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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 December 31, 2001 Commission File Number 000-22211

SOUTH JERSEY GAS COMPANY
(Exact name of registrant as specified in its charter)

New Jersey 21-0398330
(State of incorporation) (IRS employer identification no.)

1 South Jersey Plaza, Folsom, New Jersey 08037
(Address of principal executive offices, including zip code)

(609) 561-9000
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Company Guaranteed Mandatorily Redeemable
Preferred Securities of Subsidiary Trust,
$25 Value per Preferred Security New York Stock Exchange
(Title of each class) (Name of exchange on which registered)


Securities registered pursuant to Section 12(g) of the Act: None

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

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

All of the equity securities of the registrant are owned by South Jersey
Industries, Inc., its parent company, a 1934 Act reporting company named in the
registrants description of its business, which has itself fulfilled its 1934 Act
filing requirements.

During the preceding 36 months (and any subsequent period of days) there has not
been any default in (1) any of the indebtedness of the registrant or its
subsidiaries, and (2) the payment of rentals under material long-term leases (of
which there are none).

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

Documents Incorporated by Reference: None
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PART I

Item 1. Business

General

The registrant, South Jersey Gas Company (SJG), a New Jersey corporation,
is an operating public utility. SJG owns all of the common stock of SJG Capital
Trust, a statutory trust organized in the state of Delaware. All of the equity
securities of SJG are owned by South Jersey Industries, Inc. (SJI), its parent
company, which is itself a 1934 Act reporting company.

Financial Information About Industry Segments

Not applicable.

Description of Business

SJG is an operating public utility company engaged in the purchase,
transmission and sale of natural gas for residential, commercial and industrial
use in an area of approximately 2,500 square miles in the southern part of New
Jersey. SJG also makes off-system sales of natural gas on a wholesale basis to
various customers on the interstate pipeline system and transports natural gas
purchased directly from producers or suppliers by some of its customers.

SJG's service territory includes 112 municipalities throughout Atlantic,
Cape May, Cumberland and Salem Counties and portions of Burlington, Camden and
Gloucester Counties, with an estimated permanent population of 1.2 million.

SJG serves 288,008 residential, commercial and industrial customers (at
December 31, 2001) in southern New Jersey. Gas sales, transportation and
capacity release for 2001 amounted to approximately 108,935 MMcf (million cubic
feet), of which approximately 48,786 MMcf was firm sales and transportation,
2,845 MMcf was interruptible sales and transportation and 57,304 MMcf was
off-system sales and capacity release. The breakdown of firm sales includes
35.6% residential, 15.5% commercial, 3.1% cogeneration and electric generation,
.5% industrial and 45.3% transportation. At year-end 2001, SJG served 268,046
residential customers, 19,542 commercial customers and 420 industrial customers.
This includes 2001 net additions of 6,425 residential customers, 223 commercial
customers and 10 industrial customers.

Under an agreement with Conectiv Inc., an electric utility serving southern
New Jersey, SJG supplies natural gas to several electric generation facilities.
This gas service is provided under the terms of a firm electric service tariff
approved by the New Jersey Board of Public Utilities (BPU) on a demand/commodity
basis. In 2001, 2.1 Bcf (billion cubic feet) was delivered under this agreement.

SJG serviced 7 cogeneration facilities in 2001. Combined sales and
transportation of natural gas to such customers amounted to approximately 4.0
Bcf in 2001.

SJG makes wholesale gas sales for resale to gas marketers for ultimate
delivery to end users. These "off-system" sales are made possible through the
issuance of the Federal Energy Regulatory Commission (FERC) Orders No. 547 and
636. Order No. 547 issued a blanket certificate of public convenience and
necessity authorizing all parties, which are not interstate pipelines, to make
FERC jurisdictional gas sales for resale at negotiated rates, while Order No.
636 allowed SJG to deliver gas at delivery points on the interstate pipeline
system other than its own city gate stations and release excess pipeline
capacity to third parties. During 2001, off-system sales amounted to 30.1 Bcf.
Also in 2001, capacity release and storage throughput amounted to 27.2 Bcf.

SJG-2

Supplies of natural gas available to SJG that are in excess of the quantity
required by those customers who use gas as their sole source of fuel (firm
customers) make possible the sale and transportation of gas on an interruptible
basis to commercial and industrial customers whose equipment is capable of using
natural gas or other fuels, such as fuel oil and propane. The term
"interruptible" is used in the sense that deliveries of natural gas may be
terminated by SJG at any time if this action is necessary to meet the needs of
higher priority customers as described in SJG's tariffs. Usage by interruptible
customers, excluding off-system customers, in 2001 amounted to approximately 2.8
Bcf, approximately 2.6 percent of the total throughput.

No material part of SJG's business is dependent upon a single customer or a
few customers.

Service Territory

The majority of SJG's residential customers reside in the northern and
western portions of its service territory in Burlington, Camden, Salem and
Gloucester counties. A majority of new customers reside in this section of the
service territory, which includes the residential suburbs of Wilmington and
Philadelphia. The franchise area to the east is centered on Atlantic City and
the neighboring resort communities in Atlantic and Cape May counties, which
experience large population increases in the summer months. The impact of the
casino gaming industry on the Atlantic City area has resulted in the creation of
new jobs and the expansion of the residential and commercial infrastructure
necessary to support a developing year-round economy. Construction is
progressing on the first new casino/hotel in 13 years, marking the beginning of
another round of development in the city.

Manufacturers or processors of sand, glass, farm products, paints,
chemicals and petroleum products are located in the western and southern sectors
of the service territory. New commercial establishments and high technology
industrial parks and complexes are part of the economic growth of this area.
SJG's service area includes parts of the Pinelands region, a largely undeveloped
area in the heart of southern New Jersey. Future construction in this area is
expected to be limited by statute and by a master plan adopted by the New Jersey
Pinelands Commission; however, in terms of potential growth, significant
portions of SJG's service area are not affected by these limitations.

Rates and Regulation

As a public utility, SJG is subject to regulation by the BPU. Additionally,
the Natural Gas Policy Act, which was enacted in November 1978, contains
provisions for Federal regulation of certain aspects of SJG's business. SJG is
affected by Federal regulation with respect to transportation and pricing
policies applicable to its pipeline capacity from Transcontinental Gas Pipeline
Corporation (Transco), SJG's major supplier, Columbia Gas Transmission
Corporation (Columbia), CNG Transmission Corporation (CNG) and Equitrans, Inc.
(Equitrans), since such services are provided under rates and terms established
under the jurisdiction of the FERC.

Retail sales by SJG are made under rate schedules within a tariff filed
with and subject to the jurisdiction of the BPU. These rate schedules provide
primarily for either block rates or demand/commodity rate structures. The tariff
contains provisions permitting the recovery of environmental remediation costs
associated with former manufactured gas plant sites and for the adjustment of
revenues due to the impact of "temperature" fluctuations as prescribed in SJG's
tariff. The tariff also contains provisions permitting SJG to pass on to
customers increases and decreases in the cost of purchased gas supplies. The
cost of gas purchased from the utility by consumers has historically been set
annually by the BPU under a Levelized Gas Adjustment Clause (LGAC) within SJG's
tariff. When actual gas costs experienced by SJG are less than those charged to
customers under the LGAC, customer bills in the subsequent LGAC period(s) are
adjusted to provide credits for the overrecovery with interest. When actual gas
costs are more than recovered through rates, SJG is permitted to charge
customers more for gas in future periods for the underrecovery. While SJG has
not normally been permitted to recover the cost associated with financing the
underrecovered amounts, a March 2001 BPU ruling permits SJG to recover
unrecovered gas costs as of October 31, 2001 with interest at 5.75% over a

SJG-3

three-year period. The action taken by the BPU was in response to unprecedented
high gas costs experienced in 2000 and early 2001 and in consideration of
requiring SJG to spread recovery of those costs over the three-year period.

In February, 1999, the Electric Discount and Energy Competition Act (the
Act) was signed into law in New Jersey. This bill created the framework and
necessary time schedules for the restructuring of the state's electric and
natural gas utilities. The Act established unbundling, where redesigned utility
rate structures allow natural gas and electric consumers to choose their energy
supplier. It also established time frames for instituting competitive services
for customer account functions and for determining whether basic gas supply
services should become competitive.

SJG received BPU approval of its unbundling proposal in January 2000. In
addition to allowing all customers to select their own gas supplier, the
approval also provided SJG with the ability to recover carrying costs on
unrecovered remediation costs under the Remediation Adjustment Clause (RAC),
while holding the current RAC rate in effect through October 2002. Our RAC rate
last changed in September 1999. SJG's LGAC was also modified by the unbundling
process. Underrecovered gas costs of $11.9 million as of October 31, 1999, and
related carrying costs, are being recovered through 2002.

The Act also contains numerous provisions requiring the BPU to promulgate
and adopt a variety of standards related to implementing the Act. These required
standards address fair competition, affiliate relations, accounting, competitive
services, supplier licensing, consumer protection and aggregation. In March
2000, the BPU issued Interim Standards in response to the Act. The BPU has
undertaken an extensive comment, meeting and audit process to address the
concerns of all impacted parties. SJG actively participated in the process, and
we believe the final standards will not have a material adverse affect on the
company.

Additional information on regulatory affairs is incorporated by reference
to Notes 2, 6 and 13 of SJG's consolidated financial statements for the year
ended December 31, 2001. See Item 8.

SJG Capital Trust, a Delaware statutory trust, is a wholly owned subsidiary
of SJG, which had the sole purpose of issuing beneficial interests in its assets
(Preferred Securities). The proceeds of selling such Preferred Securities were
invested in Deferrable Interest Subordinated Debentures issued by SJG. SJG is
the guarantor of such Preferred Securities.

In 2001, SJG made no public announcement of, or otherwise made public
information about, a new product or industry segment that would require the
investment of a material amount of the assets of SJG or which otherwise was
material.

Raw Materials

Transportation Contracts and Storage

SJG has direct connections to two interstate pipeline companies, Transco
and Columbia. During 2001, SJG purchased and had delivered approximately 66.0
Bcf of natural gas for distribution to both on-system and off-system customers.
Of this total, 51.3 Bcf was transported on the Transco pipeline system and 14.7
Bcf was transported on the Columbia pipeline system. SJG also secures firm
transportation and other long term services from four additional pipelines
upstream of the Transco and Columbia systems. They include: Columbia Gulf
Transmission Company (Columbia Gulf), Sempra Energy Trading Corp. (Sempra),
Texas Gas Transmission Corporation (Texas Gas) and Equitrans. Services provided
by these upstream pipelines are utilized to deliver gas into either the Transco
or Columbia systems for ultimate delivery to SJG. Services provided by all of
the above mentioned pipelines are subject to changes as directed by FERC Order
No. 636.

SJG-4

Transco:

Transco is SJG's largest supplier of long-term gas transmission services.
These services include four year-round and one seasonal firm transportation (FT)
service arrangements. When combined, these services enable SJG to purchase from
third parties and have delivered to its city gate stations by Transco a total of
164,089 Thousand Cubic Feet of gas per day (Mcf/d). The terms of the year-round
agreements extend for various periods from 2002 to 2010 while the term of the
seasonal agreement extends to 2011.

SJG also has seven long-term gas storage service agreements with Transco
that, when combined, are capable of storing approximately 10.1 Bcf. Through
these services, SJG can inject gas into market area storage during periods of
low demand and withdraw gas at a rate of up to 86,973 Mcf per day during periods
of high demand. The terms of the storage service agreements extend for various
periods from 2002 to 2008.

Sempra:

SJG has separate gas sales and capacity management agreements with Sempra
which provide SJG with up to 9,662 Mcf per day of gas during the period November
16 through March 31 of each year.

Columbia:

SJG has three firm transportation agreements with Columbia which, when
combined, provide for 43,500 Mcf/d of firm deliverability.

SJG also subscribes to a firm storage service from Columbia, to March 31,
2009, which provides a maximum withdrawal quantity of 51,102 Mcf/d during the
winter season with an associated 3,355,557 Mcf of storage capacity.

Equitrans:

SJG has entered into a one year arrangement under which it will receive up
to 5,314 Mcf per day from a total storage quantity of 504,831 Mcf. The gas is
delivered to SJG under a firm transportation agreement with Transco.

Gas Supplies

SJG has several long term gas supply agreements with various producers and
marketers that expire between 2002 and 2006. Under these agreements, SJG can
purchase up to 17,350,098 Mcf of natural gas per year. When advantageous, SJG
can purchase spot supplies of natural gas in place of or in addition to those
volumes reserved under long-term agreements.

The following chart shows by percentage the actual sources of purchased gas
supply for each of the last three years:

2001 2000 1999
--------------------------------------

Long-Term Contract 29.8% 65.3% 76.8%
Spot 70.2% 34.7% 23.2%
--------------------------------------
Total 100.0% 100.0% 100.0%


Supplemental Gas Supplies

SJG entered into a Liquefied Natural Gas (LNG) purchase agreement with a
third party provider which extends through October 31, 2003. For the 2001-2002

SJG-5

contract year, SJG's annual contract quantity under the agreement is 186,047
Mcf. LNG purchases are transported to SJG's McKee City, New Jersey LNG storage
facility by truck.

SJG operates peaking facilities which can store and vaporize LNG for
injection into its distribution system. SJG's LNG facility has a storage
capacity equivalent to 404,000 Mcf of natural gas and has an installed capacity
to vaporize up to 90,000 Mcf of LNG per day for injection into its distribution
system.

SJG also operates a high pressure pipe storage field at its McKee City
facility which is capable of storing 12,000 Mcf of gas and injecting up to
10,000 Mcf/d of gas per day into SJG's distribution system.

Peak-Day Supply

SJG plans for a winter season peak-day demand on the basis of an average
daily temperature of 2 degrees F. Gas demand on such a design day was estimated
for the 2001-2002 winter season to be 470,385 Mcf versus a design day supply of
503,909 Mcf. On February 22, 2001, SJG experienced its highest peak-day demand
for the year of 325,739 Mcf with an average temperature of 24.66 degrees F.

Gas Prices

SJG's average commodity cost of gas purchased in 2001, 2000 and 1999 was
$4.95 per Mcf, $4.32 per Mcf and $2.30 per Mcf, respectively.

Patents and Franchises

SJG holds nonexclusive franchises granted by municipalities in the seven
county area of southern New Jersey that it serves. No other natural gas public
utility presently serves the territory covered by SJG's franchises. Otherwise,
patents, trademarks, licenses, franchises and concessions are not material to
the business of SJG or its subsidiary.

Seasonal Aspects

SJG experiences seasonal fluctuations in sales when selling natural gas for
heating purposes. SJG meets this seasonal fluctuation in demand from its firm
customers by buying and storing gas during the summer months, and by drawing
from storage and purchasing supplemental supplies during the heating season. As
a result of this seasonality, SJG's revenues and net income are significantly
higher during the first and fourth quarters than during the second and third
quarters of the year.

Working Capital Practices

As stated under Seasonal Aspects, SJG buys and stores natural gas during
the summer and fall months. These purchases are financed by short-term loans
which are significantly reduced during the winter months when gas revenues are
higher. Reference is also made to "Liquidity and Capital Resources" included in
Item 7, Management's Discussion and Analysis of Results of Operations and
Financial Condition.

Customers

No material part of SJG's business is dependent upon a single customer or a
few customers, the loss of which would have a material adverse effect on any
such business. See Item 1, "Service Territory."

Backlog

Backlog is not material to an understanding of SJG's business.

SJG-6

Government Contracts

No material portion of SJG's business is subject to renegotiation of
profits or termination of contracts or subcontracts at the election of any
government.

Competition

SJG's franchises are non-exclusive, however, currently no other utility is
providing service within its territory. SJG competes with oil, propane and
electricity suppliers for residential, commercial and industrial users. The
market for natural gas commodity sales is subject to competition as a result of
deregulation. Through its tariff, SJG has promoted competition while maintaining
its margins. Substantially all of SJG's profits are from the transportation
rather than the sale of the commodity. SJG has maintained its focus on being a
low-cost provider of natural gas and energy services. SJG also competes with
other marketers/brokers in the selling of wholesale natural gas services.

Research

During the last three fiscal years, SJG did not engage in research
activities to any material extent.

Environmental Matters

Information on environmental matters is incorporated by reference to Note
12 to SJG's consolidated financial statements for the year ended December 31,
2000. See Item 8.

Employees

SJG had a total of 609 employees as of December 31, 2001. Information on
labor relations matters is incorporated by reference to "Other Events" included
in Item 7, Management's Discussion and Analysis of Results of Operations and
Financial Condition.

Financial Information About Foreign and Domestic Operations and Export Sales

SJG has no foreign operations and export sales are not a part of its
business.


Item 2. Properties

The principal property of SJG consists of its gas transmission and
distribution systems that include mains, service connections and meters. The
transmission facilities carry the gas from the connections with Transco and
Columbia to SJG's distribution systems for delivery to customers. As of December
31, 2001, there were approximately 92 miles of mains in the transmission systems
and 5,200 miles of mains in the distribution systems.

SJG owns office and service buildings, including its corporate
headquarters, at seven locations in the territory and a liquefied natural gas
storage and vaporization facility.

As of December 31, 2001, the SJG utility plant had a gross book value of
$805.4 million and a net book value, after accumulated depreciation, of $584.0
million. In 2001, $47.8 million was spent on additions to utility plant and
there were retirements of property having an aggregate gross book cost of $7.8
million. Construction and remediation expenditures for 2002 are currently
expected to approximate $60.1 million.

Virtually all of SJG's transmission pipeline, distribution mains and
service connections are in streets or highways or on the property of others. The

SJG-7

transmission and distribution systems are maintained under franchises or permits
or rights-of-way, many of which are perpetual. SJG's properties (other than
property specifically excluded) are subject to a lien of mortgage under which
its first mortgage bonds are outstanding. We believe these properties are well
maintained and in good operating condition.


Item 3. Legal Proceedings

SJG is subject to claims which arise in the ordinary course of its business
and other legal proceedings. We set up reserves when claims become apparent. We
also maintain insurance and record probable insurance recoveries relating to
outstanding claims. Management of SJG believes that any pending or potential
legal proceedings will not materially affect its operations or consolidated
financial position.


Item 4. Submission Of Matters To A Vote of Security Holders

Not applicable.


SJG-8


PART II

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

Common equity securities of SJG, owned by its parent company, South Jersey
Industries, Inc., are not traded on any stock exchange.

Cash dividends are usually declared on SJG's common stock on a quarterly
basis. SJG is restricted under its First Mortgage Indenture, as supplemented, as
to the amount of cash dividends or other distributions that may be paid on its
common stock. Retained earnings free of such restriction approximate $67.4
million at December 31, 2000.

If preferred stock dividends are in arrears, no dividends may be declared
or paid, or other distribution made on the common stock of SJG. If four or more
quarterly dividends are in arrears, the Preferred Shareholders may elect a
majority of SJG's directors. See Note 4 of SJG's consolidated financial
statements for additional information on Capitalization. See Item 8.



SJG-9


Item 6. Selected Financial Data

The following financial data has been obtained from SJG's audited financial
statements:


(In Thousands Except for Share Data)





Year Ended December 31,
-------------------------------------------------------------------------------

2001 2000 1999 1998 1997
-------------------------------------------------------------------------------


Operating Revenues $475,917 $446,303 $349,518 $297,897 $326,704
===============================================================================

Operating Income $60,408 $62,789 $59,455 $49,296 $51,586
===============================================================================

Income before Preferred Securities Dividend
Requirement and Discontinued Operations 24,589 24,929 23,451 17,972 22,031

Preferred Dividend Requirements:
Preferred Stock (139) (151) (162) (166) (170)
Preferred Securities (2,923) (2,923) (2,922) (2,922) (1,932)
-------------------------------------------------------------------------------

Income from Continuing Operations 21,527 21,855 20,367 14,884 19,929

(Loss) Income from Discontinued Operations (207) (76) 15 (62) (31)
-------------------------------------------------------------------------------

Net Income Applicable to Common Stock $21,320 $21,779 $20,382 $14,822 $19,898
===============================================================================

Average Shares of Common Stock Outstanding 2,339,139 2,339,139 2,339,139 2,339,139 2,339,139

Earnings per Common Share:
Continuing Operations $9.20 $9.34 $8.70 $6.37 $8.52
Discontinued Operations - Net (0.09) (0.03) 0.01 (0.03) (0.01)
-------------------------------------------------------------------------------

Earnings per Common Share $9.11 $9.31 $8.71 $6.34 $8.51

Ratio of Earnings to Fixed Charges (1) 2.6x 2.6x 2.5x 2.2x 2.6x


As of December 31,
-------------------------------------------------------------------------------

2001 2000 1999 1998 1997
-------------------------------------------------------------------------------

Property, Plant and Equipment, Net $583,983 $557,269 $530,874 $502,243 $454,239
===============================================================================

Total Assets $857,806 $842,083 $750,239 $720,136 $649,113
===============================================================================

Capitalization:
Common Equity (2) $205,982 $197,101 $182,122 $162,940 $164,785
Preferred Stock and Securities (3) 36,690 36,804 37,044 37,134 37,224
Long-Term Debt 230,247 204,981 183,561 194,710 175,860
-------------------------------------------------------------------------------

Total $472,919 $438,886 $402,727 $394,784 $377,869
===============================================================================



(1) The ratio of earnings to fixed charges represents, on a pre-tax basis,
the number of times earnings cover fixed charges. Earnings consist of
net income, to which has been added fixed charges and taxes based on
income of the company before discontinued operations. Fixed charges
consist of interest charges and preferred securities dividend
requirements and an interest factor in rentals.

(2) Included are cash contributions to capital as follows: 2001 - $7.0
million; 2000 - $8.0 million; 1999 - $15.0 million; 1997 - $25.6 million.

(3) Includes sale in 1997 of $35.0 million Company Guaranteed Mandatorily
Redeemable Preferred Securities of Subsidiary Trust.





SJG-10


Comparative statistical data related to revenues and gas throughput is as
follows:





2001 2000 1999 1998 1997
-------------- -------------- -------------- -------------- ---------------

Operating Revenues (Thousands):
Firm
Residential $ 201,531 $ 172,418 $ 152,946 $ 147,274 $ 176,717
Commercial 76,416 49,669 35,064 36,328 60,418
Industrial 4,250 5,265 4,879 4,175 5,535
Cogeneration & Electric Generation 7,405 11,016 8,496 8,119 5,249
Firm Transportation 29,565 38,213 33,125 24,893 15,966
-------------- -------------- -------------- -------------- ---------------

Total Firm 319,167 276,581 234,510 220,789 263,885

Interruptible 1,485 1,695 1,645 2,506 6,085
Interruptible Transportation 1,268 1,531 1,724 2,598 3,507
Off-System 145,530 160,208 104,142 62,578 39,403
Capacity Release & Storage 5,596 4,411 4,193 6,031 8,533
Other 2,871 1,877 3,304 3,395 5,291
-------------- -------------- -------------- -------------- ---------------

Total Operating Revenues $ 475,917 $ 446,303 $ 349,518 $ 297,897 $ 326,704
============== ============== ============== ============== ===============

Throughput (MMcf):
Firm
Residential 17,390 19,124 17,741 16,979 19,955
Commercial 7,544 6,191 4,634 4,826 8,067
Industrial 248 282 246 348 733
Cogeneration & Electric Generation 1,519 2,046 2,316 2,373 1,230
Firm Transportation 22,085 26,114 25,143 22,336 20,196
-------------- -------------- -------------- -------------- ---------------

Total Firm Throughput 48,786 53,757 50,080 46,862 50,181
-------------- -------------- -------------- -------------- ---------------

Interruptible 207 207 383 694 1,345
Interruptible Transportation 2,638 3,022 3,628 6,049 7,586
Off-System 30,117 38,097 42,480 26,916 14,462
Capacity Release & Storage 27,187 37,445 29,247 27,319 36,382
-------------- -------------- -------------- -------------- ---------------

Total Throughput 108,935 132,528 125,818 107,840 109,956
============== ============== ============== ============== ===============

Number of Customers at Year End:
Residential 268,046 261,621 254,601 248,210 242,132
Commercial 19,542 19,319 18,894 18,457 18,037
Industrial 420 410 404 398 398
-------------- -------------- -------------- -------------- ---------------

Total Customers 288,008 281,350 273,899 267,065 260,567
============== ============== ============== ============== ===============

Maximum Daily Sendout (MMcf) 326 375 324 314 355
============== ============== ============== ============== ===============

Annual Degree Days 4,495 4,942 4,468 4,110 4,829
============== ============== ============== ============== ===============

Normal Degree Days * 4,625 4,639 4,664 4,708 4,728
============== ============== ============== ============== ===============



* Average degree days recorded in SJG service territory during 20-year period
ended June 30 of prior year.





SJG-11


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


Overview

South Jersey Gas Company (SJG) is a wholly-owned subsidiary of South Jersey
Industries (SJI). SJG is a regulated natural gas utility, distributing natural
gas in the seven southernmost counties of New Jersey to 288,008 customers at
December 31, 2001 compared with 281,350 customers at December 31, 2000. SJG
also:

- makes off-system sales of natural gas on a wholesale basis to various
customers on the interstate pipeline system;

- transports natural gas purchased directly from producers or suppliers for
its own sales and for some of its customers; and

- services appliances via the sale of appliance warranty programs as well
as on a time and materials basis.

As described in the footnotes to our consolidated financial statements,
management must make estimates and assumptions that affect the amounts reported
in the financial statements and related disclosures. Actual results could differ
from those estimates.

Two types of transactions presented in our consolidated financial
statements require a significant amount of judgment and estimation. These relate
to regulatory assets and environmental remediation costs.

The New Jersey Board of Public Utilities (BPU) has reviewed and approved
most of the items shown as regulatory assets through specific orders. Other
items represent costs which were not yet BPU-approved for recovery, but are the
subject of current or future filings. In recording these costs as regulatory
assets, management believes the costs will be allowable under existing
rate-making concepts that are embodied in current rate orders received by SJG.
However, ultimate recovery is subject to BPU approval.

An outside consulting firm assists us in estimating future costs for
environmental remediation activities. We estimate future costs based on
projected investigation and work plans using existing technologies. Developing a
single reliable estimation point is not feasible because of the amount of
uncertainty involved in the nature of projected remediation efforts and the long
period over which remediation efforts will continue. Therefore, we estimate a
range of future costs. In preparing financial statements, SJG records
liabilities for future costs using the lower end of the range. We update
estimates each year to take into account past efforts, changes in work plans and
remediation technologies.

Forward-Looking Statements

This report contains certain forward-looking statements concerning
projected financial and operating performance, future plans and courses of
action and future economic conditions. All statements in this report other than
statements of historical fact are forward-looking statements. These
forward-looking statements are made based upon management's expectations and
beliefs concerning future events impacting the company and involve a number of
risks and uncertainties. We caution that forward-looking statements are not
guarantees and actual results could differ materially from those expressed or
implied in the forward-looking statements. Also, in making forward-looking
statements, we assume no duty to update these statements should expectations
change or actual results and events differ from current expectations.

SJG-12


A number of factors could cause our actual results to differ materially
from those anticipated including, but not limited to, the following: general
economic conditions on an international, national, state and local level;
weather conditions in our marketing areas; changes in commodity costs;
regulatory and court decisions; competition in our utility and non-utility
activities; the availability and cost of capital; our ability to maintain
existing joint ventures to take advantage of marketing opportunities; costs and
effects of legal proceedings and environmental liabilities; the failure of
customers or suppliers to fulfill their contractual obligations; and changes in
business strategies.

Competition

SJG's franchises are non-exclusive. Currently, no other utility provides
retail gas distribution services within our territory. We do not expect any
other utilities to do so in the foreseeable future because of the extensive
investment required for utility plant and related costs. SJG competes with oil,
propane and electricity suppliers for residential, commercial and industrial
users. The market for natural gas sales is subject to competition due to
deregulation. We enhanced SJG's competitive position while maintaining margins
by using an unbundled tariff. This tariff allows full cost-of-service recovery,
except for the variable cost of the gas commodity, when transporting gas for our
customers. Under this tariff, SJG profits from transporting, rather than
selling, the commodity. SJG's residential, commercial and industrial customers
can choose their supplier while we recover the cost of service through
transportation service (see Customer Choice Legislation). SJG serves as the
supplier of last resort for all customers transporting gas on its system.

Customer Choice Legislation

Effective January 10, 2000, all residential natural gas customers in New
Jersey can choose their gas supplier under the terms of the Electric Discount
and Energy Competition Act of 1999. Commercial and industrial customers have had
the ability to choose gas suppliers since 1987. As of December 31, 2001, 39,998
SJG residential customers chose a natural gas supplier other than the utility,
an increase from 35,657 at December 31, 2000. The number of customers buying
natural gas from third party marketers fell to 31,395 in May 2001 as marketers
were unable to offer natural gas at prices competitive with those available
under regulated utility tariffs. During Spring 2001, the market price of natural
gas became comparable to SJG's prices and decreased further as the year
progressed. Consequently, third party marketers increased customer acquisition
efforts and their number of customers rebounded. The bills of customers choosing
to purchase natural gas from providers other than the utility are reduced for
cost of gas charges and applicable taxes. The resulting decrease in SJG's
revenues is offset by a corresponding decrease in gas costs and taxes. While
customer choice can reduce utility revenues, it does not negatively affect SJG's
net income or financial condition.

Temperature Adjustment Clause

SJG's BPU-approved Temperature Adjustment Clause (TAC) increased net
earnings by $2.0 million in 2001. In 2000, the TAC reduced net income by $0.9
million and in 1999, the TAC increased net earnings by $2.0 million. While we
record the revenue and income impact of TAC adjustments as incurred, cash
inflows or outflows directly attributable to TAC adjustments generally occur the
next TAC year beginning October 1.

Operating Revenues - Utility

Revenues increased $29.6 million in 2001 compared with the prior year. The
increase was primarily due to higher rates resulting from an increase in the
Levelized Gas Adjustment Clause (LGAC) that reflected higher gas costs, the
return of residential customers to firm gas sales from transportation and 6,658
additional customers. Early in the year, a large number of residential customers
who purchased natural gas from other providers resumed purchasing natural gas
from SJG as marketers were unable to offer competitive prices. These increases
offset a decrease in off-system revenues. The off-system revenue decline was due
to lower average prices for natural gas sold during the year. Significantly
lower gas prices experienced during the third and fourth quarters essentially
offset the higher natural gas prices experienced during the first six months.
The volume of gas sold off-system was also lower in 2001 than in 2000.

SJG-13


In 2000, revenues increased $96.8 million versus 1999. This was due
primarily to higher off-system sales, 7,451 additional customers and higher LGAC
rates to recover increased gas costs at SJG. These factors more than offset
revenue reductions due to the continued migration of firm gas sales to firm
transportation. Note, however, that SJG's tariffs are structured so we derive
profits from transporting gas, not selling the commodity. Consequently, the
switch to firm transportation reduced revenues but did not impact profitability.

As a result of SJG's TAC, revenues from utility ratepayers are closely tied
to 20-year normal temperatures calculated under the TAC and not actual weather
conditions. However, as a general rule, revenues continue to be positively
impacted by colder weather and negatively impacted by warmer weather. Weather in
2001 was 9.0% warmer than in 2000. Weather was also 5.3% warmer for the year
than the 20-year TAC average. Revenues in 2001 were negatively impacted by the
weather. Weather in 2000 was 10.6% colder than the prior year. Weather was also
4.1% colder in 2000 than the approved 20-year TAC average.

Total gas throughput decreased 17.8% to 108,935 million cubic feet (MMcf)
in 2001. Throughput in 2000 rose 5.3% to 132,528 MMcf compared with 1999.
Results in 2001 were due to decreased capacity release, off-system sales,
transportation and residential activity. Off-system and capacity release
throughput declined primarily because we canceled a high volume, low margin
supply and storage contract effective April 2001. The throughput rise in 2000
was primarily due to colder weather.

Gas Purchased for Resale

Gas purchased for resale increased $33.1 million in 2001 compared with
2000. Higher gas costs for both local distribution and off-system sales were
responsible for the increase, which were partially offset by lower volumes sold.
SJG's gas cost during 2001 averaged $4.78 per decatherm (dt) compared with
$4.18/dt in 2000 and $2.38/dt in 1999. SJG was able to pass a portion of higher
gas costs on to local distribution customers through BPU-approved increases in
our LGAC rates. Unlike gas costs associated with off-system sales, changes in
the unit cost of gas sold to utility ratepayers do not directly affect cost of
gas sold - utility. Fluctuations in gas costs to ratepayers not reflected in
current rates are deferred and addressed in future periods under a BPU-approved
LGAC. Under the LGAC, fluctuations in gas costs not covered currently are
reflected in future customer rates. Gas supply sources include contract and
open-market purchases. SJG secures and maintains its own gas supplies to serve
its customers. We do not anticipate any difficulty renewing or replacing
expiring contracts under substantially similar terms and conditions.

Utility Operations

A summary of net changes in operations (in thousands):

2001 vs. 2000 2000 vs. 1999
------------- -------------

Other Production Expense $ (9) $ (2)
Transmission 30 (59)
Distribution 283 (818)
Customer Accounts and Services 492 1,084
Sales 18 (67)
Administration and General (2,121) (285)
Other 195 22
------------------------------

Total Operations $(1,112) $ (125)
==============================


SJG-14


Distribution expenses decreased significantly in 2000 as we avoided costs
related to our unionized workforce in late 2000. The decrease resulted from a
work stoppage that ran from November 8, 2000 to January 17, 2001. We recognized
expenses related to performing critical operational functions during the work
stoppage under Administration and General. Offsetting these expenses in the
Administration and General account in 2000 was a reallocation of costs among
other expense categories. The reallocation was BPU-mandated through New Jersey's
energy deregulation process. Approximately two-thirds of the Administration and
General account's decline in 2001 was work stoppage related. The remainder was
due to a reallocation of benefits to individual cost centers. Customer Accounts
and Services expenses rose in 2001 due to the absence of almost two months of
payroll expenses in 2000 as a result of the work stoppage. Also contributing to
the rise were higher meter reading costs resulting from customer additions and
fewer estimated meter reads. The change in 2000 related to increased bad debt
reserves anticipating account collection difficulties in 2001 as a direct result
of rising gas costs.

Other Operating Expenses

A summary of principal changes in other consolidated operating expenses (in
thousands):

2001 vs. 2000 2000 vs. 1999
------------- -------------

Maintenance $26 $1,740
Depreciation $1,064 $1,178
Energy and Other Taxes $(1,062) $466


Maintenance expense increased in 2000 primarily due to higher levels of
Remediation Adjustment Clause (RAC) amortization. RAC-related expenses do not
affect earnings as an offsetting amount is recognized in revenues. Depreciation
was higher due to SJG's increased investment in property, plant and equipment.
Changes in Energy and Other Taxes relate primarily to changes in volumes of gas
sold and transported by SJG.

Interest Charges

Interest charges were lower in 2001 compared with the prior year due
primarily to reductions in short-term rates on line of credit borrowings
experienced during 2001. Lower interest rates and recoveries of carrying costs
associated with the unrecovered RAC and purchased gas costs more than offset
interest on higher levels of short- and long-term debt outstanding. We incurred
the debt primarily to support expanding and upgrading SJG's gas transmission and
distribution system as well as higher levels of unrecovered gas costs and
receivables resulting from increased gas prices. Interest expense was higher in
2000 than in 1999 due primarily to higher levels of debt outstanding and
interest rates.

Discontinued Operations

Loss from discontinued operations increased in 2001 primarily due to costs
associated with discontinuing SJG's appliance merchandising activities. Results
for discontinued operations for 2000 and 1999 reflect the operating performance
of that business.

Net Income Applicable to Common Stock

Net income for 2001 was $21.3 million as compared with $21.8 million and
$20.4 million in 2000 and 1999, respectively. Reasons for the increases in net
income in 2001 and 2000 are discussed in detail above.

SJG-15


Regulatory Matters

Rate Actions

In response to a dramatic rise in gas prices during 2000 and early 2001,
the BPU granted SJG a series of increases in its LGAC between November 2000 and
July 2001. The total bill for a typical residential heating customer rose 19% in
November 2000 and an additional 2% per month between December 2000 and July 2001
as a result of the LGAC increases. Despite the rate increases, SJG's
underrecovered gas costs totaled $48.5 million by March 2001.

On March 30, 2001, the BPU issued an order establishing a new Gas Cost
Underrecovery Adjustment Clause (GCUA) to recover the balance as of October 31,
2001 of underrecovered gas costs over three years commencing December 1, 2001.
The GCUA is an additional component of the LGAC. The GCUA balance as of October
31, 2001 totaled $48.9 million. In addition, the BPU permitted SJG to recover
interest carrying costs on the underrecovered balance. Interest costs were
recovered at a rate of 5.5% between April 1, 2001 and November 30, 2001. The
recoverable interest rate on the GCUA balance rose to 5.75% effective December
1, 2001.

In the second half of 2001, gas costs softened sufficiently for SJG in
November to file for a 5.6% LGAC decrease. The filing was approved and
implemented effective December 1, 2001. The LGAC decrease offset the 5.2% GCUA
rate increase that also became effective on December 1, 2001.

SJG has operated under its current TAC since October 1998. Under this
Temperature Adjustment Clause, revenues from utility ratepayers are closely, but
not exactly, tied to a 20-year average temperature calculation.
Warmer-than-normal weather results in the utility recognizing revenues for which
cash won't be received from ratepayers until the following TAC year.
Colder-than-normal weather requires SJG to defer revenues in excess of the
20-year norm with ratepayers receiving credits to their bills for the overage in
the following TAC year. Each TAC year runs from October 1 through May 31.
Because of warmer-than-normal weather experienced during the 2000-2001 TAC year,
SJG filed in November 2001 to recover $2.7 million under the TAC. The BPU has
not yet acted on that filing.

Environmental Remediation

We incurred and recorded costs for environmental clean up of sites where
SJG or its predecessors operated manufactured gas plants (MGP). SJG stopped
manufacturing gas in the 1950s. We successfully entered into settlements with
all of SJG's historic comprehensive general liability carriers regarding
environmental remediation expenditures at former MGP sites. As part of these
settlements, SJG purchased an insurance policy that caps its remediation
expenditures at 11 of these sites. The insurance policy is in force for 25 years
at 10 sites and 30 years at one site.

We believe that all costs incurred net of insurance recoveries relating to
SJG's MGP sites will be recovered through rates under SJG's RAC. The RAC
currently permits SJG to recover incurred costs in equal installments over
7-year periods with carrying costs. As of December 31, 2001, SJG has $12.8
million of remediation costs not yet reflected in rates.

Other matters are incorporated by reference to Note 13 to the consolidated
financial statements included as part of this report.

Litigation

SJG is subject to claims arising in the ordinary course of business and
other legal proceedings. We accrue liabilities when these claims become
apparent. SJG also maintains insurance and records probable insurance recoveries
relating to outstanding claims. In our opinion these claims will not materially
adversely affect SJG.

SJG-16

Liquidity and Capital Resources

Liquidity needs at SJG are driven by factors that include natural gas
commodity prices; lags in fully collecting gas costs from customers under the
LGAC clause; the timing of construction and remediation expenditures and related
permanent financings; mandated tax payment dates; and requirements to repay
long-term debt.

We first seek to meet liquidity needs with cash from operations. Net cash
provided by operating activities totaled $15.1 million, $37.4 million and $40.5
million in 2001, 2000 and 1999, respectively. The majority of the 2001 change
resulted from significantly higher-cost gas placed into inventory during the
year. We utilize short-term borrowings under lines of credit from commercial
banks to supplement cash from operations where necessary.

Lines of credit available to SJG totaled $175.0 million at December 31,
2001, of which $135.5 million was utilized. All but $10 million of these lines
are made available through five commercial banks on an uncommitted basis. The
banks and SJI review and renew the lines annually. The $10 million line is
extended on a committed basis, maturing May 2003, by a sixth commercial bank.
SJG has long-standing relationships with all of these banks and we believe,
based upon ongoing dialogue, that there will continue to be sufficient credit
available to meet our business' future liquidity needs.

SJG supplements its operating cash flow and credit lines with both debt and
equity capital. Over the years, SJG has utilized long-term debt, primarily in
the form of First Mortgage Bonds, to finance its long-term needs. These needs
are primarily capital expenditures for property, plant and equipment. Since
1998, SJG has financed these needs via a Medium Term Note (MTN) program, secured
in similar fashion to the First Mortgage Bonds. In July 2001, SJG issued the
final $35 million of notes available under that program in three transactions:
$10 million at 6.74% maturing 2011; $15 million at 6.57% maturing 2011; and $10
million at 6.50% maturing 2016. We used note proceeds to retire short-term debt.
We anticipate establishing a new MTN program during 2002. Current maturities on
long-term debt over the next five years are as follows: $9.7 million in 2002;
$12.9 million per year in 2003 through 2005; and $11.2 million in 2006.

SJI contributed $7.0 million, $8.0 million and $15 million of capital to
SJG during 2001, 2000 and 1999, respectively. Contributions of capital are
credited to Other Paid-in Capital and Premium on Common Stock.

Capital Expenditures, Commitments and Contingencies

Capital Expenditures

SJG has a continuing need for cash resources and capital, primarily to
invest in new and replacement facilities and equipment and for environmental
remediation costs. Net construction and remediation expenditures for 2001
amounted to $59.3 million. We estimate the net costs for 2002, 2003 and 2004 at
approximately $60.1 million, $62.4 million and $56.3 million, respectively.

Commitments and Contingencies

SJG has certain commitments for both pipeline capacity and gas supply for
which it pays fees regardless of usage. Those commitments as of December 31,
2001 average $51.2 million annually and total $335.7 million over the contracts'
lives. Approximately 70% of the financial commitment under these contracts
expires during the next five years. SJG recovers all prudently incurred fees
through rates via the LGAC.

From time to time, SJG enters into operating leases to finance the use of a
variety of assets, including vehicles, telecommunications equipment and copiers.
SJG's operating lease obligations for the next five years are: $526,000 in 2002;
$470,000 in 2003; $347,000 in 2004; $189,000 in 2005; and $38,000 in 2006.

SJG-17


Ratio of Earnings to Fixed Charges

The company's ratio of earnings to fixed charges for each of the periods
indicated is as follows:

Years Ended December 31,
1997 1998 1999 2000 2001
----------------------------------------------------
2.6x 2.2x 2.5x 2.6x 2.6x


The ratio of earnings to fixed charges represents, on a pre-tax basis, the
number of times earnings cover fixed charges. Earnings consist of net income, to
which has been added fixed charges and taxes based on our income, excluding the
cumulative effect of an accounting change. Fixed charges consist of interest
charges and preferred securities dividend requirements of our subsidiary trust
and an interest factor in rentals.

Market Risks

Commodity Market Risks

SJG is subject to market risk due to fluctuations in natural gas prices. To
limit exposure to fluctuations, SJG has at times entered into forward contracts.
SJG recovers natural gas costs from ratepayers through the LGAC.

Interest Rate Risk

Our exposure to interest rate risk relates primarily to short-term,
variable rate borrowings. A hypothetical 100 basis point increase in interest
rates on $135.5 million of variable rate debt outstanding at December 31, 2001
would result in an $799,000 increase in our interest expense net of tax. Our
long-term debt is primarily issued at fixed rates and, consequently, interest
expense is not significantly impacted by changes in market interest rates. Our
debt was issued with provisions that do not permit us to pre-pay a material
amount of such debt during the next 12 months to take advantage of changes in
interest rates. SJG does not currently use any derivatives to hedge interest
rates.

SJG-18



Item 8. Financial Statements and Supplementary Data


INDEPENDENT AUDITORS' REPORT



To the Shareholder and Board of Directors of
South Jersey Gas Company:


We have audited the consolidated balance sheets of South Jersey Gas Company
and subsidiary as of December 31, 2001 and 2000, and the related statements
of consolidated income and retained earnings and consolidated cash flows for
each of the three years in the period ended December 31, 2001. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of South Jersey Gas Company and
subsidiary as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 2001 in conformity with accounting principles generally
accepted in the United States of America.

DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania

February 13, 2002


SJG-19




SOUTH JERSEY GAS COMPANY AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------------------------------------------------------------------
(In Thousands)


December 31,
---------------------------------------
2001 2000
- ----------------------------------------------------------------------------------------------------------------------------------

ASSETS

Property, Plant and Equipment: (Notes 1, 3 & 7)

Utility Plant, at original cost $ 805,440 $ 765,561
Accumulated Depreciation (221,457) (208,292)
------------------ ------------------

Property, Plant and Equipment - Net 583,983 557,269
------------------ ------------------

Available-for-Sale Securities 3,093 2,494
------------------ ------------------

Current Assets:
Cash and Cash Equivalents (Notes 1 & 9) 3,276 4,715
Accounts Receivable (Notes 2 & 3) 39,243 68,080
Unbilled Revenues (Note 1) 32,398 43,803
Provision for Uncollectibles (1,916) (1,754)
Natural Gas in Storage, average cost 59,778 31,769
Materials and Supplies, average cost 3,818 4,037
Prepaid Taxes (Note 1) 4,650 3,960
Prepayments and Other Current Assets 2,799 2,640
------------------ ------------------

Total Current Assets 144,046 157,250
------------------ ------------------

Regulatory and Other Non-Current Assets: (Note 1)
Environmental Remediation Costs: (Notes 2 & 14)
Expended - Net 12,831 18,474
Liability for Future Expenditures 48,790 51,029
Gross Receipts and Franchise Taxes (Note 6) 2,254 2,698
Income Taxes - Flowthrough Depreciation (Note 6) 9,575 10,553
Deferred Fuel Cost - Net (Notes 1 & 2) 36,798 28,810
Deferred Postretirement Benefit Costs (Note 11) 4,158 4,536
Unamortized Debt Discount and Expense 5,957 5,207
Other 6,321 3,763
------------------ ------------------

Total Regulatory and Other Non-Current Assets 126,684 125,070
------------------ ------------------

Total Assets $ 857,806 $ 842,083
================== ==================




The accompanying footnotes are an integral part of the financial statements.




SJG-20




SOUTH JERSEY GAS COMPANY AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------------------------------------------------------------------
(In Thousands)

December 31,
---------------------------------------
2001 2000
- ----------------------------------------------------------------------------------------------------------------------------------

Capitalization and Liabilities

Common Equity: (Note 10)
Common Stock, Par Value $2.50 per share:
Authorized - 4,000,000 shares
Outstanding - 2,339,139 shares $ 5,848 $ 5,848

Other Paid-In Capital and Premium on Common Stock 132,817 125,817
Accumulated Other Comprehensive Loss (Note 12) (1,939) -
Retained Earnings 69,256 65,436
------------------ ------------------

Total Common Equity 205,982 197,101
------------------ ------------------

Preferred Stock and Securities: (Note 4)
Redeemable Cumulative Preferred - Par Value $100 per share,
Authorized 41,966 and 43,104 shares, respectively
Outstanding:
Series A, 4.7% - 0 and 300 shares - 30
Series B, 8% - 16,904 and 17,742 shares 1,690 1,774
Company-Guaranteed Mandatorily Redeemable
Preferred Securities of Subsidiary Trust
Par Value $25 per share, 1,400,000 shares
Authorized and Outstanding 35,000 35,000
------------------ ------------------

Total Preferred Stock and Securities 36,690 36,804
------------------ ------------------

Long-Term Debt (Notes 7 & 8) 230,247 204,981
------------------ ------------------

Total Capitalization 472,919 438,886
------------------ ------------------

Current Liabilities:
Notes Payable (Note 9) 135,500 113,900
Current Maturities of Long-Term Debt (Note 7) 9,733 11,876
Accounts Payable 32,391 75,103
Deferred Income Taxes - Net (Note 5) 25,503 24,347
Customer Deposits 5,976 5,366
Environmental Remediation Costs (Note 14) 11,052 15,872
Taxes Accrued (Note 2) 2,904 442
Interest Accrued and Other Current Liabilities 7,752 12,796
------------------ ------------------

Total Current Liabilities 230,811 259,702
------------------ ------------------

Deferred Credits and Other Non-Current Liabilities:
Deferred Income Taxes - Net (Note 5) 86,172 83,600
Environmental Remediation Costs (Note 14) 37,738 35,157
Pension and Other Postretirement Benefits (Note 11) 17,736 12,314
Investment Tax Credits (Note 6) 4,166 4,513
Other 8,264 7,911
------------------ ------------------

Total Deferred Credits and Other Non-Current Liabilities 154,076 143,495
------------------ ------------------

Commitments and Contingencies (Note 14)

Total Capitalization and Liabilities $ 857,806 $ 842,083
================== ==================




The accompanying footnotes are an integral part of the financial statements.




SJG-21




SOUTH JERSEY GAS COMPANY AND SUBSIDIARY

STATEMENTS OF CONSOLIDATED INCOME AND RETAINED EARNINGS
- ----------------------------------------------------------------------------------------------------------------------------------
(In Thousands Except for Per Share Data)


Year Ended December 31,
------------------------------------------------------------
2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------------

Operating Revenues:
Utility (Notes 1, 2 & 3) $ 475,461 $ 445,818 $ 348,074
Other 456 485 1,444
------------------ ------------------ ------------------

Total Operating Revenues 475,917 446,303 349,518
------------------ ------------------ ------------------

Operating Expenses:
Gas Purchased for Resale 335,783 302,652 212,460
Utility Operations 39,914 41,221 41,368
Other Operations 510 315 293
Maintenance 7,771 7,797 6,057
Depreciation (Note 1) 21,136 20,072 18,894
Energy and Other Taxes (Notes 1 & 5) 10,395 11,457 10,991
------------------ ------------------ ------------------

Total Operating Expenses 415,509 383,514 290,063
------------------ ------------------ ------------------

Operating Income 60,408 62,789 59,455

Interest Charges
Long-Term Debt 17,519 16,124 15,721
Short-Term Debt and Other 2,607 5,033 4,838
------------------ ------------------ ------------------

Total Interest Charges 20,126 21,157 20,559
------------------ ------------------ ------------------


Preferred Dividend Requirements (Note 4) 3,062 3,074 3,084
------------------ ------------------ ------------------

Income before Income Taxes 37,220 38,558 35,812

Income Taxes (Notes 1, 5 & 6) 15,693 16,703 15,445
------------------ ------------------ ------------------

Income from Continuing Operations 21,527 21,855 20,367

(Loss)Income from Discontinued Operations - Net (Note 13) (207) (76) 15
------------------ ------------------ ------------------

Net Income Applicable to Common Stock 21,320 21,779 20,382

Retained Earnings at Beginning of Year 65,436 58,457 54,275

Dividends Declared - Common Stock 17,500 14,800 16,200
------------------ ------------------ ------------------

Retained Earnings at End of Year (Note 10) $ 69,256 $ 65,436 $ 58,457
================== ================== ==================

Average Shares of Common Stock Outstanding 2,339 2,339 2,339

Earnings Per Common Share:
Continuing Operations $ 9.20 $ 9.34 $ 8.70
Discontinued Operations - Net (Note 13) (0.09) (0.03) 0.01
------------------ ------------------ ------------------

Earnings Per Common Share $ 9.11 $ 9.31 $ 8.71
================== ================== ==================

Dividends Declared Per Common Share $ 7.48 $ 6.33 $ 6.93
================== ================== ==================



The accompanying footnotes are an integral part of the financial statements.




SJG-22





SOUTH JERSEY GAS COMPANY AND SUBSIDIARY

STATEMENTS OF CONSOLIDATED CASH FLOWS
- ----------------------------------------------------------------------------------------------------------------------------------
(In Thousands)


Year Ended December 31,
------------------------------------------------------
2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------------

Cash Flows from Operating Activities:
Net Income Applicable to Common Stock $ 21,320 $ 21,779 $ 20,382

Adjustments to Reconcile Net Income to Cash Flows
Provided by Operating Activities:
Depreciation and Amortization 23,407 22,986 21,676
Provision for Losses on Accounts Receivable 2,067 2,176 972
Revenues and Fuel Costs Deferred - Net (7,988) (15,636) (7,665)
Deferred and Non-Current Income Taxes and Credits - Net 5,154 14,030 6,773
Environmental Remediation Costs - Net 5,643 7,228 1,798
Changes in:
Accounts Receivable 38,337 (54,193) (11,358)
Inventories (27,790) (4,881) 745
Prepayments and Other Current Assets (159) (179) (194)
Prepaid and Accrued Taxes - Net 1,772 (83) 7,774
Accounts Payable and Other Accrued Liabilities (47,146) 42,635 (3,029)
Other - Net 464 1,535 2,650
--------------- ---------------- ------------------

Net Cash Provided by Operating Activities 15,081 37,397 40,524
--------------- ---------------- ------------------

Cash Flows from Investing Activities:
Capital Expenditures, Cost of Removal and Salvage (48,720) (47,574) (48,346)
Purchase of Available-for-Sale Securities (766) (718) (696)
--------------- ---------------- ------------------

Net Cash Used in Investing Activities (49,486) (48,292) (49,042)
--------------- ---------------- ------------------

Cash Flows from Financing Activities:
Net Borrowing from (Repayments of) Lines of Credit 21,600 (5,000) 21,900
Proceeds from Issuance of Long-Term Debt 35,000 35,000 -
Principal Repayments of Long-Term Debt (11,877) (10,580) (11,149)
Dividends on Common Stock (17,501) (14,800) (16,200)
Repurchase of Preferred Stock (114) (240) (90)
Additional Investment by Shareholder 7,000 8,000 15,000
Payments for Issuance of Long-Term Debt and Preferred Securities (1,142) (1,464) -
--------------- ---------------- ------------------

Net Cash Provided by Financing Activities 32,966 10,916 9,461
--------------- ---------------- ------------------

Net (Decrease)Increase in Cash and Cash Equivalents (1,439) 21 943
Cash and Cash Equivalents at Beginning of Year 4,715 4,694 3,751
--------------- ---------------- ------------------

Cash and Cash Equivalents at End of Year $ 3,276 $ 4,715 $ 4,694
=============== ================ ==================

Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest (Net of Amounts Applicable to LGAC
Overcollections and Amounts Capitalized) $ 26,268 $ 24,210 $ 25,098
Income Taxes (Net of Refunds) $ 5,886 $ 3,468 $ 4,820




The accompanying footnotes are an integral part of the financial statements.




SJG-23



SOUTH JERSEY GAS COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------

The Entity - The consolidated financial statements include the
accounts of South Jersey Gas Company (SJG) and its wholly owned
statutory trust subsidiary, SJG Capital Trust. South Jersey Industries,
Inc. (SJI) owns all of the outstanding common stock of SJG. SJG
reclassified some previously reported amounts to conform with current
year classifications.

Estimates and Assumptions - Our financial statements are
prepared to conform with generally accepted accounting principles.
Management makes estimates and assumptions that affect the amounts
reported in the financial statements and related disclosures.
Therefore, actual results could differ from those estimates.

Regulation - SJG is subject to the rules and regulations of
the New Jersey Board of Public Utilities (BPU). We maintain our
accounts according to the BPU's prescribed Uniform System of Accounts
(See Note 2).

Utility Revenues - SJG bills customers monthly. For customers
not billed at the end of each month, an accrual is made to recognize
unbilled revenues from the date of the last bill to the end of the
month.

The BPU allows SJG to recover the excess cost of gas sold over
the cost included in base rates through the Levelized Gas Adjustment
Clause (LGAC). We collect these costs on a forecasted basis upon BPU
order. SJG defers under- or over-recoveries of gas costs and includes
them in the following year's LGAC or other similar recovery mechanism.
We pay interest on overcollected LGAC balances based on SJG's approved
return on rate base (See Note 2).

SJG's tariff also includes a Temperature Adjustment Clause
(TAC), a Remediation Adjustment Clause (RAC) and a Comprehensive
Resource Analysis Clause (CRA). Our TAC reduces the impact of
temperature fluctuations on SJG and its customers. The RAC recovers
remediation costs of former gas manufacturing plants and the CRA
recovers costs associated with our conservation plan. TAC adjustments
affect revenue, income and cash flows since colder-than-normal weather
can generate credits to customers, while warmer-than-normal weather
during the winter season can result in additional billings. RAC
adjustments do not directly affect earnings because we defer and
recover these costs through rates over 7-year amortization periods (See
Notes 2 & 14). CRA adjustments are not significant and do not affect
earnings.

Property, Plant & Equipment - For regulatory purposes, utility
plant is stated at original cost. The cost of adding, replacing and
renewing property is charged to the appropriate plant account.

SJG-24

2001 2000
--------- ---------
Utility Plant:
Production Plant $ 585 $ 900
Storage Plant 11,186 8,589
Transmission Plant 97,979 96,646
Distribution Plant 663,262 627,469
General Plant 27,822 27,253
Intangible Plant 1,856 1,930
--------- --------
Utility Plant in Service 802,690 762,787

Construction Work in Progress 1,428 1,452
Gas Stored - Base Gas 1,322 1,322
--------- --------
Total Utility Plant $805,440 $765,561
========= ========


Depreciation and Amortization - We depreciate utility plant on
a straight-line basis over the estimated remaining lives of the various
property classes. These estimates are periodically reviewed and
adjusted as required after BPU approval. The composite annual rate for
all depreciable utility property was approximately 2.8% in 2001, 2000,
and 1999 . Except for extraordinary retirements, accumulated
depreciation is charged with the cost of depreciable utility property
retired, and removal costs less salvage.

Impairment of Long-Lived Assets - We review the carrying
amount of an asset for possible impairment whenever events or changes
in circumstances indicate that such amount may not be recoverable. For
the years ended 2001, 2000 and 1999, no such circumstances were
identified.

Derivative Instruments and Hedge Accounting - Effective
January 1, 2001, SJG adopted Financial Accounting Standards Board
(FASB) Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities," as amended. This statement establishes accounting
and reporting standards for derivative instruments, including those
embedded in other contracts, and for hedging activities. It requires
recognizing derivatives as assets or liabilities at fair value on the
balance sheet. SJG has identified financial instruments that qualify as
derivatives. Management believes, based on its interpretation of
guidance issued, that the derivative contracts qualify for the normal
purchases and normal sales exception and, therefore, no additional
disclosure is required.

New Accounting Pronoucements - In June 2001, the FASB issued
Statement No. 141, "Business Combinations", Statement No. 142,
"Goodwill and Other Intangible Assets" and Statement No. 143,
"Accounting for Asset Retirement Obligations." Statement No. 141
applies to all business combinations initiated after June 30, 2001.
Statement No. 142 addresses the initial recognition and measurement of
intangible assets acquired outside of a business combination and the
accounting for goodwill and other intangible assets subsequent to their
acquisition. Statement No. 142 provides that intangible assets with
finite useful lives be amortized and that goodwill and intangible
assets with indefinite lives will not be amortized, but will rather be
tested at least annually for impairment. Statement No. 143 establishes
accounting and reporting standards for obligations associated with the
retirement of tangible long-lived assets and the associated asset
retirement costs. SJG expects to adopt Statement Nos. 141 and 142 in
2002 and Statement No. 143 in 2003.

In August 2001, the FASB also issued Statement No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets", which
is effective in 2003. This statement prescribes that a single
accounting model be used for valuing long-lived assets to be disposed
of and broadens the presentation of discontinued operations.

We are currently evaluating the effects of these
pronouncements; however, they are not expected to materially impact
SJG's financial condition or results of operations.

SJG-25


Income Taxes - Deferred income taxes are provided for all
significant temporary differences between book and taxable income (See
Notes 5 & 6).

Statements of Cash Flows - For purposes of reporting cash
flows, highly liquid investments with original maturities of three
months or less are considered cash equivalents.

2. REGULATORY ACTIONS:
------------------

In January 1997, the BPU granted SJG a 9.62% rate of return on
rate base, which included an 11.25% return on common equity.
Additionally, SJG's threshold for sharing pre-tax margins generated by
interruptible and off-system sales and transportation (Sharing Formula)
increased. SJG keeps 100% of pre-tax margins up to the threshold level
of $7.8 million and 20% of margins above that level. In 1998, the BPU
revised the Sharing Formula to credit the first $750,000 above the
current threshold level to the LGAC customers. Thereafter, SJG keeps
20% of the pre-tax margins as it has historically.

In September 1999, the BPU approved an annual recovery level
of $6.5 million for remediation costs expended from August 1995 through
July 1998. This represents an annual increase of approximately $4.5
million over the recovery previously included in rates. In January
2000, the BPU approved the recovery of carrying costs on unrecovered
remediation costs and a proposal by SJG to keep its current RAC rate in
effect through October 2002. However, due to substantial RAC insurance
recoveries, in October 2001, SJG filed for a RAC rate decrease. This
proposal would reduce the annual recovery level to $4.2 million, if
approved.

Effective January 10, 2000, the BPU approved full unbundling
of SJG's system. This allows all natural gas consumers to select their
natural gas supplier. As of December 31, 2001, 39,998 of SJG's
residential customers were purchasing their gas commodity from someone
other than SJG. The bills of those using a gas supplier other than SJG
are reduced for cost of gas charges and applicable taxes. SJG's net
income, financial condition and margins are not affected as a result of
the unbundling.

The BPU approved a modification to SJG's LGAC whereby
underrecovered gas costs of $11.9 million as of October 31, 1999, and
carrying costs thereon, are being recovered over three years beginning
January 2000.

On November 16, 2000, the BPU approved an increase in SJG's
LGAC in response to unprecedented natural gas price run-ups during
2000. The impact of the initial increase was approximately 19% to a
typical residential heating customer. The BPU also approved the
creation of a flexible pricing mechanism, allowing additional 2%
increases each month from December 2000 through July 2001.

On November 15, 2001, SJG filed for a $17.6 million reduction
to its LGAC and for recovery of a 3-year net deficiency in the TAC
amounting to $2.7 million. The BPU approved the LGAC reduction
effective December 1, 2001. Also on December 1, 2001, SJG implemented
recovery of its October 31, 2001 underrecovered gas costs. We will
recover $48.9 million over three years including interest accrued since
April 1, 2001. We will also recover interest for the 3-year
amortization period at a rate of 5.75%.

3. RELATED PARTY TRANSACTIONS:
---------------------------

SJG sells natural gas for resale to South Jersey Energy
Company (SJE) and South Jersey Resource Group (SJRG), SJI's wholly
owned subsidiaries. Prior to January 1, 2001, SJI only held a 50%
non-controlling interest in SJRG. These sales comply with Section
284.402 of the Regulations of the Federal Energy Regulatory Commission
(FERC). Sales to SJE were approximately $7,184,400, $14,620,200 and
$5,172,500 for the years ended December 31, 2001, 2000 and 1999,
respectively. The amount due from SJE relating to these sales was
$1,004,800, $2,824,700 and $511,700 at December 31, 2001, 2000 and
1999, respectively. Sales to SJRG were approximately $23,011,300,
$30,326,600 and $11,763,000 for the years ended December 31, 2001, 2000
and 1999, respectively. The amount due from SJRG relating to these
sales was $3,353,500, $4,587,300 and $3,350,500 at December 31, 2001,
2000 and 1999, respectively.

SJG-26


4. PREFERRED STOCK AND SECURITIES:
------------------------------

Redeemable Cumulative Preferred Stock - Annually, SJG is
required to offer to purchase 1,500 shares of its Cumulative Preferred
Stock, Series B, at par value, plus accrued dividends. SJG may not
declare or pay dividends or make distributions on its common stock if
preferred stock dividends are in arrears. Preferred shareholders may
elect a majority of SJG's directors if four or more quarterly dividends
are in arrears.

Mandatorily Redeemable Preferred Securities - In 1997, SJG's
statutory trust subsidiary, SJG Capital Trust (Trust), sold $35 million
of 8.35% SJG-Guaranteed Mandatorily Redeemable Preferred Securities.
The Trust's only assets are the 8.35% Deferrable Interest Subordinated
Debentures issued by SJG maturing April, 2037. This is also the
maturity date of the Preferred Securities. The Debentures and Preferred
Securities are redeemable at SJG's option at a price equal to 100% of
the principal amount at any time on or after April 30, 2002.

5. INCOME TAXES:
------------

SJG is included in the consolidated Federal income tax return
filed by SJI. The actual taxes, including credits, are allocated by SJI
to its subsidiaries generally on a separate return basis. Total income
taxes applicable to operations differs from the tax that would have
resulted by applying the statutory Federal Income Tax rate to pre-tax
income for the following reasons:



Thousands of Dollars

2001 2000 1999
---------- ---------- ----------
Tax at Statutory Rate $ 11,913 $ 12,053 $ 11,239
Increase (Decrease) Resulting from:
State Income Taxes 3,674 4,397 3,837
Amortization of ITC (347) (335) (390)
Tax Depreciation Under Book
Depreciation on Utility Plant 664 664 664
Other - Net (67) (24) 85
---------- ---------- ----------

Income Taxes:
Continuing Operations 15,837 16,755 15,435
Discontinued Operations (144) (52) 10
---------- ---------- ----------

Net Income Taxes $ 15,693 $ 16,703 $ 15,445
========== ========== ==========


SJG-27


The provision for Income Taxes is comprised of the following:


Thousands of Dollars

2001 2000 1999
---------- ---------- ----------

Current:
Federal $ 7,444 $ 1,104 $ 5,474
State 3,238 1,621 3,185
---------- ---------- ----------

Total Current 10,682 2,725 8,659
---------- ---------- ----------

Deferred:
Federal -
Excess of Tax Depreciation Over
Book Depreciation - Net 4,659 5,233 5,479
Deferred Fuel Costs 794 12,157 1,909
Environmental Costs - Net (1,852) (2,530) (1,087)
Alternative Minimum Tax 1,947 (1,633) 589
Benefit of State Tax (153) (971) (227)
Other - Net (329) (667) (149)
State 436 2,776 652
---------- ---------- ----------

Total Deferred 5,502 14,365 7,166

ITC (347) (335) (390)
---------- ---------- ----------
Income Taxes:
Continuing Operations 15,837 16,755 15,435
Discontinued Operations (144) (52) 10
---------- ---------- ----------

Net Income Taxes $ 15,693 $ 16,703 $ 15,445
========= ========== ==========


The net tax effect of temporary differences between the
carrying amounts of assets and liabilities for financial reporting and
income tax purposes result in the following net deferred tax
liabilities at December 31:

Thousands of Dollars

2001 2000
--------- ---------
Current
Deferred Fuel Costs $ 25,054 $ 24,519
Other 449 (172)
--------- ---------
Current Deferred Tax Liability - Net 25,503 24,347
--------- ---------
Non-Current
Book Versus Tax Basis of Property 85,633 81,718
Environmental 3,734 6,172
Excess Protected 3,225 3,290
Deferred Regulatory Costs 1,660 1,387
Minimum Pension Liability (1,348) -
Deferred Sales Tax (2,116) (1,925)
ITC Basis Gross Up (2,249) (2,428)
Alternative Minimum Tax (956) (3,572)
Other (1,411) (1,042)
--------- ---------
Non-Current Deferred Tax Liability - Net 86,172 83,600
--------- ---------

$ 111,675 $ 107,947
========= =========

SJG-28


As of December 31, 2001 and 2000, income taxes due (to) from
SJI were approximately $(2.2) and $1.4 million, respectively.

6. FEDERAL AND OTHER REGULATORY TAX ASSETS AND DEFERRED CREDITS:
------------------------------------------------------------

The primary asset created by adopting FASB Statement No. 109,
"Accounting for Income Taxes," was Income Taxes - Flowthrough
Depreciation in the amount of $17.6 million as of January 1, 1993. This
amount represented excess federal tax depreciation over book
depreciation on utility plant because of temporary differences for
which, prior to Statement No. 109, deferred taxes previously were not
provided. SJG previously passed these tax benefits through to
ratepayers. SJG is recovering the amortization of the regulatory asset
through rates over 18 years which began in December 1994.

The Investment Tax Credit (ITC) attributable to SJG was
deferred and continues to be amortized at the annual rate of 3%, which
approximates the life of related assets.

SJG deferred $11.8 million resulting from a change in the
basis for accruing the Gross Receipts & Franchise Tax in 1978, and is
amortizing it on a straight-line basis to operations over 30 years
beginning that same year.

7. LONG-TERM DEBT: (A)
--------------
Principal Outstanding
December 31,
(In Thousands)
2001 2000
-------- --------
First Mortgage Bonds: (B)
8.19% Series due 2007 $ 13,635 $ 15,908
10.25% Series due 2008 9,658 11,931
9% Series due 2010 19,687 21,875
6.12% Series due 2010 10,000 10,000
6.74% Series due 2011 (C) 10,000 -
6.57% Series due 2011 (C) 15,000 -
6.95% Series due 2013 35,000 35,000
7.7% Series due 2015 15,000 15,000
6.50% Series due 2016 (C) 10,000 -
7.97% Series due 2018 10,000 10,000
7.125% Series due 2018 20,000 20,000
7.7% Series due 2027 35,000 35,000
7.9% Series due 2030 10,000 10,000
Unsecured Notes:
Term Note, 8.47% due 2001 - 2,143
Debenture Notes, 8.6% due 2010 27,000 30,000
-------- --------

Total Long-Term Debt Outstanding 239,980 216,857

Less Current Maturities 9,733 11,876
-------- --------

Long-Term Debt $230,247 $204,981
======== ========


(A) Long-Term Debt Maturities and Sinking Fund Requirements for the
succeeding five years are as follows: 2002, $9,733; 2003,
$12,884; 2004, $12,884; 2005, $12,884; and 2006, $11,177.

SJG-29


(B) SJG's First Mortgage dated October 1, 1947, as supplemented,
securing the First Mortgage Bonds constitutes a direct first
mortgage lien on substantially all utility plant. The First
Mortgage Bonds also require an annual replacement fund, which
may be met by the deposit of cash funds with the Trustee or by
using bondable property additions at 166.6% of cash
requirements. SJG expects to continue to satisfy this
requirement with property additions in each of the next five
years.

(C) In July, 2001, SJG issued the remaining $35 million of debt under
a Medium Term Note Program established in 1998.

8. FINANCIAL INSTRUMENTS:
---------------------

Long-Term Debt - The fair values of SJG's long-term debt,
including current maturities, as of December 31, 2001 and 2000, are
estimated to be $259.0 and $219.1 million, respectively. Carrying
amounts are $240.0 million and $216.9 million, respectively. We base
the estimates on interest rates available to SJG at the end of each
year for debt with similar terms and maturities. SJG retires debt when
it is cost effective as permitted by the debt agreements.

Other Financial Instruments - The carrying amounts of SJG's
other financial instruments approximate their fair values at December
31, 2001 and 2000.

9. UNUSED LINES OF CREDIT AND COMPENSATING BALANCES:
------------------------------------------------

Unused lines of credit available at December 31, 2001 were
$39.5 million. Borrowings under these lines of credit are at market
rates. The weighted borrowing cost, which changes daily, was 3.12% and
7.35% at December 31, 2001 and 2000, respectively. We maintain demand
deposits with lending banks on an informal basis and they do not
constitute compensating balances.

10. RETAINED EARNINGS:
-----------------

Restrictions exist under various loan agreements regarding the
amount of cash dividends or other distributions that we may pay on
SJG's common stock. SJG's retained earnings, which are free of these
restrictions, was approximately $67.4 million as of December 31, 2001.

SJG received equity infusions of $7 million and $8 million
from SJI during 2001 and 2000, respectively. Contributions of capital
are credited to Other Paid-In Capital and Premium on Common Stock.
Future equity contributions will occur on an as needed basis.

11. PENSIONS & OTHER POSTRETIREMENT BENEFITS:
----------------------------------------

SJG participates in the defined benefit retirement plans of
SJI. The pension plans provide annuity payments to substantially all
full-time, regular employees upon retirement. The other postretirement
benefit plans provide health care and life insurance benefits to some
retirees.

The BPU authorized SJG to recover costs related to
postretirement benefits other than pensions under the accrual method of
accounting consistent with FASB Statement No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." We
deferred amounts accrued prior to that authorization and are amortizing
them as allowed by the BPU. The unamortized balance of $4.2 million at
December 31, 2001 is recoverable in rates. We are amortizing this
amount over 15 years which started January 1998.

Net periodic benefit cost related to the pension and other
postretirement benefit insurance plans, consisted of the following
components:

SJG-30


Thousands of Dollars
Pension Benefits Other Benefits
2001 2000 1999 2001 2000 1999
--------------------------------------------------------------


Service cost $1,998 $1,912 $2,184 $1,000 $ 955 $ 1,064
Interest cost 4,574 4,362 4,071 1,842 1,697 1,551
Expected return on
plan assets (4,932) (4,573) (4,139) (895) (726) (675)
Amortization of
transition obligation 87 87 87 756 756 755
Amortization of loss
(gain) and other 321 282 398 (5) (77) -
--------------------------------------------------------------
Net periodic benefit cost $2,048 $2,070 $2,601 $2,698 $2,605 $2,695
==============================================================



A reconciliation of the Plans' benefit obligations, fair value
of plan assets, funded status and amounts recognized in SJG's
consolidated balance sheets follows:




Thousands of Dollars
Pension Benefits Other Benefits
2001 2000 2001 2000
------------------------------------------------

Change in Benefit Obligations:
Benefit obligation at beginning of year $59,497 $55,191 $24,114 $22,094
Service cost 1,998 1,912 1,000 955
Interest cost 4,574 4,362 1,842 1,697
Plan amendments 826 472 - -
Actuarial loss and other 3,547 121 1,516 408
Benefits paid (2,818) (2,561) (724) (1,040)
------------------------------------------------

Benefit obligation at end of year $67,624 $59,497 $27,748 $24,114
================================================

Change in Plan Assets:
Fair value of plan assets at
beginning of year $55,081 $48,904 $11,970 $ 9,472
Actual return on plan assets (7,987) 6,401 (619) 652
Employer contributions 2,238 2,337 2,838 2,886
Benefits paid (2,818) (2,561) (724) (1,040)
------------------------------------------------

Fair value of plan assets at end of year $ 46,514 $55,081 $13,465 $11,970
================================================

Funded status $(21,110) $(4,416) $(14,283) $(12,144)
Unrecognized prior service cost 3,069 2,547 - -
Unrecognized net transition obligation 174 261 8,312 9,068
Unrecognized net loss (gain) and other 15,016 (1,433) (77) (3,112)
------------------------------------------------
Accrued net benefit cost at end of year $(2,851) $(3,041) $ (6,048) $ (6,188)
================================================



The projected benefit obligation, accumulated benefit
obligation and fair value of plan assets for the pension plan with
accumulated benefit obligations in excess of plan assets as of December
31, 2001 were $33.2 million, $27.5 million and $24.0 million,
respectively. As of December 31, 2000, the accumulated benefit
obligations did not exceed plan assets.

SJG-31


Assumptions used in the accounting for these plans were:


Pension Benefits Other Benefits
2001 2000 2001 2000
-------------------------------------------

Discount rate 7.25% 7.75% 7.25% 7.75%
Expected return on plan assets 9.00% 9.00% 7.50% 7.50%
Rate of compensation increase 4.10% 4.60% - -



The assumed health care cost trend rates used in measuring the
accumulated postretirement benefit obligation as of December 31, 2001
are: Medical and Drug - 5.5% in 2001 for participants age 65 or older,
remaining level thereafter; and 6.5% in 2001 for participants under age
65, grading to 5.5% in 2005. Dental - 6.5% in 2001, grading to 5.5% in
2005.

A 1% change in the assumed health care cost trend rates for
SJG's postretirement health care plans in 2001 would have the following
effects (in thousands):

1% Increase 1% Decrease
----------- -----------
Effect on the aggregate of the service
and interest cost components $ 414 $ (340)

Effect on the postretirement benefit obligation $3,643 $(3,014)



12. COMPREHENSIVE INCOME:
--------------------

The components of comprehensive income are as follows:

Thousands of Dollars
2001 2000 1999
---------------------------------

Net Income Applicable to Common Stock $21,320 $21,779 $20,382

Other Comprehensive Loss:
Minimum Pension Liability
Adjustment - Net (1,939) - -
---------------------------------
Comprehensive Income $19,381 $21,779 $20,382
=================================


13. DISCONTINUED OPERATIONS:
-----------------------

In 2001, SJG formally discontinued the merchandising segment
of its operations. We have accrued and reflected a liability for
anticipated future period expenses of $108,000 in the 2001 amounts in
the table below.

Summarized operating results of the discontinued operations
were:

Thousands of Dollars
2001 2000 1999
--------------------------------

Operating Revenues $1,016 $1,193 $1,536
================================

(Loss) Income before Income Taxes (351) (128) 25
Income Tax 144 52 (10)
--------------------------------

(Loss) Income from Discontinued Operations $ (207) $ (76) $ 15
================================

Earnings Per Common Share from
Discontinued Operations - Net $ (0.09) $(0.03) $ 0.01
================================


SJG-32


14. COMMITMENTS AND CONTINGENCIES:
-----------------------------

Construction and Environmental Commitments - SJG's estimated
net cost of construction and environmental remediation programs for
2002 totals $60.1 million. Commitments were made regarding some of
these programs.

Gas Supply Contracts - SJG, in the normal course of conducting
business, has entered into long-term contracts for natural gas
supplies, firm transportation and gas storage service. The earliest
that any of these contracts expires is 2002. The transportation and
storage service agreements between SJG and its interstate pipeline
suppliers were made under Federal Energy Regulatory Commission approved
tariffs. SJG's cumulative obligation for demand charges and reservation
fees paid to suppliers for these services is approximately $4.6 million
per month, recovered on a current basis through the LGAC.

Pending Litigation - SJG is subject to claims arising from the
ordinary course of business and other legal proceedings. We accrue
liabilities when these claims become apparent for amounts we believe
these claims may be settled. We also maintain insurance and record
probable insurance recoveries relating to outstanding claims. In
management's opinion, the ultimate disposition of these claims will not
have a material adverse effect on SJG's financial position, results of
operations or liquidity.

Environmental Remediation Costs - SJG incurred and recorded
costs for environmental clean up of sites where SJG or its predecessors
operated gas manufacturing plants. SJG stopped manufacturing gas in the
1950s.

SJG successfully entered into settlements with all of its
historic comprehensive general liability carriers regarding the
environmental remediation expenditures at our sites. Also, we have
purchased a Cleanup Cost Cap Insurance Policy limiting the amount of
remediation expenditures that we will be required to make at 11 of our
sites. This Policy will be in force for a 25-year period at 10 sites
and for a 30-year period at one site. The following future cost
estimates were reduced by any projected insurance recoveries from the
Cleanup Cost Cap Insurance Policy.

Since the early 1980s, SJG accrued environmental remediation
costs of $126.3 million, of which $77.5 million was spent as of
December 31, 2001. With the assistance of a consulting firm, we
estimate that future costs to clean up SJG's sites will range from
$48.8 million to $143.5 million. We recorded the lower end of this
range as a liability. It is reflected on the 2001 consolidated balance
sheet under the captions Current Liabilities and Deferred Credits and
Other Non-Current Liabilities (See Note 1). Recorded amounts include
estimated costs based on projected investigation and remediation work
plans using existing technologies. Actual costs could differ from the
estimates due to the long-term nature of the projects, changing
technology, government regulations and site-specific requirements.

SJG has two regulatory assets associated with environmental
cost. The first asset is titled Environmental Remediation Cost:
Expended - Net. These expenditures represent what was actually spent to
clean up former gas manufacturing plant sites. These costs meet the
requirements of FASB Statement No. 71, "Accounting for the Effects of
Certain Types of Regulation." The BPU allows SJG to recover
expenditures through the RAC (See Note 2).

The other asset titled Environmental Remediation Cost:
Liability for Future Expenditures relates to estimated future
expenditures determined under the guidance of FASB Statement No. 5,
"Accounting for Contingencies." We recorded this amount, which relates
to former manufactured gas plant sites, as a deferred debit with the
corresponding amount reflected on the consolidating balance sheet under
the captions, Current Liabilities and Deferred Credits and Other
Non-Current Liabilities. The deferred debit is a regulatory asset under
Statement No. 71. The BPU's intent, evidenced by current practice, is
to allow SJG to recover the deferred costs after they are spent over
7-year periods.

SJG-33

As of December 31, 2001, we reflected SJG's unamortized
remediation costs of $12.8 million on the consolidated balance sheet
under the caption Regulatory and Other Non-Current Assets. Since
implementing the RAC in 1992, SJG recovered $29.2 million through rates
as of December 31, 2001 (See Note 2).


SJG-34


13. QUARTERLY RESULTS OF OPERATIONS - UNAUDITED:
--------------------------------------------

The summarized quarterly results of SJG's operations, in thousands
except for per share amounts:







2001 Quarter Ended 2000 Quarter Ended
---------------------------------------------- ----------------------------------------------

March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31
---------------------------------------------- ----------------------------------------------



Operating Revenues $ 219,283 $ 81,257 $ 57,591 $ 117,786 $ 146,732 $ 76,246 $ 63,506 $ 159,819
---------------------------------------------- ----------------------------------------------

Operating Expenses:
Operation and Maintenance
Including Fixed Charges 184,588 79,909 62,071 98,672 111,405 74,455 67,715 139,639
Energy and Other Taxes 4,416 1,864 1,415 2,700 4,335 2,036 1,664 3,422

Preferred Dividend
Requirements 766 767 764 765 771 770 766 767
---------------------------------------------- ----------------------------------------------

Income before Income Taxes 29,513 (1,283) (6,659) 15,649 30,221 (1,015) (6,639) 15,991

Income Taxes 12,330 (377) (2,593) 6,333 12,616 (264) (2,588) 6,939
---------------------------------------------- ----------------------------------------------

Income from Continuing Operations 17,183 (906) (4,066) 9,316 17,605 (751) (4,051) 9,052

Discontinued Operations - Net (51) (46) (8) (102) (11) 8 (23) (50)
---------------------------------------------- ----------------------------------------------

Net Income (Loss) Applicable
to Common Stock $ 17,132 $ (952) $ (4,074) $ 9,214 $ 17,594 $ (743) $ (4,074) $ 9,002
============================================== ==============================================

Earnings Per Common
Share (Based on Average
Shares Outstanding):
Continuing Operations $ 7.34 $ (0.39) $ (1.74) $ 3.99 $ 7.52 $ (0.32) $ (1.73) $ 3.87
Discontinued Operations (0.02) (0.02) 0.00 (0.05) 0.00 0.00 (0.01) 0.02

Earnings Per Common Share $ 7.32 $ (0.41) $ (1.74) $ 3.94 $ 7.52 $ (0.32) $ (1.74) $ 3.89
============================================== ==============================================

Average Shares Outstanding 2,339 2,339 2,339 2,339 2,339 2,339 2,339 2,339
---------------------------------------------- ----------------------------------------------



NOTE: Because of the seasonal nature of the business, statements for the 3-month periods are not
indicative of the results for a full year.






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


None


SJG-35




PART III


Item 10. Directors and Executive Officers of the Registrant

Not applicable.



Item 11. Executive Compensation

Not applicable.



Item 12. Security Ownership of Certain Beneficial Owners and Management

Not applicable.



Item 13. Certain Relationships and Related Transactions

Not applicable.




SJG-36


PART IV


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

(a) Listed below are all financial statements and schedules filed as part
of this report:

1 - The consolidated financial statements and notes to consolidated
financial statements together with the report thereon of Deloitte & Touche LLP,
dated February 13, 2002. See Item 8.

2 - Supplementary Financial Information

Supplemental Schedules as of December 31, 2001, 2000 and 1999 and for
the three years ended December 31, 2001, 2000, and 1999:

The Independent Auditors' Report of Deloitte & Touche LLP, Auditors of the
Company. See Item 8.

Schedule II - Valuation and Qualifying Accounts. See page 46.

All schedules, other than that listed above, are omitted because the
information called for is included in the financial statements filed or because
they are not applicable or are not required.

3 - See Item 14(c)(13)

(b) Reports on Form 8-K - None.

(c) List of Exhibits (Exhibit Number is in Accordance with the Exhibit
Table in Item 601 of Regulation S-K).





Exhibit Description Reference
Number


(3)(a) Certificate of Incorporation of Incorporated by reference from
South Jersey Gas Company. Exhibit (3)(a) of Form 10 filed
March 7, 1997.

(3)(b) Bylaws of South Jersey Gas Incorporated by reference from
Company, as amended and restated Exhibit (3)(b) of Form 10-K for
through June 19, 1998. 1998 (1-6364).

(4)(a) Form of Stock Certified for Common Incorporated by reference from
Stock. Exhibit (4)(a) of Form 10 filed
March 7, 1997.

(4)(b)(i) First Mortgage Indenture dated Incorporated by reference from
October 1, 1947. Exhibit (4)(b)(i) of Form 10-K of
SJI for 1987 (1-6364).

(4)(b)(iv) Twelfth Supplemental Indenture Incorporated by reference from
dated as of June 1, 1980. Exhibit 5(b) of Form S-7 of SJI
(2-68038).

(4)(b)(xiv) Sixteenth Supplemental Indenture Incorporated by reference from
dated as of April 1, 1988, 10 1/4% Exhibit (4)(b)(xv) of Form 10-Q of
Series due 2008. SJI for the quarter ended March
31, 1988 (1-6364).

(4)(b)(xv) Seventeenth Supplemental Indenture Incorporated by reference from
dated as of May 1, 1989. Exhibit (4)(b)(xv) of Form 10-K
of SJI for 1989 (1-6364).



SJG-37





Exhibit Description Reference
Number


(4)(b)(xvi) Eighteenth Supplemental Indenture Incorporated by reference from
dated as of March 1, 1990. Exhibit (4)(e) of Form S-3 of SJI
(33-36581).

(4)(b)(xvii) Nineteenth Supplemental Indenture Incorporated by reference from
dated as of April 1, 1992. Exhibit (4)(b)(xvii) of Form 10-K
of SJI for 1992 (1-6364).

(4)(b)(xviii) Twentieth Supplemental Indenture Incorporated by reference from
dated as of June 1, 1993. Exhibit (4)(b)(xviii) of Form 10-K
of SJI for 1993(1-6364).

(4)(b)(xix) Twenty-First Supplemental Incorporated by reference from
Indenture dated as of March 1, Exhibit (4)(b)(xviv) of Form 10-K
1997. of SJI for 1997 (1-6364).

(4)(b)(xx) Twenty-Second Supplemental Incorporated by reference from
Indenture dated as of October 1, Exhibit (4)(b)(ix) of Form S-3
1998. (333-62019).

(4)(c) Indenture dated as of January 31, Incorporated by reference from
1995; 8.60% Debenture Notes due Exhibit (4)(c) of Form 10-K of
February 1, 2010. SJI for 1994 (1-6364).

(4)(d) Certificate of Trust for SJG Incorporated by reference from
Capital Trust. Exhibit 3(a) of Form S-3 - SJG
Capital Trust and South Jersey Gas
Company as filed March 27, 1997,
as amended April 18, 1997 and
April 23, 1997 (333-24065).

(4)(d)(i) Trust Agreement of SJG Capital Incorporated by reference from
Trust. Exhibit 3(b) of Form S-3 - SJG
Capital Trust and
South Jersey Gas
Company as filed March
27, 1997, as amended
April 18, 1997 and
April 23, 1997
(333-24065).

(4)(d)(ii) Form of Amended and Restated Trust Incorporated by reference from
Agreement for SJG Capital Trust. Exhibit 3(c) of Form S-3 - SJG
Capital Trust and
South Jersey Gas
Company as filed March
27, 1997, as amended
April 18, 1997 and
April 23, 1997
(333-24065).

(4)(d)(iii) Form of Preferred Security for SJG Incorporated by reference from
Capital Trust. Exhibit 4(a) of Form S-3 - SJG
Capital Trust and
South Jersey Gas
Company as filed March
27, 1997, as amended
April 18, 1997 and
April 23, 1997
(333-24065).

(4)(d)(iv) Form of Deferrable Interest Incorporated by reference from
Subordinated Debenture. Exhibit 4(b) of Form S-3 - SJG
Capital Trust and
South Jersey Gas
Company as filed March
27, 1997, as amended
April 18, 1997 and
April 23, 1997
(333-24065).




SJG-38







Exhibit Description Reference
Number


(4)(d)(v) Form of Deferrable Interest Incorporated by reference from
Subordinated Debenture. Exhibit 4(c) of Form S-3 - SJG
Capital Trust and
South Jersey Gas
Company as filed March
27, 1997, as amended
April 18, 1997 and
April 23, 1997
(333-24065).

(4)(d)(vi) Form of Guaranty Agreement between Incorporated by reference from
South Jersey Gas Company and SJG Exhibit 4(d) of Form S-3 - SJG
Capital Trust. Capital Trust and South Jersey Gas
Company as filed March
27, 1997, as amended
April 18, 1997 and
April 23, 1997
(333-24065).

(4)(e) Medium Term Note Indenture of Incorporated by reference from
Trust dated October 1, 1998. Exhibit (4)(e) of Form S-3
(333-62019).

(10)(a) Gas storage agreement (GSS) Incorporated by reference from
between South Jersey Gas Company Exhibit (10)(d) of Form 10-K of
and Transco dated October 1, 1993. SJI for 1993 (1-6364).
(10)(b) Gas storage agreement (S-2) Incorporated by reference from
between South Jersey Gas Company Exhibit (5)(h) of Form S-7 of
and Transco dated December 16, SJI (2-56223).
1953.

(10)(c) Gas storage agreement (LG-A) Incorporated by reference from
between South Jersey Gas Company Exhibit (5)(f) of Form S-7 of
and Transco dated June 3, 1974. SJI (2-56223).

(10)(d) Gas storage agreement (WSS) Incorporated by reference from
between South Jersey Gas Company Exhibit (10)(h) of Form 10-K of
and Transco dated August 1, 1991. SJI for 1991 (1-6364).

(10)(e)(i) Gas storage agreement (LSS) Incorporated by reference from
between South Jersey Gas Company Exhibit (10)(i) of Form 10-K of
and Transco dated October 1, 1993. SJI for 1993 (1-6364).

(10)(e)(ii) Gas storage agreement (SS-1) Incorporated by reference from
between South Jersey Gas Company Exhibit (10)(i)(a) of Form 10-K
and Transco dated May 10, 1987 of SJI for 1988 (1-6364).
(effective April 1, 1988).

(10)(e)(iii) Gas storage agreement (ESS) Incorporated by reference from
between South Jersey Gas Company Exhibit (10)(i)(b) of Form 10-K
and Transco dated November 1, 1993. of SJI for 1993 (1-6364).
(10)(e)(iv) Gas transportation service Incorporated by reference from
agreement between South Jersey Gas Exhibit (10)(i)(c) of Form 10-K
Company and Transco dated April 1, of SJI for 1989 (1-6364).
1986.

(10)(e)(v) Service agreement (FS) between Incorporated by reference from
South Jersey Gas Company and Exhibit (10)(i)(e) of Form 10-K
Transco dated August 1, 1991. of SJI for 1991 (1-6364).

(10)(e)(vi) Service agreement (FT) between Incorporated by reference from
South Jersey Gas Company and Exhibit (10)(i)(f) of Form 10-K
Transco dated February 1, 1992. of SJI for 1991 (1-6364).




SJG-39





Exhibit Description Reference
Number


(10)(e)(vii) Service agreement (Incremental FT) Incorporated by reference from
between South Jersey Gas Company Exhibit (10)(i)(g) of Form 10-K
and Transco dated August 1, 1991. of SJI for 1991 (1-6364).

(10)(e)(viii) Gas storage agreement (SS-2) Incorporated by reference from
between South Jersey Gas Company Exhibit (10)(i)(i) of Form 10-K
and Transco dated July 25, 1990. of SJI for 1991 (1-6364).

(10)(e)(ix) Gas transportation service Incorporated by reference from
agreement between South Jersey Gas Exhibit (10)(i)(j) of Form 10-K
Company and Transco dated December of SJI for 1993 (1-6364).
20, 1991.

(10)(e)(x) Amendment to gas transportation Incorporated by reference from
agreement dated December 20, 1991 Exhibit (10)(i)(k) of Form 10-K
between South Jersey Gas Company of SJI for 1993 (1-6364).
and Transco dated October 5, 1993.

(10)(f) Gas transportation service Incorporated by reference from
agreement (FTS) between South Exhibit (10)(j)(a) of Form 10-K
Jersey Gas Company and Equitable of SJI for 1989 (1-6364).
Gas Company dated November 1, 1986.

(10)(g)(i) Gas transportation service Incorporated by reference from
agreement (TF) between South Exhibit (10)(k)(h) of Form 10-K
Jersey Gas Company and CNG of SJI for 1993 (1-6364).
Transmission Corporation dated
October 1, 1993.

(10)(g)(ii) Gas purchase agreement between Incorporated by reference from
South Jersey Gas Company and ARCO Exhibit (10)(k)(i) of Form 10-K
Gas Marketing, Inc. dated March 5, of SJI for 1989 (1-6364).
1990.

(10)(g)(iii) Gas transportation service Incorporated by reference from
agreement (FTS-1) between South Exhibit (10)(k)(k) of Form 10-K
Jersey Gas Company and Columbia of SJI for 1993 (1-6364).
Gulf Transmission Company dated
November 1, 1993.

(10)(g)(iv) Assignment agreement capacity and Incorporated by reference from
service rights (FTS-2) between Exhibit (10)(k)(i) of Form 10-K
South Jersey Gas Company and of SJI for 1993 (1-6364).
Columbia Gulf Transmission Company
dated November 1, 1993.

(10)(g)(v) FTS Service Agreement No. 39556 Incorporated by reference from
between South Jersey Gas Company Exhibit (10)(k)(m) of Form 10-K
and Columbia Gas Transmission of SJI for 1993 (1-6364).
Corporation dated November 1, 1993.

(10)(g)(vi) FTS Service Agreement No. 38099 Incorporated by reference from
between South Jersey Gas Company Exhibit (10)(k)(n) of Form 10-K
and Columbia Gas Transmission of SJI for 1993 (1-6364).
Corporation dated November 1, 1993.




SJG-40




Exhibit Description Reference
Number


(10)(g)(vii) NTS Service Agreement No. 39305 Incorporated by reference from
between South Jersey Gas Company Exhibit (10)(k)(o) of Form 10-K
and Columbia Gas Transmission of SJI for 1993 (1-6364).
Corporation dated November 1, 1993.

(10)(g)(viii) FSS Service Agreement No. 38130 Incorporated by reference from
between South Jersey Gas Company Exhibit (10)(k)(p) of Form 10-K
and Columbia Gas Transmission of SJI for 1993 (1-6364).
Corporation dated November 1, 1993.

(10)(g)(ix) SST Service Agreement No. 38086 Incorporated by reference from
between South Jersey Gas Company Exhibit (10)(k)(q) of Form 10-K
and Columbia Gas Transmission of SJI for 1993 (1-6364).
Corporation dated November 1, 1993.

(10)(g)(x) NS (Negotiated Sales) Service Incorporated by reference from
Agreement dated December 1, 1994 Exhibit (10)(k)(r) of Form 10-K
between South Jersey Gas Company of SJI for 1994 (1-6364).
and Transco Gas Marketing Company
as agent for Transcontinental Gas
Pipeline.

(10)(h)(i)* Deferred Payment Plan for Incorporated by reference from
Directors of South Jersey Exhibit (10)(l) of Form 10-K of
Industries, Inc., South Jersey Gas SJI for 1994 (1-6364).
Company, Energy & Minerals, Inc.,
R&T Group, Inc. and South Jersey
Energy Company as amended and
restated October 21, 1994.

(10)(h)(ii)* Form of Deferred Compensation Incorporated by reference from
Agreement between South Jersey Exhibit (10)(j)(a) of Form 10-K
Industries, Inc. and/or a of SJI for 1980 (1-6364).
subsidiary and seven of its
officers.

(10)(h)(iii)* Schedule of Deferred Compensation Incorporated by reference from
Agreements. Exhibit (10)(l)(b) of Form 10-K
of SJI for 1997 (1-6364).

(10)(h)(iv)* Supplemental Executive Retirement Incorporated by reference from
Program, as amended and restated Exhibit (10)(l)(i) of Form 10-K
effective July 1, 1997, and Form of SJI for 1997 (1-6364).
of Agreement between certain South
Jersey Industries, Inc. or
subsidiary Company officers.

(10)(h)(v)* Form of Officer Employment Incorporated by reference from
Agreement between certain officers Exhibit (10)(l)(d) of Form 10-K
and either South Jersey of SJI for 1994 (1-6364).
Industries, Inc. or its
subsidiaries.

(10)(h)(vi)* Schedule of Officer Employment Incorporated by reference from
Agreements. Exhibit (10)(l)(e) of Form 10-K
of SJI for 1998 (1-6364).

(10)(h)(vii)* Officer Severance Benefit Program Incorporated by reference from
for all officers. Exhibit (10)(l)(g) of Form 10-K
of SJI for 1985 (1-6364).



SJG-41





Exhibit Description Reference
Number


(10)(h)(viii)* Discretionary Incentive Bonus Incorporated by reference from
Program for all officers and Exhibit (10)(l)(h) of Form 10-K
management employees. of SJI for 1985 (1-6364).

(10)(h)(ix)* The 1987 Stock Option and Stock Incorporated by reference from
Appreciation Rights Plan including Exhibit (10)(l)(i) of Form 10-K
Form of Agreement. of SJI for 1987 (1-6364).

(12) Calculation of Ratio of Earnings
to Fixed Charges (Before Federal
Income Taxes) (filed herewith).

(21) Subsidiaries of the Registrant
(filed herewith).

(23) Independent Auditors' Consent
(filed herewith).

(24) Power of Attorney (filed herewith).



* Constitutes a management contract or a compensatory plan or arrangement.





SJG-42




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.

SOUTH JERSEY GAS COMPANY



BY: /s/ David A. Kindlick
--------------------------------------------------
David A. Kindlick, Executive Vice President &
Chief Financial Officer

Date March 25, 2002
--------------------------------------------


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


Signature Title Date



/s/ Charles Biscieglia President and CEO March 25, 2002
- -----------------------------
(Charles Biscieglia)



/s/ David A. Kindlick Executive Vice President & March 25, 2002
- ----------------------------- Chief Financial Officer
(David A. Kindlick) (Principal Financial Officer)



/s/ George L. Baulig Senior Vice President & Corporate March 25, 2002
- ----------------------------- Secretary
(George L. Baulig)



/s/ Shirli M. Billings Director March 25, 2002
- -----------------------------
(Shirli M. Billings)



/s/ Sheila Hartnett-Devlin Director March 25, 2002
- -----------------------------
(Sheila Hartnett-Devlin)



/s/ Clarence D. McCormick Director March 25, 2002
- -----------------------------
(Clarence D. McCormick)


SJG-43


Signature Title Date



/s/ Frederick R. Raring Director March 25, 2002
- -----------------------------
(Federick R. Raring)



/s/ William J. Hughes Director March 25, 2002
- -----------------------------
(William J. Hughes)





SJG-44



INDEPENDENT AUDITORS' REPORT




To the Shareholder and Board of Directors of
South Jersey Gas Company:


We have audited the consolidated financial statements of South Jersey Gas
Company and its subsidiary as of December 31, 2001 and 2000, and for each of
the three years in the period ended December 31, 2001, and have issued our
report thereon dated February 13, 2002; such financial statements and report are
included in Item 8 of this report on Form 10K. Our audits also included the
financial statement schedule of South Jersey Gas Company and its subsidiaries,
listed in Item 14(a) 2. This financial statement schedule is the responsibility
of the Corporation'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 consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.





DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
February 13, 2002


SJG-45





SOUTH JERSEY GAS COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)



Col. A Col. B Col. C Col. D Col. E
- -----------------------------------------------------------------------------------------------------------

Additions
------------------------------


Balance at Charged to Charged to Balance at
Beginning Costs and Other Accounts - Deductions - End
Classification of Period Expenses Describe * Describe ** of Period
- -----------------------------------------------------------------------------------------------------------

Provision for Uncollectible
Accounts for the Year Ended
December 31, 2001 $1,754 $2,067 $387 $2,292 $1,916


Provision for Uncollectible
Accounts for the Year Ended
December 31, 2000 $932 $2,176 $231 $1,585 $1,754


Provision for Uncollectible
Accounts for the Year Ended
December 31, 1999 $1,032 $972 $336 $1,408 $932





* Recoveries of accounts previously written off and minor adjustments.

** Uncollectible accounts written off.





SJG-46