 11(degree) F.
AGL  Resources'  primary  business of gas  distribution  through  AGLC is highly
seasonal in nature and heavily  dependent on weather  because of the substantial
use of gas for heating  purposes.  However,  the Georgia  Commission and the TRA
have authorized the implementation of weather  normalization  adjustment riders,
which are designed to offset the impact that either  unusually cold or unusually
warm weather has on operating margin, earnings and cash flow and are designed to
stabilize  operating  margin and  earnings at the levels  which would occur with
normal weather.  For the effects of seasonal  variations on quarterly  earnings,
see Note 14 in Notes to Consolidated Financial Statements in AGL Resources' 1996
Annual Report to Shareholders.

       On September  30, 1996,  AGL  Resources  and its  subsidiaries  had 2,952
employees. Approximately 640 employees working for AGLC and 55 employees working
for  Service  Company  are  covered  by  provisions  of  collective   bargaining
agreements with the General Teamsters Local Union No. 528. The master agreement,
among the Teamsters,  AGLC and Service  Company,  provides for a $1,000 lump sum
payment to each covered  employee in October 1996 and a $500 lump sum payment in
September 1997 and 1998. In addition,  the pay ranges for all covered  positions
are scheduled to increase 3% in September 1997 and 1998 and 3.5% in 1999.  Based
on current pay levels, it is anticipated that few covered employees will see any
base rate increases until 1999. That agreement expires September 17, 2000.

       A five-year  collective  bargaining agreement among AGLC, Service Company
and the  International  Union of  Operating  Engineers,  Local  Union  No.  474,
covering 60 employees in Savannah,  Georgia,  was ratified on November 14, 1996.
The contract  provides for a $1,000 lump sum payment to each covered employee in
November  1996 and a $500  lump sum  payment  in  November  1997  and  1998.  In
addition,  the pay ranges for all covered positions are scheduled to increase 3%
in  September  1997 and 1998,  3.5% in 1999,  and 3% in the year 2000.  Based on
current pay levels,  it is anticipated  that few covered  employees will see any
base rate increases until 1998. That agreement expires November 4, 2001.




                                        2



       Additionally,  AGLC has approximately 60 employees at its Chattanooga and
Cleveland, Tennessee facilities covered by an agreement with the Utility Workers
Union of  America,  Local  Union No.  461. A new  five-year  agreement  with the
Utility Workers became effective October 15, 1996. The agreement  provides for a
$1,000 lump sum  payment to each  covered  employee in November  1996 and a $500
lump sum payment in October 1997 and 1998.  In addition,  the pay ranges for all
covered  positions are scheduled to increase 3% in September 1997 and 1998, 3.5%
in 1999, and 3% in the year 2000. Based on current pay levels, it is anticipated
that few covered  employees  will see any base rate increases  until 1998.  That
agreement expires October 14, 2001.

       AGLC holds franchises,  permits, certificates and rights which management
believes  are  sufficient  for  the  operation  of its  properties  without  any
substantial  restrictions and adequate for the operation of its gas distribution
business.

SUBSIDIARIES

       As a  result  of the  formation  of the  holding  company,  ownership  of
nonregulated businesses was transferred from AGLC to various subsidiaries of AGL
Resources.  Ownership of Georgia Gas Company (natural gas production activities)
has been transferred to AGL Energy Services. Ownership of Georgia Energy Company
(natural gas vehicle  conversions),  Georgia Gas Service Company (retail propane
sales)  and  Trustees   Investments,   Inc.  (real  estate  holdings)  has  been
transferred to AGL Investments.  AGLC's interest in Sonat Marketing Company L.P.
has been  transferred to AGL Gas Marketing,  Inc., a wholly owned  subsidiary of
AGL Investments.  In addition,  AGL Investments has established two wholly owned
subsidiaries:  AGL Power  Services,  which owns a 35%  interest  in Sonat  Power
Marketing,  L.P., and AGL Consumer  Services,  Inc., an energy-related  consumer
products and services company.  Service Company was formed during fiscal 1996 to
provide  corporate  support  services  to AGL  Resources  and its  subsidiaries.
Expenses of Service Company are allocated to AGL Resources and its subsidiaries.


SUBSEQUENT EVENT

       During  December  1996,  AGL  Resources  signed a letter of  intent  with
Transcontinental  Gas Pipe Line  Corporation  (Transco) to form a joint venture,
which  would be known as  Cumberland  Pipeline  Company,  to operate  and market
interstate  pipeline  capacity.  The transaction is subject to various corporate
and regulatory approvals.

       Initially,  the  135-mile  Cumberland  pipeline  will consist of existing
pipeline  infrastructure owned by the two companies.  Projected to enter service
by November 1, 2000,  Cumberland will provide  service to AGLC,  Chattanooga and
other markets throughout the eastern Tennessee Valley.

       Affiliates  of  Transco  and AGL  Resources  each will own 50% of the new
pipeline  company,  and an  affiliate  of Transco  will serve as  operator.  The
project  will be  submitted  to the Federal  Energy  Regulatory  Commission  for
approval in the fourth quarter of 1997.




            The remainder of this page was intentionally left blank.



                                        3





Gas Sales and Statistics                                        
FOR THE YEARS ENDED SEPTEMBER 30                                        
                                                            1996         1995         1994         1993         1992
- ---------------------------------------------------------------------------------------------------------------------
                                                                                                  
Operating Revenues (Millions of Dollars)                                        
  Sales of gas
    Residential .................................   $      708.8 $      610.6 $      700.7 $      658.2 $      575.7
    Commercial ..................................          288.8        243.2        285.8        268.1        231.5
    Industrial ..................................          178.8        169.4        172.1        154.2        140.9
  Transportation revenues .......................           21.5         23.9         22.6         33.8         36.6
  Miscellaneous revenues ........................           19.7         15.9         18.7         16.0          9.9
- ---------------------------------------------------------------------------------------------------------------------
  Total utility operating revenues ..............        1,217.6      1,063.0      1,199.9      1,130.3        994.6
- ---------------------------------------------------------------------------------------------------------------------
  Other operating revenues ......................            2.6
- ---------------------------------------------------------------------------------------------------------------------
      Total operating revenues ..................   $    1,220.2 $    1,063.0 $    1,199.9 $    1,130.3 $      994.6
=====================================================================================================================
Utility Throughput
  Therms sold (Millions)
     Residential ................................        1,165.4        916.8      1,003.1      1,001.4        915.4
     Commercial .................................          538.2        454.0        478.9        478.5        433.9
     Industrial .................................          449.6        526.0        424.8        388.7        445.0
- ---------------------------------------------------------------------------------------------------------------------
  Therms transported ............................          738.7        722.8        697.4        795.6        901.8
- ---------------------------------------------------------------------------------------------------------------------
      Total utility throughput ..................        2,891.9      2,619.6      2,604.2      2,664.2      2,696.1
=====================================================================================================================
Average Utility Customers (Thousands)
  Residential ...................................        1,289.4      1,250.4      1,215.2      1,182.7      1,152.2
  Commercial ....................................          102.5        100.0         98.0         95.7         93.7
  Industrial ....................................            2.6          2.6          2.5          2.5          2.5
- ---------------------------------------------------------------------------------------------------------------------
      Total .....................................        1,394.5      1,353.0      1,315.7      1,280.9      1,248.4
=====================================================================================================================
Sales, Per Average Residential Customer
  Gas sold (Therms) .............................          904          733          825          847          794
  Revenue (Dollars) .............................          550.00       488.32       576.61       556.52       499.65
  Revenue per therm (Cents) .....................           60.8         66.6         69.9         65.7         62.9
Degree Days - Atlanta Area
  30-year normal ................................        2,991        2,991        2,991        3,021        3,021
  Actual ........................................        3,191        2,121        2,565        2,852        2,552
  Percentage of actual to 30-year normal ........          106.7         70.9         85.8         94.4         84.5
Gas Account (Millions of Therms)
  Natural gas purchased .........................        1,632.9      1,406.9      1,453.6      1,629.9      1,555.4
  Natural gas withdrawn from storage ............          596.0        520.7        500.3        276.4        263.3
  Gas transported ...............................          738.7        722.8        697.4        795.6        901.8
- ---------------------------------------------------------------------------------------------------------------------
      Total send-out ............................        2,967.6      2,650.4      2,651.3      2,701.9      2,720.5
  Less
    Unaccounted for .............................           60.4         20.4         37.2         29.0         16.2
    Company use .................................           15.3         10.4          9.9          8.7          8.2
- ---------------------------------------------------------------------------------------------------------------------
      Sold and transported to utility customers .        2,891.9      2,619.6      2,604.2      2,664.2      2,696.1
=====================================================================================================================
Cost of Gas (Millions of Dollars)
  Natural gas purchased .........................   $      547.1 $      389.4 $      550.1 $      595.7 $      487.9
  Natural gas withdrawn from storage ............          171.6        182.4        186.7        105.3        102.6
- ---------------------------------------------------------------------------------------------------------------------
  Cost of gas - utility operations ..............          718.7        571.8        736.8        701.0        590.5
  Cost of gas - other ...........................            1.6
- ---------------------------------------------------------------------------------------------------------------------
      Total cost of gas .........................   $      720.3 $      571.8 $      736.8 $      701.0 $      590.5
=====================================================================================================================
Utility Plant - End of Year (Millions of Dollars)
  Gross plant ...................................   $    1,969.0 $    1,919.9 $    1,833.2 $    1,740.6 $    1,634.8
  Net plant .....................................   $    1,361.2 $    1,336.6 $    1,279.6 $    1,217.9 $    1,157.4
  Gross plant investment per customer
    (Thousands of Dollars) ......................   $        1.4 $        1.4 $        1.4 $        1.4 $        1.3
Capital Expenditures (Millions of Dollars) ......   $      132.5 $      121.7 $      122.5 $      122.2 $      132.9
Gas Mains - Miles of 3" Equivalent ..............       29,045       28,520       27,972       27,390       26,936
Employees - Average .............................        2,942        3,249        3,764        3,764        3,794
Average Btu Content of Gas ......................        1,024        1,027        1,032        1,027        1,024
=====================================================================================================================



                                        4



GAS SUPPLY SERVICES, PRICING AND COMPETITION

                                     General

      AGLC is served directly by four interstate pipelines: Southern Natural Gas
Company   (Southern),   South  Georgia  Natural  Gas  Company  (South  Georgia),
Transcontinental Gas Pipe Line Corporation  (Transco) and East Tennessee Natural
Gas  Company  (East  Tennessee),  in  combination  with its  upstream  pipeline,
Tennessee  Gas  Pipeline  Company  (Tennessee)  ,the parent  company and primary
source of gas for East Tennessee.

      As a  result  of  Order  636,  gas  purchasing  decisions  made  by  local
distribution  companies (LDCs) are subject to greater review by state regulatory
commissions.  Leglislation  was enacted by the Georgia  General  Asembly in 1994
which  provides  for annual  review and  approval by the Georgia  Commission  of
AGLC's gas services  portfolio on a prospective  basis.  On August 1, 1996, AGLC
made its annual gas supply  plan  filing for fiscal  1997 and on  September  13,
1996, the Georgia  Commission issued its order approving the mix of gas services
in the portfolio.

              Firm Pipeline Transportation and Underground Storage

       The table on the following  page shows the amount of firm  transportation
and  describes the types and amounts of  underground  storage that both AGLC and
Chattanooga  have elected or been assigned under Order 636. The table also shows
services that were not affected by the implementation of Order 636.





            The remainder of this page was intentionally left blank.

























                                        5





                                        Production Area   Supplemental      
                                            Underground   Underground       
                                 Maximum       Storage      Storage
                                    Firm       Maximum      Maximum         
                          Transportation     Withdrawal   Withdrawal    Expiration
                                 Mcf/Day      Mcf/Day(1)   Mcf/Day(2)   Date
                                 -------      -------      -------      -------
ATLANTA GAS LIGHT COMPANY                                               
- -------------------------                                               
                                                            
Southern                                                                
        Firm Transportation        1,000                                June 30, 2007
        Firm Transportation      604,857                                February 28, 1999
        Firm Transportation       45,272                                February 29, 2000
        Firm Transportation      110,905                                April 30, 2007
        CSS                                   382,089                   February 28, 1999
        CSS                                    24,133                   February 29, 2000
        ANR - 50                                           113,000      March 31, 2003
        ANR - 100                                           55,500      March 31, 2003
Transco                                                         
        Firm Transportation      107,600                                March 31, 2010
        Firm Transportation       15,000                                July 1, 2005
        Firm Transportation        6,222                                March 17, 2008
        Firm Transportation        4,500                                October 31, 2009
        WSS                                    70,588                   March 31, 2010
        Eminence Storage                       11,263                   March 31, 1997
        Eminence Storage                       19,034                   October 31, 2013(3)
        GSS                                                 57,016      June 30, 2001(3)
        GSS                                                 67,919      March 31, 2013(3)
        LSS                                                 17,430      March 31, 1994(4)
        SS-1                                                20,211      March 31, 2009
        LGA                                                 41,522      October 31, 1991(4)
        Cove Point LNG                                      66,667      April 15, 1997
        Other                                               14,493      March 31, 2001
        Other                                                4,831      March 31, 1997
Tennessee/East Tennessee                                                
        Firm Transportation       62,000                                November 1, 2000(3)
        FS Storage                             29,485                   November 1, 2000
        CNG                                     3,321                   March 31, 2001
South Georgia                                                           
        Firm Transportation       11,877                                April 30, 2007
        ANR - 100                                              708      March 31, 2003
        CSS                                     6,764                   February 28, 1998
                                 -------      -------      -------
             Total               969,233      546,677      459,297 
                                 =======      =======      ======= 
                                                                   
CHATTANOOGA GAS COMPANY                                            
- -----------------------                                            
Southern                                                           
        Firm Transportation        4,649                                February 28, 2000
        Firm Transportation       14,051                                February 28, 2000
        Firm Transportation        3,300                                April 30, 2007
        CSS                                    14,051                   February 28, 2000
Tennessee/East Tennessee                                                  
        Firm Transportation       45,000                                November 1, 2000(3)
        FS Storage                             20,802                   November 1, 2000
        CNG                                     2,411                   March 31, 2001
                                 -------      -------
             Total                67,000       37,264 
                                 =======      =======      
                                                                         
(1)  Production  area  storage  requires  a  complementary  amount  of the  firm
transportation  capacity  identified  in the first  column to move  storage  gas
withdrawals to AGLC's service area.

(2)  Supplemental  underground  storage  withdrawals  include delivery to AGLC's
service  area  and  do not  require  any of  the  firm  transportation  capacity
identified  in the first  column.  Injections  into  supplemental  " underground
storage  require  incremental  transportation,   primarily  from  transportation
identified in Column 1."

(3) Expiration dates are shown for these contracts  although  contracts have not
yet been  executed.  AGLC is operating  under Natural Gas Act (NGA)  certificate
authority while negotiating these contracts.

(4) AGLC is operating under NGA certificate  authority while  negotiating  these
contracts.
                                                                      





                                        6






                                 Wellhead Supply

       AGLC and Chattanooga  have entered into firm wellhead supply contracts to
purchase  442,973  Mcf/day  and  27,427  Mcf/day,  respectively,  of their  firm
transportation and underground storage  requirements.  AGLC anticipates entering
into additional  firm wellhead  supply  contracts by the end of December 1996 to
purchase up to 58,851 Mcf/day for AGLC and 6,342 Mcf/day for  Chattanooga.  AGLC
also purchases spot market gas as needed during the year.

                              Liquefied Natural Gas

       To meet the  demand for  natural  gas on the  coldest  days of the winter
months, AGLC must also maintain sufficient  supplemental quantities of liquefied
natural gas (LNG) in its supply portfolio.  AGLC's three  strategically  located
Georgia-based  LNG  plants  -- north  and  south of  Atlanta  and near  Macon --
currently  provide a combined  maximum  daily  supplement  of 665,000  Mcf and a
combined usable storage capacity of 72 million gallons,  equivalent to 6,214,921
Mcf. This combined  maximum daily  supplement is expected to increase to 765,000
Mcf in January 1997 with the  installation  of  additional  equipment at the LNG
plant  north of  Atlanta.  Chattanooga's  LNG plant  provides  a  maximum  daily
supplement  of  90,000  Mcf and has a  usable  storage  capacity  of 13  million
gallons, equivalent to 1,207,574 Mcf.

                                   Competition

       AGLC competes to supply  natural gas to  interruptible  customers who are
capable of switching to alternative  fuels,  including  propane,  fuel and waste
oils,  electricity and, in some cases,  combustible wood by-products.  AGLC also
competes to supply gas to  interruptible  customers who might seek to bypass its
distribution system.

       AGLC can price  distribution  services to  interruptible  customers  four
ways.  First,  multiple rates are established under the rate schedules of AGLC's
tariff approved by the Georgia  Commission.  If an existing tariff rate does not
produce a price competitive with a customer's relevant competitive  alternative,
three alternate pricing mechanisms exist:  Negotiated  Contracts,  Interruptible
Transportation and Sales Maintenance (ITSM) discounts and Special Contracts.

       On February 17, 1995, the Georgia  Commission  approved a settlement that
permits  AGLC to  negotiate  contracts  with  customers  who have the  option of
bypassing AGLC's facilities (Bypass Customers) to receive natural gas from other
suppliers.   The  bypass  avoidance  contracts  (Negotiated  Contracts)  can  be
renewable, provided the initial term does not exceed five years, unless a longer
term specifically is authorized by the Georgia Commission.  The rate provided by
the  Negotiated  Contract may be lower than AGLC's filed rate, but not less than
AGLC's  marginal  cost of  service to the  potential  Bypass  Customer.  Service
pursuant to a  Negotiated  Contract  may  commence  without  Georgia  Commission
action,  after a copy of the  contract  is filed  with the  Georgia  Commission.
Negotiated Contracts may be rejected by the Georgia Commission within 90 days of
filing; absent such action,  however, the Negotiated Contracts remain in effect.
None of the Negotiated  Contracts filed to date with the Georgia Commission have
been rejected.

       The  settlement  also  provides for a bypass loss  recovery  mechanism to
operate until the earlier of September  30, 1998,  or the effective  date of new
rates for AGLC resulting from a general rate case. Under the recovery mechanism,
AGLC is allowed to recover from other  customers 75% of the  difference  between
(a) the nongas cost revenue that was received from the potential Bypass Customer
during the most recent  12-month  period and (b) the nongas cost revenue that is
calculated to be received from the lower Negotiated Contract rate applied to the
same volumetric level.  Concerning the remaining 25% of the difference,  AGLC is
allowed  to  retain a 44% share of  capacity  release  revenues  in excess of $5
million until AGLC is made whole for discounts from Negotiated Contracts. To the
extent there are additional capacity release revenues, AGLC is allowed to retain
15% of such amounts.

       In addition to Negotiated Contracts, which are designed to serve existing
and potential Bypass Customers,  AGLC's ITSM Rider continues to permit discounts
for  short-term   transactions  to  compete  with  alternative  fuels.   Revenue
shortfalls,  if any, from  interruptible  customers as measured by the test-year
interruptible revenues


                                        7



determined  by the Georgia  Commission in AGLC's 1993 rate case will continue to
be recovered under the ITSM Rider.

       The settlement approved by the Georgia Commission also provides that AGLC
may file contracts (Special  Contracts) for Georgia  Commission  approval if the
service cannot be provided through the ITSM Rider,  existing rate schedules,  or
Negotiated Contract procedures.  A Special Contract,  for example, could involve
AGLC providing a long-term  service contract to compete with  alternative  fuels
where physical bypass is not the relevant competition.

       Pursuant  to the  approved  settlement,  AGLC has filed and is  providing
service  pursuant  to  46  Negotiated  Contracts.   Additionally,   the  Georgia
Commission has approved Special  Contracts  between AGLC and five  interruptible
customers.

       For additional information regarding competitive  initiatives in Georgia,
see Part I, Item 1, "Business - State Regulatory Matters."

       On July 22,  1996,  Chattanooga  filed a plan  with the TRA that  permits
Chattanooga  to  negotiate  contracts  with  customers  in  Tennessee  who  have
long-term  competitive  options,  including bypass. On November 7, 1996, the TRA
hearing officer recommended approval of a settlement that permits Chattanooga to
negotiate  contracts  with large  commercial  or  industrial  customers  who are
capable of bypassing Chattanooga's  distribution system. The settlement provides
for approval on an  experimental  basis,  with the TRA to review the measure two
years from the approval  date.  The pricing terms  provided in any such contract
may be neither less than  Chattanooga's  marginal cost of providing  service nor
greater  than the  filed  tariff  rate  generally  applicable  to such  service.
Chattanooga can recover 50% of the difference  between the contract rate and the
applicable  tariff  rate  through the  balancing  account of the  purchased  gas
adjustment provisions of Chattanooga's rate schedules.


FEDERAL REGULATORY MATTERS

                                    Order 636

       On July 16, 1996,  the United States Court of Appeals for the District of
Columbia Circuit (D.C. Circuit) issued its ruling in UNITED DISTRIBUTION COS. V.
FERC,  concerning  the appeals from Order No. 636, which mandated the unbundling
of  interstate   pipeline  sales  service  and   established   new  open  access
transportation  regulations.  The court  generally  upheld  the  Federal  Energy
Regulatory  Commission's (FERC) orders against a broad array of challenges,  but
remanded the orders to the FERC for reconsideration of certain issues, including
the  FERC's  decision  to  permit  pipelines  to pass  all of their  gas  supply
realignment  (GSR) costs through to their  customers and its decision to require
interruptible  transportation  customers to bear 10% of GSR costs.  The FERC has
not yet issued an order on  remand,  and thus it is not known  whether  the FERC
will change its GSR policies.  On October 29, 1996,  the D.C.  Circuit  rejected
requests for rehearing  filed by AGLC and others,  which sought  reversal of the
court's ruling affirming the FERC's authority over capacity release by LDCs. The
court's  order is  subject to  possible  further  proceedings  before the United
States Supreme Court.

       AGLC,  based on filings  with FERC by its pipeline  suppliers,  currently
estimates  that its portion of  transition  costs,  costs that  previously  were
recovered in the  pipelines'  rate for bundled sales  services,  from all of its
pipeline suppliers would be approximately $109.9 million. Such filings currently
are pending before FERC for final approval,  and the transition  costs are being
collected subject to refund. Approximately $80.6 million of such costs have been
incurred by AGLC as of September  30,  1996,  and are being  recovered  from its
customers   under  the  purchased  gas  provisions  of  AGLC's  rate  schedules.
Transition  costs have not  affected  the total cost of gas to AGLC's  customers
significantly  because (1) AGLC  purchases  its wellhead  gas supplies  based on
market prices that are below the cost of gas previously  embedded in the bundled
pipelines'  sales  service  rates  and (2) many  elements  of  transition  costs
previously were embedded in the rates for the pipelines'  bundled sales service.
See Part I, Item 1, "State Regulatory  Matters - Gas Supply Filing" in this Form
10-K for further discussion of recovery of gas costs.

       Details concerning the status of the Order 636 restructuring  proceedings
involving the pipelines that serve AGLC directly are set forth below.


                                        8



SOUTHERN 
Restructuring  Proceeding.  
     AGLC  has  filed  several  petitions  for  review  with  the D. C.  Circuit
concerning  various aspects of Southern's  restructuring.  Those aspects include
favorable  treatment of small  customers,  rate  mitigation,  mitigation  of GSR
costs, and tying of firm storage service to firm  transportation  service.  AGLC
has moved to withdraw those petitions for review in light of the FERC's approval
of the restructuring settlement between Southern and its customers, as discussed
below, but the court has not yet acted on AGLC's motion.

GSR Cost Recovery Proceeding. 
     On April 11, 1996, the FERC issued an order  constituting final approval of
the settlement  agreement  between AGLC,  Southern,  and other  customers  which
resolves  virtually  all pending  Southern  proceedings  before the FERC and the
courts.  The settlement  resolves  Southern's  pending general rate proceedings,
which relate to  Southern's  rates  charged  from  January 1, 1991,  through the
present.  The settlement provides for rate reductions and refund offsets against
GSR costs. It also resolves Southern's Order No. 636 transition cost proceedings
and provides for  revisions to  Southern's  tariff.  The FERC's  approval of the
settlement  is  subject  to action on  petitions  for  review  filed by  parties
opposing the settlement.

     On April 25, 1996, the FERC issued an order accepting  Southern's March 29,
1996,  filing to reduce its volumetric  GSR surcharge for consenting  parties to
the  restructuring  settlement to reflect  actual GSR costs incurred by Southern
through  December 31, 1995.  Southern  continues to make  quarterly  and monthly
transition  cost  filings  to  recover  costs  from  contesting  parties  to the
settlement,  and the FERC has  ordered  that  such  costs  may be  recovered  by
Southern,  subject to the outcome of a hearing for contesting parties.  However,
GSR and  other  transition  cost  charges  to AGLC  are in  accordance  with the
settlement. Assuming the FERC's approval of the settlement is upheld on judicial
review,  AGLC's share of  Southern's  transition  costs is estimated to be $85.5
million.  This  estimate  would not be  affected by the remand of Order No. 636,
unless FERC's approval of the settlement is not upheld on judicial review. As of
September  30, 1996,  $70.9  million of such costs have already been incurred by
AGLC.

TENNESSEE      
Restructuring  Proceeding.   
     AGLC  has  filed  several  petitions  for  review  with  the D. C.  Circuit
concerning various aspects of Tennessee's  restructuring.  Those aspects include
favorable  treatment for small customers,  rate mitigation and others. AGLC also
has filed a petition for review of FERC orders  concerning  Tennessee's  service
obligation to AGLC.  AGLC's  petitions for review currently are pending with the
court.

GSR Cost Recovery  Proceeding.  
     Tennessee has made several quarterly GSR recovery filings. AGLC's estimated
liability as a result of Tennessee's prior GSR recovery filings is approximately
$16.8 million,  assuming that the FERC does not change its GSR policies pursuant
to the Order No. 636  remand and  subject  to  possible  reduction  based on the
hearing FERC  established to  investigate  Tennessee's  costs.  AGLC is actively
participating in Tennessee's GSR cost recovery  proceeding.  As of September 30,
1996, $5.4 million of such costs have been incurred by AGLC.

Columbia  Gas  Transmission  Corporation.  
     AGLC has filed a petition for review of a FERC order approving a settlement
between  Tennessee and Columbia Gas  Transmission  Corporation  (Columbia).  The
settlement   resolves  issues  relating  to  Columbia's   upstream  capacity  on
Tennessee's  system, as well as certain other matters between the two pipelines.
AGLC has sought  review of the order on the  ground  that the FERC has failed to
ensure that Tennessee's customers will be made whole with respect to Tennessee's
agreement  to permit  Columbia  to abandon  certain  contracts  for  capacity on
Tennessee's system.


                              FERC Rate Proceedings


       AGLC also is participating  in various rate  proceedings  before the FERC
involving applications for rate changes filed by its pipeline suppliers.  To the
extent that these cases have not been  settled,  as described  below,  the rates
filed in these  proceedings  have been accepted,  and made effective  subject to
refund and the outcome of the FERC proceedings.





                                        9



SOUTHERN 
     As  noted  above,  the  FERC  has  approved  the  restructuring  settlement
agreement between AGLC,  Southern,  and other customers that resolves all issues
between AGLC and Southern for Southern's outstanding rate proceedings.

SOUTH  GEORGIA 
     On  December  20,  1995,  the FERC  issued an order  upholding  an  initial
decision by an administrative  law judge (ALJ) in South Georgia's rate case that
South Georgia's interruptible transportation (IT) rate should be based on a load
factor of 100% on a prospective  basis.  AGLC  supported the 100% load factor IT
rate at the hearing in this  proceeding.  No party has sought  rehearing  of the
FERC's ruling, which is therefore final.

TENNESSEE  
     On April 5, 1996, Tennessee filed with the FERC a comprehensive  settlement
to resolve all issues in its current rate case.  The  settlement  provides for a
reduction  of  approximately  $83  million  in the  cost of  service  underlying
Tennessee's  rates in effect since July 1, 1995, and also provides for Tennessee
to share a portion of costs  associated  with firm capacity  relinquished by its
customers.  AGLC filed comments  supporting  the  settlement.  AGLC's  estimated
annual  reduction  in cost is $2.2  million.  The  FERC  approved  the  proposed
settlement  on October 30,  1996,  but the order  approving  the  settlement  is
pending requests for rehearing and therefore is not yet final.

     On July 3, 1996, the FERC issued an order on exceptions from the rulings of
an ALJ in a prior  Tennessee  rate case.  Among other things,  the FERC's order,
which is to have prospective effect,  rejects a proposal to unbundle Tennessee's
production area rates from its market area rates.  AGLC supported the unbundling
proposal. The order also upholds the ALJ's ruling that Tennessee's interruptible
transportation  rates  should be set at the 100% load factor  derivative  of the
firm  transportation  rate.  AGLC supported the 100% load factor  proposal.  The
order also rejects  proposals to revise  Tennessee's rate zone boundaries.  AGLC
has opposed such proposals. The FERC's rulings may impact the rates contained in
the settlement  agreement in Tennessee's  FERC rate case,  which was approved by
the FERC on  November 1, 1996.  The FERCs  order  approving  the  settlement  is
pending requests for rehearing and therefore is not yet final.

TRANSCO 
     On June 19, 1996,  Transco filed a proposed  partial  settlement to resolve
cost of service  and  throughput  issues in its current  rate case.  The partial
settlement  reserves certain cost allocation and rate design issues for hearing,
including  roll-in of Transco's  incrementally  priced Leidy Line facilities and
Transco's  use of  the  straight-fixed-variable  rate  design  methodology.  The
proposal  provides for a reduction of  approximately  $58 million in the cost of
service  underlying  Transco's rates that have been in effect since September 1,
1995.  The estimated  annual  reduction in costs to AGLC is $2.4  million.  AGLC
filed comments in support of the proposed settlement,  which was approved by the
FERC on November 1, 1996.  The FERC's order  approving the settlement is pending
requests for rehearing and therefore is not yet final.

     On July 3, 1996, the FERC issued an order on exceptions from the rulings of
an ALJ in a prior Transco rate case. Among other things, the FERC's order, which
is to have  prospective  effect,  rejects  Transco's  proposal to  established a
firm-to-the-wellhead  production area rate design, but permits Transco to file a
rate case to establish firm-to-the-wellhead rates if customers with entitlements
to production area capacity are permitted to determine whether they require such
capacity  in  an  open  season.  AGLC  opposed  Transco's   firm-to-the-wellhead
proposal. The order also reverses the ALJ's ruling that Transco must establish a
separate  production  area cost of service.  AGLC had filed  exceptions  seeking
reversal  of this  aspect of the ALJ's  ruling.  AGLC has joined  other  Transco
customers  in seeking  rehearing  of the July 3, 1996 order with  respect to the
FERC's  determination  that  Transco  may  file  a  new  proposal  to  establish
firm-to-the-wellhead  rates, and also has sought  clarification  that the FERC's
order does not eliminate  protections against abandonment that originated in the
settlements  by which AGLC and other  customers  agreed to convert from sales to
firm transportation service.

     On November 1, 1996,  Transco filed to increase its rates by  approximately
$83  million  over the last rates  approved  by the FERC.  Among  other  things,
Transco  filed its own proposal to roll into  systemwide  rates the costs of the
incrementally-priced   Leidy  Line  and  Southern  Expansion   facilities  on  a
prospective basis, after a hearing. AGLC filed a protest challenging the roll-in
proposal and the magnitude of the requested rate increase. On November 29, 1996,
the FERC issued an order  accepting  Transco's  filing,  subject to refund and a
hearing, and consolidated Transco's roll-in proposal with its ongoing rate case,
where a Leidy Line roll-in proposal by other parties is being litigated.



                                       10



ANR PIPELINE 
     ANR Pipeline  (ANR)  provides  transportation  services to Southern under a
case-specific certificate issued by the FERC in 1980. Southern entered into this
transportation  arrangement with ANR in order to provide  Southern's  customers,
including AGLC,  access to storage  facilities owned and operated by ANR Storage
Company.  According  to  Southern,   approximately  96%  of  Southern's  service
entitlement on ANR is used to serve AGLC. AGLC has actively  participated in the
hearing  procedures  established  by the FERC with respect to ANR's general rate
proceeding,  supporting  a reduced  transportation  rate for ANR's  services  to
Southern. That proceeding currently is pending for decision before an ALJ.

                                  Miscellaneous

SECONDARY MARKETS      
     On July  31,  1996,  the  FERC  issued  a  notice  of  proposed  rulemaking
concerning changes to the FERC's regulations  governing release of firm pipeline
capacity,  as well as the sale by pipelines of interruptible  transportation and
short-term firm capacity. The FERC is not proposing to eliminate the prohibition
against pricing released  capacity at higher than the pipeline's  maximum tariff
rate for  firm  service.  However,  the FERC  has  solicited  applications  from
pipelines and local distribution  companies to participate in a pilot program in
which the prices for released firm capacity,  interruptible transportation,  and
short-term  firm  capacity  are not capped.  AGLC has not sought  permission  to
participate in the pilot program,  but is monitoring the process.  One of AGLC's
pipeline  suppliers,  Transco,  sought  approval  to  participate  in the  pilot
program, but the FERC rejected Transco's application.

NEGOTIATED RATES 
     The FERC has issued a policy statement  authorizing  pipelines to establish
mechanisms by which they may charge  separately  negotiated  rates to particular
customers in lieu of their  tariff  rates.  The FERC has  required  pipelines to
retain in their  tariffs a "recourse  rate," which must be approved by the FERC,
and which must be available to those  customers that do not choose to separately
negotiate a rate with the pipeline.  Of the pipelines that supply AGLC, Transco,
Tennessee,  and East Tennessee have requested authority to separately  negotiate
rates.  The FERC has approved the  applications by Transco,  Tennessee,  and the
application  filed by East  Tennessee.  The  FERC's  policy  statement  has been
appealed to the D. C. Circuit, and AGLC has intervened in that proceeding.

                                    Arcadian

       The FERC has granted final  approval to the settlement  between  Southern
and Arcadian  Corporation  (Arcadian);  see Part I, Item 3, "Legal Proceedings."
The settlement  resolves both  Arcadian's  FERC complaint  against  Southern and
Arcadian's  antitrust lawsuit against Southern and AGLC. The settlement provides
for Southern to provide firm transportation  service to Arcadian at a negotiated
rate for an initial term of five years ending October 31, 1998. In addition, the
settlement  establishes  tariff language  addressing the conditions  under which
Southern will address future requests for direct  transportation  service.  AGLC
sought  rehearing  of the FERC's order  approving  the  settlement  but the FERC
rejected AGLC's rehearing  request on November 26, 1996. AGLC had petitioned for
review of the FERC's prior orders in this  proceeding in the United States Court
of Appeals for the Eleventh  Circuit.  AGLC's appeals have been held in abeyance
pending  action by the FERC on AGLC's  rehearing  request.  If the FERC's orders
approving the  restructuring  settlement  between  Southern,  AGLC and the other
customers are upheld on appeal, it will resolve the undue  discrimination  issue
raised by AGLC in Southern's current rate case.

       On April 22,  1996,  AGLC filed to  withdraw  portions of its request for
rehearing of the FERC's  order  approving  the  November  12,  1993,  settlement
between  Arcadian and Southern.  The portions of the request for rehearing  that
AGLC  proposes  to  withdraw,  pursuant  to the  restructuring  settlement  with
Southern,  are those that allege that  Southern's  discounted  rates to Arcadian
constitute an anticompetitive "price squeeze" against AGLC.

       AGLC  cannot  predict  the  outcome  of  these  federal  proceedings  nor
determine the ultimate effect, if any, such proceedings may have on AGLC.


STATE REGULATORY MATTERS


                            Atlanta Gas Light Company


REGULATORY REFORM INITIATIVES

       Two regulatory reform  initiatives are pending in Georgia,  both designed
to increase competition and reduce the role of regulation within the natural gas
industry.  The first  such  initiative  is the  subject of a  proceeding  at the
Georgia  Commission;  the second  initiative  is before study  committees of the
Georgia General Assembly.

                                       11





       With respect to the first  initiative,  on November 20, 1995, the Georgia
Commission issued a Natural Gas Notice of Inquiry soliciting  comments on how to
introduce more  competition  into natural gas markets within Georgia.  Following
written comments and oral presentations from numerous parties,  on May 21, 1996,
the Georgia Commission adopted a Policy Statement that, among other things, sets
up a distinction  between  competitive  and natural  monopoly  services;  favors
performance-based  regulation in lieu of traditional cost-of-service regulation;
calls for unbundling interruptible service; directs the Georgia Commission Staff
to develop  standards of conduct for utilities and their  marketing  affiliates;
and invites pilot  programs for  unbundling  services to  residential  and small
business customers.

       Consistent  with  specific  goals  in  the  Georgia  Commission's  Policy
Statement,  on June 10,  1996,  AGLC  filed a  comprehensive  plan  for  serving
interruptible  markets  called the Natural Gas Service  Provider  Selection Plan
(the Plan).  The Plan proposes  further  unbundling of services to provide large
customers  more service  options and the ability to purchase only those services
they  require.  Proposed  tariff  changes  would  allow  AGLC to cease its sales
service  function  and the  associated  sales  obligation  for large  customers;
implement  delivery-only service for large customers on a firm and interruptible
basis;  and  provide  pooling  services  to  marketers.  The Plan also  includes
proposed  standards  of  conduct  for  utilities  and  marketing  affiliates  of
utilities.  Hearings on the proposal began in December 1996 and are scheduled to
resume in January and  February  1997.  A decision is expected  from the Georgia
Commission prior to March 1, 1997.

       The second major initiative to increase competition and decrease the role
of  regulation  in Georgia is before  study  committees  of the Georgia  General
Assembly.  The 1996 Georgia General Assembly considered,  but delayed action on,
The Natural Gas Fair Pricing Act,  which would have allowed  local gas companies
to negotiate  contract  prices and terms for gas services with large  commercial
and industrial customers absent Georgia  Commission-mandated  rates. The Georgia
General  Assembly  stated  through  resolutions  a  desire  to  fashion  a  more
comprehensive approach to deregulation and unbundling of natural gas services in
Georgia. Those resolutions,  adopted during the 1996 session, created Senate and
House  committees  to study and  recommend a  comprehensive  course of action by
December 31, 1996, for deregulating natural gas markets in Georgia.

       The separate Senate and House study  committees  conducted joint meetings
during  September,  October  and  November  1996,  with the goal of  crafting  a
comprehensive deregulation bill for the 1997 General Assembly, which convenes in
January  1997.  The natural gas  deregulation  plan under  consideration  by the
committees would unbundle services to all of AGLC's natural gas customers, would
continue  AGLC's role as the intrastate  transporter of natural gas, would allow
AGLC to assign firm delivery  capacity to certificated  marketers who would sell
the gas  commodity,  and would  create a  secondary  transportation  market  for
interruptible transportation capacity.

       Although AGL Resources cannot predict the outcome of these two regulatory
reform initiatives, it supports both the plan under consideration by the Georgia
Commission and the plan under  consideration  by the Georgia  General  Assembly.
AGLC  currently  makes no profit on the purchase and sale of gas because  actual
gas costs are passed through to customers  under the purchased gas provisions of
AGLC's rate  schedules.  Earnings are  provided  through  revenues  received for
intrastate transportation of the commodity. Consequently, allowing AGLC to cease
its  sales  service  function  and the  associated  sales  obligation  would not
adversely  affect  AGLC's  ability to earn a return on its  distribution  system
investment.  In addition,  allowing gas to be sold to all  customers by numerous
marketers,  including nonregulated subsidiaries of AGL Resources,  would provide
new business opportunities.

GAS COST RECOVERY FILING

       Pursuant to legislation  enacted by the Georgia  General  Assembly,  each
investor-owned  local gas distribution  company is required to file on or before
August 1 of each year, a proposed gas supply plan for the  subsequent  year,  as
well as a proposed cost recovery  factor to be used during the same time period.
Costs of natural  gas supply,  interstate  transportation  and storage  incurred
pursuant to an approved plan may be recovered under the purchased gas provisions
of AGLC's rate schedules.

       On August 1, 1996, AGLC filed its 1997 Gas Supply Plan, which consists of
gas supply,  transportation  and storage  options  designed to provide  reliable
service to firm  customers at the best cost. On September 13, 1996,  the Georgia
Commission approved the entire supply portfolio contained in the 1997 Gas Supply
Plan.

       As part of the 1997 Gas  Supply  Plan,  AGLC is  authorized  to  continue
limited  gas  supply  hedging  activities.  The 1997  hedging  program  has been
expanded beyond the program  approved in the 1996 Gas Supply Plan. The financial
results of all hedging  activities are passed through to firm service  customers
under the purchased gas provisions of AGLC's rate schedules.  Accordingly, there
is no earnings impact as a result of the hedging program.



                                       12



                             Chattanooga Gas Company

RATE FILINGS

       On May 1, 1995,  Chattanooga filed a rate proceeding with the TRA seeking
an increase in revenues of $5.2  million  annually.  On  September  27,  1995, a
settlement  agreement  was  reached  that  provides  for an annual  increase  in
revenues of approximately $2.5 million, effective November 1, 1995.

- --------------------------------------------------------------------------------
Item 2.    Properties

      AGL Resources  considers its property and the property of its subsidiaries
to be well  maintained,  in good  operating  condition  and  suitable  for their
intended purposes.

      AGLC's properties  consist  primarily of distribution  systems and related
facilities  and local offices  serving 235 cities and  surrounding  areas in the
State of Georgia and 12 cities and surrounding  areas in the State of Tennessee.
As of September  30, 1996,  AGLC had 25,642 miles of mains and  5,952,000 Mcf of
LNG storage  capacity in three LNG plants to  supplement  the gas supply in very
cold weather or emergencies.  Chattanooga had 1,328 miles of mains and 1,076,000
Mcf of LNG storage capacity in its one LNG plant. At September 30, 1996,  AGLC's
gross utility plant amounted to approximately $2.0 billion.

      AGL Resources' gross  nonutility  property  amounted to approximately  $81
million, consisting principally of assets related to Service Company.

- --------------------------------------------------------------------------------
Item 3.    Legal Proceedings

      The  nature  of  the  business  of  AGL  Resources  and  its  subsidiaries
ordinarily results in periodic  regulatory  proceedings before various state and
federal   authorities  and/or  litigation   incidental  to  the  business.   For
information regarding regulatory proceedings, see the preceding sections in Part
I, Item 1,  "Business  -  Federal  Regulatory  Matters"  and  "Business  - State
Regulatory Matters."

                                    Arcadian

      ARCADIAN CORPORATION V. SOUTHERN NATURAL GAS COMPANY AND ATLANTA GAS LIGHT
COMPANY,  U. S.  District  Court for the Southern  District of Georgia,  Augusta
Division,  Case No.  CV192-006.  On January 10, 1992,  Arcadian,  an  industrial
customer of AGLC, filed a complaint against Southern and AGLC alleging violation
of the  federal  antitrust  laws and  seeking  treble  damages  in excess of $45
million.  In the complaint,  Arcadian alleged that Southern and AGL conspired to
restrain   trade  by  agreeing  not  to  compete  in  the  provision  of  direct
transportation service to end users in the areas served by AGLC. AGLC denied the
allegations of the complaint.

      On November 30, 1993, a proposed  settlement between Southern and Arcadian
was filed with FERC that would resolve both  Arcadian's  FERC complaint  against
Southern  and  Arcadian's  antitrust  lawsuit  against  Southern  and AGLC.  The
settlement  provided  for firm and  interruptible  transportation  service  from
Southern to Arcadian at discounted  rates for an initial term of five years.  In
addition,  the settlement  establishes  tariff  conditions for addressing future
requests for direct  transportation  service.  In  connection  with the proposed
settlement,  the antitrust lawsuit has been stayed and administratively  closed.
On May 12, 1994, FERC approved the settlement over AGLC's  objections.  AGLC has
sought  rehearing  of  the  FERC's  order  approving  the  settlement,  and  has
petitioned  for review in the United  States  Court of Appeals for the  Eleventh
Circuit.  AGLC's appeals are currently being held in abeyance  pending action by
the FERC on AGLC's rehearing request.

      On April 22,  1996,  AGLC filed to  withdraw  portions  of its request for
rehearing of the FERC's  order  approving  the  November  12,  1993,  settlement
between  Arcadian and Southern.  The  arguments  that AGLC proposes to withdraw,
pursuant to the  restructuring  settlement with Southern,  are those that allege
that  Southern's  discounted  rates to Arcadian  constitute  an  anticompetitive
"price squeeze" against AGLC.



                                       13



                              Environmental Matters

       AGLC has identified  nine sites in Georgia where it currently owns all or
part of a manufactured  gas plant (MGP) site. These sites are located in Athens,
Augusta,  Brunswick,  Griffin, Macon, Rome, Savannah,  Valdosta and Waycross. In
addition,  AGLC has identified  three other sites in Georgia which AGLC does not
now own, but that may have been associated with the operation of MGPs by AGLC or
its  predecessors.  These  sites  are  located  in  Atlanta  (2)  and  Macon.  A
Preliminary  Assessment (PA) was conducted at each of those twelve sites,  and a
subsequent Site  Investigation  (SI) was conducted at ten sites (all but the two
Atlanta sites).  Results from those investigations  reveal environmental impacts
at and near nine  sites  (all but the two  Atlanta  sites and the  second  Macon
site).

       In addition,  AGLC has  identified  three sites in Florida which may have
been associated with AGLC or its predecessors. One of these, located in Sanford,
Florida,  is now the subject of an Expanded Site  Investigation  (ESI) which has
been or is being conducted by the U.S.  Environmental  Protection  Agency (EPA).
Investigations  at the  site by AGLC and  others  have  indicated  environmental
impacts  on and near the site.  In  addition,  the  current  owner of this site,
Florida Public Utilities Company (FPUC),  had previously filed suit against AGLC
and  others  alleging  that AGLC is a former  "owner"  and  seeking  to obtain a
declaratory  judgment that all defendants  are jointly and severally  liable for
past and future costs of investigating and remediating the site.
That suit has since been dismissed by FPUC without prejudice.

       AGLC's  response  to MGP sites in Georgia is  proceeding  under two state
regulatory  programs.  First,  AGLC has  entered  into  consent  orders with the
Georgia  Environmental  Protection  Division  (EPD) with  respect to four sites:
Augusta,  Griffin,  Savannah, and Valdosta.  Under these consent orders, AGLC is
obliged to investigate  and, if necessary,  remediate  impacts at the site. AGLC
developed a proposed  Corrective  Action Plan (CAP) for the Griffin site, is now
conducting certain follow-up  investigations in response to EPD's comments,  and
expects to submit a revised CAP once EPD clarifies certain  regulatory  matters.
Assessment  activities are being conducted at Augusta and Savannah. In addition,
AGLC is in the  process of planning  certain  interim  remedial  measures at the
Augusta MGP site.  Those  measures  are expected to be  implemented  principally
during fiscal 1997.

       Second, AGLC's response to all Georgia sites is proceeding in substantial
compliance with Georgia's  "Hazardous Site Response Act" (HSRA).  AGLC submitted
to EPD formal  notifications  pertaining to all of its owned MGP sites,  and EPD
had listed seven sites (Athens, Augusta, Brunswick,  Griffin, Savannah, Valdosta
and  Waycross) on the state's  "Hazardous  Site  Inventory"  (HSI).  EPD has not
listed the Macon site on the HSI at this time. In addition,  EPD has also listed
the Rome site on the HSI. Under the HSRA regulations,  the four sites subject to
consent  orders are presumed to require  corrective  action;  EPD will determine
whether  corrective  action is required  at the four  remaining  sites  (Athens,
Brunswick,  Rome and Waycross) in due course. In that respect, however, AGLC has
submitted  Compliance  Status Reports (CSRs) for the Athens,  Brunswick and Rome
MGP sites,  and AGLC has concluded that these sites do not meet  applicable risk
reduction standards. Accordingly, some degree of response action is likely to be
required at those sites.

       AGLC has estimated the investigation  and remediation  expenses likely to
be associated with the former MGP sites. First, since such liabilities are often
spread among potentially responsible parties, AGLC's ultimate liability will, in
some cases,  be limited to AGLC's  equitable  share of such  expenses  under the
circumstances.  Therefore,  where  reasonably  possible,  AGLC has  attempted to
estimate the range of AGLC's equitable share,  given AGLC's current knowledge of
relevant facts, including the current methods of equitable apportionment and the
solvency of potential contributors.  Where such an estimation was not reasonably
possible,  AGLC has estimated a range of expenses without  adjustment for AGLC's
equitable share.  Second, the regulatory  structure of the cleanup  requirements
under HSRA has permitted AGLC to estimate future  investigation  and remediation
costs for the Georgia MGP sites, assuming such costs arise under this framework.

       Applying  both of these  concepts to those sites where some future action
presently appears reasonably  possible,  AGLC has estimated that, under the most
favorable  circumstances  reasonably  possible,  the  future  cost  to  AGLC  of
investigating  and  remediating  the former  MGP sites  could be as low as $30.4
million.  Alternatively,  AGLC has estimated  that,  under  reasonably  possible
unfavorable  circumstances,  the  future  cost  to  AGLC  of  investigating  and
remediating  the  former  MGP  sites  could  be as high as  $110.8  million.  If
additional  sites were added to those for which  action now  appears  reasonably
likely, or if substantially  more stringent  cleanups were required,  or if site
conditions  are markedly  worse than those now  anticipated,  the costs could be
higher. In addition, those costs do not include other expenses, such as property
damage claims, for which AGLC may

                                       14



ultimately be held liable, but for which neither the existence nor the amount of
such  liabilities can be reasonably  forecast.  Within the stated range of $30.4
million to $110.8 million, no amount within the range can be reliably identified
as a better estimate than any other estimate.  Therefore, a liability at the low
end of this range and a corresponding regulatory asset have been recorded in the
financial statements.

       AGLC has two means of recovering the expenses  associated with the former
MGP sites.  First,  the Georgia  Commission has approved the recovery by AGLC of
Environmental Response Costs, as defined,  pursuant to an Environmental Response
Cost Recovery Rider (ERCRR). For purposes of the ERCRR,  Environmental  Response
Costs include  investigation,  testing,  remediation  and  litigation  costs and
expenses  or  other  liabilities  relating  to or  arising  from MGP  sites.  In
connection with the ERCRR, the staff of the Georgia  Commission has undertaken a
financial  and  management  process  audit  related  to the MGP  sites,  cleanup
activities at the sites and environmental response costs that have been incurred
for purposes of the ERCRR. On October 10, 1996, the Georgia Commission issued an
order to  prohibit  funds  collected  through  the ERCRR from being used for the
payment of any damage  award,  including  punitive  damages,  as a result of any
litigation associated with any of the MGP sites in which AGLC is involved.  AGLC
is currently pursuing judicial review of the October 10, 1996, order.

       Second,  AGLC  intends to seek  recovery  of  appropriate  costs from its
insurers  and  other  potentially  responsible  parties.  With  respect  to  its
insurers,  in 1991,  AGLC filed a declaratory  judgment action against 23 of its
insurance  companies.  After the trial court entered a judgment  adverse to AGLC
and AGLC appealed that ruling,  the Eleventh  Circuit Court of Appeals held that
the case did not  present a case or  controversy  when  filed,  and the case was
remanded with instructions to dismiss.  Since the Eleventh  Circuit's  decision,
AGLC has  settled  with,  or is  close to  settlement  with,  most of the  major
insurers.  AGLC has not  determined  what  actions it will take with  respect to
non-settling insurers.  During fiscal 1996 AGLC recovered $14.7 million from its
insurance carriers and other potentially responsible parties. In accordance with
provisions  of the ERCRR,  AGLC  recognized  other  income of $2.9  million  and
established regulatory liabilities for the remainder of those recoveries.

                             Other Legal Proceedings

      With regard to other legal proceedings,  AGL Resources is a party, as both
plaintiff and defendant, to a number of other suits, claims and counterclaims on
an ongoing  basis.  Management  believes  that the outcome of all  litigation in
which it is involved will not have a material adverse effect on the consolidated
financial statements of AGL Resources.

- --------------------------------------------------------------------------------
Item 4.       Submission of Matters to a Vote of Security Holdlers

      No matters were submitted to a vote of security  holders during the fourth
quarter of the fiscal year covered by this report.

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

















                                       15




Item 4.(A)  Executive Officers of the Registrant

      Set forth below, in accordance with General  Instruction G(3) of Form 10-K
and  Instruction  3 of Item 401(b) of  Regulation  S-K,  is certain  information
regarding the executive officers of AGL Resources.  Unless otherwise  indicated,
the information set forth is as of September 30, 1996.

      DAVID R.  JONES,  age 59,  President  and Chief  Executive  Officer of AGL
Resources  (since  January  1996),  President  and Chief  Executive  Officer and
director of Service  Company (since August 1996),  President and Chief Executive
officer of AGLC (since 1988) and director of AGLC (since 1985);  director of the
Federal Reserve Bank of Atlanta.  Mr. Jones has been a director of AGL Resources
since January 1996.

      CHARLES W. BASS,  age 49,  Executive  Vice  President and Chief  Operating
Officer of AGL Resources  since August 1996,  Executive  Vice  President  Market
Service and  Development  of AGLC from 1994 until 1996 and Senior Vice President
Governmental and Regulatory Affairs of AGLC from 1988 until 1994 .

      THOMAS H. BENSON,  age 51,  Executive  Vice President of AGL Resources and
Chief  Operating  Officer of AGLC since August 1996,  Executive  Vice  President
Customer  Operations  of AGLC from 1994  until 1996 and  Senior  Vice  President
Operations and Engineering of AGLC from 1988 until 1994.

      ROBERT L. GOOCHER,  age 46,  Executive Vice President of AGL Resources and
Chief  Operating  Officer of Service  Company since August 1996,  Executive Vice
President  Business Support of AGLC from 1994 until 1996,  Senior Vice President
and Chief Financial Officer of AGLC from 1992 until 1994, Vice President Finance
of AGLC from 1991 until 1992 and Vice President and Augusta  Division manager of
AGLC from 1987 until 1991.

      CHARLIE J. LAIL, age 57, Senior Vice President  Operations  Improvement of
AGLC since 1994,  Senior Vice President  Divisions of AGLC from 1992 until 1994,
Vice  President  Divisions of AGLC from 1991 until 1992 and Vice  President  and
Northeast Georgia Division manager of AGLC from 1988 until 1991.

      RICHARD H.  WOODWARD,  Jr., age 49, Vice  President of AGL  Resources  and
President of AGL Investments since August 1996,  Senior Vice President  Business
Development  of AGLC from 1994 until 1996 and Senior  Vice  President  Corporate
Services of AGLC from 1988 until 1994.

      MICHAEL D. HUTCHINS,  age 45, Vice President Operations and Engineering of
AGLC since 1994, Vice President Engineering of AGLC from 1989 until 1994.

      CLAYTON H. PREBLE,  age 49, Vice  President of AGL Resources and President
of The Energy Spring,  Inc.,  since August 1996,  Vice President -- Marketing of
AGLC from 1994 until 1996, Vice President  Corporate  Planning of AGLC from 1994
until  1994,  Director  Corporate  Planning  of AGLC  from 1992  until  1994 and
Northeast Georgia Division manager of AGLC from 1991 until 1992.

      J. MICHAEL RILEY,  age 45, Vice President and Chief  Financial  Officer of
AGL  Resources  since  August  1996 and Chief  Financial  Officer  of AGLC since
November  1996,  Vice  President  Finance and Accounting of AGLC from 1994 until
1996,  Vice President and Controller of AGLC from 1991 until 1994 and Controller
of AGLC from 1986 until 1991.

      There are no family relationships among the executive officers.

      All officers  generally are elected  annually by the Board of Directors at
the first meeting following the Annual Meeting of Shareholders in February.








                                       16





- --------------------------------------------------------------------------------
                                     Part II
- --------------------------------------------------------------------------------

Item 5.    Market for the Registrants' Common Equity and Related Stockholder 
           Matters

     Information  relating  to the market for  holders of and  dividends  on AGL
Resources' common stock is set forth under the caption "Shareholder Information"
on  page  47  of  AGL  Resources'  1996  Annual  Report.   Such  information  is
incorporated  herein by reference.  Portions of the 1996 Annual Report are filed
as Exhibit 13 to this report.

- --------------------------------------------------------------------------------
Item 6.    Selected Financial Data

      Selected  financial  data for AGL Resources for each year of the five-year
period  ended  September  30,  1996 is set  forth  under the  caption  "Selected
Financial  Data" on page 45 of AGL Resources'  1996 Annual Report referred to in
Item 5 above. Such five-year selected  financial data is incorporated  herein by
reference.

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

     A  discussion  of  AGL  Resources'  results  of  operations  and  financial
condition is set forth under the caption  "Management's  Discussion and Analysis
of Results of Operations and Financial  Condition" on pages 22 through 29 of AGL
Resources'  1996 Annual Report  referred to in Item 5 above.  Such discussion is
incorporated herein by reference.

- --------------------------------------------------------------------------------
Item 8.    Financial Statements and Supplementary Data

      The following financial  statements of AGL Resources,  which are set forth
on pages 30 through 44 of AGL Resources'  1996 Annual Report referred to in Item
5 above, are incorporated herein by reference:

      Statements of Consolidated  Income for the years ended September 30, 1996,
1995 and 1994.

      Statements of  Consolidated  Cash Flows for the years ended  September 30,
1996, 1995 and 1994.

      Consolidated Balance Sheets as of September 30, 1996 and 1995.

      Statements  of  Consolidated  Common  Stock  Equity  for the  years  ended
      September 30, 1996, 1995 and 1994.

      Notes to Consolidated Financial Statements.

      Independent Auditors' Report.

      The supplementary financial information required by Item 302 of Regulation
 S-K is set forth in Note 14 in Notes to  Consolidated  Financial  Statements in
 AGL Resources' 1996 Annual Report to Shareholders.

      The following supplemental data is submitted herewith:

      Financial   Statement  Schedule  -  Valuation  and  Qualifying  Account  -
Allowance for Uncollectible Accounts.

      Independent Auditors' Report.

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

      None
           


                                       17





- --------------------------------------------------------------------------------
                                    Part III
- --------------------------------------------------------------------------------

Item 10.     Directors and Executive Officers of the Registrants

      Information  relating to nominees  for  director of AGL  Resources  is set
forth under the caption "Election of Directors-Information  Concerning Nominees"
in the  Proxy  Statement  for the 1996  Annual  Meeting  of  Shareholders.  Such
information is incorporated herein by reference.  The definitive Proxy Statement
will be filed with the Securities and Exchange  Commission within 120 days after
AGL Resources' fiscal year end.  Information  relating to the executive officers
of AGL Resources, pursuant to Instruction 3 of Item 401(b) of Regulation S-K and
General Instruction G(3) of Form 10-K, is set forth at Part I, Item 4(A) of this
report under the caption "Executive Officers of the Registrant."

- --------------------------------------------------------------------------------
Item 11.     Executive Compensation

      Information  relating  to  executive  compensation  is set forth under the
caption  "Executive  Compensation" in the Proxy Statement referred to in Item 10
above. Such information is incorporated herein by reference.

- --------------------------------------------------------------------------------
Item 12.     Security Ownership of Certain Beneficial Owners and Management

      Information  relating to  ownership  of common  stock of AGL  Resources by
certain  persons  is  set  forth  under  the  caption  "Security   Ownership  of
Management"  in  the  Proxy  Statement  referred  to  in  Item  10  above.  Such
information is incorporated herein by reference.

- --------------------------------------------------------------------------------
Item 13.     Certain Relationships and Related Transactions

      Information relating to existing or proposed relationships or transactions
between AGL  Resources and any affiliate of AGL Resources is set forth under the
caption  "Compensation  Committee  Interlocks and Insider  Participation" in the
Proxy Statement  referred to in Item 10 above.  Such information is incorporated
herein by reference.



            The remainder of this page was intentionally left blank.

                                       18




- --------------------------------------------------------------------------------
                                     Part IV
- --------------------------------------------------------------------------------

   Item 14. Exhibits, Financial Statements Scheduled and Reports on Form 8-K

      (a)    Documents Filed as Part of This Report:

            1.    Financial Statements

                    Included   under   Item  8  are  the   following   financial
                    statements:

                    Statements  of  Consolidated  Income  for  the  Years  Ended
                    September 30, 1996, 1995 and 1994.

                    Statements  of  Consolidated  Cash Flows for the Years Ended
                    September 30, 1996, 1995 and 1994.

                    Consolidated  Balance  Sheets as of  September  30, 1996 and
                    1995.

                    Statements of Consolidated Common Stock Equity for the Years
                    Ended September 30, 1996, 1995 and 1994.

                    Notes to Consolidated Financial Statements.

                    Independent Auditors' Report.

            2.    Supplemental Consolidated Financial Schedules for Each of the 
                  Three Years in the Period Ended September 30, 1996:

                     Independent Auditors' Report.

                     II. - Valuation and Qualifying Account--Allowance for 
                     Uncollectible Accounts.

                    Schedules other than those referred to above are omitted and
                    are  not  applicable  or  not  required,   or  the  required
                    information  is shown in the  financial  statements or notes
                    thereto.

            3.   Exhibits

                 Where an exhibit is filed by  incorporation  by  reference to a
                 previously  filed  registration   statement  or  report,   such
                 registration statement or report is identified in parentheses.

     3.1 -     Amended and Restated Articles of Incorporation filed January 5, 
               1996, with the Secretary of State of the State of Georgia 
               (Exhibit B to the Proxy Statement and Prospectus filed as a part 
               of Amendment No. 1 to Registration Statement on Form S-4, No.
               33-99826).

     3.2 -     Bylaws (Exhibit 3.2 to Registration Statement on Form S-4, No.
               33-99826).

     4.1 -     Specimen form of Common Stock Certificate

                                       19



     4.2 -     Specimen form of Right Certificate (Exhibit 1 to Form 8-K filed
               March 6, 1996).

     10.1 -    Executive Compensation Plans and Arrangements

     10.1.a -  Executive Severance Pay Plan of AGL Resources Inc.

     10.1.b -  AGL Resources Inc. Long-Term Stock Incentive Plan of 1990
               (Exhibit 10(ii), Atlanta Gas Light Company Form 10-K for the
               fiscal year ended September 30, 1991).

     10.1.c -  First Amendment to the AGL Resources Inc. Long-Term
               Stock Incentive Plan of 1990 (Exhibit B to the Atlanta Gas Light
               Company Proxy Statement for the Annual Meeting of Shareholders
               held February 5, 1993).

     10.1.d -  Third Amendment to the AGL Resources Inc. Long-Term
               Stock Incentive Plan of 1990 (Exhibit C to the Proxy Statement
               and Prospectus filed as a part of Amendment No. 1 to 
               Registration Statement on Form S-4, No. 33-99826).

     10.1.e -  AGL Resources Inc. Nonqualified Savings Plan (Exhibit 10(a), 
               Atlanta Gas Light Company Form 10-K for the fiscal year ended
               September 30, 1995).

     10.1.f -  AGL Resources Inc. Non-Employee Directors Equity Compensation
               Plan (Exhibit B to the Proxy Statement and Prospectus filed as a
               part of Amendment No. 1 to Registration Statement on Form S-4,
               No. 33-99826).

     13 -      Portions of the AGL Resources Inc. 1996 Annual Report to  
               Shareholders.

     21 -      Subsidiaries of AGL Resources Inc.

     23 -      Independent Auditors' Consent.

     24 -      Powers of Attorney (included with Signature Page hereto).

     27 -      Financial Data Schedule.

         (b)   Reports on Form 8-K

     No Form 8-K was filed during the last  quarter of the year ended  September
     30, 1996.





            The remainder of this page was intentionally left blank.

                                       20




                                   SIGNATURES


         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on November 1, 1996.

                                                     AGL RESOURCES INC.



                                 By: /s/ David R. Jones
                                         David R. Jones
                                         President and Chief Executive Officer



                               POWERS OF ATTORNEY

         KNOW  ALL MEN BY THESE  PRESENTS,  that  each  person  whose  signature
appears below  constitutes and appoints David R. Jones and J. Michael Riley, and
each of them, his or her true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him or her and in his or her name,
place and stead,  in any and all  capacities,  to sign the Annual Report on Form
10-K for the fiscal year ended  September 30, 1996 and any and all amendments to
such Annual Report,  and to file the same,  with all exhibits  thereto and other
documents in connection therewith,  with the Securities and Exchange Commission,
granting unto said  attorneys-in-fact  and agents,  and each of them, full power
and  authority  to do and  perform  each and every act and  thing  requisite  or
necessary to be done, as fully to all intents and purposes as he or she might or
could  do  in  person,   hereby   ratifying   and   confirming   all  that  said
attorneys-in-fact  and  agents  or any of them,  or their or his  substitute  or
substitutes, may lawfully do or cause to be done by virtue hereof.

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities indicated as of November 1, 1996.

Signatures                             Title




/s/ David R. Jones
    David R. Jones                  President and Chief Executive Officer
                                   (Principal Executive Officer) and Director



/s/ J. Michael Riley
    J. Michael Riley                Vice President and Chief Financial Officer
                                   (Principal Accounting and Financial Officer)



/s/ Frank Barron, Jr.
    Frank Barron, Jr.               Director


                                       21







/s/ W. Waldo Bradley
    W. Waldo Bradley                Director



/s/ Otis A. Brumby, Jr.
    Otis A. Brumby, Jr.             Director



/s/ L.L. Gellerstedt, III
    L.L. Gellerstedt, III           Director



/s/ Albert G. Norman, Jr.
    Albert G. Norman, Jr.           Director



/s/ D. Raymond Riddle
    D. Raymond Riddle               Director



/s/ Betty L. Siegel
    Betty L. Siegel                 Director



/s/ Ben J. Tarbutton, Jr.
    Ben J. Tarbutton, Jr.           Director



/s/ Charles McKenzie Taylor
    Charles McKenzie Taylor         Director



/s/ Felker W. Ward, Jr.
    Felker W. Ward, Jr.             Director


*By  /s/ J. Michael Riley
         J. Michael Riley
         as Attorney-in-Fact


                                       22



INDEPENDENT AUDITORS' REPORT


To the Shareholders and Board of Directors of AGL Resources Inc.:

We have audited the  consolidated  balance  sheets of AGL Resources Inc. and its
subsidiaries  as of September 30, 1996 and 1995,  and the related  statements of
consolidated  income,  common stock equity, and cash flows for each of the three
years in the period ended September 30, 1996, and have issued our report thereon
dated  November 5, 1996;  such  financial  statements and report are included in
your  1996  Annual  Report  to  Shareholders  and  are  incorporated  herein  by
reference.  Our audits also  included the  financial  statement  schedule of AGL
Resources Inc. and  subsidiaries,  listed in Item 14. This  financial  statement
schedule  is  the  responsibility  of  AGL  Resources  Inc.'s  management.   Our
responsibility  is to express an opinion  based on our audits.  In our  opinion,
such  financial  statement  schedule,  when  considered in relation to the basic
financial statements taken as a whole,  presents fairly in all material respects
the information set forth therein.




/S/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP

Atlanta, Georgia
November 5, 1996


                                       23



                                                                     SCHEDULE II

                      AGL RESOURCES INC. AND SUBSIDIARIES
                        VALUATION AND QUALIFYING ACCOUNT
                      ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
             FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
                                 (IN MILLIONS)


- --------------------------------------------------------------------------------
                                                  1996        1995        1994
- --------------------------------------------------------------------------------
Balance, beginning of year .................       4.4         2.8         1.9
Additions:
  Provisions charged to income .............       4.7         5.3         7.5
  Recovery of accounts
    previously written off
    as uncollectible .......................       8.6         6.6         7.1
                                                 ------      ------      ------
Total ................................            17.7        14.7        16.5

Deduction:
  Accounts written off
    as uncollectible .......................      14.9        10.3        13.7
                                                 ------      ------      ------
Balance, end of year .......................       2.8         4.4         2.8
                                                 ======      ======      ======


                                       24