Ten Peachtree Place

Atlanta, Georgia 30309

NOTICE OF 2006 ANNUAL MEETING OF SHAREHOLDERS

By Order of the Board of Directors,

Myra Coleman Bierria Corporate Secretary

What will I be voting on?

You will be voting on:

Who is soliciting my vote?

The board of directors of AGL Resources is soliciting your vote for all shares of AGL Resources common stock that you own.

How does the board recommend I vote on the proposals?

The board of directors recommends you vote “FOR” each of the three proposals listed above.

How do I vote?

Most of our shareholders have three options for submitting their votes:

If your AGL Resources shares are held by Computershare, our transfer agent (meaning you are a “shareholder of record”), please follow the instructions on your proxy card.

If your AGL Resources shares are held through a broker, bank, or bank nominee (that is, in “street name”), your ability to vote by telephone or over the internet depends on your broker’s voting process. Please follow the directions on your vote instruction card.

In addition, if your AGL Resources shares are held by Computershare or in street name, you can attend the meeting and vote your shares in person. Please note that if your shares are held in street name and you want to vote in person, you must obtain a proxy from your street name nominee and bring that proxy to the meeting.

Even if you plan to attend the meeting, we encourage you to vote your shares by telephone, internet or mail.

How do I vote if my shares are held in the AGL Resources 401(k) plan?

If your AGL Resources shares are held in the Retirement Savings Plus Plan (our 401(k) plan), or the “RSP Plan,” only the trustee of the plan can vote your plan shares even if you attend the annual meeting in person. The plan trustee will vote your shares in accordance with your telephone, internet or written proxy vote. Please follow the instructions on your proxy card.

Can I revoke my proxy?

Yes. You may revoke your proxy or vote instructions at any time before the annual meeting by timely voting again by telephone or via the internet or by timely signing and returning another proxy or vote instruction card with a later date. Additionally, if you hold shares in your name on the books kept by our transfer agent or if you are a street name holder who has obtained a proxy or vote instruction card from your street name nominee, you also may attend the meeting and vote in person. If you attend the annual

meeting and want to vote in person, you can request that your previously submitted proxy or vote instruction card not be used.

What if I don’t specify my choices when returning my proxy or vote instruction card?

If you return a signed and dated proxy or vote instruction card without indicating your vote, your shares will be voted “FOR” each of the three proposals specified in the notice of the meeting (except with respect to “broker non-votes” as described further below).

If you hold AGL Resources shares through the RSP Plan and you return the proxy card but do not properly sign or date it or specify how you want your plan shares voted, the plan trustee, upon instruction from the Administrative Committee of the RSP Plan, will vote your plan shares “FOR” each of the three proposals specified in the notice of the meeting and as instructed by the Administrative Committee on any other proposals that may properly come before the meeting.

Can my shares be voted if I don’t submit a proxy or voting instructions?

If your AGL Resources shares are registered in your name on the books kept by our transfer agent and you do not return a signed proxy and do not vote by telephone or via the internet, your shares will not be voted.

If your AGL Resources shares are held in street name and you do not submit any voting instructions, your brokerage firm or bank may vote your shares with regard to some but not all of the proposals, as specified by stock exchange rules. We believe that under applicable stock exchange rules, brokerage firms and banks will be able to vote their customers’ unvoted shares with regard to the proposals to elect directors and ratify the selection of the independent auditor but not with regard to the proposal to approve the 2006 Non-Employee Directors Equity Compensation Plan. When brokerage firms

and banks are not permitted to vote their customers’ unvoted shares, the affected shares are referred to as “broker non-votes.”

If your AGL Resources shares are held through the RSP Plan and you do not return the proxy card for those plan shares and do not vote by telephone or the internet, the plan trustee, upon instruction from the Administrative Committee of the RSP Plan, will vote your shares “FOR” each of the three proposals specified in the notice of the meeting and as instructed by the Administrative Committee on any other proposals that may properly come before the meeting.

How many shares can vote?

As of February 24, 2006 (the record date), 77,952,313 shares of common stock of AGL Resources were outstanding and entitled to be voted at the annual meeting. This total includes shares issued to a grantor trust, which are not considered outstanding for financial reporting purposes. You are entitled to one vote for each share of AGL Resources common stock you owned on the record date.

How many votes must be present to hold the annual meeting?

A majority of the 77,952,313 shares of AGL Resources common stock outstanding on the record date, including the shares issued to the grantor trust, must be present, either in person or represented by proxy, to conduct the annual meeting.

How many votes are needed to elect directors?

Directors are elected by a plurality of the total number of votes cast, which means the six nominees who receive the largest number of properly cast votes will be elected as directors.

What if I vote “withhold authority” to elect directors?

In voting for the election of directors, a vote to “withhold authority” for the election of one or more director nominees will be counted for

quorum purposes but will not be counted in determining the number of votes cast and therefore will not affect the outcome.

How many votes are required to approve the 2006 Non-Employee Directors Equity Compensation Plan?

The approval of our 2006 Non-Employee Directors Equity Compensation Plan requires a majority of the votes cast on the proposal, provided that the total votes cast on the proposal constitute a majority of the outstanding shares of common stock.

How many votes are required to ratify the appointment of PricewaterhouseCoopers LLP as our independent auditor?

The ratification of the appointment of PricewaterhouseCoopers LLP as our independent auditor requires the votes cast “for” to exceed the votes cast “against” the proposal.

How will abstentions and broker non-votes be treated?

Abstentions and broker non-votes will be treated as shares present and entitled to vote for quorum purposes. Abstentions will have the same effect as votes “against” the approval of the 2006 Non-Employee Directors Equity Compensation Plan (Proposal 2). Abstentions will not affect the outcome of the vote on the proposal to ratify the appointment of PricewaterhouseCoopers LLP as our independent auditor (Proposal 3).

Without your instruction, your broker may not vote your shares on the approval of the 2006 Non-Employee Directors Equity Compensation Plan (Proposal 2). Such broker non-votes will not be counted as votes cast for purposes of determining whether the total votes cast on Proposal 2 constitute a majority of our outstanding shares of common stock. If the total votes cast on Proposal 2 constitute a majority of our outstanding shares of common stock, then the broker non-votes will not have any affect on the approval of Proposal 2.

Could other matters be decided at the annual meeting?

We do not know of any other matters that will be considered at the annual meeting. If a matter that is not listed on the proxy or vote instruction card is properly brought before the annual meeting in accordance with Section 1.2 of our bylaws, the proxies will vote in accordance with their judgment of what is in the best interest of the Company, based on the discretionary voting authority conferred on them by the proxy and vote instruction cards.

Who will count the vote?

Representatives of Computershare Trust Company, N.A., our transfer and shareholder services agent, will count the votes and act as inspector of elections.

Where and when will I be able to find the voting results?

We will post the voting results on our web site at www.aglresources.com approximately two weeks after the annual meeting. You also can find the results in our Form 10-Q for the second quarter of 2006, which we will file with the Securities and Exchange Commission, or “SEC,” no later than August 9, 2006.

What does it mean if I receive more than one proxy card?

It means that you have multiple accounts with brokerage firms, banks and/or our transfer agent. Please vote all of these shares. We recommend that you contact your broker, bank and/or our transfer agent to consolidate as many accounts as possible under the same name and address. All communications concerning accounts for shares registered in your name on the books kept by our transfer agent, including address changes, name changes, inquiries to transfer shares and similar issues, can be handled by making a toll-free call to Computershare, AGL Resources Shareholder Services number at 1-800-633-4236.

What do I need to bring with me if I want to attend the annual meeting?

The annual meeting is open to all holders of our common stock. To attend the annual meeting, you will need to bring evidence of your stock ownership. If your shares are registered in your name on the books kept by our transfer agent or your shares are held as 401(k) shares, your admission ticket is included inside the back of this proxy statement, and you will need to bring it with you to the meeting. If your shares are held in street name by your brokerage firm or bank, you will need to bring evidence of your stock ownership, such as a proxy obtained from your street name nominee (particularly if you want to vote your shares at the annual meeting) or your most recent brokerage account statement (in which case you will not be able to vote your shares at the meeting), together with valid picture identification. If you do not have either an admission ticket or proof that you own our common stock, you may not be admitted into the meeting.

What happens if the annual meeting is postponed or adjourned?

Your proxy will still be valid and may be voted at a postponed or adjourned meeting, unless the board of directors fixes a new record date for the postponed or adjourned meeting, which the board is required to do if the postponement or adjournment is for more than 120 days. If the meeting is postponed or adjourned, you will still be able to change or revoke your proxy until it is voted.

When are shareholder proposals for the 2007 annual meeting due?

Our bylaws require shareholders to give advance notice of any shareholder nominations of directors and of any other matters shareholders wish to present for action at an annual meeting of shareholders. The required notice must be given within a prescribed time frame, which is calculated by reference to the date of the proxy statement relating to our

most recent annual meeting. Accordingly, with respect to our 2007 annual meeting of shareholders, our bylaws require notice to be provided to our Corporate Secretary at AGL Resources Inc., P.O. Box 4569, Location 1466, Atlanta, Georgia 30302-4569 no later than November 21, 2006. If a shareholder fails to provide timely notice of a proposal to be presented at the 2007 annual meeting, the persons designated as proxies by the board of directors will have discretionary authority to vote, and the trustee of the RSP Plan will vote in accordance with the discretionary authority of the Administrative Committee of the RSP Plan, on any such proposal that may come before the meeting.

If you are interested in submitting a proposal for inclusion in our proxy statement for the annual meeting in 2007, you need to follow the procedures outlined in the SEC’s Rule 14a-8. To be eligible for inclusion, your shareholder proposal intended for inclusion in the proxy statement for the 2007 annual meeting of shareholders must be received no later than November 21, 2006 by our Corporate Secretary at the address above.

This deadline does not apply to questions a shareholder may wish to ask at the annual meeting.

Who pays the costs associated with this proxy solicitation?

AGL Resources pays the expenses of soliciting proxies. Proxies may be solicited on our behalf by directors, officers and employees, in person or by telephone, facsimile or electronic transmission. Directors, officers and employees will not be paid additional fees for those services. AGL Resources has hired Georgeson Shareholder Communications Inc., a proxy solicitation firm, to assist in the distribution and solicitation of proxies. We expect to pay Georgeson Shareholder Communications Inc. approximately $16,000 plus reasonable out-of-pocket disbursements for those services.

Notes to Share Ownership Table

For Ms. Reynolds, of the 150,047 options noted in the above table, 64,328 options were cancelled in January 2006 in connection with her resignation from the Company. See “Other Matters Involving Executive Officers and Directors – Solicitation, Cooperation and General Release and Waiver Agreement.”

General

The board of directors presently consists of thirteen members, twelve of whom are non-employee directors. The board is divided into three classes of approximately equal size, with the directors in each class serving a three-year term. The terms are staggered so that the term of one class expires at each annual meeting.

The board of directors, based on the recommendation of its Nominating and Corporate Governance Committee, has nominated Charlie R. Crisp, Wyck A. Knox, Jr., Dennis M. Love, Dean R. O’Hare, John W. Somerhalder II and Henry C. Wolf for election as directors at the annual meeting. All of the nominees are current directors of the Company. If elected, Mr. O’Hare will hold office for a one-year term ending at the annual meeting of shareholders in 2007, Mr. Somerhalder will hold office for a two-year term ending at the annual meeting of shareholders in 2008 and each of the remaining nominees will hold office for a three-year term ending at the annual meeting of shareholders in 2009. Each of the nominees

has agreed to serve as a director if elected by the shareholders.

If any nominee becomes unable to stand for election, the board may:

Set forth below is information as of December 31, 2005, excluding information concerning Mr. Somerhalder that is as of March 2, 2006 and Mr. Durham that is as of March 6, 2006, about the six director nominees and all other current directors whose terms of office will continue after the annual meeting. Unless otherwise stated, all directors have been engaged in their principal occupations for more than the past five years.

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, 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 Mr. Somerhalder, our President and Chief Executive Officer. Mr. Somerhalder will not participate in any action of the board relating to his compensation or any other matters requiring action by only non-employee directors. The board of directors has determined that each of the non-employee 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 web site at www.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. For more detailed information about these transactions and the board’s determinations, please see “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 2005, the board of directors held eight meetings. Each director (other than Mr. Somerhalder, who was first appointed as a director in March 2006) 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-management directors, the board of directors schedules regular executive sessions in which the non-management directors meet without management’s participation. Such sessions are scheduled to occur at the end of every regularly scheduled board meeting. Normally, the presiding director at such executive sessions is the Chairman of the Executive Committee of the board of directors. Mr. Riddle served during 2005 as Chairman of the Executive Committee. During and subsequent to Mr. Riddle’s service as our Interim Chairman and Chief Executive Officer, Mr. Ward has served as the presiding director at the executive sessions and Chairman of the Executive Committee. During 2005, the board met in executive session four times.

Committees of the Board

The board of directors has established seven 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. Mr. Somerhalder has not yet been assigned to any committees of the board.

Audit Committee

The Audit Committee met twelve times during 2005. All members of the Audit Committee are independent directors, as defined under the listing standards of the New York Stock Exchange, the rules of the SEC and our Standards for Determining Director Independence. 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 (1) the integrity of our financial statements, (2) our compliance with legal and regulatory requirements, (3) the independent auditor’s qualifications and independence, (4) the performance of our internal audit function, and (5) the performance of the independent auditor.

The board of directors has determined that all members of the Audit Committee meet the financial literacy requirements of the New York Stock Exchange listing standards. The board has further determined that Mr. Durham, the Audit Committee Chair, is a “financial expert” within the meaning of SEC regulations.

Additional information regarding the Audit Committee and its functions and responsibilities is included in this proxy statement under the captions “Audit Committee Report” and “Proposal 3—Ratification of the Appointment of PricewaterhouseCoopers LLP as our Independent Auditor for 2006.” The Audit Committee has adopted a written charter that it recently amended and which we have attached as Annex B to this proxy statement and which is available on our web site at www.aglresources.com.

Compensation and Management Development Committee

The Compensation and Management Development Committee met seven times during 2005. All members of the Compensation and Management Development

Committee are independent, non-employee directors, as defined under the listing standards of the New York Stock Exchange and our Standards for Determining Director Independence. 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 web site at www.aglresources.com.

Corporate Development Committee

The Corporate Development Committee met four times during 2005. 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 at www.aglresources.com.

Environmental and Corporate Responsibility Committee

The Environmental and Corporate Responsibility Committee met four times during 2005. Among other things, the Environmental and Corporate Responsibility Committee (1) reviews and monitors corporate policy with respect to our relationships with employees, shareholders, customers, competitors, suppliers and our communities, (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

(3) reviews and monitors matters relating to employee and community health and safety. In 2004, this Committee assumed responsibility for monitoring 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 web site at www.aglresources.com.

Executive Committee

The Executive Committee met one time during 2005. 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 web site at www.aglresources.com.

Finance and Risk Management Committee

The Finance and Risk Management Committee met four times during 2005. Among other things, the Finance and Risk Management Committee oversees (1) the management of our balance sheet including leverage, liquidity, funding sources, and related matters, (2) management’s assessments, actions, processes and procedures concerning our exposure to risks identified in the Finance and Risk Management Committee’s charter, and (3) any other matters that the Board 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 web site at www.aglresources.com.

Nominating and Corporate Governance Committee

The Nominating and Corporate Governance Committee met six times during 2005. 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 and our Standards for Determining Director Independence. The Nominating and Corporate Governance Committee’s primary responsibilities include (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 (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 the Nominating and Corporate Governance Committee charter is available on our web site at www.aglresources.com.

In 2006, the Nominating and Corporate Governance Committee recommended, and the board of directors adopted, non-substantive amendments to our Standards for Determining Director Independence, which are attached as Annex A to this proxy statement.

Nomination of Director Candidates. The board of directors is responsible for recommending director candidates for election by the shareholders and for 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. Potential candidates for director 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 determined 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”), to identify possible candidates for the Nominating and Corporate Governance 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 as the issues facing the board evolve. Such skills and characteristics desirable in the context of the then current make-up of the board of directors may include diversity, age, business or professional background, financial literacy and expertise, availability, commitment, independence and other relevant criteria.

In December 2005, the board of directors formed a search committee, chaired by board member Thomas D. Bell, Jr., to identify a successor for Paula R. Reynolds, our former

Chairman, President and Chief Executive Officer. Ms. Reynolds resigned, effective December 31, 2005, to become the president and chief executive officer of Safeco Corporation. The search committee engaged Russell Reynolds to identify potential candidates. Russell Reynolds identified for the search committee, among other candidates, John W. Somerhalder II. On March 2, 2006, our

board of directors elected Mr. Somerhalder as our president and chief executive officer and elected him as a member of our board of directors. Mr. Somerhalder is a nominee for election as a director by the shareholders at the annual meeting. On March 2, 2006, our board of directors also appointed D. Raymond Riddle as chairman of the board of directors.

The Audit Committee of the board of directors is composed of three directors who are independent directors, as defined under the listing standards of the New York Stock Exchange and our Standards for Determining Director Independence. The Audit Committee operates under a written charter adopted by the board of directors, a copy of which is attached as Annex B to this proxy statement.

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 2005 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 principles as 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 2005 for filing with the Securities and Exchange Commission.

Michael J. Durham (Chair)

Dennis M. Love

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 filing.

Introduction

The Compensation and Management Development Committee of the Board of Directors, which we refer to in this report as the “Committee,” has prepared the following report regarding 2005 executive compensation. All members of the Committee are independent, non-employee directors, as defined under the listing standards of the New York Stock Exchange and our Standards for Determining Director Independence. 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 “outside directors” for purposes 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 the Company’s executive compensation programs, succession planning, director compensation and employee benefit plans. This report provides specific information regarding compensation for the Company’s former 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 link executive pay to corporate performance and attract, motivate, reward and retain the executive talent required to achieve corporate objectives. The Committee believes that the Company’s executive officers should have an ongoing stake in the success of the Company and that a significant portion of their total compensation should be tied to long-term stock price performance and the attainment of annual financial goals. The Committee presently focuses on earnings per share targets, since it believes that these measures provide a clear link to enhanced shareholder value.

The Committee retains the services of an independent compensation consultant in order to advise it on executive compensation matters and to assist it in evaluating and developing executive compensation practices that meet the objectives outlined above.

For benchmarking executive compensation practices and levels in 2005, the Committee, as in the prior fiscal year, examined data from two primary market perspectives:

For purposes of the Stock Performance Graph contained in this proxy statement, the Company used the S&P Utilities Index as its peer group. For compensation purposes, however, the Committee reviewed proxy statement data for the following companies, which are comparable in size and scope of operations to AGL Resources:

AGL Resources’ Peer Group (for purposes of evaluating executive compensation)

Given the limited detail associated with proxy statement data, the Committee also examined

published compensation survey data for a broader sample of energy services industry companies (electric utilities, gas utilities, exploration and production companies, etc.). While many of the participants in these surveys were included in the S&P Utilities Index used in the Stock Performance Graph, the peer groups are not identical. The Committee considered this energy services market data to be particularly helpful because it includes energy service providers of a comparable revenue size to the Company and provides survey benchmarks with job duties and responsibilities comparable to 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 salary, target annual incentive pay and long-term incentives using peer group market data from both proxy statement data and compensation surveys. The Committee does not place a particular emphasis on any one set of data and considers various market perspectives when making pay decisions.

In general, it is the Committee’s policy to set total compensation opportunities for the Company’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 (pay at risk), actual total compensation may be above or below these amounts based on individual and/or Company performance.

Base Salaries

The Committee annually reviews and determines the base salaries of the Chief Executive Officer and other executives. The Committee also reviews base salaries in the case of promotions or other significant changes in responsibilities. In determining the base salary adjustments for 2005, the Committee considered several factors, including pay for comparable positions

reported in the peer group market data, the Company’s performance, the executive’s individual performance, and the time elapsed since the executive’s last pay increase. While financial performance was an important part of the Committee’s analysis, it did not use a specific formula to determine salary increases. In 2005, Ms. Reynolds’ salary was increased from $675,000 to $750,000 (an 11.1% increase) and Mr. Shlanta’s salary was increased from $278,000 to $300,000 (a 7.9% increase). Messrs. Madden, Evans, and Martinez each assumed significant new duties and responsibilities as executive officers of the Company during 2005. Consequently, Mr. Madden’s salary originally was increased from $310,000 to $345,000 (an 11.1% increase), and was later increased an additional 10.1% to $380,000 upon his promotion to Executive Vice President, External Affairs. Similarly, each of Mr. Evans’ and Mr. Martinez’s salaries was increased to $300,000 upon their promotion to Senior Vice President and Chief Financial Officer and Executive Vice President, Utility Operations, respectively. These increases (45% and 36%, respectively) were in recognition of, and consistent with, Mr. Evans’ and Mr. Martinez’s new positions and increased responsibilities at the senior leadership level.

Annual Incentive Compensation

In 2005, the Company adopted its 2005 Annual Incentive Plan (as the successor plan to its previous annual incentive plan, the ATPI Plan), which is referred to as the “AIP.” The AIP is designed to motivate employees to devote their maximum efforts toward the realization of aggressive and significant, yet achievable, improvements in corporate financial performance. The Company also maintains the Executive Performance Incentive Plan (“EPIP”). The EPIP is intended to attract and retain qualified executives by providing performance-based compensation as an incentive and to qualify the compensation under the plan as “performance based compensation” within the meaning of Section 162(m) of the Code.

Eligibility

Generally, all fulltime employees, including executives, are eligible to participate in the AIP. Union employees are eligible to participate only if their collective bargaining agreement provides for such participation. Generally, only the senior executive officers of the Company participate in the EPIP.

How the Plans Work

Under the AIP, annual cash incentives are tied to the achievement of Company earnings per share targets, business unit goals and individual performance goals. Threshold, target and maximum performance benchmarks are developed for each performance measure. The Company must meet or surpass its corporate earnings per share (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 adjust for the effects of all or a portion of significant one-time items (whether positive or negative) from reported EPS. For 2005, incentives granted to executives required the achievement of a higher EPS performance threshold than for other participants.

Under the EPIP, the Committee establishes objective performance measures from among a list of eligible measures set forth in the plan, and those performance measures must be met or exceeded in order for eligible executives to receive a payout. The Committee reviews the actual performance at the end of each year, compares it with the predetermined goals, and certifies the results under the plan. For 2005, potential awards under the EPIP were subject to a performance measure that mirrored the corporate EPS measure set forth in the AIP. In order to attempt to maximize the deductibility of corporate performance awards made to the named executive officers, the corporate performance portion of the executive awards is covered under the shareholder-approved EPIP,

but the individual performance portion for such executives (which is not eligible for exemption under Section 162(m) of the Code) is covered under the AIP.

For the named executive officers, individual performance goals are linked directly to the Company’s stated goals and objectives. For 2005, the Company’s stated goals and objectives were:

Under the AIP, each participant has a target annual incentive compensation opportunity, expressed as a percentage of earned base salary during the fiscal year. The AIP, generally, gives weight to corporate performance, business unit performance and individual performance. For each of the named executive officers, including the Chief Executive Officer, target annual incentive compensation opportunity is based on the following weights: 75% corporate EPS performance (covered under the EPIP) and 25% individual performance (covered under the AIP). Maximum awards for the named executive officers (and participants, generally) may be up to 200% of the overall target annual incentive compensation opportunity. For fiscal 2005, target annual incentive compensation opportunities (as a percentage of base salary) for the following named executive officers were increased over 2004 amounts in order to bring their target annual incentive opportunities up to competitive

norms for their positions and, in the cases of Messrs. Evans, Madden and Martinez, to be consistent with their new positions: Ms. Reynolds – 75% (up from 67%); Mr. Evans – 50% (up from 40%); Mr. Madden – 60% (up from 50%); and Mr. Martinez – 60% (up from 50%). The target annual incentive opportunity for Mr. Shlanta remained unchanged at 50%.

Calculation and Payment of 2005 Annual Incentive Awards

The annual cash incentive payments under the EPIP and AIP, as applicable, are reflected in the “bonus” column in the Summary Compensation Table. For each of the named executive officers, the corporate EPS component covered under the EPIP paid out at the maximum level (upon certification by the Committee that actual EPS results were above the maximum performance level), while individual performance objectives covered under the AIP were achieved in varying degrees by each executive officer.

Long-Term Incentive Compensation

AGL Resources maintains its Long-Term Incentive Plan in order to link the interests of its key executives to those of its shareholders and to encourage executive retention. The Company may grant stock options, restricted stock, restricted stock units, and performance shares and units under the plan. Awards are granted based upon position and market data and compensation surveys, as previously discussed in this report.

Long-Term Incentive Structure

In 2005, the Committee implemented a new long-term incentive structure for the named executive officers. Under the new structure, long-term incentive awards consist of three components: stock options, restricted stock, and performance cash. The primary goals of the long-term incentive program are to provide, (i) long-term performance focus, (ii) results leverage and (iii) retention, all on an efficient basis in terms of dilution and cost. In

consultation with its independent consultant, the Committee first determined the dollar value of the award to be granted to each recipient based on peer and industry data. Total value targets generally are set between the 50^th and 75^th percentiles of the market. Then, using valuation methodologies determined by the Committee in consultation with its independent consultant, the award is allocated among its components, with restricted stock and performance cash generally targeted to each deliver approximately 40% of the total dollar value of the award, and stock options generally targeted to deliver the remaining 20%. The Committee determined the grants for 2005 in this manner and added approximately 33% in additional expected value due to the fact that no annual grants were made during 2004.

Promotional/Retentive Long-Term Incentive Awards

In addition to the long-term incentive awards made under the new structure, as detailed above, Messrs. Martinez, Evans and Madden were granted additional long-term incentive awards intended to recognize their promotion into key senior leadership roles, provide an incentive for their retention and engage them in the long term performance objectives tied to these awards. Concurrent with their promotions, Messrs. Evans and Martinez were each granted 24,000 stock options and 12,000 shares of restricted stock having four-year and three-year ratable vesting, respectively, as well as additional performance cash awards. Mr. Madden was granted

15,000 restricted shares with two-year cliff vesting, upon assuming his new role as EVP, External Affairs. These additional awards are reflected in the “securities underlying options” and “restricted stock awards” columns in the Summary Compensation table and in the Option Grants in Last Fiscal Year table, as applicable.

Share Ownership Guidelines

Consistent with the Committee’s belief that management’s interests should be aligned with those of the shareholders, the Company has adopted share ownership guidelines, expressed as a multiple of base salary, for every officer. Each officer’s ownership guideline is based on his or her position. The Chairman of the Board, President and Chief Executive Officer is expected to hold shares of Company common stock having a value equal to, or greater than, 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, 2005, each of the named executive officers 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 on an annual basis. The compensation policy described above was applied in setting Ms. Reynolds’ 2005 compensation and included consideration of various factors, principally including the following:

During her tenure, Ms. Reynolds participated in the same compensation programs available to other executives. As noted above, in 2005, Ms. Reynolds’ base salary and target annual incentive opportunity were increased in order to bring her base compensation up to competitive norms. Like other executive officers, the CEO receives no incentive payment under either the EPIP or the AIP unless the threshold levels of Company performance are met or surpassed.

Ms. Reynolds’ cash compensation in 2005 was $1,581,491, which includes her earned base salary and an annual incentive payout of $837,260, which reflects the corporate EPS component of her annual incentive award under the EPIP. The individual performance portion of her annual incentive award, which represented 25% of her annual target amount, was forfeited on the effective date of her resignation. Ms. Reynolds’ EPIP award represented a payout of 200% for the corporate performance portion as a result of the Company’s exceeding the maximum corporate EPS target.

Under the Company’s 2005 long-term incentive program, Ms. Reynolds was granted 76,700 stock options, 23,200 shares of restricted stock, 23,200 restricted stock units, a target performance cash award opportunity covering the full three-year performance period of $742,500 and a “phase-in” target performance cash award of $371,250 for each of a one year and two year performance period. These amounts were determined in the same manner as the awards for other executive officers.

Ms. Reynolds resigned effective as of the close of business on December 31, 2005. On that date, 7,733 shares of her restricted

stock vested, with a fair market value on that date of $34.81 per share ($269,186). Also on that date, her one-year phase-in performance cash award vested, resulting in a maximum payout of $519,750. In addition, for stock options that vested on or before December 31, 2005, the Committee approved an extension of the option exercise period for 60 days following her date of resignation. The purpose of the 60-day extension was to allow Ms. Reynolds the opportunity to exercise her vested options outside of the Company’s imposed blackout period related to year-end financial results. All unvested long-term incentive compensation awards and the individual performance component of her annual incentive award were forfeited by Ms. Reynolds on the date of her resignation.

On January 1, 2006, the Company and Ms. Reynolds entered into an agreement which, among other things, requires her to be available for up to twenty-four months following her resignation to assist in an orderly transition to a new chief executive. As consideration for these services, and the other conditions of the agreement, the Company paid Ms. Reynolds $281,000.

Effective January 1, 2006, Mr. D. Raymond Riddle, an outside director and former chairman of the Board, assumed the role of interim Chairman and CEO of the Company. Mr. Riddle’s annual base salary for 2006 was set at $750,000, and his annual incentive opportunity was set at 75% of base salary, with 75% of such opportunity to be determined by Company EPS performance and 25% to be determined by individual performance objectives established by the Committee. While serving in the role of Interim Chairman and CEO, Mr. Riddle was ineligible for any of the compensation payable to the Company’s non-employee directors.

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

Retirement Savings Plus Plan (the Company’s 401(k) plan), the Nonqualified Savings Plan and the Employee Stock Purchase Plan. Under the terms of the Retirement Savings Plus Plan and 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 162(m) Implications for Executive Compensation

Code Section 162(m) limits the Company’s annual deduction to $1,000,000 for compensation paid to each of the named executive officers. Certain compensation in excess of $1,000,000 which qualifies as “performance-based” or which meets other requirements under the Code may be exempt from the Code Section 162(m) limit and, as a result, will be fully deductible by the Company. The Committee anticipates that awards under the Company’s long-term incentive program and the corporate portion of the annual

incentives for executives under the EPIP 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 which is not fully deductible under Code Section 162(m).

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.

The following directors served on the Compensation and Management Development Committee during 2005: Thomas D. Bell, Jr., Arthur E. Johnson, D. Raymond Riddle, James A. Rubright and Bettina M. Whyte. None of such persons was, during 2005 or previously, an officer or employee of AGL Resources or any of its subsidiaries, and each such person was an independent director as defined under the listing standards of the New York Stock Exchange and our Standards for Determining Director Independence.

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 2003 was approximately $2,300,000, in 2004 was approximately $2,863,000 and in 2005 was approximately $2,993,000, which was less than 1% of both our consolidated gross revenues and Cousins’ consolidated gross revenues for such respective years. Revenue amounts of less than 1% do not create any presumption of materiality, and hence create no issue with regard to a director’s independence from management, under our Standards for Determining Director Independence.

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 (a non-employee director) 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 an annual retainer for service as a director on the first day of each annual service term. The amount and form of the annual retainer is fixed from time to time by resolution of the Board. Effective January 2006, the annual retainer was increased from $60,000 to $90,000, of which (1) $30,000 (the “Cash Portion”) is payable in cash or, at the election of each director, in shares of AGL Resources common stock or deferred under the CSE Plan, and (2) $60,000 (the “Equity Portion”) is payable, at the election of each director, in shares of AGL Resources common stock or deferred under the CSE Plan. During the 2005 service term, the annual retainer was $60,000, of which the Cash Portion was $30,000 and the Equity Portion was $30,000.

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 a non-employee director’s board service, a participating director receives a cash distribution based on the market value of his or her common stock equivalents and dividend equivalents.

Meeting Fees

Each non-employee director receives $2,000 for attendance in person or by telephone at each meeting of the board and any committee of the board of which he or she is a member. See “Corporate Governance – Board and Committee Meetings.”

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 a non-employee director’s board service, a participating director receives a cash distribution based on the market value of his or her common stock equivalents and dividend equivalents.

Non-Employee Director Compensation Paid

As noted above, during the 2005 service term, each non-employee director received an annual retainer of $60,000 that, upon the election of each director, was payable in cash (limited to $30,000), or in shares of our common stock or deferred under the CSE Plan. The common stock equivalents and share amounts were calculated by dividing the applicable retainer amount by the fair market value of our common stock as of the date that the retainer was paid.

Other Compensation and Benefits

Our board members are covered under the Company’s business travel accidental death insurance policy, which is available to all employees. This policy provides each director with a death benefit in the amount of $100,000. The total premium paid by the Company for employee and director coverage for 2005 was $4,375. The Company provides no other insurance or retirement benefits or other perquisites to its non-employee directors.

Share Ownership and Holding Period Requirements for Non-Employee Directors

In order to serve on our board, directors are required to own shares of our common stock. Our share ownership guidelines for non-employee directors set the minimum share ownership requirement for non-employee directors at $300,000, which represents five times the value of the current Equity Portion of the annual retainer and is currently ten times the value of the Cash Portion of the annual retainer. Each director has five years from the date of his or her

election to meet the share ownership requirement. Common stock equivalents and shares issuable upon the exercise of vested stock options are included in the determination of the ownership guideline amount. The Company believes that the equity component of non-employee director compensation serves to further align the non-employee directors with the interests of its shareholders.

Under the terms of the 2006 Non-Employee Directors Equity Compensation Plan described under “Proposal 2—Approval of the 2006 Non-Employee Directors Equity Compensation Plan,” non-employee directors will be required to hold shares awarded under the plan until the earlier of (i) five years from the date of the initial stock award or stock grant; (ii) a non-employee director’s termination of service; or (iii) a change in control of the Company. Shares subject to the holding period shall include all shares issued in connection with an initial stock award under the plan and all shares issued under the plan in payment of all or part of a director’s annual retainer.

Notes to Option Exercises Table

Vesting. With respect to the 2005 restricted stock units, at the end of the performance measurement period, if the performance measure is achieved, the 2005 restricted stock units are converted to an equal number of shares of our common stock and, thereafter, are subject to time-based vesting over a three-year period. With respect to the 2005 restricted shares, at the end of the performance measurement period, if the performance measure is achieved, one-third of the shares awarded vest and the balance of the shares then vest ratably over a two-year period. The

performance measure was achieved for both the 2005 restricted stock units and restricted shares.

Forfeiture. If the performance measure is not attained for the 2005 restricted stock units and shares of restricted stock, then the 2005 restricted stock units and shares are forfeited. In addition, the 2005 restricted stock units and shares are subject to transfer restrictions and are subject to forfeiture upon a recipient’s termination of employment for any reason.

Dividends and voting. The 2005 restricted stock units are not eligible for dividend credit or voting. The 2005 restricted shares are eligible for dividend credit and voting.

Change in control. Upon a change in control of the Company, the restricted stock units and shares become fully vested.

Notes to Performance Cash Unit Awards Table

Dividends and voting. The performance cash units are not eligible for dividend credit or voting.

Change in control. Upon a change in control of the Company, the performance cash units become vested at the “target level,” as prorated on a daily basis based on the completed portion of the applicable performance measurement period.

Notes to Equity Compensation Plan Table