Notes to Owners of More Than 5% TableAnnual Meeting in 2006:

Directors Whose Terms Continue Until the Annual Meeting in 2007:

Under our Corporate Governance Guidelines, each member of the board of directors is required to attend the annual meeting of shareholders unless unavoidable circumstances preclude attendance. All but one of our then current directors attended our 2004 annual meeting of shareholders.

CORPORATE GOVERNANCE

Board of Directors

Our business affairs are managed under the direction of the board of directors in accordance with the Georgia Business Corporation Code, our articles of incorporation and our bylaws. The role of the board of directors is to govern our affairs for the benefit of our shareholders and other constituencies, which include our employees, customers, suppliers, and creditors and the communities in which we do business. The board strives to ensure the success and continuity of our business through the appointment of qualified executive management, overseen by the board.

Director Independence

All of our directors are independent, non-employee directors except Ms. Rosput,Reynolds, our Chairman, President and Chief Executive Officer. Ms. RosputReynolds does not participate in any action of the board relating to her compensation or any other matters requiring action by only non-employee directors. The board of directors has determined that each of the independent directors meets the standards adopted by the board of directors to determine director independence. These standards for determining director independence are attached as Annex A to this proxy statement and are also available on our websiteweb site atwww.aglresources.com.

In making its determination as to the independence of each of its non-employee members, the board of directors considered certain transactions between our company and each of Messrs. Bell, Knox and Wolf. FormoreFor more detailed information about these transactions and the board’s determinations, please see “Other Matters Involving Directors and Executive Officers – Certain“Certain Relationships and Related Transactions.”

Board and Committee Meetings

Members of the board are kept informed through reports routinely presented at board and committee meetings by the Chief Executive Officer and other officers and through other means. During the year ended December 31, 2003,2004, the board of directors held sixeight meetings. Each director attended 75% or more of the aggregate of all meetings of the board and each committee on which he or she served.

Executive Sessions Without Management

To promote open discussion among the non-employee directors, the board of directors schedules regular executive sessions in which the non-employee directors meet without management’s participation. Such sessions typically occur at every regularly scheduled board meeting. The presiding director at such executive sessions is the Chairman of the Executive Committee of the board of directors. D. Raymond Riddle served during 2004 and currently serves as Chairman of the Executive Committee. During 2004, the board met in executive session three times.

Committees of the Board

The board of directors has established sixseven standing committees to assist it in discharging its duties. Actions taken by any committee of the board are reported to the board, usually at the board meeting next following a committee meeting. The committees of the board and their current members are as shown below.

Members of the Board’s Committees

Audit Committee

The Audit Committee, established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended, met six times during the year ended December 31, 2003.2004. All members of the Audit Committee are independent directors, as defined under the listing standards of the New York Stock Exchange and the rules of the SEC. The Audit Committee’s primary function is to assist the board of directors in fulfilling its oversight responsibilities. Among other things, the Audit Committee monitors (i)(1) the integrity of our financial statements, (ii)(2) our compliance with legal and regulatory requirements, (iii)(3) the independent auditor’s qualifications and independence, and (iv)(4) the performance of our internal audit function and the performance of the independent auditor.

The board of directors has determined that Mr. Durham, the Audit Committee Chair, is a “financial expert” as defined in Item 401(h)within the meaning of Regulation S-K of the Securities Act of 1933, as amended.SEC regulations.

Audit Committee Audit and Non-Audit Services Approval Policy. Consistent with SEC policies regarding auditor independence, the Audit Committee has responsibility for appointing, setting compensation and overseeing the work of the independent auditor. In recognition of this responsibility, the Audit Committee adopted a policy that requires specific Audit Committee approval before any services are provided by the independent auditor.

Prior to engagement of the independent auditor for the next year’s audit, management submits to the Audit Committee for approval a summary of services expected to be rendered during that year for each of the following four categories of services:

1.Audit services include audit work performed in the preparation of financial statements, as well as work that generally only the independent auditor can reasonably be expected to provide, including comfort letters,statutory audits, and attest services and consultation regarding financial accounting and/or reporting standards.

2.Audit-Related services are for assurance and related services that are traditionally performed by the independent auditor, including due diligence related to mergers and acquisitions, employee benefit plan audits, and special procedures required to meet certain regulatory requirements.

3.Tax services include all services performed by the independent auditor’s tax personnel except those services specifically related to the audit of the financial statements, and includes fees in the areas of tax compliance, tax planning, and tax advice.

4.All Other Fees are those associated with services not captured in the other categories. We generally do not request such services from the independent auditor.

The Audit Committee pre-approves these services by category of service and budget amount. The Audit Committee requires the independent auditor and management to report actual fees versus the budget periodically throughout the year by category of service. During the year, circumstances may arise when it may become necessary to engage the independent auditor for additional services not contemplated in the original pre-approval. In those instances, the Audit Committee requires that management obtain specific approval before engaging the independent auditor.

The Audit Committee may delegate approval authority to one or more of its members. The member to whom such authority is delegated must present for ratification any approval decisions to the Audit Committee at its next scheduled meeting.

Additional information regarding the Audit Committee and its functions and responsibilities is included in this proxy

statement under the captioncaptions “Audit Committee Report.Report” and “Proposal 4—Ratification of the Appointment of PricewaterhouseCoopers LLP as Our Independent Auditor for 2005.” The Audit Committee has adopted a written charter that it recently amended and which we have attached as Annex B to ourthis proxy statement for the 2003 Annual Meeting of shareholders and which is available on our websiteweb site atwww.aglresources.com.

Compensation and Management Development Committee

The Compensation and Management Development Committee met eightsix times during the year ended December 31, 2003.2004. All members of the Compensation and Management Development Committee are independent, non-employee directors, as defined under the listing standards of the NewYork Stock Exchange. At least two members of the Compensation and Management Development Committee are “Qualified Directors” as defined in our standards for

determining director independence, which are attached to this proxy statement as Annex A. Among other things, the Compensation and Management Development Committee assists the board of directors in fulfilling its responsibility to ensure that officers, directors and employees are compensated in accordance with our compensation philosophy, objectives and compensation policies. A copy of the Compensation and Management Development Committee charter is available on our websiteweb site atwww.aglresources.com.

Corporate Development Committee

The Corporate Development Committee was formed in October 2004 and met one time during 2004. The Committee’s primary function is to assist the board of directors in fulfilling its oversight responsibilities by reviewing (1) management’s efforts to identify and evaluate opportunities to acquire or develop assets that complement our asset base and support our long-term strategic plan for growth and expansion, and (2) any other matters that the board of directors may delegate to the Corporate Development Committee from time to time. A copy of the Corporate Development Committee charter is available on our web site atwww.aglresources.com.

Environmental and Corporate Responsibility Committee

The Environmental and Corporate Responsibility Committee met two times during the year ended December 31, 2003.2004. Among other things, the Environmental and Corporate Responsibility Committee (i)(1) reviews and monitors corporate policy with respect to our relationships with employees, shareholders, customers, competitors, suppliers and our communities, (ii)(2) identifies and monitors emerging political, social and environmental trends and public policy issues that may affect our business operations,performance or public image, and (iii)(3) reviews and monitors matters relating to employee and community health and safety. In 2004, this Committee assumed responsibility

to monitor the integration of Elizabethtown Gas, one of our newly acquired natural gas local distribution utilities, pursuant to an order by the New Jersey Board of Public Utilities. A copy of the Environmental and Corporate Responsibility Committee charter is available on our websiteweb site atwww.aglresources.com.

Executive Committee

The Executive Committee met two times during the year ended December 31, 2003.2004. The Executive Committee may meet during intervals between board meetings and has all the authority of the board, subject to limitations imposed by law or our bylaws. A copy of the Executive Committee charter is available on our websiteweb site atwww.aglresources.com.

Finance and Risk Management Committee

The Finance and Risk Management Committee met four times during the year ended December 31, 2003.2004. Among other things, the Finance and Risk Management Committee considers and makes recommendations about (i)(1) reviews management’s analysis of significant risks to us on an enterprise scale to includeincluding market, operational, regulatory, financial, credit, and weather-related risks, (ii)(2) oversees the management of our balance sheet, including leverage, liquidity, funding sources, and related matters, (iii)(3) oversees the management of our pension and 401(k) assets, and (iv)(4) oversees other matters that the board of directors may delegate to the Finance and Risk Management Committee from time to time. The Company’s Chief Risk Officer reports to, and meets in executive session with, the Finance and Risk Management Committee at each regularly scheduled meeting. A copy of the Finance and Risk Management Committee charter is available on our websiteweb site atwww.aglresources.com.

Nominating and Corporate Governance Committee

The Nominating and Corporate Governance Committee met four times during the year ended December 31, 2003.2004. All members of the Nominating and Corporate Governance

Committee are independent, non-employee directors, as defined under the listing standards of the New York Stock Exchange.Exchange and other applicable rules and regulations. The Nominating and Corporate Governance Committee’s primary responsibilities include (i)(1) identifying individuals qualified to serve on the board of directors and recommending director nominees for selection by the full board of directors or shareholders, and (ii)(2) evaluating, formulating and recommending to the board of directors corporate governance policies. The Nominating and Corporate Governance Committee has adopted a written charter, a copy of which is available on our websiteweb site atwww.aglresources.com.

In 2003,2004, the Nominating and Corporate Governance Committee recommended, and the board of directors adopted, amendments to our standards for determining director independence, which are attached as Annex A to this proxy statement. These amendments are consistent with recent amendments adopted by the New York Stock Exchange to its listing standards concerning director independence.

Qualifications forNomination of Director Candidates. Nominees recommended for director by the Nominating and Corporate Governance Committee or by shareholders must, at a minimum, meet the requirements for board members described in our Corporate Governance Guidelines and our bylaws. The Nominating and Corporate Governance Committee has not established any additional specific qualifications or skills that it believes are necessary for our directors to possess. The Nominating and Corporate Governance Committee intends to consider the adoption of specific minimum qualifications and skills that members of the board of directors should possess.

Three of this year’sis responsible for recommending director candidates Messrs. Thomas D. Bell, Jr., Michael J. Durhamfor election by the shareholders and Henry C. Wolf, were recommendedfor electing directors to fill vacancies or newly created directorships. The board of directors has delegated the screening and evaluation process for director candidates to the Nominating and Corporate Governance Committee, which identifies, evaluates and recruits highly qualified director candidates and recommends them to the board of directors. The Nominating and Corporate Governance Committee considers potential candidates for director, which may

come to the attention of the Nominating and Corporate Governance Committee through current directors, management, professional search firms, shareholders or other persons.

If the Nominating and Corporate Governance Committee has either identified a prospective nominee or determines that an additional or replacement director is required, the Nominating and Corporate Governance Committee may take such measures that it considers appropriate in connection with its evaluation of a director candidate, including candidate interviews, engagement of an outside firm to gather additional information and inquiry of persons with knowledge of the candidate’s qualifications and character. In its evaluation of director candidates, including the members of the board of directors eligible for reelection, the Nominating and Corporate Governance Committee considers the current size and composition of the board of directors and the needs of the board of directors and the respective committees of the board in view of the criteria for directors described in our Corporate Governance Guidelines, a copy of which is available on our web site at.www.aglresources.com.

The Nominating and Corporate Governance Committee will consider director nominees proposed by shareholders. A shareholder may recommend a person for nomination for election to our board of directors by writing to our corporate secretary at: Corporate Secretary, AGL Resources Inc., P.O. Box 4569, Location 1466, Atlanta, Georgia 30302-4569. Each submission must include:

A shareholder’s recommendation for a candidate for nomination to be elected at the next annual meeting of shareholders must be received by our corporate secretary no later than 45 days prior to the end of the year preceding such annual meeting of shareholders. The Nominating and Corporate Governance Committee will evaluate these recommendations in the same manner as it evaluates all other nominees, using the criteria described in our Corporate Governance Guidelines.

The Nominating and Corporate Governance Committee periodically engages a third party search firm, Russell Reynolds Associates, Inc. Russell Reynolds’ function is, to identify possible candidates for the Nominating and Corporate GovernanceCommittee’sGovernance Committee’s consideration based on skills and characteristics identified by the Nominating and Corporate Governance Committee and in light of gaps in board composition that the Nominating and Corporate Governance Committee may identify from time to time in board composition as the issues facing usthe board evolve. Such skills and characteristics desirable in the context of the then current make-up of the board of directors may include:include diversity, age, business or professional background, financial literacy and expertise, availability and commitment, independence and other relevant criteria. The one director who is new to our board and who is standing for election, Ms. Whyte, was identified by Russell Reynolds.

Process for Identifying Candidates. The Nominating and Corporate Governance Committee has not established any written policies or procedures for identifying and evaluating nominees for director. There are currently no differences between the manner in which the Nominating and Corporate Governance Committee evaluates nominees for director recommended by a security holder and the manner in which it evaluates nominees identified through other sources such as officers, directors or third party consultants. The Nominating and Corporate Governance Committee intends to consider the adoption of policies and procedures for identifying and evaluating nominees for director. If adopted, such policies and procedures will become effective prior to the next annual meeting of shareholders and we will make the policies and procedures publicly available on our website atwww.aglresources.com and in the periodic report that we file for the quarter in which the policies and procedures are adopted.AUDIT COMMITTEE REPORT

Procedures for Shareholders to Recommend Director Candidates. The Nominating and Corporate GovernanceAudit Committee does not currently have a policy or formal procedure for considering director nominees recommended by shareholders. However, it will consider any such nominees. It is the view of the board of directors is composed of four directors who are independent directors, as defined under the listing standards of the New York Stock Exchange. The Audit Committee operates under a written charter adopted by the board of directors.

The Audit Committee reviews our financial reporting process on behalf of the board of directors. In fulfilling its responsibilities, the Audit Committee has reviewed and discussed the audited financial statements contained in our Annual Report on Form 10-K for 2004 with management and the independent auditors. Management is responsible for the Company’s financial statements and the financial reporting process, including the system of internal controls. The independent auditors are responsible for expressing an opinion on the conformity of those audited financial statements with accounting principles generally accepted in the United States of America.

The Audit Committee has discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61,Communication with Audit Committees, as amended, regarding the independent auditor’s judgments about the quality of the Company’s accounting principlesas applied in its financial reporting. In addition, the Audit Committee has discussed with the independent auditors the auditor’s independence from us and our management, including the matters in the written disclosures and the letter provided to the Audit Committee as required by Independence Standards Board Standard No. 1,Independence Discussions with Audit Committees.

Based on the reviews and discussions referred to above, the Audit Committee recommended and concurred with the board of directors’ decision to approve the inclusion of the audited financial statements in our Annual Report on Form 10-K for 2004 for filing with the Securities and Exchange Commission.

Michael J. Durham (Chair)

Dennis M. Love

D. Raymond Riddle

Henry C. Wolf

The information contained in the Audit Committee Report shall not be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate it by reference in such policies and procedures are appropriate. Consequently, the Nominatingfiling.

COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE REPORT

Introduction

The Compensation and Corporate GovernanceManagement Development Committee intendsof the board of directors, which we refer to considerin this report as the adoption“Committee,” has prepared the following report regarding 2004 executive compensation. All members of policiesthe Committee are independent, non-employee directors, as defined under the listing standards of the New York Stock Exchange. At least two members of the Committee are “non-employee directors” for purposes of Rule 16b-3 under the Securities Exchange Act of 1934, as amended, and procedures“outside directors” for consideringpurposes of Section 162(m) of the Internal Revenue Code of 1986, as amended, which we refer to as the “Code.” The Committee is responsible for all components of the Company’s management compensation programs, succession planning, director nominees recommendedcompensation and employee benefit plans. This report is required by shareholders. If adopted, such policiesrules established by the Securities and procedures will become effective priorExchange Commission and provides specific information regarding compensation for the Company’s Chairman, President and Chief Executive Officer, the other named executive officers and all other executives of the Company.

Compensation Philosophy and Objectives of Executive Compensation Programs

It is the philosophy of the Company and the Committee that all executive compensation programs should (1) link pay and performance and (2) attract, motivate, reward and retain the executive talent required to achieve corporate objectives. AGL Resources also focuses strongly on compensation tied to stock price performance and the attainment of earnings per share targets, since the Committee believes that these measures provide a clear link to enhanced shareholder value.

The Company and the Committee believe that the Company’s executive officers should have an ongoing stake in the success of the Company. The Company and the Committee also believe that these key employees should have a significant portion of their total compensation tied to the nextachievement of annual meetingfinancial goals and the Company’s long-term stock performance. In order to meet the objectives outlined above, the Committee retains the services of shareholdersan independent compensation consultant to advise it on executive compensation matters.

For benchmarking executive compensation practices and we will makelevels, the policies and procedures publicly available on our website atwww.aglresources.com andCommittee examines data from two primary sources:

The natural gas service providers included in the periodic report proxy peer group are as follows:

While the proxy peer group includes companies from the S&P Utilities Index used in the stock performance graph provided later in this proxy statement, the Committee believes

that we filethe above peer group of companies is more comparable to the Company than is the broader S&P Utilities Index.

Given the limited detail associated with proxy pay data, the Committee also examines published compensation survey data for a broader range of energy services industry companies (i.e., electric utilities, gas utilities, exploration and production companies, etc.). While many of the energy services industry survey participants are in the S&P Utilities Index used in the stock performance graph provided later in this proxy statement, the two groups are not identical. The energy services market data are also utilized because it reflects energy service providers of a comparable revenue size to the Company and provides survey benchmarks with job duties and responsibilities comparable to those of the Company’s named executive officers.

The Company’s compensation program for executives includes base salaries, annual incentives and long-term incentives. Each year the Committee sets levels for base salary, target annual incentive pay and long-term incentives using both proxy peer group and survey data. The Committee does not place a particular emphasis on any one set of data but considers both market perspectives when making pay decisions.

In general, for 2004 the Committee established total compensation opportunities for the quarterCompany’s executive officers between the 50^th and 75^th percentiles of the market of energy industry peers. Given that a majority of an executive’s potential compensation is performance-based (i.e., pay at risk), actual total compensation may be above or below the market median based on individual and/or Company performance.

Base Salaries

In 2004, the Committee reviewed base salaries for the named executive officers andother executives. In determining base salary adjustments, the Committee considered several factors, including pay for comparable positions reported in the market data, a review of individual performance, time elapsed since the last increase and the Company’s performance. The Committee does not consider any financial performance criteria on a formulaic basis in determining salary increases. In 2004, base salary adjustments included: for Ms. Reynolds, an 8% increase from $625,000 to $675,000; for Mr. O’Brien, a 3.1% increase from $350,000 to $361,000; for Mr. Madden, a 5.1% increase from $295,000 to $310,000; for Mr. Shlanta, a 3% increase from $270,000 to $278,000; and for Ms. Platt, a 2.3% increase from $215,000 to $220,000.

Annual Incentive Compensation

The Committee previously established the 2004 Annual Team Performance Incentive Plan, which is referred to as the policies“2004 ATPI Plan.” The 2004 ATPI Plan was designed to motivate employees to devote their maximum efforts toward the realization by the Company of aggressive and procedures are adopted.significant, yet achievable, improvements in financial performance.

Eligibility

Historically, all employees, including executives, have been eligible to participate in the Annual Team Performance Incentive Plan.

How the Plan Worked

Under the 2004 ATPI Plan, annual cash incentives were tied to the achievement of Company earnings per share targets, business unit goals and individual performance goals. Threshold, target and maximum performance benchmarks were developed for each performance measure. The Company must meet or surpass its corporate earnings per share, or “EPS”, performance threshold in order for any incentive payments to be made, irrespective of the level of business unit achievement or individual performance achievement.The Committee has discretion

each year to remove the effects of all or a portion of significant one-time items from reported EPS.

For purposes of administering the 2004 ATPI Plan, business units included Distribution Operations, AGL Services Company and AGL Networks. Business unit performance for Distribution Operations was measured by a combination of Earnings Before Interest and Taxes, capital expenditures and service criteria. Performance for AGL Services Company was measured by a combination of direct operating and maintenance expenses and capital expenditures. Performance for AGL Networks was measured by a combination of Earnings Before Interest and Taxes and capital expenditures.

For the named executive officers, individual performance goals were linked directly to the Company’s stated goals and objectives. For 2004, the Company’s stated goals and objectives were:

Under the 2004 ATPI Plan, each participant had a target annual incentive compensation opportunity, expressed as a percentage of annual base salary. The 2004 ATPI Plan gave weight to corporate performance, business unit performance and individual performance. For each of the named executive officers other than the Chief Executive Officer, target annual incentive compensation opportunity was based on the following weights: 50% corporate EPS performance and 50% individual performance. For the Chief Executive Officer, the weights are: 75% corporate EPS performance and 25% individual performance. Under the 2004ATPI Plan, maximum awards for the named executive officers could be up to 200% of the target annual incentive compensation opportunity. In 2004, target annual incentive compensation opportunities for the interim, to submit directornomineesnamed executive officers were not adjusted from 2003 and were as follows (as a percentage of 2004 base salary): for consideration, shareholders must timely provide our Corporate Secretary withMs. Reynolds – 67%; for Messrs. O’Brien, Madden and Shlanta – 50% and for Ms. Platt – 40%.

Calculation and Payment of 2004 Annual Incentive Awards

For each of the informationnamed executive officers, based on achievement of corporate EPS above the maximum performance level in 2004, the corporate EPS component of the 2004 ATPI Plan paid out at the maximum level, while individual performance objectives were achieved in varying degrees by each executive officer. As set forth in the Summary Compensation Table, annual cash incentive payments under the 2004 ATPI Plan were as follows: for Ms. Reynolds, $904,500; for Mr. O’Brien, $361,000; for Mr. Madden, $310,000; for Mr. Shlanta, $278,000; and for Ms. Platt, $132,000.

Long-Term Incentive Compensation

In order to link the interests of AGL Resources’ shareholders and key executives and to encourage executive retention, AGL Resources maintains the Long-Term Incentive Plan. Stock options, restricted stock and performance shares and units may be granted under the plan. Awards are based on position and individual performance.

2002 Performance Unit Awards

In February 2002, the Company granted performance units with a performance measurement period that ended December 31, 2004. The performance measures under the units were intended to:

The performance units were granted to a select group of key executives, including the named executive officers.

How the Performance Units Worked

At the end of the three-year performance period, a predetermined percentage of the units vested based on the highest average closing price of Company common stock over any ten consecutive trading days during the performance measurement period and could range from a minimum of 10% to 100% of the granted units. The performance units were entitled to dividend credits during a portion of the performance measurement period. Upon vesting, the performance units were payable in shares of the Company’s common stock, provided, however, that at the election of the participant, up to 50% was eligible for payment in cash.

Ms. Reynolds was granted 350,000 units, and the other named executive officers were granted between 125,000 and 175,000 units. Based on the highest average closing stock price over any ten consecutive trading days during the measurement period, 18.31% of the units vested. The corresponding dollar value of vested awards (including accrued dividend credits) for each of the named executive officers was as follows based on the closing price of the Company’s common stock on December 31, 2004 of $33.24 per share: for Ms. Reynolds, 67,461 units or $2,242,418; for each of Messrs. O’Brien and Madden, 33,730 units or $1,121,209; and for each of Mr. Shlanta and Ms. Platt, 24,093 units or $800,863.

2003 Performance Share Awards

In 2003, the Company awarded performance shares to the named executive officers. Thepurpose of the awards was to align executives’ and shareholders’ interests and to encourage executive retention and serve as a bridge until the Committee could review the design of all long-term incentive compensation, with the goal being that a new overall plan would be adopted in 2004.

Eligibility

Participation was limited to the named executive officers.

How the Performance Shares Worked

Awards were made based on the executive’s position and a subjective assessment of individual performance. The awards were scheduled to vest one year from grant based on the achievement of selected cash flow performance measures. Ms. Reynolds was granted 50,000 performance shares, and the other named executive officers were granted between 5,500 and 24,000 performance shares.

In August 2004, the performance shares vested based on the achievement of the pre-established performance criteria, which related to several measures of cash flow. The number and dollar value of performance shares earned in 2004 for the named executive officers was as follows based on the closing price of the Company’s common stock on August 11, 2004 of $29.02 per share: for Ms. Reynolds, 50,000 shares or $1,451,000; for Mr. O’Brien, 24,000 shares or $696,480; for Mr. Madden, 16,000 shares or $464,320; for Mr. Shlanta, 8,500 shares or $246,670; and for Ms. Platt, 5,500 shares or $159,610.

Long-Term Incentive Structure

During 2004, the Committee considered alternatives to the Company’s existing long-term incentive structure. As a result of the long-term incentive structure being under review, the Committee did not grant any

annual long-term incentive awards to named executive officers during 2004.

However, in December 2004, the Committee granted restricted stock to select key employees in connection with their role in the acquisition of NUI Corporation. The number and dollar value of the restricted shares as of the date of grant that were issued to the named executive officers was as follows: 5,500 shares or $182,545 for Messrs. O’Brien and Madden and 4,000 or $133,760 shares for Mr. Shlanta. Effective January 3, 2005, the Committee made long-term incentive awards to the named executive officers in the form of stock options, restricted stock and performance cash. In the future, the Company anticipates making annual long-term incentive awards to the named executive officers.

Share Ownership Guidelines

Consistent with the Committee’s belief that management’s interests should be aligned with those of the shareholders, AGL Resources has adopted share ownership guidelines, expressed as a multiple of base salary, for every Company officer. Each executive’s ownership guideline is based on the executive’s position. The guideline for the Chairman of the Board, President and Chief Executive Officer is five times base salary. The guideline for other named executive officers ranges from two to three times base salary, and for the other officers of the Company, the guideline is one to two times base salary. Each current officer is expected to make progress every year toward achieving compliance with the applicable ownership guidelines and may not dispose of stock until such guideline levels of ownership are reached, absent extenuating circumstances. As of December 31, 2004, each of the named executive officers had exceeded his or her respective share ownership guideline.

Chief Executive Officer Compensation

The Committee reviews the performance and compensation of the Company’s Chief Executive Officer, Ms. Reynolds, on an annual basis. The compensation policy described above is applied in setting Ms. Reynolds’ compensation and includes consideration of factors such as Ms. Reynolds’ (1) performance and accomplishments, including meeting the Company’s goals for expansion, performance, technology implementation and business improvement; (2) demonstrated leadership abilities and vision in a complex marketplace of volatile energy pricing and significant industry distress; and (3) compensation relative to other energy industry executives. Ms. Reynolds participates in the same compensation programs available to other company executives. As noted above, in 2004, Ms. Reynolds received a base salary adjustment of 8% to $675,000 due to her base salary being below competitive norms. No adjustment was made to Ms. Reynolds’ target annual incentive opportunity of 67% (expressed as a percentage of 2004 base salary).

Ms. Reynolds’ cash compensation in 2004 was $1,579,500, which includes her base salary and an ATPI payout of $904,500. For the 2004 measurement period, Ms. Reynolds’ ATPI award represented a payout of 200% of target and is the result of the Company exceeding the maximum corporate EPS target and Ms. Reynolds’ individual performance exceeding the Committee’s expectations. Ms. Reynolds’ 2004 ATPI payout was determined as follows: 75% was determined by the Company’s financial EPS performance, and 25% was determined by achievement of individual performance objectives established by the Committee. Ms. Reynolds, like other executive officers, receives no incentive payment under the ATPI Plan unless the threshold levels of Company performance are met or surpassed.

As discussed previously in this report, the Committee did not grant any long-term incentive awards to Ms. Reynolds in 2004 as the current long-term incentive structure was being reviewed by the Committee and alternative designs were being considered. Long-term incentive awards made in prior years to Ms. Reynolds that were paid out in 2004 include:

Other Compensation Plans

The Company maintains a competitive package of employee benefit plans which are generally available to all employees. Executives are eligible to participate in the RSP Plan, which is the Company’s qualified 401(k) plan, the Company’s Nonqualified Savings Plan and the Company’s Amended and Restated Employee Stock Purchase Plan. Under the terms of the RSP Plan and the Nonqualified Savings Plan, the Company provides a matching contribution of 65%, which under the two plans is capped at an aggregate of 8% of covered compensation as defined under each of the plans. Under the Employee Stock Purchase Plan, employees may purchase Company common stock at a 15% discount.

Code Section 1.2162(m) Implications for Executive Compensation

It is the responsibility of the Committee to address the issues raised by Section 162(m) of the Code. Code Section 162(m) limits the Company’s annual deduction to $1,000,000 for compensation paid to its Chief Executive Officer and to each of the next four most highly compensated executives of the Company. Certain compensation which qualifies as “performance-based” or which meets other requirements under the Code may be exempt from the Code Section 162(m) limit. The Company intends to qualify certain compensation paid to executive officers for deductibility under the Code, including Code Section 162(m). The Committee anticipates that awards under the Company’s long-term incentive program and the corporate portion of the ATPI award will continue to qualify as “performance-based” compensation. However, since the Committee believes that a company’s and shareholders’ interests may sometimes be best served by providing compensation which is not deductible in order to attract, retain, motivate and reward executive talent, the Committee retains the flexibility to provide for payments of such compensation.

Arthur E. Johnson (Chair)

Thomas D. Bell, Jr.

D. Raymond Riddle

James A. Rubright

Bettina M. Whyte

The information contained in the Compensation and Management Development Committee Report shall not be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate it by reference in such filing.

COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The following directors served on the Compensation and Management Development Committee during 2004: Thomas D. Bell, Jr., Arthur E. Johnson, Dennis M. Love, D. Raymond Riddle, James A. Rubright and Bettina M. Whyte. None of such persons was, during 2004 or previously, an officer or employee of AGL Resources or any of its subsidiaries.

Mr. Thomas D. Bell, Jr. is Chief Executive Officer of Cousins Properties Incorporated, or “Cousins.” Cousins holds a 50% general partnership interest in Ten Peachtree Place Associates, or “TPPA,” which owns the building where we lease space for our corporate headquarters. Mr. Bell is not an officer of TPPA. Although Cousins is the managing member of TPPA, major business decisions for the TPPA partnership must be

decided unanimously by Cousins and its partner. Prior to Mr. Bell joining our board of directors, we entered into a ten-year lease agreement with TPPA that commenced in 2003. Cousins’ 50% interest in the amount we paid in lease payments to TPPA in 2004, approximately $2,863,000, and that we expect to pay in 2005, approximately $2,920,796, does not and will not exceed 5% of our bylaws. A copy of these bylaw requirements will be provided upon written request to the Corporate Secretary, AGL Resources Inc., P.O. Box 4569, Location 1465, Atlanta, Georgia 30302-4569. Please also see discussion under“When are shareholder proposalsconsolidated gross revenues or Cousins’ consolidated gross revenues for the 2005 annual meeting due?”on page 5year ended December 31, 2004. The board of this proxy statement.directors determined that Mr. Bell is independent because our business relationship with TPPA is not material as our payments to TPPA in 2003 and 2004 did not exceed 1% of either our consolidated gross revenues or Cousins’, which is the standard as set forth in our Standards for Determining Director Independence.

DIRECTOR COMPENSATION

General

A director who is one of our employees receives no additional compensation for his or her services as a director or as a member of a committee of the board. A director who is not one of our employees receives compensation for his or her services as described in the following paragraphs. All directors are reimbursed for reasonable expenses incurred in connection with attendance at board and committee meetings.

Initial Stock Award

Following initial election to the board, each non-employee director receives 1,000 shares of AGL Resources common stock on the first day of board service.

Annual RetainerBase Salaries

Each non-employee director receivesIn 2004, the Committee reviewed base salaries for the named executive officers andother executives. In determining base salary adjustments, the Committee considered several factors, including pay for comparable positions reported in the market data, a review of individual performance, time elapsed since the last increase and the Company’s performance. The Committee does not consider any financial performance criteria on a formulaic basis in determining salary increases. In 2004, base salary adjustments included: for Ms. Reynolds, an 8% increase from $625,000 to $675,000; for Mr. O’Brien, a 3.1% increase from $350,000 to $361,000; for Mr. Madden, a 5.1% increase from $295,000 to $310,000; for Mr. Shlanta, a 3% increase from $270,000 to $278,000; and for Ms. Platt, a 2.3% increase from $215,000 to $220,000.

Annual Incentive Compensation

The Committee previously established the 2004 Annual Team Performance Incentive Plan, which is referred to as the “2004 ATPI Plan.” The 2004 ATPI Plan was designed to motivate employees to devote their maximum efforts toward the realization by the Company of aggressive and significant, yet achievable, improvements in financial performance.

Eligibility

Historically, all employees, including executives, have been eligible to participate in the Annual Team Performance Incentive Plan.

How the Plan Worked

Under the 2004 ATPI Plan, annual cash incentives were tied to the achievement of Company earnings per share targets, business unit goals and individual performance goals. Threshold, target and maximum performance benchmarks were developed for each performance measure. The Company must meet or surpass its corporate earnings per share, or “EPS”, performance threshold in order for any incentive payments to be made, irrespective of the level of business unit achievement or individual performance achievement.The Committee has discretion

each year to remove the effects of all or a portion of significant one-time items from reported EPS.

For purposes of administering the 2004 ATPI Plan, business units included Distribution Operations, AGL Services Company and AGL Networks. Business unit performance for Distribution Operations was measured by a combination of Earnings Before Interest and Taxes, capital expenditures and service criteria. Performance for AGL Services Company was measured by a combination of direct operating and maintenance expenses and capital expenditures. Performance for AGL Networks was measured by a combination of Earnings Before Interest and Taxes and capital expenditures.

For the named executive officers, individual performance goals were linked directly to the Company’s stated goals and objectives. For 2004, the Company’s stated goals and objectives were:

Under the 2004 ATPI Plan, each participant had a target annual incentive compensation opportunity, expressed as a percentage of annual base salary. The 2004 ATPI Plan gave weight to corporate performance, business unit performance and individual performance. For each of the named executive officers other than the Chief Executive Officer, target annual incentive compensation opportunity was based on the first dayfollowing weights: 50% corporate EPS performance and 50% individual performance. For the Chief Executive Officer, the weights are: 75% corporate EPS performance and 25% individual performance. Under the 2004ATPI Plan, maximum awards for the named executive officers could be up to 200% of the target annual incentive compensation opportunity. In 2004, target annual incentive compensation opportunities for the named executive officers were not adjusted from 2003 and were as follows (as a percentage of 2004 base salary): for Ms. Reynolds – 67%; for Messrs. O’Brien, Madden and Shlanta – 50% and for Ms. Platt – 40%.

Calculation and Payment of 2004 Annual Incentive Awards

For each of the named executive officers, based on achievement of corporate EPS above the maximum performance level in 2004, the corporate EPS component of the 2004 ATPI Plan paid out at the maximum level, while individual performance objectives were achieved in varying degrees by each executive officer. As set forth in the Summary Compensation Table, annual service term (i) $30,000cash incentive payments under the 2004 ATPI Plan were as follows: for Ms. Reynolds, $904,500; for Mr. O’Brien, $361,000; for Mr. Madden, $310,000; for Mr. Shlanta, $278,000; and for Ms. Platt, $132,000.

Long-Term Incentive Compensation

In order to link the interests of AGL Resources’ shareholders and key executives and to encourage executive retention, AGL Resources maintains the Long-Term Incentive Plan. Stock options, restricted stock and performance shares and units may be granted under the plan. Awards are based on position and individual performance.

2002 Performance Unit Awards

In February 2002, the Company granted performance units with a performance measurement period that ended December 31, 2004. The performance measures under the units were intended to:

The performance units were granted to a select group of key executives, including the named executive officers.

How the Performance Units Worked

At the end of the three-year performance period, a predetermined percentage of the units vested based on the highest average closing price of Company common stock over any ten consecutive trading days during the performance measurement period and could range from a minimum of 10% to 100% of the granted units. The performance units were entitled to dividend credits during a portion of the performance measurement period. Upon vesting, the performance units were payable in shares of the Company’s common stock, provided, however, that at the election of the participant, up to 50% was eligible for payment in cash.

Ms. Reynolds was granted 350,000 units, and the other named executive officers were granted between 125,000 and 175,000 units. Based on the highest average closing stock price over any ten consecutive trading days during the measurement period, 18.31% of the units vested. The corresponding dollar value of vested awards (including accrued dividend credits) for each director, in cash, shares of AGL Resources common stock or deferred under the 1998 Common Stock Equivalent Plan for Non-Employee Directors, which we refer tonamed executive officers was as the “CSE Plan” and (ii) $30,000 payable, at the election of each director, in shares of AGL Resources common stock or deferred under the CSE Plan.

Amounts deferred under the CSE Plan are invested in common stock equivalents that track the performance of AGL Resources common stock and are credited with dividend payments that are made on AGL Resources common stock. At the end of their board service, participating directors receive a cash distributionfollows based on the market valueclosing price of their common stock equivalents and dividends. Stock options previously granted to non-employee directors have a per share exercise price that is equal to the fair market value of ourCompany’s common stock on December 31, 2004 of $33.24 per share: for Ms. Reynolds, 67,461 units or $2,242,418; for each of Messrs. O’Brien and Madden, 33,730 units or $1,121,209; and for each of Mr. Shlanta and Ms. Platt, 24,093 units or $800,863.

2003 Performance Share Awards

In 2003, the date of grantCompany awarded performance shares to the named executive officers. Thepurpose of the option. Directors realize value from these stock options onlyawards was to align executives’ and shareholders’ interests and to encourage executive retention and serve as a bridge until the Committee could review the design of all long-term incentive compensation, with the goal being that a new overall plan would be adopted in 2004.

Eligibility

Participation was limited to the extent thatnamed executive officers.

How the fair marketPerformance Shares Worked

Awards were made based on the executive’s position and a subjective assessment of individual performance. The awards were scheduled to vest one year from grant based on the achievement of selected cash flow performance measures. Ms. Reynolds was granted 50,000 performance shares, and the other named executive officers were granted between 5,500 and 24,000 performance shares.

In August 2004, the performance shares vested based on the achievement of the pre-established performance criteria, which related to several measures of cash flow. The number and dollar value of ourperformance shares earned in 2004 for the named executive officers was as follows based on the closing price of the Company’s common stock on August 11, 2004 of $29.02 per share: for Ms. Reynolds, 50,000 shares or $1,451,000; for Mr. O’Brien, 24,000 shares or $696,480; for Mr. Madden, 16,000 shares or $464,320; for Mr. Shlanta, 8,500 shares or $246,670; and for Ms. Platt, 5,500 shares or $159,610.

Long-Term Incentive Structure

During 2004, the date of exerciseCommittee considered alternatives to the Company’s existing long-term incentive structure. As a result of the long-term incentive structure being under review, the Committee did not grant any

annual long-term incentive awards to named executive officers during 2004.

However, in December 2004, the Committee granted restricted stock option exceedsto select key employees in connection with their role in the fair marketacquisition of NUI Corporation. The number and dollar value of the common stock on the date of grant.

Meeting Fees

Each non-employee director receives $1,000 for attendance at each meeting of the board and any committee of the board of which he or she is a member.

Meeting fees may be paid in cash or, at the election of a director, may be deferred under the CSE Plan. As noted above, under the CSE Plan, deferred meeting fees are invested in common stock equivalents that track the performance of AGL Resources common

stock and are credited with dividend payments. At the end of their board service, participating directors receive a cash distribution based on the market value of their common stock equivalents and dividends.

Director Compensation Paid

As noted above, each non-employee director receives an annual retainer valued at $60,000. Based on the election by each director, for the 2003 term of service that expires at the 2004 annual meeting: Mr. Jepson was paid $30,000 in cash and granted 1,257restricted shares of AGL Resources common stock; Mr. Crisp was granted 2,514 shares of AGL Resources common stock; Mr. Ward was paid $30,000 in cash and credited with 1,257 common stock equivalents under the CSE Plan; while Messrs. Johnson, Knox, Love, Riddle, Rubright and Ward were each credited with 2,514 common stock equivalents under the CSE Plan. The share amount and common stock equivalent amount were calculated by dividing the retainer by $23.87, the per share

fair market value of AGL Resources common stock as of April 16, 2003.

Upon Mr. Bell’s election to the board of directors on July 29, 2003, Mr. Bell was granted 1,676 shares of AGL Resources common stock for the 2003 term of service. The share amount was calculated by dividing $45,000, which represents seventy-five percent of the $60,000 annual retainer for directors, by $26.86, the per share fair market value of AGL Resources common stock as of the date of his election. Similarly, upon Mr. Durham’s electiongrant that were issued to the boardnamed executive officers was as follows: 5,500 shares or $182,545 for Messrs. O’Brien and Madden and 4,000 or $133,760 shares for Mr. Shlanta. Effective January 3, 2005, the Committee made long-term incentive awards to the named executive officers in the form of directors on July 30, 2003, Mr. Durham was granted 1,657 sharesstock options, restricted stock and performance cash. In the future, the Company anticipates making annual long-term incentive awards to the named executive officers.

Share Ownership Guidelines

Consistent with the Committee’s belief that management’s interests should be aligned with those of the shareholders, AGL Resources common stock.has adopted share ownership guidelines, expressed as a multiple of base salary, for every Company officer. Each executive’s ownership guideline is based on the executive’s position. The share amount was calculated by dividing $45,000 by $27.17,guideline for the fair market value of AGL Resources common stock asChairman of the dateBoard, President and Chief Executive Officer is five times base salary. The guideline for other named executive officers ranges from two to three times base salary, and for the other officers of the Company, the guideline is one to two times base salary. Each current officer is expected to make progress every year toward achieving compliance with the applicable ownership guidelines and may not dispose of stock until such guideline levels of ownership are reached, absent extenuating circumstances. As of December 31, 2004, each of the named executive officers had exceeded his election.or her respective share ownership guideline.

In addition, as noted above, each of Messrs. Bell, Crisp and Durham received 1,000 shares of AGL Resources common stock on their first day of service on our board of directors.

AUDIT COMMITTEE REPORTChief Executive Officer Compensation

The Audit Committee reviews the performance and compensation of the boardCompany’s Chief Executive Officer, Ms. Reynolds, on an annual basis. The compensation policy described above is applied in setting Ms. Reynolds’ compensation and includes consideration of directorsfactors such as Ms. Reynolds’ (1) performance and accomplishments, including meeting the Company’s goals for expansion, performance, technology implementation and business improvement; (2) demonstrated leadership abilities and vision in a complex marketplace of volatile energy pricing and significant industry distress; and (3) compensation relative to other energy industry executives. Ms. Reynolds participates in the same compensation programs available to other company executives. As noted above, in 2004, Ms. Reynolds received a base salary adjustment of 8% to $675,000 due to her base salary being below competitive norms. No adjustment was made to Ms. Reynolds’ target annual incentive opportunity of 67% (expressed as a percentage of 2004 base salary).

Ms. Reynolds’ cash compensation in 2004 was $1,579,500, which includes her base salary and an ATPI payout of $904,500. For the 2004 measurement period, Ms. Reynolds’ ATPI award represented a payout of 200% of target and is composedthe result of four directors whothe Company exceeding the maximum corporate EPS target and Ms. Reynolds’ individual performance exceeding the Committee’s expectations. Ms. Reynolds’ 2004 ATPI payout was determined as follows: 75% was determined by the Company’s financial EPS performance, and 25% was determined by achievement of individual performance objectives established by the Committee. Ms. Reynolds, like other executive officers, receives no incentive payment under the ATPI Plan unless the threshold levels of Company performance are independent directors,met or surpassed.

As discussed previously in this report, the Committee did not grant any long-term incentive awards to Ms. Reynolds in 2004 as the current long-term incentive structure was being reviewed by the Committee and alternative designs were being considered. Long-term incentive awards made in prior years to Ms. Reynolds that were paid out in 2004 include:

Other Compensation Plans

The Company maintains a competitive package of employee benefit plans which are generally available to all employees. Executives are eligible to participate in the RSP Plan, which is the Company’s qualified 401(k) plan, the Company’s Nonqualified Savings Plan and the Company’s Amended and Restated Employee Stock Purchase Plan. Under the terms of the RSP Plan and the Nonqualified Savings Plan, the Company provides a matching contribution of 65%, which under the two plans is capped at an aggregate of 8% of covered compensation as defined under the ruleseach of the New Yorkplans. Under the Employee Stock Exchange. The Audit Committee operates underPurchase Plan, employees may purchase Company common stock at a written charter adopted by the board of directors.

The Audit Committee reviews the Company’s financial reporting process on behalf of the board of directors. In fulfilling its responsibilities, the Audit Committee has reviewed and discussed the audited financial statements contained in the Company’s Annual Report on Form 10-K for fiscal 2003 with the Company’s management and the independent auditors. Management is responsible for the Company’s financial statements and the financial reporting process, including the system of internal controls. The independent auditors are responsible for expressing an opinion on the conformity of those audited financial statements with accounting principles generally accepted in the United States of America.

15% discount.

The Audit Committee has discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61,Communication with Audit Committees, as amended, regarding the independent auditor’s judgments about the quality of the Company’s accounting principles as applied in its financial reporting. In addition,the Audit Committee has discussed with the independent auditors the auditor’s independence from the Company and its management, including the matters in the written disclosures and the letter provided to the Audit Committee as required by Independence Standards Board Standard No. 1,Independence Discussions with Audit Committees.Code Section 162(m) Implications for Executive Compensation

Based onIt is the reviews and discussions referred to above, the Audit Committee concurred with the board of directors’ decision to approve the inclusionresponsibility of the audited financial statements inCommittee to address the issues raised by Section 162(m) of the Code. Code Section 162(m) limits the Company’s Annual Report on Form 10-Kannual deduction to $1,000,000 for fiscal 2003compensation paid to its Chief Executive Officer and to each of the next four most highly compensated executives of the Company. Certain compensation which qualifies as “performance-based” or which meets other requirements under the Code may be exempt from the Code Section 162(m) limit. The Company intends to qualify certain compensation paid to executive officers for filing withdeductibility under the SecuritiesCode, including Code Section 162(m). The Committee anticipates that awards under the Company’s long-term incentive program and Exchange Commission.the corporate portion of the ATPI award will continue to qualify as “performance-based” compensation. However, since the Committee believes that a company’s and shareholders’ interests may sometimes be best served by providing compensation which is not deductible in order to attract, retain, motivate and reward executive talent, the Committee retains the flexibility to provide for payments of such compensation.

D. Raymond RiddleArthur E. Johnson (Chair)

Thomas D. Bell, Jr.

Michael J. DurhamD. Raymond Riddle

DennisJames A. Rubright

Bettina M. LoveWhyte

The information contained in the AuditCompensation and Management Development Committee Report shall not be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate it by reference in such filing.

COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE REPORTINTERLOCKS AND INSIDER PARTICIPATION

The following directors served on the Compensation and Management Development Committee during 2004: Thomas D. Bell, Jr., Arthur E. Johnson, Dennis M. Love, D. Raymond Riddle, James A. Rubright and Bettina M. Whyte. None of such persons was, during 2004 or previously, an officer or employee of AGL Resources or any of its subsidiaries.

Mr. Thomas D. Bell, Jr. is Chief Executive Officer of Cousins Properties Incorporated, or “Cousins.” Cousins holds a 50% general partnership interest in Ten Peachtree Place Associates, or “TPPA,” which owns the building where we lease space for our corporate headquarters. Mr. Bell is not an officer of TPPA. Although Cousins is the managing member of TPPA, major business decisions for the TPPA partnership must be

decided unanimously by Cousins and its partner. Prior to Mr. Bell joining our board of directors, we entered into a ten-year lease agreement with TPPA that commenced in 2003. Cousins’ 50% interest in the amount we paid in lease payments to TPPA in 2004, approximately $2,863,000, and that we expect to pay in 2005, approximately $2,920,796, does not and will not exceed 5% of our consolidated gross revenues or Cousins’ consolidated gross revenues for the year ended December 31, 2004. The board of directors determined that Mr. Bell is independent because our business relationship with TPPA is not material as our payments to TPPA in 2003 and 2004 did not exceed 1% of either our consolidated gross revenues or Cousins’, which is the standard as set forth in our Standards for Determining Director Independence.

DIRECTOR COMPENSATION

General

A director who is one of our employees receives no additional compensation for his or her services as a director or as a member of a committee of the board. A director who is not one of our employees receives compensation for his or her services as described in the following paragraphs. All directors are reimbursed for reasonable expenses incurred in connection with attendance at board and committee meetings.

Initial Stock Award

Following initial election to the board, each non-employee director receives 1,000 shares of AGL Resources which we refer to in this report ascommon stock on the “Committee,” has prepared the following report regarding 2003 executive compensation. The Committee is responsible for all componentsfirst day of the Company’s management compensation programs, succession planning, director compensation and certain provisions ofemployee benefit plans. The Committee works closely with the entire board of directors in the execution of its duties. This report is required by rules established by the Securities and Exchange Commission and provides specific information regarding compensation for the Company’s Chairman, President and Chief Executive Officer, the other named executive officers and all other executives of the Company.

Compensation Philosophy and Objectives of Executive Compensation Programsservice.

It is the philosophy of the Company and the Committee that all executive compensation programs should: (i) link pay and performance; (ii) attract, motivate, reward and retain the executive talent required to achieve corporate objectives; and (iii) be tied to stock price performance and the attainment of earnings per share targets, since this type of compensation provides a clear link to enhanced shareholder value.

The Company and the Committee, believe that its executive officers should have an ongoing stake in the success of the Company. The Company and the Committee, also believe that these key employees should have a significant portion of their total compensation tied to the achievement of financial goals for the year and the Company’s long-term stock performance.

The Company’s compensation program for executives includes base salaries, annual incentives, and long-term incentives. The Committee determines compensation levels for our executives with the assistance of an independent compensation consultant that furnishes the Committee with executive compensation data drawn from published surveys. Each year, the Committee sets target levels for salary, annual incentive pay and long-term incentives using survey and proxy data for comparable energy industry peer companies. The companies against which the Company compares its compensation are not necessarily identical to those included in the S&P Utilities Index referred to in the Stock Performance Graph below.

The Committee established total compensation opportunities for the Company’s executive officers generally targeted at what it deemed to be the median of the market. Since the majority of an executive’s compensation is performance-based (i.e., pay at risk), actual

total compensation may be above or below the market median based on individual and/or Company performance.

Base Salaries

In 2003, we2004, the Committee reviewed base salaries for the named executive officers and otherandother executives. In determining base salary adjustments, the Committee considered several factors, including:including pay for comparable positions reported in the market data, described above, a subjective review of individual performance, time elapsed since the last increase and the Company’s corporate performance. The Committee does not consider any financial performance criteria on a formulaic basis in determining salary increases. In 2003,2004, base salary adjustments were madeincluded: for Ms. Rosput andReynolds, an 8% increase from $625,000 to $675,000; for Mr. O’Brien, a 3.1% increase from $350,000 to $361,000; for Mr. Madden, as reflected in the Summary Compensation Table below. Messrs. O’Briena 5.1% increase from $295,000 to $310,000; for Mr. Shlanta, a 3% increase from $270,000 to $278,000; and Shlanta had received adjustments in the latter half of 2002 and were not eligible for adjustments in January 2003 when the board of directors customarily makes such changes.Ms. Platt, a 2.3% increase from $215,000 to $220,000.

Annual Incentive Compensation

Based onThe Committee previously established the Committee’s recommendation, the board of directors has established the2004 Annual Team Performance Incentive Plan, which is referred to as the “ATPI“2004 ATPI Plan.” The 2004 ATPI Plan” as was designed to motivate employees to devote their maximum efforts toward the program under whichrealization by the Company of aggressive and significant, yet achievable, improvements in financial performance.

Eligibility

Historically, all employees, including executives, have been eligible to participate in the Annual Team Performance Incentive Plan.

How the Plan Worked

Under the 2004 ATPI Plan, annual cash incentives arewere tied to the achievement of Company earnings per share targets, business unit goals and individual performance goals. Generally, all employees, including executives, are eligible to participate in the ATPI Plan. The ATPI Plan seeks to offer rewards that motivate executivesThreshold, target and other employees to devote their maximum efforts toward the realization of aggressive and significant, yet achievable, improvements in financial performance.performance benchmarks were developed for each performance measure. The Company must meet or surpass its corporate earnings per share, or “EPS”, performance threshold in order for any incentive payments to be made, irrespective of the level of business unit achievement or individual performance.performance achievement.The Committee has discretion

each year to remove the effects of all or a portion of significant one-time items from reported EPS.

For purposes of administering the 2004 ATPI Plan, business units includeincluded Distribution Operations, AGL Services Company and AGL Networks. Business unit

performance for Distribution Operations was measured by a combination of earnings before interestEarnings Before Interest and taxes,Taxes, capital expenditures and service criteria. Performance for AGL Services Company was measured by a combination of direct operating and maintenance expenses and capital expenditures. Performance for AGL Networks was measured by a combination of earnings before interestEarnings Before Interest and taxesTaxes and capital expenditures.

For the named executive officers, individual performance goals were linked directly to the Company’s stated goals and objectives. For 2004, the Company’s stated goals and objectives were:

Under the plan,2004 ATPI Plan, each participant hashad a target annual incentive compensation opportunity, expressed as a percentage of annual base salary. The plan gives2004 ATPI Plan gave weight to corporate performance, business unit performance and individual performance. For each of the named executive officers (otherother than the Chief Executive Officer),Officer, target annual incentive compensation opportunity iswas based on the following weights: 50% corporate EPS performance and 50% individual performance. MaximumFor the Chief Executive Officer, the weights are: 75% corporate EPS performance and 25% individual performance. Under the 2004ATPI Plan, maximum awards for the named executive officers maycould be up to 200% of the target awards.annual incentive compensation opportunity. In 2004, target annual incentive compensation opportunities for the named executive officers were not adjusted from 2003 and were as follows (as a percentage of 2004 base salary): for Ms. Reynolds – 67%; for Messrs. O’Brien, Madden and Shlanta – 50% and for Ms. Platt – 40%.

Calculation and Payment of 20032004 Annual Incentive Awards

For each of the 2003 measurement period,named executive officers, based on achievement of corporate EPS above the Company’s thresholdmaximum performance level in 2004, the corporate EPS component of performance was exceeded. Individualthe 2004 ATPI Plan paid out at the maximum level, while individual performance objectives were achieved in varying degrees by each executive officer, and all of the named executive officers received an annual cash incentive payment under the ATPI Plan, as reflectedofficer. As set forth in the Summary Compensation Table, below.annual cash incentive payments under the 2004 ATPI Plan were as follows: for Ms. Reynolds, $904,500; for Mr. O’Brien, $361,000; for Mr. Madden, $310,000; for Mr. Shlanta, $278,000; and for Ms. Platt, $132,000.

Long-Term Incentive Compensation

ToIn order to link the interests of AGL Resources’ shareholders and key executives and to encourage executive retention, the CompanyAGL Resources maintains the Long-Term Incentive Plan. Stock options, restricted stock and performance shares and units may be granted under the plan. Awards are based on position and individual performance.

For 2003,2002 Performance Unit Awards

In February 2002, the Company granted performance sharesunits with a performance measurement period that ended December 31, 2004. The performance measures under the units were intended to:

The performance units were granted to a select group of key executives, including the named executive officers.

How the Performance Units Worked

At the end of the three-year performance period, a predetermined percentage of the units vested based on the executive’spositionhighest average closing price of Company common stock over any ten consecutive trading days during the performance measurement period and could range from a minimum of 10% to 100% of the granted units. The performance units were entitled to dividend credits during a portion of the performance measurement period. Upon vesting, the performance units were payable in shares of the Company’s common stock, provided, however, that at the election of the participant, up to 50% was eligible for payment in cash.

Ms. Reynolds was granted 350,000 units, and the other named executive officers were granted between 125,000 and 175,000 units. Based on the highest average closing stock price over any ten consecutive trading days during the measurement period, 18.31% of the units vested. The corresponding dollar value of vested awards (including accrued dividend credits) for each of the named executive officers was as follows based on the closing price of the Company’s common stock on December 31, 2004 of $33.24 per share: for Ms. Reynolds, 67,461 units or $2,242,418; for each of Messrs. O’Brien and Madden, 33,730 units or $1,121,209; and for each of Mr. Shlanta and Ms. Platt, 24,093 units or $800,863.

2003 Performance Share Awards

In 2003, the Company awarded performance shares to the named executive officers. Thepurpose of the awards was to align executives’ and shareholders’ interests and to encourage executive retention and serve as a bridge until the Committee could review the design of all long-term incentive compensation, with the goal being that a new overall plan would be adopted in 2004.

Eligibility

Participation was limited to the named executive officers.

How the Performance Shares Worked

Awards were made based on the executive’s position and a subjective assessment of individual performance. Generally, equity-basedThe awards are targeted between the 50th and 75th percentiles of the competitive market. The 2003 performance shares arewere scheduled to vest one year from grant based on the attainmentachievement of selected cash flow performance measures.

In 2003, Ms. RosputReynolds was granted 50,000 performance shares, and the other named executive officers were granted between 8,5005,500 and 24,000 performance shares.

In August 2004, the performance shares vested based on the achievement of the pre-established performance criteria, which related to several measures of cash flow. The number and dollar value of performance shares earned in 2004 for the named executive officers was as follows based on the closing price of the Company’s common stock on August 11, 2004 of $29.02 per share: for Ms. Reynolds, 50,000 shares or $1,451,000; for Mr. O’Brien, 24,000 shares or $696,480; for Mr. Madden, 16,000 shares or $464,320; for Mr. Shlanta, 8,500 shares or $246,670; and for Ms. Platt, 5,500 shares or $159,610.

Long-Term Incentive Structure

During 2004, the Committee considered alternatives to the Company’s existing long-term incentive structure. As a result of the long-term incentive structure being under review, the Committee did not grant any

annual long-term incentive awards to named executive officers during 2004.

However, in December 2004, the Committee granted restricted stock to select key employees in connection with their role in the acquisition of NUI Corporation. The number and dollar value of the restricted shares as reflectedof the date of grant that were issued to the named executive officers was as follows: 5,500 shares or $182,545 for Messrs. O’Brien and Madden and 4,000 or $133,760 shares for Mr. Shlanta. Effective January 3, 2005, the Committee made long-term incentive awards to the named executive officers in the Summary Compensation Table below.form of stock options, restricted stock and performance cash. In the future, the Company anticipates making annual long-term incentive awards to the named executive officers.

Share Ownership Guidelines

Consistent with the Committee’s belief that management’s interests should be aligned with those of the shareholders, AGL Resources has adopted share ownership guidelines, expressed as a multiple of base salary, for every Company executive. Theofficer. Each executive’s ownership guideline is based on the executive’s position. The guideline for the Chairman of the Board, President and Chief Executive Officer is five times base salary. The guideline for other named executive officers ranges from two to three times base salary, and for the other officers of the Company, the guideline is one to two times base salary. Each current officer is expected to make progress eachevery year toward achieving compliance with the applicable ownership guidelines and any officer who is hired inmay not dispose of stock until such guideline levels of ownership are reached, absent extenuating circumstances. As of December 31, 2004, each of the future is generally expected to achieve the applicable ownership guidelines over a three-year period. At the current time, all named executive officers meet the applicable guidelines.had exceeded his or her respective share ownership guideline.

Chief Executive Officer Performance and Compensation

The Committee reviews the performance and compensation of the Company’s Chief Executive Officer, Ms. Rosput,Reynolds, on an annual basis. As notedThe compensation policy described above with respect to the other named executive officers, the Committee, with the assistanceis applied in setting Ms. Reynolds’ compensation and includes consideration of its

independent compensation consultant, reviewed the Chief Executive Officer’s compensation based on comparisons with the market data described above. In determiningfactors such as Ms. Rosput’s total compensation, the Committee also considered: (i) herReynolds’ (1) performance and accomplishments; (ii) heraccomplishments, including meeting the Company’s goals for expansion, performance, technology implementation and business improvement; (2) demonstrated leadership abilities and vision in a uniquely complex marketplace; (iv) retention;marketplace of volatile energy pricing and (v) Company performance.significant industry distress; and (3) compensation relative to other energy industry executives. Ms. Reynolds participates in the same compensation programs available to other company executives. As noted above, in 2004, Ms. Reynolds received a base salary adjustment of 8% to $675,000 due to her base salary being below competitive norms. No adjustment was made to Ms. Reynolds’ target annual incentive opportunity of 67% (expressed as a percentage of 2004 base salary).

Ms. Rosput’s annualReynolds’ cash compensation in 2004 was $1,579,500, which includes her base salary was set at $625,000. Ms. Rosput also received annual incentives and long-term incentives as set forth inan ATPI payout of $904,500. For the Summary Compensation Table below.

Specifically, for the 20032004 measurement period, Ms. Rosput’sReynolds’ ATPI award represented a payout of 200% of target incentive opportunityand is the result of the Company exceeding the maximum corporate EPS target and Ms. Reynolds’ individual performance exceeding the Committee’s expectations. Ms. Reynolds’ 2004 ATPI payout was 67% of her base salary. Of this total target incentive, three-fourthsdetermined as follows: 75% was determined by the Company’s financial EPS performance, and one-fourth25% was determined by achievement of individual performance objectives established by the Committee. As is the case with theMs. Reynolds, like other executive officers, receives no incentive payments are madepayment under the ATPI Plan unless the threshold levels of ourCompany performance are met or surpassed.

The performance shares granted

As discussed previously in this report, the Committee did not grant any long-term incentive awards to Ms. RosputReynolds in 20032004 as the current long-term incentive structure was being reviewed by the Committee and alternative designs were intendedbeing considered. Long-term incentive awards made in prior years to increase Ms. Rosput’s stakeReynolds that were paid out in the Company, encourage continued retention and provide rewards consistent with Company performance over the long term. The performance shares are scheduled to vest one year from grant based on the attainment of selected cash flow performance criteria.2004 include:

Other Compensation Plans

The Company maintains a competitive package of employee benefit plans thatwhich are generally available to all employees. The Company’s executivesExecutives are eligible to participate in the AGL Resources Inc. Retirement Savings PlusRSP Plan, (RSP Plan), which is the Company taxCompany’s qualified 401(k) plan, the AGL Resources Inc. NonqualifiedSavingsCompany’s Nonqualified Savings Plan (NSP), and the AGL Resources Inc.Company’s Amended and Restated Employee Stock Purchase Plan. Under the terms of the RSP Plan and the Nonqualified Savings Plan, the Company provides a matching contribution of 65%, which under the two plans is capped at an aggregate of 8% of covered compensation as defined under each of the plans. Under the Employee Stock Purchase Plan, (ESPP).

employees may purchase Company common stock at a 15% discount.

Code Section 162(m) Implications for Executive Compensation

It is the responsibility of the Committee to address the issues raised by Section 162(m) of the Internal Revenue Code of 1986, as amended, which we refer to as the “Code.”Code. Code Section 162(m) limits the Company’s annual deduction to $1,000,000 for compensation paid to its chief executive officerChief Executive Officer and to each of the next four most highly compensated executives.executives of the Company. Certain compensation which qualifies as “performance-based” or which meets other requirements under the Code may be exempt from the Code Section 162(m) limit. The Company intends to qualify certain compensation paid to executive officers for deductibility under the Code, including Code Section 162(m). The Committee anticipates that awards under the Company’s long-term incentive program and the corporate portion of the ATPI award will continue to qualify as “performance-based” compensation. However, since the Committee believes that a company’s and shareholders’ interests may sometimes be best served by providing compensation thatwhich is not deductible in order to attract, retain, motivate and reward executive talent, the Committee retains the flexibility to provide for payments of such compensation.

Arthur E. Johnson (Chair)

Thomas D. Bell, Jr.

Dennis M. Love

D. Raymond Riddle

James A. Rubright

Bettina M. Whyte

The information contained in the Compensation and Management Development Committee Report shall not be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate it by reference in such filing.

COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The following directors served on the Compensation and Management Development Committee during 2004: Thomas D. Bell, Jr., Arthur E. Johnson, Dennis M. Love, D. Raymond Riddle, James A. Rubright and Bettina M. Whyte. None of such persons was, during 2004 or previously, an officer or employee of AGL Resources or any of its subsidiaries.

Mr. Thomas D. Bell, Jr. is Chief Executive Officer of Cousins Properties Incorporated, or “Cousins.” Cousins holds a 50% general partnership interest in Ten Peachtree Place Associates, or “TPPA,” which owns the building where we lease space for our corporate headquarters. Mr. Bell is not an officer of TPPA. Although Cousins is the managing member of TPPA, major business decisions for the TPPA partnership must be

decided unanimously by Cousins and its partner. Prior to Mr. Bell joining our board of directors, we entered into a ten-year lease agreement with TPPA that commenced in 2003. Cousins’ 50% interest in the amount we paid in lease payments to TPPA in 2004, approximately $2,863,000, and that we expect to pay in 2005, approximately $2,920,796, does not and will not exceed 5% of our consolidated gross revenues or Cousins’ consolidated gross revenues for the year ended December 31, 2004. The board of directors determined that Mr. Bell is independent because our business relationship with TPPA is not material as our payments to TPPA in 2003 and 2004 did not exceed 1% of either our consolidated gross revenues or Cousins’, which is the standard as set forth in our Standards for Determining Director Independence.

DIRECTOR COMPENSATION

General

A director who is one of our employees receives no additional compensation for his or her services as a director or as a member of a committee of the board. A director who is not one of our employees receives compensation for his or her services as described in the following paragraphs. All directors are reimbursed for reasonable expenses incurred in connection with attendance at board and committee meetings.

Initial Stock Award

Following initial election to the board, each non-employee director receives 1,000 shares of AGL Resources common stock on the first day of board service.

Annual Retainer

Each non-employee director receives on the first day of each annual service term (1) $30,000 payable, at the election of each director, in cash, shares of AGL Resources common stock or deferred under the 1998 Common Stock Equivalent Plan for Non-Employee Directors, which we refer to as the “CSE Plan”, and (2) $30,000 payable, at the election of each director, in shares of AGL Resources common stock or deferred under the CSE Plan.

Amounts deferred under the CSE Plan are invested in common stock equivalents that track the performance of AGL Resources common stock and are credited with equivalents to dividend payments that are made on AGL Resources common stock. At the end of their board service, participating directors receive a cash distribution based on the market value of their common stock equivalents and dividend equivalents.

Meeting Fees

Effective November 2004, each non-employee director receives $2,000 for attendance at each meeting of the board and any committee of the board of which he or she is a member. Prior to November 2004, the meeting fee for directors was $1,000 for each meeting of the board and any committee.

Meeting fees may be paid in cash or, at the election of a director, may be deferred under the CSE Plan. As noted above, under the CSE Plan, deferred meeting fees are invested in common stock equivalents that track the performance of AGL Resources common stock and are credited with dividend equivalent payments. At the end of their board service, participating directors receive a cash distribution based on the market value of their common stock equivalents and dividend equivalents.

Non-Employee Director Compensation Paid

As noted above, each non-employee director receives an annual retainer valued at $60,000. Based on the election by each director, for the 2004 term of service that commenced at the 2004 annual meeting and expires at the 2005 annual meeting, the share amounts and common stock equivalent amounts indicated in the table below were calculated by dividing the applicable retainer by the per share fair market value of AGL Resources common stock as of the date the retainer was paid. The following table reflects compensation paid to each non-employee director for the 2004 term of service that expires at the 2005 annual meeting.

Non-Employee Director Compensation Paid For the 2004 Term of Service