================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 10-Q

(Mark one)
[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934

         For the quarterly period ended March 31, 2005

                                       OR

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

         For the transition period from ________________ to ________________

                        Commission File Number 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, NJ 08037
          (Address of principal executive offices, including zip code)

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).   Yes [ ]  No [X]

As of May 9, 2005 there were 2,339,139 shares of the registrant's common stock
outstanding. All common shares are owned by South Jersey Industries, Inc., the
parent company of South Jersey Gas Company.

================================================================================
                                     SJG-1


                         PART I -- FINANCIAL INFORMATION



             Item 1. Financial Statements -- See Pages 3 through 19

                                     SJG-2

                            SOUTH JERSEY GAS COMPANY

                     CONDENSED STATEMENTS OF INCOME (UNAUDITED)
                                 (In Thousands)

                                                 Three Months Ended
                                                     March 31,
                                         -----------------------------------
                                                 2005               2004
                                         -----------------------------------


Operating Revenues                             $ 214,537          $ 202,260
                                         ----------------    ---------------

Operating Expenses:
   Cost of Sales                                 144,345            137,096
   Operations                                     15,289             13,786
   Maintenance                                     1,493              1,345
   Depreciation                                    5,358              6,163
   Energy and Other Taxes                          4,893              4,728
                                         ----------------    ---------------

      Total Operating Expenses                   171,378            163,118
                                         ----------------    ---------------

Operating Income                                  43,159             39,142

Other Income and Expense                             (30)               567

Interest Charges                                   4,440              4,320
                                         ----------------    ---------------

Income Before Income Taxes                        38,689             35,389

Income Taxes                                      16,125             14,683
                                         ----------------    ---------------

Net Income                                      $ 22,564           $ 20,706
                                         ================    ===============



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

                                     SJG-3

                        SOUTH JERSEY GAS COMPANY

            CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
                           (In Thousands)

                                                      Three Months Ended
                                                           March 31,
                                               --------------------------------
                                                  2005                2004
                                               ------------        ------------



Net Income                                        $ 22,564            $ 20,706
                                               ------------        ------------

Other Comprehensive Loss, Net of Tax:*

  Change in Fair Value of Investments                  (44)               (275)
  Change in Fair Value of Derivatives                 (103)                  -
                                               ------------        ------------

     Other Comprehensive Loss - Net of Tax*           (147)               (275)
                                               ------------        ------------

Comprehensive Income                              $ 22,417            $ 20,431
                                               ============        ============



* Determined using a combined statutory tax rate of 40.85%.

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

                                     SJG-4

<TABLE>

                            SOUTH JERSEY GAS COMPANY

                 CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
                                 (In Thousands)

<CAPTION>
                                                                      Three Months Ended
                                                                          March 31,
                                                                 -----------------------------
                                                                     2005             2004
                                                                 ------------     ------------
<S>                                                                <C>               <C>


Cash Flows from Operating Activities:
  Net Income                                                        $ 22,564          $ 20,706
  Adjustments to Reconcile Net Income to Cash Flows
   Provided by Operating Activities:
    Depreciation and Amortization                                      6,069             6,783
    Provision for Losses on Accounts Receivable                        1,212               335
    Revenues and Fuel Costs Deferred - Net                               442            10,837
    Deferred and Non-Current Income Taxes and Credits - Net            4,197             3,906
    Environmental Remediation Costs - Net                               (363)             (215)
    Gas Plant Cost of Removal                                           (165)             (178)
    Changes in:
      Accounts Receivable                                            (40,223)          (17,172)
      Inventories                                                     58,888            43,765
      Prepayments and Other Current Assets                              (388)              375
      Prepaid and Accrued Taxes - Net                                 20,984            16,562
      Accounts Payable and Other Accrued Liabilities                   1,294            (4,184)
      Other Assets                                                     3,371             3,465
      Other Liabilities                                               (1,132)             (956)
                                                                 ------------     -------------

        Net Cash Provided by Operating Activities                     76,750            84,029
                                                                 ------------     -------------

Cash Flows from Investing Activities:
  Capital Expenditures                                               (12,102)          (11,060)
                                                                 ------------     -------------

        Net Cash Used in Investing Activities                        (12,102)          (11,060)
                                                                 ------------     -------------

Cash Flows from Financing Activities:
  Net Repayments of Lines of Credit                                  (43,000)          (67,200)
  Principal Repayments of Long-Term Debt                             (10,500)           (4,500)
  Payments for Issuance of Long-Term Debt                                (51)              (43)
  Premium for Early Retirement of Debt                                  (184)                -
  Additional Investment by Shareholder                                     -            15,000
                                                                 ------------     -------------

        Net Cash Used in Financing Activities                        (53,735)          (56,743)
                                                                 ------------     -------------

Net Increase in Cash and Cash Equivalents                             10,913            16,226
Cash and Cash Equivalents at Beginning of Period                       3,310             3,210
                                                                 ------------     -------------

Cash and Cash Equivalents at End of Period                          $ 14,223          $ 19,436
                                                                 ============     =============
<FN>

The accompanying footnotes are an integral part of the financial statements.
</FN>
</TABLE>
                                     SJG-5

                            SOUTH JERSEY GAS COMPANY

                            CONDENSED BALANCE SHEETS
                                 (In Thousands)
                                                 (Unaudited)
                                                  March 31       December 31,
                                                --------------  ---------------
                                                    2005             2004
                                                --------------  ---------------

Assets

Property, Plant and Equipment:
   Utility Plant, at original cost                  $ 967,469        $ 957,287
     Accumulated Depreciation                        (227,870)        (224,506)
                                                --------------  ---------------

          Property, Plant and Equipment - Net         739,599          732,781
                                                --------------  ---------------
Investments:
   Available-for-Sale Securities                        5,222            5,296
                                                --------------  ---------------

Current Assets:
   Cash and Cash Equivalents                           14,223            3,310
   Accounts Receivable                                 87,505           39,916
   Unbilled Revenues                                   26,947           34,861
   Provision for Uncollectibles                        (3,535)          (2,871)
   Natural Gas in Storage, average cost                 6,790           65,691
   Materials and Supplies, average cost                 4,566            4,553
   Prepaid Taxes                                          217            6,104
   Derivatives - Energy Related Assets                  4,940            1,273
   Other Prepayments and Current Assets                 2,465            2,078
                                                --------------  ---------------

          Total Current Assets                        144,118          154,915
                                                --------------  ---------------

Regulatory Assets:
   Gross Receipts and Franchise Taxes                     813              924
   Environmental Remediation Costs:
     Expended - Net                                     5,644            5,281
     Liability for Future Expenditures                 52,473           51,046
   Income Taxes - Flowthrough Depreciation              6,397            6,641
   Deferred Postretirement Benefit Costs                2,929            3,024
   Societal Benefit Costs                               2,084            4,562
   Other Regulatory Assets                              1,450            1,157
                                                --------------  ---------------

          Total Regulatory Assets                      71,790           72,635
                                                --------------  ---------------

Other Noncurrent Assets:
   Unamortized Debt Discount and Expense                8,034            7,957
   Prepaid Pension                                     24,006           24,812
   Accounts Receivable - Merchandise                    6,707            7,101
   Other                                                2,279            2,089
                                                --------------  ---------------

          Total Other Noncurrent Assets                41,026           41,959
                                                --------------  ---------------

               Total Assets                       $ 1,001,755      $ 1,007,586
                                                ==============  ===============

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

                                     SJG-6

                            SOUTH JERSEY GAS COMPANY

                            CONDENSED BALANCE SHEETS
                                 (In Thousands)

                                                 (Unaudited)
                                                  March 31,       December 31,
                                                --------------  ---------------
                                                    2005             2004
                                                --------------  ---------------

Capitalization and Liabilities

Common Equity:
   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                                   170,317          170,317
   Accumulated Other Comprehensive Loss                  (259)            (112)
   Retained Earnings                                  147,634          130,695
                                                --------------  ---------------

          Total Common Equity                         323,540          306,748
                                                --------------  ---------------

Preferred Stock:
   Redeemable Cumulative Preferred 8% Series -
    Par Value $100 per share; Authorized
    41,966 shares; Outstanding 16,904 shares            1,690            1,690
                                                --------------  ---------------

Long-Term Debt                                        274,508          282,008
                                                --------------  ---------------

          Total Capitalization                        599,738          590,446
                                                --------------  ---------------

Current Liabilities:
   Notes Payable                                       10,000           53,000
   Current Maturities of Long-Term Debt                 2,273            5,273
   Accounts Payable                                    59,766           59,026
   Derivatives - Energy Related Liabilities                 9            1,800
   Derivatives - Other                                    518              344
   Deferred Income Taxes - Net                          4,494            2,627
   Customer Deposits                                    9,128            8,846
   Environmental Remediation Costs                     16,329           13,531
   Taxes Accrued                                       16,325            1,228
   Dividends Declared                                   5,659                -
   Interest Accrued and
    Other Current Liabilities                          12,624           12,386
                                                --------------  ---------------
          Total Current Liabilities                   137,125          158,061
                                                --------------  ---------------
Deferred Credits and
 Other Noncurrent Liabilities:
   Deferred Income Taxes - Net                        140,318          138,208
   Environmental Remediation Costs                     36,144           37,515
   Regulatory Liabilities                              70,259           63,836
   Pension and Other Postretirement Benefits           10,811           11,039
   Investment Tax Credits                               3,046            3,129
   Other                                                4,314            5,352
                                                --------------  ---------------

            Total Deferred Credits and
             Other Noncurrent Liabilities             264,892          259,079
                                                --------------  ---------------

               Total Capitalization and
                Liabilities                       $ 1,001,755      $ 1,007,586
                                                ==============  ===============

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

                                     SJG-7

               Notes to Condensed Financial Statements (Unaudited)

Note 1.  Summary of Significant Accounting Policies:

         The Entity - South Jersey Industries, Inc. (SJI) owns all of the
outstanding common stock of South Jersey Gas Company (SJG). In our opinion, the
condensed financial statements reflect all adjustments needed to fairly present
SJG's financial position and operating results at the dates and for the periods
presented. Our business is subject to seasonal fluctuations and, accordingly,
this interim financial information should not be the basis for estimating the
full year's operating results. These financial statements should be read in
conjunction with SJG's 2004 Form 10-K.

         Equity Investments - We classify equity investments purchased as
long-term investments as Available-for-Sale Securities on our balance sheets and
carry them at their fair value with any unrealized gains or losses included in
Accumulated Other Comprehensive Loss.

         Estimates and Assumptions - We prepare our financial statements 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. Significant estimates include amounts related to regulatory
accounting, energy derivatives, environmental remediation costs, pension and
other postretirement benefit costs, and revenue recognition.

         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. SJG follows the accounting for
regulated enterprises prescribed by the Financial Accounting Standards Board
(FASB) Statement No. 71, "Accounting for the Effects of Certain Types of
Regulation." In general, Statement No. 71 allows deferral of certain costs and
creation of certain obligations when it is probable that such items will be
recovered from or refunded to customers in future periods.

         Operating Revenues - We bill customers monthly for gas deliveries. For
retail customers not billed at the end of each month, we record an estimate to
recognize unbilled revenues from the date of the last meter reading to the end
of the month. We deferred and recognized revenues related to our appliance
service contracts seasonally over the full 12-month term of the contract prior
to transferring that business to South Jersey Energy Service Plus (SJESP). SJESP
is an affiliate by common ownership.

         The BPU allows us to recover all prudently incurred gas costs through
the Basic Gas Supply Service (BGSS) clause. We collect these costs on a
forecasted basis upon BPU order. SJG defers over/under-recoveries of gas costs
and includes them in the following year's BGSS or other similar recovery
mechanism. We pay interest on overcollected BGSS balances at the rate of return
on rate base utilized by the BPU to set rates in its last base rate proceeding.

         Our tariff also includes a Temperature Adjustment Clause (TAC), a
Remediation Adjustment Clause (RAC), a New Jersey Clean Energy Program (NJCEP)

                                     SJG-8

and a Universal Service Fund (USF) program. Our TAC reduces the impact of
temperature fluctuations on the Company and our customers. The RAC recovers
environmental remediation costs of former gas manufacturing plants and the NJCEP
recovers costs associated with our energy efficiency and renewable energy
programs. The USF is a statewide customer assistance program that utilizes
utilities as a collection agent. TAC adjustments affect revenue, income and cash
flows since colder-than-normal weather can generate credits to customers, while
warmer-than-normal weather 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. NJCEP and USF adjustments are also
deferred and do not affect earnings, as related costs and customer credits are
recovered through rates on an ongoing basis.

         Accounts Receivable and Provision for Uncollectible Accounts - Accounts
receivable are carried at the amount owed by customers. A provision for
uncollectible accounts has been established based on our collection experience
and an assessment of the collectibility of specific accounts.

         Property, Plant & Equipment - For regulatory purposes, utility plant is
stated at original cost, which may be different than SJG's cost if the assets
were acquired from another regulated entity. The cost of adding, replacing and
renewing property is charged to the appropriate plant account.

         Depreciation - 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.
As a result of our recent rate case settlement, our composite depreciation rate
was reduced from 2.9% to 2.4%, effective July 8, 2004. Except for extraordinary
retirements, accumulated depreciation is charged with the cost of depreciable
utility property retired, less salvage.

         Capitalized Interest - SJG capitalizes interest on construction at the
rate of return on rate base utilized by the BPU to set rates in the last base
rate proceeding. SJG capitalized interest of $289,000 and $158,400 in the three
months ended March 31, 2005 and 2004, respectively, which are included in
Utility Plant on the balance sheets. All capitalized interest is reflected on
the statements of income as a reduction of Interest Charges.

         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 three months ended
March 31, 2005 and the year ended December 31, 2004, no significant
circumstances were identified.

         Derivative Instruments - SJG accounts for derivative instruments in
accordance with FASB Statement No. 133, "Accounting for Derivative Instruments
and Hedging Activities," as amended. We record all derivatives, whether
designated as hedging relationships or not, on the balance sheets at fair value
unless the derivative contracts qualify for the normal purchase and sale
exemption. If the derivative is designated as a fair value hedge, we recognize

                                     SJG-9

the changes in the fair value of the derivative and of the hedged item
attributable to the hedged risk in earnings. We currently have no fair value
hedges. If the derivative is designated as a cash flow hedge, we record the
effective portion of the hedge in Accumulated Other Comprehensive Loss and
recognize it in the income statement when the hedged item affects earnings. We
recognize ineffective portions of changes in the fair value of cash flow hedges
in earnings.

         From time to time we enter into interest rate derivative agreements to
hedge the exposure to increasing rates with respect to our variable rate debt.
The differential to be paid or received as a result of these agreements is
accrued as interest rates change and is recognized as an adjustment to interest
expense. Interest rate derivatives are accounted for as cash flow hedges. In
November 2004, we entered into a derivative transaction known as a "Treasury
Lock" to hedge against the impact of possible interest rate increases on a $10.0
million, 30-year debt issuance planned for July 2005. As of March 31, 2005 and
December 31, 2004, the market value of this contract was $(518,365) and
$(344,000), respectively, which represents the amount we would have to pay the
counterparty to terminate the contracts as of those dates. We included these
balances on the balance sheets under the caption Derivatives - Other. As of
March 31, 2005 and December 31, 2004, we calculated the derivatives to be highly
effective, as defined under Statement No. 133; therefore, we recorded the change
in fair value of the contract, net of taxes, in Accumulated Other Comprehensive
Loss.

         We determine the fair value of interest rate derivative agreements
using quotations from independent parties.

         As part of its gas purchasing strategy, SJG occasionally uses financial
contracts to hedge against forward price risk. The costs or benefits of these
short-term contracts are recoverable through our BGSS, subject to BPU approval.
As of March 31, 2005 and December 31, 2004, SJG had $(4.9) million and $0.5
million of (benefits) costs, respectively, included in its BGSS related to open
financial contracts (See Caption Regulatory Assets & Regulatory Liabilities).

         The vast majority of our contracts relate to physical transactions that
qualify for the normal purchase and sale exception. Therefore, we are not
required to mark these contracts to market.

         Asset Retirement Costs -We have certain easements and right-of-way
agreements that qualify as legal obligations under FASB Statement No. 143,
"Accounting for Asset Retirement Obligations." However, as it is our intent to
maintain these agreements in perpetuity, we have not recorded any liabilities
associated with these agreements. SJG recovers certain asset retirement costs
through rates charged to customers. As of March 31, 2005 and December 31, 2004,
we had accrued amounts in excess of actual removal costs incurred totaling $47.5
and $47.3 million, respectively, which are recorded as Regulatory Liabilities on
the balance sheets in accordance with Statement No. 143.

         New Accounting Pronouncements - Effective in 2003, SJI adopted the
policy of accounting for stock-based compensation using the fair value based
method on a prospective basis. This method calls for expensing the estimated
fair value of a stock option. In December 2004, the FASB issued Statement No.
123(R), "Share-Based Payment" which establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or
services. While this statement is not effective until reporting periods

                                     SJG-10

beginning after January 1, 2006, management has completed its assessment of
Statement No. 123(R) and has determined that it does not have any impact on
either SJG's or SJI's accounting for share-based payments.

         In December 2004, the FASB issued Statement No. 153, "Exchanges of
Nonmonetary Assets, an amendment to APB Opinion No. 29, Accounting for
Nonmonetary Transactions." This statement redefines the types of nonmonetary
exchanges that require fair value measurement. Statement No. 153 is effective
for nonmonetary transactions entered into on and after July 1, 2005; however, we
do not expect it to have any impact on our financial statements.

         In March 2005, the FASB issued Interpretation No. 47, "Accounting for
Conditional Asset Retirement Obligations." This interpretation clarifies the
term "conditional asset retirement obligation" as used in FASB Statement No.
143, "Accounting for Asset Retirement Obligations," and is effective for fiscal
years ending after December 15, 2005. Management is currently evaluating the
effect of this standard, but does not anticipate the adoption of this
interpretation to have a material effect on our financial statements.

         Regulatory Assets & Regulatory Liabilities - All significant regulatory
assets are separately identified on the balance sheets under the caption
Regulatory Assets. Each item that is separately identified is being recovered
through utility rate charges. SJG is currently permitted to recover interest on
its Environmental Remediation and Societal Benefit costs while the other assets
are being recovered without a return on investments over the following periods:

                                                       Years Remaining
             Regulatory Asset                       As of March 31, 2005
             ----------------                       --------------------

   Environmental Remediation Costs:
     Expended - Net                                        Various
     Liability for Future Expenditures                 Not Applicable
   Gross Receipts and Franchise Taxes                         2
   Income Taxes - Flowthrough Depreciation                    6
   Deferred Postretirement Benefit Costs                      8
   Societal Benefit Costs                                  Various

         Some of the assets reflected under the caption Other Regulatory Assets
are currently being recovered from ratepayers as approved by the BPU. Management
believes that the remaining deferred costs are probable of recovery from
ratepayers through future utility rates, based on experience with previous BPU
orders.

         Regulatory Liabilities at March 31, 2005 and December 31, 2004
consisted of the following items (in thousands):

                                     SJG-11
                                                   March 31,        December 31,
                                                    2005                2004
                                                  -----------      -------------

Deferred Gas Revenues - Net                       $   18,235       $    12,334
Excess Plant Removal Costs                            47,542            47,345
Overcollected State Taxes                              3,910             3,871
Other                                                    572               286
                                                  -----------------------------

         Total Regulatory Liabilities             $   70,259       $    63,836
                                                  =============================

         Deferred Gas Revenues - Net represent SJG's net overcollected gas costs
and are monitored through SJG's BGSS mechanism. Derivatives used to hedge our
natural gas purchases are recoverable through the BGSS, subject to BPU approval.
The offset to the change in fair value of these contracts is recorded as a
Regulatory Asset or Regulatory Liability accordingly.

         Excess Plant Removal Costs represent amounts accrued in excess of
actual utility plant removal costs incurred to date. All other amounts are
subject to being returned to ratepayers in future rate proceedings.

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

         Reclassifications - SJG reclassified some previously reported amounts
to conform with current year classifications. Such reclassifications include the
move of $2.1 million of certain operating expenses previously included in
Revenue to Cost of Sales and Operations Expense for the three months ended March
31, 2004. These amounts are considered immaterial to the overall presentation of
SJG's financial statements.

Note 2.  Regulatory Actions:

         Base Rates - In January 1997, the BPU granted SJG rate relief, which
was predicated in part upon a 9.62% rate of return on rate base that included an
11.25% return on common equity. This rate relief provided for cost-of-service
recovery, including deferred costs, through base rates. Additionally, our
threshold for sharing pre-tax margins generated by interruptible and off-system
sales and transportation had increased. As a result of this case, SJG kept 100%
of pre-tax margins up to the threshold level of $7.8 million. The next $750,000
was credited to customers through the Basic Gas Supply Service (BGSS) clause.
Thereafter, SJG kept 20% of the pre-tax margins as it had historically.

         On July 7, 2004, the BPU granted SJG a base rate increase of $20.0
million, which was predicated in part upon a 7.97% rate of return on rate base
that included a 10.0% return on common equity. The increase was effective July
8, 2004 and designed to provide an incremental $8.5 million on an annualized
basis to net income. SJG was also permitted recovery of regulatory assets
contained in its petition and a reduction in its composite depreciation rate
from 2.9% to 2.4%.

         Included in the base rate increase was a change to the sharing of
pre-tax margins on interruptible and off-system sales and transportation. SJG
now recovers through its base rates $7.8 million that it had previously
recovered through the sharing of pre-tax margins. As a result, the sharing of

                                     SJG-12

pre-tax margins now begins from dollar one, with SJG retaining 20%. Moreover,
SJG now shares pre-tax margins from on-system capacity release sales, in
addition to the interruptible and off-system sales and transportation. Effective
July 1, 2006, the 20% retained by SJG will decrease to 15% of such margins.

         As part of the overall settlement effective July 8, 2004, SJG reduced
rates in several rate clauses that were no longer needed by SJG to recover
costs. SJG was either no longer incurring or had already recovered the specific
costs that these clauses were designed to recover. Since revenues raised under
these clauses were for cost recovery only and had no profit margin built in,
their elimination has no impact on SJG's net income. However, SJG's customers'
bills are estimated to decline by $38.9 million annually due to the elimination
of these clauses, more than offsetting the base rate increase awarded.

         Pending Audits - The BPU issued an order under which it will perform a
competitive services audit and a management audit that includes a focused review
of SJG's gas supply and purchasing practices. The audits, which commenced in
October 2004, are mandated by statute to be conducted at predetermined
intervals. Management does not currently anticipate the outcome of these audits,
which are nearing completion, to have a material effect on SJG's financial
position, results of operations or liquidity.

         Appliance Service Business - On July 23, 2004, the BPU approved SJG's
petition and related agreements to transfer its appliance service business from
the regulated utility. In anticipation of this transfer, SJI had formed South
Jersey Energy Service Plus, LLC (SJESP) to perform appliance repair services
after BPU approval of the transfer. SJESP purchased certain assets and assumed
certain liabilities required to perform such repair services from SJG for the
net book value of $1.2 million on September 1, 2004. The agreements also called
for SJESP to pay an additional $1.5 million to SJG. This $1.5 million was
credited by SJG to customers through the Remediation Adjustment Clause (RAC) and
had no earnings impact on SJG. The transfer has no effect on the provision of
safety-related or emergency-related services to the public since the transferred
services include only non-safety related, competitive appliance services.

         Other Regulatory Matters - Effective January 10, 2000, the BPU approved
full unbundling of SJG's system. This allows all natural gas consumers to select
their natural gas commodity supplier. As of March 31, 2005, 85,207 of SJG's
residential customers were purchasing their gas commodity from someone other
than SJG. Customers choosing to purchase natural gas from providers other than
the utility are charged for the cost of gas by the marketer, not the utility.
The resulting decrease in SJG's revenues is offset by a corresponding decrease
in gas costs. While customer choice can reduce utility revenues, it does not
negatively affect SJG's net income or financial condition. Unbundling did not
change the fact that SJG still recovers cost of service, including deferred
costs, through base rates.

         In December 2001, the BPU approved recovery of SJG's October 31, 2001
underrecovered gas cost balance of $48.9 million plus accrued interest since
April 1, 2001 at a rate of 5.75%. The recovery of this balance was completed
upon the settlement of SJG's base rate case in July 2004.

                                     SJG-13

         In March 2003, the BPU approved a statewide Universal Service Fund
(USF) program through which funds for the USF and Lifeline Credit and Tenants
Assistance (Lifeline) Programs would be collected from customers of all electric
and gas utilities in the state. In April 2004, SJG made its annual USF filing,
along with the state's other electric and gas utilities, proposing a statewide
USF budget of $105.5 million, which was later updated to $113.0 million. In June
2004, the BPU approved the statewide budget of $113.0 million and the increased
rates were implemented effective July 1, 2004, resulting in a $3.9 million
increase to SJG's annual USF recoveries. In April 2005, SJG made its annual USF
filing, along with the state's other electric and gas utilities, proposing a
statewide USF budget of $129.0 million.

         In February 2004, SJG filed notice with the BPU to reduce its gas cost
revenues collected under the BGSS by approximately $5.0 million, via a rate
reduction, in addition to providing for a $20.8 million bill credit to
customers. Both the rate reduction and bill credit were approved and implemented
in March 2004.

         In June 2004, SJG made its annual BGSS filing with the BPU requesting a
$4.9 million increase in gas cost recoveries. In October 2004, the requested
increase was approved on a provisional basis. In February 2005, SJG filed notice
with the BPU to provide for an $11.4 million bill credit to customers. The bill
credit was implemented in March 2005.

         In September 2004, SJG filed for a $2.6 million reduction to its annual
Societal Benefits Clause (SBC) recovery level. The SBC recovers costs related to
BPU-mandated programs, including environmental remediation costs that are
recovered through SJG's RAC; energy efficiency and renewable energy program
costs that are recovered through SJG's New Jersey Clean Energy Programs;
consumer education program costs; and low income program costs that are
recovered through the Universal Service Fund.

         In December 2004, the BPU approved the statewide funding of the New
Jersey Clean Energy Programs of $745.0 million for the years 2005 through 2008.
Of this amount, SJG will be responsible for approximately $25.4 million over the
four-year period. Amounts not yet expended have been included in SJG's
Contractual Obligations table included in Note 8.

         Filings and petitions described above are still pending unless
otherwise indicated.

Note 3.  Related Party Transactions:

         SJG sells natural gas for resale to South Jersey Energy Company (SJE)
and South Jersey Resources Group, LLC (SJRG), SJI's wholly owned subsidiaries.
These sales comply with Section 284.402 of the Regulations of the Federal Energy
Regulatory Commission (FERC). Sales to SJE were approximately $1.2 million for
the three months ended March 31, 2004. SJG had no sales to SJE for the three
months ended March 31, 2005. The amount due from SJE relating to these sales was
$0.3 million at March 31, 2004. Sales to SJRG were approximately $2.3 million
and $3.6 million for the three months ended March 31, 2005 and 2004,
respectively. The amounts due from SJRG relating to these sales were $1.3
million and $0.9 million at March 31, 2005 and 2004, respectively.

                                     SJG-14

         We also meet some of our gas purchasing requirements by purchasing
natural gas for resale from SJRG. Such purchases were approximately $1.6 million
and $0.2 million for the three months ended March 31, 2005 and 2004,
respectively. The amounts due to SJRG relating to gas purchases were $1.3
million and $83,200 at March 31, 2005 and 2004, respectively.

         SJG also provides transportation services to Marina Energy, LLC, an
affiliate by common ownership. Sales for these services were $63,700 and $40,400
for the three months ended March 31, 2005 and 2004. The amount due relating to
such services was $37,000 and $13,400 at March 31, 2005 and 2004, respectively.

         SJG provides billing services for third-party energy marketers
supplying natural gas to customers within SJG's territory. For commercial and
industrial customers, SJG provides this service for a fixed fee per customer.
For residential customers, SJG purchases the accounts receivable at book value
from the marketer and assumes all risk associated with the collection of such
amounts. The fee paid by third-party energy marketers for the purchase of the
residential accounts receivables includes a factor for potential uncollectible
accounts. The largest marketer in SJG's territory is SJE. Fees charged for the
billing service and the purchase of SJE's customer accounts receivable totaled
$130,600 and $128,700 for the three months ended March 31, 2005 and 2004,
respectively. The amounts due to SJE for account collections and the purchase of
the residential accounts receivables were $10.6 million and $9.3 million at
March 31, 2005 and 2004, respectively.

         SJG also provides billing services for South Jersey Energy Service
Plus, LLC (SJESP), an affiliate by common ownership, and receives a fee for the
provision of this service. Since the transfer of SJG's appliance service
operations on September 1, 2004, fees for providing such services totaled
$17,400 for the three months ended March 31, 2005. The amount due to SJESP
relating to these collections was $1.0 million at March 31, 2005. SJG also
provides information system and data management support to SJESP. Fees for
providing such services totaled $58,900 for the three months ended March 31,
2005. The amount due to SJG related to these services was $22,200 at March 31,
2005.

         SJI and Conectiv Solutions, LLC formed Millennium Account Services, LLC
(Millennium) to provide meter reading services in southern New Jersey. SJG uses
the services of Millennium to read utility customers' meters on a monthly basis
for a fee. The fees incurred by SJG related to such services were approximately
$628,500 and $631,800 for the three months ended March 31, 2005 and 2004. The
amounts due to Millennium for meter reading services were $0.2 million at March
31, 2005 and 2004.

Note 4.  Long-Term Debt:

         On February 1, 2005, SJG retired the remaining $7.5 million of its 8.6%
Unsecured Debenture Notes due 2010 for a call premium of $184,500.

                                     SJG-15

Note 5.  Preferred Stock:

         On March 30, 2005, we provided notice of our intent to redeem our
Redeemable Cumulative Preferred 8% Series of preferred stock. The total amount
outstanding as of the May 1, 2005 redemption date was $1.69 million.

Note 6.  Retained Earnings:

         Restrictions exist under various loan agreements regarding the amount
of cash dividends or other distributions that we may pay on our common stock. As
of March 31, 2005 and December 31, 2004, these restrictions did not affect the
amount that may be distributed from SJG's retained earnings.

         SJG is restricted as to the amount of cash dividends or other
distributions that may be paid on its common stock by an order issued by the New
Jersey Board of Public Utilities in July 2004, that granted SJG an increase in
base rates. Per the order, SJG is required to maintain Total Common Equity of no
less than $289.0 million. SJG's Total Common Equity balance was $323.5 million
at March 31, 2005.

         We received an equity infusion of $15.0 million from SJI during 2004.
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.

Note 7.  Pensions & Other Postretirement Benefit Plans:

         We participate in the defined benefit pension plans and other
postretirement benefit plans of SJI. The pension plans provide annuity payments
to the majority of full-time, regular employees upon retirement. Newly hired
employees do not qualify for participation in the defined benefit pension plans.
New hires are eligible to receive an enhanced version of the company's defined
contribution plan (401K). The other postretirement benefit plans provide health
care and life insurance benefits to some retirees.

         Net periodic benefit cost for the three months ended March 31, 2005 and
2004 related to the pension and other postretirement benefit plans consisted of
the following components (in thousands):
                                                         Other Postretirement
                                  Pension Benefits              Benefits
                                2005          2004         2005           2004
                            ----------------------------------------------------
Service Cost                $     880     $     672     $     347     $     341
Interest Cost                   1,721         1,274           597           603
Expected Return on
   Plan Assets                 (2,416)       (1,580)         (347)         (351)
Amortization of
   Transition Obligation            -             -             -           189
Amortization of Loss
   and Other                      620           388            33            37
                            ----------------------------------------------------
                                     SJG-16

Net Periodic
   Benefit Cost             $     805     $     754     $     630     $     819
                            ====================================================

         The table above includes benefit costs capitalized by SJG related to
its construction program. Capitalized pension benefit costs totaled $386,300 and
$275,500 during the three months ended March 31, 2005 and 2004, respectively.
Capitalized other postretirement benefit costs totaled $247,900 and $258,300
during the three months ended March 31, 2005 and 2004, respectively.

         As of November 2004, we implemented caps on the amount of the premium
we pay for all employees eligible for postretirement health care. Employees are
responsible for those costs which exceed the premium caps. As a result of these
caps, we were able to reduce our postretirement benefit costs other than
pension.

         Future Benefit Payments - The following benefit payments, which reflect
expected future service, as appropriate, are expected to be paid during the
following years (in thousands):

                                                               Other
                             Pension Benefits         Postretirement Benefits

         2005                   $   3,823                    $  1,461
         2006                       3,987                       1,651
         2007                       4,189                       1,854
         2008                       4,420                       2,036
         2009                       4,694                       2,207
         2010-2014                 29,188                      12,606

         Contributions -  SJG expects to make no contributions to its pension
plan in 2005; however, unfavorable changes in investment performance and the
discount rate during the year may result in a contribution at the end of the
year. SJG also has a regulatory obligation to contribute $3.6 million annually
to its other postretirement benefit plans, less costs incurred directly by the
company.

Note 8.  Commitments and Contingencies:

         Contractual Cash Obligations - The following table summarizes our
contractual cash obligations and their applicable payment due dates as of
March 31, 2005 (in thousands):

<TABLE>
<CAPTION>
                                                            Up to        2 - 3        4 - 5     More than
 Contractual Obligations                      Total       1 Year         Years        Years       5 Years
 -----------------------                 ----------------------------------------------------------------
<S>                                      <C>          <C>          <C>          <C>           <C>

Long-Term Debt                            $   276,781  $     2,273  $     4,543  $         -   $   269,965
Interest on Long-Term Debt                    246,259       16,854       33,152       32,777       163,476
Operating Leases                                  573          267          248           42            16
Construction Obligations                        4,516        4,516            -            -             -
Commodity Supply
       Purchase Obligations                   200,888       33,419       79,674       63,428        24,367
New Jersey Clean Energy
       Program Funding (Note 2)                22,971        4,573       12,649        5,749             -
Other Purchase Obligations                      3,213        3,150           63            -             -
                                          ----------------------------------------------------------------
                                     SJG-17

Total Contractual Cash Obligations        $   755,201  $    65,052  $   130,329  $   101,996   $   457,824
                                          ================================================================
</TABLE>

         Expected environmental remediation costs are not included in the table
above due to the subjective nature of such costs and time of anticipated
payments. SJG's regulatory obligation to contribute $3.6 million annually to its
postretirement benefit plans other than pensions, less costs incurred directly
by the company, is not included as the duration is indefinite. As a result, the
total obligation cannot be calculated. As discussed in Note 7 - Contributions,
SJG does not currently expect to make a pension contribution in 2005.
Furthermore, future pension contributions cannot be determined at this time.

         Construction and Environmental Commitments - Our estimated net cost of
construction and environmental remediation programs for 2005 totals $67.1
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 March 2006. The transportation and storage service agreements between
us and our interstate pipeline suppliers were made under Federal Energy
Regulatory Commission approved tariffs. Our cumulative obligation for demand
charges and reservation fees paid to suppliers for these services is
approximately $4.1 million per month, recovered on a current basis through the
BGSS.

         Pending Litigation - We are subject to claims arising from the ordinary
course of business and other legal proceedings. We accrue liabilities related to
these claims when we can determine the amount or range of amounts of likely
settlement costs for those claims. Management does not currently anticipate the
disposition of any known claims to have a material adverse effect on SJG's
financial position, results of operations or liquidity.

         Environmental Remediation Costs - We incurred and recorded costs for
environmental cleanup of 12 sites where the Company or its predecessors operated
manufactured gas plants (MGP). We stopped manufacturing gas in the 1950s.

         We successfully entered into settlements with all of our 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 until 2024 at 10 sites
and until 2029 at one site. The future cost estimates discussed hereafter are
not reduced by projected insurance recoveries from the Cleanup Cost Cap
Insurance Policy.

         Since the early 1980s, we accrued environmental remediation costs of
$145.2 million, of which $92.8 million has been spent as of March 31, 2005. With
the assistance of a consulting firm, we estimate that undiscounted future costs
to clean up our sites will range from $51.9 million to $191.4 million. We

                                     SJG-18

recorded the lower end of this range as a liability because a single reliable
estimation point is not feasible due to the amount of uncertainty involved in
the nature of projected remediation efforts and the long period over which
remediation efforts will continue. It is reflected on the March 31, 2005 balance
sheet under the captions Current Liabilities and Deferred Credits and Other
Non-Current Liabilities. 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.

         We have two regulatory assets associated with environmental costs. The
first asset, Environmental Remediation Cost: Expended - Net, represents what was
actually spent to clean up former gas manufacturing plant sites. These costs
meet the requirements of FASB Statement No. 71. The BPU allows us to recover
expenditures through the RAC.

         The other asset, 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
regulatory asset under Statement No. 71 with the corresponding amount reflected
on the balance sheets under the captions Current Liabilities and Deferred
Credits and Other Non-Current Liabilities. The BPU's intent, evidenced by
current practice, is to allow us to recover the deferred costs after they are
spent over 7-year periods.

         As of March 31, 2005, we reflected the unamortized remediation costs of
$5.6 million on the balance sheet under the caption Regulatory Assets. Since
implementing the RAC in 1992, we have recovered $44.5 million through rates.

                                     SJG-19

            Item 2. Management's Discussion and Analysis of Financial
                 Condition and Results of Operations (Unaudited)


         Overview

         South Jersey Gas Company (SJG) is a regulated natural gas utility. SJG
distributed natural gas in the seven southernmost counties of New Jersey to
316,094 customers at March 31, 2005, compared with 307,044 customers at March
31, 2004. SJG also:

        o     sells natural gas and pipeline transportation capacity (off-system
              sales) on a wholesale basis to various customers on the interstate
              pipeline system;

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

        o     serviced appliances via the sale of appliance service programs, as
              well as on a time and materials basis through September 1, 2004,
              at which time the business line was transferred out of SJG and
              into an affiliate by common ownership, South Jersey Energy Service
              Plus, LLC.

Forward-Looking Statement and Risk Factors

         Certain statements contained in this Quarterly Report on Form 10-Q may
qualify as "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
All statements other than statements of historical fact included in this Report
should be considered forward-looking statements made in good faith by the
Company and are intended to qualify for the safe harbor from liability
established by the Private Securities Litigation Reform Act of 1995. When used
in this Report, or any other of the Company's documents or oral presentations,
words such as "anticipate", "believe", "expect", "estimate", "forecast", "goal",
"intend", "objective", "plan", "project", "seek", "strategy" and similar
expressions are intended to identify forward-looking statements. Such
forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ materially from those expressed or implied in the
statements. These risks and uncertainties include, but are 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; changes in the availability of natural gas; regulatory and court
decisions; competition; the availability and cost of capital; 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.

         A discussion of these and other risks and uncertainties may be found in
the Company's Form 10-K for the year ended December 31, 2004. These cautionary
statements should not be construed by you to be exhaustive and they are made
only as of the date of this Quarterly Report on Form 10-Q or, in any document
incorporated by reference, the date of such document. While the Company believes
these forward-looking statements to be reasonable, there can be no assurance
that they will approximate actual experience or that the expectations derived
from them will be realized. Further, the Company undertakes no obligation to
update or revise any of its forward-looking statements whether as a result of
new information, future events or otherwise.

Critical Accounting Policies

         Estimates and Assumptions - As described in the notes to our 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. SJG's Form 10-K for the year ended
December 31, 2004 describes five critical accounting policies within the section
Management's Discussion and Analysis that require a significant amount of
judgment and estimation. These relate to regulatory accounting, energy
derivatives, environmental remediation costs, pension and other postretirement
employee benefit costs, and revenue recognition.

         New Accounting Pronouncements - See detailed discussions concerning New
Accounting Pronouncements and their impact on SJG in Note 1 to the condensed
financial statements.

                                     SJG-20

         Temperature Adjustment Clause New Accounting Pronouncements - A
BPU-approved Temperature Adjustment Clause (TAC) decreased SJG's net income by
$0.9 million and $0.7 million for the three months ended March 31, 2005 and
2004, respectively, due to lower than normal temperatures. The clause is
designed to mitigate the effect of variations in heating season temperatures
from historical norms. While we record the revenue and income impacts of TAC
adjustments as incurred, cash inflows or outflows directly attributable to TAC
adjustments generally do not begin until the next clause year. Each TAC year
begins October 1.

         Recent Regulatory Actions - See detailed discussions concerning Recent
Regulatory Actions in Note 2 to the condensed financial statements.

         Environmental Remediation - We incurred and recorded costs for
environmental clean up of 12 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 until 2024 at 10 sites and until 2029 at one site.

         We believe that all costs incurred net of insurance recoveries relating
to the MGP sites will be recovered through rates under SJG's Remediation
Adjustment Clause (RAC). The RAC currently permits us to recover incurred costs
in equal installments over 7-year periods with carrying costs. As of March 31,
2005, we have $5.6 million of remediation costs not yet recovered through rates.

         Other matters are discussed in Note 8 to the condensed financial
statements included as part of this report.

Results of Operations

         Operating Revenues - Revenues increased $12.3 million during the first
quarter of 2005 compared with the same period last year primarily due to two
factors. First, SJG added 9,050 customers during the 12-month period ended March
31, 2005, which represents a 2.9% increase in total customers. Second, 20% of
the residential customers purchasing their gas from a source other than SJG
migrated back to utility sales service. The number of residential transportation
customers decreased from 106,620 at March 31, 2004, to 85,207 at March 31, 2005
as third party marketers are finding it difficult to compete with the utility
under current market conditions. This migration of customers from transportation
service back to sales service has a direct impact on utility revenues as charges
for gas costs are included in sales revenues and not in transportation revenues.
However, since gas costs are passed on directly to customers without any profit
margin added by SJG, the change in customer utilization of gas marketers did not
impact SJG's profitability.

                                     SJG-21

         Partially offsetting these factors were lower customer utilization
rates combined with 1.5% warmer weather in the first quarter of 2005 compared
with the same period in 2004, a $6.4 million decrease in Off-System Sales (OSS)
revenues, and the impact of the July 2004 rate case settlement on revenues. The
decrease in the OSS revenues was the direct impact of lower sales volume. This
was partially offset by an increase in capacity release activity during the
period. Capacity release allows SJG to sell any unused capacity for a profit,
but the revenues from such activities are much lower than those from OSS since
no commodity is included in the sale. Finally, SJG's revenues were lower due to
the impact of the July 2004 settlement of several matters before the BPU. This
settlement increased SJG's base rates and at the same time reduced rates in
several clauses that were no longer needed to recover costs. SJG was either no
longer incurring or had already recovered the specific costs that these clauses
were designed to recover. Since revenues raised under these clauses were for
cost recovery only and had no profit margin built in, their elimination has no
impact on SJG's net income.

         The base rate increase discussed above and in greater detail in Note 2
to the condensed financial statements, had the impact of increasing utility
margins (revenues less gas costs and associated energy taxes) by approximately
$3.9 million during the first quarter of 2005 compared with the same period last
year.

         As a result of SJG's Temperature Adjustment Clause (TAC), revenues from
utility ratepayers are closely tied to 20-year normal temperatures calculated
under the clause and not actual temperatures. While the clause significantly
reduces fluctuations in revenues related to temperature, as a general rule,
revenues continue to be positively impacted by colder weather and negatively
impacted by warmer weather. Weather during the first three months of 2005 was
1.5% warmer than the same period in 2004, and 5.9% colder than the 20-year TAC
average.


         Total gas throughput increased 10.9% to 47.0 billion cubic feet
(Bcf) from March 31, 2004 to March 31, 2005. The higher throughput was primarily
due to a significant increase in capacity release activity during the first
quarter of 2005. While revenues from such activities are not as high as those
including the actual sale of commodity, contributions to margins are still
comparable.

         The following is a comparison of operating revenue and throughput for
the three months ended March 31:

                                                    2005             2004
                                                   ------           ------
Operating Revenues (thousands):
Firm
     Residential                               $      97,171     $      81,141
     Commercial                                       35,204            23,966
     Industrial                                        2,055             2,317
     Cogeneration & Electric Generation                  849               419
     Firm Transportation                              24,757            32,869
                                               -------------     -------------

         Total Firm Operating Revenues               160,036           140,712
                                               -------------     -------------

Interruptible                                            415               288
Interruptible Transportation                             599               295
Off-System                                            48,905            55,352
Capacity Release & Storage                             4,192             2,727
Appliance Service                                          -             2,136
Other                                                    390               750
                                               -------------     -------------

                                     SJG-22

         Total Operating Revenues                 $  214,537     $     202,260
                                               =============     =============

Throughput (MMcf):
Firm
     Residential                                       8,304             7,488
     Commercial                                        3,353             2,431
     Industrial                                          100                92
     Cogeneration & Electric Generation                   65                25
     Firm Transportation                              10,233            12,212
                                               -------------     -------------

         Total Firm Throughput                        22,055            22,248
                                               -------------     -------------

Interruptible                                             38                34
Interruptible Transportation                             855               576
Off-System                                             6,663             7,833
Capacity Release & Storage                            17,354            11,662
                                               -------------     -------------

         Total Throughput                             46,965            42,353
                                               =============     =============

         Cost of Sales - SJG's cost of sales increased $7.2 million during the
first quarter of 2005 compared with the same period in 2004 due principally to
the increase in SJG's total customer base and the impact of the migration of
customers from transportation service back to sales service as discussed in
detail under Operating Revenues. This increase was partially offset by lower
Off-System Sales volume. While changes in gas costs associated with OSS directly
impact cost of sales, changes in the unit cost of gas sold to utility ratepayers
do not always directly affect cost of sales. We defer fluctuations in gas costs
to ratepayers not reflected in current rates to future periods under a
BPU-approved Basic Gas Supply Service (BGSS) price structure.

         Gas supply sources include contract and open-market purchases. SJG
secures and maintains its own gas supplies to serve its sales customers. We do
not anticipate any difficulty renewing or replacing expiring contracts under
substantially similar terms and conditions.

         Operating Expenses - A summary of principal changes in other operating
expenses for the three months ended March 31 (in thousands):
                                              2005 vs. 2004

         Operations                             $   1,503
         Maintenance                                  148
         Depreciation                                (805)
         Energy and Other Taxes                       165

                                     SJG-23

         Operations expense increased $1.5 million during the first quarter of
2005 compared to the same period in 2004 primarily as a result of higher bad
debt expense which increased by $0.9 million. During the first quarter of 2005,
SJG increased its reserve for uncollectible accounts by $0.7 million to address
the increase in the accounts receivable balances at March 31, 2005 compared with
March 31, 2004. During the first quarter of 2004, the BPU approved a BGSS refund
of $20.8 million which improved our accounts receivable aging significantly,
resulting in a reduction in SJG's reserve of approximately $0.1 million in that
period. SJG provided customers with an additional BGSS refund in March 2005 in
the amount of $11.3 million. While this refund also improved the accounts
receivable aging at March 31, 2005, it was significantly less than the prior
year refund. In addition, the month of March 2005 was 24% colder than March
2004. As collection on March sales is recovered on a cycle basis, a large
portion is not recovered until April; therefore, the increase in billed sales in
March 2005 directly impacts the amount outstanding as of the end of the quarter.

         The remaining increase in operations expense primarily resulted from
higher administrative and general expenses (A&G). A&G increased as a result of
higher employee benefit costs; increased regulatory expenses resulting from
amortizations approved in the July 2004 rate case settlement; and a 2004
reduction of SJG's reserve for outstanding claims in the amount of $0.3 million
following a period of favorable claims settlements. It should be noted that the
amortizations of approximately $0.1 million resulting from the rate case
settlement were included in rate recovery from its customers and had no impact
on net income.

         Depreciation decreased for the three months ended March 31, 2005
compared with the three months ended March 31, 2004 due mainly to lower
depreciation rates approved by the BPU as part of SJG's recent rate case
settlement. SJG's composite depreciation rate was reduced from 2.9% to 2.4%
effective July 2004.

         Other Income and Expense - Other income and expense was higher during
the first quarter of 2004 compared with 2005 due to a pre-tax gain of $686,000
on SJG's post-retirement healthcare plan trust. The movement of plan assets to a
new investment manager triggered the recognition of gains on investments in
2004.

         Interest Charges - Interest charges increased $120,000 in the first
quarter of 2005 compared with the same period last year primarily due to higher
levels of fixed rate, long-term debt outstanding, partially offset by lower
levels of short-term debt outstanding.

         Net Income - Net income increased $1.9 million, or 7.2%, to $22.6
million in the first quarter of 2005 as compared with $20.7 million in the same
period of 2004. Reasons for the increase in net income in 2005 are discussed in
detail above.

         Liquidity and Capital Resources - Liquidity needs at SJG are driven by
factors that include natural gas commodity prices; the impact of weather on
customer bills; lags in fully collecting gas costs from customers under the
Basic Gas Supply Service charge; the timing of construction and remediation
expenditures and related permanent financings; mandated tax payment dates; and
both discretionary and required repayments of long-term debt.

                                     SJG-24

         We first seek to meet liquidity needs with net cash provided by
operating activities. Net cash provided by operating activities totaled $76.7
million and $84.0 million for the three months ended March 31, 2005 and 2004,
respectively. Net cash provided by operating activities varies from year to year
primarily due to the impact of weather on customer demand and related gas
purchases, inventory utilization and gas cost recoveries.

         In addition to annual fluctuations, SJG's operations are also subject
to seasonal fluctuations. Significant changes in the balances of current assets
and current liabilities can occur from the end of one reporting period to
another as evidenced by the changes on the condensed balance sheets. Cash
inflows generally increase during the first quarter as a result of collections
on winter season accounts receivable and the increased use of gas in storage to
serve customers. Much of this cash is used to pay down short-term notes payable
to banks and cover dividend requirements. SJG also ends each calendar year in a
prepaid tax position due to mandatory prepayment requirements on all state
taxes. Such prepayments are credited against amounts otherwise due during the
first quarter; thus, further improving first quarter liquidity.

         Sales during the first quarter historically exceed any other quarter
during the year. As a result, accounts receivable is generally at its highest as
of March 31st as compared to any other quarter end. Unlike billed sales,
customer receivables associated with unbilled revenue will track temperatures
during the last month of the reporting period. As such, unbilled revenues will
generally be highest at the end of the fourth quarter as weather is colder in
the month of December compared with March, June and September.

          We use short-term borrowings under lines of credit from commercial
banks to supplement cash from operations, to support working capital needs and
to finance capital expenditures as incurred. From time to time, we refinance
short-term debt incurred to finance capital expenditures with long-term
debt. Bank credit available to SJG totaled $176.0 million at March 31, 2005, of
which $10.0 million was used. Those bank facilities consist of a $100.0 million,
3-year revolving credit facility that expires in August 2006 and $76.0 million
of uncommitted bank lines. The revolving credit was established in August 2003
with a syndicate of banks to enhance the liquidity position of SJG. The
revolving credit facility contains certain financial covenants measured on a
quarterly basis. SJG was in compliance with these covenants as of March 31,
2005. Based upon the existing credit facilities and a regular dialogue with our
banks, we believe that there will continue to be sufficient credit available to
meet our future liquidity needs.

         SJG supplements its operating cash flow and credit lines with both debt
and capital contributions from its parent, SJI. Over the years, SJG has used
long-term debt, primarily in the form of First Mortgage Bonds and Medium Term
Notes (MTN), secured by the same pool of utility assets, to finance its

                                     SJG-25

long-term borrowing needs. These needs are primarily capital expenditures for
property, plant and equipment. Under a $150.0 million MTN program established in
December 2002, SJG issued $110.0 million of long-term debt in 2003. SJG issued
the remaining $40.0 million of notes under the MTN program in August 2004 at an
average interest rate of 5.66% and an average maturity of 17 years. We used the
proceeds of all of the issues to refinance short-term debt outstanding to
commercial banks and for the redemption of certain high interest bearing
securities. In addition, SJG redeemed $15.0 million of its 7.7% MTN in July
2004. We anticipate establishing a new MTN program by mid-2005.

         On March 30, 2005, we provided notice of our intent to redeem our
Redeemable Cumulative Preferred 8% Series of preferred stock. The total amount
outstanding as of the May 1, 2005 redemption date was $1.69 million.

          SJI contributed $15.0 million of capital to SJG during 2004.
Contributions of capital are credited to Other Paid-in Capital and Premium on
Common Stock.

          SJG is restricted as to the amount of cash dividends or other
distributions that may be paid on its common stock by an order issued by the New
Jersey Board of Public Utilities in July 2004, that granted SJG an increase in
base rates. Per the order, SJG is required to maintain Total Common Equity of no
less than $289.0 million. SJG's Total Common Equity balance was $323.5 million
at March 31, 2005.

         SJG's capital structure, excluding preferred stock which is immaterial,
was as follows:

                                   March 31,               December 31,
                                     2005                      2004
                                ---------------------------------------

Common Equity                        53%                       48%
Long-Term Debt                       45%                       44%
Short-Term Debt                       2%                        8%
                                  ----------------------------------

         Total                      100%                      100%
                                  ==================================

         SJG's long-term, senior secured debt is rated "A" and "Baa1" by
Standard & Poor's and Moody's Investor Services, respectively. These ratings
have not changed in the past five years.

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 the three months ended March 31, 2005 amounted to $12.5
million. We estimate the net costs for 2005, 2006 and 2007 at approximately
$67.1 million, $42.1 million and $43.8 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 March 31, 2005 average $43.9 million annually and total
$200.9 million over the contracts' lives. Approximately 24% of the financial
commitment under these contracts expires during the next five years. We expect
to renew each of these contracts under renewal provisions as provided in each
contract. SJG recovers all prudently incurred fees through rates via the Basic
Gas Supply Service clause.

                                     SJG-26

         Off-Balance Sheet Arrangements - SJG has no off-balance sheet financing
arrangements.

         Pending Litigation - SJG is subject to claims arising in the ordinary
course of business and other legal proceedings. We accrue liabilities related to
claims when we can determine the amount or range of amounts of likely settlement
costs for those claims. Management does not currently anticipate the disposition
of any known claims to have a material adverse effect on SJG's financial
position, results of operations or liquidity.


             Item 3. Quantitative and Qualitative Disclosures About
                     Market Risks of the Company (Unaudited)

Market Risks

         Commodity Market Risks - SJG primarily transacts commodities on a
physical basis. As part of its gas purchasing strategy, SJG occasionally uses
financial derivative contracts to hedge against forward price risk. These
contracts are recoverable through SJG's BGSS, subject to BPU approval. The fair
value and maturity of these energy trading contracts determined under the
mark-to-market method as of March 31, 2005 is as follows (in thousands):
<TABLE>
<CAPTION>

Assets                                                  Maturity     Maturity      Beyond
      Source of Fair Value                              < 1 Year    1 - 3 Years    3 Years      Total
                                                        --------    -----------    -------      -----
<S>                                                  <C>          <C>           <C>          <C>


Prices Actively Quoted                  NYMEX         $    4,940   $        -    $       -    $    4,940
Other External Sources                  Basis                  -            -            -             -
                                                      --------------------------------------------------
Total                                                 $    4,940   $        -    $       -    $    4,490
                                                      ==================================================

Liabilities                                             Maturity     Maturity      Beyond
      Source of Fair Value                              < 1 Year    1 - 3 Years    3 Years      Total
                                                        --------    -----------    -------      -----

Prices Actively Quoted                  NYMEX         $        9   $        -    $       -    $        9
Other External Sources                  Basis                  -            -            -             -
                                                      --------------------------------------------------
Total                                                 $        9   $        -    $       -    $        9
                                                      ==================================================
</TABLE>

      NYMEX (New York Mercantile Exchange) is the primary national commodities
exchange on which natural gas is traded. Basis represents the price of a NYMEX
natural gas futures contract adjusted for the difference in price for delivering
the gas at another location.

      A reconciliation of SJG's estimated net fair value of energy-related
derivatives, including energy trading and hedging contracts, follows (in
thousands):

     Net Derivatives -- Energy Related Liability, January 1, 2005     $    (528)
     Contracts Settled During Quarter Ended March 31, 2005                  243
     Other Changes in Fair Value from Continuing
       and New Contracts, Net                                             5,216
                                                                       ---------
     Net Derivatives -- Energy Related Asset, March 31, 2005          $   4,931
                                                                      ==========
                                     SJG-27

         Interest Rate Risk - Our exposure to interest rate risk relates
primarily to short-term, variable rate borrowings. Our short-term, variable rate
debt outstanding at March 31, 2005, was $10.0 million and averaged $32.8 million
during the first quarter of 2005. A hypothetical 100 basis point (1%) increase
in interest rates on our average variable rate debt outstanding would result in
a $194,000 increase in our annual interest expense, net of tax. We chose the 100
basis point increase for illustrative purposes, as it provides a simple basis
for calculating the impact of interest rate changes under a variety of interest
rate scenarios. Over the past five years, the change in basis points (b.p.) of
our average monthly interest rates from the beginning to end of each year was as
follows: 2004 - 115 b.p. increase; 2003 - 31 b.p. decrease; 2002 - 74 b.p.
decrease; 2001 - 383 b.p. decrease; and 2000 - 83 b.p. increase. For December
2004, our average interest rate on variable rate debt was 2.89%.

         SJG primarily issues long-term debt at fixed rates and, consequently,
interest expense on existing debt is not significantly impacted by changes in
market interest rates. SJG redeemed, at par, $7.5 million of 8.6% debenture
notes in February 2005. In November 2004, SJG entered into a derivative
transaction known as a "Treasury Lock" to hedge against the impact of possible
interest rate increases on a $10.0 million, 30-year debt issuance planned for
July 2005.

         Ratio of Earnings to Fixed Charges - The company's ratio of earnings to
fixed charges for each of the periods indicated is as follows:

   Twelve Months
       Ended
     March 31,                          Year Ended December 31,
     ---------         ---------------------------------------------------------
       2005            2004        2003         2002         2001         2000
       ----            ----        ----         ----         ----         ----
       4.0x            3.9x        3.3x         2.9x         2.6x         2.6x

         The ratio of earnings to fixed charges represents, on a pre-tax basis,
the number of times earnings covers 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.


                         Item 4. Controls and Procedures

         SJG management, including the Chief Executive Officer and Chief
Financial Officer, has conducted an evaluation of the effectiveness of
disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based
on that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the disclosure controls and procedures are effective in ensuring
that all material information required to be filed in this quarterly report has
been made known to them in a timely fashion.

         No change in SJG's internal control over financial reporting occurred
during SJG's first fiscal quarter that has materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial
reporting.

                                     SJG-28

                          PART II -- OTHER INFORMATION

                            Item l. Legal Proceedings

         Information required by this Item is incorporated by reference to Part
I, Item 1, Note 8, beginning on page 17.

                                Item 6. Exhibits

(a)   Exhibits

      Exhibit No.                                 Description


      31.1      Certification of Chief Executive Officer Pursuant to Rule
                13a-14(a) of the Exchange Act.

      31.2      Certification of Chief Financial Officer Pursuant to Rule
                13a-14(a) of the Exchange Act.

      32.1      Certification of Chief Executive Officer Pursuant to Rule
                13a-14(b) of the Exchange Act as adopted pursuant to Section 906
                of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of
                Section 1350, Chapter 63 of Title 18, United States Code).

      32.2      Certification of Chief Financial Officer Pursuant to Rule
                13a-14(b) of the Exchange Act as adopted pursuant to Section 906
                of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of
                Section 1350, Chapter 63 of Title 18, United States Code).


                                     SJG-29


                                   SIGNATURES


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

                            SOUTH JERSEY GAS COMPANY
                                  (Registrant)



  Dated:  May 10, 2005    By:  /s/ Edward J. Graham
                              ----------------------------------------
                              Edward J. Graham
                              Chairman, President & Chief Executive Officer



  Dated:  May 10, 2005    By: /s/ David A. Kindlick
                              ----------------------------------------
                              David A. Kindlick
                              Executive Vice President & Chief Financial Officer


                                     SJG-30
{"company-data": {"conformed-name": "SOUTH JERSEY GAS CO/NEW", "cik": "0001035216", "assigned-sic": "4923", "irs-number": "210398330", "state-of-incorporation": "NJ", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "10-Q", "act": "34", "file-number": "000-22211", "film-number": "05816770"}, "business-address": {"street1": "NUMBER ONE SOUTH JERSEY PLAZA", "street2": "ROUTE 54", "city": "FOLSOM", "state": "NJ", "zip": "08037", "phone": "6095619000"}, "mail-address": {"street1": "NUMBER ONE SOUTH JERSEY PLAZA", "street2": "ROUTE 54", "city": "FOLSOM", "state": "NJ", "zip": "08037"}}
================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 10-Q

(Mark one)
[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934

         For the quarterly period ended March 31, 2005

                                       OR

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

         For the transition period from ________________ to ________________

                        Commission File Number 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, NJ 08037
          (Address of principal executive offices, including zip code)

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).   Yes [ ]  No [X]

As of May 9, 2005 there were 2,339,139 shares of the registrant's common stock
outstanding. All common shares are owned by South Jersey Industries, Inc., the
parent company of South Jersey Gas Company.

================================================================================
                                     SJG-1

                         PART I -- FINANCIAL INFORMATION

             Item 1. Financial Statements -- See Pages 3 through 19

                                     SJG-2

                            SOUTH JERSEY GAS COMPANY

                     CONDENSED STATEMENTS OF INCOME (UNAUDITED)
                                 (In Thousands)

                                                 Three Months Ended
                                                     March 31,
                                         -----------------------------------
                                                 2005               2004
                                         -----------------------------------

Operating Revenues                             $ 214,537          $ 202,260
                                         ----------------    ---------------

Operating Expenses:
   Cost of Sales                                 144,345            137,096
   Operations                                     15,289             13,786
   Maintenance                                     1,493              1,345
   Depreciation                                    5,358              6,163
   Energy and Other Taxes                          4,893              4,728
                                         ----------------    ---------------

      Total Operating Expenses                   171,378            163,118
                                         ----------------    ---------------

Operating Income                                  43,159             39,142

Other Income and Expense                             (30)               567

Interest Charges                                   4,440              4,320
                                         ----------------    ---------------

Income Before Income Taxes                        38,689             35,389

Income Taxes                                      16,125             14,683
                                         ----------------    ---------------

Net Income                                      $ 22,564           $ 20,706
                                         ================    ===============

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

                                     SJG-3

                        SOUTH JERSEY GAS COMPANY

            CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
                           (In Thousands)

                                                      Three Months Ended
                                                           March 31,
                                               --------------------------------
                                                  2005                2004
                                               ------------        ------------

Net Income                                        $ 22,564            $ 20,706
                                               ------------        ------------

Other Comprehensive Loss, Net of Tax:*

  Change in Fair Value of Investments                  (44)               (275)
  Change in Fair Value of Derivatives                 (103)                  -
                                               ------------        ------------

     Other Comprehensive Loss - Net of Tax*           (147)               (275)
                                               ------------        ------------

Comprehensive Income                              $ 22,417            $ 20,431
                                               ============        ============

* Determined using a combined statutory tax rate of 40.85%.

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

                                     SJG-4

                            SOUTH JERSEY GAS COMPANY

                 CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
                                 (In Thousands)
Three Months Ended
                                                                          March 31,
                                                                 -----------------------------
                                                                     2005             2004
                                                                 ------------     ------------
Cash Flows from Operating Activities:
  Net Income                                                        $ 22,564          $ 20,706
  Adjustments to Reconcile Net Income to Cash Flows
   Provided by Operating Activities:
    Depreciation and Amortization                                      6,069             6,783
    Provision for Losses on Accounts Receivable                        1,212               335
    Revenues and Fuel Costs Deferred - Net                               442            10,837
    Deferred and Non-Current Income Taxes and Credits - Net            4,197             3,906
    Environmental Remediation Costs - Net                               (363)             (215)
    Gas Plant Cost of Removal                                           (165)             (178)
    Changes in:
      Accounts Receivable                                            (40,223)          (17,172)
      Inventories                                                     58,888            43,765
      Prepayments and Other Current Assets                              (388)              375
      Prepaid and Accrued Taxes - Net                                 20,984            16,562
      Accounts Payable and Other Accrued Liabilities                   1,294            (4,184)
      Other Assets                                                     3,371             3,465
      Other Liabilities                                               (1,132)             (956)
                                                                 ------------     -------------

        Net Cash Provided by Operating Activities                     76,750            84,029
                                                                 ------------     -------------

Cash Flows from Investing Activities:
  Capital Expenditures                                               (12,102)          (11,060)
                                                                 ------------     -------------

        Net Cash Used in Investing Activities                        (12,102)          (11,060)
                                                                 ------------     -------------

Cash Flows from Financing Activities:
  Net Repayments of Lines of Credit                                  (43,000)          (67,200)
  Principal Repayments of Long-Term Debt                             (10,500)           (4,500)
  Payments for Issuance of Long-Term Debt                                (51)              (43)
  Premium for Early Retirement of Debt                                  (184)                -
  Additional Investment by Shareholder                                     -            15,000
                                                                 ------------     -------------

        Net Cash Used in Financing Activities                        (53,735)          (56,743)
                                                                 ------------     -------------

Net Increase in Cash and Cash Equivalents                             10,913            16,226
Cash and Cash Equivalents at Beginning of Period                       3,310             3,210
                                                                 ------------     -------------

Cash and Cash Equivalents at End of Period                          $ 14,223          $ 19,436
                                                                 ============     =============
The accompanying footnotes are an integral part of the financial statements.
SJG-5

                            SOUTH JERSEY GAS COMPANY

                            CONDENSED BALANCE SHEETS
                                 (In Thousands)
                                                 (Unaudited)
                                                  March 31       December 31,
                                                --------------  ---------------
                                                    2005             2004
                                                --------------  ---------------

Assets

Property, Plant and Equipment:
   Utility Plant, at original cost                  $ 967,469        $ 957,287
     Accumulated Depreciation                        (227,870)        (224,506)
                                                --------------  ---------------

          Property, Plant and Equipment - Net         739,599          732,781
                                                --------------  ---------------
Investments:
   Available-for-Sale Securities                        5,222            5,296
                                                --------------  ---------------

Current Assets:
   Cash and Cash Equivalents                           14,223            3,310
   Accounts Receivable                                 87,505           39,916
   Unbilled Revenues                                   26,947           34,861
   Provision for Uncollectibles                        (3,535)          (2,871)
   Natural Gas in Storage, average cost                 6,790           65,691
   Materials and Supplies, average cost                 4,566            4,553
   Prepaid Taxes                                          217            6,104
   Derivatives - Energy Related Assets                  4,940            1,273
   Other Prepayments and Current Assets                 2,465            2,078
                                                --------------  ---------------

          Total Current Assets                        144,118          154,915
                                                --------------  ---------------

Regulatory Assets:
   Gross Receipts and Franchise Taxes                     813              924
   Environmental Remediation Costs:
     Expended - Net                                     5,644            5,281
     Liability for Future Expenditures                 52,473           51,046
   Income Taxes - Flowthrough Depreciation              6,397            6,641
   Deferred Postretirement Benefit Costs                2,929            3,024
   Societal Benefit Costs                               2,084            4,562
   Other Regulatory Assets                              1,450            1,157
                                                --------------  ---------------

          Total Regulatory Assets                      71,790           72,635
                                                --------------  ---------------

Other Noncurrent Assets:
   Unamortized Debt Discount and Expense                8,034            7,957
   Prepaid Pension                                     24,006           24,812
   Accounts Receivable - Merchandise                    6,707            7,101
   Other                                                2,279            2,089
                                                --------------  ---------------

          Total Other Noncurrent Assets                41,026           41,959
                                                --------------  ---------------

               Total Assets                       $ 1,001,755      $ 1,007,586
                                                ==============  ===============

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

                                     SJG-6

                            SOUTH JERSEY GAS COMPANY

                            CONDENSED BALANCE SHEETS
                                 (In Thousands)

                                                 (Unaudited)
                                                  March 31,       December 31,
                                                --------------  ---------------
                                                    2005             2004
                                                --------------  ---------------

Capitalization and Liabilities

Common Equity:
   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                                   170,317          170,317
   Accumulated Other Comprehensive Loss                  (259)            (112)
   Retained Earnings                                  147,634          130,695
                                                --------------  ---------------

          Total Common Equity                         323,540          306,748
                                                --------------  ---------------

Preferred Stock:
   Redeemable Cumulative Preferred 8% Series -
    Par Value $100 per share; Authorized
    41,966 shares; Outstanding 16,904 shares            1,690            1,690
                                                --------------  ---------------

Long-Term Debt                                        274,508          282,008
                                                --------------  ---------------

          Total Capitalization                        599,738          590,446
                                                --------------  ---------------

Current Liabilities:
   Notes Payable                                       10,000           53,000
   Current Maturities of Long-Term Debt                 2,273            5,273
   Accounts Payable                                    59,766           59,026
   Derivatives - Energy Related Liabilities                 9            1,800
   Derivatives - Other                                    518              344
   Deferred Income Taxes - Net                          4,494            2,627
   Customer Deposits                                    9,128            8,846
   Environmental Remediation Costs                     16,329           13,531
   Taxes Accrued                                       16,325            1,228
   Dividends Declared                                   5,659                -
   Interest Accrued and
    Other Current Liabilities                          12,624           12,386
                                                --------------  ---------------
          Total Current Liabilities                   137,125          158,061
                                                --------------  ---------------
Deferred Credits and
 Other Noncurrent Liabilities:
   Deferred Income Taxes - Net                        140,318          138,208
   Environmental Remediation Costs                     36,144           37,515
   Regulatory Liabilities                              70,259           63,836
   Pension and Other Postretirement Benefits           10,811           11,039
   Investment Tax Credits                               3,046            3,129
   Other                                                4,314            5,352
                                                --------------  ---------------

            Total Deferred Credits and
             Other Noncurrent Liabilities             264,892          259,079
                                                --------------  ---------------

               Total Capitalization and
                Liabilities                       $ 1,001,755      $ 1,007,586
                                                ==============  ===============

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

                                     SJG-7

               Notes to Condensed Financial Statements (Unaudited)

Note 1.  Summary of Significant Accounting Policies:

         The Entity - South Jersey Industries, Inc. (SJI) owns all of the
outstanding common stock of South Jersey Gas Company (SJG). In our opinion, the
condensed financial statements reflect all adjustments needed to fairly present
SJG's financial position and operating results at the dates and for the periods
presented. Our business is subject to seasonal fluctuations and, accordingly,
this interim financial information should not be the basis for estimating the
full year's operating results. These financial statements should be read in
conjunction with SJG's 2004 Form 10-K.

         Equity Investments - We classify equity investments purchased as
long-term investments as Available-for-Sale Securities on our balance sheets and
carry them at their fair value with any unrealized gains or losses included in
Accumulated Other Comprehensive Loss.

         Estimates and Assumptions - We prepare our financial statements 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. Significant estimates include amounts related to regulatory
accounting, energy derivatives, environmental remediation costs, pension and
other postretirement benefit costs, and revenue recognition.

         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. SJG follows the accounting for
regulated enterprises prescribed by the Financial Accounting Standards Board
(FASB) Statement No. 71, "Accounting for the Effects of Certain Types of
Regulation." In general, Statement No. 71 allows deferral of certain costs and
creation of certain obligations when it is probable that such items will be
recovered from or refunded to customers in future periods.

         Operating Revenues - We bill customers monthly for gas deliveries. For
retail customers not billed at the end of each month, we record an estimate to
recognize unbilled revenues from the date of the last meter reading to the end
of the month. We deferred and recognized revenues related to our appliance
service contracts seasonally over the full 12-month term of the contract prior
to transferring that business to South Jersey Energy Service Plus (SJESP). SJESP
is an affiliate by common ownership.

         The BPU allows us to recover all prudently incurred gas costs through
the Basic Gas Supply Service (BGSS) clause. We collect these costs on a
forecasted basis upon BPU order. SJG defers over/under-recoveries of gas costs
and includes them in the following year's BGSS or other similar recovery
mechanism. We pay interest on overcollected BGSS balances at the rate of return
on rate base utilized by the BPU to set rates in its last base rate proceeding.

         Our tariff also includes a Temperature Adjustment Clause (TAC), a
Remediation Adjustment Clause (RAC), a New Jersey Clean Energy Program (NJCEP)

                                     SJG-8

and a Universal Service Fund (USF) program. Our TAC reduces the impact of
temperature fluctuations on the Company and our customers. The RAC recovers
environmental remediation costs of former gas manufacturing plants and the NJCEP
recovers costs associated with our energy efficiency and renewable energy
programs. The USF is a statewide customer assistance program that utilizes
utilities as a collection agent. TAC adjustments affect revenue, income and cash
flows since colder-than-normal weather can generate credits to customers, while
warmer-than-normal weather 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. NJCEP and USF adjustments are also
deferred and do not affect earnings, as related costs and customer credits are
recovered through rates on an ongoing basis.

         Accounts Receivable and Provision for Uncollectible Accounts - Accounts
receivable are carried at the amount owed by customers. A provision for
uncollectible accounts has been established based on our collection experience
and an assessment of the collectibility of specific accounts.

         Property, Plant & Equipment - For regulatory purposes, utility plant is
stated at original cost, which may be different than SJG's cost if the assets
were acquired from another regulated entity. The cost of adding, replacing and
renewing property is charged to the appropriate plant account.

         Depreciation - 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.
As a result of our recent rate case settlement, our composite depreciation rate
was reduced from 2.9% to 2.4%, effective July 8, 2004. Except for extraordinary
retirements, accumulated depreciation is charged with the cost of depreciable
utility property retired, less salvage.

         Capitalized Interest - SJG capitalizes interest on construction at the
rate of return on rate base utilized by the BPU to set rates in the last base
rate proceeding. SJG capitalized interest of $289,000 and $158,400 in the three
months ended March 31, 2005 and 2004, respectively, which are included in
Utility Plant on the balance sheets. All capitalized interest is reflected on
the statements of income as a reduction of Interest Charges.

         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 three months ended
March 31, 2005 and the year ended December 31, 2004, no significant
circumstances were identified.

         Derivative Instruments - SJG accounts for derivative instruments in
accordance with FASB Statement No. 133, "Accounting for Derivative Instruments
and Hedging Activities," as amended. We record all derivatives, whether
designated as hedging relationships or not, on the balance sheets at fair value
unless the derivative contracts qualify for the normal purchase and sale
exemption. If the derivative is designated as a fair value hedge, we recognize

                                     SJG-9

the changes in the fair value of the derivative and of the hedged item
attributable to the hedged risk in earnings. We currently have no fair value
hedges. If the derivative is designated as a cash flow hedge, we record the
effective portion of the hedge in Accumulated Other Comprehensive Loss and
recognize it in the income statement when the hedged item affects earnings. We
recognize ineffective portions of changes in the fair value of cash flow hedges
in earnings.

         From time to time we enter into interest rate derivative agreements to
hedge the exposure to increasing rates with respect to our variable rate debt.
The differential to be paid or received as a result of these agreements is
accrued as interest rates change and is recognized as an adjustment to interest
expense. Interest rate derivatives are accounted for as cash flow hedges. In
November 2004, we entered into a derivative transaction known as a "Treasury
Lock" to hedge against the impact of possible interest rate increases on a $10.0
million, 30-year debt issuance planned for July 2005. As of March 31, 2005 and
December 31, 2004, the market value of this contract was $(518,365) and
$(344,000), respectively, which represents the amount we would have to pay the
counterparty to terminate the contracts as of those dates. We included these
balances on the balance sheets under the caption Derivatives - Other. As of
March 31, 2005 and December 31, 2004, we calculated the derivatives to be highly
effective, as defined under Statement No. 133; therefore, we recorded the change
in fair value of the contract, net of taxes, in Accumulated Other Comprehensive
Loss.

         We determine the fair value of interest rate derivative agreements
using quotations from independent parties.

         As part of its gas purchasing strategy, SJG occasionally uses financial
contracts to hedge against forward price risk. The costs or benefits of these
short-term contracts are recoverable through our BGSS, subject to BPU approval.
As of March 31, 2005 and December 31, 2004, SJG had $(4.9) million and $0.5
million of (benefits) costs, respectively, included in its BGSS related to open
financial contracts (See Caption Regulatory Assets & Regulatory Liabilities).

         The vast majority of our contracts relate to physical transactions that
qualify for the normal purchase and sale exception. Therefore, we are not
required to mark these contracts to market.

         Asset Retirement Costs -We have certain easements and right-of-way
agreements that qualify as legal obligations under FASB Statement No. 143,
"Accounting for Asset Retirement Obligations." However, as it is our intent to
maintain these agreements in perpetuity, we have not recorded any liabilities
associated with these agreements. SJG recovers certain asset retirement costs
through rates charged to customers. As of March 31, 2005 and December 31, 2004,
we had accrued amounts in excess of actual removal costs incurred totaling $47.5
and $47.3 million, respectively, which are recorded as Regulatory Liabilities on
the balance sheets in accordance with Statement No. 143.

         New Accounting Pronouncements - Effective in 2003, SJI adopted the
policy of accounting for stock-based compensation using the fair value based
method on a prospective basis. This method calls for expensing the estimated
fair value of a stock option. In December 2004, the FASB issued Statement No.
123(R), "Share-Based Payment" which establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or
services. While this statement is not effective until reporting periods

                                     SJG-10

beginning after January 1, 2006, management has completed its assessment of
Statement No. 123(R) and has determined that it does not have any impact on
either SJG's or SJI's accounting for share-based payments.

         In December 2004, the FASB issued Statement No. 153, "Exchanges of
Nonmonetary Assets, an amendment to APB Opinion No. 29, Accounting for
Nonmonetary Transactions." This statement redefines the types of nonmonetary
exchanges that require fair value measurement. Statement No. 153 is effective
for nonmonetary transactions entered into on and after July 1, 2005; however, we
do not expect it to have any impact on our financial statements.

         In March 2005, the FASB issued Interpretation No. 47, "Accounting for
Conditional Asset Retirement Obligations." This interpretation clarifies the
term "conditional asset retirement obligation" as used in FASB Statement No.
143, "Accounting for Asset Retirement Obligations," and is effective for fiscal
years ending after December 15, 2005. Management is currently evaluating the
effect of this standard, but does not anticipate the adoption of this
interpretation to have a material effect on our financial statements.

         Regulatory Assets & Regulatory Liabilities - All significant regulatory
assets are separately identified on the balance sheets under the caption
Regulatory Assets. Each item that is separately identified is being recovered
through utility rate charges. SJG is currently permitted to recover interest on
its Environmental Remediation and Societal Benefit costs while the other assets
are being recovered without a return on investments over the following periods:

                                                       Years Remaining
             Regulatory Asset                       As of March 31, 2005
             ----------------                       --------------------

   Environmental Remediation Costs:
     Expended - Net                                        Various
     Liability for Future Expenditures                 Not Applicable
   Gross Receipts and Franchise Taxes                         2
   Income Taxes - Flowthrough Depreciation                    6
   Deferred Postretirement Benefit Costs                      8
   Societal Benefit Costs                                  Various

         Some of the assets reflected under the caption Other Regulatory Assets
are currently being recovered from ratepayers as approved by the BPU. Management
believes that the remaining deferred costs are probable of recovery from
ratepayers through future utility rates, based on experience with previous BPU
orders.

         Regulatory Liabilities at March 31, 2005 and December 31, 2004
consisted of the following items (in thousands):

                                     SJG-11
                                                   March 31,        December 31,
                                                    2005                2004
                                                  -----------      -------------

Deferred Gas Revenues - Net                       $   18,235       $    12,334
Excess Plant Removal Costs                            47,542            47,345
Overcollected State Taxes                              3,910             3,871
Other                                                    572               286
                                                  -----------------------------

         Total Regulatory Liabilities             $   70,259       $    63,836
                                                  =============================

         Deferred Gas Revenues - Net represent SJG's net overcollected gas costs
and are monitored through SJG's BGSS mechanism. Derivatives used to hedge our
natural gas purchases are recoverable through the BGSS, subject to BPU approval.
The offset to the change in fair value of these contracts is recorded as a
Regulatory Asset or Regulatory Liability accordingly.

         Excess Plant Removal Costs represent amounts accrued in excess of
actual utility plant removal costs incurred to date. All other amounts are
subject to being returned to ratepayers in future rate proceedings.

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

         Reclassifications - SJG reclassified some previously reported amounts
to conform with current year classifications. Such reclassifications include the
move of $2.1 million of certain operating expenses previously included in
Revenue to Cost of Sales and Operations Expense for the three months ended March
31, 2004. These amounts are considered immaterial to the overall presentation of
SJG's financial statements.

Note 2.  Regulatory Actions:

         Base Rates - In January 1997, the BPU granted SJG rate relief, which
was predicated in part upon a 9.62% rate of return on rate base that included an
11.25% return on common equity. This rate relief provided for cost-of-service
recovery, including deferred costs, through base rates. Additionally, our
threshold for sharing pre-tax margins generated by interruptible and off-system
sales and transportation had increased. As a result of this case, SJG kept 100%
of pre-tax margins up to the threshold level of $7.8 million. The next $750,000
was credited to customers through the Basic Gas Supply Service (BGSS) clause.
Thereafter, SJG kept 20% of the pre-tax margins as it had historically.

         On July 7, 2004, the BPU granted SJG a base rate increase of $20.0
million, which was predicated in part upon a 7.97% rate of return on rate base
that included a 10.0% return on common equity. The increase was effective July
8, 2004 and designed to provide an incremental $8.5 million on an annualized
basis to net income. SJG was also permitted recovery of regulatory assets
contained in its petition and a reduction in its composite depreciation rate
from 2.9% to 2.4%.

         Included in the base rate increase was a change to the sharing of
pre-tax margins on interruptible and off-system sales and transportation. SJG
now recovers through its base rates $7.8 million that it had previously
recovered through the sharing of pre-tax margins. As a result, the sharing of

                                     SJG-12

pre-tax margins now begins from dollar one, with SJG retaining 20%. Moreover,
SJG now shares pre-tax margins from on-system capacity release sales, in
addition to the interruptible and off-system sales and transportation. Effective
July 1, 2006, the 20% retained by SJG will decrease to 15% of such margins.

         As part of the overall settlement effective July 8, 2004, SJG reduced
rates in several rate clauses that were no longer needed by SJG to recover
costs. SJG was either no longer incurring or had already recovered the specific
costs that these clauses were designed to recover. Since revenues raised under
these clauses were for cost recovery only and had no profit margin built in,
their elimination has no impact on SJG's net income. However, SJG's customers'
bills are estimated to decline by $38.9 million annually due to the elimination
of these clauses, more than offsetting the base rate increase awarded.

         Pending Audits - The BPU issued an order under which it will perform a
competitive services audit and a management audit that includes a focused review
of SJG's gas supply and purchasing practices. The audits, which commenced in
October 2004, are mandated by statute to be conducted at predetermined
intervals. Management does not currently anticipate the outcome of these audits,
which are nearing completion, to have a material effect on SJG's financial
position, results of operations or liquidity.

         Appliance Service Business - On July 23, 2004, the BPU approved SJG's
petition and related agreements to transfer its appliance service business from
the regulated utility. In anticipation of this transfer, SJI had formed South
Jersey Energy Service Plus, LLC (SJESP) to perform appliance repair services
after BPU approval of the transfer. SJESP purchased certain assets and assumed
certain liabilities required to perform such repair services from SJG for the
net book value of $1.2 million on September 1, 2004. The agreements also called
for SJESP to pay an additional $1.5 million to SJG. This $1.5 million was
credited by SJG to customers through the Remediation Adjustment Clause (RAC) and
had no earnings impact on SJG. The transfer has no effect on the provision of
safety-related or emergency-related services to the public since the transferred
services include only non-safety related, competitive appliance services.

         Other Regulatory Matters - Effective January 10, 2000, the BPU approved
full unbundling of SJG's system. This allows all natural gas consumers to select
their natural gas commodity supplier. As of March 31, 2005, 85,207 of SJG's
residential customers were purchasing their gas commodity from someone other
than SJG. Customers choosing to purchase natural gas from providers other than
the utility are charged for the cost of gas by the marketer, not the utility.
The resulting decrease in SJG's revenues is offset by a corresponding decrease
in gas costs. While customer choice can reduce utility revenues, it does not
negatively affect SJG's net income or financial condition. Unbundling did not
change the fact that SJG still recovers cost of service, including deferred
costs, through base rates.

         In December 2001, the BPU approved recovery of SJG's October 31, 2001
underrecovered gas cost balance of $48.9 million plus accrued interest since
April 1, 2001 at a rate of 5.75%. The recovery of this balance was completed
upon the settlement of SJG's base rate case in July 2004.

                                     SJG-13

         In March 2003, the BPU approved a statewide Universal Service Fund
(USF) program through which funds for the USF and Lifeline Credit and Tenants
Assistance (Lifeline) Programs would be collected from customers of all electric
and gas utilities in the state. In April 2004, SJG made its annual USF filing,
along with the state's other electric and gas utilities, proposing a statewide
USF budget of $105.5 million, which was later updated to $113.0 million. In June
2004, the BPU approved the statewide budget of $113.0 million and the increased
rates were implemented effective July 1, 2004, resulting in a $3.9 million
increase to SJG's annual USF recoveries. In April 2005, SJG made its annual USF
filing, along with the state's other electric and gas utilities, proposing a
statewide USF budget of $129.0 million.

         In February 2004, SJG filed notice with the BPU to reduce its gas cost
revenues collected under the BGSS by approximately $5.0 million, via a rate
reduction, in addition to providing for a $20.8 million bill credit to
customers. Both the rate reduction and bill credit were approved and implemented
in March 2004.

         In June 2004, SJG made its annual BGSS filing with the BPU requesting a
$4.9 million increase in gas cost recoveries. In October 2004, the requested
increase was approved on a provisional basis. In February 2005, SJG filed notice
with the BPU to provide for an $11.4 million bill credit to customers. The bill
credit was implemented in March 2005.

         In September 2004, SJG filed for a $2.6 million reduction to its annual
Societal Benefits Clause (SBC) recovery level. The SBC recovers costs related to
BPU-mandated programs, including environmental remediation costs that are
recovered through SJG's RAC; energy efficiency and renewable energy program
costs that are recovered through SJG's New Jersey Clean Energy Programs;
consumer education program costs; and low income program costs that are
recovered through the Universal Service Fund.

         In December 2004, the BPU approved the statewide funding of the New
Jersey Clean Energy Programs of $745.0 million for the years 2005 through 2008.
Of this amount, SJG will be responsible for approximately $25.4 million over the
four-year period. Amounts not yet expended have been included in SJG's
Contractual Obligations table included in Note 8.

         Filings and petitions described above are still pending unless
otherwise indicated.

Note 3.  Related Party Transactions:

         SJG sells natural gas for resale to South Jersey Energy Company (SJE)
and South Jersey Resources Group, LLC (SJRG), SJI's wholly owned subsidiaries.
These sales comply with Section 284.402 of the Regulations of the Federal Energy
Regulatory Commission (FERC). Sales to SJE were approximately $1.2 million for
the three months ended March 31, 2004. SJG had no sales to SJE for the three
months ended March 31, 2005. The amount due from SJE relating to these sales was
$0.3 million at March 31, 2004. Sales to SJRG were approximately $2.3 million
and $3.6 million for the three months ended March 31, 2005 and 2004,
respectively. The amounts due from SJRG relating to these sales were $1.3
million and $0.9 million at March 31, 2005 and 2004, respectively.

                                     SJG-14

         We also meet some of our gas purchasing requirements by purchasing
natural gas for resale from SJRG. Such purchases were approximately $1.6 million
and $0.2 million for the three months ended March 31, 2005 and 2004,
respectively. The amounts due to SJRG relating to gas purchases were $1.3
million and $83,200 at March 31, 2005 and 2004, respectively.

         SJG also provides transportation services to Marina Energy, LLC, an
affiliate by common ownership. Sales for these services were $63,700 and $40,400
for the three months ended March 31, 2005 and 2004. The amount due relating to
such services was $37,000 and $13,400 at March 31, 2005 and 2004, respectively.

         SJG provides billing services for third-party energy marketers
supplying natural gas to customers within SJG's territory. For commercial and
industrial customers, SJG provides this service for a fixed fee per customer.
For residential customers, SJG purchases the accounts receivable at book value
from the marketer and assumes all risk associated with the collection of such
amounts. The fee paid by third-party energy marketers for the purchase of the
residential accounts receivables includes a factor for potential uncollectible
accounts. The largest marketer in SJG's territory is SJE. Fees charged for the
billing service and the purchase of SJE's customer accounts receivable totaled
$130,600 and $128,700 for the three months ended March 31, 2005 and 2004,
respectively. The amounts due to SJE for account collections and the purchase of
the residential accounts receivables were $10.6 million and $9.3 million at
March 31, 2005 and 2004, respectively.

         SJG also provides billing services for South Jersey Energy Service
Plus, LLC (SJESP), an affiliate by common ownership, and receives a fee for the
provision of this service. Since the transfer of SJG's appliance service
operations on September 1, 2004, fees for providing such services totaled
$17,400 for the three months ended March 31, 2005. The amount due to SJESP
relating to these collections was $1.0 million at March 31, 2005. SJG also
provides information system and data management support to SJESP. Fees for
providing such services totaled $58,900 for the three months ended March 31,
2005. The amount due to SJG related to these services was $22,200 at March 31,
2005.

         SJI and Conectiv Solutions, LLC formed Millennium Account Services, LLC
(Millennium) to provide meter reading services in southern New Jersey. SJG uses
the services of Millennium to read utility customers' meters on a monthly basis
for a fee. The fees incurred by SJG related to such services were approximately
$628,500 and $631,800 for the three months ended March 31, 2005 and 2004. The
amounts due to Millennium for meter reading services were $0.2 million at March
31, 2005 and 2004.

Note 4.  Long-Term Debt:

         On February 1, 2005, SJG retired the remaining $7.5 million of its 8.6%
Unsecured Debenture Notes due 2010 for a call premium of $184,500.

                                     SJG-15

Note 5.  Preferred Stock:

         On March 30, 2005, we provided notice of our intent to redeem our
Redeemable Cumulative Preferred 8% Series of preferred stock. The total amount
outstanding as of the May 1, 2005 redemption date was $1.69 million.

Note 6.  Retained Earnings:

         Restrictions exist under various loan agreements regarding the amount
of cash dividends or other distributions that we may pay on our common stock. As
of March 31, 2005 and December 31, 2004, these restrictions did not affect the
amount that may be distributed from SJG's retained earnings.

         SJG is restricted as to the amount of cash dividends or other
distributions that may be paid on its common stock by an order issued by the New
Jersey Board of Public Utilities in July 2004, that granted SJG an increase in
base rates. Per the order, SJG is required to maintain Total Common Equity of no
less than $289.0 million. SJG's Total Common Equity balance was $323.5 million
at March 31, 2005.

         We received an equity infusion of $15.0 million from SJI during 2004.
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.

Note 7.  Pensions & Other Postretirement Benefit Plans:

         We participate in the defined benefit pension plans and other
postretirement benefit plans of SJI. The pension plans provide annuity payments
to the majority of full-time, regular employees upon retirement. Newly hired
employees do not qualify for participation in the defined benefit pension plans.
New hires are eligible to receive an enhanced version of the company's defined
contribution plan (401K). The other postretirement benefit plans provide health
care and life insurance benefits to some retirees.

         Net periodic benefit cost for the three months ended March 31, 2005 and
2004 related to the pension and other postretirement benefit plans consisted of
the following components (in thousands):
                                                         Other Postretirement
                                  Pension Benefits              Benefits
                                2005          2004         2005           2004
                            ----------------------------------------------------
Service Cost                $     880     $     672     $     347     $     341
Interest Cost                   1,721         1,274           597           603
Expected Return on
   Plan Assets                 (2,416)       (1,580)         (347)         (351)
Amortization of
   Transition Obligation            -             -             -           189
Amortization of Loss
   and Other                      620           388            33            37
                            ----------------------------------------------------
                                     SJG-16

Net Periodic
   Benefit Cost             $     805     $     754     $     630     $     819
                            ====================================================

         The table above includes benefit costs capitalized by SJG related to
its construction program. Capitalized pension benefit costs totaled $386,300 and
$275,500 during the three months ended March 31, 2005 and 2004, respectively.
Capitalized other postretirement benefit costs totaled $247,900 and $258,300
during the three months ended March 31, 2005 and 2004, respectively.

         As of November 2004, we implemented caps on the amount of the premium
we pay for all employees eligible for postretirement health care. Employees are
responsible for those costs which exceed the premium caps. As a result of these
caps, we were able to reduce our postretirement benefit costs other than
pension.

         Future Benefit Payments - The following benefit payments, which reflect
expected future service, as appropriate, are expected to be paid during the
following years (in thousands):

                                                               Other
                             Pension Benefits         Postretirement Benefits

         2005                   $   3,823                    $  1,461
         2006                       3,987                       1,651
         2007                       4,189                       1,854
         2008                       4,420                       2,036
         2009                       4,694                       2,207
         2010-2014                 29,188                      12,606

         Contributions -  SJG expects to make no contributions to its pension
plan in 2005; however, unfavorable changes in investment performance and the
discount rate during the year may result in a contribution at the end of the
year. SJG also has a regulatory obligation to contribute $3.6 million annually
to its other postretirement benefit plans, less costs incurred directly by the
company.

Note 8.  Commitments and Contingencies:

         Contractual Cash Obligations - The following table summarizes our
contractual cash obligations and their applicable payment due dates as of
March 31, 2005 (in thousands):
Up to        2 - 3        4 - 5     More than
 Contractual Obligations                      Total       1 Year         Years        Years       5 Years
 -----------------------                 ----------------------------------------------------------------
Long-Term Debt                            $   276,781  $     2,273  $     4,543  $         -   $   269,965
Interest on Long-Term Debt                    246,259       16,854       33,152       32,777       163,476
Operating Leases                                  573          267          248           42            16
Construction Obligations                        4,516        4,516            -            -             -
Commodity Supply
       Purchase Obligations                   200,888       33,419       79,674       63,428        24,367
New Jersey Clean Energy
       Program Funding (Note 2)                22,971        4,573       12,649        5,749             -
Other Purchase Obligations                      3,213        3,150           63            -             -
                                          ----------------------------------------------------------------
                                     SJG-17

Total Contractual Cash Obligations        $   755,201  $    65,052  $   130,329  $   101,996   $   457,824
                                          ================================================================
Expected environmental remediation costs are not included in the table
above due to the subjective nature of such costs and time of anticipated
payments. SJG's regulatory obligation to contribute $3.6 million annually to its
postretirement benefit plans other than pensions, less costs incurred directly
by the company, is not included as the duration is indefinite. As a result, the
total obligation cannot be calculated. As discussed in Note 7 - Contributions,
SJG does not currently expect to make a pension contribution in 2005.
Furthermore, future pension contributions cannot be determined at this time.

         Construction and Environmental Commitments - Our estimated net cost of
construction and environmental remediation programs for 2005 totals $67.1
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 March 2006. The transportation and storage service agreements between
us and our interstate pipeline suppliers were made under Federal Energy
Regulatory Commission approved tariffs. Our cumulative obligation for demand
charges and reservation fees paid to suppliers for these services is
approximately $4.1 million per month, recovered on a current basis through the
BGSS.

         Pending Litigation - We are subject to claims arising from the ordinary
course of business and other legal proceedings. We accrue liabilities related to
these claims when we can determine the amount or range of amounts of likely
settlement costs for those claims. Management does not currently anticipate the
disposition of any known claims to have a material adverse effect on SJG's
financial position, results of operations or liquidity.

         Environmental Remediation Costs - We incurred and recorded costs for
environmental cleanup of 12 sites where the Company or its predecessors operated
manufactured gas plants (MGP). We stopped manufacturing gas in the 1950s.

         We successfully entered into settlements with all of our 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 until 2024 at 10 sites
and until 2029 at one site. The future cost estimates discussed hereafter are
not reduced by projected insurance recoveries from the Cleanup Cost Cap
Insurance Policy.

         Since the early 1980s, we accrued environmental remediation costs of
$145.2 million, of which $92.8 million has been spent as of March 31, 2005. With
the assistance of a consulting firm, we estimate that undiscounted future costs
to clean up our sites will range from $51.9 million to $191.4 million. We

                                     SJG-18

recorded the lower end of this range as a liability because a single reliable
estimation point is not feasible due to the amount of uncertainty involved in
the nature of projected remediation efforts and the long period over which
remediation efforts will continue. It is reflected on the March 31, 2005 balance
sheet under the captions Current Liabilities and Deferred Credits and Other
Non-Current Liabilities. 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.

         We have two regulatory assets associated with environmental costs. The
first asset, Environmental Remediation Cost: Expended - Net, represents what was
actually spent to clean up former gas manufacturing plant sites. These costs
meet the requirements of FASB Statement No. 71. The BPU allows us to recover
expenditures through the RAC.

         The other asset, 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
regulatory asset under Statement No. 71 with the corresponding amount reflected
on the balance sheets under the captions Current Liabilities and Deferred
Credits and Other Non-Current Liabilities. The BPU's intent, evidenced by
current practice, is to allow us to recover the deferred costs after they are
spent over 7-year periods.

         As of March 31, 2005, we reflected the unamortized remediation costs of
$5.6 million on the balance sheet under the caption Regulatory Assets. Since
implementing the RAC in 1992, we have recovered $44.5 million through rates.

                                     SJG-19

            Item 2. Management's Discussion and Analysis of Financial
                 Condition and Results of Operations (Unaudited)

         Overview

         South Jersey Gas Company (SJG) is a regulated natural gas utility. SJG
distributed natural gas in the seven southernmost counties of New Jersey to
316,094 customers at March 31, 2005, compared with 307,044 customers at March
31, 2004. SJG also:

        o     sells natural gas and pipeline transportation capacity (off-system
              sales) on a wholesale basis to various customers on the interstate
              pipeline system;

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

        o     serviced appliances via the sale of appliance service programs, as
              well as on a time and materials basis through September 1, 2004,
              at which time the business line was transferred out of SJG and
              into an affiliate by common ownership, South Jersey Energy Service
              Plus, LLC.

Forward-Looking Statement and Risk Factors

         Certain statements contained in this Quarterly Report on Form 10-Q may
qualify as "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
All statements other than statements of historical fact included in this Report
should be considered forward-looking statements made in good faith by the
Company and are intended to qualify for the safe harbor from liability
established by the Private Securities Litigation Reform Act of 1995. When used
in this Report, or any other of the Company's documents or oral presentations,
words such as "anticipate", "believe", "expect", "estimate", "forecast", "goal",
"intend", "objective", "plan", "project", "seek", "strategy" and similar
expressions are intended to identify forward-looking statements. Such
forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ materially from those expressed or implied in the
statements. These risks and uncertainties include, but are 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; changes in the availability of natural gas; regulatory and court
decisions; competition; the availability and cost of capital; 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.

         A discussion of these and other risks and uncertainties may be found in
the Company's Form 10-K for the year ended December 31, 2004. These cautionary
statements should not be construed by you to be exhaustive and they are made
only as of the date of this Quarterly Report on Form 10-Q or, in any document
incorporated by reference, the date of such document. While the Company believes
these forward-looking statements to be reasonable, there can be no assurance
that they will approximate actual experience or that the expectations derived
from them will be realized. Further, the Company undertakes no obligation to
update or revise any of its forward-looking statements whether as a result of
new information, future events or otherwise.

Critical Accounting Policies

         Estimates and Assumptions - As described in the notes to our 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. SJG's Form 10-K for the year ended
December 31, 2004 describes five critical accounting policies within the section
Management's Discussion and Analysis that require a significant amount of
judgment and estimation. These relate to regulatory accounting, energy
derivatives, environmental remediation costs, pension and other postretirement
employee benefit costs, and revenue recognition.

         New Accounting Pronouncements - See detailed discussions concerning New
Accounting Pronouncements and their impact on SJG in Note 1 to the condensed
financial statements.

                                     SJG-20

         Temperature Adjustment Clause New Accounting Pronouncements - A
BPU-approved Temperature Adjustment Clause (TAC) decreased SJG's net income by
$0.9 million and $0.7 million for the three months ended March 31, 2005 and
2004, respectively, due to lower than normal temperatures. The clause is
designed to mitigate the effect of variations in heating season temperatures
from historical norms. While we record the revenue and income impacts of TAC
adjustments as incurred, cash inflows or outflows directly attributable to TAC
adjustments generally do not begin until the next clause year. Each TAC year
begins October 1.

         Recent Regulatory Actions - See detailed discussions concerning Recent
Regulatory Actions in Note 2 to the condensed financial statements.

         Environmental Remediation - We incurred and recorded costs for
environmental clean up of 12 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 until 2024 at 10 sites and until 2029 at one site.

         We believe that all costs incurred net of insurance recoveries relating
to the MGP sites will be recovered through rates under SJG's Remediation
Adjustment Clause (RAC). The RAC currently permits us to recover incurred costs
in equal installments over 7-year periods with carrying costs. As of March 31,
2005, we have $5.6 million of remediation costs not yet recovered through rates.

         Other matters are discussed in Note 8 to the condensed financial
statements included as part of this report.

Results of Operations

         Operating Revenues - Revenues increased $12.3 million during the first
quarter of 2005 compared with the same period last year primarily due to two
factors. First, SJG added 9,050 customers during the 12-month period ended March
31, 2005, which represents a 2.9% increase in total customers. Second, 20% of
the residential customers purchasing their gas from a source other than SJG
migrated back to utility sales service. The number of residential transportation
customers decreased from 106,620 at March 31, 2004, to 85,207 at March 31, 2005
as third party marketers are finding it difficult to compete with the utility
under current market conditions. This migration of customers from transportation
service back to sales service has a direct impact on utility revenues as charges
for gas costs are included in sales revenues and not in transportation revenues.
However, since gas costs are passed on directly to customers without any profit
margin added by SJG, the change in customer utilization of gas marketers did not
impact SJG's profitability.

                                     SJG-21

         Partially offsetting these factors were lower customer utilization
rates combined with 1.5% warmer weather in the first quarter of 2005 compared
with the same period in 2004, a $6.4 million decrease in Off-System Sales (OSS)
revenues, and the impact of the July 2004 rate case settlement on revenues. The
decrease in the OSS revenues was the direct impact of lower sales volume. This
was partially offset by an increase in capacity release activity during the
period. Capacity release allows SJG to sell any unused capacity for a profit,
but the revenues from such activities are much lower than those from OSS since
no commodity is included in the sale. Finally, SJG's revenues were lower due to
the impact of the July 2004 settlement of several matters before the BPU. This
settlement increased SJG's base rates and at the same time reduced rates in
several clauses that were no longer needed to recover costs. SJG was either no
longer incurring or had already recovered the specific costs that these clauses
were designed to recover. Since revenues raised under these clauses were for
cost recovery only and had no profit margin built in, their elimination has no
impact on SJG's net income.

         The base rate increase discussed above and in greater detail in Note 2
to the condensed financial statements, had the impact of increasing utility
margins (revenues less gas costs and associated energy taxes) by approximately
$3.9 million during the first quarter of 2005 compared with the same period last
year.

         As a result of SJG's Temperature Adjustment Clause (TAC), revenues from
utility ratepayers are closely tied to 20-year normal temperatures calculated
under the clause and not actual temperatures. While the clause significantly
reduces fluctuations in revenues related to temperature, as a general rule,
revenues continue to be positively impacted by colder weather and negatively
impacted by warmer weather. Weather during the first three months of 2005 was
1.5% warmer than the same period in 2004, and 5.9% colder than the 20-year TAC
average.

         Total gas throughput increased 10.9% to 47.0 billion cubic feet
(Bcf) from March 31, 2004 to March 31, 2005. The higher throughput was primarily
due to a significant increase in capacity release activity during the first
quarter of 2005. While revenues from such activities are not as high as those
including the actual sale of commodity, contributions to margins are still
comparable.

         The following is a comparison of operating revenue and throughput for
the three months ended March 31:

                                                    2005             2004
                                                   ------           ------
Operating Revenues (thousands):
Firm
     Residential                               $      97,171     $      81,141
     Commercial                                       35,204            23,966
     Industrial                                        2,055             2,317
     Cogeneration & Electric Generation                  849               419
     Firm Transportation                              24,757            32,869
                                               -------------     -------------

         Total Firm Operating Revenues               160,036           140,712
                                               -------------     -------------

Interruptible                                            415               288
Interruptible Transportation                             599               295
Off-System                                            48,905            55,352
Capacity Release & Storage                             4,192             2,727
Appliance Service                                          -             2,136
Other                                                    390               750
                                               -------------     -------------

                                     SJG-22

         Total Operating Revenues                 $  214,537     $     202,260
                                               =============     =============

Throughput (MMcf):
Firm
     Residential                                       8,304             7,488
     Commercial                                        3,353             2,431
     Industrial                                          100                92
     Cogeneration & Electric Generation                   65                25
     Firm Transportation                              10,233            12,212
                                               -------------     -------------

         Total Firm Throughput                        22,055            22,248
                                               -------------     -------------

Interruptible                                             38                34
Interruptible Transportation                             855               576
Off-System                                             6,663             7,833
Capacity Release & Storage                            17,354            11,662
                                               -------------     -------------

         Total Throughput                             46,965            42,353
                                               =============     =============

         Cost of Sales - SJG's cost of sales increased $7.2 million during the
first quarter of 2005 compared with the same period in 2004 due principally to
the increase in SJG's total customer base and the impact of the migration of
customers from transportation service back to sales service as discussed in
detail under Operating Revenues. This increase was partially offset by lower
Off-System Sales volume. While changes in gas costs associated with OSS directly
impact cost of sales, changes in the unit cost of gas sold to utility ratepayers
do not always directly affect cost of sales. We defer fluctuations in gas costs
to ratepayers not reflected in current rates to future periods under a
BPU-approved Basic Gas Supply Service (BGSS) price structure.

         Gas supply sources include contract and open-market purchases. SJG
secures and maintains its own gas supplies to serve its sales customers. We do
not anticipate any difficulty renewing or replacing expiring contracts under
substantially similar terms and conditions.

         Operating Expenses - A summary of principal changes in other operating
expenses for the three months ended March 31 (in thousands):
                                              2005 vs. 2004

         Operations                             $   1,503
         Maintenance                                  148
         Depreciation                                (805)
         Energy and Other Taxes                       165

                                     SJG-23

         Operations expense increased $1.5 million during the first quarter of
2005 compared to the same period in 2004 primarily as a result of higher bad
debt expense which increased by $0.9 million. During the first quarter of 2005,
SJG increased its reserve for uncollectible accounts by $0.7 million to address
the increase in the accounts receivable balances at March 31, 2005 compared with
March 31, 2004. During the first quarter of 2004, the BPU approved a BGSS refund
of $20.8 million which improved our accounts receivable aging significantly,
resulting in a reduction in SJG's reserve of approximately $0.1 million in that
period. SJG provided customers with an additional BGSS refund in March 2005 in
the amount of $11.3 million. While this refund also improved the accounts
receivable aging at March 31, 2005, it was significantly less than the prior
year refund. In addition, the month of March 2005 was 24% colder than March
2004. As collection on March sales is recovered on a cycle basis, a large
portion is not recovered until April; therefore, the increase in billed sales in
March 2005 directly impacts the amount outstanding as of the end of the quarter.

         The remaining increase in operations expense primarily resulted from
higher administrative and general expenses (A&G). A&G increased as a result of
higher employee benefit costs; increased regulatory expenses resulting from
amortizations approved in the July 2004 rate case settlement; and a 2004
reduction of SJG's reserve for outstanding claims in the amount of $0.3 million
following a period of favorable claims settlements. It should be noted that the
amortizations of approximately $0.1 million resulting from the rate case
settlement were included in rate recovery from its customers and had no impact
on net income.

         Depreciation decreased for the three months ended March 31, 2005
compared with the three months ended March 31, 2004 due mainly to lower
depreciation rates approved by the BPU as part of SJG's recent rate case
settlement. SJG's composite depreciation rate was reduced from 2.9% to 2.4%
effective July 2004.

         Other Income and Expense - Other income and expense was higher during
the first quarter of 2004 compared with 2005 due to a pre-tax gain of $686,000
on SJG's post-retirement healthcare plan trust. The movement of plan assets to a
new investment manager triggered the recognition of gains on investments in
2004.

         Interest Charges - Interest charges increased $120,000 in the first
quarter of 2005 compared with the same period last year primarily due to higher
levels of fixed rate, long-term debt outstanding, partially offset by lower
levels of short-term debt outstanding.

         Net Income - Net income increased $1.9 million, or 7.2%, to $22.6
million in the first quarter of 2005 as compared with $20.7 million in the same
period of 2004. Reasons for the increase in net income in 2005 are discussed in
detail above.

         Liquidity and Capital Resources - Liquidity needs at SJG are driven by
factors that include natural gas commodity prices; the impact of weather on
customer bills; lags in fully collecting gas costs from customers under the
Basic Gas Supply Service charge; the timing of construction and remediation
expenditures and related permanent financings; mandated tax payment dates; and
both discretionary and required repayments of long-term debt.

                                     SJG-24

         We first seek to meet liquidity needs with net cash provided by
operating activities. Net cash provided by operating activities totaled $76.7
million and $84.0 million for the three months ended March 31, 2005 and 2004,
respectively. Net cash provided by operating activities varies from year to year
primarily due to the impact of weather on customer demand and related gas
purchases, inventory utilization and gas cost recoveries.

         In addition to annual fluctuations, SJG's operations are also subject
to seasonal fluctuations. Significant changes in the balances of current assets
and current liabilities can occur from the end of one reporting period to
another as evidenced by the changes on the condensed balance sheets. Cash
inflows generally increase during the first quarter as a result of collections
on winter season accounts receivable and the increased use of gas in storage to
serve customers. Much of this cash is used to pay down short-term notes payable
to banks and cover dividend requirements. SJG also ends each calendar year in a
prepaid tax position due to mandatory prepayment requirements on all state
taxes. Such prepayments are credited against amounts otherwise due during the
first quarter; thus, further improving first quarter liquidity.

         Sales during the first quarter historically exceed any other quarter
during the year. As a result, accounts receivable is generally at its highest as
of March 31st as compared to any other quarter end. Unlike billed sales,
customer receivables associated with unbilled revenue will track temperatures
during the last month of the reporting period. As such, unbilled revenues will
generally be highest at the end of the fourth quarter as weather is colder in
the month of December compared with March, June and September.

          We use short-term borrowings under lines of credit from commercial
banks to supplement cash from operations, to support working capital needs and
to finance capital expenditures as incurred. From time to time, we refinance
short-term debt incurred to finance capital expenditures with long-term
debt. Bank credit available to SJG totaled $176.0 million at March 31, 2005, of
which $10.0 million was used. Those bank facilities consist of a $100.0 million,
3-year revolving credit facility that expires in August 2006 and $76.0 million
of uncommitted bank lines. The revolving credit was established in August 2003
with a syndicate of banks to enhance the liquidity position of SJG. The
revolving credit facility contains certain financial covenants measured on a
quarterly basis. SJG was in compliance with these covenants as of March 31,
2005. Based upon the existing credit facilities and a regular dialogue with our
banks, we believe that there will continue to be sufficient credit available to
meet our future liquidity needs.

         SJG supplements its operating cash flow and credit lines with both debt
and capital contributions from its parent, SJI. Over the years, SJG has used
long-term debt, primarily in the form of First Mortgage Bonds and Medium Term
Notes (MTN), secured by the same pool of utility assets, to finance its

                                     SJG-25

long-term borrowing needs. These needs are primarily capital expenditures for
property, plant and equipment. Under a $150.0 million MTN program established in
December 2002, SJG issued $110.0 million of long-term debt in 2003. SJG issued
the remaining $40.0 million of notes under the MTN program in August 2004 at an
average interest rate of 5.66% and an average maturity of 17 years. We used the
proceeds of all of the issues to refinance short-term debt outstanding to
commercial banks and for the redemption of certain high interest bearing
securities. In addition, SJG redeemed $15.0 million of its 7.7% MTN in July
2004. We anticipate establishing a new MTN program by mid-2005.

         On March 30, 2005, we provided notice of our intent to redeem our
Redeemable Cumulative Preferred 8% Series of preferred stock. The total amount
outstanding as of the May 1, 2005 redemption date was $1.69 million.

          SJI contributed $15.0 million of capital to SJG during 2004.
Contributions of capital are credited to Other Paid-in Capital and Premium on
Common Stock.

          SJG is restricted as to the amount of cash dividends or other
distributions that may be paid on its common stock by an order issued by the New
Jersey Board of Public Utilities in July 2004, that granted SJG an increase in
base rates. Per the order, SJG is required to maintain Total Common Equity of no
less than $289.0 million. SJG's Total Common Equity balance was $323.5 million
at March 31, 2005.

         SJG's capital structure, excluding preferred stock which is immaterial,
was as follows:

                                   March 31,               December 31,
                                     2005                      2004
                                ---------------------------------------

Common Equity                        53%                       48%
Long-Term Debt                       45%                       44%
Short-Term Debt                       2%                        8%
                                  ----------------------------------

         Total                      100%                      100%
                                  ==================================

         SJG's long-term, senior secured debt is rated "A" and "Baa1" by
Standard & Poor's and Moody's Investor Services, respectively. These ratings
have not changed in the past five years.

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 the three months ended March 31, 2005 amounted to $12.5
million. We estimate the net costs for 2005, 2006 and 2007 at approximately
$67.1 million, $42.1 million and $43.8 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 March 31, 2005 average $43.9 million annually and total
$200.9 million over the contracts' lives. Approximately 24% of the financial
commitment under these contracts expires during the next five years. We expect
to renew each of these contracts under renewal provisions as provided in each
contract. SJG recovers all prudently incurred fees through rates via the Basic
Gas Supply Service clause.

                                     SJG-26

         Off-Balance Sheet Arrangements - SJG has no off-balance sheet financing
arrangements.

         Pending Litigation - SJG is subject to claims arising in the ordinary
course of business and other legal proceedings. We accrue liabilities related to
claims when we can determine the amount or range of amounts of likely settlement
costs for those claims. Management does not currently anticipate the disposition
of any known claims to have a material adverse effect on SJG's financial
position, results of operations or liquidity.

             Item 3. Quantitative and Qualitative Disclosures About
                     Market Risks of the Company (Unaudited)

Market Risks

         Commodity Market Risks - SJG primarily transacts commodities on a
physical basis. As part of its gas purchasing strategy, SJG occasionally uses
financial derivative contracts to hedge against forward price risk. These
contracts are recoverable through SJG's BGSS, subject to BPU approval. The fair
value and maturity of these energy trading contracts determined under the
mark-to-market method as of March 31, 2005 is as follows (in thousands):
Assets                                                  Maturity     Maturity      Beyond
      Source of Fair Value                              < 1 Year    1 - 3 Years    3 Years      Total
                                                        --------    -----------    -------      -----
Prices Actively Quoted                  NYMEX         $    4,940   $        -    $       -    $    4,940
Other External Sources                  Basis                  -            -            -             -
                                                      --------------------------------------------------
Total                                                 $    4,940   $        -    $       -    $    4,490
                                                      ==================================================

Liabilities                                             Maturity     Maturity      Beyond
      Source of Fair Value                              < 1 Year    1 - 3 Years    3 Years      Total
                                                        --------    -----------    -------      -----

Prices Actively Quoted                  NYMEX         $        9   $        -    $       -    $        9
Other External Sources                  Basis                  -            -            -             -
                                                      --------------------------------------------------
Total                                                 $        9   $        -    $       -    $        9
                                                      ==================================================
NYMEX (New York Mercantile Exchange) is the primary national commodities
exchange on which natural gas is traded. Basis represents the price of a NYMEX
natural gas futures contract adjusted for the difference in price for delivering
the gas at another location.

      A reconciliation of SJG's estimated net fair value of energy-related
derivatives, including energy trading and hedging contracts, follows (in
thousands):

     Net Derivatives -- Energy Related Liability, January 1, 2005     $    (528)
     Contracts Settled During Quarter Ended March 31, 2005                  243
     Other Changes in Fair Value from Continuing
       and New Contracts, Net                                             5,216
                                                                       ---------
     Net Derivatives -- Energy Related Asset, March 31, 2005          $   4,931
                                                                      ==========
                                     SJG-27

         Interest Rate Risk - Our exposure to interest rate risk relates
primarily to short-term, variable rate borrowings. Our short-term, variable rate
debt outstanding at March 31, 2005, was $10.0 million and averaged $32.8 million
during the first quarter of 2005. A hypothetical 100 basis point (1%) increase
in interest rates on our average variable rate debt outstanding would result in
a $194,000 increase in our annual interest expense, net of tax. We chose the 100
basis point increase for illustrative purposes, as it provides a simple basis
for calculating the impact of interest rate changes under a variety of interest
rate scenarios. Over the past five years, the change in basis points (b.p.) of
our average monthly interest rates from the beginning to end of each year was as
follows: 2004 - 115 b.p. increase; 2003 - 31 b.p. decrease; 2002 - 74 b.p.
decrease; 2001 - 383 b.p. decrease; and 2000 - 83 b.p. increase. For December
2004, our average interest rate on variable rate debt was 2.89%.

         SJG primarily issues long-term debt at fixed rates and, consequently,
interest expense on existing debt is not significantly impacted by changes in
market interest rates. SJG redeemed, at par, $7.5 million of 8.6% debenture
notes in February 2005. In November 2004, SJG entered into a derivative
transaction known as a "Treasury Lock" to hedge against the impact of possible
interest rate increases on a $10.0 million, 30-year debt issuance planned for
July 2005.

         Ratio of Earnings to Fixed Charges - The company's ratio of earnings to
fixed charges for each of the periods indicated is as follows:

   Twelve Months
       Ended
     March 31,                          Year Ended December 31,
     ---------         ---------------------------------------------------------
       2005            2004        2003         2002         2001         2000
       ----            ----        ----         ----         ----         ----
       4.0x            3.9x        3.3x         2.9x         2.6x         2.6x

         The ratio of earnings to fixed charges represents, on a pre-tax basis,
the number of times earnings covers 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.

                         Item 4. Controls and Procedures

         SJG management, including the Chief Executive Officer and Chief
Financial Officer, has conducted an evaluation of the effectiveness of
disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based
on that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the disclosure controls and procedures are effective in ensuring
that all material information required to be filed in this quarterly report has
been made known to them in a timely fashion.

         No change in SJG's internal control over financial reporting occurred
during SJG's first fiscal quarter that has materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial
reporting.

                                     SJG-28

                          PART II -- OTHER INFORMATION

                            Item l. Legal Proceedings

         Information required by this Item is incorporated by reference to Part
I, Item 1, Note 8, beginning on page 17.

                                Item 6. Exhibits

(a)   Exhibits

      Exhibit No.                                 Description

      31.1      Certification of Chief Executive Officer Pursuant to Rule
                13a-14(a) of the Exchange Act.

      31.2      Certification of Chief Financial Officer Pursuant to Rule
                13a-14(a) of the Exchange Act.

      32.1      Certification of Chief Executive Officer Pursuant to Rule
                13a-14(b) of the Exchange Act as adopted pursuant to Section 906
                of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of
                Section 1350, Chapter 63 of Title 18, United States Code).

      32.2      Certification of Chief Financial Officer Pursuant to Rule
                13a-14(b) of the Exchange Act as adopted pursuant to Section 906
                of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of
                Section 1350, Chapter 63 of Title 18, United States Code).

                                     SJG-29

                                   SIGNATURES

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

                            SOUTH JERSEY GAS COMPANY
                                  (Registrant)

  Dated:  May 10, 2005    By:  /s/ Edward J. Graham
                              ----------------------------------------
                              Edward J. Graham
                              Chairman, President & Chief Executive Officer

  Dated:  May 10, 2005    By: /s/ David A. Kindlick
                              ----------------------------------------
                              David A. Kindlick
                              Executive Vice President & Chief Financial Officer

                                     SJG-30