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

                                  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, 2004

                                       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 10, 2004 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.

================================================================================
                                   Cover Page




                         PART I -- FINANCIAL INFORMATION



              Item 1. Financial Statements-- See Pages 3 through 15

                                     SJG-2

                            SOUTH JERSEY GAS COMPANY

                   CONDENSED STATEMENTS OF INCOME (UNAUDITED)
                                 (In Thousands)

                                                     Three Months Ended
                                                         March 31,
                                             -----------------------------------

                                                  2004                2003
                                             -----------------------------------


Operating Revenues                                 $ 200,123          $ 239,936
                                             ----------------    ---------------

Operating Expenses:
   Gas Purchased for Resale                          136,237            178,865
   Operations                                         12,508             10,492
   Maintenance                                         1,345              1,457
   Depreciation                                        6,163              5,787
   Energy and Other Taxes                              4,728              5,028
                                             ----------------    ---------------

      Total Operating Expenses                       160,981            201,629
                                             ----------------    ---------------

Operating Income                                      39,142             38,307

Other Income and Expense                                 567               (118)

Interest Charges                                       4,320              4,784
                                             ----------------    ---------------

Income Before Income Taxes                            35,389             33,405

Income Taxes                                          14,683             13,971
                                             ----------------    ---------------

Net Income Applicable to Common Stock               $ 20,706           $ 19,434
                                             ================    ===============


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

                                     SJG-3

<TABLE>

<CAPTION>

                            SOUTH JERSEY GAS COMPANY

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

                                                                    Three Months Ended
                                                                        March 31,
                                                             ---------------------------------

                                                                 2004               2003
                                                             --------------    ---------------

<S>                                                          <C>               <C>



Net Income Applicable to Common Stock                             $ 20,706           $ 19,434
                                                             --------------    ---------------

Other Comprehensive (Loss) Income, Net of Tax:*

  Change in Fair Value of Investments                                 (275)               (40)
  Change in Fair Value of Derivatives                                    -                 83
                                                             --------------    ---------------

     Other Comprehensive (Loss) Income - Net of Tax*                  (275)                43
                                                             --------------    ---------------

Comprehensive Income                                              $ 20,431           $ 19,477
                                                             ==============    ===============

<FN>

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

The accompanying footnotes are an integral part of the financial statements.
</FN>
</TABLE>
                                     SJG-4

<TABLE>
<CAPTION>


                                          SOUTH JERSEY GAS COMPANY

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

                                                                                    Three Months Ended
                                                                                         March 31,
                                                                              -------------------------------
                                                                                  2004             2003
                                                                              ------------      -------------
<S>                                                                           <C>               <C>

Cash Flows from Operating Activities:
  Net Income Applicable to Common Stock                                           $ 20,706          $ 19,434
  Adjustments to Reconcile Net Income to Cash Flows
   Provided by Operating Activities:
    Depreciation and Amortization                                                    6,783             6,371
    Provision for Losses on Accounts Receivable                                        335               489
    Revenues and Fuel Costs Deferred - Net                                          10,837            13,630
    Deferred and Non-Current Income Taxes and Credits - Net                          3,906               264
    Environmental Remediation Costs - Net                                             (215)            2,814
    Changes in:
      Accounts Receivable                                                          (17,172)          (40,422)
      Inventories                                                                   43,765            31,019
      Prepayments and Other Current Assets                                             375               519
      Prepaid and Accrued Taxes - Net                                               16,562            23,387
      Accounts Payable and Other Accrued Liabilities                                (4,184)           31,305
      Other - Net                                                                    2,509               910
                                                                              ------------      -------------

        Net Cash Provided by Operating Activities                                   84,207            89,720
                                                                              ------------      -------------

Cash Flows from Investing Activities:
  Capital Expenditures, Cost of Removal and Salvage                                (11,238)          (11,825)
                                                                              ------------      -------------

        Net Cash Used in Investing Activities                                      (11,238)          (11,825)
                                                                              ------------      -------------

Cash Flows from Financing Activities:
  Net Repayments of Lines of Credit                                                (67,200)          (68,300)
  Principal Repayments of Long-Term Debt                                            (4,500)           (6,000)
  Payments for Issuance of Long-Term Debt                                              (43)              (53)
  Additional Investment by Shareholder                                              15,000                 -
                                                                              ------------      -------------

        Net Cash Used in Financing Activities                                      (56,743)          (74,353)
                                                                              ------------      -------------

Net Increase in Cash and Cash Equivalents                                           16,226             3,542
Cash and Cash Equivalents at Beginning of Period                                     3,210             3,580
                                                                              ------------      -------------

Cash and Cash Equivalents at End of Period                                        $ 19,436           $ 7,122
                                                                              ============      =============

<FN>


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

                                     SJG-5

<TABLE>
<CAPTION>


                                             SOUTH JERSEY GAS COMPANY

                                             CONDENSED BALANCE SHEETS
                                                  (In Thousands)
                                                                             (Unaudited)
                                                                              March 31,              December 31,
                                                                   -------------------------------  --------------
                                                                       2004              2003            2003
                                                                   -------------    --------------  --------------
<S>                                                                <C>               <C>             <C>

ASSETS

Property, Plant and Equipment:
   Utility Plant, at original cost                                     $ 904,761         $ 857,218       $ 894,654
     Accumulated Depreciation                                           (214,044)         (198,893)       (209,831)
                                                                   -------------     --------------  --------------

          Property, Plant and Equipment - Net                            690,717           658,325         684,823
                                                                   -------------     --------------  --------------
Investments:
   Available-for-Sale Securities                                           4,633             3,331           4,497
   Investment in Affiliate                                                     -             1,082               -
                                                                   --------------    --------------  --------------

          Total Investments                                                4,633             4,413           4,497
                                                                   -------------     --------------  --------------

Current Assets:
   Cash and Cash Equivalents                                              19,436             7,122           3,210
   Accounts Receivable                                                    74,024           111,737          48,412
   Unbilled Revenues                                                      22,046            18,043          31,070
   Provision for Uncollectibles                                           (3,014)           (3,248)         (3,263)
   Natural Gas in Storage, average cost                                   15,318            10,230          59,432
   Materials and Supplies, average cost                                    3,908             3,677           3,559
   Prepaid Taxes                                                               -                 -           2,661
   Prepaid Pension                                                        17,448                 -          18,206
   Other Prepayments and Current Assets                                    1,942             2,916           2,317
                                                                   -------------    --------------  --------------

          Total Current Assets                                           151,108           150,477         165,604
                                                                   -------------     --------------  --------------

Regulatory Assets:
   Environmental Remediation Costs:
     Expended - Net                                                        4,362             3,656           4,147
     Liability for Future Expenditures                                    50,983            48,211          50,983
   Gross Receipts and Franchise Taxes                                      1,257             1,700           1,367
   Income Taxes - Flowthrough Depreciation                                 7,375             8,352           7,619
   Deferred Fuel Cost - Net                                                    -            17,964           1,720
   Deferred Postretirement Benefit Costs                                   3,307             3,685           3,402
   Societal Benefit Costs                                                  4,212             6,331           7,529
   Other Regulatory Assets                                                   792               523             732
                                                                   -------------     --------------  --------------

          Total Regulatory Assets                                         72,288            90,422          77,499
                                                                   -------------     --------------  --------------

Other Non-Current Assets:
   Unamortized Debt Discount and Expense                                   6,276             5,563           6,383
   Accounts Receivable - Merchandise                                       5,050             2,223           4,671
   Other                                                                   3,055             4,390           2,805
                                                                   -------------     --------------  --------------

          Total Other Non-Current Assets                                  14,381            12,176          13,859
                                                                   -------------     --------------  --------------

               Total Assets                                            $ 933,127         $ 915,813       $ 946,282
                                                                   =============     ==============  ==============
<FN>

The accompanying footnotes are an integral part of the financial statements.
</FN>
</TABLE>
                                     SJG-6

<TABLE>
<CAPTION>

                                             SOUTH JERSEY GAS COMPANY

                                             CONDENSED BALANCE SHEETS
                                                  (In Thousands)

                                                                             (Unaudited)
                                                                              March 31,              December 31,
                                                                   --------------------------------  --------------
                                                                       2004              2003            2003
                                                                   --------------    --------------  --------------
<S>                                                                <C>               <C>             <C>

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         $ 5,848
   Other Paid-In Capital and Premium on Common Stock                     170,317           135,317         155,317
   Accumulated Other Comprehensive Income (Loss)                               4            (8,646)            279
   Retained Earnings                                                     129,062           101,182         108,356
                                                                   --------------    --------------  --------------

          Total Common Equity                                            305,231           233,701         269,800
                                                                   --------------    --------------  --------------

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

Long-Term Debt                                                           259,281           229,098         263,781
                                                                   --------------    --------------  --------------

          Total Capitalization                                           566,202           464,489         535,271
                                                                   --------------    --------------  --------------

Current Liabilities:
   Notes Payable                                                          20,000            85,600          87,200
   Current Maturities of Long-Term Debt                                    5,273            10,696           5,273
   Accounts Payable                                                       38,872            75,074          40,954
   Deferred Income Taxes - Net                                             5,862            17,168           6,694
   Customer Deposits                                                       8,371             7,284           7,957
   Environmental Remediation Costs                                         7,630             4,852           7,630
   Taxes Accrued                                                          23,222            25,159           9,321
   Derivatives                                                                 7                 -               7
   Interest Accrued and Other Current Liabilities                          6,898             6,757           9,414
                                                                   --------------    --------------  --------------

          Total Current Liabilities                                      116,135           232,590         174,450
                                                                   --------------    --------------  --------------

Deferred Credits and Other Non-Current Liabilities:
   Deferred Income Taxes - Net                                           123,325           101,395         118,894
   Environmental Remediation Costs                                        43,353            43,359          43,353
   Regulatory Liabilities                                                 60,729            46,080          49,880
   Pension and Other Postretirement Benefits                              11,393            15,235          11,336
   Investment Tax Credits                                                  3,386             3,732           3,471
   Other                                                                   8,604             8,933           9,627
                                                                   --------------    --------------  --------------

            Total Deferred Credits and Other Non-Current Liabilities     250,790           218,734         236,561
                                                                   --------------    --------------  --------------

Commitments and Contingencies (Note 5)

               Total Capitalization and Liabilities                    $ 933,127         $ 915,813       $ 946,282
                                                                   ==============    ==============  ==============

<FN>

The accompanying footnotes are an integral part of the financial statements.
</FN>
</TABLE>
                                     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). SJG reclassified
some previously reported amounts to conform with current year classifications.
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 2003 Form 10K and annual
certified financial statements.

         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 changes in unrealized gains or losses
included in Other Comprehensive Income (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.

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

         Capitalized Interest - SJG capitalizes interest on construction at its
BPU-approved rate of return on rate base (See Note 2). SJG's capitalized
interest totaled $0.2 million in each of the three month periods ended March 31,
2004 and 2003.

         Derivative Instruments and Hedge Accounting - SJG accounts for its
derivatives under the guidance of FASB Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended. This statement
establishes accounting and reporting standards for derivative instruments,
including those embedded in other contracts, and for hedging activities. It
requires that all derivatives, whether designated as hedging relationships or
not, must be recorded on the balance sheet 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 the changes in the fair value
of the derivative and of the hedged item attributable to the hedged risk in
earnings. If the derivative is designated as a cash flow hedge, we record the
effective portion of changes in the fair value of the derivative in Accumulated
Other Comprehensive Income (Loss) and recognize it in the income statement when

                                     SJG-8

the hedged item affects earnings. We recognize ineffective portions of changes
in the fair value of cash flow hedges in earnings.

         No commodity related activities of SJG are considered subject to the
fair value recognition requirements of Statement No. 133, as amended.

         In May 2003, we entered into an interest rate swap contract that
effectively fixed the interest rate at 2.24% through May 20, 2004 on $20.0
million of our debt outstanding under bank credit agreements. We entered into
this interest rate swap agreement 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 swap agreements is accrued as interest rates change and is recognized
as an adjustment to interest expense. We account for this interest rate swap as
a cash flow hedge. As of March 31, 2004 , the market value of this swap was
$(7,000), which represents the amount we would have to pay the counterparty to
terminate the contract. We included this balance on the condensed balance sheet
under the caption Derivatives. As of March 31, 2004, we calculated this swap to
be highly effective; therefore, we recorded the offset to the hedge liability,
net of taxes, in Accumulated Other Comprehensive Income (Loss).

         We determined the fair value of the interest rate swap agreements using
quotations from independent parties.

         We have also identified other physical transactions that qualify as
derivatives. Management believes, however, based on its interpretation of
guidance issued, that as these derivative contracts relate to the purchase and
sale of natural gas, they qualify for the normal purchases and normal sales
exception and, therefore, are not required to be marked to market.

         New Accounting Pronouncements - In January 2003, SJG adopted FASB
Statement No. 143, "Accounting for Asset Retirement Obligations," which
establishes accounting and reporting standards for legal obligations associated
with the retirement of tangible long-lived assets and the associated asset
retirement costs. We have certain easements and right-of-way agreements that
qualify as legal obligations under Statement No. 143. However, it is our intent
to maintain these agreements in perpetuity; therefore, no change in SJG's
current accounting practices is required related to these agreements.

         SJG recovers certain asset retirement costs through rates charged to
customers as an approved component of depreciation expense. As of March 31, 2004
and 2003, SJG had accrued amounts in excess of actual removal costs incurred
totaling $46.3 million and $42.5 million, respectively, which, in accordance
with Statement No. 143, are recorded as Regulatory Liabilities on the balance
sheets. The adoption of this statement did not affect SJG's results of
operations.

         In January 2003, the FASB issued Interpretation No. (FIN) 46,
"Consolidation of Variable Interest Entities." FIN 46 clarifies the application
of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to
certain entities in which equity investors do not have the characteristics of
controlling financial interest or do not have sufficient equity at risk for the

                                     SJG-9

entity to finance its activities without additional subordinated financial
support from other parties. Management has adopted FIN 46 and determined that
SJG Capital Trust, which was established for the sole purpose of issuing $35
million of mandatorily redeemable preferred securities, could no longer be
consolidated into SJI's financial statements effective July 1, 2003. These
securities were redeemed in November 2003. Prior periods were restated to report
the original equity investment amount in SJG Capital Trust as a separate $1.1
million investment in an affiliate and the $36.1 million subordinated debenture
to SJG Capital Trust as debt on its condensed balance sheet rather than the $35
million of mandatorily redeemable preferred securities as previously reported.
The adoption of FIN 46 did not impact SJG's net income or retained earnings for
the periods reported. The Company is not a party to any variable interest
entities covered by FIN 46.

         In December 2003, the FASB revised Statement No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." This revised
statement requires certain interim period disclosures about pension and other
postretirement benefit plans (see Note 4).

         Regulatory Assets & Regulatory Liabilities - All significant regulatory
assets are separately identified on the condensed balance sheets under the
caption Regulatory Assets. Each item that is separately identified is being
recovered through utility rate charges without a return on investment over the
following periods:
                                                               Years Remaining
                  Regulatory Asset                          As of March 31, 2004
                  ----------------                          --------------------

         Environmental Remediation Costs:
                  Expended - Net                                    Various
                  Liability for Future Expenditures             Not Applicable
         Gross Receipts and Franchise Taxes                            3
         Income Taxes - Flowthrough Depreciation                       8
         Deferred Fuel Costs - Net                                  Various
         Deferred Postretirement Benefit Costs                         9
         Societal Benefit Costs  Various                            Various

         The majority of the assets reflected under the caption Other Regulatory
Assets are currently being recovered or are subject to filings with the BPU
requesting recovery. Management believes that all such deferred costs are
probable of recovery from ratepayers through future utility rates.

         Regulatory Liabilities consisted of the following items (in thousands):

                                              March 31,             December 31,
                                          2004         2003             2003
                                         ------     --------      --------------

  Deferred Revenues - Net            $     9,117     $        -     $         -
  Excess Plant Removal Costs              46,296         42,453          45,241
  Overcollected State Taxes                5,030          3,341           4,353
  Other                                      286            286             286
                                     -----------     ----------     -----------
       Total Regulatory Liabilities  $    60,729     $   46,080     $    49,880
                                     ===========     ==========     ===========

                                     SJG-10

         Deferred Revenues - Net reflects the overrecovery of gas costs from
ratepayers under SJG's gas cost clauses (See Note 2 - Regulatory Actions).
Excess Plant Removal Costs represent amounts accrued in excess of actual utility
plant removal costs incurred to date (See New Accounting Pronouncements). All
other amounts are subject to being returned to ratepayers in future rate
proceedings.

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

Note 2.  Regulatory Actions:

         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 provides for the recovery of cost of service,
including deferred costs, through base rates. Additionally, our threshold for
sharing pre-tax margins generated by interruptible and off-system sales and
transportation increased. Currently, we keep 100% of pre-tax margins up to the
threshold level of $7.8 million. The next $750,000 is credited to customers
through the Basic Gas Supply Service (BGSS) clause. Thereafter, we keep 20% of
the pre-tax margins as we have historically.

         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, 2004, 106,620 of our 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 our revenues is offset by a corresponding decrease in gas costs.
While customer choice can reduce utility revenues, it does not negatively affect
our net income or financial condition. The BPU continues to allow for full
recovery of prudently incurred natural gas costs through the BGSS. Unbundling
did not change the fact that SJG still recovers cost of service, including
certain deferred costs, through base rates.

         In November 2001, SJG filed for a $2.7 million rate increase to recover
the cash related to a prior net deficiency in the Temperature Adjustment Clause
(TAC). Additionally, in September 2002, we filed for an $8.6 million rate
increase to recover the cash related to a TAC deficiency resulting from
warmer-than-normal weather for the 2001-2002 winter. As a result of the
colder-than-normal 2002-2003 winter, the cumulative TAC deficiency decreased to
$5.7 million. In August 2003, the BPU approved the recovery of the $5.7 million
TAC deficiency, effective September 1, 2003. As of March 31, 2004, the remaining
deferred TAC deficiency totaled $1.1 million.

         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%. As of March 31, 2004, the remaining deferred
underrecovered balance totaled $5.6 million.

                                     SJG-11


         During 2002, the BPU convened a gas policy group to address Basic Gas
Supply Service (BGSS), which is the gas supply service being provided by the
natural gas utility. In December 2002, the BPU approved the proposed BGSS price
structure. The BGSS-approved price structure replaced the Levelized Gas
Adjustment Clause (LGAC) pricing structure. The LGAC was structured to reset gas
charges to consumers once per year. The BGSS resets gas prices monthly for
larger customers, and for smaller customers permits multiple resets each year,
if certain conditions are met. With the implementation of BGSS in March 2003,
customers can make more informed decisions about choosing an alternate supplier
by having a utility pricing structure that more currently reflects market
conditions. Further, BGSS provides us with more pricing flexibility, through
self-implementing rate changes under certain conditions and limitations,
conceptually resulting in the reduction of over/under-recoveries. LGAC-related
mechanisms, such as deferred accounting treatment, the sharing of pre-tax
margins generated by interruptible and off-system sales and transportation, and
the allowance for full recovery of prudently incurred natural gas costs, remain
in place under BGSS.

         In August 2002, SJG filed for a Societal Benefits Clause (SBC) rate
increase. The SBC recovers costs related to BPU-mandated programs and
environmental remediation costs that are recovered through our Remediation
Adjustment Clause; energy efficiency and renewable energy program costs that are
recovered through our New Jersey Clean Energy Programs; consumer education
program costs; and the interim low income program costs. In August 2003, the BPU
approved a $6.7 million increase to our SBC, effective September 1, 2003. This
approval increased the annual recovery level of $6.7 million to $13.4 million.

         Also in August 2002, SJG filed a petition with the BPU to transfer its
appliance service business from the regulated utility into a newly created
unregulated company. As filed, the newly created company would have the
flexibility to be more responsive to competition and customer needs by expanding
and modifying its service offerings in an unregulated environment.

         In September 2002, SJG filed with the BPU to maintain its current BGSS
rate through October 2003. However, due to price increases in the wholesale
market, in February 2003, we filed an amendment to the September 2002 filing. In
April 2003, the BPU approved a $16.6 million increase to our annual gas costs
recoveries.

         In March 2003, the BPU approved a statewide Universal Service Fund
(USF) program on a permanent basis. In June 2003, the BPU established a
statewide 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. The BPU ordered that utility rates be
set to recover a total statewide USF budget of $33.0 million, and a total
Lifeline budget of $72.0 million. Recovery rates for both programs were
implemented on August 1, 2003. On April 1, 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. Approximately $20.0 million of this amount is due
to the estimated statewide underrecovery for the current year program costs.
Another $9.0 million of the total was estimated in order to provide for the
March 4, 2004 Board-Ordered Arrearage Payment Program, which is being
implemented to provide customers with the opportunity to eliminate their
arrearage balances.

                                     SJG-12

         In July 2003, SJG made its annual BGSS filing, as amended, with the
BPU. Due to further price increases in the wholesale market, we filed for a
$24.0 million increase to our annual gas cost revenues. In August 2003, the BPU
approved SJG's price increase on a provisional basis, subject to refund with
interest, effective September 1, 2003.

         In August 2003, SJG filed a base rate case with the BPU to increase its
base rates to obtain a certain level of return on its invested capital. We
expect the rate case to be concluded during 2004. We have not sought a base rate
increase from the BPU since the implementation of its base rate case approval in
January 1997.

         In February 2004, SJG filed notice with the BPU to reduce its gas cost
revenues by approximately $5.0 million, via a rate reduction, in addition to
providing for an approximate $21.8 million bill credit to customers. Both the
rate reduction and bill credit were approved and implemented in March 2004.

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

Note 3.  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, 2004, these restrictions did not affect the amount that may be
distributed from SJG's retained earnings.

         We received equity infusions of $15.0 million during the first quarter
of 2004 and $20.0 million during 2003 from SJI. 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 4.  Pensions & Other Postretirement Benefits:

         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 in certain classifications do not qualify for participation in the
defined benefit pension plan. The other postretirement benefit plans provide
health care and life insurance benefits to some retirees.

         On December 8, 2003, the President signed into law the Medicare
Prescription Drug, Improvement and Modernization Act (the "Act") of 2003. In
accordance with FASB Staff Position No. 106-1, "Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003," issued in December 2003, management has elected to
defer any financial impact resulting from the Act pending the availability of
more information. As such, measures of the accumulated projected benefit
obligation or net periodic postretirement benefit cost in the financial
statements or accompanying notes do not reflect the effects of the Act on the
plan. Furthermore, specific authoritative guidance on the accounting for the
federal subsidy is pending and that guidance, when issued, could require changes
to previously reported information.

                                     SJG-13


          Net periodic benefit cost for the three months ended March 31, 2004
and 2003 related to the pension and other postretirement benefit insurance plans
consisted of the following components (in thousands):

<TABLE>
<CAPTION>


                                                               Pension Benefits             Other Benefits
                                                               2004         2003           2004         2003
                                                            --------      -------         ------       ------
              <S>                                           <C>          <C>            <C>          <C>

              Service Cost                                  $     672    $     579      $     341    $     290
              Interest Cost                                     1,274        1,205            603          476
              Expected Return on Plan Assets                   (1,580)      (1,241)          (351)        (202)
              Amortization of
                  Transition Obligation                             -           16            189          144
              Amortization of Loss and Other                      388          402             37           74
                                                            ---------    ---------      ---------    ---------

              Net Periodic Benefit Cost                     $     754    $     961      $     819    $     782
                                                            =========    =========      =========    =========
</TABLE>

         Contributions - SJG expects to make no contributions to its pension
plan and contribute approximately $3.6 million in equal quarterly installments
to its other postretirement benefit plans in 2004.

Note 5.           Commitments and Contingencies:

         Construction and Environmental Commitments - Our estimated net cost of
construction and environmental remediation programs for 2004 totals $67.7
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 2004. 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 $4.2
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. We also maintain insurance and record
probable insurance recoveries relating to outstanding 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 sites where the Company or its predecessors operated
gas manufacturing plants. We stopped manufacturing gas in the 1950s.

                                     SJG-14


         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 following minimum future cost estimate was not
reduced by projected insurance recoveries from the Cleanup Cost Cap Insurance
Policy.

         Since the early 1980s, we accrued environmental remediation costs of
$138.4 million, of which $87.4 million has been spent as of March 31, 2004. With
the assistance of a consulting firm, we estimate that future costs to clean up
our sites will range from $51.0 million to $162.3 million. We recorded the lower
end of this range as a liability. It is reflected on the 2004 condensed balance
sheet under the captions Current Liabilities and Deferred Credits and Other
Non-Current Liabilities (See Note 1). Recorded amounts include estimated costs
based on projected investigation and remediation work plans using existing
technologies. Actual costs could differ from the estimates due to the long-term
nature of the projects, changing technology, government regulations and
site-specific requirements.

         We have two regulatory assets associated with environmental costs. The
first asset is titled Environmental Remediation Cost: Expended - Net. These
expenditures represent what was actually spent to clean up former gas
manufacturing plant sites. These costs meet the requirements of FASB Statement
No. 71. The BPU allows us to recover expenditures through the RAC (See Note 2).

         The other asset titled Environmental Remediation Cost: Liability for
Future Expenditures relates to estimated future expenditures determined under
the guidance of FASB Statement No. 5, "Accounting for Contingencies." We
recorded this amount, which relates to former manufactured gas plant sites, as a
deferred debit with the corresponding amount reflected on the condensed balance
sheets under the captions, Current Liabilities and Deferred Credits and Other
Non-Current Liabilities. The recorded deferred debit is a regulatory asset under
Statement No. 71. The BPU's intent, evidenced by current practice, is to allow
us to recover the deferred costs after these costs are spent over 7-year
periods. As of March 31, 2004, we reflected the unamortized remediation costs of
$4.4 million on the condensed balance sheet under the caption Regulatory Assets.
Since implementing the RAC in 1992, we have recovered $40.5 million through
rates (See Note 2).

                                     SJG-15


            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
307,044 customers at March 31, 2004 compared with 298,767 customers at March 31,
2003. 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       services appliances via the sale of appliance warranty programs
                as well as on a time and materials basis.

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

         A number of factors could cause our actual results to differ materially
from those anticipated including, but not limited to, the following: general
economic conditions on an international, national, state and local level;
weather conditions in our marketing areas; changes in commodity costs; changes
in the availability of natural gas; legislative, 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.

Critical Accounting Policies

         Estimates and Assumptions - As described in the footnotes to our
condensed 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. Four types of
transactions presented in our condensed financial statements require a
significant amount of judgment and estimation. These relate to regulatory
assets, environmental remediation costs, postretirement employee benefit costs
and unbilled revenues.

                                     SJG-16

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

         An outside consulting firm assists us in estimating future costs for
environmental remediation activities. We estimate future costs based on
projected investigation and work plans using existing technologies. Developing a
single reliable estimation point is not feasible because of the amount of
uncertainty involved in the nature of projected remediation efforts and the long
period over which remediation efforts will continue. Therefore, we estimate the
range of future costs at $51.0 million to $162.3 million. In preparing financial
statements, we record liabilities for future costs using the lower end of the
range. We update estimates each year to take into account past efforts, changes
in work plans and remediation technologies.

         The costs of providing postretirement employee benefits are impacted by
actual plan experience as well as assumptions of future experience. Employee
demographics, plan contributions, investment performance, and actuarial
assumptions concerning return on plan assets, discount rates and health care
cost trends all have a significant impact on determining our projected benefit
obligations. Actuarial assumptions are evaluated annually with the assistance of
our investment manager and actuary and adjusted accordingly. These adjustments
could result in significant changes to the net periodic benefit cost of
providing such benefits and the related liability recognized by SJG.

         A majority of SJG's customers have their meters read on a cycle basis
throughout the month. As a result, recognized revenues include estimates as
described below.

         Revenue Recognition - SJG bills customers monthly for gas delivered and
recognizes those revenues during the month. For SJG customers that are not
billed at the end of each month, we make an accrual to recognize revenues for
gas delivered from the date of the last meter reading to the end of the month.
We bill our customers at rates approved by the BPU.

         We defer and recognize revenues related to SJG's appliance service
contracts over the full 12-month term of the contract as earned.

         The BPU allows us to recover gas costs in rates through the Basic Gas
Supply Service (BGSS) price structure (which replaced the Levelized Gas
Adjustment Clause). We defer over/under-recoveries of gas costs and include them
in subsequent adjustments to the BGSS rate or other similar rate recovery
mechanism. These adjustments result in over/under-recoveries of gas costs being
included in rates during future periods. As a result of these deferrals, utility
revenue recognition does not directly translate to profitability. While we
realize profits on gas sales during the month of providing the utility service,
significant shifts in revenue recognition may result from the various recovery
clauses approved by the BPU (See Recent Regulatory Actions) without shifting

                                     SJG-17

profits between periods, as these clauses provide for recovery of costs on a
dollar-for-dollar basis.

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

         Temperature Adjustment Clause - A Board of Public Utilities approved
Temperature Adjustment Clause (TAC) decreased SJG's net income by $0.7 million
and $1.4 million for the three months ended March 31, 2004 and 2003,
respectively. 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 - In November 2001, SJG filed for a $2.7
million rate increase to recover the cash related to a prior net deficiency in
the Temperature Adjustment Clause (TAC). Additionally, in September 2002, SJG
filed for an $8.6 million rate increase to recover the cash related to a TAC
deficiency resulting from warmer-than-normal weather for the 2001-2002 winter.
As a result of the colder-than-normal 2002-2003 winter, the cumulative TAC
deficiency decreased to $5.7 million. In August 2003, the BPU approved the
recovery of the $5.7 million TAC deficiency, effective September 1, 2003. As of
March 31, 2004, the remaining deferred TAC deficiency totaled $1.1 million.

         In August 2002, SJG filed for a Societal Benefits Clause (SBC) rate
increase. The SBC recovers costs related to BPU-mandated programs and
environmental remediation costs that are recovered through SJG's Remediation
Adjustment Clause; energy efficiency and renewable energy program costs that are
recovered through SJG's New Jersey Clean Energy Programs; consumer education
program costs; and the interim low income program costs. In August 2003, the BPU
approved a $6.7 million increase to SJG's SBC, effective September 1, 2003. This
approval increased the annual recovery level of $6.7 million to $13.4 million.

         Also in August 2002, SJG filed a petition with the BPU to transfer its
appliance service business from the regulated utility into a newly created
unregulated company. As filed, the newly created company would have the
flexibility to be more responsive to competition and customer needs by expanding
and modifying its service offerings in an unregulated environment.

         In September 2002, SJG filed with the BPU to maintain its current Basic
Gas Supply Service (BGSS) rate through October 2003. However, due to price
increases in the wholesale market, in February 2003, SJG filed an amendment to
the September 2002 filing. In April 2003, the BPU approved a $16.6 million
increase to SJG's annual gas cost revenues.

         In March 2003, the BPU approved a statewide Universal Service Fund
(USF) program on a permanent basis. In June 2003, the BPU established a
statewide 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. The BPU ordered that utility rates be

                                     SJG-18

set to recover a total statewide USF budget of $33.0 million, and a total
Lifeline budget of $72.0 million. Recovery rates for both programs were
implemented on August 1, 2003. On April 1, 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. Approximately $20.0 million of this amount is due
to the estimated statewide underrecovery for the current year program costs.
Another $9.0 million of the total was estimated in order to provide for the
March 4, 2004 Board-Ordered Arrearage Payment Program, which is being
implemented to provide customers with the opportunity to eliminate their
arrearage balances.

         In July 2003, SJG made its annual BGSS filing, as amended, with the
BPU. Due to further price increases in the wholesale market, SJG filed for a
$24.0 million increase to its annual gas cost revenues. In August 2003, the BPU
approved SJG's price increase on a provisional basis, subject to refund with
interest, effective September 1, 2003.

         In August 2003, SJG filed a base rate case with the BPU to increase its
base rate to obtain a certain level of return on its investment of capital. SJG
expects the rate case to be concluded during 2004. SJG has not sought a base
rate increase from the BPU since the implementation of its base rate case
approval in January 1997.

         In February 2004, SJG filed notice with the BPU to reduce its gas cost
revenues by approximately $5.0 million, via a rate reduction, in addition to
providing for an approximate $21.8 million bill credit to customers. Both the
rate reduction and bill credit were approved and implemented in March 2004.

         Filings and petitions described above are still pending unless
otherwise indicated. Additional discussion concerning Regulatory Actions can be
found in Note 2 to the condensed financial statements.

         Environmental Remediation - We incurred and recorded costs for
environmental clean up of sites where SJG or its predecessors operated
manufactured gas plants (MGP). SJG stopped manufacturing gas in the 1950s. We
successfully entered into settlements with all of SJG's historic comprehensive
general liability carriers regarding environmental remediation expenditures at
former MGP sites. As part of these settlements, SJG purchased an insurance
policy that caps its remediation expenditures at 11 of these sites. The
insurance policy is in force 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 SJG to recover incurred costs
in equal installments over 7-year periods with carrying costs. As of March 31,
2004, SJG has $4.4 million of remediation costs not yet recovered through rates.

         Other matters are incorporated by reference to Note 5 to the condensed
financial statements included as part of this report.

                                     SJG-19

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

         Customer Choice Legislation - All residential natural gas customers in
New Jersey can choose their gas supplier under the terms of the Electric
Discount and Energy Competition Act of 1999. As of March 31, 2004, 106,620 SJG
residential customers chose a natural gas commodity supplier other than the
utility. This number increased from 92,897 at March 31, 2003 as marketers were
able to offer natural gas at prices competitive with those available under
regulated utility tariffs. Customers purchasing natural gas from providers other
than SJG are charged for gas costs by the marketer, not SJG. The resulting
decrease in SJG's revenues is offset by a corresponding decrease in SJG's gas
costs. While customer choice can reduce utility revenues, it does not negatively
affect SJG's net income or financial condition. The BPU continues to allow for
full recovery of prudently incurred natural gas costs through the Basic Gas
Supply Service clause as well as other costs of service including deferred
costs, through tariffs.

         Results of Operations

         Operating Revenues - Revenues decreased $39.8 million during the first
quarter of 2004 compared with the same period in 2003. This decrease was
primarily due to three factors. First, weather was 2.6% warmer than last year,
which resulted in a reduction in utility sales volumes. Second, Off-System Sales
revenues decreased significantly as a direct result of lower sales volumes and
lower prices for natural gas sold in 2004 compared with the same period in 2003.
Third, there was a 14.8% increase in the number of residential customers
purchasing their gas from a source other than SJG. The decline in customers who
purchased their natural gas from SJG directly impacted utility revenues.
However, since gas costs are passed on directly to customers without any profit
margin added by SJG, the increased customer usage of gas marketers did not
impact SJG's profitability. Partially offsetting the effect of these factors
were 8,277 customer additions over the last 12 months. In addition, the BPU
approved two rate increases in SJG's Basic Gas Supply Service clause to address
the recovery of the increasing price of natural gas sold after March 31, 2003
and an increase in SJG's Societal Benefits Clause recoveries to fund state
sponsored programs (See Recent Regulatory Actions).

         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

                                     SJG-20

impacted by warmer weather. Weather in 2004 was 2.6% warmer than in 2003 and
3.4% colder than the 20-year TAC average.

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

                                                      2004             2003
                                                     ------           ------
Operating Revenues (thousands):
Firm
     Residential                                 $      81,141     $      89,308
     Commercial                                         23,966            27,430
     Industrial                                          2,317             2,367
     Cogeneration & Electric Generation                    419             1,322
     Firm Transportation                                32,869            28,060
                                                 -------------     -------------

         Total Firm Operating Revenues                 140,712           148,487
                                                 -------------     -------------

Interruptible                                              288               491
Interruptible Transportation                               295               195
Off-System                                              55,352            88,730
Capacity Release & Storage                               2,727             1,303
Other                                                      750               730
                                                 -------------     -------------

         Total Operating Revenues                $     200,124     $     239,936
                                                 =============     =============

Throughput (MMcf):
Firm
     Residential                                         7,488             8,055
     Commercial                                          2,431             2,729
     Industrial                                             92               105
     Cogeneration & Electric Generation                     25               108
     Firm Transportation                                12,212            11,063
                                                 -------------     -------------

         Total Firm Throughput                          22,248            22,060
                                                 -------------     -------------

Interruptible                                               34                36
Interruptible Transportation                               576               411
Off-System                                               7,833            11,730
Capacity Release & Storage                              11,662             5,993
                                                 -------------     -------------

         Total Throughput                               42,353            40,230
                                                 =============     =============

                                     SJG-21

         Gas Purchased for Resale - Gas purchased for resale decreased $42.6
million for the first quarter of 2004 compared with 2003 due principally to a
significant decrease in sales volumes and lower gas costs for Off-System Sales.
Gas Costs associated with Off-System Sales decreased by $31.5 million as
compared with the same quarter last year. SJG's gas cost during 2004 averaged
$6.74 per decatherm (dt) compared with $6.80/dt in 2003. Unlike gas costs
associated with Off-System Sales, changes in the unit cost of gas sold to
utility ratepayers do not directly affect cost of gas sold. 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,
formerly known as the Levelized Gas Adjustment Clause. SJG also experienced a
decrease in gas costs as a result of the continued migration of customers from
sales to transportation services as described under Operating Revenues. As a
result of this migration and the impact of warmer weather, firm sales volume
decreased by 8.7% compared to the same period last year.

         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.

         Operations - A summary of net changes in operations for the three
 months ended March 31 (in thousands):

                                                          2004 vs. 2003
                                                          -------------

         Other Production Expense                          $         2
         Transmission                                               35
         Distribution                                              (97)
         Customer Accounts and Services                          2,831
         Sales                                                      22
         Administration and General                               (777)
                                                           ------------

                  Total Operations                         $     2,016
                                                           ============

         Customer Accounts and Services expense increased significantly in 2004
as a result of the BPU-approved increase in SJG's Societal Benefits Clause (SBC)
in August 2003 (See Recent Regulatory Actions). With this approval, recoveries
and a corresponding charge to expense for previously deferred costs under SJG's
New Jersey Clean Energy Programs increased by $3.0 million in the first quarter
of 2004 when compared with the same period in 2003. The BPU-approved SBC clause
allows for full recovery of these deferred costs including carrying costs and,
as a result, the increase in expense has no impact on SJG's net income. This
increase was partially offset by lower bad debt expense in 2004 as a result of a
March 2004 BGSS refund improving SJG's accounts receivable aging (See Recent
Regulatory Actions).

         Administrative and General expenses decreased in the first quarter of
2004 compared with the same period of 2003 primarily because of lower pension
expense, lower insurance expense and cost control measures implemented
throughout the company. Pension expense decreased $207,000 from 2003 to 2004 as
a result of SJG making a $9.1 million pension plan contribution in December 2003

                                     SJG-22

as well as an improvement in investment returns throughout 2003 (See Note 4 to
the condensed financial statements). Insurance expense was reduced by $340,000
in 2004 by lowering SJG's reserve for outstanding claims following a period of
favorable settlements that were not appealed as anticipated.

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

                                                   2004 vs. 2003
                                                   -------------

Maintenance                                        $      (112)
Depreciation                                               376
Energy and Other Taxes                                    (300)

         Depreciation was higher due to SJG's increased investment in property,
plant and equipment. The decrease in Energy and Other Taxes relate primarily to
lower revenue-based taxes and decreases in taxable volumes of gas sold and
transported by SJG (See table under the caption, "Operating Revenues").

         Other Income and Expense - Other income and expense was higher in the
first quarter of 2004 compared with the first quarter of 2003 due to a pre-tax
gain of $686,000 on SJG's postretirement healthcare plan trust. The movement of
plan assets to a new investment manager triggered the recognition of gains on
investments.

         Interest Charges - Interest charges decreased in the first quarter of
2004 compared with the same period of the prior year due to reductions in
short-term rates on line of credit borrowings, the refunding of higher priced,
fixed rate, long-term debt with lower cost debt, and a lower total debt level.
These refundings occurred primarily during the second half of 2003 and were
financed with long-term debt issuances under our Medium Term Note program at
significantly lower interest rates compared with the previous long-term interest
rates. We have incurred debt primarily to expand and upgrade SJG's gas
transmission and distribution system, and to support seasonal working capital
needs related to gas inventories and customer receivables.

         Net Income Applicable to Common Stock - Net income increased $1.3
million, or 6.5%, to $20.7 million in 2004 as compared with $19.4 million in
2003. Reasons for the increase in net income in the first quarter of 2004 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.

         We first seek to meet liquidity needs with net cash provided by
operating activities. Net cash provided by operating activities varies from year

                                     SJG-23

to year primarily due to the impact of weather on customer demand and related
gas purchases, inventory utilization and gas cost recoveries. We utilize
short-term borrowings under credit facilities provided by commercial banks to
supplement cash from operations where necessary.

         Bank credit available to SJG totaled $176.0 million at March 31, 2004,
of which $20.0 million was used. Those bank facilities consist of a $100.0
million, 3-year revolving credit and $76.0 million of uncommitted bank lines.
The revolving credits were established in August 2003 with a syndicate of banks
to enhance the liquidity position of SJG. 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 business' future
liquidity needs.

         SJG supplements its operating cash flow and credit lines with both debt
and equity capital. 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 assets as the First Mortgage Bonds, to finance its long-term
borrowing needs. These needs are primarily capital expenditures for property,
plant and equipment. SJG's registration of a $150.0 million MTN program with the
Securities and Exchange Commission became effective in December 2002. In July
2003, SJG issued $85.5 million of long-term debt under the program. In September
2003, SJG issued an additional $24.5 million of MTNs. Consequently, $40.0
million of the MTN program remains available for future debt issuances. Proceeds
of the July and September issues were used to refinance short-term debt
outstanding to commercial banks and for the redemption of certain high-rate
First Mortgage Bonds. Current maturities on long-term debt over the next five
years are $5.3 million per year in 2004 through 2007 and $3.0 million in 2008.

         SJG's capital structure was as follows:

                                             As of               As of
                                            March 31,         December 31,
                                       2004         2003          2003
                                      ------       ------         -----


Common and Preferred Stock Equity        52%          42%           43%
Long-Term Debt                           45%          43%           43%
Short-Term Debt                           3%          15%           14%
                                         ---         ----          ----

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

         SJG typically experiences seasonal fluctuations in leverage as
short-term debt has historically peaked in the November to January period in
support of high inventory and receivable levels. The seasonal low point for
short-term debt incurred in support of working capital usually occurs between
the end of March and the end of May each year. The ratios presented in the chart
above reflect a conscious effort by management to increase the percentage of
equity in SJG's capital structure over the past year.

                                     SJG-24


         SJI contributed $15.0 million and $20.0 million of capital to SJG
during 2004 and 2003, respectively. Contributions of capital are credited to
Other Paid-in Capital and Premium on Common Stock.

         Capital Expenditures, Commitments and Contingencies

         Capital Expenditures - SJG has a continuing need for cash resources and
capital, primarily to invest in new and replacement facilities and equipment and
for environmental remediation costs. Net construction and remediation
expenditures for the first quarter of 2004 amounted to $11.5 million. We
estimate the net costs for 2004, 2005 and 2006 at approximately $67.8 million,
$54.9 million and $50.5 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, 2004 averaged $44.8 million annually and
totaled $244.2 million over the contracts' lives. 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'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.

         The following table summarizes our contractual cash obligations and
their applicable payment due dates (in thousands):

<TABLE>
<CAPTION>

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

Long-Term Debt                                     $   264,554  $     5,273  $    10,546  $     8,270   $   240,465
Operating Leases                                           850          381          375           67            27
Construction Obligations                                 7,964        7,964            -            -             -
Commodity Supply
   Purchase Obligations                                244,200       44,400       81,200       70,600        48,000
Other Purchase Obligations                               3,181        2,478          703            -             -
                                                   -----------  -----------  -----------  -----------   -----------

Total Contractual Cash Obligations                 $   520,749  $    60,496  $    92,824  $    78,937   $   288,492
                                                   ===========  ===========  ===========  ===========   ===========
</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 expects to make no contributions to its pension plan and contribute
approximately $3.6 million in equal quarterly installments to its other
postretirement benefit plans in 2004.

         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

                                     SJG-25

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.

        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,
                   ----------------------------------------------------

      2004         2003        2002        2001        2000        1999
      ----         ----        ----        ----        ----        ----
      3.5x         3.3x        2.9x        2.6x        2.6x        2.5x

         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.

                                     SJG-26

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

         Commodity Market Risks - SJG is a regulated utility. As such, we
recover gas commodity costs under the Basic Gas Supply Service Clause that is
part of our tariff. While SJG is protected from gas cost fluctuations by the
clause, we do not utilize forward contracts to shield our customers from gas
cost fluctuations.

         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, 2004 was $20.0 million and averaged $51.4 million
for the first quarter. A hypothetical 100 basis point (b.p.), or 1%, increase in
interest rates on our average variable rate debt outstanding would result in a
$303,000 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: 2003 - 31 b.p. decrease; 2002 - 74 b.p. decrease; 2001 - 383 b.p.
decrease; 2000 - 83 b.p. increase; and 1999 - 81 b.p. increase. For March 2004,
our average interest rate on variable rate debt was 1.80%.

         To reduce exposure to an interest rate increase on our variable rate
debt, SJG entered into an interest rate swap agreement that became effective in
June 2003, which fixed the rate on $20.0 million of variable rate debt through
May 2004 at 2.24%. 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 prepaid, at par, $1.5 million of 8.6%
debenture notes in February 2004.

                                     SJG-27

                         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-14. 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. There have been no significant
changes in internal controls, or in factors that could significantly affect
internal controls, subsequent to the date the Chief Executive Officer and Chief
Financial Officer completed their evaluation.

         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 5, beginning on page 14.



                                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, 2004               By:  /s/ Edward J. Graham
                                          -------------------------------
                                          Edward J. Graham
                                          President & Chief Executive Officer



  Dated:  May 10, 2004               By:  /s/ David A. Kindlick
                                          ------------------------------
                                          David A. Kindlick
                                          Executive Vice President &
                                           Chief Financial Officer

                                     SJG-30

                                                                Exhibit 31.1

                                  CERTIFICATION


I, Edward J. Graham, certify that:

1. I have reviewed this report on Form 10-Q for the period ended March 31, 2004,
of South Jersey Gas Company;

2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

     a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;

     b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and

     c) disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent function):

     a) all significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and

     b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.



Date: May 10, 2004                /s/   Edward J. Graham
                                  --------------------------------------------
                                  Edward J. Graham
                                  President & Chief Executive Officer

                                     SJG-31



                                                             Exhibit 31.2
                                  CERTIFICATION


I, David A. Kindlick, certify that:

1. I have reviewed this report on Form 10-Q for the period ended March 31, 2004,
of South Jersey Gas Company;

2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e))for the registrant and we have:

     a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;

     b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and

     c) disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent function):

     a) all significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and

     b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.



Date: May 10, 2004             /s/   David A. Kindlick
                              --------------------------------------------
                              David A. Kindlick
                              Executive Vice President &
                               Chief Financial Officer


                                     SJG-32

                                                                Exhibit 32.1

                CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
                      AS ADOPTED PURSUANT TO SECTION 906 OF
                         THE SARBANES-OXLEY ACT OF 2002

         In connection with the filing of the Quarterly Report on Form 10-Q of
South Jersey Gas Company (the "Company") for the period ended March 31, 2004, as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Edward J. Graham, Chief Executive Officer of the Company, hereby
certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

         (1)      The Report fully complies with the requirements of
                  Section 13(a) or Section 15(d) of the Securities Exchange Act
                  of 1934; and

         (2)      The information contained in the Report fairly presents, in
                  all material respects, the financial condition and results of
                  operations of the Company.





---------------------------------
Name:  Edward J. Graham
Title:  Chief Executive Officer
May 10, 2004


                                     SJG-33



                                                                  Exhibit 32.2



                CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
                      AS ADOPTED PURSUANT TO SECTION 906 OF
                         THE SARBANES-OXLEY ACT OF 2002

         In connection with the filing of the Quarterly Report on Form 10-Q of
South Jersey Gas Company (the "Company") for the period ended March 31, 2004, as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, David A. Kindlick, Chief Financial Officer of the Company, hereby
certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

         (1)      The Report fully complies with the requirements of
                  Section 13(a) or Section 15(d) of the Securities Exchange Act
                  of 1934; and

         (2)      The information contained in the Report fairly presents, in
                  all material respects, the financial condition and results of
                  operations of the Company.





/s/ David A. Kindlick
---------------------------------
Name: David A. Kindlick
Title: Chief Financial Officer
May 10, 2004

                                     SJG-34
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================================================================================

                                  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, 2004

                                       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 10, 2004 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.

================================================================================
                                   Cover Page

                         PART I -- FINANCIAL INFORMATION

              Item 1. Financial Statements-- See Pages 3 through 15

                                     SJG-2

                            SOUTH JERSEY GAS COMPANY

                   CONDENSED STATEMENTS OF INCOME (UNAUDITED)
                                 (In Thousands)

                                                     Three Months Ended
                                                         March 31,
                                             -----------------------------------

                                                  2004                2003
                                             -----------------------------------

Operating Revenues                                 $ 200,123          $ 239,936
                                             ----------------    ---------------

Operating Expenses:
   Gas Purchased for Resale                          136,237            178,865
   Operations                                         12,508             10,492
   Maintenance                                         1,345              1,457
   Depreciation                                        6,163              5,787
   Energy and Other Taxes                              4,728              5,028
                                             ----------------    ---------------

      Total Operating Expenses                       160,981            201,629
                                             ----------------    ---------------

Operating Income                                      39,142             38,307

Other Income and Expense                                 567               (118)

Interest Charges                                       4,320              4,784
                                             ----------------    ---------------

Income Before Income Taxes                            35,389             33,405

Income Taxes                                          14,683             13,971
                                             ----------------    ---------------

Net Income Applicable to Common Stock               $ 20,706           $ 19,434
                                             ================    ===============

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,
                                                             ---------------------------------

                                                                 2004               2003
                                                             --------------    ---------------
Net Income Applicable to Common Stock                             $ 20,706           $ 19,434
                                                             --------------    ---------------

Other Comprehensive (Loss) Income, Net of Tax:*

  Change in Fair Value of Investments                                 (275)               (40)
  Change in Fair Value of Derivatives                                    -                 83
                                                             --------------    ---------------

     Other Comprehensive (Loss) Income - Net of Tax*                  (275)                43
                                                             --------------    ---------------

Comprehensive Income                                              $ 20,431           $ 19,477
                                                             ==============    ===============
* 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,
                                                                              -------------------------------
                                                                                  2004             2003
                                                                              ------------      -------------
Cash Flows from Operating Activities:
  Net Income Applicable to Common Stock                                           $ 20,706          $ 19,434
  Adjustments to Reconcile Net Income to Cash Flows
   Provided by Operating Activities:
    Depreciation and Amortization                                                    6,783             6,371
    Provision for Losses on Accounts Receivable                                        335               489
    Revenues and Fuel Costs Deferred - Net                                          10,837            13,630
    Deferred and Non-Current Income Taxes and Credits - Net                          3,906               264
    Environmental Remediation Costs - Net                                             (215)            2,814
    Changes in:
      Accounts Receivable                                                          (17,172)          (40,422)
      Inventories                                                                   43,765            31,019
      Prepayments and Other Current Assets                                             375               519
      Prepaid and Accrued Taxes - Net                                               16,562            23,387
      Accounts Payable and Other Accrued Liabilities                                (4,184)           31,305
      Other - Net                                                                    2,509               910
                                                                              ------------      -------------

        Net Cash Provided by Operating Activities                                   84,207            89,720
                                                                              ------------      -------------

Cash Flows from Investing Activities:
  Capital Expenditures, Cost of Removal and Salvage                                (11,238)          (11,825)
                                                                              ------------      -------------

        Net Cash Used in Investing Activities                                      (11,238)          (11,825)
                                                                              ------------      -------------

Cash Flows from Financing Activities:
  Net Repayments of Lines of Credit                                                (67,200)          (68,300)
  Principal Repayments of Long-Term Debt                                            (4,500)           (6,000)
  Payments for Issuance of Long-Term Debt                                              (43)              (53)
  Additional Investment by Shareholder                                              15,000                 -
                                                                              ------------      -------------

        Net Cash Used in Financing Activities                                      (56,743)          (74,353)
                                                                              ------------      -------------

Net Increase in Cash and Cash Equivalents                                           16,226             3,542
Cash and Cash Equivalents at Beginning of Period                                     3,210             3,580
                                                                              ------------      -------------

Cash and Cash Equivalents at End of Period                                        $ 19,436           $ 7,122
                                                                              ============      =============
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,
                                                                   -------------------------------  --------------
                                                                       2004              2003            2003
                                                                   -------------    --------------  --------------
ASSETS

Property, Plant and Equipment:
   Utility Plant, at original cost                                     $ 904,761         $ 857,218       $ 894,654
     Accumulated Depreciation                                           (214,044)         (198,893)       (209,831)
                                                                   -------------     --------------  --------------

          Property, Plant and Equipment - Net                            690,717           658,325         684,823
                                                                   -------------     --------------  --------------
Investments:
   Available-for-Sale Securities                                           4,633             3,331           4,497
   Investment in Affiliate                                                     -             1,082               -
                                                                   --------------    --------------  --------------

          Total Investments                                                4,633             4,413           4,497
                                                                   -------------     --------------  --------------

Current Assets:
   Cash and Cash Equivalents                                              19,436             7,122           3,210
   Accounts Receivable                                                    74,024           111,737          48,412
   Unbilled Revenues                                                      22,046            18,043          31,070
   Provision for Uncollectibles                                           (3,014)           (3,248)         (3,263)
   Natural Gas in Storage, average cost                                   15,318            10,230          59,432
   Materials and Supplies, average cost                                    3,908             3,677           3,559
   Prepaid Taxes                                                               -                 -           2,661
   Prepaid Pension                                                        17,448                 -          18,206
   Other Prepayments and Current Assets                                    1,942             2,916           2,317
                                                                   -------------    --------------  --------------

          Total Current Assets                                           151,108           150,477         165,604
                                                                   -------------     --------------  --------------

Regulatory Assets:
   Environmental Remediation Costs:
     Expended - Net                                                        4,362             3,656           4,147
     Liability for Future Expenditures                                    50,983            48,211          50,983
   Gross Receipts and Franchise Taxes                                      1,257             1,700           1,367
   Income Taxes - Flowthrough Depreciation                                 7,375             8,352           7,619
   Deferred Fuel Cost - Net                                                    -            17,964           1,720
   Deferred Postretirement Benefit Costs                                   3,307             3,685           3,402
   Societal Benefit Costs                                                  4,212             6,331           7,529
   Other Regulatory Assets                                                   792               523             732
                                                                   -------------     --------------  --------------

          Total Regulatory Assets                                         72,288            90,422          77,499
                                                                   -------------     --------------  --------------

Other Non-Current Assets:
   Unamortized Debt Discount and Expense                                   6,276             5,563           6,383
   Accounts Receivable - Merchandise                                       5,050             2,223           4,671
   Other                                                                   3,055             4,390           2,805
                                                                   -------------     --------------  --------------

          Total Other Non-Current Assets                                  14,381            12,176          13,859
                                                                   -------------     --------------  --------------

               Total Assets                                            $ 933,127         $ 915,813       $ 946,282
                                                                   =============     ==============  ==============
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,
                                                                   --------------------------------  --------------
                                                                       2004              2003            2003
                                                                   --------------    --------------  --------------
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         $ 5,848
   Other Paid-In Capital and Premium on Common Stock                     170,317           135,317         155,317
   Accumulated Other Comprehensive Income (Loss)                               4            (8,646)            279
   Retained Earnings                                                     129,062           101,182         108,356
                                                                   --------------    --------------  --------------

          Total Common Equity                                            305,231           233,701         269,800
                                                                   --------------    --------------  --------------

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

Long-Term Debt                                                           259,281           229,098         263,781
                                                                   --------------    --------------  --------------

          Total Capitalization                                           566,202           464,489         535,271
                                                                   --------------    --------------  --------------

Current Liabilities:
   Notes Payable                                                          20,000            85,600          87,200
   Current Maturities of Long-Term Debt                                    5,273            10,696           5,273
   Accounts Payable                                                       38,872            75,074          40,954
   Deferred Income Taxes - Net                                             5,862            17,168           6,694
   Customer Deposits                                                       8,371             7,284           7,957
   Environmental Remediation Costs                                         7,630             4,852           7,630
   Taxes Accrued                                                          23,222            25,159           9,321
   Derivatives                                                                 7                 -               7
   Interest Accrued and Other Current Liabilities                          6,898             6,757           9,414
                                                                   --------------    --------------  --------------

          Total Current Liabilities                                      116,135           232,590         174,450
                                                                   --------------    --------------  --------------

Deferred Credits and Other Non-Current Liabilities:
   Deferred Income Taxes - Net                                           123,325           101,395         118,894
   Environmental Remediation Costs                                        43,353            43,359          43,353
   Regulatory Liabilities                                                 60,729            46,080          49,880
   Pension and Other Postretirement Benefits                              11,393            15,235          11,336
   Investment Tax Credits                                                  3,386             3,732           3,471
   Other                                                                   8,604             8,933           9,627
                                                                   --------------    --------------  --------------

            Total Deferred Credits and Other Non-Current Liabilities     250,790           218,734         236,561
                                                                   --------------    --------------  --------------

Commitments and Contingencies (Note 5)

               Total Capitalization and Liabilities                    $ 933,127         $ 915,813       $ 946,282
                                                                   ==============    ==============  ==============
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). SJG reclassified
some previously reported amounts to conform with current year classifications.
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 2003 Form 10K and annual
certified financial statements.

         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 changes in unrealized gains or losses
included in Other Comprehensive Income (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.

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

         Capitalized Interest - SJG capitalizes interest on construction at its
BPU-approved rate of return on rate base (See Note 2). SJG's capitalized
interest totaled $0.2 million in each of the three month periods ended March 31,
2004 and 2003.

         Derivative Instruments and Hedge Accounting - SJG accounts for its
derivatives under the guidance of FASB Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended. This statement
establishes accounting and reporting standards for derivative instruments,
including those embedded in other contracts, and for hedging activities. It
requires that all derivatives, whether designated as hedging relationships or
not, must be recorded on the balance sheet 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 the changes in the fair value
of the derivative and of the hedged item attributable to the hedged risk in
earnings. If the derivative is designated as a cash flow hedge, we record the
effective portion of changes in the fair value of the derivative in Accumulated
Other Comprehensive Income (Loss) and recognize it in the income statement when

                                     SJG-8

the hedged item affects earnings. We recognize ineffective portions of changes
in the fair value of cash flow hedges in earnings.

         No commodity related activities of SJG are considered subject to the
fair value recognition requirements of Statement No. 133, as amended.

         In May 2003, we entered into an interest rate swap contract that
effectively fixed the interest rate at 2.24% through May 20, 2004 on $20.0
million of our debt outstanding under bank credit agreements. We entered into
this interest rate swap agreement 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 swap agreements is accrued as interest rates change and is recognized
as an adjustment to interest expense. We account for this interest rate swap as
a cash flow hedge. As of March 31, 2004 , the market value of this swap was
$(7,000), which represents the amount we would have to pay the counterparty to
terminate the contract. We included this balance on the condensed balance sheet
under the caption Derivatives. As of March 31, 2004, we calculated this swap to
be highly effective; therefore, we recorded the offset to the hedge liability,
net of taxes, in Accumulated Other Comprehensive Income (Loss).

         We determined the fair value of the interest rate swap agreements using
quotations from independent parties.

         We have also identified other physical transactions that qualify as
derivatives. Management believes, however, based on its interpretation of
guidance issued, that as these derivative contracts relate to the purchase and
sale of natural gas, they qualify for the normal purchases and normal sales
exception and, therefore, are not required to be marked to market.

         New Accounting Pronouncements - In January 2003, SJG adopted FASB
Statement No. 143, "Accounting for Asset Retirement Obligations," which
establishes accounting and reporting standards for legal obligations associated
with the retirement of tangible long-lived assets and the associated asset
retirement costs. We have certain easements and right-of-way agreements that
qualify as legal obligations under Statement No. 143. However, it is our intent
to maintain these agreements in perpetuity; therefore, no change in SJG's
current accounting practices is required related to these agreements.

         SJG recovers certain asset retirement costs through rates charged to
customers as an approved component of depreciation expense. As of March 31, 2004
and 2003, SJG had accrued amounts in excess of actual removal costs incurred
totaling $46.3 million and $42.5 million, respectively, which, in accordance
with Statement No. 143, are recorded as Regulatory Liabilities on the balance
sheets. The adoption of this statement did not affect SJG's results of
operations.

         In January 2003, the FASB issued Interpretation No. (FIN) 46,
"Consolidation of Variable Interest Entities." FIN 46 clarifies the application
of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to
certain entities in which equity investors do not have the characteristics of
controlling financial interest or do not have sufficient equity at risk for the

                                     SJG-9

entity to finance its activities without additional subordinated financial
support from other parties. Management has adopted FIN 46 and determined that
SJG Capital Trust, which was established for the sole purpose of issuing $35
million of mandatorily redeemable preferred securities, could no longer be
consolidated into SJI's financial statements effective July 1, 2003. These
securities were redeemed in November 2003. Prior periods were restated to report
the original equity investment amount in SJG Capital Trust as a separate $1.1
million investment in an affiliate and the $36.1 million subordinated debenture
to SJG Capital Trust as debt on its condensed balance sheet rather than the $35
million of mandatorily redeemable preferred securities as previously reported.
The adoption of FIN 46 did not impact SJG's net income or retained earnings for
the periods reported. The Company is not a party to any variable interest
entities covered by FIN 46.

         In December 2003, the FASB revised Statement No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." This revised
statement requires certain interim period disclosures about pension and other
postretirement benefit plans (see Note 4).

         Regulatory Assets & Regulatory Liabilities - All significant regulatory
assets are separately identified on the condensed balance sheets under the
caption Regulatory Assets. Each item that is separately identified is being
recovered through utility rate charges without a return on investment over the
following periods:
                                                               Years Remaining
                  Regulatory Asset                          As of March 31, 2004
                  ----------------                          --------------------

         Environmental Remediation Costs:
                  Expended - Net                                    Various
                  Liability for Future Expenditures             Not Applicable
         Gross Receipts and Franchise Taxes                            3
         Income Taxes - Flowthrough Depreciation                       8
         Deferred Fuel Costs - Net                                  Various
         Deferred Postretirement Benefit Costs                         9
         Societal Benefit Costs  Various                            Various

         The majority of the assets reflected under the caption Other Regulatory
Assets are currently being recovered or are subject to filings with the BPU
requesting recovery. Management believes that all such deferred costs are
probable of recovery from ratepayers through future utility rates.

         Regulatory Liabilities consisted of the following items (in thousands):

                                              March 31,             December 31,
                                          2004         2003             2003
                                         ------     --------      --------------

  Deferred Revenues - Net            $     9,117     $        -     $         -
  Excess Plant Removal Costs              46,296         42,453          45,241
  Overcollected State Taxes                5,030          3,341           4,353
  Other                                      286            286             286
                                     -----------     ----------     -----------
       Total Regulatory Liabilities  $    60,729     $   46,080     $    49,880
                                     ===========     ==========     ===========

                                     SJG-10

         Deferred Revenues - Net reflects the overrecovery of gas costs from
ratepayers under SJG's gas cost clauses (See Note 2 - Regulatory Actions).
Excess Plant Removal Costs represent amounts accrued in excess of actual utility
plant removal costs incurred to date (See New Accounting Pronouncements). All
other amounts are subject to being returned to ratepayers in future rate
proceedings.

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

Note 2.  Regulatory Actions:

         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 provides for the recovery of cost of service,
including deferred costs, through base rates. Additionally, our threshold for
sharing pre-tax margins generated by interruptible and off-system sales and
transportation increased. Currently, we keep 100% of pre-tax margins up to the
threshold level of $7.8 million. The next $750,000 is credited to customers
through the Basic Gas Supply Service (BGSS) clause. Thereafter, we keep 20% of
the pre-tax margins as we have historically.

         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, 2004, 106,620 of our 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 our revenues is offset by a corresponding decrease in gas costs.
While customer choice can reduce utility revenues, it does not negatively affect
our net income or financial condition. The BPU continues to allow for full
recovery of prudently incurred natural gas costs through the BGSS. Unbundling
did not change the fact that SJG still recovers cost of service, including
certain deferred costs, through base rates.

         In November 2001, SJG filed for a $2.7 million rate increase to recover
the cash related to a prior net deficiency in the Temperature Adjustment Clause
(TAC). Additionally, in September 2002, we filed for an $8.6 million rate
increase to recover the cash related to a TAC deficiency resulting from
warmer-than-normal weather for the 2001-2002 winter. As a result of the
colder-than-normal 2002-2003 winter, the cumulative TAC deficiency decreased to
$5.7 million. In August 2003, the BPU approved the recovery of the $5.7 million
TAC deficiency, effective September 1, 2003. As of March 31, 2004, the remaining
deferred TAC deficiency totaled $1.1 million.

         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%. As of March 31, 2004, the remaining deferred
underrecovered balance totaled $5.6 million.

                                     SJG-11

         During 2002, the BPU convened a gas policy group to address Basic Gas
Supply Service (BGSS), which is the gas supply service being provided by the
natural gas utility. In December 2002, the BPU approved the proposed BGSS price
structure. The BGSS-approved price structure replaced the Levelized Gas
Adjustment Clause (LGAC) pricing structure. The LGAC was structured to reset gas
charges to consumers once per year. The BGSS resets gas prices monthly for
larger customers, and for smaller customers permits multiple resets each year,
if certain conditions are met. With the implementation of BGSS in March 2003,
customers can make more informed decisions about choosing an alternate supplier
by having a utility pricing structure that more currently reflects market
conditions. Further, BGSS provides us with more pricing flexibility, through
self-implementing rate changes under certain conditions and limitations,
conceptually resulting in the reduction of over/under-recoveries. LGAC-related
mechanisms, such as deferred accounting treatment, the sharing of pre-tax
margins generated by interruptible and off-system sales and transportation, and
the allowance for full recovery of prudently incurred natural gas costs, remain
in place under BGSS.

         In August 2002, SJG filed for a Societal Benefits Clause (SBC) rate
increase. The SBC recovers costs related to BPU-mandated programs and
environmental remediation costs that are recovered through our Remediation
Adjustment Clause; energy efficiency and renewable energy program costs that are
recovered through our New Jersey Clean Energy Programs; consumer education
program costs; and the interim low income program costs. In August 2003, the BPU
approved a $6.7 million increase to our SBC, effective September 1, 2003. This
approval increased the annual recovery level of $6.7 million to $13.4 million.

         Also in August 2002, SJG filed a petition with the BPU to transfer its
appliance service business from the regulated utility into a newly created
unregulated company. As filed, the newly created company would have the
flexibility to be more responsive to competition and customer needs by expanding
and modifying its service offerings in an unregulated environment.

         In September 2002, SJG filed with the BPU to maintain its current BGSS
rate through October 2003. However, due to price increases in the wholesale
market, in February 2003, we filed an amendment to the September 2002 filing. In
April 2003, the BPU approved a $16.6 million increase to our annual gas costs
recoveries.

         In March 2003, the BPU approved a statewide Universal Service Fund
(USF) program on a permanent basis. In June 2003, the BPU established a
statewide 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. The BPU ordered that utility rates be
set to recover a total statewide USF budget of $33.0 million, and a total
Lifeline budget of $72.0 million. Recovery rates for both programs were
implemented on August 1, 2003. On April 1, 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. Approximately $20.0 million of this amount is due
to the estimated statewide underrecovery for the current year program costs.
Another $9.0 million of the total was estimated in order to provide for the
March 4, 2004 Board-Ordered Arrearage Payment Program, which is being
implemented to provide customers with the opportunity to eliminate their
arrearage balances.

                                     SJG-12

         In July 2003, SJG made its annual BGSS filing, as amended, with the
BPU. Due to further price increases in the wholesale market, we filed for a
$24.0 million increase to our annual gas cost revenues. In August 2003, the BPU
approved SJG's price increase on a provisional basis, subject to refund with
interest, effective September 1, 2003.

         In August 2003, SJG filed a base rate case with the BPU to increase its
base rates to obtain a certain level of return on its invested capital. We
expect the rate case to be concluded during 2004. We have not sought a base rate
increase from the BPU since the implementation of its base rate case approval in
January 1997.

         In February 2004, SJG filed notice with the BPU to reduce its gas cost
revenues by approximately $5.0 million, via a rate reduction, in addition to
providing for an approximate $21.8 million bill credit to customers. Both the
rate reduction and bill credit were approved and implemented in March 2004.

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

Note 3.  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, 2004, these restrictions did not affect the amount that may be
distributed from SJG's retained earnings.

         We received equity infusions of $15.0 million during the first quarter
of 2004 and $20.0 million during 2003 from SJI. 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 4.  Pensions & Other Postretirement Benefits:

         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 in certain classifications do not qualify for participation in the
defined benefit pension plan. The other postretirement benefit plans provide
health care and life insurance benefits to some retirees.

         On December 8, 2003, the President signed into law the Medicare
Prescription Drug, Improvement and Modernization Act (the "Act") of 2003. In
accordance with FASB Staff Position No. 106-1, "Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003," issued in December 2003, management has elected to
defer any financial impact resulting from the Act pending the availability of
more information. As such, measures of the accumulated projected benefit
obligation or net periodic postretirement benefit cost in the financial
statements or accompanying notes do not reflect the effects of the Act on the
plan. Furthermore, specific authoritative guidance on the accounting for the
federal subsidy is pending and that guidance, when issued, could require changes
to previously reported information.

                                     SJG-13

          Net periodic benefit cost for the three months ended March 31, 2004
and 2003 related to the pension and other postretirement benefit insurance plans
consisted of the following components (in thousands):
Pension Benefits             Other Benefits
                                                               2004         2003           2004         2003
                                                            --------      -------         ------       ------
Service Cost                                  $     672    $     579      $     341    $     290
              Interest Cost                                     1,274        1,205            603          476
              Expected Return on Plan Assets                   (1,580)      (1,241)          (351)        (202)
              Amortization of
                  Transition Obligation                             -           16            189          144
              Amortization of Loss and Other                      388          402             37           74
                                                            ---------    ---------      ---------    ---------

              Net Periodic Benefit Cost                     $     754    $     961      $     819    $     782
                                                            =========    =========      =========    =========
Contributions - SJG expects to make no contributions to its pension
plan and contribute approximately $3.6 million in equal quarterly installments
to its other postretirement benefit plans in 2004.

Note 5.           Commitments and Contingencies:

         Construction and Environmental Commitments - Our estimated net cost of
construction and environmental remediation programs for 2004 totals $67.7
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 2004. 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 $4.2
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. We also maintain insurance and record
probable insurance recoveries relating to outstanding 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 sites where the Company or its predecessors operated
gas manufacturing plants. We stopped manufacturing gas in the 1950s.

                                     SJG-14

         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 following minimum future cost estimate was not
reduced by projected insurance recoveries from the Cleanup Cost Cap Insurance
Policy.

         Since the early 1980s, we accrued environmental remediation costs of
$138.4 million, of which $87.4 million has been spent as of March 31, 2004. With
the assistance of a consulting firm, we estimate that future costs to clean up
our sites will range from $51.0 million to $162.3 million. We recorded the lower
end of this range as a liability. It is reflected on the 2004 condensed balance
sheet under the captions Current Liabilities and Deferred Credits and Other
Non-Current Liabilities (See Note 1). Recorded amounts include estimated costs
based on projected investigation and remediation work plans using existing
technologies. Actual costs could differ from the estimates due to the long-term
nature of the projects, changing technology, government regulations and
site-specific requirements.

         We have two regulatory assets associated with environmental costs. The
first asset is titled Environmental Remediation Cost: Expended - Net. These
expenditures represent what was actually spent to clean up former gas
manufacturing plant sites. These costs meet the requirements of FASB Statement
No. 71. The BPU allows us to recover expenditures through the RAC (See Note 2).

         The other asset titled Environmental Remediation Cost: Liability for
Future Expenditures relates to estimated future expenditures determined under
the guidance of FASB Statement No. 5, "Accounting for Contingencies." We
recorded this amount, which relates to former manufactured gas plant sites, as a
deferred debit with the corresponding amount reflected on the condensed balance
sheets under the captions, Current Liabilities and Deferred Credits and Other
Non-Current Liabilities. The recorded deferred debit is a regulatory asset under
Statement No. 71. The BPU's intent, evidenced by current practice, is to allow
us to recover the deferred costs after these costs are spent over 7-year
periods. As of March 31, 2004, we reflected the unamortized remediation costs of
$4.4 million on the condensed balance sheet under the caption Regulatory Assets.
Since implementing the RAC in 1992, we have recovered $40.5 million through
rates (See Note 2).

                                     SJG-15

            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
307,044 customers at March 31, 2004 compared with 298,767 customers at March 31,
2003. 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       services appliances via the sale of appliance warranty programs
                as well as on a time and materials basis.

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

         A number of factors could cause our actual results to differ materially
from those anticipated including, but not limited to, the following: general
economic conditions on an international, national, state and local level;
weather conditions in our marketing areas; changes in commodity costs; changes
in the availability of natural gas; legislative, 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.

Critical Accounting Policies

         Estimates and Assumptions - As described in the footnotes to our
condensed 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. Four types of
transactions presented in our condensed financial statements require a
significant amount of judgment and estimation. These relate to regulatory
assets, environmental remediation costs, postretirement employee benefit costs
and unbilled revenues.

                                     SJG-16

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

         An outside consulting firm assists us in estimating future costs for
environmental remediation activities. We estimate future costs based on
projected investigation and work plans using existing technologies. Developing a
single reliable estimation point is not feasible because of the amount of
uncertainty involved in the nature of projected remediation efforts and the long
period over which remediation efforts will continue. Therefore, we estimate the
range of future costs at $51.0 million to $162.3 million. In preparing financial
statements, we record liabilities for future costs using the lower end of the
range. We update estimates each year to take into account past efforts, changes
in work plans and remediation technologies.

         The costs of providing postretirement employee benefits are impacted by
actual plan experience as well as assumptions of future experience. Employee
demographics, plan contributions, investment performance, and actuarial
assumptions concerning return on plan assets, discount rates and health care
cost trends all have a significant impact on determining our projected benefit
obligations. Actuarial assumptions are evaluated annually with the assistance of
our investment manager and actuary and adjusted accordingly. These adjustments
could result in significant changes to the net periodic benefit cost of
providing such benefits and the related liability recognized by SJG.

         A majority of SJG's customers have their meters read on a cycle basis
throughout the month. As a result, recognized revenues include estimates as
described below.

         Revenue Recognition - SJG bills customers monthly for gas delivered and
recognizes those revenues during the month. For SJG customers that are not
billed at the end of each month, we make an accrual to recognize revenues for
gas delivered from the date of the last meter reading to the end of the month.
We bill our customers at rates approved by the BPU.

         We defer and recognize revenues related to SJG's appliance service
contracts over the full 12-month term of the contract as earned.

         The BPU allows us to recover gas costs in rates through the Basic Gas
Supply Service (BGSS) price structure (which replaced the Levelized Gas
Adjustment Clause). We defer over/under-recoveries of gas costs and include them
in subsequent adjustments to the BGSS rate or other similar rate recovery
mechanism. These adjustments result in over/under-recoveries of gas costs being
included in rates during future periods. As a result of these deferrals, utility
revenue recognition does not directly translate to profitability. While we
realize profits on gas sales during the month of providing the utility service,
significant shifts in revenue recognition may result from the various recovery
clauses approved by the BPU (See Recent Regulatory Actions) without shifting

                                     SJG-17

profits between periods, as these clauses provide for recovery of costs on a
dollar-for-dollar basis.

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

         Temperature Adjustment Clause - A Board of Public Utilities approved
Temperature Adjustment Clause (TAC) decreased SJG's net income by $0.7 million
and $1.4 million for the three months ended March 31, 2004 and 2003,
respectively. 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 - In November 2001, SJG filed for a $2.7
million rate increase to recover the cash related to a prior net deficiency in
the Temperature Adjustment Clause (TAC). Additionally, in September 2002, SJG
filed for an $8.6 million rate increase to recover the cash related to a TAC
deficiency resulting from warmer-than-normal weather for the 2001-2002 winter.
As a result of the colder-than-normal 2002-2003 winter, the cumulative TAC
deficiency decreased to $5.7 million. In August 2003, the BPU approved the
recovery of the $5.7 million TAC deficiency, effective September 1, 2003. As of
March 31, 2004, the remaining deferred TAC deficiency totaled $1.1 million.

         In August 2002, SJG filed for a Societal Benefits Clause (SBC) rate
increase. The SBC recovers costs related to BPU-mandated programs and
environmental remediation costs that are recovered through SJG's Remediation
Adjustment Clause; energy efficiency and renewable energy program costs that are
recovered through SJG's New Jersey Clean Energy Programs; consumer education
program costs; and the interim low income program costs. In August 2003, the BPU
approved a $6.7 million increase to SJG's SBC, effective September 1, 2003. This
approval increased the annual recovery level of $6.7 million to $13.4 million.

         Also in August 2002, SJG filed a petition with the BPU to transfer its
appliance service business from the regulated utility into a newly created
unregulated company. As filed, the newly created company would have the
flexibility to be more responsive to competition and customer needs by expanding
and modifying its service offerings in an unregulated environment.

         In September 2002, SJG filed with the BPU to maintain its current Basic
Gas Supply Service (BGSS) rate through October 2003. However, due to price
increases in the wholesale market, in February 2003, SJG filed an amendment to
the September 2002 filing. In April 2003, the BPU approved a $16.6 million
increase to SJG's annual gas cost revenues.

         In March 2003, the BPU approved a statewide Universal Service Fund
(USF) program on a permanent basis. In June 2003, the BPU established a
statewide 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. The BPU ordered that utility rates be

                                     SJG-18

set to recover a total statewide USF budget of $33.0 million, and a total
Lifeline budget of $72.0 million. Recovery rates for both programs were
implemented on August 1, 2003. On April 1, 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. Approximately $20.0 million of this amount is due
to the estimated statewide underrecovery for the current year program costs.
Another $9.0 million of the total was estimated in order to provide for the
March 4, 2004 Board-Ordered Arrearage Payment Program, which is being
implemented to provide customers with the opportunity to eliminate their
arrearage balances.

         In July 2003, SJG made its annual BGSS filing, as amended, with the
BPU. Due to further price increases in the wholesale market, SJG filed for a
$24.0 million increase to its annual gas cost revenues. In August 2003, the BPU
approved SJG's price increase on a provisional basis, subject to refund with
interest, effective September 1, 2003.

         In August 2003, SJG filed a base rate case with the BPU to increase its
base rate to obtain a certain level of return on its investment of capital. SJG
expects the rate case to be concluded during 2004. SJG has not sought a base
rate increase from the BPU since the implementation of its base rate case
approval in January 1997.

         In February 2004, SJG filed notice with the BPU to reduce its gas cost
revenues by approximately $5.0 million, via a rate reduction, in addition to
providing for an approximate $21.8 million bill credit to customers. Both the
rate reduction and bill credit were approved and implemented in March 2004.

         Filings and petitions described above are still pending unless
otherwise indicated. Additional discussion concerning Regulatory Actions can be
found in Note 2 to the condensed financial statements.

         Environmental Remediation - We incurred and recorded costs for
environmental clean up of sites where SJG or its predecessors operated
manufactured gas plants (MGP). SJG stopped manufacturing gas in the 1950s. We
successfully entered into settlements with all of SJG's historic comprehensive
general liability carriers regarding environmental remediation expenditures at
former MGP sites. As part of these settlements, SJG purchased an insurance
policy that caps its remediation expenditures at 11 of these sites. The
insurance policy is in force 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 SJG to recover incurred costs
in equal installments over 7-year periods with carrying costs. As of March 31,
2004, SJG has $4.4 million of remediation costs not yet recovered through rates.

         Other matters are incorporated by reference to Note 5 to the condensed
financial statements included as part of this report.

                                     SJG-19

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

         Customer Choice Legislation - All residential natural gas customers in
New Jersey can choose their gas supplier under the terms of the Electric
Discount and Energy Competition Act of 1999. As of March 31, 2004, 106,620 SJG
residential customers chose a natural gas commodity supplier other than the
utility. This number increased from 92,897 at March 31, 2003 as marketers were
able to offer natural gas at prices competitive with those available under
regulated utility tariffs. Customers purchasing natural gas from providers other
than SJG are charged for gas costs by the marketer, not SJG. The resulting
decrease in SJG's revenues is offset by a corresponding decrease in SJG's gas
costs. While customer choice can reduce utility revenues, it does not negatively
affect SJG's net income or financial condition. The BPU continues to allow for
full recovery of prudently incurred natural gas costs through the Basic Gas
Supply Service clause as well as other costs of service including deferred
costs, through tariffs.

         Results of Operations

         Operating Revenues - Revenues decreased $39.8 million during the first
quarter of 2004 compared with the same period in 2003. This decrease was
primarily due to three factors. First, weather was 2.6% warmer than last year,
which resulted in a reduction in utility sales volumes. Second, Off-System Sales
revenues decreased significantly as a direct result of lower sales volumes and
lower prices for natural gas sold in 2004 compared with the same period in 2003.
Third, there was a 14.8% increase in the number of residential customers
purchasing their gas from a source other than SJG. The decline in customers who
purchased their natural gas from SJG directly impacted utility revenues.
However, since gas costs are passed on directly to customers without any profit
margin added by SJG, the increased customer usage of gas marketers did not
impact SJG's profitability. Partially offsetting the effect of these factors
were 8,277 customer additions over the last 12 months. In addition, the BPU
approved two rate increases in SJG's Basic Gas Supply Service clause to address
the recovery of the increasing price of natural gas sold after March 31, 2003
and an increase in SJG's Societal Benefits Clause recoveries to fund state
sponsored programs (See Recent Regulatory Actions).

         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

                                     SJG-20

impacted by warmer weather. Weather in 2004 was 2.6% warmer than in 2003 and
3.4% colder than the 20-year TAC average.

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

                                                      2004             2003
                                                     ------           ------
Operating Revenues (thousands):
Firm
     Residential                                 $      81,141     $      89,308
     Commercial                                         23,966            27,430
     Industrial                                          2,317             2,367
     Cogeneration & Electric Generation                    419             1,322
     Firm Transportation                                32,869            28,060
                                                 -------------     -------------

         Total Firm Operating Revenues                 140,712           148,487
                                                 -------------     -------------

Interruptible                                              288               491
Interruptible Transportation                               295               195
Off-System                                              55,352            88,730
Capacity Release & Storage                               2,727             1,303
Other                                                      750               730
                                                 -------------     -------------

         Total Operating Revenues                $     200,124     $     239,936
                                                 =============     =============

Throughput (MMcf):
Firm
     Residential                                         7,488             8,055
     Commercial                                          2,431             2,729
     Industrial                                             92               105
     Cogeneration & Electric Generation                     25               108
     Firm Transportation                                12,212            11,063
                                                 -------------     -------------

         Total Firm Throughput                          22,248            22,060
                                                 -------------     -------------

Interruptible                                               34                36
Interruptible Transportation                               576               411
Off-System                                               7,833            11,730
Capacity Release & Storage                              11,662             5,993
                                                 -------------     -------------

         Total Throughput                               42,353            40,230
                                                 =============     =============

                                     SJG-21

         Gas Purchased for Resale - Gas purchased for resale decreased $42.6
million for the first quarter of 2004 compared with 2003 due principally to a
significant decrease in sales volumes and lower gas costs for Off-System Sales.
Gas Costs associated with Off-System Sales decreased by $31.5 million as
compared with the same quarter last year. SJG's gas cost during 2004 averaged
$6.74 per decatherm (dt) compared with $6.80/dt in 2003. Unlike gas costs
associated with Off-System Sales, changes in the unit cost of gas sold to
utility ratepayers do not directly affect cost of gas sold. 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,
formerly known as the Levelized Gas Adjustment Clause. SJG also experienced a
decrease in gas costs as a result of the continued migration of customers from
sales to transportation services as described under Operating Revenues. As a
result of this migration and the impact of warmer weather, firm sales volume
decreased by 8.7% compared to the same period last year.

         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.

         Operations - A summary of net changes in operations for the three
 months ended March 31 (in thousands):

                                                          2004 vs. 2003
                                                          -------------

         Other Production Expense                          $         2
         Transmission                                               35
         Distribution                                              (97)
         Customer Accounts and Services                          2,831
         Sales                                                      22
         Administration and General                               (777)
                                                           ------------

                  Total Operations                         $     2,016
                                                           ============

         Customer Accounts and Services expense increased significantly in 2004
as a result of the BPU-approved increase in SJG's Societal Benefits Clause (SBC)
in August 2003 (See Recent Regulatory Actions). With this approval, recoveries
and a corresponding charge to expense for previously deferred costs under SJG's
New Jersey Clean Energy Programs increased by $3.0 million in the first quarter
of 2004 when compared with the same period in 2003. The BPU-approved SBC clause
allows for full recovery of these deferred costs including carrying costs and,
as a result, the increase in expense has no impact on SJG's net income. This
increase was partially offset by lower bad debt expense in 2004 as a result of a
March 2004 BGSS refund improving SJG's accounts receivable aging (See Recent
Regulatory Actions).

         Administrative and General expenses decreased in the first quarter of
2004 compared with the same period of 2003 primarily because of lower pension
expense, lower insurance expense and cost control measures implemented
throughout the company. Pension expense decreased $207,000 from 2003 to 2004 as
a result of SJG making a $9.1 million pension plan contribution in December 2003

                                     SJG-22

as well as an improvement in investment returns throughout 2003 (See Note 4 to
the condensed financial statements). Insurance expense was reduced by $340,000
in 2004 by lowering SJG's reserve for outstanding claims following a period of
favorable settlements that were not appealed as anticipated.

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

                                                   2004 vs. 2003
                                                   -------------

Maintenance                                        $      (112)
Depreciation                                               376
Energy and Other Taxes                                    (300)

         Depreciation was higher due to SJG's increased investment in property,
plant and equipment. The decrease in Energy and Other Taxes relate primarily to
lower revenue-based taxes and decreases in taxable volumes of gas sold and
transported by SJG (See table under the caption, "Operating Revenues").

         Other Income and Expense - Other income and expense was higher in the
first quarter of 2004 compared with the first quarter of 2003 due to a pre-tax
gain of $686,000 on SJG's postretirement healthcare plan trust. The movement of
plan assets to a new investment manager triggered the recognition of gains on
investments.

         Interest Charges - Interest charges decreased in the first quarter of
2004 compared with the same period of the prior year due to reductions in
short-term rates on line of credit borrowings, the refunding of higher priced,
fixed rate, long-term debt with lower cost debt, and a lower total debt level.
These refundings occurred primarily during the second half of 2003 and were
financed with long-term debt issuances under our Medium Term Note program at
significantly lower interest rates compared with the previous long-term interest
rates. We have incurred debt primarily to expand and upgrade SJG's gas
transmission and distribution system, and to support seasonal working capital
needs related to gas inventories and customer receivables.

         Net Income Applicable to Common Stock - Net income increased $1.3
million, or 6.5%, to $20.7 million in 2004 as compared with $19.4 million in
2003. Reasons for the increase in net income in the first quarter of 2004 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.

         We first seek to meet liquidity needs with net cash provided by
operating activities. Net cash provided by operating activities varies from year

                                     SJG-23

to year primarily due to the impact of weather on customer demand and related
gas purchases, inventory utilization and gas cost recoveries. We utilize
short-term borrowings under credit facilities provided by commercial banks to
supplement cash from operations where necessary.

         Bank credit available to SJG totaled $176.0 million at March 31, 2004,
of which $20.0 million was used. Those bank facilities consist of a $100.0
million, 3-year revolving credit and $76.0 million of uncommitted bank lines.
The revolving credits were established in August 2003 with a syndicate of banks
to enhance the liquidity position of SJG. 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 business' future
liquidity needs.

         SJG supplements its operating cash flow and credit lines with both debt
and equity capital. 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 assets as the First Mortgage Bonds, to finance its long-term
borrowing needs. These needs are primarily capital expenditures for property,
plant and equipment. SJG's registration of a $150.0 million MTN program with the
Securities and Exchange Commission became effective in December 2002. In July
2003, SJG issued $85.5 million of long-term debt under the program. In September
2003, SJG issued an additional $24.5 million of MTNs. Consequently, $40.0
million of the MTN program remains available for future debt issuances. Proceeds
of the July and September issues were used to refinance short-term debt
outstanding to commercial banks and for the redemption of certain high-rate
First Mortgage Bonds. Current maturities on long-term debt over the next five
years are $5.3 million per year in 2004 through 2007 and $3.0 million in 2008.

         SJG's capital structure was as follows:

                                             As of               As of
                                            March 31,         December 31,
                                       2004         2003          2003
                                      ------       ------         -----

Common and Preferred Stock Equity        52%          42%           43%
Long-Term Debt                           45%          43%           43%
Short-Term Debt                           3%          15%           14%
                                         ---         ----          ----

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

         SJG typically experiences seasonal fluctuations in leverage as
short-term debt has historically peaked in the November to January period in
support of high inventory and receivable levels. The seasonal low point for
short-term debt incurred in support of working capital usually occurs between
the end of March and the end of May each year. The ratios presented in the chart
above reflect a conscious effort by management to increase the percentage of
equity in SJG's capital structure over the past year.

                                     SJG-24

         SJI contributed $15.0 million and $20.0 million of capital to SJG
during 2004 and 2003, respectively. Contributions of capital are credited to
Other Paid-in Capital and Premium on Common Stock.

         Capital Expenditures, Commitments and Contingencies

         Capital Expenditures - SJG has a continuing need for cash resources and
capital, primarily to invest in new and replacement facilities and equipment and
for environmental remediation costs. Net construction and remediation
expenditures for the first quarter of 2004 amounted to $11.5 million. We
estimate the net costs for 2004, 2005 and 2006 at approximately $67.8 million,
$54.9 million and $50.5 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, 2004 averaged $44.8 million annually and
totaled $244.2 million over the contracts' lives. 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'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.

         The following table summarizes our contractual cash obligations and
their applicable payment due dates (in thousands):
Up to        1 - 3       3 - 5      More than
         Contractual Obligations                        Total        1 Year        Years       Years       5 Years
         -----------------------                        -----        ------        -----       -----       -------
Long-Term Debt                                     $   264,554  $     5,273  $    10,546  $     8,270   $   240,465
Operating Leases                                           850          381          375           67            27
Construction Obligations                                 7,964        7,964            -            -             -
Commodity Supply
   Purchase Obligations                                244,200       44,400       81,200       70,600        48,000
Other Purchase Obligations                               3,181        2,478          703            -             -
                                                   -----------  -----------  -----------  -----------   -----------

Total Contractual Cash Obligations                 $   520,749  $    60,496  $    92,824  $    78,937   $   288,492
                                                   ===========  ===========  ===========  ===========   ===========
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 expects to make no contributions to its pension plan and contribute
approximately $3.6 million in equal quarterly installments to its other
postretirement benefit plans in 2004.

         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

                                     SJG-25

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.

        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,
                   ----------------------------------------------------

      2004         2003        2002        2001        2000        1999
      ----         ----        ----        ----        ----        ----
      3.5x         3.3x        2.9x        2.6x        2.6x        2.5x

         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.

                                     SJG-26

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

         Commodity Market Risks - SJG is a regulated utility. As such, we
recover gas commodity costs under the Basic Gas Supply Service Clause that is
part of our tariff. While SJG is protected from gas cost fluctuations by the
clause, we do not utilize forward contracts to shield our customers from gas
cost fluctuations.

         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, 2004 was $20.0 million and averaged $51.4 million
for the first quarter. A hypothetical 100 basis point (b.p.), or 1%, increase in
interest rates on our average variable rate debt outstanding would result in a
$303,000 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: 2003 - 31 b.p. decrease; 2002 - 74 b.p. decrease; 2001 - 383 b.p.
decrease; 2000 - 83 b.p. increase; and 1999 - 81 b.p. increase. For March 2004,
our average interest rate on variable rate debt was 1.80%.

         To reduce exposure to an interest rate increase on our variable rate
debt, SJG entered into an interest rate swap agreement that became effective in
June 2003, which fixed the rate on $20.0 million of variable rate debt through
May 2004 at 2.24%. 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 prepaid, at par, $1.5 million of 8.6%
debenture notes in February 2004.

                                     SJG-27

                         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-14. 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. There have been no significant
changes in internal controls, or in factors that could significantly affect
internal controls, subsequent to the date the Chief Executive Officer and Chief
Financial Officer completed their evaluation.

         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 5, beginning on page 14.

                                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, 2004               By:  /s/ Edward J. Graham
                                          -------------------------------
                                          Edward J. Graham
                                          President & Chief Executive Officer

  Dated:  May 10, 2004               By:  /s/ David A. Kindlick
                                          ------------------------------
                                          David A. Kindlick
                                          Executive Vice President &
                                           Chief Financial Officer

                                     SJG-30

                                                                Exhibit 31.1

                                  CERTIFICATION

I, Edward J. Graham, certify that:

1. I have reviewed this report on Form 10-Q for the period ended March 31, 2004,
of South Jersey Gas Company;

2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

     a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;

     b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and

     c) disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent function):

     a) all significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and

     b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.

Date: May 10, 2004                /s/   Edward J. Graham
                                  --------------------------------------------
                                  Edward J. Graham
                                  President & Chief Executive Officer

                                     SJG-31

                                                             Exhibit 31.2
                                  CERTIFICATION

I, David A. Kindlick, certify that:

1. I have reviewed this report on Form 10-Q for the period ended March 31, 2004,
of South Jersey Gas Company;

2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e))for the registrant and we have:

     a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;

     b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and

     c) disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent function):

     a) all significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and

     b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.

Date: May 10, 2004             /s/   David A. Kindlick
                              --------------------------------------------
                              David A. Kindlick
                              Executive Vice President &
                               Chief Financial Officer

                                     SJG-32

                                                                Exhibit 32.1

                CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
                      AS ADOPTED PURSUANT TO SECTION 906 OF
                         THE SARBANES-OXLEY ACT OF 2002

         In connection with the filing of the Quarterly Report on Form 10-Q of
South Jersey Gas Company (the "Company") for the period ended March 31, 2004, as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Edward J. Graham, Chief Executive Officer of the Company, hereby
certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

         (1)      The Report fully complies with the requirements of
                  Section 13(a) or Section 15(d) of the Securities Exchange Act
                  of 1934; and

         (2)      The information contained in the Report fairly presents, in
                  all material respects, the financial condition and results of
                  operations of the Company.

---------------------------------
Name:  Edward J. Graham
Title:  Chief Executive Officer
May 10, 2004

                                     SJG-33

                                                                  Exhibit 32.2

                CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
                      AS ADOPTED PURSUANT TO SECTION 906 OF
                         THE SARBANES-OXLEY ACT OF 2002

         In connection with the filing of the Quarterly Report on Form 10-Q of
South Jersey Gas Company (the "Company") for the period ended March 31, 2004, as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, David A. Kindlick, Chief Financial Officer of the Company, hereby
certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

         (1)      The Report fully complies with the requirements of
                  Section 13(a) or Section 15(d) of the Securities Exchange Act
                  of 1934; and

         (2)      The information contained in the Report fairly presents, in
                  all material respects, the financial condition and results of
                  operations of the Company.

/s/ David A. Kindlick
---------------------------------
Name: David A. Kindlick
Title: Chief Financial Officer
May 10, 2004

                                     SJG-34