SECURITIES
      AND EXCHANGE COMMISSION





Washington,
      D. C.








FORM
      10-K





ANNUAL
      REPORT














For
      the
      Fiscal Year Ended September 30, 2007





THE
      LACLEDE GROUP, INC.





LACLEDE
      GAS COMPANY





720
      Olive
      Street, St. Louis, MO 63101

















SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D. C. 20549


FORM
      10-K





[
                X
                ]
            ANNUAL
                REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
                EXCHANGE
              ACT
                OF 1934 For the Fiscal Year Ended
                September 30, 2007


OR


[    
                ]
            TRANSITION
                REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
              EXCHANGE
                ACT OF 1934 For the Transition Period from ­__________ to
                __________








Commission
                File Number
            Exact
                Name of Registrant as Specified in its Charter and Principal Office
                Address and Telephone Number
            States
                of
              Incorporation
            I.R.S.Employer
              IdentificationNumber1-16681
            The
                Laclede Group, Inc.
              720
                Olive Street
              St.
                Louis, MO  63101
              314-342-0500
            Missouri
            74-29765041-1822
            Laclede
                Gas Company
              720
                Olive Street
              St.
                Louis, MO  63101
              314-342-0500
            Missouri
            43-0368139





Securities
      registered pursuant to Section 12(b) of the Act (as of the date of this
      report)





Name
                of Registrant
            Title
                of Each
              Class
            Name
                of Each Exchange
              On
                Which RegisteredThe
                Laclede Group, Inc.
            Common
                Stock $1.00 par value
            New
                York Stock ExchangeThe
                Laclede Group, Inc.
            Preferred
                Share Purchase Rights
            New
                York Stock ExchangeLaclede
                Gas Company
            None





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





Indicate
      by check mark whether the registrant:





(1)
      is a
      well-known seasoned issuer, as defined in Rule 405 of the Securities
      Act.





The
                Laclede Group, Inc.:
            Yes
            [
                X
                ]
            No
            [    
                ]Laclede
                Gas Company:
            Yes
            [    
                ]
            No
            [
                X
                ]





(2)
      is
      not required to file reports pursuant to Section 13 or Section 15(d) of the
      Act.





The
                Laclede Group, Inc.:
            Yes
            [    
                ]
            No
            [
                X
                ]Laclede
                Gas Company:
            Yes
            [    
                ]
            No
            [
                X
                ]





Indicate
      by check mark whether the registrants (1) have filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such report) and (2) have been subject to such filing requirements
      for
      the past 90 days.





The
                Laclede Group, Inc.:
            Yes
            [
                X
                ]
            No
            [    
                ]Laclede
                Gas Company:
            Yes
            [
                X
                ]
            No
            [    
                ]


2





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





Indicate
      by check mark whether the registrant:





(1)
      is a
      large accelerated filer, an accelerated filer, or a non-accelerated filer (as
      defined in Rule 12b-2 of the Exchange Act):





The
                Laclede Group, Inc.:
            Large
                accelerated filer
            [    
                ]
            Accelerated
                filer
            [
                X
                ]
            Non-accelerated
                filer
            [    
                ]Laclede
                Gas Company:
            Large
                accelerated filer
            [    
                ]
            Accelerated
                filer
            [    
                ]
            Non-accelerated
                filer
            [
                X
                ]





(2)
      is a
      shell company (as defined in Rule 12b-2 of the Exchange Act).





The
                Laclede Group, Inc.:
            Yes
            [    
                ]
            No
            [
                X
                ]Laclede
                Gas Company:
            Yes
            [    
                ]
            No
            [
                X
                ]








The
      aggregate market value of the voting stock held by non-affiliates of The Laclede
      Group, Inc.


amounted
      to $629,587,964 as of March 31, 2007.





Indicate
      the number of shares outstanding of each of the issuer’s classes of


common
      stock as of the latest practicable date:





Shares
                Outstanding AtRegistrant
            Description
                of Common Stock
            October 31, 2007The
                Laclede Group, Inc.:
            Common
                Stock ($1.00 Par Value)
            21,665,462Laclede
                Gas Company:
            Common
                Stock ($1.00 Par Value)
            10,307
                *





*  100%
      owned by The Laclede Group, Inc.





Document
      Incorporated by Reference:


Portions
      of Proxy Statement dated December 21, 2007 —Part III


Index
      to
      Exhibits is found on page 80.























3





This
      combined Form 10-K is separately filed by The Laclede Group, Inc. and Laclede
      Gas Company. Each registrant hereto is filing on its own behalf all of the
      information contained in this annual report that relates to such registrant.
      Each registrant hereto is not filing any information that does not relate to
      such registrant, and therefore makes no representation as to any such
      information.





Note:
      Laclede Gas Company Selected Financial Data, Management’s Discussion and
      Analysis of Financial Condition and Results of Operations, Notes to Financial
      Statements, Management Report on Internal Control over Financial Reporting,
      and
      Reports of Independent Registered Public Accounting Firm are included as Exhibit
      99.1.








**TABLE
                OF CONTENTS**PagePART
                IForward-Looking
                Statements
            5Item
                1
            Business
            5Item
                1A
            Risk
                Factors
            10Item
                1B
            Unresolved
                Staff Comments
            13Item
                2
            Properties
            13Item
                3
            Legal
                Proceedings
            13Item
                4
            Submission
                of Matters to a Vote of Security Holders
            13Executive
                Officers of the Registrants (Item 401(b) of Regulation
                S-K)
            14PART
                IIItem
                5
            Market
                for Registrant’s Common Equity, Related Stockholder Matters
              and
                Issuer Purchases of Equity Securities
            17Item
                6
            Selected
                Financial Data
            18Item
                7
            Management’s
                Discussion and Analysis of Financial Condition and
              Results
                of Operations
            20Item
                7A
            Quantitative
                and Qualitative Disclosures About Market Risk
            34Item
                8
            Financial
                Statements and Supplementary Data
            35Item
                9
            Changes
                in and Disagreements with Accountants on Accounting and
              Financial
                Disclosure
            72Item
                9A
            Controls
                and Procedures
            72Item
                9B
            Other
                Information
            72PART
                IIIItem
                10
            Directors,
                Executive Officers and Corporate Governance
            73Item
                11
            Executive
                Compensation
            73Item
                12
            Security
                Ownership of Certain Beneficial Owners and Managementand
                Related Stockholder Matters
            73Item
                13
            Certain
                Relationships and Related Transactions, and Director
                Independence
            74Item
                14
            Principal
                Accounting Fees and Services
            74PART
                IVItem
                15
            Exhibits,
                Financial Statement Schedules
            75SIGNATURES
            
            76FINANCIAL
                STATEMENT SCHEDULES
            78INDEX
                TO EXHIBITS
            80











4





**Part
      I**





**FORWARD-LOOKING
      STATEMENTS**





Certain
      matters discussed in this report, excluding historical information, include
      forward-looking statements. Certain words, such as “may,” “anticipate,”
“believe,” “estimate,” “expect,” “intend,” “plan,” “seek,” and similar words and
      expressions identify forward-looking statements that involve uncertainties
      and
      risks. Future developments may not be in accordance with our expectations or
      beliefs and the effect of future developments may not be those anticipated.
      Among the factors that may cause results to differ materially from those
      contemplated in any forward-looking statement are:





•
            weather
                conditions and catastrophic events, particularly severe weather in
                the
                natural gas producing areas of the country;•
            volatility
                in gas prices, particularly sudden and sustained spikes in natural
                gas
                prices;•
            the
                impact of higher natural gas prices on our competitive position in
                relation to suppliers of alternative heating sources, such as
                electricity;•
            changes
                in gas supply and pipeline availability; particularly those changes
                that
                impact supply for and access to our market area;•
            legislative,
                regulatory and judicial mandates and decisions, some of which may
                be
                retroactive, including those affecting•
            allowed
                rates of return•
            incentive
                regulation•
            industry
                structure•
            purchased
                gas adjustment provisions•
            rate
                design structure and implementation•
            franchise
                renewals•
            environmental
                or safety matters•
            taxes•
            pension
                and other postretirement benefit liabilities and funding
                obligations•
            accounting
                standards;•
            the
                results of litigation;•
            retention
                of, ability to attract, ability to collect from and conservation
                efforts
                of customers;•
            capital
                and energy commodity market conditions, including the ability to
                obtain
                funds for necessary capital expenditures and general operations and
                the
                terms and conditions imposed for obtaining sufficient gas
                supply;•
            discovery
                of material weakness in internal controls; and•
            employee
                workforce issues.





Readers
      are urged to consider the risks, uncertainties and other factors that could
      affect our business as described in this report. All forward-looking statements
      made in this report rely upon the safe harbor protections provided under the
      Private Securities Litigation Reform Act of 1995. We do not, by including this
      statement, assume any obligation to review or revise any particular
      forward-looking statement in light of future events.








**Item
      1. Business**





The
      Laclede Group, Inc. (Laclede Group or the Company) is a public utility holding
      company formed through a corporate restructuring that became effective
      October 1, 2001. Laclede Group is committed to providing reliable
      natural gas service through its regulated core utility operations while engaging
      in non-regulated activities that provide sustainable growth. All of Laclede
      Group’s subsidiaries are wholly owned. The Regulated Gas Distribution segment
      includes Laclede Gas Company (Laclede Gas or the Utility), Laclede Group’s
      largest subsidiary and core business unit. Laclede Gas is a public utility
      engaged in the retail distribution and sale of natural gas. Laclede Gas is
      the
      largest natural gas distribution utility in Missouri, serving more than 630,000
      residential, commercial, and industrial customers in the City of St. Louis
      and
      parts of ten other counties in eastern Missouri. Laclede Group’s Non-Regulated
      Services segment includes SM&P Utility Resources, Inc. (SM&P), one of
      the nation’s major underground locating and marking service businesses. SM&P
      was acquired by Laclede Group in 2002. SM&P is headquartered in Carmel,
      Indiana and operates in ten Midwestern and Southwestern states. The
      Non-Regulated Gas Marketing segment includes Laclede Energy Resources, Inc.
      (LER), a subsidiary engaged in the non-regulated marketing of natural gas and
      related activities. Other non-regulated subsidiaries provide less than 10%
      of
      revenues.


5





Operating
      revenues contributed by each segment for the last three fiscal years are
      presented below. For more detailed financial information regarding the segments,
      see Note 13 to the Consolidated Financial Statements.




(Thousands)
            
            **2007**
            
            **2006**
            
            **2005**Regulated
                Gas Distribution
            
            $
            1,131,554
            
            $
            1,141,011
            
            $
            978,195Non-Regulated
                Services
            
            
            165,733
            
            
            162,523
            
            
            141,478Non-Regulated
                Gas Marketing
            
            
            718,704
            
            
            689,572
            
            
            469,559Non-Regulated
                Other
            
            
            5,603
            
            
            4,445
            
            
            7,800Total
                Operating Revenues
            
            $
            2,021,594
            
            $
            1,997,551
            
            $
            1,597,032





The
      Consolidated Financial Statements included in this report present the
      consolidated financial position, results of operations and cash flows of Laclede
      Group. The financial statements, notes to financial statements, and management’s
      discussion and analysis for Laclede Gas are included in this report as Exhibit
      99.1.





The
      following chart illustrates the organization structure of The Laclede Group,
      Inc. at September 30, 2007:





Organization
                StructureThe
                Laclede Group, Inc.Laclede
                Gas Company
            
            SM&P
                Utility
              Resources,
                Inc.
            
            Laclede
                Investment LLC
            
            Laclede
                Development
              Company
            
            Laclede
                Pipeline
              CompanyLaclede
                Energy Resources, Inc.
            
            Laclede
                Venture Corp.Laclede
                Gas Family Services, Inc.





Laclede
      Group common stock is listed on The New York Stock Exchange and trades under
      the
      ticker symbol “LG”. Laclede Gas continues to pay dividends on all serial
      preferred stock issued.





During
      fiscal year 2007, Laclede Group issued 116,973 shares of common stock under
      its
      Dividend Reinvestment and Stock Purchase Plan and 167,025 shares of common
      stock
      (including 59,000 shares of performance-contingent restricted stock) under
      its
      Equity Incentive Plan. During fiscal year 2006, Laclede Group issued 114,255
      shares of common stock under its Dividend Reinvestment and Stock Purchase Plan
      and 75,375 shares of common stock (including 51,000 shares of
      performance-contingent restricted stock) under its Equity Incentive
      Plan.





The
      information we file or furnish to the Securities and Exchange Commission (SEC),
      including annual reports on Form 10-K, quarterly reports on Form 10-Q, and
      current reports on Form 8-K and their amendments, are available on our website,
      www.thelacledegroup.com, in the Investor Services section under SEC
      Filings as soon as reasonably practical after the information is filed or
      furnished to the SEC.




6





**REGULATED
      GAS DISTRIBUTION**





**NATURAL
      GAS SUPPLY**





The
      Utility focuses its gas supply portfolio around a number of large natural gas
      suppliers with equity ownership or control of assets strategically situated
      to
      complement Laclede’s regionally diverse firm transportation
      arrangements.





Laclede
      Gas’ fundamental gas supply strategy is to meet the two-fold objective of 1)
      ensuring that the gas supplies it acquires are dependable and will be delivered
      when needed and, 2) insofar as is compatible with that dependability, purchasing
      gas that is economically priced. In structuring its natural gas supply
      portfolio, Laclede Gas continues to focus on natural gas assets that are
      strategically positioned to meet the Utility’s primary objectives. Laclede Gas
      utilizes both Mid-Continent and Gulf Coast gas sources to provide a level of
      supply diversity that facilitates the optimization of pricing differentials
      as
      well as protecting against the potential of regional supply
      disruptions.





In
      fiscal
      2007, Laclede Gas purchased natural gas from 19 different suppliers to meet
      current gas sales and storage injection requirements. In addition to working
      with traditional major producers, the Utility has entered into agreements with
      on-shore, non-traditional suppliers that are taking advantage of improved
      drilling techniques and advancing technologies, which allow Laclede Gas to
      be
      flexible in meeting the needs of its customers. Natural gas purchased by Laclede
      Gas for delivery to our utility service area through the Mississippi River
      Transmission Corporation (MRT) system totaled 59.6 billion cubic feet (Bcf).
      The
      Utility also holds firm transportation on several interstate pipeline systems
      that access its gas supplies upstream of MRT. An additional 8.0 Bcf of gas
      was
      purchased on the Panhandle Eastern Pipe Line Company system, and 10.1 Bcf on
      the
      Southern Star Central Pipeline system. Some of the Utility’s commercial and
      industrial customers continued to purchase their own gas and delivered to
      Laclede Gas 17.5 Bcf for transportation to them through the Utility’s
      distribution system.





The
      fiscal 2007 peak day sendout of natural gas to Utility customers, including
      transportation customers, occurred on February 5, 2007, when the
      average temperature was 12 degrees Fahrenheit. On that day, our customers
      consumed 0.896 Bcf of natural gas. About 85% of this peak day demand was met
      with natural gas transported to St. Louis through the MRT, Panhandle, and
      Southern Star transportation systems, and the other 15% was met from the
      Utility’s on-system storage and peak shaving resources.








**UNDERGROUND
      NATURAL GAS STORAGE**





Laclede
      Gas has a contractual right to store approximately 23.1 Bcf of gas in MRT’s
      storage facility located in Unionville, Louisiana. MRT’s tariffs allow
      injections into storage from May 16 through November 15 and require
      the withdrawal from storage of all but 2.2 Bcf from November 16 through
      May 15.





In
      addition, Laclede Gas supplements flowing pipeline gas with natural gas
      withdrawn from its own underground storage field located in St. Louis and St.
      Charles Counties in Missouri. The field is designed to provide 0.357 Bcf of
      natural gas withdrawals on a peak day and annual withdrawals of approximately
      5.5 Bcf of gas based on the inventory level that Laclede plans to
      maintain.








**REGULATORY
      MATTERS**





There
      were several significant regulatory developments over the past year. For more
      details, please see the Regulatory Matters discussion in the Management’s
      Discussion and Analysis of Financial Condition and Results of Operations, on
      page 28 of this Form 10-K.








**OTHER
      PERTINENT MATTERS**





The
      business of Laclede Gas has monopoly characteristics in that it is the only
      distributor of natural gas within its franchised service area. The principal
      competition is the local electric company. Other competitors in Laclede Gas’
service area include suppliers of fuel oil, coal, propane in outlying areas,
      natural gas pipelines which can directly connect to large volume customers,
      and
      in a portion of downtown St. Louis, a district steam system.





Laclede
      Gas’ residential, commercial, and small industrial markets represent more than
      80% of the Utility’s revenue. Given the current adequate level of natural gas
      supply and market conditions, Laclede believes that the
      relative


7


comparison
      of natural gas equipment and operating costs with those of competitive fuels
      will not change significantly in the foreseeable future, and that these markets
      will continue to be supplied by natural gas. In the new multi-family and
      commercial rental markets, Laclede Gas’ competitive exposure is presently
      limited to space and water heating applications. Certain alternative heating
      systems can be cost competitive in traditional markets, but the performance
      and
      reliability of natural gas systems have contained the growth of these
      alternatives.





Coal
      is
      price competitive as a fuel source for very large boiler plant loads, but
      environmental requirements for coal have shifted the economic advantage to
      natural gas. Oil and propane can be used to fuel boiler loads and certain
      direct-fired process applications, but these fuels require on-site storage,
      thus
      limiting their competitiveness. In certain cases, district steam has been
      competitive with gas for downtown St. Louis area heating users. Laclede Gas
      offers gas transportation service to its large user industrial and commercial
      customers. The tariff approved for that type of service produces a margin
      similar to that which Laclede Gas would have received under its regular sales
      rates.





*****





Laclede
      Gas is subject to various environmental laws and regulations that, to date,
      have
      not materially affected the Company’s financial position and results of
      operations. For a detailed discussion of environmental matters, see Note 14
      to
      the Consolidated Financial Statements on page 67.





*****





Laclede
      Gas has a labor agreement with Locals 11-6 and 11-194 of the United Steel,
      Paper
      and Forestry, Rubber, Manufacturing, Energy, Allied-Industrial and Service
      Workers International Union, which represent 65% of Laclede Gas’ employees. The
      agreement expires on July 31, 2008.





The
      Missouri Natural Division of Laclede Gas has a labor agreement with Local 11-884
      of the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy,
      Allied-Industrial and Service Workers International Union, which represents
      5%
      of Laclede Gas’ employees. The agreement expires on
      April 15, 2009.





*****





As
      of
      September 30, 2007, Laclede Gas had 1,835 employees, including 10
      part-time employees.





*****





The
      business of Laclede Gas is subject to seasonal fluctuations with the peak period
      occurring in the winter season.





*****





Revenues
      and customers of Laclede Gas for the last three fiscal years are as
      follows:





Regulated
                Gas Distribution Operating Revenues(Thousands)
            
            **2007**
            
            **2006**
            
            **2005**Residential
            
            $
            675,756
            
            $
            689,347
            
            $
            586,227Commercial
                & Industrial
            
            
            271,872
            
            
            284,174
            
            
            223,446Interruptible
            
            
            3,771
            
            
            5,644
            
            
            3,688Transportation
            
            
            15,601
            
            
            15,257
            
            
            14,726Off-System
                and Capacity Release
            
            
            156,103
            
            
            139,501
            
            
            144,195Provision
                for Refunds and Other
            
            
            8,451
            
            
            7,088
            
            
            5,913Total
            
            $
            1,131,554
            
            $
            1,141,011
            
            $
            978,195





Regulated
                Gas Distribution Customers (End of Period)**2007**
            
            **2006**
            
            **2005**Residential
            
            590,337
            
            590,392
            
            589,082Commercial
                & Industrial
            
            41,062
            
            40,909
            
            40,474Interruptible
            
            15
            
            17
            
            16Transportation
            
            145
            
            148
            
            150Total
                Customers
            
            631,559
            
            631,466
            
            629,722


8


Laclede
      Gas has franchises with initial terms varying from five years to an indefinite
      duration. Generally, a franchise allows Laclede Gas, among other things, to
      install pipes and construct other facilities in the community. We have
      franchises for all the communities in which we serve. All of the franchises
      are
      free from unduly burdensome restrictions and are adequate for the conduct of
      Laclede Gas’ current public utility business in the State of
      Missouri.








**NON-REGULATED
      SERVICES**





SM&P,
      a wholly-owned subsidiary of Laclede Group, is one of the nation’s major
      underground locating and marking service businesses. SM&P, a Carmel,
      Indiana-based company, operates across ten Midwestern and Southwestern states.
      Locating technicians mark the placement of underground facilities for providers
      of telephone, natural gas, electric, water, cable TV and fiber optic services
      so
      that construction work can be performed without damaging buried facilities.
      SM&P’s operations tend to be counter-seasonal to those of Laclede Gas and
      are impacted by construction trends. SM&P’s revenues are dependent on a
      limited number of customers, primarily in the utility and telecommunications
      sectors, with contracts that may be terminated on short-term
      notice.





*****





As
      of
      September 30, 2007, SM&P had 2,011 employees, including 22
      part-time employees.








**NON-REGULATED
      GAS MARKETING**





LER,
      a
      wholly-owned subsidiary of Laclede Investment LLC, is engaged in the
      non-regulated marketing of natural gas and other services to both on-system
      Utility transportation customers and customers outside of Laclede Gas’
traditional service area, and related activities.








**NON-REGULATED
      OTHER SUBSIDIARIES**





Laclede
      Pipeline Company, a wholly-owned subsidiary of Laclede Group, operates a
      pipeline under Federal Energy Regulatory Commission jurisdiction that connects
      the propane storage and vaporization facilities of Laclede Gas to third-party
      propane supply terminal facilities located in Illinois. Laclede Gas vaporizes
      the propane to supplement its natural gas supply and meet peak demands on its
      distribution system.





Laclede
      Investment LLC, a wholly-owned subsidiary of Laclede Group, invests in other
      enterprises and has made loans to several joint ventures engaged in real estate
      development.





Laclede
      Gas Family Services, Inc., a wholly-owned subsidiary of Laclede Energy
      Resources, Inc., is a registered insurance agency in the State of
      Missouri.





Laclede
      Development Company, a wholly-owned subsidiary of Laclede Group, participates
      in
      real estate development, primarily through joint ventures.





Laclede
      Venture Corp., a wholly-owned subsidiary of Laclede Development Company, offers
      services for the compression of natural gas to third parties who desire to
      use
      or to sell compressed natural gas for use in vehicles.





The
      lines
      of business that constitute the Non-Regulated Other activities of the corporate
      family are not considered separately reportable operating segments as defined
      by
      current accounting standards.


9


**Item
      1A. Risk Factors**





Laclede
      Group’s business and financial results are subject to a number of risks and
      uncertainties, including those set forth below. The risks described below are
      those the Company considers to be the most material.





**RISKS
      AND UNCERTAINTIES THAT RELATE TO THE BUSINESS AND FINANCIAL RESULTS OF LACLEDE
      GROUP AND ITS SUBSIDIARIES**





**As
      a holding company, Laclede Group depends on its operating subsidiaries to meet
      its financial obligations.**





Laclede
      Group is a holding company with no significant assets other than the stock
      of
      its operating subsidiaries. Laclede Group, and Laclede Gas prior to Laclede
      Group’s formation, have paid dividends continuously since 1946. However, Laclede
      Group relies exclusively on dividends from its subsidiaries and on the
      repayments of principal and interest from intercompany loans made to its
      subsidiaries for its cash flows. Laclede Group’s ability to pay dividends to its
      shareholders is dependent on the ability of its subsidiaries, including Laclede
      Gas, to generate sufficient net income and cash flows to pay upstream dividends
      and make loan repayments to Laclede Group.





**A
      downgrade in Laclede Group’s credit rating could negatively affect its ability
      to access capital.**





Currently,
      Laclede Group’s corporate rating is A by Standard & Poor’s and A- by Fitch.
      Laclede Group has working capital lines of credit to meet the short-term
      liquidity needs of its subsidiaries. If the rating agencies lowered Laclede
      Group’s credit rating, particularly below investment grade, it might
      significantly limit its ability to borrow and would increase its costs of
      borrowing. Laclede Group’s ability to borrow and costs of borrowing have a
      direct impact on its non-regulated subsidiaries’ ability to execute operating
      strategies.





**Risk
      of unexpected losses may adversely affect the Group’s financial position and
      results of operations.**





As
      with
      most businesses, there are operations and business risks inherent in the
      activities of Laclede Group’s subsidiaries. If, in the normal course of
      business, Laclede Group becomes a party to litigation, such litigation could
      result in substantial monetary judgments, fines, or penalties or be resolved
      on
      unfavorable terms. In accordance with customary practice, Laclede Group and
      its
      subsidiaries maintain insurance against a significant portion of, but not all,
      risks and losses. To the extent a loss is not fully covered by insurance, that
      loss could adversely affect the Company’s financial position and results of
      operations.





**RISKS
      THAT RELATE TO THE REGULATED GAS DISTRIBUTION SEGMENT**





**Risks
      related to the regulation of the Utility business could impact rates it is
      able
      to charge, costs and profitability.**





Laclede
      Gas is regulated by the Missouri Public Service Commission (MoPSC or
      Commission). This authority regulates many aspects of its distribution
      operations, including construction and maintenance of facilities, operations,
      safety, the rates that the Utility may charge customers, the terms of service
      to
      its customers, and the rate of return that it is allowed to realize; as well
      as
      the accounting treatment for certain aspects of its operations. For further
      discussion of these accounting matters, see Critical Accounting Policies
      pertaining to Laclede Gas, beginning on page 25. Laclede Gas’ ability to obtain
      rate increases and rate supplements to maintain the current rate of return
      depends upon regulatory discretion. There can be no assurance that it will
      be
      able to obtain rate increases or rate supplements or continue earning the
      current authorized rates of return.





**Laclede
      Gas’ liquidity and, in certain circumstances, its results of operations could be
      adversely affected by the cost of purchasing natural gas during periods in
      which
      natural gas prices are rising significantly.**





Laclede
      Gas’ tariff rate schedules contain purchased gas adjustment clauses that permit
      the Utility to file for rate adjustments to recover the cost of purchased gas.
      Changes in the cost of purchased gas are flowed through to customers and may
      affect uncollectible amounts and cash flows and can therefore impact the amount
      of capital resources. Currently, Laclede Gas is allowed to adjust the gas cost
      component of its rates up to four times each year. The Utility must make a
      mandatory gas cost adjustment at the beginning of the winter, in November,
      and
      during the next twelve months it may make up to three additional discretionary
      gas cost adjustments, so long as each of these adjustments is separated by
      at
      least two months.





The
      MoPSC
      typically approves the Utility’s purchased gas adjustment changes on an interim
      basis, subject to refund and the outcome of a subsequent audit and prudence
      review. Due to such review process, there is a risk of a disallowance
      of


full
      recovery of these costs. Any material disallowance of purchased gas costs would
      adversely affect revenues. Increases in the prices the Utility charges for
      gas
      may also adversely affect revenues because they could lead customers to
      reduce


10


usage
      and
      cause some customers to have trouble paying the resulting higher bills. These
      higher prices may increase bad debt expenses and ultimately reduce earnings.
      Laclede Gas has used short-term borrowings in the past to finance storage
      inventories and purchased gas costs, and expects to do so in the
      future.





**Hedging
      procedures may not fully protect Laclede Gas sales and results of operations
      from volatility, and the use of derivative contracts in the normal course of
      business could result in financial losses.**





To
      lower
      financial exposure to commodity price fluctuations, Laclede Gas enters into
      contracts to hedge the forward commodity price of its natural gas supplies.
      As
      part of this strategy, the Utility may use fixed-price, forward, physical
      purchase contracts, futures, and option contracts traded on the New York
      Mercantile Exchange. However, the Utility does not hedge the entire exposure
      of
      energy assets or positions to market price volatility, and the coverage will
      vary over time. Any costs, gains or losses experienced through hedging
      procedures, including carrying costs, generally flow through the purchased
      gas
      adjustment clause, thereby limiting its exposure to volatility. However, these
      procedures remain subject to prudence review by the MoPSC.





**Laclede
      Gas is dependent on bank lines of credit and continued access to capital markets
      to successfully execute its operating strategies.**





In
      addition to longer term debt that is issued to the public by the Utility under
      its mortgage and deed of trust dated February 1, 1945, Laclede Gas has
      relied, and continues to rely, upon shorter term bank borrowings or commercial
      paper supported by bank lines of credit to finance the execution of a portion
      of
      its operating strategies. The Utility is dependent on these capital sources
      to
      purchase its natural gas supply and maintain its properties. The availability
      and cost of these credit sources is cyclical and these capital sources may
      not
      remain available to the Utility, or it may not be able to obtain funds at a
      reasonable cost in the future. Laclede Gas’ ability to borrow under its lines of
      credit, or to issue commercial paper supported by its lines of credit, depends
      on its compliance with the Utility’s obligations under the lines of
      credit.





**A
      downgrade in the Utility’s credit rating could negatively affect its ability to
      access capital.**





Standard
      & Poor’s rating group, Moody’s Investors Service, Inc., and Fitch, Inc. from
      time to time implement new requirements for various ratings levels. To maintain
      its current credit ratings in light of any new requirements, Laclede Gas may
      find it necessary to take steps to change its business plans in ways that may
      affect its results of operations.





Currently,
      Laclede Gas’ first mortgage bonds are rated A by Standard & Poor’s, A3 by
      Moody’s and A+ by Fitch. The Utility’s commercial paper currently is rated A-1
      and P-2 by Standard & Poor’s and Moody’s, respectively. If the rating
      agencies lowered the Utility’s ratings, particularly below investment grade, it
      could significantly limit its access to the commercial paper market and would
      increase its costs of borrowing. In addition, Laclede Gas would likely be
      required to pay a higher interest rate in future financings and the Utility’s
      potential pool of investors and funding sources would likely decrease. Also,
      credit ratings are an independent assessment of the Utility’s ability to pay its
      obligations. Consequently, real or anticipated changes in credit ratings will
      generally affect the market value of the specific debt instruments that are
      rated.





**Transporting
      and storing natural gas involves numerous risks that may result in accidents
      and
      other operating risks and costs.**





There
      are
      inherent in gas distribution activities a variety of hazards and operations
      risks, such as leaks, accidental explosions, and mechanical problems, that
      could
      cause substantial financial losses. In addition, these risks could result in
      loss of human life, significant damage to property, environmental pollution,
      impairment of operations, and substantial losses to Laclede Gas. The location
      of
      pipelines and storage facilities near populated areas, including residential
      areas, commercial business centers, and industrial sites, could increase the
      level of damages resulting from these risks. These activities may subject the
      Utility to litigation or administrative proceedings from time to time. Such
      litigation or proceedings could result in substantial monetary judgments, fines
      or penalties against the Utility or be resolved on unfavorable terms. In
      accordance with customary industry practices, Laclede Gas maintains insurance
      against a significant portion, but not all, of these risks and losses. To the
      extent that the occurrence of any of these events is not fully covered by
      insurance, it could adversely affect the Utility’s financial position and
      results of operations.





**Increases
      in the wholesale costs of purchased natural gas supplies may adversely impact
      the Utility’s competitive position compared with alternative energy
      sources.**





Laclede
      Gas is the only distributor of natural gas within its franchised service area.
      Nevertheless, rising wholesale natural gas prices compared with prices for
      electricity, fuel oil, coal, propane, or other energy sources may affect the
      Utility’s retention of natural gas customers and adversely impact its financial
      position and results of operations.


11


**Significantly
      warmer-than-normal weather conditions, the effects of global warming and climate
      change, and other factors that influence customer usage may affect the Utility’s
      sale of heating energy and adversely impact its financial position and results
      of operations.**





Laclede
      Gas’ earnings are primarily generated by the sale of heating energy. The Utility
      has a weather mitigation rate design, approved by the MoPSC, that provides
      better assurance of the recovery of the Utility’s fixed costs and margins
      despite variations in sales volumes due to the impacts of weather and other
      factors that affect customer usage. However, significantly warmer-than-normal
      weather conditions in the Utility’s service area and other factors may result in
      reduced profitability and decreased cash flows attributable to lower gas sales
      levels. Furthermore, the weather mitigation rate design is subject to regulatory
      discretion.





**Regional
      supply/demand fluctuations and changes in national pipeline infrastructure
      may
      adversely affect Laclede Gas’ ability to profit from off-system sales and
      capacity release.**





Laclede
      Gas’ income from off-system sales and capacity release is subject to
      fluctuations in market conditions and changing supply and demand conditions
      in
      areas the Utility holds pipeline capacity rights. Specific factors impacting
      the
      Utility’s income from off-system sales and capacity release include the
      availability of attractively-priced natural gas supply, availability of pipeline
      capacity, and market demand. Income from off-system sales and capacity release
      is shared with customers. Effective October 1, 2007, the Utility is
      allowed to retain 15% to 30% of the first $6 million in annual income earned
      (depending on the level of income earned) and 30% of income exceeding $6 million
      annually. The Utility’s ability to retain such income in the future is subject
      to regulatory discretion in a base rate proceeding.





**RISKS
      THAT RELATE TO THE NON-REGULATED GAS MARKETING SEGMENT**





**Risks
      of increased competition, regional fluctuations in natural gas commodity prices,
      and new national pipeline infrastructure projects may adversely impact LER’s
      future profitability.**





Competition
      in the marketplace and regional fluctuations in natural gas commodity prices
      have a direct impact on LER’s business. Changing market conditions caused by new
      pipeline infrastructure may adversely impact LER’s sales margins or affect LER’s
      ability to serve certain wholesale customers, thereby increasing certain credit
      requirements and/or reducing wholesale sales volumes and
      profitability.





**Risks
      of reduced access to credit and/or capital markets may prevent LER from
      executing operating strategies.**





In
      addition to its cash flows, LER relies on parental guarantees and loans to
      cover
      the lag between when it purchases natural gas and when its customers pay for
      that gas. Although LER’s uncollectible amounts are closely monitored and have
      not been significant, significant uncollectible amounts from customers are
      possible and may result in financial losses and/or capital
      limitations.





**Risk
      management policies and the use of cash flow hedging may not fully protect
      LER’s
      sales and results of operations from volatility and may result in financial
      losses.**





LER
      manages the price risk associated with fixed-price commitments for the purchase
      or sale of natural gas by either closely matching the offsetting physical
      purchase or sale of natural gas at fixed prices or through the use of
      exchange-traded futures contracts to lock in margins. However, market conditions
      and regional price changes may cause ineffective portions of matched positions
      to result in financial losses.





**RISKS
      THAT RELATE TO THE NON-REGULATED SERVICES SEGMENT**





**Competition
      and the ability to retain customers may impact SM&P’s sales and
      profitability.**





The
      underground locating industry remains competitive. Many of SM&P’s contracts
      are subject to termination on short-term notice. SM&P’s customers are
      primarily in the utility and telecommunications sectors. In addition, SM&P’s
      results are influenced by construction seasonality and trends. Customer losses
      and technological changes could impact SM&P’s profitability and its ability
      to do business in certain geographic areas.





12


**Item
      1B. Unresolved Staff Comments**





None.








**Item
      2. Properties**





The
      principal utility properties of Laclede Gas consist of more than 16,000 miles
      of
      gas main and related service pipes, meters, and regulators. Other physical
      properties include regional office buildings and holder stations. Extensive
      underground gas storage facilities and equipment are located in an area in
      North
      St. Louis County extending under the Missouri River into St. Charles County.
      Substantially all of Laclede Gas’ utility plant is subject to the liens of its
      mortgage.





All
      of
      the utility properties of Laclede Gas are held in fee or by easement or under
      lease agreements. The principal lease agreements include underground storage
      rights that are of indefinite duration and the headquarters office building.
      The
      current lease on the headquarters office building extends through
      February 2010 with options to renew for up to 10 additional
      years.





For
      further information on Laclede Gas’ leases and for information on SM&P’s
      lease obligations, see Note 14 to the Consolidated Financial Statements on
      page
      67.





Other
      non-regulated properties of Laclede Group do not constitute a significant
      portion of its properties.








**Item
      3. Legal Proceedings**





For
      a
      description of environmental matters, see Note 14 to the Consolidated Financial
      Statements on page 67. For a description of pending regulatory matters of
      Laclede Gas, see the Regulatory Matters discussion in the Management’s
      Discussion and Analysis of Financial Condition and Results of Operations, on
      page 28. For a description of the resolution of SM&P’s employment-related
      litigation and related matters, see Note 14 to the Consolidated Financial
      Statements on page 67.





Laclede
      Group and its subsidiaries are involved in litigation, claims, and
      investigations arising in the normal course of business. While the results
      of
      such litigation cannot be predicted with certainty, management, after discussion
      with counsel, believes the final outcome will not have a material adverse effect
      on the consolidated financial position or results of operations reflected in
      the
      consolidated financial statements presented herein.








**Item
      4. Submission of Matters to a Vote of Security Holders**





There
      were no matters submitted to a vote of security holders during the fourth
      quarter of fiscal year 2007.











13


**EXECUTIVE
      OFFICERS OF REGISTRANTS**– Listed below are executive officers as
      defined by the SEC for Laclede Group. Their ages, at
      September 30, 2007, and positions are listed below along with their
      business experience during the past five years.





Name,
                Age, and Position with Company *
            Appointed
                (1)D.
                H. Yaeger, Age 58Laclede
                Group------------------Chairman,
                President and Chief Executive Officer
            October 2000Laclede
                Gas---------------Chairman,
                President and Chief Executive Officer
            January
                1999President
                and Chief Executive Officer
            January
                1999SM&P--------Chief
                Executive Officer
            January 2002LER-----President
            January
                1999K.
                J. Neises, Age 66Laclede
                Gas---------------Executive
                Vice President – Energy and Administrative Services
            January 2002LER-----Vice
                President
            February 2002M.
                D. Waltermire, Age 49Laclede
                Group------------------Chief
                Financial Officer
            October 2007Laclede
                Gas---------------Senior
                Vice President and Chief Financial Officer
            October 2007Vice
                President – Operations & Marketing
            April 2003Vice
                President – Operations & Marketing Planning
            February 2003Assistant
                Vice President – Planning
            May 2001LER---------------Vice
                President
            October
                2007M.
                C. Darrell, Age 49Laclede
                Group------------------General
                Counsel (2)
            May 2004Laclede
                Gas---------------Senior
                Vice President and General Counsel
            October 2007General
                Counsel
            May 2004


14





R.
                A. Skau, Age 50Laclede
                Gas------------------Senior
                Vice President – Human Resources
            October 2007Vice
                President – Human Resources
            February 2004Assistant
                Vice President – Human Resources
            September 2001M.
                R. Spotanski, Age 47Laclede
                Gas---------------Senior
                Vice President – Operations and Marketing
            October 2007Vice
                President – Finance
            January 2001M.
                C. Kullman, Age 47Laclede
                Group------------------Chief
                Governance Officer and Corporate Secretary
            February 2004Corporate
                Secretary
            October 2000Laclede
                Gas---------------Secretary
                and Associate General Counsel
            February 2001SM&P--------Secretary
            January 2002LER------Secretary
            February
                1998M.
                C. Geiselhart, Age 48Laclede
                Group---------------Vice
                President – Strategic Development and Planning (3)
            August 2006Laclede
                Gas---------------Vice
                President – Strategic Development and Planning
            August 2006M.
                C. Pendergast, Age 51Laclede
                Gas---------------Vice
                President – Associate General Counsel
            January 2002R.
                E. Shively, Age 45SM&P--------President
            March 2002Laclede
                Gas---------------Senior
                Vice President – Business and Services Development
            January
                2001 through December 2006K.
                F. Beauchamp, Age 50SM&P--------Chief
                Financial Officer (4)
            August 2006


15





J.
                A. Fallert, Age 52Laclede
                Gas---------------Controller
            February
                1998








*The
      information provided relates to the Company and its principal subsidiaries.
      Many of
      the
      executive officers have served or currently serve as officers or directors
      for
      other subsidiaries
      of the Company.


(1)
            Officers
                of Laclede are normally reappointed at the Annual Meeting of the
                Board of
                Directors in January of each year to serve at the pleasure of the
                Board of
                Directors for the ensuing year and until their successors are elected
                and
                qualify.(2)
            Mr. Darrell
                served as Assistant General Counsel for NiSource, Inc. since
                2002.(3)
            Mr.
                Geiselhart served as the Corporate Finance Consultant for Callaway
                Partners, LLC since 2003. During that time, he also served as Chief
                Financial Officer for both TowerLink Corporation, Inc. and Transcender
                Telecom Acquisition Corporation, Inc. Prior to that he was the founding
                Chief Financial Officer and Consultant for private equity firms for
                Quiet
                Water Associates, LLC from 2002 through 2003 and Vice President,
                Finance
                and Corporate Development for Evolution Networks, Inc. from 2000
                through
                2002.(4)
            Previously,
                Mr. Beauchamp served as Vice President of Operations of The Steak
‘n Shake
                Company from 1997 through 2005, as well as Vice President and Controller
                from 1993 through 1997.





Mr.
      Barry
      C. Cooper, former Chief Financial Officer, announced his resignation from the
      Company and its subsidiaries effective October 1, 2007.





16


**Part
      II**





**Item
      5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities**





The
      Laclede Group’s common stock trades on The New York Stock Exchange under the
      symbol “LG”. The high and the low sales price for the common stock for each
      quarter in the two most recent fiscal years are:





**Fiscal
                2007**
            **Fiscal
                2006****High**
            **Low**
            **High**
            **Low**1st
                Quarter
            37.51
            31.60
            33.19
            28.602nd
                Quarter
            36.03
            29.32
            35.55
            29.093rd
                Quarter
            33.24
            29.29
            34.75
            31.704th
                Quarter
            34.17
            28.84
            35.65
            31.29





The
      number of holders of record as of September 30, 2007 was
      5,538.





Dividends
      declared on the common stock for the two most recent fiscal years
      were:





**Fiscal
                2007**
            **Fiscal
                2006**1st
                Quarter
            $.365
            $.3452nd
                Quarter
            $.365
            $.3553rd
                Quarter
            $.365
            $.3554th
                Quarter
            $.365
            $.355








For
      disclosures relating to securities authorized for issuance under equity
      compensation plans, see Item 12, page 73.





In
      January 2005, Laclede Group began purchasing common stock of Laclede Gas
      with the price set at the book value of Laclede Gas common stock as of the
      most
      recently completed fiscal quarter. The details on those sales of common stock
      of
      Laclede Gas to Laclede Group are set forth below:





**Aggregate****Purchase
                Price**
            
            **Number****Date
                of Sale**
            
            **(millions)**
            
            **of
                Shares**January
                20, 2005
            
            $
            1.1
            
            31May
                10, 2005
            
            
            1.0
            
            29August
                15, 2005
            
            
            1.0
            
            29December
                15, 2005
            
            
            1.0
            
            30February
                21, 2006
            
            
            0.9
            
            26May
                24, 2006
            
            
            0.9
            
            25August
                15, 2006
            
            
            0.9
            
            27March
                23, 2007
            
            
            1.9
            
            55May
                21, 2007
            
            
            1.0
            
            27August
                10, 2007
            
            
            1.0
            
            28





The
      proceeds from Laclede Gas’ sales of stock were used to reduce its short-term
      borrowings. Exemption from registration was claimed under Section 4(2) of the
      Securities Act of 1933.





For
      a
      discussion of the change in transfer agent and rights agent, see Item 9B, page
      72.





17


**Item
      6. Selected Financial Data**








The
      Laclede Group, Inc.








**Fiscal
                Years Ended September 30**(Thousands,
                Except Per Share Amounts)
            
            **2007**
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2003**Summary
                of OperationsOperating
                Revenues:RegulatedGas distribution
            
            $
            1,131,554
            
            $
            1,141,011
            
            $
            978,195
            
            $
            868,905
            
            $
            774,772Non-RegulatedServices
            
            
            165,733
            
            
            162,523
            
            
            141,478
            
            
            104,239
            
            
            100,168Gas marketing
            
            
            718,704
            
            
            689,572
            
            
            469,559
            
            
            270,328
            
            
            163,861Other
            
            
            5,603
            
            
            4,445
            
            
            7,800
            
            
            6,848
            
            
            11,529Total
                Operating Revenues
            
            
            2,021,594
            
            
            1,997,551
            
            
            1,597,032
            
            
            1,250,320
            
            
            1,050,330Operating
                Expenses:RegulatedNatural and propane gas
            
            
            797,924
            
            
            821,721
            
            
            676,931
            
            
            575,691
            
            
            483,742Other operation expenses
            
            
            131,798
            
            
            128,180
            
            
            125,364
            
            
            121,596
            
            
            118,550Maintenance
            
            
            24,306
            
            
            21,198
            
            
            19,226
            
            
            18,705
            
            
            18,759Depreciation and amortization
            
            
            34,080
            
            
            30,904
            
            
            23,036
            
            
            22,385
            
            
            22,229Taxes, other than income taxes
            
            
            68,361
            
            
            71,038
            
            
            62,859
            
            
            60,077
            
            
            56,102Total
                Regulated Operating Expenses
            
            
            1,056,469
            
            
            1,073,041
            
            
            907,416
            
            
            798,454
            
            
            699,382Non-RegulatedServices
            
            
            156,658
            
            
            155,133
            
            
            129,636
            
            
            99,511
            
            
            102,093Gas marketing
            
            
            698,962
            
            
            662,391
            
            
            462,348
            
            
            265,394
            
            
            159,105Other
            
            
            4,239
            
            
            3,711
            
            
            7,803
            
            
            6,400
            
            
            10,615Total
                Operating Expenses
            
            
            1,916,328
            
            
            1,894,276
            
            
            1,507,203
            
            
            1,169,759
            
            
            971,195Operating
                Income
            
            
            105,266
            
            
            103,275
            
            
            89,829
            
            
            80,561
            
            
            79,135Allowance
                for Funds Used During Construction
            
            
            (17
            )
            
            (45
            )
            
            (100
            )
            
            (123
            )
            
            (107
            )Other
                Income and (Income Deductions) - Net
            
            
            6,829
            
            
            5,553
            
            
            1,706
            
            
            3,758
            
            
            1,242Interest
                Charges:Interest
                on long-term debt
            
            
            22,502
            
            
            22,329
            
            
            22,835
            
            
            22,010
            
            
            20,169Interest
                on long-term debt to unconsolidated
              affiliate
                trust
            
            
            3,573
            
            
            3,573
            
            
            3,573
            
            
            3,573
            
            
            2,828Other
                interest charges
            
            
            11,154
            
            
            10,277
            
            
            4,141
            
            
            3,231
            
            
            3,974Total
                Interest Charges
            
            
            37,229
            
            
            36,179
            
            
            30,549
            
            
            28,814
            
            
            26,971Income
                Before Income Taxes and Dividends onRedeemable
                Preferred Stock – Laclede Gas
            
            
            74,849
            
            
            72,604
            
            
            60,886
            
            
            55,382
            
            
            53,299Income
                Tax Expense
            
            
            25,035
            
            
            23,567
            
            
            20,761
            
            
            19,264
            
            
            18,652Dividends
                on Redeemable PreferredStock
                – Laclede Gas
            
            
            43
            
            
            48
            
            
            55
            
            
            62
            
            
            62Net
                Income
            
            $
            49,771
            
            $
            48,989
            
            $
            40,070
            
            $
            36,056
            
            $
            34,585Basic
                Earnings Per Share of Common Stock
            
            $
            2.32
            
            $
            2.31
            
            $
            1.90
            
            $
            1.82
            
            $
            1.82Diluted
                Earnings Per Share of Common Stock
            
            $
            2.31
            
            $
            2.30
            
            $
            1.90
            
            $
            1.82
            
            $
            1.82

















18





**Item
      6. Selected Financial Data (continued)**








The
      Laclede Group, Inc.








**Fiscal
                Years Ended September 30**(Thousands,
                Except Per Share Amounts)
            
            **2007**
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2003**Dividends
                Declared –Common
                Stock
            
            $
            31,505
            
            $
            30,045
            
            $
            29,002
            
            $
            27,183
            
            $
            25,492Dividends
                Declared PerShare
                of Common Stock
            
            $
            1.46
            
            $
            1.41
            
            $
            1.375
            
            $
            1.355
            
            $
            1.34Utility
                PlantGross
                Plant – End of Period
            
            $
            1,187,828
            
            $
            1,149,104
            
            $
            1,105,733
            
            $
            1,070,522
            
            $
            1,030,665Net
                Plant – End of Period
            
            
            793,794
            
            
            763,827
            
            
            728,481
            
            
            699,144
            
            
            676,696Capital
                Expenditures
            
            
            56,434
            
            
            57,925
            
            
            54,621
            
            
            49,130
            
            
            49,926Property
                Retirements
            
            
            16,331
            
            
            22,588
            
            
            19,410
            
            
            9,276
            
            
            8,007Goodwill
                – End of Period
            
            
            33,595
            
            
            33,595
            
            
            28,124
            
            
            28,124
            
            
            28,124Non-Utility
                Property
            
            
            11,270
            
            
            13,362
            
            
            11,791
            
            
            10,038
            
            
            11,661Other
                Investments
            
            
            45,436
            
            
            42,731
            
            
            37,825
            
            
            36,044
            
            
            34,337Total
                Assets – End of Period
            
            
            1,641,153
            
            
            1,570,160
            
            
            1,434,101
            
            
            1,317,564
            
            
            1,258,247Capitalization
                – End of PeriodCommon
                Stock and Paid-In Capital
            
            $
            157,707
            
            $
            148,487
            
            $
            142,677
            
            $
            137,039
            
            $
            87,542Retained
                Earnings
            
            
            268,761
            
            
            250,495
            
            
            231,551
            
            
            220,483
            
            
            211,610Accumulated
                Other Comprehensive Income (Loss)
            
            
            1,857
            
            
            3,655
            
            
            (7,703
            )
            
            (1,607
            )
            
            (80
            )Common
                Stock Equity
            
            
            428,325
            
            
            402,637
            
            
            366,525
            
            
            355,915
            
            
            299,072Redeemable
                Preferred Stock – Laclede Gas
            
            
            627
            
            
            787
            
            
            948
            
            
            1,108
            
            
            1,258Long-Term
                Debt to Unconsolidated Affiliate Trust
            
            
            46,400
            
            
            46,400
            
            
            46,400
            
            
            46,400
            
            
            46,400Long-Term
                Debt – Laclede Gas
            
            
            309,122
            
            
            349,041
            
            
            294,033
            
            
            333,936
            
            
            259,625Total
                Capitalization
            
            $
            784,474
            
            $
            798,865
            
            $
            707,906
            
            $
            737,359
            
            $
            606,355Shares
                of Common StockOutstanding
                – End of Period
            
            
            21,646
            
            
            21,362
            
            
            21,172
            
            
            20,981
            
            
            19,082Book
                Value Per Share – End of Period
            
            $
            19.79
            
            $
            18.85
            
            $
            17.31
            
            $
            16.96
            
            $
            15.67




















Laclede
      Gas Company’s Selected Financial Data is included in Exhibit 99.1.




19


**ITEM
      7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS**





**THE
      LACLEDE GROUP, INC.**





**INTRODUCTION**





This
      management’s discussion analyzes the financial condition and results of
      operations of The Laclede Group, Inc. (Laclede Group or the Company) and its
      subsidiaries. It includes management’s view of factors that affect its business,
      explanations of past financial results including changes in earnings and costs
      from the prior year periods, and their effects on overall financial condition
      and liquidity.





The
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations should be read in conjunction with the Company’s Consolidated
      Financial Statements and the notes thereto.








**RESULTS
      OF OPERATIONS**





Laclede
      Group’s earnings are primarily derived from the regulated activities of its
      largest subsidiary, Laclede Gas Company (Laclede Gas or the Utility), Missouri’s
      largest natural gas distribution company. Laclede Gas is regulated by the
      Missouri Public Service Commission (MoPSC or Commission) and serves the City
      of
      St. Louis and parts of ten other counties in eastern Missouri. Laclede Gas
      delivers natural gas to retail customers at rates, and in accordance with
      tariffs, authorized by the MoPSC. The Utility’s earnings are primarily generated
      by the sale of heating energy. The Utility’s innovative weather mitigation rate
      design lessens the impact of weather volatility on Laclede Gas customers during
      cold winters and stabilizes the Utility’s earnings by recovering fixed costs
      more evenly during the heating season. Due to the seasonal nature of the
      business of Laclede Gas, Laclede Group’s earnings are seasonal in nature and are
      typically concentrated in the November through April period, which generally
      corresponds with the heating season.





SM&P
      Utility Resources, Inc. (SM&P) is a non-regulated underground facility
      locating and marking service business. The underground locating industry remains
      competitive with many contracts subject to termination on short-term notice.
      SM&P’s customers are concentrated primarily in the utility and
      telecommunications sectors. Additionally, SM&P’s results can be influenced
      by seasonality and trends in the construction sector. During fiscal year 2007,
      the Company received unsolicited inquiries from various third parties regarding
      the Company’s interest in exploring strategic alternatives involving SM&P.
      While the Board has made no decision to engage in any strategic transaction
      involving SM&P, toward the end of fiscal 2007 it authorized the Company’s
      management to assess: (1) the market value of SM&P; and (2) the benefits to
      the Company and its shareholders of a potential sale of SM&P. No decision
      regarding SM&P has been made as of the date of filing of this report.
      Accordingly, a transaction may or may not ultimately result from this
      process.





Laclede
      Energy Resources, Inc. (LER) is engaged in the non-regulated marketing of
      natural gas and related activities. LER markets natural gas to both on-system
      Utility transportation customers and customers outside of Laclede Gas’
traditional service territory, including large retail and wholesale customers.
      As such, LER’s operations and customer base are subject to fluctuations in
      market conditions.





Other
      non-regulated subsidiaries provide less than 10% of consolidated
      revenues.





Laclede
      Group’s strategy continues to include efforts to stabilize and improve
      performance of its core Utility, while developing non-regulated businesses
      and
      pursuing, in a measured way, additional growth opportunities that complement
      the
      Utility business.





As
      for
      the Utility, mitigating the impact of weather fluctuations on Laclede Gas
      customers while improving the ability to recover its authorized distribution
      costs and return continues to be a fundamental component of Laclede Group’s
      strategy. The Utility’s distribution costs are the essential, primarily fixed
      expenditures it must incur to operate and maintain a more than 16,000 mile
      natural gas distribution system and related storage facilities. In addition,
      Laclede Gas is working to continually improve its ability to provide reliable
      natural gas service at a reasonable cost, while maintaining and building a
      secure and dependable infrastructure. The settlement of the Utility’s 2007 rate
      case resulted in a Stipulation & Agreement (Agreement) approved by the MoPSC
      on July 19, 2007 (as discussed in the Regulatory Matters section on
      page 28), that further enhances the Utility’s weather mitigation rate design.
      The enhancements better ensure the recovery of its fixed costs and margins
      despite variations in sales volumes due to the impacts of weather and other
      factors that affect customer usage. The Utility’s income from off-system sales
      remains subject to fluctuations in market conditions. In conjunction
      with the settlement of the 2005 rate case, effective October 1, 2005,
      the Utility retained all pre-tax income from off-system sales and capacity
      release revenues up to $12 million annually. Pre-tax amounts in excess of $12
      million


20


were
      shared with customers, with the Utility retaining 50% of amounts exceeding
      that
      threshold. The Agreement approved by the MoPSC in the Utility’s 2007 rate case
      increases the portion of pre-tax income from off-system sales and capacity
      release revenues that is shared with customers. Effective
      October 1, 2007, the Utility is allowed to retain 15% to 30% of the
      first $6 million in annual income earned (depending on the level of income
      earned) and 30% of income exceeding $6 million annually. Some of the factors
      impacting the level of off-system sales include the availability and cost of
      the
      Utility’s natural gas supply, the weather in its service area, and the weather
      in other markets. When Laclede Gas’ service area experiences warmer-than-normal
      weather while other markets experience colder weather or supply constraints,
      some of the Utility’s natural gas supply is available for off-system sales and
      there may be a demand for such supply in other markets.





Wholesale
      natural gas prices for the 2005-2006 heating season rose to unprecedented levels
      across the nation. Laclede Gas continues to work to reduce the impact of higher
      costs by strategically structuring its natural gas supply portfolio and through
      the use of financial instruments. Nevertheless, the cost of purchased gas
      remains high, relative to historical levels. The Utility’s Purchased Gas
      Adjustment (PGA) Clause allows Laclede Gas to flow through to customers, subject
      to prudence review, the cost of purchased gas supplies, including costs, cost
      reductions, and related carrying costs associated with the use of financial
      instruments to hedge the purchase price of natural gas, as well as gas inventory
      carrying costs. The Utility believes it will continue to be able to obtain
      sufficient gas supply. While wholesale natural gas prices declined for the
      2006-2007 heating season, the generally higher price levels may continue to
      affect sales volumes (due to the conservation efforts of customers) and cash
      flows (associated with the timing of collection of gas costs and related
      accounts receivable from customers).





Laclede
      Group continues to develop its non-regulated subsidiaries. SM&P is working
      to further the logical expansion of its business in both new and existing
      markets. LER continues to focus on growing its markets on a long-term and
      sustainable basis by providing both on-system Utility transportation customers
      and customers outside of Laclede Gas’ traditional service area with another
      choice in non-regulated natural gas suppliers. Nevertheless, income from LER’s
      operations is subject to fluctuations in market conditions. LER reported record
      earnings during fiscal year 2006 as a result of higher margins, caused by Gulf
      Coast market volatility, as well as higher wholesale sales volumes.








**EARNINGS**





**Overview
      – Net Income by Operating Segment**





(Millions,
      after-tax )


Years
                Ended September 30
            
            
            
            **2007**
            
            
            
            **2006**
            
            
            
            **2005**Regulated
                Gas Distribution
            
            
            
            $
            32.1
            
            
            
            $
            28.8
            
            
            
            $
            30.6Non-Regulated
                Services
            
            
            
            
            3.3
            
            
            
            
            2.4
            
            
            
            
            5.0Non-Regulated
                Gas Marketing
            
            
            
            
            13.3
            
            
            
            
            17.1
            
            
            
            
            4.4Non-Regulated
                Other
            
            
            
            
            1.1
            
            
            
            
            0.7
            
            
            
            
            0.1Net
                Income
            
            
            
            $
            49.8
            
            
            
            $
            49.0
            
            
            
            $
            40.1





Laclede
      Group’s net income was $49.8 million in fiscal year 2007, compared with $49.0
      million in fiscal year 2006, and $40.1 million in fiscal year 2005. Net income
      increased $0.8 million, or 1.6%, in fiscal year 2007 (compared with fiscal
      year
      2006) primarily due to improved results reported by both Laclede Group’s
      regulated gas distribution segment and its non-regulated services segment,
      partially offset by lower earnings recorded by Laclede Group’s non-regulated gas
      marketing segment. Net income increased $8.9 million, or 22.2%, in fiscal year
      2006 (compared with fiscal year 2005) primarily due to improved results reported
      by Laclede Group’s non-regulated gas marketing segment, partially offset by
      lower earnings recorded by both Laclede Group’s non-regulated services segment
      and its regulated gas distribution segment.





Basic
      and
      diluted earnings per share were $2.32 and $2.31, respectively, for fiscal year
      2007 compared with basic and diluted earnings per share of $2.31 and $2.30,
      respectively, for fiscal year 2006, and $1.90 for fiscal year 2005. The
      year-to-year increases in earnings per share were primarily due to the effect
      of
      higher net income in each period. Variations in net income were primarily
      attributable to the factors described below.





**2007
      vs. 2006**


Regulated
      Gas Distribution net income increased by $3.3 million in 2007, compared with
      2006. The increase in net income was primarily due to the following factors,
      quantified on a pre-tax basis:


21





•
            the
                effect of higher system gas sales volumes, primarily due to colder
                weather
                and other variations totaling $6.7 million;•
            the
                benefit of the general rate increase, effective August 1, 2007,
                totaling $5.3 million; and,•
            higher
                Infrastructure System Replacement Surcharge (ISRS) revenues totaling
                $2.6
                million.





These
      factors were partially offset by:





•
            increases
                in operation and maintenance expenses totaling $6.7 million;
                and,•
            higher
                depreciation and amortization expense totaling $3.2 million resulting
                from
                the implementation of new depreciation rates effective
                January 1, 2006, as authorized by the MoPSC, and additional
                depreciable property.





The
      Non-Regulated Services segment reported earnings in fiscal year 2007 totaling
      $3.3 million compared with $2.4 million in fiscal year 2006. The improved
      results were primarily attributable to the effect of a non-recurring charge
      recorded last year in association with the employment-related litigation
      described in Note 14 to the Consolidated Financial Statements and the attainment
      of new business in existing markets this year, which was partially offset by
      higher operating expenses this year.





The
      Non-Regulated Gas Marketing segment reported earnings totaling $13.3 million
      for
      fiscal 2007, a decrease in earnings of $3.8 million compared with 2006. While
      LER achieved increased sales volumes this year over last, margins this year
      were
      reduced as volatility in Gulf Coast markets stabilized. LER’s sales volumes
      increased 30% over the same period last year, principally as a result of
      increased interstate pipeline wholesale transactions.





**2006
      vs. 2005**


Regulated
      Gas Distribution net income decreased by $1.8 million in 2006 compared with
      2005. Laclede Gas implemented several provisions of the settlement of its 2005
      rate case effective October 1, 2005, resulting in variations in
      several areas from the previous fiscal year. The decrease in net income was
      primarily due to the following factors, quantified on a pre-tax
      basis:





•
            increases
                in operation and maintenance expenses, excluding the provision for
                uncollectible accounts, totaling $9.3 million;•
            higher
                depreciation expense totaling $7.9 million resulting from the
                implementation of new rates effective February 1, 2005 and
                January 1, 2006 as authorized by the MoPSC, and additional
                depreciable property;•
            net
                lower ISRS totaling $4.5 million. These surcharges were reset to
                zero
                effective October 1, 2005, as the ISRS-related costs were being
                recovered through base rates effective on that same date. A new ISRS
                was
                subsequently implemented June 15, 2006; and,•
            the
                net effect of lower system gas sales volumes totaling $2.7 million,
                primarily due to conservation efforts of our
                customers.





These
      factors were partially offset by:





•
            the
                benefit of the general rate increase, effective October 1, 2005,
                totaling $9.7 million;•
            the
                recovery of gas inventory carrying costs through the Utility’s PGA Clause,
                effective October 1, 2005, totaling $5.6 million;
                and,•
            a
                lower provision for uncollectible accounts totaling $4.5
                million.





The
      Non-Regulated Services segment reported earnings in fiscal year 2006 totaling
      $2.4 million compared with $5.0 million in fiscal year 2005. The reduction
      in
      earnings resulted primarily from SM&P’s higher than anticipated expenses
      related to growth, including those associated with the startup of new business
      in existing markets, and the net effect of resolution of the previously reported
      collective action lawsuit and related matters described in Note 14 to the
      Consolidated Financial Statements.





The
      Non-Regulated Gas Marketing segment reported an increase in earnings of $12.7
      million compared with 2005, primarily as a result of LER’s higher margins caused
      by increased price volatility and hurricane-related regional supply/demand
      imbalances, as well as higher sales volumes. LER’s sales volumes increased 22%
      over the prior year, principally as a result of increased interstate pipeline
      wholesale transactions.


22


**Regulated
      Operating Revenues**





**2007
      vs. 2006**


Regulated
      operating revenues for fiscal year 2007 decreased $9.5 million compared to
      fiscal year 2006 due in part to lower wholesale gas costs. Temperatures
      experienced in the Utility’s service area during 2007 were 5.7% colder than the
      same period last year, but 7.4% warmer than normal. Total system therms sold
      and
      transported were 0.91 billion for fiscal year 2007 compared with 0.87 billion
      for fiscal year 2006. Total off-system therms sold and transported were 0.21
      billion for fiscal year 2007 compared with 0.16 billion for fiscal year 2006.
      The decrease in regulated operating revenues was primarily attributable to
      the
      following factors:




**Millions**Lower
                wholesale gas costs passed on to Utility customers (subject to prudence
                review by the MoPSC)
            
            $
            (111.6
            )Higher
                system sales volumes, primarily due to colder weather, and other
                variations
            
            
            80.6Higher
                off-system sales volumes (reflecting more favorable market conditions
                as
                described in greaterdetail
                in the Results of Operations)
            
            
            48.1Lower
                prices charged for off-system sales
            
            
            (34.5
            )General
                rate increase, effective August 1, 2007
            
            
            5.3Higher
                ISRS revenues implemented June 15, 2006,
                January 2, 2007, and June 16, 2007
            
            
            2.6Total
                Variation
            
            $
            (9.5
            )





**2006
      vs. 2005**


Regulated
      operating revenues for fiscal year 2006 increased $162.8 million, or 16.6%,
      above fiscal year 2005 due primarily to higher wholesale gas costs. Temperatures
      experienced in the Utility’s service area during 2006 were 12.4% warmer than
      normal but essentially the same as fiscal 2005. Total system therms sold and
      transported were 0.87 billion for fiscal year 2006 compared with 0.91 billion
      for fiscal year 2005. Total off-system therms sold and transported were 0.16
      billion for fiscal year 2006 compared with 0.20 billion for fiscal year 2005.
      The increase in regulated operating revenues was primarily attributable to
      the
      following factors:





**Millions**Higher
                wholesale gas costs passed on to Utility customers (subject to prudence
                review by the MoPSC)
            
            $
            196.0Lower
                system sales volumes and other variations, primarily due to the
                conservation efforts of
              customers
                due to higher natural gas prices
            
            
            (36.4
            )Lower
                off-system sales volumes
            
            
            (32.5
            )Higher
                prices charged for off-system sales
            
            
            27.2Net
                effect of the general rate increase, recovery of gas inventory carrying
                costs, and resetting the ISRS
              to
                zero, effective October 1, 2005, combined with the subsequent
                implementation of a new ISRS
              effective
                June 15, 2006
            
            
            8.5Total
                Variation
            
            $
            162.8





**Regulated
      Operating Expenses**





**2007
      vs. 2006**


Regulated
      operating expenses in fiscal year 2007 decreased $16.6 million, or 1.5%, from
      fiscal year 2006. Natural and propane gas expense decreased $23.8 million from
      last year’s level, primarily attributable to lower rates charged by our
      suppliers, which was partially offset by higher system volumes purchased for
      sendout and increased off-system gas expense. Other operation and maintenance
      expenses increased $6.7 million, or 4.5%, primarily due to increased maintenance
      and distribution charges, increased group insurance charges, higher wage rates,
      and a higher provision for uncollectible accounts. These factors were partially
      offset by decreased injuries and damages expense as well as a gain on the
      disposal of assets. Depreciation and amortization expense increased $3.2
      million, or 10.3%, primarily due to higher rates authorized in the 2005 rate
      case effective January 1, 2006, and additional depreciable property.
      Taxes, other than income, decreased $2.7 million, or 3.8%, primarily due to
      lower property taxes and decreased gross receipts taxes (attributable to the
      decreased revenues).





**2006
      vs. 2005**


Regulated
      operating expenses in fiscal year 2006 increased $165.6 million, or 18.3%,
      from
      fiscal year 2005. Natural and propane gas expense increased $144.8 million
      above
      last year’s level primarily due to higher rates charged by our suppliers,
      partially offset by lower volumes purchased for sendout and slightly lower
      off-system gas expense. Other operation and maintenance expenses increased
      $4.8
      million, or 3.3%, primarily due to implementation costs related to
      the


23


automated
      meter reading deployment, higher costs associated with low income energy
      assistance and energy efficiency programs implemented October 1, 2005,
      compensation expense associated with Laclede Group’s implementation of Statement
      of Financial Accounting Standards (SFAS) No. 123(R), increased pension costs,
      and higher wage rates. These factors were partially offset by a lower provision
      for uncollectible accounts, lower group insurance charges, and a reduction
      in
      costs to remove retired utility plant that were previously charged to expense
      as
      incurred. An accrual for such costs is currently being provided for in
      depreciation rates. Depreciation and amortization expense increased $7.9
      million, or 34.2%, primarily due to higher rates effective
      February 1, 2005 and January 1, 2006, and additional
      depreciable property. Taxes, other than income, increased $8.2 million, or
      13.0%, primarily due to higher gross receipts taxes (attributable to the
      increased revenues).





**Non-Regulated
      Services Operating Revenues and Operating Expenses**





Laclede
      Group’s non-regulated services operating revenues for fiscal year 2007 increased
      $3.2 million from those revenues for fiscal year 2006 primarily due to
      SM&P’s attainment of new business in existing markets. The increase in
      non-regulated services operating expenses totaling $1.5 million was primarily
      attributable to increased wage, benefit, and vehicle expense, partially offset
      by the effect of settlement costs associated with the employment-related
      litigation recorded in fiscal year 2006.





Laclede
      Group’s non-regulated services operating revenues for fiscal year 2006 increased
      $21.0 million from those revenues for fiscal year 2005 primarily due to
      SM&P’s attainment of new business in existing markets. The increase in
      non-regulated services operating expenses totaling $25.5 million was primarily
      attributable to higher than anticipated operating expenses, including those
      associated with the startup of new business in existing markets, and the net
      effect of resolution of the previously reported collective action lawsuit and
      related matters described in Note 14 to the Consolidated Financial
      Statements.





**Non-Regulated
      Gas Marketing Operating Revenues and Operating Expenses**





Non-regulated
      gas marketing revenues increased $29.1 million in fiscal year 2007 from those
      revenues for fiscal year 2006 primarily due to increased sales volumes by LER,
      partially offset by lower per unit gas sales prices. The increase in
      non-regulated gas marketing operating expenses of $36.6 million was primarily
      associated with increased gas expense related to increased volumes purchased,
      partially offset by lower prices.





Non-regulated
      gas marketing revenues increased $220.0 million in fiscal year 2006 from those
      revenues for fiscal year 2005 primarily due to higher sales prices and increased
      sales volumes by LER. The increase in non-regulated gas marketing operating
      expenses of $200.0 million was primarily associated with increased gas expense
      related to higher prices and increased volumes purchased.





**Non-Regulated
      Other Operating Revenues and Operating Expenses**





Non-regulated
      other operating revenues increased $1.2 million in fiscal 2007, primarily due
      to
      an increase in merchandise sales. The $3.4 million decrease in non-regulated
      other operating revenues in fiscal year 2006 from fiscal year 2005 was primarily
      due to a decrease in sales levels recorded by Laclede Pipeline Company.
      Non-regulated other operating expenses increased $0.5 million in fiscal 2007,
      primarily due to an increase in expenses associated with increased merchandise
      sales. The $4.1 million decrease in non-regulated other operating expenses
      in
      fiscal year 2006 from fiscal year 2005, was primarily due to a decrease in
      expenses associated with decreased sales recorded by Laclede Pipeline
      Company.





**Other
      Income and Income Deductions-Net**





Other
      income and income deductions-net increased $1.3 million in fiscal year 2007,
      due
      to increased investment income, higher interest income, and other minor
      variations, partially offset by lower income associated with carrying costs
      applied to under-recoveries of gas costs. Such carrying costs are recovered
      through the Utility’s PGA Clause. The $3.9 million increase in other income and
      income deductions-net in fiscal year 2006 from fiscal year 2005 was primarily
      attributable to additional income resulting from Laclede Gas’ application of
      carrying costs to all over- or under-recoveries of gas costs, including costs
      and cost reductions associated with the use of financial instruments, as
      approved by the MoPSC effective October 1, 2005. Previously, carrying
      costs were applicable only to certain gas cost components exceeding a
      predetermined threshold. Such income is recovered through the PGA Clause. This
      additional income was partially offset by the Utility’s receipt and recognition
      in April 2005 of proceeds related to its interest, as a policyholder, in
      the sale of a mutual insurance company totaling $0.5 million.


24


**Interest
      Charges**





The
      $1.1
      million increase in interest charges in fiscal year 2007 was primarily due
      to
      higher interest on short-term debt and other minor variations. Average
      short-term interest rates were 5.4% this year compared with 4.7% in fiscal
      year
      2006. Average short-term borrowings were $156.2 million and $172.4 million
      for
      fiscal years 2007 and 2006, respectively.





The
      $5.6
      million increase in interest charges in fiscal year 2006 was primarily due
      to
      higher interest on short-term debt. Average short-term interest rates were
      4.7%
      in fiscal 2006 compared with 2.7% in fiscal year 2005. Average short-term
      borrowings were $172.4 million and $83.3 million for fiscal years 2006 and
      2005,
      respectively. Increased interest on short-term debt was slightly offset by
      lower
      interest on long-term debt due to the November 2004 maturity of $25 million
      principal amount of 8 1/2 % First Mortgage Bonds and the May 2006 maturity
      of $40 million principal amount of 8 5/8% First Mortgage Bonds. The decreased
      interest on long-term debt due to the aforementioned maturities was partially
      offset by the issuance of $55 million principal amount of 6.15% First Mortgage
      Bonds on June 9, 2006.





**Income
      Taxes**





The
      increases in income tax expense for all periods reported are primarily due
      to
      higher pre-tax income. The year-to-year variations in income tax expense also
      reflect the effect of lower income tax expense in fiscal year 2006 associated
      with a change in estimated tax depreciation and other property-related
      deductions.





**Labor
      Agreement**





Laclede
      Gas has a labor agreement with Locals 11-6 and 11-194 of the United Steel,
      Paper
      and Forestry, Rubber, Manufacturing, Energy, Allied-Industrial and Service
      Workers International Union, which represent 65% of Laclede Gas’ employees. The
      agreement expires on July 31, 2008.





The
      Missouri Natural Division of Laclede Gas has a labor agreement with Local 11-884
      of the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy,
      Allied-Industrial and Service Workers International Union, which represents
      5%
      of Laclede Gas’ employees. The agreement expires on
      April 15, 2009.








**CRITICAL
      ACCOUNTING POLICIES**





Our
      discussion and analysis of our financial condition, results of operations,
      liquidity, and capital resources is based upon our consolidated financial
      statements, which have been prepared in accordance with accounting principles
      generally accepted in the United States of America. Generally accepted
      accounting principles require that we make estimates and judgments that affect
      the reported amounts of assets, liabilities, revenues and expenses, and related
      disclosure of contingent assets and liabilities. We evaluate our estimates
      on an
      ongoing basis. We base our estimates on historical experience and on various
      other assumptions that we believe are reasonable under the circumstances, the
      results of which form the basis for making judgments about the carrying values
      of assets and liabilities that are not readily apparent from other sources.
      Actual results may differ from these estimates. We believe the following
      represent the more significant items requiring the use of judgment and estimates
      in preparing our consolidated financial statements:





Allowances
                for doubtful accounts – Estimates of the collectibility of trade accounts
                receivable are based on historical trends, age of receivables, economic
                conditions, credit risk of specific customers, and other factors.
                The
                Utility’s provision for uncollectible accounts is dependent on the
                regulatory treatment provided for such costs. Beginning in fiscal
                2006, as
                approved by the MoPSC, the Utility is allowed to defer for future
                recovery
                certain costs associated with amendments to the Cold Weather Rule.
                For
                details on the Cold Weather Rule, see the Regulatory Matters section
                on
                page 28.Employee
                benefits and postretirement obligations – Pension and postretirement
                obligations are calculated by actuarial consultants that utilize
                several
                statistical factors and other assumptions related to future events,
                such
                as discount rates, returns on plan assets, compensation increases,
                and
                mortality rates. For the Utility, the amount of expense recognized
                and the
                amounts reflected in other comprehensive income are dependent upon
                the
                regulatory treatment provided for such costs, as discussed further
                below.
                Certain liabilities related to group medical benefits and workers’
                compensation claims, portions of which are self-insured and/or contain
                “stop-loss” coverage with third-party insurers to limit exposure, are
                established based on historical
                trends.





25


The
      table
      below reflects the sensitivity of Laclede’s plans to potential changes in key
      assumptions:




Pension
                Plan Benefits:**Estimated**
            
            
            
            **Estimated****Increase/**
            
            
            
            **Increase/****(Decrease)
                to**
            
            
            
            **(Decrease)
                to****Projected**
            
            
            
            **Annual****Benefit**
            
            
            
            **Net
                Pension****Increase/**
            
            
            
            **Obligation**
            
            
            
            **Cost*****Actuarial
                Assumptions**
            
            **(Decrease)**
            
            
            
            **(Thousands)**
            
            
            
            **(Thousands)**Discount
                Rate
            
            0.25
            %
            
            
            $
            (7,620
            )
            
            $
            (170
            )(0.25
            )
            
            
            
            7,820
            
            
            
            160Rate
                of Future Compensation Increase
            
            0.25
            %
            
            
            
            5,800
            
            
            
            720(0.25
            )
            
            
            
            (5,600
            )
            
            
            (700
            )Expected
                Return on Plan Assets
            
            0.25
            %
            
            
            
            —
            
            
            
            (610
            )(0.25
            )
            
            
            
            —
            
            
            
            610Postretirement
                Benefits:**Estimated**
            
            
            
            **Estimated****Increase/**
            
            
            
            **Increase/****(Decrease)
                to**
            
            
            
            **(Decrease)
                to****Projected**
            
            
            
            **Annual
                Net****Postretirement**
            
            
            
            **Postretirement****Benefit**
            
            
            
            **Benefit****Increase/**
            
            
            
            
            **Obligation**
            
            
            
            **Cost*****Actuarial
                Assumptions**
            
            **(Decrease)**
            
            
            
            
            **(Thousands)**
            
            
            
            **(Thousands)**Discount
                Rate
            
            0.25
            %
            
            
            $
            (1,370
            )
            
            $
            (89
            )(0.25
            )
            
            
            
            1,410
            
            
            
            90Expected
                Return on Plan Assets
            
            0.25
            %
            
            
            
            —
            
            
            
            (57
            )(0.25
            )
            
            
            
            —
            
            
            
            57Annual
                Medical Cost Trend
            
            1.00
            %
            
            
            
            2,930
            
            
            
            720(1.00
            )
            
            
            
            (2,660
            )
            
            
            (630
            )*
                Excludes the impact of regulatory deferral mechanism. See Note 2,
                Pension
                Plans and Other Postretirement Benefits, of the Notes to Consolidated
                Financial Statements for information regarding the regulatory treatment
                of
                these costs.





Goodwill
                valuation – In accordance with SFAS No. 142, “Goodwill and Other
                Intangible Assets,” goodwill is required to be tested for impairment
                annually or whenever events or circumstances occur that may reduce
                the
                value of goodwill. In performing impairment tests, valuation techniques
                require the use of estimates with regard to discounted future cash
                flows
                of operations, involving judgments based on a broad range of information
                and historical results. If the test indicates impairment has occurred,
                goodwill would be reduced, adversely impacting earnings. This test
                of
                goodwill impairment may be carried forward from one year to the next
                if
                the most recent fair value determination exceeded the carrying value
                by a
                substantial margin, the assets and liabilities that comprise the
                reporting
                entity had not changed significantly, and the Company believes that
                based
                on an analysis of events that had occurred and circumstances that
                had
                changed since the most recent fair value determination, the likelihood
                that a current fair value determination would be less than the current
                carrying amount is remote.





Laclede
      Gas accounts for its regulated operations in accordance with SFAS No. 71,
“Accounting for the Effects of Certain Types of Regulation.” This Statement sets
      forth the application of accounting principles generally accepted in the United
      States of America for those companies whose rates are established by or are
      subject to approval by an independent third-party regulator. The provisions
      of
      SFAS No. 71 require, among other things, that financial statements of a
      regulated


26


enterprise
      reflect the actions of regulators, where appropriate. These actions may result
      in the recognition of revenues and expenses in time periods that are different
      than non-regulated enterprises. When this occurs, costs are deferred as assets
      in the balance sheet (regulatory assets) and recorded as expenses when those
      amounts are reflected in rates. Also, regulators can impose liabilities upon
      a
      regulated company for amounts previously collected from customers and for
      recovery of costs that are expected to be incurred in the future (regulatory
      liabilities). Management believes that the current regulatory environment
      supports the continued use of SFAS No. 71 and that all regulatory assets and
      liabilities are recoverable or refundable through the regulatory process.
      Management believes the following represent the more significant items recorded
      through the application of SFAS No. 71:





The
                Utility’s PGA Clause allows Laclede Gas to flow through to customers,
                subject to prudence review, the cost of purchased gas supplies, including
                the costs, cost reductions and related carrying costs associated
                with the
                Utility’s use of natural gas financial instruments to hedge the purchase
                price of natural gas. The difference between actual costs incurred
                and
                costs recovered through the application of the PGA are recorded as
                regulatory assets and regulatory liabilities that are recovered or
                refunded in a subsequent period. Effective October 1, 2005, the
                Utility was authorized to implement the recovery of gas inventory
                carrying
                costs through its PGA rates to recover costs it incurs to finance
                its
                investment in gas supplies that are purchased during the storage
                injection
                season for sale during the heating season. The MoPSC also approved
                the
                application of carrying costs to all over- or under-recoveries of
                gas
                costs, including costs and cost reductions associated with the use
                of
                financial instruments. Previously, carrying costs were applicable
                only to
                certain gas cost components exceeding a predetermined threshold.
                Effective
                October 1, 2007, pursuant to the 2007 rate case, the PGA Clause
                also provides for a portion of income from off-system sales and capacity
                release revenues to be flowed through to customers.The
                Company records deferred tax liabilities and assets measured by enacted
                tax rates for the net tax effect of all temporary differences between
                the
                carrying amounts of assets and liabilities for financial reporting
                purposes, and the amounts used for income tax purposes. Changes in
                enacted
                tax rates, if any, and certain property basis differences will be
                reflected by entries to regulatory asset or liability accounts for
                regulated companies, and will be reflected as income or loss for
                non-regulated companies. Pursuant to the direction of the MoPSC,
                Laclede
                Gas’ provision for income tax expense for financial reporting purposes
                reflects an open-ended method of tax depreciation. Laclede Gas’ provision
                for income tax expense also records the income tax effect associated
                with
                the difference between overheads capitalized to construction for
                financial
                reporting purposes and those recognized for tax purposes without
                recording
                an offsetting deferred income tax expense. These two methods are
                consistent with the regulatory treatment prescribed by the
                MoPSC.Asset
                retirement obligations are recorded in accordance with SFAS No. 143,
                “Accounting for Asset Retirement Obligations” and Financial Accounting
                Standards Board Interpretation Number (FIN) 47, “Accounting for
                Conditional Asset Retirement Obligations.” Asset retirement obligations
                are calculated using various assumptions related to the timing, method
                of
                settlement, inflation, and profit margins that third parties would
                demand
                to settle the future obligations. These assumptions require the use
                of
                judgment and estimates and may change in future periods as circumstances
                dictate. As authorized by the MoPSC, Laclede Gas accrues future removal
                costs associated with its property, plant and equipment through its
                depreciation rates, even if a legal obligation does not exist as
                defined
                by SFAS No. 143 and FIN 47. The difference between removal costs
                recognized in depreciation rates and the accretion expense and
                depreciation expense recognizable under SFAS No. 143 and FIN 47 is
                a
                timing difference between the recovery of these costs in rates and
                their
                recognition for financial reporting purposes. Accordingly, consistent
                with
                SFAS No. 71, these differences are deferred as regulatory
                liabilities.The
                amount of net periodic pension and other postretirement benefit cost
                recognized in the financial statements related to the Utility’s qualified
                pension plans and other postretirement benefit plans is based upon
                allowances, as approved by the MoPSC, which have been established
                in the
                rate-making process for the recovery of these costs from customers.
                The
                differences between these amounts and actual pension and other
                postretirement benefit costs incurred for financial reporting purposes
                are
                deferred as regulatory assets or regulatory liabilities. SFAS No.
                158,
                “Employers’ Accounting for Defined Benefit Pension and Other
                Postretirement Plans,” requires that changes that affect the funded status
                of pension and other postretirement benefit plans, but that are not
                yet
                required to be recognized as components of pension and other
                postretirement benefit cost, be reflected in other comprehensive
                income.
                For the Utility’s qualified pension plans and other postretirement benefit
                plans, amounts that would otherwise be reflected in other comprehensive
                income are deferred with entries to regulatory assets or regulatory
                liabilities.





For
      further discussion of significant accounting policies, see Note 1 to the
      Consolidated Financial Statements included on page 45.


27


**REGULATORY
      MATTERS**





At
      the
      state level, there have been several significant regulatory developments during
      the fiscal year affecting Laclede Gas. Some of these issues were impacted by
      the
      settlement of the Utility’s 2007 rate case as discussed later in this
      section.





A
      law
      became effective January 1, 2006, that authorizes the MoPSC to
      implement rules and tariff provisions through which rates can be adjusted
      between general rate case proceedings to reflect increases and decreases in
      certain costs and revenues. For gas utilities like Laclede Gas, these include
      rate adjustments to reflect revenue changes resulting from the impact of weather
      and conservation on customer usage and to reflect changes in the costs to comply
      with environmental laws, rules, and regulations. Various parties have been
      meeting in an attempt to negotiate rules to implement these programs. The MoPSC
      has acted on a rule relating to the establishment of a fuel adjustment clause
      for electric utilities. While no rules have been implemented for gas utilities,
      the MoPSC has approved rate designs for three gas utilities (including Laclede
      Gas) that mitigate the effects of weather and conservation on utility margins.
      In the Utility’s 2007 rate case, the MoPSC approved rate design changes allowing
      Laclede Gas to better ensure the recovery of the Utility’s fixed costs and
      margins despite variations in sales volumes due to the impacts of weather and
      other factors that affect customer usage.





On
      October 24, 2005, the Missouri Office of Public Counsel proposed an
      emergency amendment to the MoPSC’s Cold Weather Rule (Rule) affecting the
      disconnection and reconnection practices of utilities during the winter heating
      season. On December 19, 2005, the MoPSC issued an Order approving
      certain changes to the Rule to be effective between January 1 and
      March 31, 2006. On August 11, 2006, after various appeals to
      the Cole County Circuit Court, Missouri Court of Appeals, and the Missouri
      Supreme Court by the parties, including Laclede Gas, the MoPSC approved
      permanent modifications to the Rule, including provisions to allow the Utility
      to obtain accounting authorizations and defer for future recovery the costs
      previously incurred with the emergency amendment for the fiscal 2006 heating
      season. In conjunction with the settlement of the 2007 rate case, the MoPSC
      provided for the recovery of $5.0 million in costs associated with the fiscal
      2006 heating season, during the next five-year period. During fiscal 2007,
      the
      Utility deferred for future recovery an additional $2.7 million of costs
      associated with the fiscal 2007 heating season. On October 31, 2007,
      the Utility filed for determination and subsequent recovery of the deferred
      amount. On November 16, 2007, the MoPSC directed the MoPSC Staff and
      the Missouri Office of Public Counsel to submit their positions regarding the
      Utility’s filing by February 28, 2008.





On
      December 29, 2005, the MoPSC Staff proposed a disallowance of
      approximately $3.3 million related to Laclede Gas’ recovery of its purchased gas
      costs applicable to fiscal 2004. Following technical conferences, the Staff
      subsequently reduced its proposed disallowance to approximately $2.1 million.
      Laclede Gas believed that the MoPSC Staff’s position lacked merit and vigorously
      opposed the adjustment in proceedings before the MoPSC on
      January 29, 2007. On June ‭‮28, 2007, the MoPSC issued an
      Order rejecting the MoPSC Staff’s proposed disallowance and declaring that the
      Company was not imprudent with respect to the particular gas purchasing practice
      questioned by the MoPSC Staff. This case is now closed.





On
      November 3, 2006, the Utility made an ISRS filing with the Commission
      designed to increase revenues by $1.9 million annually. On
      December 28, 2006, the MoPSC approved implementation of the Utility’s
      proposed ISRS filing effective January 2, 2007. On
      March 30, 2007, the Utility made an ISRS filing with the Commission
      designed to increase revenues by an additional $1.8 million annually. On
      June 5, 2007, the MoPSC approved implementation of the Utility’s
      March 2007 ISRS filing effective June 16, 2007. These surcharges
      were reset to zero effective August 1, 2007, as the ISRS-related costs
      are being recovered through new base rates effective on that same date (see
      the
      rate case discussion later in this section). On November 9, 2007, the Utility
      made an ISRS filing with the Commission designed to increase revenues by $1.6
      million annually, pending approval by the Commission.





Laclede
      Gas began implementation of an automated meter reading (AMR) system in
      July 2005. Through the date of this report, the AMR system has been
      deployed to more than 668,000 customer meters, representing well over 98% of
      Laclede’s total customer base population. Certain regulatory issues have arisen
      in conjunction with this implementation. The Utility has approximately 40%
      of
      customers with meters inside their premises. On February 2, 2006, the
      MoPSC Staff filed a complaint against the Utility alleging that it failed to
      adequately obtain or use actual meter readings from certain customers and failed
      to adequately respond to unauthorized gas use. In addition to seeking authority
      to pursue penalties, the Staff sought customer service accommodations for
      customers whose previous estimated bills will require adjustment to reflect
      actual usage. On May 11, 2006, the Missouri Office of Public Counsel
      also filed a complaint alleging that Laclede Gas billed customers for prior
      underestimated usage for a longer period of time than permitted by Commission
      rules. Laclede Gas filed responses generally denying the MoPSC Staff’s and
      Missouri Office of Public Counsel’s allegations. On November 7, 2006,
      Laclede Gas, the Missouri Office of Public Counsel, and other parties filed
      a
      Stipulation & Agreement that resolves certain issues raised in this case.
      The MoPSC Staff neither supported nor opposed the Stipulation & Agreement.
      On December 21, 2006, the Commission approved the Stipulation &
Agreement,


28


dismissed
      the Missouri Office of Public Counsel’s complaint, and suspended Staff’s
      complaint, subject to Laclede’s compliance with the Stipulation & Agreement.
      The primary terms of the Stipulation & Agreement include the Utility’s
      provision of bill credits totaling $0.5 million to customers who received
      billing adjustments reconciling undercharges for periods exceeding 12 months,
      a
      limit on future billing adjustments that reconcile undercharges to 12 months,
      and additional notices to customers concerning such billing
      adjustments.





The
      Utility’s labor union representing field service workers, USW Local 11-6
      (Union), also raised a number of regulatory matters with the MoPSC alleging
      safety issues associated with the installation of AMR and changes in other
      work
      practices implemented by Laclede Gas. On November 2, 2006, the MoPSC
      denied and dismissed one of these complaints. On December 11-12, 2006,
      the MoPSC held a hearing on the Union’s last remaining complaint. That hearing
      was completed on February 26, 2007. On June 22, 2007, the
      MoPSC issued an Order denying the Union’s remaining complaint and dismissing the
      case. This case is now closed.





On
      December 1, 2006, Laclede Gas filed tariff sheets designed to increase
      revenues by $52.9 million annually, or 5.6%. Although the Utility’s filing
      requested an increase of $44.9 million in non-gas revenues, $1.8 million of
      that
      amount was already being paid by customers through the current ISRS, which
      would
      no longer have been collected upon approval of the Utility’s rate request. In
      addition, Laclede Gas proposed to increase its PGA rates by $9.8 million in
      order to recover the gas cost portion of its bad debts through the PGA rather
      than through its non-gas distribution rates. The December 1 filing also
      proposed a comprehensive regulatory compact that included:


•
            a
                pilot program in which residential customers could lock in for a
                twelve-month period the cost per therm of gas included in their monthly
                bills;•
            a
                conservation program that would provide customers an opportunity
                to earn a
                rebate by conserving natural gas during the peak winter heating
                months;•
            a
                three-year base rate moratorium; and,•
            an
                earnings sharing mechanism in which the Utility would share with
                its
                customers up to 90 percent of earnings in excess of its authorized
                return,
                depending on the level of earnings achieved, to the extent that the
                Utility would achieve any such additional earnings as a result of
                its
                efforts to make utility service more efficient and sell gas in markets
                outside of its traditional service
                territory.


Finally,
      Laclede Gas proposed several modifications to its weather mitigation rate design
      in order to better ensure the Utility’s recovery of its fixed costs. Initially,
      the MoPSC suspended implementation of the Utility’s proposed rates until
      November 1, 2007. However, on July 9, 2007, as a result of a
      June 2007 settlement conference, the parties to the case filed a Unanimous
      Stipulation & Agreement (Agreement) with the MoPSC resolving all matters in
      the proceeding. The MoPSC approved the Agreement on July 19, 2007. The
      Agreement includes, among other things:


•
            an
                increase of $38.6 million in non-gas revenues effective
                August 1, 2007, including $5.5 million already being billed to
                customers through an ISRS which would no longer be collected, although
                the
                Utility retains the right to file for authorization to reinstate
                an ISRS
                based on future eligible infrastructure-related costs;•
            enhancements
                to the Utility’s weather mitigation rate design to further stabilize the
                impact of weather fluctuations on its customers and its ability to
                better
                ensure recovery of its fixed costs and margins, despite variations
                in
                sales volumes due to the impacts of weather and other factors that
                affect
                customer usage;•
            a
                provision, effective October 1, 2007, for the Utility to retain
                a share in the pre-tax income from off-system sales and capacity
                release
                revenues ranging from 15% to 30% of the first $6 million in annual
                income
                earned (depending on the level of income earned) and 30% of income
                over $6
                million each year, along with reduced PGA rates beginning in
                November 2007 to facilitate the timely flow-through of the customer
                share of such income;•
            modifications
                to provisions that afford the Utility an opportunity to retain a
                portion
                of any savings it may achieve in connection with the procurement
                of gas
                supplies; and,•
            low
                income and energy efficiency/conservation programs for customers,
                in which
                the Utility will fund $1.1 million annually, and invest up to an
                additional $5.3 million over the next three-year period to be collected
                in
                future rates.


The
      base
      rate moratorium, the earnings sharing mechanism, and certain other items
      included in the comprehensive regulatory compact, as proposed by Laclede Gas,
      were not included in the Agreement; however, some of the Utility’s proposals
      regarding customer programs will be discussed and developed in the future
      through a collaborative effort with the parties to the proceeding.





On
      December 28, 2006, the MoPSC Staff proposed a disallowance of $7.2
      million related to Laclede Gas’ recovery of its purchased gas costs applicable
      to fiscal 2005, largely on the same grounds as it had proposed regarding the
      disallowance of the Utility’s recovery of purchased gas cost applicable to
      fiscal 2004. On September 14, 2007, the Staff withdrew its pursuit of
      $5.5 million of the disallowance it had originally proposed. Laclede Gas
      believes that the remainder of the MoPSC Staff’s proposed disallowance lacks
      merit and intends to vigorously oppose the adjustment in proceedings before
      the
      MoPSC.


29


At
      the
      federal level, Laclede Pipeline Company (Pipeline), a wholly-owned subsidiary
      of
      Laclede Group, filed a tariff with the Federal Energy Regulatory Commission
      (FERC) on March 1, 2006, requesting approval to transport liquefied
      petroleum gas under the Interstate Commerce Act. Historically, Pipeline has
      supplied propane to Laclede Gas to supplement the Utility’s natural gas supplies
      during peak consumption periods. Prior to April 1, 2006, in various
      Utility rate proceedings over the years, the MoPSC approved Laclede Gas’ rates
      that were intended to include the recovery of Pipeline’s costs. Pipeline made
      the March 1 tariff filing due to changes in the types of transactions
      Pipeline conducts with third parties during those periods when Laclede Gas
      is
      not fully utilizing Pipeline’s capacity. The MoPSC filed a protest to Pipeline’s
      filing, to which Pipeline responded, and on March 31, 2006, the FERC
      accepted Pipeline’s tariff, effective April 1, 2006. On
      May 1, 2006, the MoPSC filed a request for rehearing of the FERC’s
      Order approving Pipeline’s tariff, and on May 31, 2006, the FERC
      issued a “tolling order” in connection with the MoPSC’s request for rehearing
      which extended the 30-day statutory time period for the FERC to rule on the
      MoPSC’s request. On June 5, 2007, the FERC denied the MoPSC’s request
      for rehearing of the FERC’s March 31, 2006 Order approving Pipeline’s
      FERC tariff. On August 3, 2007, the MoPSC filed with the United States
      Court of Appeals for the District of Columbia Circuit a petition for review
      of
      the FERC’s March 31, 2006 and June 5, 2007 Orders. On
      August 31, 2007, Pipeline filed a motion to intervene in the court
      proceeding. On September 18, 2007, the FERC filed a motion to dismiss,
      maintaining that Section 15 of the Interstate Commerce Act precludes judicial
      review of the FERC’s Orders. On October 3, 2007, the MoPSC filed a
      response opposing the FERC’s motion. On November 13, 2007, the United
      States Court of Appeals for the District of Columbia Circuit dismissed the
      MoPSC’s petition for review of the FERC’s Orders accepting Pipeline’s tariffs.
      Pipeline is providing liquid propane transportation service to Laclede Gas
      pursuant to an approved FERC tariff and a contractual arrangement between
      Pipeline and Laclede Gas. In accordance with the terms of that agreement,
      Laclede Gas is obligated to pay Pipeline approximately $1.0 million annually,
      at
      current rates, commencing April 1, 2006. The agreement renews at the
      end of each contract year, unless terminated by either party upon provision
      of
      at least six months’ notice.








**ACCOUNTING
      PRONOUNCEMENTS**





The
      Company has evaluated or is in the process of evaluating the impact that
      recently issued accounting standards will have on the Company’s financial
      position or results of operations upon adoption. For disclosures related to
      the
      adoption of new accounting standards, see the New Accounting Standards section
      of Note 1 to the Consolidated Financial Statements.








**INFLATION**





The
      accompanying consolidated financial statements reflect the historical costs
      of
      events and transactions, regardless of the purchasing power of the dollar at
      the
      time. Due to the capital-intensive nature of the business of Laclede Gas, the
      most significant impact of inflation is on the depreciation of utility plant.
      Rate regulation, to which Laclede Gas is subject, allows recovery through its
      rates of only the historical cost of utility plant as depreciation. While no
      plans exist to undertake replacements of plant in service other than normal
      replacements and those under existing replacement programs, Laclede Gas believes
      that any higher costs experienced upon replacement of existing facilities would
      be recovered through the normal regulatory process.








**CREDIT
      RATINGS**





As
      of
      September 30, 2007, credit ratings for outstanding securities for
      Laclede Group and Laclede Gas issues were as follows:





**Type
                of Facility**
            **S&P**
            **Moody’s**
            **Fitch**Laclede
                Group Corporate Rating
            A
            
            A-Laclede
                Gas First Mortgage Bonds
            A
            A3
            A+Laclede
                Gas Commercial Paper
            A-1
            P-2Laclede
                Capital Trust I Trust Preferred Securities
            A-
            Baa3
            BBB+





The
      Company has investment grade ratings and believes that it will have adequate
      access to the financial markets to meet its capital requirements. These ratings
      remain subject to review and change by the rating agencies.





30


**CASH
      FLOWS**





The
      Company’s short-term borrowing requirements typically peak during colder months
      when Laclede Gas borrows money to cover the lag between when it purchases
      natural gas and when its customers pay for that gas. Changes in the wholesale
      cost of natural gas, variations in the timing of collections of gas cost under
      the Utility’s PGA Clause, the seasonality
      of accounts receivable balances, and the utilization of storage gas inventories
      cause short-term cash requirements to vary during the year, and can cause
      significant variations in the Utility’s cash provided by or used in operating
      activities.





Net
      cash
      provided by operating activities for the fiscal year ended 2007 was $81.3
      million, compared with net cash used in operating activities of $8.3 million
      for
      fiscal year 2006 and net cash provided by operating activities of $103.0 million
      for fiscal year 2005. The year-to-year variations are primarily attributable
      to
      the timing of the Utility’s cash receipts and payments related to accounts
      payable, accounts receivable, deferred purchased gas cost, and the cost of
      natural gas storage inventories, all of which were impacted by year-to-year
      changes in the wholesale cost of natural gas. These variations were partially
      offset by improved cash flows at LER during fiscal 2006.





Net
      cash
      used in investing activities for fiscal years 2007, 2006 and 2005 were $58.7
      million, $72.4 million and $61.4 million, respectively. Net cash used in
      investing activities primarily reflected capital expenditures in all periods,
      and an acquisition by SM&P in fiscal 2006.





Net
      cash
      used in financing activities was $20.6 million for fiscal year 2007. Net cash
      provided by financing activities was $125.5 million for fiscal year 2006 and
      net
      cash used in financing activities was $49.5 million for fiscal 2005. The
      year-to-year variations are primarily due to the level of short-term debt
      required as a result of fluctuations in cash provided by operating activities
      associated with the effect of changes in natural gas prices described
      previously. Effective October 1, 2005, the Utility applies carrying
      costs to all over- and under-recoveries of gas costs, including costs and cost
      reductions associated with the use of financial instruments and gas storage
      inventories.








**LIQUIDITY
      AND CAPITAL RESOURCES**





As
      indicated above, the Company’s short-term borrowing requirements typically peak
      during the colder months. These short-term cash requirements have traditionally
      been met through the sale of commercial paper supported by lines of credit
      with
      banks. Throughout this fiscal year, Laclede Gas had a line of credit in place
      of
      $320 million, which expires in December 2010. In November 2007, the
      Utility established a seasonal line of credit of $40 million, which will expire
      in March 2008. The Utility had short term borrowings aggregating to a
      maximum of $262.1 million at any one time during the fiscal year. Due to
      disruptions in the commercial paper market, Laclede Gas drew on its bank line
      during the fourth quarter to replace higher-cost commercial paper, up to a
      maximum of $70 million. All such borrowings were repaid prior to
      September 30, 2007, as the commercial paper market returned to more
      normal conditions. Short-term commercial paper borrowings outstanding at
      September 30, 2007 were $211.4 million at a weighted average interest
      rate of 5.5% per annum. Based on short-term borrowings at
      September 30, 2007, a change in interest rates of 100 basis points
      would increase or decrease pre-tax earnings and cash flows by approximately
      $2.1
      million on an annual basis. Portions of such increases or decreases may be
      offset through the application of PGA carrying costs.





Laclede
      Gas’ lines of credit include covenants limiting total debt, including short-term
      debt, to no more than 70% of total capitalization and requiring earnings before
      interest, taxes, depreciation and amortization (EBITDA) to be at least 2.25
      times interest expense. On September 30, 2007, total debt was 62% of
      total capitalization*.*For the fiscal year ended
      September 30, 2007, EBITDA was 3.40 times interest
      expense.





On
      March 20, 2007, Laclede Gas filed a shelf registration on Form S-3
      with the Securities and Exchange Commission (SEC) for issuance of $350 million
      of securities, which filing became effective April 10, 2007. This
      filing also deregistered $65 million of securities under the Utility’s previous
      shelf registration statement. The full amount of this new shelf registration
      remains available to Laclede Gas at this time. On March 6, 2007, the
      Utility received authority from the MoPSC to issue up to $500 million in first
      mortgage bonds, unsecured debt, and equity securities. During fiscal year 2007,
      pursuant to this authority, the Utility sold 110 shares of its common stock
      to
      Laclede Group for $3.8 million, leaving $496.2 million remaining under this
      authorization as of the date of this filing. The amount, timing and type of
      additional financing to be issued will depend on cash requirements and market
      conditions.





At
      September 30, 2007, Laclede Gas had fixed-rate long-term debt,
      including current obligations, totaling $350 million. On
      November 1, 2007, Laclede Gas paid at maturity $40 million principal
      amount of 7 1/2% First Mortgage Bonds. This maturity was funded through
      short-term borrowings. While the remaining long-term debt issues are fixed-rate,
      they are subject to changes in fair value as market interest rates change.
      However, increases or decreases in fair value would


31


impact
      earnings and cash flows only if Laclede Gas were to reacquire any of these
      issues in the open market prior to maturity.





Laclede
      Group has on file a shelf registration on Form S-3 with the SEC, which allows
      for the issuance of equity securities, other than preferred stock, and debt
      securities. Of the $500 million of securities originally registered under
      this


Form
      S-3,
      $362.4 million remain registered and unissued as of
      September 30, 2007. The amount, timing and type of additional
      financing to be issued under this shelf registration will depend on cash
      requirements and market conditions.





Short-term
      cash requirements outside of Laclede Gas have generally been met with
      internally-generated funds. However, Laclede Group has $50 million in working
      capital lines of credit, expiring in August 2008, to meet short-term
      liquidity needs of its subsidiaries. These lines of credit have a covenant
      limiting the total debt of the consolidated Laclede Group to no more that 70%
      of
      the Company’s total capitalization, giving a 50% debt weighting to the
      subordinated debt issued to an unconsolidated affiliated trust. This ratio
      stood
      at 57% on September 30, 2007. These lines have been used to provide
      letters of credit on behalf of SM&P, which have not been drawn, and to
      provide for seasonal funding needs of the various subsidiaries from time to
      time. At September 30, 2007, letters of credit provided on behalf of
      SM&P totaled $2.8 million. There were no borrowings under Laclede Group’s
      lines during the fiscal year.





Laclede
      Gas has several operating leases for the rental of vehicles that contain
      provisions requiring Laclede Gas to guarantee certain amounts related to the
      residual value of the leased property. These leases have various terms, the
      longest of which extends through 2014. At September 30, 2007, the
      maximum guarantees under these leases are $1.9 million. However, the Utility
      estimates that the residual value of the leased vehicles will be adequate to
      satisfy most of the guaranteed amounts. At September 30, 2007, the
      carrying value of the liability recognized for these guarantees was $0.3
      million.





SM&P
      has several operating leases, the aggregate annual cost of which is $8.6
      million, consisting primarily of 12-month operating leases, with renewal
      options, for vehicles used in its business. Laclede Group has parental
      guarantees of certain of those vehicle leases and anticipates that the maximum
      guarantees, including renewals and new leases, will not exceed $16.8 million.
      In
      the event that Laclede Group would be required to make payments under these
      guarantees, it is expected that a significant portion of such payments would
      be
      recovered through proceeds from the liquidation of assets obtained under the
      terms of the leases. The fair market value of the vehicles being leased is
      estimated at $13.4 million. No amounts have been recorded for these guarantees
      in the financial statements.





Laclede
      Group had guarantees totaling $33.0 million for performance and payment of
      certain wholesale gas supply purchases by LER, as of
      September 30, 2007. Since that date, total guarantees issued by
      Laclede Group on behalf of LER increased by $9.8 million bringing the total
      to
      $42.8 million in guarantees outstanding at November 28, 2007. No amounts have
      been recorded for these guarantees in the financial statements.





Utility
      capital expenditures were $56.4 million in fiscal year 2007, compared with
      $57.9
      million and $54.6 million for the fiscal years 2006 and 2005, respectively.
      Utility capital expenditures are expected to be approximately $59 million in
      fiscal year 2008. Non-utility capital expenditures for fiscal year 2007 were
      $2.5 million compared with $5.5 million in fiscal year 2006, and $5.6 million
      in
      fiscal year 2005, and are estimated to be approximately $4 million in fiscal
      year 2008.





Consolidated
      capitalization at September 30, 2007, excluding current obligations of
      long-term debt and preferred stock, consisted of 54.6% Laclede Group common
      stock equity, 0.1% Laclede Gas preferred stock equity, 5.9% long-term debt
      to
      unconsolidated affiliate trust, and 39.4% Laclede Gas long-term
      debt.





Laclede
      Group’s ratio of earnings to fixed charges was 2.8 for fiscal years 2005 through
      2007.





It
      is
      management’s view that the Company has adequate access to capital markets and
      will have sufficient capital resources, both internal and external, to meet
      anticipated capital requirements.





32


**CONTRACTUAL
      OBLIGATIONS**





As
      of
      September 30, 2007, Laclede Group had contractual obligations with
      payments due as summarized


below
      (in
      millions):





**Payments
                due by period****Less
                than**
            
            **1-3**
            
            **3-5**
            
            **More
                than****Contractual
                Obligations**
            
            **Total**
            
            **1
                Year**
            
            **Years**
            
            **Years**
            
            **5
                Years**Principal
                Payments on Long-Term Debt
            
            $
            396.4
            
            $
            40.0
            
            $
            —
            
            $
            25.0
            
            $
            331.4Interest
                Payments on Long-Term Debt
            
            
            492.4
            
            
            24.6
            
            
            46.1
            
            
            43.7
            
            
            378.0Operating
                Leases (a)
            
            
            17.1
            
            
            6.3
            
            
            7.4
            
            
            2.4
            
            
            1.0Purchase
                Obligations – Natural Gas (b)
            
            
            537.7
            
            
            358.6
            
            
            87.0
            
            
            44.9
            
            
            47.2Purchase
                Obligations – Other (c)
            
            
            113.4
            
            
            15.4
            
            
            18.6
            
            
            16.3
            
            
            63.1Total
                (d)
            
            $
            1,557.0
            
            $
            444.9
            
            $
            159.1
            
            $
            132.3
            
            $
            820.7





(a)
            Operating
                lease obligations are primarily for office space, vehicles, and power
                operated equipment in the gas distribution and non-regulated services
                segments. Additional payments will be incurred if renewal options
                are
                exercised under the provisions of certain agreements.(b)
            These
                purchase obligations represent the minimum payments required under
                existing natural gas transportation and storage contracts and natural
                gas
                supply agreements in the utility gas distribution and non-regulated
                gas
                marketing segments. These amounts reflect fixed obligations as well
                as
                obligations to purchase natural gas at future market prices, calculated
                using September 30, 2007 New York Mercantile Exchange futures
                prices. Laclede Gas recovers the costs related to its purchases,
                transportation, and storage of natural gas through the operating
                of its
                Purchased Gas Adjustment Clause, subject to prudence review; however,
                variations in the timing of collections of gas costs from customers
                affect
                short-term cash requirements. Additional contractual commitments
                are
                generally entered into prior to or during the heating
                season.(c)
            These
                purchase obligations reflect miscellaneous agreements for the purchase
                of
                materials and the procurement of services necessary for normal
                operations.(d)
            The
                categories of Capital Leases and Other Long-Term liabilities have
                been
                excluded from the table above because there are no applicable amounts
                of
                contractual obligations under these categories. Also, commitments
                related
                to pension and postretirement benefit plans have been excluded from
                the
                table above. The Company expects to make contributions to its qualified,
                trusteed pension plans totaling $0.8 million in fiscal year 2008.
                Laclede
                Gas anticipates a $0.4 million contribution relative to its non-qualified
                pension plans during fiscal year 2008. With regard to the postretirement
                benefits, the Company anticipates Laclede Gas will contribute $8.2
                million
                to the qualified trusts and $0.3 million directly to participants
                from
                Laclede Gas’ funds during fiscal year 2008. For further discussion of the
                Company’s pension and postretirement benefit plans, refer to Note 2,
                Pension Plans and Other Postretirement Benefits, of the Notes to
                Consolidated Financial Statements.








**MARKET
      RISK**





Laclede
      Gas adopted a risk management policy that provides for the purchase of natural
      gas financial instruments with the goal of managing price risk associated with
      purchasing natural gas on behalf of its customers. This policy prohibits
      speculation. Costs and cost reductions, including carrying costs, associated
      with the Utility’s use of natural gas financial instruments are allowed to be
      passed on to the Utility’s customers through the operation of its Purchased Gas
      Adjustment Clause, through which the MoPSC allows the Utility to recover gas
      supply costs. Accordingly, Laclede Gas does not expect any adverse earnings
      impact as a result of the use of these financial instruments. At
      September 30, 2007, the Utility held 38.6 million MMBtu of futures
      contracts at an average price of $8.45 per MMBtu. Additionally, 3.0 million
      MMBtu of other price risk mitigation was in place through the use of
      option-based strategies. These positions have various expiration dates, the
      longest of which extends through October 2008.





In
      the
      course of its business, Laclede Group’s non-regulated gas marketing affiliate,
      LER, enters into fixed-price commitments associated with the purchase or sale
      of
      natural gas. As part of LER’s risk management policy, LER manages the price risk
      associated with these commitments by either closely matching the offsetting
      physical purchase or sale of natural gas at fixed prices or through the use
      of
      exchange-traded futures contracts to lock in margins. At
      September 30, 2007, LER’s unmatched positions were not material to
      Laclede Group’s financial position or results of operations.


33


**ENVIRONMENTAL
      MATTERS**





Laclede
      Gas owns and operates natural gas distribution, transmission and storage
      facilities, the operations of which are subject to various environmental laws,
      regulations and interpretations. While environmental issues resulting from
      such
      operations arise in the ordinary course of business, such issues have not
      materially affected the Company’s or Laclede Gas’ financial position and results
      of operations. As environmental laws, regulations, and their interpretations
      change, however, Laclede Gas may be required to incur additional costs. For
      a
      description of environmental matters, see Note 14 to the Consolidated Financial
      Statements.








**OFF-BALANCE
      SHEET ARRANGEMENTS**





Laclede
      Group has no off-balance sheet arrangements.








Laclede
      Gas Company’s Management Discussion and Analysis of Financial Condition is
      included in Exhibit 99.1.











**Item
      7A. Quantitative and Qualitative Disclosures About Market
      Risk**





For
      this
      discussion, see the “Market Risk” subsection in Management’s Discussion and
      Analysis of Financial Condition and Results of Operations, page
      33.


34


**Item
      8. Financial Statements and Supplementary Data**





Management
      Report on Internal Control over Financial Reporting





Management
      is responsible for establishing and maintaining adequate internal controls
      over
      financial reporting. The Company’s internal control over financial reporting is
      a process designed to provide reasonable assurance regarding the reliability
      of
      financial reporting and the preparation of financial statements for external
      purposes in accordance with accounting principles generally accepted in the
      United States of America. Because of its inherent limitations, internal control
      over financial reporting may not prevent or detect misstatements and can provide
      only reasonable assurance with respect to financial statement preparation and
      presentation. Also, projections of any evaluation of effectiveness to future
      periods are subject to the risks that controls may become inadequate because
      of
      changes in conditions, or that the degree of compliance with the policies or
      procedures may deteriorate.





The
      Company’s management, including our Chief Executive Officer and Chief Financial
      Officer, conducted an assessment of the effectiveness of the Company’s internal
      control over financial reporting as of September 30, 2007. In making
      this assessment, management used the criteria in *Internal Control –
Integrated Framework* issued by the Committee of Sponsoring Organizations of
      the Treadway Commission. Based on that assessment, management concluded that
      the
      Company’s internal control over financial reporting was effective as of
      September 30, 2007. Deloitte & Touche LLP, an independent
      registered public accounting firm, has issued an attestation report on the
      Company’s internal control over financial reporting, which is included
      herein.




35




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**


To
      the
      Board of Directors and Shareholders of


The
      Laclede Group, Inc.


St.
      Louis, Missouri




We
      have
      audited the internal control over financial reporting of The Laclede Group,
      Inc.
      and its subsidiaries (the “Company”) as of September 30, 2007, based
      on criteria established in *Internal Control — Integrated Framework*
      issued by the Committee of Sponsoring Organizations of the Treadway Commission.
      The Company’s management is responsible for maintaining effective internal
      control over financial reporting and for its assessment of the effectiveness
      of
      internal control over financial reporting, included in the accompanying
      Management Report on Internal Control over Financial Reporting. Our
      responsibility is to express an opinion on the Company’s internal control over
      financial reporting based on our audit.




We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether effective
      control over financial reporting was maintained in all material respects. Our
      audit included obtaining an understanding of internal control over financial
      reporting, assessing the risk that a material weakness exists, testing and
      evaluating the design and operating effectiveness of internal control based
      on
      the assessed risk, and performing such other procedures as we considered
      necessary in the circumstances. We believe that our audit provides a reasonable
      basis for our opinion.




A
      company’s internal control over financial reporting is a process designed by, or
      under the supervision of, the company’s principal executive and principal
      financial officers, or persons performing similar functions, and effected by
      the
      company’s board of directors, management, and other personnel to provide
      reasonable assurance regarding the reliability of financial reporting and the
      preparation of financial statements for external purposes in accordance with
      generally accepted accounting principles. A company’s internal control over
      financial reporting includes those policies and procedures that (1) pertain
      to
      the maintenance of records that, in reasonable detail, accurately and fairly
      reflect the transactions and dispositions of the assets of the company; (2)
      provide reasonable assurance that transactions are recorded as necessary to
      permit preparation of financial statements in accordance with generally accepted
      accounting principles and that receipts and expenditures of the company are
      being made only in accordance with authorizations of management and directors
      of
      the company; and (3) provide reasonable assurance regarding prevention or timely
      detection of unauthorized acquisition, use, or disposition of the company’s
      assets that could have a material effect on the financial
      statements.




Because
      of the inherent limitations of internal control over financial reporting,
      including the possibility of collusion or improper management override of
      controls, material misstatements due to error or fraud may not be prevented
      or
      detected on a timely basis. Also, projections of any evaluation of the
      effectiveness of the internal control over financial reporting to future periods
      are subject to the risk that the controls may become inadequate because of
      changes in conditions, or that the degree of compliance with the policies or
      procedures may deteriorate.




In
      our
      opinion, the Company maintained, in all material respects, effective internal
      control over financial reporting as of September 30, 2007, based on
      the criteria established in *Internal Control — Integrated Framework*
      issued by the Committee of Sponsoring Organizations of the Treadway
      Commission.




We
      have
      also audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the consolidated financial statements and
      financial statement schedule as of and for the year ended
      September 30, 2007 of the Company and our report dated
      November 28, 2007 expressed an unqualified opinion on those financial
      statements and financial statement schedule and included an explanatory
      paragraph regarding the Company’s adoption of Statement of Financial Accounting
      Standards No. 158, *Employers’ Accounting for Defined Benefit Pension
      and Other Postretirement Benefit Plans — an amendment of FASB Statements
      No. 87, 88, 106 and 132 (R)*, effective
      September 30, 2007.






/s/
      DELOITTE & TOUCHE LLP


St.
      Louis, Missouri


November
      28, 2007


36


**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




To
      the
      Board of Directors and Shareholders of


The
      Laclede Group, Inc.


St.
      Louis, Missouri




We
      have
      audited the accompanying consolidated balance sheets and statements of
      consolidated capitalization of The Laclede Group, Inc. and its subsidiaries
      (the
“Company”) as of September 30, 2007 and 2006, and the related
      consolidated statements of income, common shareholders’ equity, comprehensive
      income, and cash flows for each of the three years in the period ended
      September 30, 2007. Our audits also included the financial statement
      schedule listed in the Index at Part IV, Item 15(a) 2. These financial
      statements and financial statement schedule are the responsibility of the
      Company’s management. Our responsibility is to express an opinion on the
      consolidated financial statements and financial statement schedule based on
      our
      audits.




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




In
      our
      opinion, such consolidated financial statements present fairly, in all material
      respects, the financial position of The Laclede Group, Inc. and its subsidiaries
      as of September 30, 2007 and 2006, and the results of their operations
      and their cash flows for each of the three years in the period ended
      September 30, 2007, in conformity with accounting principles generally
      accepted in the United States of America. Also, in our opinion, such financial
      statement schedule, when considered in relation to the basic consolidated
      financial statements taken as a whole, presents fairly, in all material
      respects, the information set forth therein.




As
      discussed in Note 2 to the consolidated financial statements, the Company
      adopted the provisions of Statement of Financial Accounting Standards No. 158,
      *Employers’ Accounting for Defined Benefit Pension and Other Postretirement
      Benefit Plans — an amendment of FASB Statements No. 87, 88, 106 and
      132 (R),*effective September 30, 2007.




We
      have
      also audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the Company’s internal control over financial
      reporting as of September 30, 2007, based on the criteria established
      in *Internal Control—Integrated Framework* issued by the Committee of
      Sponsoring Organizations of the Treadway Commission and our report dated
      November 28, 2007 expressed an unqualified opinion on the Company’s
      internal control over financial reporting.




/s/
      DELOITTE & TOUCHE LLP


St.
      Louis, Missouri


November
      28, 2007


37





**Item
      8. Financial Statements and Supplementary Data**





THE
      LACLEDE GROUP, INC.


STATEMENTS
      OF CONSOLIDATED INCOME





(Thousands,
      Except Per Share
      Amounts)


Years
                Ended September 30
            
            
            
            **2007**
            
            
            
            **2006**
            
            
            
            **2005**Operating
                Revenues:RegulatedGas
                distribution
            
            
            
            $
            1,131,554
            
            
            
            $
            1,141,011
            
            
            
            $
            978,195Non-RegulatedServices
            
            
            
            
            165,733
            
            
            
            
            162,523
            
            
            
            
            141,478Gas
                marketing
            
            
            
            
            718,704
            
            
            
            
            689,572
            
            
            
            
            469,559Other
            
            
            
            
            5,603
            
            
            
            
            4,445
            
            
            
            
            7,800Total
                Operating Revenues
            
            
            
            
            2,021,594
            
            
            
            
            1,997,551
            
            
            
            
            1,597,032Operating
                Expenses:RegulatedNatural
                and propane gas
            
            
            
            
            797,924
            
            
            
            
            821,721
            
            
            
            
            676,931Other
                operation expenses
            
            
            
            
            131,798
            
            
            
            
            128,180
            
            
            
            
            125,364Maintenance
            
            
            
            
            24,306
            
            
            
            
            21,198
            
            
            
            
            19,226Depreciation
                and amortization
            
            
            
            
            34,080
            
            
            
            
            30,904
            
            
            
            
            23,036Taxes,
                other than income taxes
            
            
            
            
            68,361
            
            
            
            
            71,038
            
            
            
            
            62,859Total
                Regulated Operating Expenses
            
            
            
            
            1,056,469
            
            
            
            
            1,073,041
            
            
            
            
            907,416Non-RegulatedServices
            
            
            
            
            156,658
            
            
            
            
            155,133
            
            
            
            
            129,636Gas
                marketing
            
            
            
            
            698,962
            
            
            
            
            662,391
            
            
            
            
            462,348Other
            
            
            
            
            4,239
            
            
            
            
            3,711
            
            
            
            
            7,803Total
                Operating Expenses
            
            
            
            
            1,916,328
            
            
            
            
            1,894,276
            
            
            
            
            1,507,203Operating
                Income
            
            
            
            
            105,266
            
            
            
            
            103,275
            
            
            
            
            89,829Other
                Income and (Income Deductions) – Net
            
            
            
            
            6,812
            
            
            
            
            5,508
            
            
            
            
            1,606Interest
                Charges:Interest
                on long-term debt
            
            
            
            
            22,502
            
            
            
            
            22,329
            
            
            
            
            22,835Interest
                on long-term debt to unconsolidated affiliate trust
            
            
            
            
            3,573
            
            
            
            
            3,573
            
            
            
            
            3,573Other
                interest charges
            
            
            
            
            11,154
            
            
            
            
            10,277
            
            
            
            
            4,141Total
                Interest Charges
            
            
            
            
            37,229
            
            
            
            
            36,179
            
            
            
            
            30,549Income
                Before Income Taxes and Dividends onRedeemable
                Preferred Stock – Laclede Gas
            
            
            
            
            74,849
            
            
            
            
            72,604
            
            
            
            
            60,886Income
                Tax Expense
            
            
            
            
            25,035
            
            
            
            
            23,567
            
            
            
            
            20,761Dividends
                on Redeemable Preferred Stock – Laclede Gas
            
            
            
            
            43
            
            
            
            
            48
            
            
            
            
            55Net
                Income
            
            
            
            $
            49,771
            
            
            
            $
            48,989
            
            
            
            $
            40,070Average
                Number of Common Shares Outstanding
            
            
            
            
            21,455
            
            
            
            
            21,247
            
            
            
            
            21,080Basic
                Earnings Per Share of Common Stock
            
            
            
            $
            2.32
            
            
            
            $
            2.31
            
            
            
            $
            1.90Diluted
                Earnings Per Share of Common Stock
            
            
            
            $
            2.31
            
            
            
            $
            2.30
            
            
            
            $
            1.90








See
      the
      accompanying Notes to Consolidated Financial Statements.


38


THE
      LACLEDE GROUP, INC.


STATEMENTS
      OF CONSOLIDATED COMPREHENSIVE INCOME








(Thousands)


Years
                Ended September 30
            
            
            
            **2007**
            
            
            
            **2006**
            
            
            
            **2005**Net
                Income
            
            
            
            $
            49,771
            
            
            
            $
            48,989
            
            
            
            $
            40,070Other
                Comprehensive Income (Loss), Before Tax:Net
                gains (losses) on cash flow hedging derivativeinstruments:Net
                hedging gain (loss) arising during the period
            
            
            
            
            7,976
            
            
            
            
            16,449
            
            
            
            
            (11,760
            )Reclassification
                adjustment for (gains) losses included in net income
            
            
            
            
            (9,451
            )
            
            
            
            1,582
            
            
            
            
            3,059Net
                unrealized gains (losses) on cash flowhedging
                derivative instruments
            
            
            
            
            (1,475
            )
            
            
            
            18,031
            
            
            
            
            (8,701
            )Minimum
                pension liability adjustment
            
            
            
            
            377
            
            
            
            
            479
            
            
            
            
            (1,233
            )Other
                Comprehensive Income (Loss), Before Tax
            
            
            
            
            (1,098
            )
            
            
            
            18,510
            
            
            
            
            (9,934
            )Income
                Tax Expense (Benefit) Related to Itemsof
                Other Comprehensive Income (Loss)
            
            
            
            
            (424
            )
            
            
            
            7,152
            
            
            
            
            (3,838
            )Other
                Comprehensive Income (Loss), Net of Tax
            
            
            
            
            (674
            )
            
            
            
            11,358
            
            
            
            
            (6,096
            )Comprehensive
                Income
            
            
            
            $
            49,097
            
            
            
            $
            60,347
            
            
            
            $
            33,974








See
      the
      accompanying Notes to Consolidated Financial Statements.


39





THE
      LACLEDE GROUP, INC.


CONSOLIDATED
      BALANCE SHEETS











(Thousands)


September
                30
            
            
            
            **2007**
            
            
            
            **2006**ASSETSUtility
                Plant
            
            
            
            $
            1,187,828
            
            
            
            $
            1,149,104Less
                – Accumulated depreciation and amortization
            
            
            
            
            394,034
            
            
            
            
            385,277Net
                Utility Plant
            
            
            
            
            793,794
            
            
            
            
            763,827Goodwill
            
            
            
            
            33,595
            
            
            
            
            33,595Non-utility
                property (net of accumulated depreciation andamortization,
                2007, $17,598; 2006, $15,780)
            
            
            
            
            11,270
            
            
            
            
            13,362Other
                investments
            
            
            
            
            45,436
            
            
            
            
            42,731Other
                Property and Investments
            
            
            
            
            56,706
            
            
            
            
            56,093Current
                Assets:Cash
                and cash equivalents
            
            
            
            
            52,746
            
            
            
            
            50,778Accounts
                receivable:Gas
                customers – billed and unbilled
            
            
            
            
            102,224
            
            
            
            
            91,519Other
            
            
            
            
            86,713
            
            
            
            
            84,728Allowances
                for doubtful accounts
            
            
            
            
            (11,268
            )
            
            
            
            (13,105
            )Inventories:Natural
                gas stored underground at LIFO cost
            
            
            
            
            138,256
            
            
            
            
            137,476Propane
                gas at FIFO cost
            
            
            
            
            19,950
            
            
            
            
            19,385Materials,
                supplies and merchandise at average cost
            
            
            
            
            4,990
            
            
            
            
            5,973Derivative
                instrument assets
            
            
            
            
            31,057
            
            
            
            
            19,117Unamortized
                purchased gas adjustments
            
            
            
            
            12,813
            
            
            
            
            44,381Prepayments
                and other
            
            
            
            
            29,854
            
            
            
            
            19,594Total
                Current Assets
            
            
            
            
            467,335
            
            
            
            
            459,846Deferred
                Charges:Prepaid
                pension cost
            
            
            
            
            —
            
            
            
            
            65,794Regulatory
                assets
            
            
            
            
            285,054
            
            
            
            
            185,644Other
            
            
            
            
            4,669
            
            
            
            
            5,361Total
                Deferred Charges
            
            
            
            
            289,723
            
            
            
            
            256,799Total
                Assets
            
            
            
            $
            1,641,153
            
            
            
            $
            1,570,160














40


THE
      LACLEDE GROUP, INC.


CONSOLIDATED
      BALANCE SHEETS (Continued)














(Thousands)


September
                30
            
            
            
            **2007**
            
            
            
            **2006**CAPITALIZATION
                AND LIABILITIESCapitalization:Common
                stock equity
            
            
            
            $
            428,325
            
            
            
            $
            402,637Redeemable
                preferred stock (less current sinking fund requirements) – Laclede
                Gas
            
            
            
            
            627
            
            
            
            
            787Long-term
                debt to unconsolidated affiliate trust
            
            
            
            
            46,400
            
            
            
            
            46,400Long-term
                debt (less current portion) – Laclede Gas
            
            
            
            
            309,122
            
            
            
            
            349,041Total
                Capitalization
            
            
            
            
            784,474
            
            
            
            
            798,865Current
                Liabilities:Notes
                payable
            
            
            
            
            211,400
            
            
            
            
            207,300Accounts
                payable
            
            
            
            
            106,829
            
            
            
            
            103,274Advance
                customer billings
            
            
            
            
            25,440
            
            
            
            
            31,443Current
                portion of long-term debt and preferred stock
            
            
            
            
            40,160
            
            
            
            
            159Wages
                and compensation accrued
            
            
            
            
            15,482
            
            
            
            
            14,885Dividends
                payable
            
            
            
            
            7,970
            
            
            
            
            7,662Customer
                deposits
            
            
            
            
            15,899
            
            
            
            
            16,833Interest
                accrued
            
            
            
            
            11,103
            
            
            
            
            10,464Taxes
                accrued
            
            
            
            
            20,183
            
            
            
            
            15,026Deferred
                income taxes current
            
            
            
            
            2,644
            
            
            
            
            7,049Other
            
            
            
            
            16,555
            
            
            
            
            16,787Total
                Current Liabilities
            
            
            
            
            473,665
            
            
            
            
            430,882Deferred
                Credits and Other Liabilities:Deferred
                income taxes
            
            
            
            
            225,068
            
            
            
            
            232,148Unamortized
                investment tax credits
            
            
            
            
            4,200
            
            
            
            
            4,437Pension
                and postretirement benefit costs
            
            
            
            
            63,678
            
            
            
            
            20,302Asset
                retirement obligations
            
            
            
            
            26,125
            
            
            
            
            26,018Regulatory
                liabilities
            
            
            
            
            39,589
            
            
            
            
            33,182Other
            
            
            
            
            24,354
            
            
            
            
            24,326Total
                Deferred Credits and Other Liabilities
            
            
            
            
            383,014
            
            
            
            
            340,413Commitments
                and Contingencies (Note 14)Total
                Capitalization and Liabilities
            
            
            
            $
            1,641,153
            
            
            
            $
            1,570,160




















See
      the
      accompanying Notes to Consolidated Financial Statements.




41


THE
      LACLEDE GROUP, INC.


STATEMENTS
      OF CONSOLIDATED CAPITALIZATION














(Thousands,
      Except for Shares and Per Share Amounts)


September
                30
            
            
            
            **2007**
            
            
            
            **2006**Common
                Stock Equity:Common
                stock, par value $1 per share:Authorized
                – 2007 and 2006, 70,000,000 sharesIssued
                – 2007, 21,645,637 shares; and2006,
                21,361,639 shares
            
            
            
            $
            21,646
            
            
            
            $
            21,362Paid-in
                capital
            
            
            
            
            136,061
            
            
            
            
            127,125Retained
                earnings
            
            
            
            
            268,761
            
            
            
            
            250,495Accumulated
                other comprehensive income
            
            
            
            
            1,857
            
            
            
            
            3,655Total
                Common Stock Equity
            
            
            
            
            428,325
            
            
            
            
            402,637Redeemable
                Preferred Stock – Laclede Gas,par
                value $25 per share (1,480,000 shares authorized)Issued
                and outstanding:5%
                Series B – 2007, 25,600 shares; and2006,
                31,951 shares
            
            
            
            
            480
            
            
            
            
            6404.56%
                Series C – 2007 and 2006, 5,894 shares
            
            
            
            
            147
            
            
            
            
            147Total
                Redeemable Preferred Stock
            
            
            
            
            627
            
            
            
            
            787Long-Term
                Debt to Unconsolidated Affiliate Trust
            
            
            
            
            46,400
            
            
            
            
            46,400Long-Term
                Debt – Laclede Gas:First
                mortgage bonds:7-1/2%
                Series, due November 1, 2007
            
            
            
            
            —
            
            
            
            
            40,0006-1/2%
                Series, due November 15, 2010
            
            
            
            
            25,000
            
            
            
            
            25,0006-1/2%
                Series, due October 15, 2012
            
            
            
            
            25,000
            
            
            
            
            25,0005-1/2%
                Series, due May 1, 2019
            
            
            
            
            50,000
            
            
            
            
            50,0007%
                Series, due June 1, 2029
            
            
            
            
            25,000
            
            
            
            
            25,0007.90%
                Series, due September 15, 2030
            
            
            
            
            30,000
            
            
            
            
            30,0006%
                Series, due May 1, 2034
            
            
            
            
            100,000
            
            
            
            
            100,0006.15%
                Series, due June 1, 2036
            
            
            
            
            55,000
            
            
            
            
            55,000Total
            
            
            
            
            310,000
            
            
            
            
            350,000Unamortized
                discount, net of premium,on
                long-term debt
            
            
            
            
            (878
            )
            
            
            
            (959
            )Total
                Long-Term Debt – Laclede Gas
            
            
            
            
            309,122
            
            
            
            
            349,041Total
            
            
            
            $
            784,474
            
            
            
            $
            798,865














Long-term
      debt and preferred stock dollar amounts are exclusive of current
      portion.





See
      the
      accompanying Notes to Consolidated Financial Statements.


42


THE
      LACLEDE GROUP, INC.


CONSOLIDATED
      STATEMENTS OF COMMON SHAREHOLDERS’ EQUITY












**Common
                Stock Issued**
            
            **Paid-in**
            
            **Retained**
            
            **Accum.**
              **Other**
              **Comp.**(Thousands,
                Except for Shares and Per Share Amounts)
            
            **Shares**
            
            **Amount**
            
            **Capital**
            
            **Earnings**
            
            **Income**
            
            **Total**BALANCE
                OCTOBER 1, 2004
            
            20,981,165
            
            $
            20,981
            
            $
            116,058
            
            $
            220,483
            
            $
            (1,607
            )
            $
            355,915Net
                income
            
            —
            
            
            —
            
            
            —
            
            
            40,070
            
            
            —
            
            
            40,070Common
                stock offering
            
            —
            
            
            —
            
            
            (96
            )
            
            —
            
            
            —
            
            
            (96
            )Dividend
                reinvestment plan
            
            131,144
            
            
            131
            
            
            3,839
            
            
            —
            
            
            —
            
            
            3,970Stock-based
                compensation costs
            
            —
            
            
            —
            
            
            13
            
            
            —
            
            
            —
            
            
            13Stock
                options exercised
            
            59,700
            
            
            60
            
            
            1,428
            
            
            —
            
            
            —
            
            
            1,488Tax
                benefit – stock compensation
            
            —
            
            
            —
            
            
            263
            
            
            —
            
            
            —
            
            
            263Dividends
                declared:Common
                stock ($1.375 per share)
            
            —
            
            
            —
            
            
            —
            
            
            (29,002
            )
            
            —
            
            
            (29,002
            )Other
                comprehensive income (loss)
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (6,096
            )
            
            (6,096
            )BALANCE
                SEPTEMBER 30, 2005
            
            21,172,009
            
            $
            21,172
            
            $
            121,505
            
            $
            231,551
            
            $
            (7,703
            )
            $
            366,525Net
                income
            
            —
            
            
            —
            
            
            —
            
            
            48,989
            
            
            —
            
            
            48,989Dividend
                reinvestment plan
            
            114,255
            
            
            114
            
            
            3,604
            
            
            —
            
            
            —
            
            
            3,718Stock-based
                compensation costs
            
            —
            
            
            —
            
            
            1,544
            
            
            —
            
            
            —
            
            
            1,544Stock
                options exercised
            
            24,375
            
            
            25
            
            
            591
            
            
            —
            
            
            —
            
            
            616Performance-contingent
                restricted stock award
            
            51,000
            
            
            51
            
            
            (51
            )
            
            —
            
            
            —
            
            
            —Non-employee
                directors’ restricted stock award
            
            —
            
            
            —
            
            
            (145
            )
            
            —
            
            
            —
            
            
            (145
            )Tax
                benefit – stock compensation
            
            —
            
            
            —
            
            
            77
            
            
            —
            
            
            —
            
            
            77Dividends
                declared:Common
                stock ($1.41 per share)
            
            —
            
            
            —
            
            
            —
            
            
            (30,045
            )
            
            —
            
            
            (30,045
            )Other
                comprehensive income (loss)
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            11,358
            
            
            11,358BALANCE
                SEPTEMBER 30, 2006
            
            21,361,639
            
            $
            21,362
            
            $
            127,125
            
            $
            250,495
            
            $
            3,655
            
            $
            402,637Net
                income
            
            —
            
            
            —
            
            
            —
            
            
            49,771
            
            
            —
            
            
            49,771Dividend
                reinvestment plan
            
            116,973
            
            
            117
            
            
            3,690
            
            
            —
            
            
            —
            
            
            3,807Stock-based
                compensation costs
            
            —
            
            
            —
            
            
            2,388
            
            
            —
            
            
            —
            
            
            2,388Stock
                options exercised
            
            108,025
            
            
            108
            
            
            2,946
            
            
            —
            
            
            —
            
            
            3,054Performance-contingent
                restricted stock award
            
            59,000
            
            
            59
            
            
            (59
            )
            
            —
            
            
            —
            
            
            —Non-employee
                directors’ restricted stock award
            
            —
            
            
            —
            
            
            (292
            )
            
            —
            
            
            —
            
            
            (292
            )Tax
                benefit – stock compensation
            
            —
            
            
            —
            
            
            263
            
            
            —
            
            
            —
            
            
            263Dividends
                declared:Common
                stock ($1.46 per share)
            
            —
            
            
            —
            
            
            —
            
            
            (31,505
            )
            
            —
            
            
            (31,505
            )Other
                comprehensive income (loss)
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (674
            )
            
            (674
            )Adoption
                of SFAS No. 158, net of tax
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (1,124
            )
            
            (1,124
            )BALANCE
                SEPTEMBER 30, 2007
            
            21,645,637
            
            $
            21,646
            
            $
            136,061
            
            $
            268,761
            
            $
            1,857
            
            $
            428,325

















See
      the
      accompanying Notes to Consolidated Financial Statements.


43


THE
      LACLEDE GROUP, INC.


STATEMENTS
      OF CONSOLIDATED CASH FLOWS










(Thousands)Years
                Ended September 30
            
            **2007**
            
            **2006**
            
            **2005**Operating
                Activities:Net
                Income
            
            $
            49,771
            
            $
            48,989
            
            $
            40,070Adjustments
                to reconcile net income tonet
                cash provided by (used in) operating activities:Depreciation,
                amortization and accretion
            
            
            38,308
            
            
            34,943
            
            
            26,645Deferred
                income taxes and investment tax credits
            
            
            (16,144
            )
            
            30,822
            
            
            424Other
                - net
            
            
            2,118
            
            
            1,773
            
            
            709Changes
                in assets and liabilities:Accounts
                receivable – net
            
            
            (14,527
            )
            
            (6,498
            )
            
            (38,961
            )Unamortized
                purchased gas adjustments
            
            
            31,568
            
            
            (13,120
            )
            
            (11,643
            )Deferred
                purchased gas costs
            
            
            13,381
            
            
            (114,686
            )
            
            44,575Accounts
                payable
            
            
            3,555
            
            
            (35,130
            )
            
            70,038Advance
                customer billings – net
            
            
            (6,003
            )
            
            755
            
            
            7,068Taxes
                accrued
            
            
            5,157
            
            
            (8,524
            )
            
            6,825Natural
                gas stored underground
            
            
            (780
            )
            
            22,167
            
            
            (27,870
            )Other
                assets and liabilities
            
            
            (25,113
            )
            
            30,243
            
            
            (14,843
            )Net
                cash provided by (used in) operating activities
            
            
            81,291
            
            
            (8,266
            )
            
            103,037Investing
                Activities:Capital
                expenditures
            
            
            (58,870
            )
            
            (63,416
            )
            
            (60,203
            )Non-regulated
                services acquisition
            
            
            —
            
            
            (5,700
            )
            
            —Other
                investments
            
            
            153
            
            
            (3,312
            )
            
            (1,190
            )Net
                cash used in investing activities
            
            
            (58,717
            )
            
            (72,428
            )
            
            (61,393
            )Financing
                Activities:Issuance
                of first mortgage bonds
            
            
            —
            
            
            55,000
            
            
            —Maturity/redemption
                of first mortgage bonds
            
            
            —
            
            
            (40,000
            )
            
            (25,000
            )Issuance
                (repayment) of short-term debt - net
            
            
            4,100
            
            
            136,695
            
            
            (775
            )Issuance
                of common stock
            
            
            6,569
            
            
            4,188
            
            
            5,375Dividends
                paid
            
            
            (31,193
            )
            
            (29,760
            )
            
            (28,841
            )Preferred
                stock reacquired – Laclede Gas
            
            
            (159
            )
            
            (63
            )
            
            (244
            )Other
            
            
            77
            
            
            (601
            )
            
            —Net
                cash (used in) provided by financing activities
            
            
            (20,606
            )
            
            125,459
            
            
            (49,485
            )Net
                Increase (Decrease) in Cash and Cash Equivalents
            
            
            1,968
            
            
            44,765
            
            
            (7,841
            )Cash
                and Cash Equivalents at Beginning of Year
            
            
            50,778
            
            
            6,013
            
            
            13,854Cash
                and Cash Equivalents at End of Year
            
            $
            52,746
            
            $
            50,778
            
            $
            6,013Supplemental
                Disclosure of Cash Paid During the Year for:Interest
            
            $
            35,241
            
            $
            35,751
            
            $
            30,313Income
                taxes
            
            
            26,191
            
            
            9,924
            
            
            12,167














See
      the
      accompanying Notes to Consolidated Financial Statements.


44


**THE
      LACLEDE GROUP, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**1.**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING
                POLICIES**





**BASIS
      OF CONSOLIDATION -** The consolidated financial statements include the
      accounts of The Laclede Group, Inc. (Laclede Group or the Company) and its
      subsidiary companies. All subsidiaries are wholly owned. Laclede Gas Company
      (Laclede Gas or the Utility) and other subsidiaries of Laclede Group may engage
      in related party transactions during the ordinary course of business. All
      significant intercompany balances have been eliminated from the consolidated
      financial statements of Laclede Group except that certain intercompany
      transactions with Laclede Gas are not eliminated in accordance with the
      provisions of Statement of Financial Accounting Standards (SFAS) No. 71,
“Accounting for the Effects of Certain Types of Regulation.” Those types of
      transactions include sales of natural gas from Laclede Gas to Laclede Energy
      Resources, Inc. (LER), services performed by SM&P Utility Resources, Inc.
      (SM&P) to locate and mark underground facilities for Laclede Gas, sales of
      natural gas from LER to Laclede Gas, and sales of propane and transportation
      services provided by Laclede Pipeline Company to Laclede Gas. These revenues
      are
      shown on the Intersegment revenues lines in the table included in Note 13 under
      Regulated Gas Distribution, Non-Regulated Services, Non-Regulated Gas Marketing,
      and Non-Regulated Other columns, respectively.


**INVESTMENT
      IN UNCONSOLIDATED AFFILIATE TRUST -** Laclede Group formed a wholly-owned
      trust, Laclede Capital Trust I (Trust), for the sole purpose of issuing
      preferred securities and lending the gross proceeds to its parent, Laclede
      Group. The sole assets of the Trust are debentures of Laclede Group. Laclede
      Group invested $1.4 million in common securities of the Trust, and the Trust
      issued $45 million of 7.70% Trust Preferred Securities with a liquidation value
      of $25 per share due December 1, 2032. The Trust Preferred Securities
      can be redeemed on or after December 16, 2007. All of the proceeds
      from the sale of the Trust Preferred Securities, along with the Trust common
      securities, were invested by the Trust in debentures of Laclede Group, totaling
      $46.4 million, with the same economic terms as the Trust Preferred Securities.
      The Consolidated Balance Sheets include Investments in Unconsolidated
      Subsidiaries of $1.4 million, representing Laclede Group’s common securities
      investment in the Trust, and reflect Laclede Group’s obligations related to the
      debentures totaling $46.4 million. The common securities investment is included
      on the Other Investments line on the Consolidated Balance Sheets.


**NATURE
      OF OPERATIONS -** Laclede Group is a public utility holding company under
      the Public Utility Holding Company Act of 2005. All subsidiaries are wholly
      owned by Laclede Group. The Regulated Gas Distribution segment includes Laclede
      Gas, Laclede Group’s largest subsidiary and core business unit. Laclede Gas is a
      public utility engaged in the retail distribution and sale of natural gas.
      Laclede Gas serves an area in eastern Missouri, with a population of
      approximately 2.1 million, including the City of St. Louis and parts of ten
      other counties in eastern Missouri. As an adjunct to its gas distribution
      business, Laclede Gas operates underground natural gas storage fields. Laclede
      Group’s Non-Regulated Services segment includes SM&P, one of the nation’s
      major underground locating and marking service businesses. SM&P is
      headquartered in Carmel, Indiana and operates in ten Midwestern and Southwestern
      states. The Non-Regulated Gas Marketing segment includes LER, a subsidiary
      engaged in the non-regulated marketing of natural gas and related activities.
      The activities of other subsidiaries are described in Note 13, Information
      by
      Operating Segment, and are included in Non-Regulated Other.


**USE
      OF ESTIMATES -** The preparation of financial statements in conformity
      with accounting principles generally accepted in the United States of America
      requires management to make estimates and assumptions that affect the reported
      amounts of assets and liabilities and disclosure of contingent assets and
      liabilities at the date of the financial statements and the reported amounts
      of
      revenues and expenses during the reporting periods. Actual results could differ
      from those estimates.


**SYSTEM
      OF ACCOUNTS -** The accounts of Laclede Gas are maintained in accordance
      with the uniform system of accounts prescribed by the Missouri Public Service
      Commission (MoPSC or Commission), which system substantially conforms to that
      prescribed by the Federal Energy Regulatory Commission (FERC). The accounts
      of
      Laclede Pipeline Company are maintained in accordance with the Uniform System
      of
      Accounts prescribed by the FERC.


**UTILITY
      PLANT, DEPRECIATION AND AMORTIZATION -** Utility plant is stated at
      original cost. The cost of additions to utility plant includes contracted work,
      direct labor and materials, allocable overheads, and an allowance for funds
      used
      during construction. The costs of units of property retired, replaced, or
      renewed are removed from utility plant and are charged to accumulated
      depreciation. Maintenance and repairs of property and replacement and renewal
      of
      items determined to be less than units of property are charged to maintenance
      expenses.


Utility
      plant is depreciated on a straight-line basis at rates based on estimated
      service lives of the various classes of property. Annual depreciation and
      amortization in 2007, 2006 and 2005 averaged 3.1%, 3.0% and 2.5%, respectively,
      of the original cost of depreciable and amortizable property.


Effective
      December 1, 2001, the MoPSC ordered the cost of removing retired
      utility plant to be recovered as an expense when incurred rather than being
      included in depreciation rates. Prior to December 1, 2001, the
      Utility’s removal costs, net of salvage, were charged to accumulated
      depreciation. As ordered by the MoPSC, Laclede Gas instituted lower depreciation
      rates effective December 1, 2001 and began expensing all removal
      costs, net of salvage, as incurred. These costs were included in the Other
      Operation Expenses line on the income statement. Effective
      July 1, 2002, the MoPSC ordered the negative amortization on a
      straight-line basis of a portion of the Utility’s depreciation reserve,
      amounting to


45


$3.4
      million annually. In January 2005, the Commission issued an Order in the
      Utility’s 1999 rate case relative to the calculation of its depreciation rates
      with regard to cost of removal. In accordance with the provisions of the Order,
      Laclede Gas increased certain of its depreciation rates effective
      February 1, 2005, resulting in higher annual depreciation expense
      totaling $2.3 million. That same Order also required that operating expenses
      related to actual removal costs, which the Utility began expensing as incurred
      in fiscal year 2002, be reduced by $2.3 million annually. As such, the Order
      had
      no effect on income or the recovery of depreciation expenses between
      February 2005 and the subsequent settlement of the Utility’s 2005 rate
      proceeding that fully implemented Laclede Gas’ depreciation method that was
      confirmed by the Commission in January 2005.


Pursuant
      to the terms of the 2005 rate case settlement, higher depreciation rates became
      effective January 1, 2006, reflecting, in part, an accrual for future
      removal costs, including costs related to interim retirements. Concurrent with
      implementation of new depreciation rates on January 1, 2006, Laclede
      Gas ceased expensing all removal costs, net of salvage, as incurred and
      discontinued an annual $3.4 million negative amortization of a portion of the
      Utility’s depreciation reserve, as previously ordered by the MoPSC. Consistent
      with SFAS No. 71, the Utility records accruals for asset removal costs that
      are
      provided for through depreciation expense with credits to Regulatory
      Liabilities. When Laclede Gas retires depreciable utility plant and equipment,
      it charges the associated original costs to Accumulated Depreciation and
      Amortization, and any related removal costs incurred are charged to Regulatory
      Liabilities. The regulatory liability for accrued asset removal costs represents
      amounts recovered through rates in excess of actual costs incurred. In the
      rate
      setting process, the regulatory liability is deducted from the rate base upon
      which the Utility has the opportunity to earn its allowed rate of
      return.


**ASSET
      RETIREMENT OBLIGATIONS –**  In accordance with SFAS No. 143,
“Accounting for Asset Retirement Obligations,” and FIN 47, “Accounting for
      Conditional Asset Retirement Obligations,” Laclede Group records legal
      obligations associated with the retirement of long-lived assets in the period
      in
      which the obligations are incurred, if sufficient information exists to
      reasonably estimate the fair value of the obligations. Obligations are recorded
      as both a cost of the related long-lived asset and as a corresponding liability.
      Subsequently, the asset retirement costs are depreciated over the life of the
      asset and the asset retirement obligations are accreted to the expected
      settlement amounts. The Company has recorded asset retirement obligations
      associated with certain safety requirements to purge and seal gas distribution
      mains upon retirement, the plugging and abandonment of storage wells and other
      storage facilities, specific service line obligations, and certain removal
      and
      disposal obligations related to components of Laclede Gas’ distribution system
      and general plant. Asset retirement obligations recorded by Laclede Group’s
      non-regulated subsidiaries are not material. As authorized by the MoPSC, Laclede
      Gas accrues future removal costs associated with its property, plant and
      equipment through its depreciation rates, even if a legal obligation, as defined
      by SFAS No. 143 and FIN 47, does not exist. The difference between removal
      costs
      recognized in depreciation rates and the accretion expense and depreciation
      expense recognizable under SFAS No. 143 and FIN 47 is a timing difference
      between recovery of these costs in rates and their recognition for financial
      reporting purposes. Accordingly, consistent with SFAS No. 71, these differences
      are deferred as regulatory liabilities.


Laclede
      Group first adopted the provisions of FIN 47 on September 30, 2006.
      Upon adoption, the Utility recorded Asset Retirement Obligations of $26.0
      million and increased the carrying value of the related assets by $3.3 million
      (reflecting an increase in gross plant of $6.8 million reduced by accumulated
      depreciation totaling $3.5 million). The remaining $22.7 million represents
      the
      cumulative effect of adoption and was recorded as a reduction to Regulatory
      Liabilities pursuant to SFAS No. 71. Had FIN 47 been applied to prior periods,
      the asset retirement obligations as of September 30, 2005 would have
      been $24.4 million.


The
      following table presents a reconciliation of the beginning and ending balances
      of Asset Retirement Obligations reported in the Consolidated Balance
      Sheets:





**Thousands**Balance
                at September 30, 2006
            
            $
            26,018Liabilities
                incurred during the period
            
            
            603Liabilities
                settled during the period
            
            
            (2,372
            )Accretion
            
            
            1,506Revisions
                in estimated cash flows
            
            
            370Balance
                at September 30, 2007
            
            $
            26,125





**REGULATED
      OPERATIONS -** Laclede Gas accounts for its regulated operations in
      accordance with SFAS No. 71. This Statement sets forth the application of
      accounting principles generally accepted in the United States of America for
      those companies whose rates are established by or are subject to approval by
      an
      independent third-party regulator. The provisions of SFAS No. 71 require, among
      other things, that financial statements of a regulated enterprise reflect the
      actions of regulators, where appropriate. These actions may result in the
      recognition of revenues and expenses in time periods that are different than
      non-regulated enterprises. When this occurs, costs are deferred as assets in
      the
      balance sheet (regulatory assets) and recorded as expenses when those amounts
      are reflected in rates. Also, regulators can impose liabilities upon a regulated
      company for amounts previously collected from customers and for recovery of
      costs that are expected to be incurred in the future (regulatory
      liabilities).


46


The
      following regulatory assets and regulatory liabilities were reflected in the
      Consolidated Balance Sheets as of September 30:





(Thousands)
            
            **2007**
            
            **2006**Regulatory
                Assets:Future
                income taxes due from customers
            
            $
            85,476
            
            $
            79,061Pension
                and postretirement benefit costs
            
            
            151,163
            
            
            46,319Unamortized
                purchased gas adjustments
            
            
            12,813
            
            
            44,381Purchased
                gas costs
            
            
            29,457
            
            
            42,838Compensated
                absences
            
            
            7,104
            
            
            6,944Cold
                weather rule
            
            
            6,952
            
            
            4,700Other
            
            
            4,902
            
            
            5,782Total
                Regulatory Assets
            
            $
            297,867
            
            $
            230,025Regulatory
                Liabilities:Unamortized
                investment tax credits
            
            $
            4,200
            
            $
            4,437Accrued
                cost of removal
            
            
            33,238
            
            
            28,928Other
            
            
            6,351
            
            
            4,254Total
                Regulatory Liabilities
            
            $
            43,789
            
            $
            37,619





As
      authorized by the MoPSC, Laclede Gas discontinued deferring certain costs for
      future recovery, as expenses associated with those specific areas were included
      in approved rates effective December 27, 1999. Previously deferred
      costs of $10.5 million are being recovered and amortized on a straight-line
      basis over a fifteen-year period, without return on investment. Amortization
      of
      these costs totaled $5.4 million from December 27, 1999 through
      September 30, 2007. Previously deferred costs of $2.1 million are
      being recovered and amortized on a straight-line basis over a ten-year period,
      without return on investment. Amortization of these costs totaled $1.6 million
      from December 27, 1999 through
      September 30, 2007.


**NATURAL
      GAS STORED UNDERGROUND -** Inventory of Utility natural gas in storage is
      priced on a last-in, first-out (LIFO) basis. The replacement cost of natural
      gas
      stored underground for current use at September 30, 2007 exceeded the
      LIFO cost by $4.3 million and at September 30, 2006 exceeded the LIFO
      cost by $39.3 million. The inventory carrying value is not adjusted to the
      lower
      of cost or market prices because, pursuant to the Laclede Gas Purchased Gas
      Adjustment (PGA) Clause, actual gas costs are recovered in customer
      rates.


**REVENUE
      RECOGNITION –** Laclede Gas reads meters and bills its customers on
      monthly cycles. The Utility records its regulated gas distribution revenues
      from
      gas sales and transportation services on an accrual basis that includes
      estimated amounts for gas delivered, but not yet billed. The accruals for
      unbilled revenues are reversed in the subsequent accounting period when meters
      are actually read and customers are billed. The amounts of accrued unbilled
      revenues at September 30, 2007 and 2006, for the Utility, were $11.9
      million and $13.8 million, respectively.


SM&P,
      LER and Laclede Group’s other non-regulated subsidiaries record revenues when
      earned, either when the product is delivered or when services are
      performed.


In
      the
      course of its business, Laclede Group’s non-regulated gas marketing affiliate,
      LER, enters into fixed-price commitments associated with the purchase or sale
      of
      natural gas. LER’s fixed-price energy contracts are designated as normal
      purchases and normal sales, as defined in accordance with SFAS No. 133,
“Accounting for Derivative Instruments and Hedging Activities.” As such, those
      contracts are accounted for as executory contracts and recorded on an accrual
      basis. Revenues are recorded using a gross presentation.


**PURCHASED
      GAS ADJUSTMENTS AND DEFERRED ACCOUNT –** The PGA Clause allows Laclede
      Gas to flow through to customers, subject to prudence review, the cost of
      purchased gas supplies. To better match customer billings with market natural
      gas prices, the Utility is allowed to file to modify, on a periodic basis,
      the
      level of gas costs in its PGA. Laclede Gas has a risk management policy that
      provides for the purchase of natural gas financial instruments with the goal
      of
      managing price risk associated with purchasing natural gas on behalf of its
      customers. The MoPSC clarified that costs, cost reductions, and carrying costs
      associated with the Utility’s use of natural gas financial instruments are gas
      costs recoverable through the PGA mechanism. As part of the settlements of
      the
      Utility’s 2005 and 2007 rate cases, the following modifications were made to
      Laclede Gas’ PGA Clause:


**•**
            Previously,
                the Utility’s tariffs allowed for scheduled gas cost adjustments in the
                months of November, January, March and June. Effective October 1,
                2005,
                the tariffs allow the Utility flexibility to make up to three
                discretionary PGA changes during each year, in addition to its mandatory
                November PGA change, so long as such changes are separated by at
                least two
                months.**•**
            Effective
                October 1, 2005, the Utility was authorized to implement the
                recovery of gas inventory carrying costs through its PGA rates to
                recover
                costs it incurs to finance its investment in gas supplies that are
                purchased during the storage injection season for sale during the
                heating
                season. The MoPSC also approved the application of carrying costs
                to all
                over- or under-recoveries of gas costs, including costs and cost
                reductions associated with the use of financial instruments. Previously,
                carrying costs were applicable only to certain gas cost components
                exceeding a predetermined
                threshold.


47





**•**
            In
                its 2002 rate case, the MoPSC approved a plan applicable to the Utility’s
                gas supply commodity costs under which it could retain up to 10%
                of cost
                savings associated with the acquisition of natural gas below an
                established benchmark level of gas cost. This gas supply cost management
                program required that if Laclede Gas’ retention of cost savings reached $5
                million, the Utility would retain 1% of any remaining cost savings.
                The
                settlement of the Utility’s 2005 rate case continued the plan, with
                certain modifications. The settlement of the Utility’s 2007 rate case
                provides certain modifications to the plan, including a provision
                that
                allows the Utility to retain 10% of cost savings, up to a maximum
                of $3.0
                million annually, commencing October 1, 2007. Laclede Gas did
                not record any income under the plan during the past three years.
                Income
                recorded under the plan, if any, is included in the Regulated Gas
                Distribution Operating Revenues on the Statements of Consolidated
                Income.


Pursuant
      to the provisions of the PGA Clause, the difference between actual costs
      incurred and costs recovered through the application of the PGA (including
      costs
      and cost reductions associated with the use of financial instruments and gas
      inventory carrying costs), amounts due to or from customers related to operation
      of the gas supply cost management program, and carrying costs on such over-or
      under-recoveries are reflected as a deferred charge or credit until fiscal
      year
      end. At that time, the balance is classified as a current asset or current
      liability and recovered from or credited to customers over an annual period
      commencing in November. The balance in the current account is amortized as
      amounts are reflected in customer billings. Effective October 1, 2007,
      the PGA Clause also provides for the treatment of income from off-system sales
      and capacity release revenues, as described below.


**OFF-SYSTEM
      SALES -** In conjunction with the settlement of the 2005 rate case,
      effective October 1, 2005, the Utility retained all pre-tax income from
      off-system sales and capacity release revenues up to $12 million annually.
      Pre-tax amounts in excess of $12 million were shared with customers, with the
      Utility retaining 50% of amounts exceeding that threshold. Pursuant to the
      settlement of the 2007 rate case, the pre-tax amounts in excess of $12 million
      to be shared with customers resulting from amounts earned in fiscal years 2006
      and 2007, totaling approximately $7 million, will be flowed back to customers
      over an annual period commencing in November 2007. In addition, the portion
      of
      pre-tax income to be shared with customers was increased beginning October
      1,
      2007. The customer share of such income will be determined in accordance with
      the table below. The difference between the actual amount allocated to customers
      for each fiscal year and the estimated amount assumed in PGA rates will be
      recovered from or credited to customers over an annual period commencing in
      the
      subsequent November.


**Pre-tax
                Income**
            **Customer
                Share**
            
            **Company
                Share**First
                $2 million
            85%
            
            15%Next
                $2 million
            80%
            
            20%Next
                $2 million
            75%
            
            25%Amounts
                exceeding $6 million
            70%
            
            30%





**INCOME
      TAXES -** Laclede Group and its subsidiaries have elected, for tax
      purposes only, various accelerated depreciation provisions of the Internal
      Revenue Code. In addition, certain other costs are expensed currently for tax
      purposes while being deferred for book purposes. The provision for current
      income taxes reflects the tax treatment of these items. Laclede Group companies
      record deferred tax liabilities and assets measured by enacted tax rates for
      the
      net tax effect of all temporary differences between the carrying amounts of
      assets and liabilities for financial reporting purposes, and the amounts used
      for income tax purposes. Changes in enacted tax rates, if any, and certain
      property basis differences will be reflected by entries to regulatory asset
      or
      liability accounts for regulated companies, and will be reflected as income
      or
      loss for non-regulated companies.


Laclede
      Gas’ investment tax credits utilized prior to 1986 have been deferred and are
      being amortized in accordance with regulatory treatment over the useful life
      of
      the related property.


**CASH
      AND CASH EQUIVALENTS -** All highly liquid debt instruments purchased
      with original maturities of three months or less are considered to be cash
      equivalents. Such instruments are carried at cost, which approximates market
      value.


**EARNINGS
      PER COMMON SHARE -** Basic earnings per common share is computed by
      dividing Net Income by the weighted average number of shares outstanding for
      the
      period. Diluted earnings per common share reflects the potential dilution that
      could occur if securities or other contracts to issue common stock were
      exercised or converted into common stock. The only potentially dilutive
      securities the Company had outstanding at September 30, 2007, were
      stock options and nonvested restricted stock. The diluted weighted average
      shares outstanding, as shown in Note 4, reflects the potential dilution as
      a
      result of these stock options and nonvested restricted stock as determined
      using
      the Treasury Stock Method. Securities that are antidilutive are excluded from
      the calculation of diluted earnings per share.


**GOODWILL
      –** There was no change in the recorded amount of goodwill during fiscal
      2007. During fiscal 2006, goodwill increased $5.5 million reflecting additional
      goodwill recorded in conjunction with SM&P’s acquisition of the Indiana
      assets of Reliant Services, LLC in August 2006. The total amount of
      goodwill is attributable to SM&P and is included in the Non-Regulated
      Services segment.


Laclede
      Group tests goodwill for impairment in accordance with SFAS No. 142, “Goodwill
      and Other Intangible Assets,” and completes its impairment test in the second
      quarter of each fiscal year, or sooner, if facts and circumstances indicate
      possible impairment. The test of goodwill impairment may be carried forward
      from
      one year to the next if the most recent fair value determination exceeded the
      carrying value by a substantial margin, the assets and liabilities
      that


48


comprise
      the reporting entity had not changed significantly, and the Company believes
      that based on an analysis of events that had occurred and circumstances that
      had
      changed since the most recent fair value determination, the likelihood that
      a
      current fair value determination would be less than the current carrying amount
      is remote.


**GROSS
      RECEIPTS AND SALES TAXES -** Gross receipts taxes associated with Laclede
      Gas’ natural gas utility service are imposed on the Utility and billed to its
      customers. These amounts are recorded gross in the Statements of Consolidated
      Income. Amounts recorded in Regulated Gas Distribution Operating Revenues were
      $51.8 million, $53.0 million, and $44.2 million for fiscal years 2007, 2006,
      and
      2005, respectively. Gross receipts taxes are expensed by the Utility and
      included in the Taxes Other Than Income line.


Sales
      taxes imposed on applicable Company sales are billed to customers. These amounts
      are not recorded in the Statements of Consolidated Income, but are recorded
      as
      tax collections payable and included in Other Current Liabilities in the
      Consolidated Balance Sheets.


**ALLOWANCES
      FOR DOUBTFUL ACCOUNTS -** Estimates of the collectibility of trade
      accounts receivables are based on historical trends, age of receivables,
      economic conditions, credit risk of specific customers and other factors. The
      Utility’s provision for uncollectible accounts is dependent on the regulatory
      treatment provided for such costs. Beginning in fiscal 2006, as approved by
      the
      MoPSC, the Utility is allowed to defer for future recovery uncollectible
      expenses associated with amendments to the Cold Weather Rule.


**GROUP
      MEDICAL AND WORKERS’ COMPENSATION RESERVES –** The Company self-insures
      its group medical and workers’ compensation costs and carries stop-loss coverage
      in relation to medical claims and workers’ compensation claims. Reserves for
      amounts incurred but not reported are established based on historical cost
      levels and lags between occurrences and reporting.


**STOCK-BASED
      COMPENSATION –** The Laclede Group 2006 Equity Incentive Plan (the 2006
      Plan) was approved at the annual meeting of shareholders of Laclede Group on
      January 26, 2006. The purpose of the 2006 Plan is to encourage
      officers and employees of the Company and its subsidiaries to contribute to
      the
      Company’s success and align their interests with that of shareholders. To
      accomplish this purpose, the Compensation Committee of the Board of Directors
      may grant awards under the 2006 Plan that may be earned by achieving performance
      objectives and/or other criteria as determined by the Compensation Committee.
      Under the terms of the 2006 Plan, officers and employees of the Company and
      its
      subsidiaries, as determined by the Committee, are eligible to be selected for
      awards. The 2006 Plan provides for restricted stock, restricted stock units,
      qualified and non-qualified stock options, stock appreciation rights and
      performance shares payable in stock, cash or a combination of both. The 2006
      Plan generally provides a minimum vesting period of at least three years for
      each type of award. The maximum number of shares reserved for issuance under
      the
      2006 Plan is 1,250,000. The 2006 Plan replaced the Laclede Group Equity
      Incentive Plan (the 2003 Plan). Shares reserved under the 2003 Plan, other
      than
      those needed for currently outstanding awards, were canceled upon shareholder
      approval of the 2006 Plan.


The
      Company’s Restricted Stock Plan for Non-Employee Directors was approved by
      shareholders in January 2003. The principal purpose of the plan is to
      attract and retain qualified persons who are not employees or former employees
      of the Company or any of its subsidiaries for service as members of the Board
      of
      Directors and to encourage ownership in the Company by such non-employee
      directors by granting shares of common stock subject to restrictions. Shares
      vest depending on the participant’s age upon entering the plan and years of
      service as a director. The total number of shares of common stock that may
      be
      issued under the Restricted Stock Plan for Non-Employee Directors is
      50,000.


The
      Company accounts for awards under the above referenced Plans under the
      recognition and measurement principles of SFAS No. 123(R), “Share-Based
      Payment.” Through fiscal year 2005, the Company accounted for the plans in
      accordance with APB Opinion No. 25, “Accounting for Stock Issued to Employees,”
and provided pro forma disclosures in the Notes to Consolidated Financial
      Statements regarding the effect on net income and earnings as if compensation
      expense had been determined based on the fair value recognition provisions
      of
      SFAS No. 123, “Accounting for Stock-Based Compensation.” Under the provisions of
      APB Opinion No. 25, the Company only recorded stock-based compensation cost
      related to restricted stock. The Company was not required to recognize
      compensation cost for stock options because all options granted under the Equity
      Incentive Plan had an exercise price equal to the market value of the Company’s
      stock on the date of the grant. The Company implemented the provisions of SFAS
      No. 123(R) on a modified prospective basis effective October 1, 2005.
      Consistent with this Statement, prior period amounts have not been restated.
      Under the modified prospective methodology, the Company is required to record
      compensation cost for all awards granted after the date of adoption and for
      the
      unvested portion of previously granted awards that remain outstanding at the
      date of adoption, net of an estimate of expected forfeitures.


During
      fiscal year 2007, the Company awarded 59,000 shares of performance-contingent
      restricted stock to executives and key employees at a weighted average fair
      value of $34.95 per share with a three-year performance period ending
      September 30, 2009. All, or a portion, of these shares will vest in
      November 2009 depending upon the attainment of certain levels of earnings
      and dividend growth performance goals. For shares that do not vest, no
      compensation cost is recognized and any previously recognized compensation
      cost
      is reversed. The weighted average fair value of performance-contingent
      restricted stock awarded during fiscal year 2006 was $30.46 per share. For
      restricted stock awards, the Company holds the certificates for the stock until
      the shares vest. In the interim, the participants receive full dividends and
      voting rights.


49


During
      fiscal year 2007, the Company awarded 8,350 shares of restricted stock to
      non-employee directors at a weighted average fair value of $32.74 per share.
      The
      weighted average fair value of restricted stock awarded to non-employee
      directors during fiscal year 2006 was $31.80 per share. The plan’s trustee
      acquires the shares for the awards in the open market and holds the shares
      as
      trustee for the benefit of the non-employee directors until the restrictions
      expire. In the interim, the participants receive full dividends and voting
      rights.


During
      fiscal year 2007, the Company granted 115,500 non-qualified stock options to
      employees at an exercise price of $34.95 per share. The stock options vest
      one-fourth each year for four years after the date of the grant and have a
      ten-year contractual term. None of these options were exercisable before
      November 3, 2007. The weighted average fair value of options granted
      during fiscal years 2007, 2006, and 2005 is $8.07 per option, $6.80 per option,
      and $6.73 per option, respectively.


Restricted
      stock activity for the year ended September 30, 2007 is presented
      below:





**Weighted
                Average**
              **Grant
                Date**
              **Fair
                Value****Shares**Nonvested
                at September 30, 2006
            
            54,200
            
            
            
            $
            30.55Granted
            
            67,350
            
            
            
            $
            34.68Vested
            
            (2,550
            )
            
            
            $
            32.74Forfeited
            
            —
            
            
            
            $
            —Nonvested
                at September 30, 2007
            
            119,000
            
            
            
            $
            32.84





Stock
      option activity for the year ended September 30, 2007 is presented
      below:





**Weighted****Average****Weighted**
            
            
            
            **Remaining**
            
            
            
            **Aggregate****Average**
            
            
            
            **Contractual**
            
            
            
            **Intrinsic****Exercise**
            
            
            
            **Term**
            
            
            
            **Value****Shares**
            
            
            
            **Price**
            
            
            
            **(Years)**
            
            
            
            **($000)**Outstanding
                at September 30, 2006
            
            629,875
            
            
            
            $
            28.90Granted
            
            115,500
            
            
            
            $
            34.95Exercised
            
            (108,275
            )
            
            
            $
            28.26Forfeited
            
            (20,000
            )
            
            
            $
            32.19Outstanding
                at September 30, 2007
            
            617,100
            
            
            
            $
            30.04
            
            
            
            7.1
            
            
            
            $
            1,671Fully
                Vested and Expected to VestAt
                September 30, 2007
            
            593,431
            
            
            
            $
            29.97
            
            
            
            7.1
            
            
            
            $
            1,639Exercisable
                at September 30, 2007
            
            278,975
            
            
            
            $
            27.90
            
            
            
            6.3
            
            
            
            $
            1,221





Exercise
      prices of options outstanding at September 30, 2007 range from $23.27
      to $34.95. During fiscal year 2007, cash received from the exercise of stock
      options was $3.1 million, the intrinsic value of the options exercised was
      $0.8
      million and the related actual tax benefit realized was $0.3 million. During
      fiscal year 2006, cash received from the exercise of stock options was $0.6
      million, the intrinsic value of the options exercised was $0.2 million and
      the
      related actual tax benefit realized was $76,000. During fiscal year 2005, cash
      received from the exercise of stock options was $1.5 million, the intrinsic
      value of options exercised was $0.4 million, and the related actual tax benefit
      realized was $0.2 million. The total fair value of restricted stock vested
      during fiscal years 2007 and 2006 was $83,000 and $87,000, respectively, and
      the
      related actual tax benefit realized was $32,000 and $34,000, respectively.
      The
      Company issues new shares to satisfy employee restricted stock awards and stock
      option exercises. Shares for non-employee directors are purchased on the open
      market. The closing price of the Company’s common stock was $32.28 at
      September 30, 2007.


Total
      compensation cost that has been charged against net income for share-based
      compensation arrangements was $1.9 million and $1.2 million for fiscal years
      2007 and 2006, respectively. Compensation cost capitalized as part of fixed
      assets was $0.5 million and $0.4 million for fiscal years 2007 and 2006,
      respectively. The total income tax benefit recognized in the income statement
      for share-based compensation arrangements was approximately $0.7 million and
      $0.5 million for fiscal years 2007 and 2006, respectively. Compensation cost
      charged against net income and the related income tax benefits for share-based
      compensation arrangements for fiscal year 2005 were not material. As
      of


50


September 30, 2007,
      there was $3.6 million of total unrecognized compensation cost related to
      nonvested share-based compensation arrangements (options and restricted stock).
      That cost is expected to be recognized over a weighted average period of 2.3
      years.


The
      fair
      value of restricted stock awards was estimated using the closing price of the
      Company’s common stock on the grant date. The fair value of the options granted
      during fiscal years 2007, 2006, and 2005 was estimated at the date of grant
      using a binomial option-pricing model based on the assumptions noted in the
      following table. Expected volatility is based on the historical volatility
      of
      the Company’s stock. The risk-free rate is based on U.S. Treasury yields at the
      grant date. The expected life of options is based on generalized expectations
      regarding the behavior of option holders since the Company’s experience is not
      yet sufficient to develop an assumption specific to its employees.





**2007**
            
            **2006**
            
            **2005**Risk
                free interest rate
            
            4.60%
            
            4.60%
            
            4.10%Expected
                dividend yield of stock
            
            4.20%
            
            4.50%
            
            4.40%Expected
                volatility of stock
            
            25.00%
            
            25.00%
            
            25.00%Expected
                life of option
            
            96
                months
            
            96
                months
            
            96
                months





The
      following table details the effect on net income and earnings per share had
      compensation cost for the stock-based compensation plans been recorded in the
      twelve months ended September 30, 2005 based on the fair value method under
      SFAS
      No. 123. In fiscal years 2007 and 2006, the reported net income and earnings
      per
      share amounts equal the pro forma amounts because stock-based compensation
      cost
      is calculated under the provisions of SFAS No. 123(R) and reflected in the
      Statements of Consolidated Income for these periods. The amounts for fiscal
      years 2007 and 2006 are included in the table below only to provide the detail
      for a comparative presentation to fiscal year 2005.





(Thousands,
                Except Per Share Amounts)
            
            
            
            
            **2007**
            
            
            **2006**
            
            
            **2005**Net
                income, as reported
            
            
            
            $
            49,771
            
            $
            48,989
            
            $
            40,070Add:
                Total stock-based compensationcost
                included in reported net income,net
                of tax effects
            
            
            
            
            1,152
            
            
            730
            
            
            13Deduct:
                Total stock-basedcompensation
                cost includible in netincome
                determined under the fairvalue
                based method for all awards,net
                of tax effects
            
            
            
            
            1,152
            
            
            730
            
            
            560Pro
                forma net income
            
            
            
            $
            49,771
            
            $
            48,989
            
            $
            39,523Earnings
                per share:Basic
                – as reported
            
            
            
            $
            2.32
            
            $
            2.31
            
            $
            1.90Diluted
                – as reported
            
            
            
            $
            2.31
            
            $
            2.30
            
            $
            1.90Basic
                – pro forma
            
            
            
            $
            2.32
            
            $
            2.31
            
            $
            1.87Diluted
                – pro forma
            
            
            
            $
            2.31
            
            $
            2.30
            
            $
            1.87





**NEW
      ACCOUNTING STANDARDS –** In May 2005, the Financial Accounting
      Standards Board (FASB) issued SFAS No. 154, “Accounting Changes and Error
      Corrections.” This Statement replaces Accounting Principles Board (APB) Opinion
      No. 20, “Accounting Changes,” and SFAS No. 3, “Reporting Accounting Changes in
      Interim Financial Statements.” SFAS No. 154 sets forth new guidelines on
      accounting for voluntary changes in accounting principle and requires certain
      disclosures. It also applies to the unusual situation in which an accounting
      pronouncement is issued but does not include specific transition guidelines.
      This Statement requires such accounting principle changes to be applied
      retrospectively to all prior periods presented as an adjustment to the balances
      of assets or liabilities affected along with an offsetting adjustment to
      retained earnings for the cumulative effect on periods prior to those presented.
      This Statement carries forward without change the guidance in APB Opinion No.
      20
      for reporting the correction of an error and a change in accounting estimate.
      Adoption of SFAS No. 154 on October 1, 2006 had no effect on the
      Company’s financial position or results of operations.


In
      February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
      Financial Instruments.” This Statement amends SFAS No. 133, “Accounting for
      Derivative Instruments and Hedging Activities,” and SFAS No. 140, “Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities - a replacement of FASB Statement No. 125.” SFAS No. 155 permits the
      fair value remeasurement for any hybrid financial instrument that contains
      an
      embedded derivative that otherwise would require bifurcation. It also
      establishes a requirement to evaluate beneficial interests in securitized
      financial assets to identify interests that are freestanding derivatives or
      that
      are hybrid


51


financial
      instruments that contain an embedded derivative requiring bifurcation. Adoption
      of SFAS No. 155 on October 1, 2006 had no effect on the Company’s
      financial position or results of operations.


In
      June 2006, the FASB issued Interpretation Number 48 (FIN 48), “Accounting
      for Uncertainty in Income Taxes.” FIN 48 clarifies the accounting for
      uncertainty in income taxes recognized in an enterprise’s financial statements
      in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” Under
      FIN 48, the Company may recognize the tax benefit from a tax position only
      if it
      is at least more likely than not that the tax position will be sustained on
      examination by the taxing authorities, based on the technical merits of the
      position. The tax benefits recognized in the financial statements from such
      a
      position should be measured based on the largest benefit that has a greater
      than
      fifty percent likelihood of being realized upon settlement with the taxing
      authorities. FIN 48 also provides guidance on derecognition, classification,
      interest and penalties, accounting in interim periods, disclosure, and
      transition. The Company will adopt FIN 48 as of the beginning of the first
      quarter of fiscal year 2008. The Company is currently evaluating the provisions
      of this Interpretation.


In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.”
This Statement defines fair value, establishes a framework for measuring fair
      value in generally accepted accounting principles, and expands disclosures
      about
      fair value measurements. The Statement applies to fair value measurements
      required under other accounting guidance that require or permit fair value
      measurements. Accordingly, this Statement does not require any new fair value
      measurements. The guidance in this Statement does not apply to the Company’s
      stock-based compensation plans accounted for in accordance with SFAS No. 123(R),
      “Share-Based Payment.” This Statement will be effective for the Company as of
      the beginning of fiscal year 2009. The Company is currently evaluating the
      provisions of this Statement.


In
      September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for
      Defined Benefit Pension and Other Postretirement Plans.” This Statement amends
      FASB Statements No. 87, “Employers’ Accounting for Pensions,” No. 88,
“Employers’ Accounting for Settlements and Curtailments of Defined Benefit
      Pension Plans and for Termination Benefits,” No. 106, “Employers’ Accounting for
      Postretirement Benefits Other Than Pensions,” and No. 132 (revised 2003),
“Employers’ Disclosure About Pensions and Other Postretirement Benefits.”
Statement No. 158 requires an employer to recognize the overfunded or
      underfunded status of a defined benefit postretirement plan as an asset or
      liability in its statement of financial position. Prior accounting standards
      allowed an employer to delay recognition of certain economic events that
      affected the costs of providing postretirement benefits and to disclose the
      overfunded or underfunded status of a plan in the notes to the financial
      statements. This Statement eliminates the delayed recognition of actuarial
      gains
      and losses and the prior service costs and credits that arise during the period
      and requires employers to recognize these items as components of other
      comprehensive income, net of tax. Laclede Group adopted the recognition and
      disclosure provisions of this Statement effective September 30, 2007.
      For details on the impact of adoption of this Statement and the required
      disclosures, see Note 2, “Pension Plans and Other Postretirement Benefits.” The
      Statement also requires that plan assets and benefit obligations be measured
      as
      of the date of the employer’s fiscal year-end statement of financial position.
      This requirement will be effective for the Company as of the end of fiscal
      year
      2009. In conjunction with adoption of this provision of SFAS No. 158, the
      Company will be required to change its valuation date for its pension and other
      postretirement plans from June 30 to September 30. The Company is
      currently evaluating the impact of adoption of the change in measurement date
      on
      its consolidated financial statements.


In
      September 2006, the Securities and Exchange Commission staff issued Staff
      Accounting Bulletin No. 108, “Financial Statements-Concerning the Effects of
      Prior Year Misstatements when Quantifying Misstatements in Current Year
      Financial Statements” (SAB 108). SAB 108 provides guidance on the consideration
      of the effects of prior year misstatements in quantifying current year
      misstatements for the purpose of assessing materiality. SAB 108 establishes
      a
      dual approach that requires quantification of financial statement errors based
      on the effects of the error on the Company’s financial statements and the
      related financial statement disclosures. The Company’s adoption of SAB 108 in
      the fourth quarter of fiscal year 2007 had no effect on its consolidated
      financial statements.


In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities.” The Statement permits entities to
      choose to measure many financial instruments and certain other items at fair
      value that are not currently required to be measured at fair value. SFAS No.
      159
      also establishes presentation and disclosure requirements designed to facilitate
      comparisons between entities that choose different measurement attributes for
      similar types of assets and liabilities. This Statement does not affect any
      existing accounting literature that requires certain assets and liabilities
      to
      be carried at fair value. Upon adoption of SFAS No. 159, entities are permitted
      to choose, at specified election dates, to measure eligible items at fair value
      (fair value option). Unrealized gains and losses on items for which the fair
      value option has been elected are reported in earnings at each reporting date.
      The decision about whether to elect the fair value option is applied instrument
      by instrument with few exceptions. The decision is also irrevocable (unless
      a
      new election date occurs) and must be applied to entire instruments and not
      to
      portions of instruments. SFAS No. 159 requires that cash flows related to items
      measured at fair value be classified in the statement of cash flows according
      to
      their nature and purpose as required by SFAS No. 95, “Statement of Cash Flows”
(as amended). SFAS No. 159 is effective for the Company as of the beginning
      of
      fiscal year 2009. The Company is currently evaluating the provisions of this
      Statement.


52


In
      June 2007, the FASB ratified the consensus reached in Emerging Issues Task
      Force (EITF) Issue No. 06-11, “Accounting for Income Tax Benefits of Dividends
      on Share-Based Payment Awards.” This Issue addresses how an entity should
      recognize the tax benefit received on dividends that are (a) paid to employees
      holding equity-classified nonvested shares, equity-classified nonvested share
      units, or equity-classified outstanding share options and (b) charged to
      retained earnings under SFAS No. 123(R). The Task Force reached a consensus
      that
      such tax benefits should be recognized as an increase in additional paid-in
      capital. This EITF Issue also addresses how the accounting for these tax
      benefits is affected if an entity’s estimate of forfeitures changes in
      subsequent periods. This EITF Issue is effective for Laclede Group as of the
      beginning of fiscal year 2009. The Company is currently evaluating the
      provisions of this EITF Issue.








**2.**
            **PENSION
                PLANS AND OTHER POSTRETIREMENT
                BENEFITS**





In
      September 2007, the Company adopted SFAS No. 158, “Employers’ Accounting for
      Defined Benefit Pension and Other Postretirement Plans.” This Statement amends
      FASB Statements No. 87, “Employers’ Accounting for Pensions,” No. 88,
“Employers’ Accounting for Settlements and Curtailments of Defined Benefit
      Pension Plans and for Termination Benefits,” No. 106, “Employers’ Accounting for
      Postretirement Benefits Other Than Pensions,” and No. 132 (revised 2003),
“Employers’ Disclosure About Pensions and Other Postretirement Benefits.”
Statement No. 158 requires an employer to recognize the overfunded or
      underfunded status of a defined benefit postretirement plan as an asset or
      liability in its statement of financial position. Prior accounting standards
      allowed an employer to delay recognition of certain economic events that
      affected the costs of providing postretirement benefits and to disclose the
      overfunded or underfunded status of a plan in the notes to the financial
      statements. This Statement eliminates the delayed recognition of actuarial
      gains
      and losses and prior service costs and credits that arise during the period
      and
      requires employers to recognize these items as components of other comprehensive
      income, net of tax. Additional minimum pension liabilities and related
      intangible assets are derecognized upon adoption of this Statement. The
      Statement also requires that plan assets and benefit obligations be measured
      as
      of the date of the employer’s fiscal year-end statement of financial position.
      This requirement will be effective for the Company as of the end of fiscal
      year
      2009. The Company currently uses a June 30 valuation date for its benefit
      plans.


For
      the
      Utility, the amount of expense recognized and the amounts reflected in other
      comprehensive income are dependent upon the regulatory treatment provided for
      such costs. Accordingly, consistent with SFAS No. 71, the impact of adoption
      of
      SFAS No. 158 on accumulated other comprehensive income for the Utility’s
      qualified pension plans and postretirement benefit plans was deferred with
      entries to Regulatory Assets.





The
      incremental effects of adoption of SFAS No. 158 on individual line items of
      the
      Consolidated Balance Sheet at September 30, 2007 are as
      follows:





(Thousands)
            
            **Prior
                to**
              **SFAS
                No. 158**
              **Adoption**
            
            **Adjustments**
            
            **After**
              **SFAS
                No. 158**
              **Adoption**Deferred
                Charges:Prepaid
                pension cost
            
            $
            51,962
            
            $
            (51,962
            )
            $
            —Regulatory
                assets
            
            
            190,254
            
            
            94,800
            
            
            285,054Other
            
            
            5,192
            
            
            (523
            )
            
            4,669Common
                stock equity:Accumulated
                other comprehensive income (loss) *
            
            
            2,981
            
            
            (1,124
            )
            
            1,857Current
                Liabilities:Other
            
            
            15,855
            
            
            700
            
            
            16,555Deferred
                Credits and Other Liabilities:Deferred
                income taxes
            
            
            225,776
            
            
            (708
            )
            
            225,068Pension
                and postretirement benefit costs
            
            
            20,231
            
            
            43,447
            
            
            63,678*
                Appears on the Statements of Consolidated Capitalization





SFAS
      No.
      158 does not permit retrospective application. Accordingly, the Consolidated
      Balance Sheet at September 30, 2006 has not been restated for the
      adoption of SFAS No. 158.





53


**Pension
      Plans**





Laclede
      Gas has non-contributory defined benefit, trusteed forms of pension plans
      covering substantially all employees over the age of twenty-one. Benefits are
      based on years of service and the employee’s compensation during the highest
      three years of the last ten years of employment. Plan assets consist primarily
      of corporate and U.S. government obligations and pooled equity
      funds.


Pension
      costs in 2007, 2006 and 2005 amounted to $5.5, $5.4, and $4.5 million,
      respectively. These costs include amounts capitalized with construction
      activities.


The
      net
      periodic pension costs include the following components:





(Thousands)
            
            **2007**
            
            **2006**
            
            **2005**Service
                cost – benefits earned during the period
            
            $
            12,422
            
            $
            14,761
            
            $
            11,196Interest
                cost on projected benefit obligation
            
            
            17,929
            
            
            16,704
            
            
            15,977Expected
                return on plan assets
            
            
            (20,295
            )
            
            (20,782
            )
            
            (21,164
            )Amortization
                of prior service cost
            
            
            1,143
            
            
            1,175
            
            
            1,234Amortization
                of actuarial loss
            
            
            3,673
            
            
            6,912
            
            
            2,921Sub-total
            
            $
            14,872
            
            $
            18,770
            
            $
            10,164Loss
                on lump-sum settlement
            
            
            803
            
            
            —
            
            
            —Regulatory
                adjustment
            
            
            (10,131
            )
            
            (13,417
            )
            
            (5,635
            )Net
                pension cost
            
            $
            5,544
            
            $
            5,353
            
            $
            4,529





Pursuant
      to the provisions of the Laclede Gas pension plans, pension obligations may
      be
      satisfied by lump-sum cash payments. Pursuant to a MoPSC Order, lump-sum
      payments are recognized as settlements (which can result in gains or losses)
      only if the total of such payments exceeds 100% of the sum of service and
      interest costs. Lump sum payments recognized as settlements during the twelve
      months ended September 30, 2007 were $3.0 million. No lump-sum
      payments were recognized as settlements in fiscal years 2006 and
      2005.


Changes
      in the minimum pension liability resulted in charges/(credits) to Other
      Comprehensive Income of $(0.4) million in fiscal year 2007, $(3.6) million
      in
      fiscal year 2006, and $4.3 million in fiscal year 2005, excluding the effect
      of
      regulatory treatment.


Pursuant
      to a MoPSC Order, the return on plan assets is based on the market-related
      value
      of plan assets implemented prospectively over a four-year period. Gains or
      losses not yet includible in pension cost are amortized only to the extent
      that
      such gain or loss exceeds 10% of the greater of the projected benefit obligation
      or the market-related value of plan assets. Such excess is amortized over the
      average remaining service life of active participants. The recovery in rates
      for
      the Utility’s qualified pension plans is based on an annual allowance of $3.4
      million, effective July 1, 2003, $4.1 million effective
      October 1, 2005, and $4.8 million effective August 1, 2007.
      The difference between these amounts and pension expense as calculated pursuant
      to the above and that otherwise would be included in the Statements of
      Consolidated Income and Consolidated Comprehensive Income is deferred as a
      regulatory asset or liability.


The
      following table sets forth the reconciliation of the beginning and ending
      balances of the pension benefit obligation at September 30:





(Thousands)
            
            **2007**
            
            **2006**Benefit
                obligation at beginning of year
            
            $
            282,060
            
            $
            327,202Service
                cost
            
            
            12,422
            
            
            14,761Interest
                cost
            
            
            17,929
            
            
            16,704Actuarial
                (gain) loss
            
            
            1,407
            
            
            (48,453
            )Gross
                benefits paid *
            
            
            (20,553
            )
            
            (28,154
            )Benefit
                obligation at end of year
            
            $
            293,265
            
            $
            282,060Accumulated
                benefit obligation at end of year
            
            $
            231,719
            
            $
            223,327*
                Includes $(3,021) in lump-sum payments recognized as settlements
                in fiscal
                year 2007. No lump-sum payments were recognized as settlements in
                fiscal
                year 2006.





54


The
      following table sets forth the reconciliation of the beginning and ending
      balances of the fair value of plan assets at September 30:





(Thousands)
            
            **2007**
            
            **2006**Fair
                value of plan assets at beginning of year
            
            $
            246,136
            
            $
            272,782Actual
                return on plan assets
            
            
            33,515
            
            
            (96
            )Employer
                contributions
            
            
            1,182
            
            
            1,604Gross
                benefits paid *
            
            
            (20,553
            )
            
            (28,154
            )Fair
                value of plan assets at end of year
            
            $
            260,280
            
            $
            246,136Funded
                status of plans
            
            $
            (32,985
            )
            $
            (35,924
            )Fourth
                quarter contribution adjustment
            
            
            261
            
            
            56Funded
                status, end of year
            
            $
            (32,724
            )
            $
            (35,868
            )*
                Includes $(3,021) in lump-sum payments recognized as settlements
                in fiscal
                year 2007. No lump-sum payments were recognized as settlements in
                fiscal
                year 2006.





The
      following table sets forth the amounts recognized in the Consolidated Balance
      Sheet at September 30, 2007:





(Thousands)Noncurrent
                assets
            
            $
            —Current
                liabilities
            
            
            (400
            )Noncurrent
                liabilities
            
            
            (32,324
            )Total
            
            $
            (32,724
            )Pre-tax
                amounts recognized in Accumulated Other Comprehensive
                Incomenot
                yet recognized as components of net periodic pension cost consist
                of:Net
                actuarial loss
            
            $
            67,486Prior
                service costs
            
            
            12,332Sub-total
            
            
            79,818Adjustments
                for amounts included in Regulatory Assets
            
            
            (77,004
            )Total
            
            $
            2,814





At
      September 30, 2007, the following pre-tax amounts are expected to be amortized
      from Accumulated Other Comprehensive Income into net periodic pension cost
      during fiscal year 2008:





(Thousands)Amortization
                of net actuarial loss
            
            $
            3,165Amortization
                of prior service cost
            
            
            1,088Sub-total
            
            
            4,253Regulatory
                adjustment
            
            
            (4,081
            )Total
            
            $
            172





55


The
      following table reconciles the funded status of the plans with the amounts
      recognized in the Consolidated Balance Sheet at
      September 30, 2006:





(Thousands)Funded
                status, end of year
            
            $
            (35,868
            )Unrecognized
                net actuarial loss
            
            
            83,776Unrecognized
                prior service cost
            
            
            13,475Net
                amount recognized
            
            $
            61,383Amounts
                recognized in the Consolidated Balance Sheet consist of:Prepaid
                pension cost
            
            $
            65,794Accrued
                benefit liability
            
            
            (10,558
            )Intangible
                asset
            
            
            577Regulatory
                adjustment
            
            
            4,211Accumulated
                other comprehensive income
            
            
            1,359Net
                amount recognized at end of year
            
            $
            61,383





The
      pension benefit obligation and the fair value of plan assets are based on a
      June 30 measurement date.


The
      assumptions used to calculate net periodic pension costs are as
      follows:





**2007**
            **2006**
            **2005**Weighted
                average discount rate
            6.25%
            5.00%
            6.25%Weighted
                average rate of future compensation increase
            3.50%
            3.00%
            3.25%Expected
                long-term rate of return on plan assets
            8.25%
            8.25%
            8.50%





The
      weighted average discount rate is based on long-term, high quality bond indices
      at the measurement date. The expected long-term rate of return on plan assets
      is
      based on historical and projected rates of return for current and planned asset
      classes in the investment portfolio. Assumed projected rates of return for
      each
      asset class were selected after analyzing historical experience and future
      expectations of the returns. The overall expected rate of return for the
      portfolio was developed based on the target allocation for each class. The
      expected return is a long-term assumption that generally does not change
      annually.


The
      assumptions used to calculate the benefit obligations are as
      follows:





**2007**
            **2006**Weighted
                average discount rate
            6.25%
            6.25%Weighted
                average rate of future compensation increase
            3.50%
            3.50%





Following
      are the projected benefit obligation, accumulated benefit obligation, and fair
      value of plan assets for plans that have a projected benefit obligation and
      an
      accumulated benefit obligation in excess of plan assets:





(Thousands)
            
            **2007**
            
            **2006**Projected
                benefit obligation
            
            $
            293,265
            
            $
            282,060Fair
                value of plan assets
            
            
            260,280
            
            
            246,136Accumulated
                benefit obligation
            
            
            24,431
            
            
            23,988Fair
                value of plan assets
            
            
            12,795
            
            
            13,769





Following
      are the targeted and actual plan assets by category:





**2008**
            **2007**
            **2006****Target**
            **Actual**
            **Actual**Equity
                Securities
            50%
            50%
            50%Debt
                Securities
            50%
            50%
            50%Total
            100%
            100%
            100%


56


Laclede
      Gas’ investment policy is designed to preserve, to the extent possible, the
      current funded status of the plan and minimize contributions to the trusts.
      The
      policy seeks to maximize investment returns consistent with these objectives
      and
      Laclede Gas’ tolerance for risk. Outside investment management specialists are
      utilized in each asset class. Such specialists are provided with guidelines,
      where appropriate, designed to ensure that the investment portfolio is managed
      in accordance with the policy. Performance and compliance with the guidelines
      is
      regularly monitored. Laclede Gas generally rebalances plan assets quarterly
      if
      the actual allocation deviates from the target allocation by more than
      2%.


Following
      are expected pension benefit payments for the succeeding five fiscal years,
      and
      in aggregate for the five years thereafter:





(Millions)
            
            **Pensions
                from**
              **Qualified
                Trust**
            
            **Pensions
                from**
              **Laclede
                Gas**
              **Funds**2008
            
            
            $
            14.5
            
            
            
            $
            0.42009
            
            
            
            15.1
            
            
            
            
            0.52010
            
            
            
            16.2
            
            
            
            
            0.52011
            
            
            
            18.2
            
            
            
            
            0.62012
            
            
            
            20.0
            
            
            
            
            0.72013
                – 2017
            
            
            
            162.8
            
            
            
            
            3.5





The
      funding policy of Laclede Gas is to contribute an amount not less than the
      minimum required by government funding standards, nor more than the maximum
      deductible amount for federal income tax purposes. Contributions to the pension
      plans in fiscal year 2008 are anticipated to be $0.8 million into the qualified
      trusts, and $0.4 million into the non-qualified plans.





**Postretirement
      Benefits**





Laclede
      Gas provides certain life insurance benefits at retirement. Medical insurance
      is
      available after early retirement until age 65. The transition obligation not
      yet
      includible in postretirement benefit cost is being amortized over 20 years.
      Postretirement benefit costs in 2007, 2006 and 2005 amounted to $7.8 million,
      $8.9 million, and $8.0 million, respectively, including amounts charged to
      construction.


Net
      periodic postretirement benefit costs consisted of the following
      components:





(Thousands)
            
            **2007**
            
            **2006**
            
            **2005**Service
                cost - benefits earned during the period
            
            $
            4,063
            
            $
            3,985
            
            $
            3,379Interest
                cost on accumulated postretirementbenefit
                obligation
            
            
            3,599
            
            
            2,959
            
            
            3,303Expected
                return on plan assets
            
            
            (1,723
            )
            
            (1,358
            )
            
            (1,274
            )Amortization
                of transition obligation
            
            
            136
            
            
            327
            
            
            578Amortization
                of prior service cost
            
            
            (2,328
            )
            
            (36
            )
            
            (32
            )Amortization
                of actuarial loss
            
            
            3,245
            
            
            1,273
            
            
            868Regulatory
                adjustment
            
            
            851
            
            
            1,713
            
            
            1,181Net
                postretirement benefit cost
            
            $
            7,843
            
            $
            8,863
            
            $
            8,003





Pursuant
      to the Commission’s Order in the Utility’s 2002 rate case and affirmed in the
      2005 and 2007 rate cases, the return on plan assets is based on the
      market-related value of plan assets implemented prospectively over a four-year
      period. Gains and losses not yet includible in postretirement benefit cost
      are
      amortized only to the extent that such gain or loss exceeds 10% of the greater
      of the accumulated postretirement benefit obligation or the market-related
      value
      of plan assets. Such excess is amortized over the average remaining service
      life
      of active participants. Also in the 2002 and 2005 rate cases, the Commission
      ordered that the recovery in rates for the postretirement benefit costs be
      based
      on the accounting methodology as ordered in the 1999 rate case, which based
      the
      amortization of gains and losses on a five-year average of gains and losses.
      The
      difference between this amount and postretirement benefit expense as calculated
      pursuant to the above was deferred as a regulatory asset or liability. In the
      2007 rate case, the Commission ordered that the recovery in rates is based
      on an
      annual allowance of $7.6 million, effective August 1, 2007. The
      difference between this amount and postretirement benefit cost based on the
      above and that otherwise would be included in the Statements of Consolidated
      Income and Consolidated Comprehensive Income is deferred as a regulatory asset
      or liability.


57


The
      following table sets forth the reconciliation of the beginning and ending
      balances of the postretirement benefit obligation at
      September 30:





(Thousands)
            
            
            **2007**
            
            **2006**Benefit
                obligation at beginning of year
            
            
            $
            55,584
            
            $
            57,644Service
                cost
            
            
            
            4,063
            
            
            3,985Interest
                cost
            
            
            
            3,599
            
            
            2,959Plan
                amendments
            
            
            
            —
            
            
            (15,410
            )Actuarial
                loss
            
            
            
            1,551
            
            
            10,992Gross
                benefits paid
            
            
            
            (4,686
            )
            
            (4,586
            )Benefit
                obligation at end of year
            
            
            $
            60,111
            
            $
            55,584





The
      following table sets forth the reconciliation of the beginning and ending
      balances of the fair value of plan assets at September 30:





(Thousands)
            
            **2007**
            
            **2006**Fair
                value of plan assets at beginning of year
            
            $
            21,179
            
            $
            17,034Actual
                return on plan assets
            
            
            2,947
            
            
            838Employer
                contributions
            
            
            5,557
            
            
            7,893Gross
                benefits paid
            
            
            (4,686
            )
            
            (4,586
            )Fair
                value of plan assets at end of year
            
            $
            24,997
            
            $
            21,179Funded
                status of plans
            
            $
            (35,114
            )
            $
            (34,405
            )Fourth
                quarter contribution adjustment
            
            
            3,460
            
            
            1,947Funded
                status, end of year
            
            $
            (31,654
            )
            $
            (32,458
            )





The
      following table sets forth the amounts recognized in the Consolidated Balance
      Sheet at September 30, 2007:




(Thousands)Noncurrent
                assets
            
            $
            —Current
                liabilities
            
            
            (300
            )Noncurrent
                liabilities
            
            
            (31,354
            )Total
            
            $
            (31,654
            )Pre-tax
                amounts recognized in Accumulated OtherComprehensive
                Income not yet recognized as componentsof
                net periodic postretirement benefit cost consist of:Net
                actuarial loss
            
            $
            33,170Prior
                service credit
            
            
            (11,988
            )Transition
                obligation
            
            
            807Sub-total
            
            
            21,989Adjustment
                for amounts included in Regulatory Assets
            
            
            (21,989
            )Total
            
            $
            —




At
      September 30, 2007, the following pre-tax amounts are expected to be amortized
      from Accumulated Other Comprehensive Income into net periodic postretirement
      benefit cost during fiscal year 2008:





(Thousands)Amortization
                of net actuarial loss
            
            $
            2,984Amortization
                of prior service credit
            
            
            (2,327
            )Amortization
                of transition obligation
            
            
            136Sub-total
            
            
            793Regulatory
                adjustment
            
            
            (793
            )Total
            
            $
            —





58


The
      following table reconciles the funded status of the plans with the amounts
      recognized in the Consolidated Balance Sheet at
      September 30, 2006:





(Thousands)Funded
                status at end of year
            
            $
            (32,458
            )Unrecognized
                net actuarial loss
            
            
            36,088Unrecognized
                prior service cost
            
            
            (14,316
            )Unrecognized
                net transition obligation
            
            
            943Net
                amount recognized at end of yearas
                postretirement benefit cost
            
            $
            (9,743
            )





The
      accumulated postretirement benefit obligation and the fair value of plan assets
      are based on a June 30 measurement date.


The
      assumptions used to calculate net periodic postretirement benefit costs are
      as
      follows:





**2007**
            **2006**
            **2005**Weighted
                average discount rate
            6.25%
            5.00%
            6.25%Weighted
                average rate of future compensation increase
            3.50%
            3.00%
            3.25%Expected
                long-term rate of return on plan assets
            8.25%
            8.25%
            8.50%





The
      weighted average discount rate is based on long-term, high quality bond indices
      at the measurement date. The expected long-term rate of return on plan assets
      is
      based on historical and projected rates of return for current and planned asset
      classes in the investment portfolio. Assumed projected rates of return for
      each
      asset class were selected after analyzing historical experience and future
      expectations of the returns. The overall expected rate of return for the
      portfolio was developed based on the target allocation for each class. The
      expected return is a long-term assumption that generally does not change
      annually.


The
      assumptions used to calculate the accumulated postretirement benefit obligations
      are as follows:





**2007**
            **2006**Weighted
                average discount rate
            6.25%
            6.25%Weighted
                average rate of future compensation increase
            3.75%
            3.50%





The
      assumed medical cost trend rates at September 30 are as
      follows:





**2007**
            **2006**Medical
                cost trend assumed for next year
            8.00%
            8.00%Rate
                to which the medical cost trend rate is assumed to decline(the
                ultimate medical cost trend rate)
            5.00%
            5.00%Year
                that the rate reaches the ultimate trend
            2011
            2010





The
      following table presents the effect of an assumed 1% change in the assumed
      medical cost trend rate:





(Thousands)
            **1%
                Increase**
            
            **1%
                Decrease**Effect
                on net periodic postretirement benefit cost
            
            
            $
            720
            
            
            
            $
            (630
            )Effect
                on accumulated postretirement benefit obligation
            
            
            
            2,930
            
            
            
            
            (2,660
            )





Following
      are the targeted and actual plan assets by category:





**2008**
            **2007**
            **2006****Target**
            **Actual**
            **Actual**Equity
                Securities
            60%
            58%
            55%Debt
                Securities
            40%
            42%
            45%Total
            100%
            100%
            100%





Missouri
      state law provides for the recovery in rates of SFAS No. 106, “Employers’
Accounting for Postretirement Benefits Other Than Pensions,” accrued costs
      provided that such costs are funded through an independent, external funding
      mechanism. Laclede Gas established Voluntary Employees’ Beneficiary Association
      and Rabbi trusts as its external funding mechanisms. Laclede Gas’ investment
      policy seeks to maximize investment returns consistent with Laclede Gas’
tolerance for risk. Outside investment management specialists are utilized
      in
      each asset class. Such specialists are provided with guidelines, where
      appropriate, designed to ensure that the investment portfolio is managed in
      accordance with policy. Performance and compliance with the guidelines is
      regularly monitored. Laclede Gas’ current


59


investment
      policy targets an asset allocation of 60% to equity securities and 40% to debt
      securities, excluding cash held in short-term debt securities for the purpose
      of
      making benefit payments. Laclede Gas currently invests in a mutual fund which
      is
      rebalanced on an ongoing basis to the target allocation.


Following
      are expected postretirement benefit payments for the succeeding five fiscal
      years, and in aggregate for the five years thereafter:





(Millions)
            
            **Benefits
                Paid**
              **from**
              **Qualified
                Trust**
            
            **Benefits
                Paid**
              **from
                Laclede Gas**
              **Funds**2008
            
            
            $
            4.0
            
            
            
            $
            0.32009
            
            
            
            4.1
            
            
            
            
            0.32010
            
            
            
            4.3
            
            
            
            
            0.32011
            
            
            
            4.3
            
            
            
            
            0.32012
            
            
            
            4.5
            
            
            
            
            0.32013
                – 2017
            
            
            
            26.8
            
            
            
            
            1.7





Laclede
      Gas’ funding policy is to contribute amounts to the trusts equal to the periodic
      benefit cost calculated pursuant to SFAS No. 106 as recovered in rates.
      Contributions to the postretirement plans in fiscal year 2008 are anticipated
      to
      be $8.2 million to the qualified trusts, and $0.3 million paid directly to
      participants from Laclede Gas funds.





**Other
      Plans**





Laclede
      Gas sponsors 401(k) plans that cover substantially all employees. The plans
      allow employees to contribute a portion of their base pay in accordance with
      specific guidelines. Laclede Gas provides a match of such contributions within
      specific limits. The cost of the defined contribution plans of Laclede Gas
      amounted to $3.0 million, $3.0 million and $2.9 million for fiscal years 2007,
      2006 and 2005, respectively.





**SM&P
      Utility Resources, Inc.**





SM&P
      sponsors a qualified, defined contribution plan that covers substantially all
      employees. The plan allows employees to contribute a portion of their base
      pay
      in accordance with specific guidelines, with a match by SM&P of such
      contributions within specific limits. The cost of this plan amounted to $0.7
      million, $0.7 million, and $0.5 million for the fiscal years 2007, 2006 and
      2005, respectively. SM&P also sponsors a non-qualified, defined contribution
      plan that covers key employees. The cost of this plan was $0.1 million per
      year
      for fiscal years 2007, 2006 and 2005.


SM&P
      maintains a non-qualified, defined benefit plan with four participants that
      was
      frozen to new participants in 2002. Since the plan is a non-qualified plan,
      it
      has no assets held in trust. Net pension cost related to the plan was $38,000
      per year for fiscal years 2007, 2006 and 2005. The net liability recognized
      under the plan was $504,000, $466,000, and $427,000, at
      September 30, 2007, 2006 and 2005, respectively.








**3.**
            **FINANCIAL
                INSTRUMENTS**





In
      the
      course of its business, Laclede Group’s non-regulated gas marketing affiliate,
      LER, enters into fixed-price commitments associated with the purchase or sale
      of
      natural gas. LER manages the price risk associated with these commitments by
      either closely matching the offsetting physical purchase or sale of natural
      gas
      at fixed prices or through the use of exchange-traded futures contracts to
      lock
      in margins. At September 30, 2007, LER’s unmatched positions were not
      material to Laclede Group’s financial position or results of
      operations.


60


Settled
      and open futures positions were as follows at
      September 30, 2007:





**Position
                Month**
            
            **MMBtu**
              **(millions)**
            
            **Average**
              **Price
                per**
              **MMBtu**Settled
                short positions
            
            October
                2007
            
            1.48
            
            $
            7.38Settled
                long positions
            
            October
                2007
            
            .51
            
            
            7.08Open
                short futures positions
            
            November
                2007
            
            1.95
            
            
            7.84December
                2007
            
            .65
            
            
            7.63January
                2008
            
            .54
            
            
            9.92February
                2008
            
            .08
            
            
            9.53April
                2008
            
            1.71
            
            
            8.30November
                2008
            
            .05
            
            
            8.82December
                2008
            
            .05
            
            
            8.82January
                2009
            
            .05
            
            
            8.82February
                2009
            
            .05
            
            
            8.82March
                2009
            
            .05
            
            
            8.82November
                2009
            
            .10
            
            
            8.80December
                2009
            
            .10
            
            
            8.80January
                2010
            
            .10
            
            
            8.80February
                2010
            
            .10
            
            
            8.80March
                2010
            
            .10
            
            
            8.80





The
      above
      futures contracts are derivative instruments and management has designated
      these
      items as cash flow hedges of forecasted transactions. The fair values of the
      instruments are recognized on the Consolidated Balance Sheets. The change in
      the
      fair value of the effective portion of these hedge instruments is recorded,
      net
      of tax, in Other Comprehensive Income (Loss), a component of Common Stock
      Equity. These amounts will reduce or be charged to Non-Regulated Gas Marketing
      Operating Revenues or Expenses in the Statements of Consolidated Income as
      the
      hedged transactions occur. As of September 30, 2007, it is expected
      that approximately $5.4 million of pre-tax unrealized gains will be reclassified
      into the Consolidated Statement of Income during fiscal year 2008. The
      ineffective portions of these hedge instruments are charged or credited to
      Non-Regulated Gas Marketing Operating Revenues or Expenses. The net amount
      of
      pre-tax gains (losses) recognized in earnings for the ineffective portion of
      cash flow hedges was $(0.5) million, $0.7 million, and $(2.0) million for fiscal
      years 2007, 2006, and 2005, respectively. These gains and losses were primarily
      due to higher price volatility and hurricane-related regional supply/demand
      imbalances. Cash flows from hedging transactions are classified in the same
      category as the cash flows from the items that are being hedged in the
      Statements of Consolidated Cash Flows.








**4.**
            **EARNINGS
                PER SHARE OF COMMON STOCK**





SFAS
      No.
      128, “Earnings Per Share,” requires dual presentation of basic and diluted
      earnings per share (EPS). Basic EPS does not include potentially dilutive
      securities and is computed by dividing net income by the weighted average number
      of common shares outstanding during the period. Diluted EPS assumes the issuance
      of common shares pursuant to the Company’s stock-based compensation plans at the
      beginning of each respective period, or at the date of grant or award, if later.
      Shares attributable to stock options are excluded from the calculation of
      diluted earnings per share if the effect would be antidilutive. For the years
      ended September 30, 2007, and 2006, 107,500 shares and 100,500 shares,
      respectively, attributable to antidilutive outstanding stock options were
      excluded from the calculation of diluted earnings per share. There were no
      antidilutive stock options for the year ended September 30, 2005.
      Performance-contingent restricted stock awards are only included in the
      calculation of diluted earnings per share to the extent the underlying
      performance conditions are satisfied (a) prior to the end of the reporting
      period or (b) would be satisfied if the end of the reporting period were the
      end
      of the related contingency period and the result would be dilutive. For the
      years ended September 30, 2007 and 2006, 110,000 shares and 51,000
      shares, respectively, of nonvested performance-contingent restricted stock
      were
      excluded from the calculation of diluted earnings per share. No shares of
      nonvested performance-contingent restricted stock were excluded for the year
      ended September 30, 2005.




















61





(Thousands,
                Except Per Share Amounts)
            
            
            
            **2007**
            
            **2006**
            
            **2005****Basic
                EPS:**Net
                Income
            
            
            
            $
            49,771
            
            $
            48,989
            
            $
            40,070Weighted
                Average Shares Outstanding
            
            
            
            
            21,455
            
            
            21,247
            
            
            21,080Earnings
                Per Share of Common Stock
            
            
            
            $
            2.32
            
            $
            2.31
            
            $
            1.90**Diluted
                EPS:**Net
                Income
            
            
            
            $
            49,771
            
            $
            48,989
            
            $
            40,070Weighted
                Average Shares Outstanding
            
            
            
            
            21,455
            
            
            21,247
            
            
            21,080Dilutive
                Effect of Stock Optionsand
                Restricted Stock
            
            
            
            
            48
            
            
            39
            
            
            40Weighted
                Average Diluted Shares
            
            
            
            
            21,503
            
            
            21,286
            
            
            21,120Earnings
                Per Share of Common Stock
            
            
            
            $
            2.31
            
            $
            2.30
            
            $
            1.90








**5.**
            **COMMON
                STOCK AND PAID-IN CAPITAL**





Total
      shares of common stock outstanding were 21.65 million and 21.36 million at
      September 30, 2007 and 2006, respectively.


Common
      stock and paid-in capital increased $9.2 million in fiscal year 2007. Common
      stock issued under the Dividend Reinvestment Plan increased common stock and
      paid-in capital by $3.8 million and the remaining $5.4 million increase was
      primarily due to stock-based compensation costs and the issuance of 167,025
      shares of common stock (including 59,000 shares of performance-contingent
      restricted stock) under the Equity Incentive Plan. Common stock and paid-in
      capital increased $5.8 million in fiscal year 2006. Common stock issued under
      the Dividend Reinvestment Plan increased common stock and paid-in capital by
      $3.7 million and the remaining $2.1 million increase was primarily due to
      stock-based compensation costs and the issuance of 75,375 shares of common
      stock
      (including 51,000 shares of performance-contingent restricted stock) under
      the
      Equity Incentive Plan.


On
      August 23, 2001, Laclede Group declared a dividend of one preferred
      share purchase right for each outstanding share of common stock. Each preferred
      share purchase right entitles the registered holder to purchase from Laclede
      Group one one-hundredth of Series A junior participating preferred stock for
      a
      purchase price of $90, subject to adjustment. The value of one one-hundredth
      of
      a preferred share purchasable upon the exercise of each right should, because
      of
      the nature of the preferred shares’ dividend, liquidation and voting rights,
      approximate the value of one common share. The rights expire on
      October 1, 2011 and may be redeemed by Laclede Group for one cent each
      at any time before they become exercisable. The rights will not be exercisable
      or transferable apart from the common stock until ten business days after (i)
      public announcement that a person or group has acquired beneficial ownership
      of
      20% or more of the common stock, or (ii) commencement of, or announcement of
      an
      intention to make, a tender or exchange offer for beneficial ownership of 20%
      or
      more of the common stock. Following such an event, a right will entitle its
      holder to purchase, for the purchase price, the number of shares equal to the
      purchase price divided by one-half of the market price. Alternatively, Laclede
      Group may exchange each right for one one-hundredth of a preferred share. The
      number of rights outstanding is the same as the number of shares of common
      stock
      outstanding on any date prior to rights becoming exercisable or transferable
      apart from the common stock.


Laclede
      Group has on file a shelf registration on Form S-3, which allows for the
      issuance of equity securities, other than preferred stock, and debt securities.
      Of the $500 million of securities originally registered under this Form S-3,
      $362.4 million remain registered and unissued as of
      September 30, 2007. The amount, timing and type of additional
      financing to be issued under this shelf registration will depend on cash
      requirements and market conditions.








**6.**
            **REDEEMABLE
                PREFERRED STOCK — LACLEDE
                GAS**





Laclede
      Gas preferred stock, which is non-voting except in certain circumstances, may
      be
      redeemed at the option of the Laclede Gas Board of Directors. The redemption
      price is equal to par of $25.00 per share.


During
      2007, 6,351 shares of 5% Series B preferred stock were called to meet sinking
      fund requirements. During 2006, 97 shares of 5% Series B preferred stock and
      12
      shares of 4.56% Series C preferred stock were reacquired and 2,404 shares of
      5%
      Series B preferred stock were called to meet sinking fund
      requirements.


Any
      default in a sinking fund payment must be cured before Laclede Gas may pay
      dividends on or acquire any common stock. Sinking fund requirements on preferred
      stock for the next five years subsequent to September 30, 2007 are
      $0.2 million per year in 2008 through 2011, and none in 2012.


62





**7.**
            **LONG-TERM
                DEBT**





Maturities
      on long-term debt, including current portion, for the five fiscal years
      subsequent to


September 30, 2007
      are as follows:





2008
            $40
                million
            (Paid at maturity on November 1, 2007)2009
            —2010
            —2011
            $25
                million2012
            —





On
      March 20, 2007, Laclede Gas filed a shelf registration on Form S-3
      with the Securities and Exchange Commission (SEC) for issuance of $350 million
      of securities, which filing became effective April 10, 2007. This
      filing also deregistered $65 million of securities under the Utility’s previous
      shelf registration statement. The full amount of this new shelf registration
      remains available to Laclede Gas at this time. On March 6, 2007, the
      Utility received authority from the MoPSC to issue up to $500 million in first
      mortgage bonds, unsecured debt, and equity securities. During fiscal year 2007,
      pursuant to this authority, the Utility sold 110 shares of its common stock
      to
      Laclede Group for $3.8 million, leaving $496.2 million remaining under this
      authorization as of the date of this filing. The amount, timing and type of
      additional financing to be issued will depend on cash requirements and market
      conditions.


In
      June 2006, Laclede Gas sold $55 million principal amount of First Mortgage
      Bonds, 6.15% Series, due June 1, 2036. The net proceeds of
      approximately $54.4 million from this sale were used to reduce short-term debt
      (including that incurred to fund the redemption at maturity of $40 million
      of 8
      5/8% Series First Mortgage Bonds on May 15, 2006) and for general
      corporate purposes.


Substantially
      all of the utility plant of Laclede Gas is subject to the liens of its mortgage.
      The mortgage contains several restrictions on Laclede Gas’ ability to pay cash
      dividends on its common stock. These provisions are applicable regardless of
      whether the stock is publicly held or, as has been the case since the formation
      of The Laclede Group, held solely by the Utility’s parent company. Under the
      most restrictive of these provisions, no cash dividend may be declared or paid
      if, after the dividend, the aggregate net amount spent for all dividends after
      September 30, 1953, would exceed a maximum amount determined by a
      formula set out in the mortgage. Under that formula, the maximum amount is
      the
      sum of $8 million plus earnings applicable to common stock (adjusted for stock
      repurchases and issuances) for the period from September 30, 1953, to
      the last day of the quarter before the declaration or payment date for the
      dividends. As of September 30, 2007 and 2006, the amount under the
      mortgage’s formula that was available to pay dividends was $263 million and $258
      million, respectively. Thus, all of the Utility’s retained earnings were free
      from such restrictions as of those dates.








**8.**
            **NOTES
                PAYABLE AND CREDIT
                AGREEMENTS**





Throughout
      fiscal year 2007, Laclede Gas had a line of credit in place of $320 million,
      which expires in December 2010. In November 2007, the Utility
      established a seasonal line of credit of $40 million, which will expire in
      March 2008.


Laclede
      Gas issues commercial paper that is supported by the bank lines of credit.
      During fiscal year 2007, the Utility’s short-term borrowing requirements, which
      peaked at $262.1 million, were generally met by the sale of commercial paper.
      During the last quarter of the fiscal year, due to disruptions in the commercial
      paper market, Laclede Gas drew on its bank line to replace higher-cost
      commercial paper, up to a maximum of $70 million. All such borrowings were
      repaid prior to September 30, 2007, as the commercial paper market
      returned to more normal conditions. Laclede Gas had $211.4 million in commercial
      paper outstanding as of September 30, 2007, at a weighted average
      interest rate of 5.5% per annum, and $207.3 million outstanding as of
      September 30, 2006, at a weighted average interest rate of 5.3% per
      annum.


Laclede
      Gas’ lines of credit include covenants limiting total debt, including short-term
      debt, to no more than 70% of total capitalization and requiring earnings before
      interest, taxes, depreciation and amortization (EBITDA) to be at least 2.25
      times interest expense. On September 30, 2007, total debt was 62% of
      total capitalization*.*For the fiscal year ended
      September 30, 2007, EBITDA was 3.40 times interest
      expense.


Short-term
      cash requirements outside of Laclede Gas have generally been met with
      internally-generated funds. However, Laclede Group has $50 million in
      working-capital lines of credit, expiring in August 2008, to meet
      short-term liquidity needs of its subsidiaries. These lines of credit have
      covenants limiting the total debt of the consolidated Laclede Group to no more
      than 70% of the Company’s total capitalization, giving a 50% debt weighting to
      the subordinated debt issued to an unconsolidated affiliated trust. This ratio
      stood at 57% on September 30, 2007. These lines have been used to
      provide letters of credit totaling $2.8 million on behalf of SM&P, which
      have not been drawn, and to provide for seasonal funding needs of the various
      subsidiaries from time to time. There were no borrowings under Laclede Group’s
      lines during the fiscal year.


63





**9.**
            **FAIR
                VALUE OF FINANCIAL
                INSTRUMENTS**





The
      carrying amounts and estimated fair values of financial instruments at
      September 30, 2007 and 2006 are as follows:





(Thousands)
            
            **Carrying**
              **Amount**
            
            **Fair**
              **Value**2007:Cash
                and cash equivalents
            
            $
            52,746
            
            $
            52,746Investment
                in unconsolidated affiliate trust
            
            
            1,400
            
            
            1,400Short-term
                debt
            
            
            211,400
            
            
            211,400Long-term
                debt, including current portion
            
            
            349,122
            
            
            356,964Redeemable
                preferred stock, including current sinking fund
                requirements
            
            
            787
            
            
            756Long-term
                debt to unconsolidated affiliate trust
            
            
            46,400
            
            
            46,4002006:Cash
                and cash equivalents
            
            $
            50,778
            
            $
            50,778Investment
                in unconsolidated affiliate trust
            
            
            1,400
            
            
            1,400Short-term
                debt
            
            
            207,300
            
            
            207,300Long-term
                debt
            
            
            349,041
            
            
            367,471Redeemable
                preferred stock, including current sinking fund
                requirements
            
            
            946
            
            
            946Long-term
                debt to unconsolidated affiliate trust
            
            
            46,400
            
            
            47,480





The
      carrying amounts for cash and cash equivalents and short-term debt approximate
      fair value due to the short maturity of these instruments. Fair values of
      long-term debt, preferred stock, and long-term debt to unconsolidated affiliate
      trust are estimated based on market prices for similar issues.


Investment
      in unconsolidated affiliate trust – The Company’s cost method investment
      consists of $1.4 million in common securities of Capital Trust I, a wholly-owned
      subsidiary trust. This investment was not evaluated for impairment because
      the
      Company did not identify any events or changes in circumstances that may have
      had a significant adverse effect on the fair value of that
      investment.








**10.**
            **ACCUMULATED
                OTHER COMPREHENSIVE INCOME
                (LOSS)**





The
      components of accumulated other comprehensive income (loss), net of income
      taxes, recognized in the


Consolidated
      Balance Sheets at September 30 were as follows:





(Thousands)
            **Net
                Unrealized Gains (Losses) on Cash Flow Hedges**
            **Minimum
                Pension Liability Adjustment**
            **Defined
                Benefit Pension and Other**
              **Postretirement**
              **Benefit
                Plans**
            **Total**Balance,
                September 30, 2005
            
            
            $
            (6,576
            )
            
            $
            (1,127
            )
            
            $
            —
            
            
            $
            (7,703
            )Current-period
                change
            
            
            
            11,065
            
            
            
            293
            
            
            
            —
            
            
            
            11,358Balance,
                September 30, 2006
            
            
            
            4,489
            
            
            
            (834
            )
            
            
            —
            
            
            
            3,655Current-period
                change
            
            
            
            (905
            )
            
            
            231
            
            
            
            —
            
            
            
            (674
            )Adoption
                of SFAS No. 158
            
            
            
            —
            
            
            
            603
            
            
            
            (1,727
            )
            
            
            (1,124
            )Balance,
                September 30, 2007
            
            
            $
            3,584
            
            
            $
            —
            
            
            $
            (1,727
            )
            
            $
            1,857




64





**11.**
            **INCOME
                TAXES**





The
      net
      provisions for income taxes charged during the years ended
      September 30, 2007, 2006 and 2005 are as follows:





(Thousands)Years
                Ended September 30
            
            **2007**
            
            **2006**
            
            **2005**Included
                in Statements of Consolidated Income:FederalCurrent
            
            $
            35,163
            
            $
            (6,404
            )
            $
            17,346Deferred
            
            
            (13,454
            )
            
            26,646
            
            
            533Investment
                tax credits
            
            
            (237
            )
            
            (241
            )
            
            (332
            )State
                and localCurrent
            
            
            6,016
            
            
            (851
            )
            
            2,991Deferred
            
            
            (2,453
            )
            
            4,417
            
            
            223Total
            
            $
            25,035
            
            $
            23,567
            
            $
            20,761





The
      effective income tax rate varied from the federal statutory income tax rate
      for
      each year due to the following:





**2007**
            
            **2006**
            
            **2005**Federal
                income tax statutory rate
            
            35.0
            %
            35.0
            %
            35.0
            %State
                and local income taxes,net
                of federal income tax benefits
            
            3.1
            
            3.2
            
            3.4Certain
                expenses capitalized on booksand
                deducted on tax return
            
            (3.7
            )
            (2.9
            )
            (3.2
            )Taxes
                related to prior years
            
            0.3
            
            (1.4
            )
            (0.1
            )Other
                items – net
            
            (1.3
            )
            (1.4
            )
            (1.0
            )Effective
                income tax rate
            
            33.4
            %
            32.5
            %
            34.1
            %





The
      significant items comprising the net deferred tax liability recognized in the
      Consolidated Balance Sheets


as
      of
      September 30 are as follows:





(Thousands)
            
            **2007**
            
            **2006**Deferred
                tax assets:Reserves
                not currently deductible
            
            $
            18,364
            
            $
            21,137Unamortized
                investment tax credits
            
            
            2,644
            
            
            2,793Other
            
            
            9,934
            
            
            8,257Total
                deferred tax assets
            
            
            30,942
            
            
            32,187Deferred
                tax liabilities:Relating
                to property
            
            
            196,475
            
            
            186,381Prepaid
                pension asset
            
            
            —
            
            
            25,983Pension
                and other postretirement benefits
            
            
            31,262
            
            
            8,032Deferred
                gas costs
            
            
            8,220
            
            
            24,888Other
            
            
            22,697
            
            
            26,100Total
                deferred tax liabilities
            
            
            258,654
            
            
            271,384Net
                deferred tax liability
            
            
            227,712
            
            
            239,197Net
                deferred tax asset (liability) - current
            
            
            (2,644
            )
            
            (7,049
            )Net
                deferred tax liability - non-current
            
            $
            225,068
            
            $
            232,148








65





**12.**
            **OTHER
                INCOME AND INCOME DEDUCTIONS –
NET**





(Thousands)
            
            **2007**
            
            **2006**
            
            **2005**Non-recurring
                investment gains
            
            $
            —
            
            $
            —
            
            $
            540Allowance
                for funds used during construction
            
            
            (17
            )
            
            (45
            )
            
            (100
            )Interest
                income
            
            
            5,703
            
            
            5,560
            
            
            1,031Other
                income
            
            
            1,189
            
            
            887
            
            
            1,119Other
                income deductions
            
            
            (63
            )
            
            (894
            )
            
            (984
            )Other
                income and (income deductions) – net
            
            $
            6,812
            
            $
            5,508
            
            $
            1,606





Laclede
      Gas recorded the receipt of proceeds totaling $0.5 million during fiscal year
      2005 related to its interest, as a policyholder, in the sale of a mutual
      insurance company. These proceeds represent initial distributions relating
      to
      certain policies held by the Utility. Subsequent distributions, if any, are
      not
      expected to have a material impact on the consolidated financial position or
      results of operations of the Company.


Effective
      October 1, 2005, Laclede Gas applies carrying costs to all over- or
      under-recoveries of gas costs, including costs and cost reductions associated
      with the use of financial instruments, as approved by the MoPSC. Previously,
      carrying costs were applicable only to certain gas cost components exceeding
      a
      predetermined threshold. Such income is recovered through the PGA Clause. These
      amounts are included in the interest income line in the table
      above.








**13.**
            **INFORMATION
                BY OPERATING SEGMENT**





All
      of
      Laclede Group’s subsidiaries are wholly owned. The Regulated Gas Distribution
      segment consists of the regulated operations of Laclede Gas and is the core
      business segment of Laclede Group. Laclede Gas is a public utility engaged
      in
      the retail distribution and sale of natural gas serving an area in eastern
      Missouri, with a population of approximately 2.1 million, including the City
      of
      St. Louis and parts of ten other counties in eastern Missouri. The Non-Regulated
      Services segment includes the results of SM&P, an underground facilities
      locating and marking business operating in ten Midwestern and Southwestern
      states. The underground facility locating industry remains competitive with
      many
      contracts subject to termination on short-term notice. Also, SM&P’s
      customers are concentrated primarily in the utility and telecommunications
      sectors. Additionally, SM&P’s results can be influenced by seasonality and
      trends in the construction sector. The Non-Regulated Gas Marketing segment
      includes the results of LER, a subsidiary engaged in the non-regulated marketing
      of natural gas and related activities. Non-Regulated Other includes the
      transportation of liquid propane, real estate development, the compression
      of
      natural gas, and financial investments in other enterprises. These operations
      are conducted through five subsidiaries. Non-Regulated Other also includes
      Laclede Gas’ non-regulated merchandise sales business. Certain intersegment
      revenues with Laclede Gas are not eliminated in accordance with the provisions
      of SFAS No. 71, “Accounting for the Effects of Certain Types of Regulation.”
Those types of transactions include sales of natural gas from Laclede Gas to
      LER, services performed by SM&P to locate and mark underground facilities
      for Laclede Gas, sales of natural gas from LER to Laclede Gas, and sales of
      propane and transportation services provided by Laclede Pipeline Company to
      Laclede Gas. These revenues are shown on the Intersegment revenues lines in
      the
      table under Regulated Gas Distribution, Non-Regulated Services, Non-Regulated
      Gas Marketing, and Non-Regulated Other columns respectively.




66




**Regulated
                Gas**
            
            **Non-Regulated**
            
            **Non-Regulated**
            
            **Non-Regulated**
            
            **Adjustments
                &**(Thousands)
            
            **Distribution**
            
            **Services**
            
            **Gas
                Marketing**
            
            **Other**
            
            **Eliminations**
            
            **Consolidated****FISCAL
                2007**Revenues
                fromexternal
                customers
            
            $
            1,093,372
            
            $
            165,264
            
            $
            669,464
            
            $
            4,565
            
            $
            —
            
            $
            1,932,665Intersegment
                revenues
            
            
            38,182
            
            
            469
            
            
            49,240
            
            
            1,038
            
            
            —
            
            
            88,929Total
                operating revenues
            
            
            1,131,554
            
            
            165,733
            
            
            718,704
            
            
            5,603
            
            
            —
            
            
            2,021,594Depreciation
                &amortization
            
            
            34,080
            
            
            —
            *
            
            —
            
            
            —
            **
            
            —
            
            
            34,080Interest
                income
            
            
            3,499
            
            
            108
            
            
            1,796
            
            
            2,265
            
            
            (1,965
            )
            
            5,703Interest
                charges
            
            
            33,603
            
            
            3,486
            
            
            —
            
            
            2,105
            
            
            (1,965
            )
            
            37,229Income
                tax expense
            
            
            13,853
            
            
            2,417
            
            
            8,204
            
            
            561
            
            
            —
            
            
            25,035Net
                income
            
            
            32,133
            
            
            3,280
            
            
            13,334
            
            
            1,024
            
            
            —
            
            
            49,771Total
                assets
            
            
            1,429,415
            
            
            77,988
            
            
            115,246
            
            
            84,953
            
            
            (66,449
            )
            
            1,641,153Capital
                expenditures
            
            
            56,434
            
            
            2,379
            
            
            —
            
            
            57
            
            
            —
            
            
            58,870**FISCAL
                2006**Revenues
                fromexternal
                customers
            
            $
            1,119,919
            
            $
            162,092
            
            $
            640,419
            
            $
            3,382
            
            $
            —
            
            $
            1,925,812Intersegment
                revenues
            
            
            21,092
            
            
            431
            
            
            49,153
            
            
            1,063
            
            
            —
            
            
            71,739Total
                operating revenues
            
            
            1,141,011
            
            
            162,523
            
            
            689,572
            
            
            4,445
            
            
            —
            
            
            1,997,551Depreciation
                &amortization
            
            
            30,904
            
            
            —
            *
            
            —
            
            
            —
            **
            
            —
            
            
            30,904Interest
                income
            
            
            4,146
            
            
            169
            
            
            794
            
            
            1,566
            
            
            (1,115
            )
            
            5,560Interest
                charges
            
            
            32,565
            
            
            3,429
            
            
            94
            
            
            1,206
            
            
            (1,115
            )
            
            36,179Income
                tax expense
            
            
            10,636
            
            
            1,772
            
            
            10,762
            
            
            397
            
            
            —
            
            
            23,567Net
                income
            
            
            28,839
            
            
            2,358
            
            
            17,094
            
            
            698
            
            
            —
            
            
            48,989Total
                assets
            
            
            1,383,703
            
            
            78,986
            
            
            86,891
            
            
            86,736
            
            
            (66,156
            )
            
            1,570,160Capital
                expenditures
            
            
            57,925
            
            
            4,861
            
            
            —
            
            
            630
            
            
            —
            
            
            63,416**FISCAL
                2005**Revenues
                fromexternal
                customers
            
            $
            950,467
            
            $
            141,118
            
            $
            435,817
            
            $
            2,885
            
            $
            —
            
            $
            1,530,287Intersegment
                revenues
            
            
            27,728
            
            
            360
            
            
            33,742
            
            
            4,915
            
            
            —
            
            
            66,745Total
                operating revenues
            
            
            978,195
            
            
            141,478
            
            
            469,559
            
            
            7,800
            
            
            —
            
            
            1,597,032Depreciation
                &amortization
            
            
            23,036
            
            
            —
            *
            
            —
            
            
            —
            **
            
            —
            
            
            23,036Interest
                income
            
            
            730
            
            
            57
            
            
            53
            
            
            529
            
            
            (338
            )
            
            1,031Interest
                charges
            
            
            26,911
            
            
            3,430
            
            
            148
            
            
            398
            
            
            (338
            )
            
            30,549Income
                tax expense (benefit)
            
            
            14,561
            
            
            3,463
            
            
            2,763
            
            
            (26
            )
            
            —
            
            
            20,761Net
                income
            
            
            30,594
            
            
            5,006
            
            
            4,378
            
            
            92
            
            
            —
            
            
            40,070Total
                assets
            
            
            1,273,975
            
            
            70,213
            
            
            79,440
            
            
            46,252
            
            
            (35,779
            )
            
            1,434,101Capital
                expenditures
            
            
            54,621
            
            
            5,415
            
            
            —
            
            
            167
            
            
            —
            
            
            60,203





*
            Depreciation
                & amortization for Non-Regulated Services is included in Non-Regulated
                - Services Operating Expenses on the Statements of Consolidated Income
                (2007, $3.9 million; 2006, $3.7 million; 2005, $3.3
                million).**
            Depreciation
                & amortization for Non-Regulated Other is included in the
                Non-Regulated – Other Operating Expenses on the Statements of Consolidated
                Income (2007, $0.3 million; 2006, $0.3 million; 2005, $0.3
                million).








**14.**
            **COMMITMENTS
                AND CONTINGENCIES**





Laclede
      Gas estimates fiscal year 2008 utility capital expenditures at approximately
      $59
      million. Fiscal year 2008 capital expenditures for non-regulated subsidiaries
      are estimated at approximately $4 million. There are no material contractual
      commitments at September 30, 2007 related to these estimated capital
      expenditures.


The
      lease
      agreement covering the headquarters office space of Laclede Gas extends through
      February 2010 with options to renew for up to 10 additional years. The
      aggregate rental expense for fiscal years 2007, 2006 and 2005 was $882,000,
      $874,000 and $865,000, respectively. The annual minimum rental payment for
      fiscal year 2008 is anticipated to be approximately $891,000 with a maximum
      annual rental payment escalation of $8,800 per year for each year through fiscal
      year 2010. Laclede Gas has other relatively minor rental arrangements that
      provide for minimum rental payments. Laclede Gas has entered into various
      operating lease agreements for the rental of vehicles and power operated
      equipment. The rental costs will be approximately $3.5 million in fiscal year
      2008, $2.7 million in fiscal year 2009, $1.8 million in


67


fiscal
      year 2010, $0.9 million in fiscal year 2011 and $0.3 million in fiscal year
      2012. Laclede Gas and LER have entered into various contracts, expiring on
      dates
      through 2017, for the storage, transportation, and supply of natural gas.
      Minimum payments required under the contracts in place at
      September 30, 2007 are estimated at approximately $538 million.
      Additional contracts are generally entered into prior to or during the heating
      season. Laclede Gas estimates that it will pay approximately $93 million
      annually, at present rate levels, for fixed charges related to these or other
      contracts that are expected to be in place for the upcoming year for the
      reservation of gas supplies and pipeline transmission and storage capacity.
      The
      Utility recovers these costs from customers in accordance with the PGA
      Clause.


Laclede
      Pipeline Company (Pipeline), a wholly-owned subsidiary of Laclede Group, is
      providing liquid propane transportation service to Laclede Gas pursuant to
      an
      approved FERC tariff and a contractual arrangement between Pipeline and Laclede
      Gas. In accordance with the terms of that agreement, Laclede Gas is obligated
      to
      pay Pipeline approximately $1.0 million annually, at current rates, commencing
      April 1, 2006. The agreement renews at the end of each contract year,
      unless terminated by either party upon provision of at least six months’
notice.


Laclede
      Gas has several operating leases for the rental of vehicles that contain
      provisions requiring Laclede Gas to guarantee certain amounts related to the
      residual value of the leased property. These leases have various terms, the
      longest of which extends through 2014. At September 30, 2007, the
      maximum guarantees under these leases are $1.9 million. However, the Utility
      estimates that the residual value of the leased vehicles will be adequate to
      satisfy most of the guaranteed amounts. At September 30, 2007, the
      carrying value of the liability recognized for these guarantees was $0.3
      million.


SM&P
      has several operating leases, the aggregate annual cost of which is $8.6
      million, consisting primarily of 12-month operating leases, with renewal
      options, for vehicles used in its business. Laclede Group has parental
      guarantees of certain of those vehicle leases and anticipates that the maximum
      guarantees, including renewals and new leases, will not exceed $16.8 million.
      In
      the event that Laclede Group would be required to make payments under these
      guarantees, it is expected that a significant portion of such payments would
      be
      recovered through proceeds from the liquidation of assets obtained under the
      terms of the leases. The fair market value of the vehicles being leased is
      estimated at $13.4 million. No amounts have been recorded for these guarantees
      in the financial statements. SM&P also has lease agreements covering general
      office space extending through 2015 that resulted in rental expense for fiscal
      years 2007, 2006 and 2005 of $1.1 million, $1.1 million, and $0.9 million,
      respectively. Payments for commitments under current leases will be $0.8 million
      in fiscal year 2008, $0.6 million in fiscal year 2009, $0.5 million in fiscal
      year 2010, $0.4 million in fiscal year 2011, and $0.4 million in fiscal year
      2012.


Laclede
      Group had guarantees totaling $33.0 million for performance and payment of
      certain wholesale gas supply purchases by LER, as of
      September 30, 2007. Since that date, total guarantees issued by
      Laclede Group on behalf of LER increased by $9.8 million bringing the total
      to
      $42.8 million in guarantees outstanding at November 28, 2007. No
      amounts have been recorded for these guarantees in the financial
      statements.


A
      consolidated subsidiary is a general partner in an unconsolidated partnership,
      which invests in real estate partnerships. The subsidiary and third parties
      are
      jointly and severally liable for the payment of mortgage loans in the aggregate
      outstanding amount of approximately $2.3 million incurred in connection with
      various real estate ventures. Laclede Group has no reason to believe that the
      other principal liable parties will not be able to meet their proportionate
      share of these obligations. Laclede Group further believes that the asset values
      of the real estate properties are sufficient to support these mortgage
      loans.


Laclede
      Gas owns and operates natural gas distribution, transmission and storage
      facilities, the operations of which are subject to various environmental laws,
      regulations and interpretations. While environmental issues resulting from
      such
      operations arise in the ordinary course of business, such issues have not
      materially affected the Company’s or Laclede Gas’ financial position and results
      of operations. As environmental laws, regulations, and their interpretations
      change, however, Laclede Gas may be required to incur additional
      costs.


Environmental
      issues have arisen in the past, and may arise in the future, associated with
      sites formerly owned or operated by Laclede Gas and/or its predecessor
      companies, including facilities at which manufactured gas operations took place.
      Laclede Gas has been advised of the existence of three former manufactured
      gas
      plant (MGP) sites that may require remediation and has worked with federal
      and
      state environmental regulators to address two of the three sites.


With
      regard to a former MGP site located in Shrewsbury, Missouri, Laclede Gas and
      state and federal environmental regulators have agreed upon certain remedial
      actions and those actions are essentially complete. Laclede Gas currently
      estimates the overall cost of these actions will be approximately $2.4 million.
      As of September 30, 2007, Laclede Gas has paid for the cost of these
      actions. If regulators require additional remedial actions or assert additional
      claims, Laclede Gas will incur additional costs.


Laclede
      Gas enrolled a second former MGP site into the Missouri Voluntary Cleanup
      Program (VCP). The VCP provides potential opportunities to minimize the cost
      of
      site cleanup while maximizing possibilities for site development. This site
      is
      located in, and is presently owned by, the City of St. Louis, Missouri (City).
      The City has been exploring development options for the site and has announced
      publicly the selection of a developer with whom it will attempt to negotiate
      a
      final site development contract. In light of the City’s announcement, Laclede
      Gas continues to evaluate options concerning this site. Laclede Gas currently
      estimates the cost of site investigations, agency oversight and related legal
      and engineering consulting to be approximately $650,000. Laclede Gas has paid
      for the cost of these actions. Laclede Gas has requested that other former
      site
      owners and operators share in these costs. One party has agreed
      to


68


participate
      and has reimbursed Laclede Gas to date for $190,000. Laclede Gas plans to seek
      proportionate reimbursement of all costs relative to this site from other
      potentially responsible parties to the extent practicable.


Laclede
      Gas has been advised that a third former MGP site may require remediation.
      Laclede Gas does not currently own this site, and has not owned it for many
      years. At this time, it is not known whether Laclede Gas will incur any costs
      in
      connection with environmental investigations of or remediation at the site,
      and
      if it does incur any such costs, what the amount of those costs would
      be.


Laclede
      Gas has notified its insurers that it seeks reimbursement for costs incurred
      in
      the past and future potential liabilities associated with the three MGP sites
      identified above. In response, the majority of insurers have reserved their
      rights. While some of the insurers have denied coverage, Laclede Gas is
      currently holding discussions with the insurers regarding potential
      reimbursement from them. In June 2007, Laclede Gas received a settlement
      payment from one insurer in exchange for a release of claims against that
      insurer. In June 2005, an outside consultant retained by Laclede Gas
      completed an analysis of the MGP sites to determine cost estimates for a
      one-time contractual transfer of risk from each insurer to the Company of
      environmental coverage for the MGP sites. That analysis demonstrated a range
      of
      possible future expenditures to investigate, monitor and remediate these MGP
      sites from $5.8 million to $36.3 million. This analysis was based upon then
      currently available facts, technology and laws and regulations. The actual
      costs
      that Laclede Gas may incur could be materially higher or lower depending upon
      several factors, including whether remedial actions will be required, final
      selection and regulatory approval of any remedial actions, changing technologies
      and governmental regulations, the ultimate ability of other potentially
      responsible parties to pay and any insurance recoveries. Costs associated with
      environmental remediation activities are accrued when such costs are probable
      and reasonably estimable. As of the date of this report, Laclede Gas has
      recorded all such costs. However, it is possible that future events may require
      some level of additional remedial activities that, in turn, would require
      Laclede Gas to record additional costs.


Laclede
      Gas enrolled a parcel of property located in the City of St. Louis in the VCP
      pursuant to an agreement to sell such parcel to a third party. The sale was
      completed January 8, 2007. Under the terms of the agreement, any costs
      relative to future investigations or remedial actions regulators may require
      shall be borne by the third-party buyer. Laclede Gas does not anticipate
      incurring any material costs in connection with this site.


The
      amount of costs relative to future remedial actions at these and other sites
      is
      unknown and may be material. Laclede Gas anticipates that any costs it may
      incur
      in the future to remediate these sites, less any amounts received as insurance
      proceeds or as contributions from other potentially responsible parties, would
      be deferred and recovered in rates through periodic adjustments approved by
      the
      MoPSC. Accordingly, potential liabilities associated with remediating these
      sites are not expected to have a material impact on the future financial
      position and results of operations of Laclede Gas or the Company.


SM&P
      was the subject of certain employment-related claims arising out of a practice
      of SM&P that predated Laclede Group’s acquisition. The claims involved
      whether certain pre- and post-work activities and commuting time for
      non-supervisory field employees constitute hours worked for purposes of federal
      and state wage and hour laws. These claims were asserted in various proceedings,
      including one “opt-in” collective action filed in March 2003 in Federal
      District Court for the Eastern District of Texas. As a result of a court ruling
      in that proceeding on February 27, 2004, approximately 3,500 present
      and former field employees who worked for SM&P at times since
      February 27, 2001, were given notice of the lawsuit and the
      opportunity to join the lawsuit and assert claims for additional overtime
      compensation for the three-year period immediately preceding the date that
      they
      joined the lawsuit. Of the individuals to whom notice was sent, 966 joined
      the
      lawsuit, the substantial majority of whom are former employees. SM&P
      vigorously contested these claims, including opposition to this case proceeding
      as a collective action.


Since
      the
      subject of employment practices preceded Laclede Group’s acquisition of
      SM&P, Laclede Group notified SM&P’s prior owner, NiSource Inc.
      (NiSource), of the various wage and hour claims. Laclede Group advised NiSource
      of Laclede Group’s position that NiSource was obligated to indemnify Laclede
      Group for liabilities and defense costs arising out of the wage and hour claims,
      subject to the limitations set forth in the Stock Purchase Agreement by and
      between NiSource and Laclede Group dated as of December 12, 2001.
      NiSource initially denied that it had an indemnification obligation to Laclede
      Group.


SM&P
      and the plaintiffs in the collective action ultimately reached agreement to
      settle the lawsuit. While not admitting that its practices violated wage and
      hour laws, SM&P agreed to fund a portion of the amount required to pay the
      plaintiffs to settle the collective action. In conjunction with SM&P’s
      agreement to settle the collective action, NiSource agreed to fund the remaining
      portion of the settlement payment that would be made to the collective action
      plaintiffs. SM&P’s agreement with the plaintiffs was submitted to the
      District Court for approval. In the quarter ended March 31, 2006,
      SM&P recorded a pre-tax charge of $2.5 million to reflect the amount that it
      had expected to fund for the settlement of the collective action. On
      August 10, 2006, the District Court approved SM&P’s agreement with
      the plaintiffs without modification and, subsequently, settlement payments
      were
      made to the plaintiffs.


Laclede
      Group and NiSource further agreed to submit determination of their respective
      rights and obligations under the Stock Purchase Agreement concerning wage and
      hour claims, including settlement payments and the attorneys’ fees and related
      expenses incurred to defend those claims, to an expedited binding arbitration
      procedure. On September 28, 2006, the arbitration panel rendered a
      decision awarding Laclede Group a portion of the settlement payment made to
      the
      plaintiffs, as well as all legal fees and litigation expenses directly related
      to the collective action. NiSource made payment to Laclede Group in accordance
      with the arbitration panel’s decision. Accordingly, in the
      quarter


69


ended
      September 30, 2006, SM&P reversed a portion of the previously
      recorded pre-tax expense totaling $1.3 million to reflect the net amount awarded
      to Laclede Group in the arbitration proceeding. On October 20, 2006,
      NiSource submitted a reconsideration request to the arbitration panel seeking
      to
      reduce the amount awarded by the arbitration panel by approximately $0.3
      million. Laclede Group submitted a letter opposing reconsideration. On
      November 15, 2006, the arbitration panel issued an Order clarifying
      its September 28, 2006 decision, and reduced Laclede Group’s award by
      the amount requested by NiSource. On December 28, 2006, Laclede Group
      filed a complaint in Federal District Court for the Southern District of Indiana
      requesting a court Order confirming the final arbitration award as originally
      issued on September 28, 2006, or alternatively, vacating the
      November 15, 2006 reduced award. Laclede Group contends that the panel
      did not have the legal authority to modify the September 28, 2006
      award. On July 24, 2007, the court issued an Order denying Laclede
      Group’s request to confirm the original September 28, 2006 arbitration
      award and vacate the November 15, 2006 revised award. After
      consultation with legal counsel, management decided not to appeal the court’s
      Order and the matter is now resolved. The ultimate resolution of this matter
      did
      not have a material adverse effect on the consolidated financial position and
      results of operations of Laclede Group.


On
      December 29, 2005, the MoPSC Staff (Staff) proposed a disallowance of
      approximately $3.3 million related to the Company’s recovery of its purchased
      gas costs applicable to fiscal 2004. Following technical conferences, the Staff
      subsequently reduced its proposed disallowance to approximately $2.1 million.
      Laclede Gas believed that the MoPSC Staff’s position lacked merit and vigorously
      opposed the adjustment in proceedings before the MoPSC on
      January 29, 2007. On June 28, 2007, the MoPSC issued an
      Order rejecting the MoPSC Staff’s proposed disallowance and declaring that the
      Utility was not imprudent with respect to the particular gas purchasing practice
      questioned by the MoPSC Staff. This case is now closed.


Laclede
      Gas began implementation of an automated meter reading (AMR) system in
      July 2005. Through the date of this report, the AMR system has been
      deployed to more than 668,000 customer meters, representing well over 98% of
      Laclede’s total customer base population. Certain regulatory issues have arisen
      in conjunction with this implementation. The Utility has approximately 40%
      of
      customers with meters inside their premises. On February 2, 2006, the
      MoPSC Staff filed a complaint against the Utility alleging that it failed to
      adequately obtain or use actual meter readings from certain customers and failed
      to adequately respond to unauthorized gas use. In addition to seeking authority
      to pursue penalties, the Staff sought customer service accommodations for
      customers whose previous estimated bills will require adjustment to reflect
      actual usage. On May 11, 2006, the Missouri Office of Public Counsel
      also filed a complaint alleging that Laclede Gas billed customers for prior
      underestimated usage for a longer period of time than permitted by Commission
      rules. Laclede Gas has filed responses generally denying the MoPSC Staff’s and
      Missouri Office of Public Counsel’s allegations. On November 7, 2006,
      Laclede Gas, the Missouri Office of Public Counsel, and other parties filed
      a
      Stipulation & Agreement that resolves certain issues raised in this case.
      The MoPSC Staff neither supported nor opposed the Stipulation. On
      December 31, 2006, the Commission approved the Stipulation &
Agreement, dismissed the Missouri Office of Public Counsel’s complaint, and
      suspended Staff’s complaint, subject to Laclede’s compliance with the
      Stipulation & Agreement. The primary terms of the Stipulation &
Agreement include the Utility’s provision of bill credits totaling $0.5 million
      to customers who received billing adjustments reconciling undercharges for
      periods exceeding 12 months, a limit on future billing adjustments that
      reconcile undercharges to 12 months, and additional notices to customers
      concerning such billing adjustments. The Utility’s labor union representing
      field service workers, USW Local 11-6 (Union), also raised a number of
      regulatory matters with the MoPSC alleging safety issues associated with the
      installation of AMR and changes in other work practices implemented by Laclede
      Gas. On November 2, 2006, the MoPSC denied and dismissed one of these
      complaints. On December 11-12, 2006, the MoPSC held a hearing on the
      Union’s last remaining complaint. That hearing was completed on
      February 26, 2007. On June 22, 2007, the MoPSC issued an
      Order denying the Union’s remaining complaint and dismissing the case. This case
      is now closed.


On
      December 28, 2006, the MoPSC Staff proposed a disallowance of
      approximately $7.2 million related to Laclede Gas’ recovery of its purchased gas
      costs applicable to fiscal 2005, largely on the same grounds as it had proposed
      regarding the disallowance of the Utility’s recovery of purchased gas cost
      applicable to fiscal 2004. On September 14, 2007, the Staff withdrew
      its pursuit of $5.5 million of the disallowance it had originally proposed.
      Laclede Gas believes that the remainder of the MoPSC Staff’s proposed
      disallowance lacks merit and intends to vigorously oppose the adjustment in
      proceedings before the MoPSC.


Laclede
      Group is involved in other litigation, claims and investigations arising in
      the
      normal course of business. While the results of such litigation cannot be
      predicted with certainty, management, after discussion with counsel, believes
      that the final outcome will not have a material adverse effect on the
      consolidated financial position or results of operations of the
      Company.





70





**15.**
            **INTERIM
                FINANCIAL INFORMATION
                (UNAUDITED)**





In
      the
      opinion of Laclede Group, the quarterly information presented below for fiscal
      years 2007 and 2006 includes all adjustments (consisting of only normal
      recurring accruals) necessary for a fair statement of the results of operations
      for such periods. Variations in consolidated operations reported on a quarterly
      basis primarily reflect the seasonal nature of the business of Laclede
      Gas.





(Thousands,
                Except Per Share Amounts)**Three
                Months Ended**
            
            
            
            
            **Dec.
                31**
            
            
            
            
            **March
                31**
            
            
            
            
            **June
                30**
            
            
            
            
            **Sept.
                30**2007Total
                operating revenues
            
            
            
            $
            539,561
            
            
            
            $
            700,834
            
            
            
            $
            457,927
            
            
            
            $
            323,272Operating
                income
            
            
            
            
            36,398
            
            
            
            
            40,736
            
            
            
            
            21,340
            
            
            
            
            6,792Net
                income
            
            
            
            
            19,087
            
            
            
            
            20,819
            
            
            
            
            9,262
            
            
            
            
            603Basic
                earnings per share ofcommon
                stock
            
            
            
            $
            .89
            
            
            
            $
            .97
            
            
            
            $
            .43
            
            
            
            $
            .03Diluted
                earnings per share ofcommon
                stock
            
            
            
            
            .89
            
            
            
            
            .97
            
            
            
            
            .43
            
            
            
            
            .03**Three
                Months Ended**
            
            
            
            
            **Dec.
                31**
            
            
            
            
            **March
                31**
            
            
            
            
            **June
                30**
            
            
            
            
            **Sept.
                30**2006Total
                operating revenues
            
            
            
            $
            689,235
            
            
            
            $
            708,780
            
            
            
            $
            330,542
            
            
            
            $
            268,994Operating
                income
            
            
            
            
            46,137
            
            
            
            
            41,211
            
            
            
            
            11,281
            
            
            
            
            4,646Net
                income (loss)
            
            
            
            
            26,168
            
            
            
            
            20,929
            
            
            
            
            2,728
            
            
            
            
            (836
            )Basic
                earnings (loss) per share ofcommon
                stock
            
            
            
            $
            1.23
            
            
            
            $
            .99
            
            
            
            $
            .13
            
            
            
            $
            (.04
            )Diluted
                earnings (loss) per share ofcommon
                stock
            
            
            
            
            1.23
            
            
            
            
            .98
            
            
            
            
            .13
            
            
            
            
            (.04
            )





Laclede
      Gas Company’s Financial Statements and Notes to Financial Statements are
      included in Exhibit 99.1.


71


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





There
      have been no disagreements on accounting and financial disclosure with Laclede’s
      outside auditors that are required to be disclosed.





**Item
      9A. Controls and Procedures**





As
      of the
      end of the period covered by this report, we carried out an evaluation, under
      the supervision and with participation of our management, including our Chief
      Executive Officer and Chief Financial Officer, of the effectiveness of the
      design and operation of our disclosure controls and procedures pursuant to
      Rule
      13a-15e and Rule 15d-15e under the Securities Exchange Act of 1934, as amended.
      Based upon that evaluation, the Chief Executive Officer and Chief Financial
      Officer concluded that our disclosure controls and procedures are
      effective.


There
      have been no changes in our internal control over financial reporting that
      occurred during our fourth fiscal quarter that have materially affected, or
      are
      reasonably likely to materially affect, our internal control over financial
      reporting.


The
      Management Report on Internal Control over Financial Reporting and the Reports
      of Independent Registered Public Accounting Firm are included under Item 8,
      pages 35 through 37.





**Item
      9B. Other Information**





Effective
      October 13, 2007, Computershare Trust Company became the transfer
      agent and registrar for our common stock and the Utility’s preferred stock as a
      result of purchasing the stock transfer business of our prior transfer agent
      and
      registrar, UMB Bank, N. A.; and effective December 15, 2007,
      Computershare will also replace UMB as the rights agent for our preferred share
      purchase rights.





















































72


**Part
      III**





**Item
      10. Directors, Executive Officers and Corporate Governance**





Information
      about:


•
            our
                directors is incorporated by reference from the discussion under
                Proposal
                1 of our proxy statement dated December 21, 2007 (2007 proxy
                statement);•
            our
                executive officers is reported in Part I of this Form
                10-K;•
            compliance
                with Section 16(a) of the Exchange Act is incorporated by reference
                from
                the discussion in our 2007 proxy statement under the heading “Section
                16(a) Beneficial Ownership Reporting Compliance”;•
            Financial
                Code of Ethics is posted on our website, www.thelacledegroup.com,
                in the Investor Services section under Governance Documents;
                and,•
            our
                audit committee, our audit committee financial experts, and submitting
                nominations to the Corporate Governance Committee is incorporated
                by
                reference from the discussion in our 2007 proxy statement under the
                heading “Corporate Governance.”


In
      addition to our Financial Code of Ethics, our Code of Business Conduct,
      Corporate Governance Guidelines, and charters for our audit, compensation and
      corporate governance committees are available on our website, and a copy will
      be
      sent to any shareholder upon written request.





**Item
      11. Executive Compensation**





Information
      about director and executive compensation is incorporated by reference from
      the
      discussion in our 2007 proxy statement under the headings: “Directors’
Compensation,” “Compensation Discussion and Analysis,” and “Executive
      Compensation.” The 2007 proxy statement also includes the “Compensation
      Committee Report,” which is deemed furnished and not filed.





**Item
      12. Security Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters**





Information
      about security ownership of certain beneficial owners and management is
      incorporated by reference from the discussion in our 2007 proxy statement under
      “Beneficial Ownership of Laclede Group Common Stock.”


The
      following table sets forth aggregate information regarding the Company’s equity
      compensation plans as of September 30, 2007:





Equity
      Compensation Plan Information


Number
                of securitiesremaining
                available forfuture
                issuance underNumber
                of securities to
            
            Weighted
                average
            
            equity
                compensationbe
                issued upon exercise
            
            exercise
                price of
            
            plans
                (excludingof
                outstanding options,
            
            outstanding
                options,
            
            securities
                reflected inPlan
                Category
            
            warrants
                and rights
            
            warrants
                and rights
            
            column
                (a))(a)
            
            (b)
            
            (c)Equity
                compensation plans approved bysecurity
                holders (1)
            
            622,100
            
            $30.06
            
            1,110,550Equity
                compensation plans not approved bysecurity
                holders
            
            —
            
            —
            
            —Total
            
            622,100
            
            $30.06
            
            1,110,550





(1)
            Includes
                the Company’s Equity Incentive Plan and Restricted Stock Plan for
                Non-Employee Directors. Included in column (c) are 29,050 shares
                remaining
                available to award under the Restricted Stock Plan. Shares for the
                Restricted Stock Plan are not original issue shares but are purchased
                by
                the Plan’s trustee in the open
                market.





Information
      regarding the above referenced plans is set forth in Note 1 to the Consolidated
      Financial Statements in


this
      report.


73


**Item
      13. Certain Relationships and Related Transactions, and Director
      Independence**





Information
      about:


•
            our
                policy and procedures for related party transactions
                and•
            the
                independence of our directors


is
      included in our 2007 proxy statement under “Corporate Governance” and is
      incorporated by reference. There were no related party transactions in fiscal
      year 2007.








**Item
      14. Principal Accounting Fees and Services**





Information
      about fees paid to our independent registered public accountant and our policy
      for pre-approval of services provided by our independent registered public
      accountant is incorporated by reference from our 2007 proxy statement under
      “Corporate Governance.”


74


**Part
      IV**





**Item
                15. Exhibits, Financial Statement Schedules****(a)**
            **1.**
            **Financial
                Statements:**
            **2007
                10-K Page**The
                Laclede Group, Inc.:For
                Years Ended September 30, 2007, 2006 and 2005:Statements
                of Consolidated Income
            38Statements
                of Consolidated Comprehensive Income
            39Consolidated
                Statements of Common Shareholders’ Equity
            43Statements
                of Consolidated Cash Flows
            44As
                of September 30, 2007 & 2006:Consolidated
                Balance Sheets
            40-41Statements
                of Consolidated Capitalization
            42Notes
                to Consolidated Financial Statements
            45-71Management
                Report on Internal Control over Financial Reporting
            35Reports
                of Independent Registered Public Accounting Firm
            36-37Laclede
                Gas Company:For
                Years Ended September 30, 2007, 2006 and 2005:Statements
                of Income
            Ex.
                99.1, p. 19Statements
                of Comprehensive Income
            Ex.
                99.1, p. 20Statements
                of Common Shareholder’s Equity
            Ex.
                99.1, p. 24Statements
                of Cash Flows
            Ex.
                99.1, p. 25As
                of September 30, 2007 & 2006:Balance
                Sheets
            Ex.
                99.1, pp. 21-22Statements
                of Capitalization
            Ex.
                99.1, p. 23Notes
                to Financial Statements
            Ex.
                99.1, pp. 26-45Management
                Report on Internal Control over Financial Reporting
            Ex.
                99.1, p. 16Reports
                of Independent Registered Public Accounting Firm
            Ex.
                99.1, p. 17-18**2.**
            **Supplemental
                Schedules**II
                – Reserves – Laclede Group
            78II
                – Reserves – Laclede Gas
            79Schedules
                not included have been omitted because they are not applicable or
                therequired
                data has been included in the financial statements or notes to
                financialstatements.**3.**
            **Exhibits**Incorporated
                herein by reference to Index to Exhibits, page 80.**Item
                15(a)(3) See the marked exhibits in the Index to Exhibits, page
                80.****(b)**
            **Incorporated
                herein by reference to Index to Exhibits, page
                80.**











75





**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the registrant has duly caused this report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized.





THE
                LACLEDE GROUP, INC.November 29, 2007
            
            By
                /s/
            Mark
                D. WaltermireMark
                D. WaltermireChief
                Financial Officer








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





Date
            Signature
            Title11/29/07
            /s/
            Douglas
                H. Yaeger
            Chairman
                of the Board,Douglas
                H. Yaeger
            President
                and Chief Executive Officer(Principal
                Executive Officer)11/29/07
            /s/
            Mark
                D. Waltermire
            Chief
                Financial OfficerMark
                D. Waltermire
            (Principal
                Financial andAccounting
                Officer)11/29/07
            /s/
            Arnold
                W. Donald
            DirectorArnold
                W. Donald11/28/07
            /s/
            Edward
                L. Glotzbach
            DirectorEdward
                L. Glotzbach11/29/07
            /s/
            Anthony
                V. Leness
            DirectorAnthony
                V. Leness11/29/07
            /s/
            W.
                Stephen Maritz
            DirectorW.
                Stephen Maritz11/29/07
            /s/
            William
                E. Nasser
            DirectorWilliam
                E. Nasser11/28/07
            /s/
            Brenda
                D. Newberry
            DirectorBrenda
                D. Newberry11/28/07
            /s/
            John
                P. Stupp, Jr.
            DirectorJohn
                P. Stupp, Jr.11/29/07
            /s/
            Mary
                Ann Van Lokeren
            DirectorMary
                Ann Van Lokeren







76





**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the registrant has duly caused this report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized.





LACLEDE
                GAS COMPANYNovember
                29, 2007
            
            By
                /s/
            Mark
                D. WaltermireMark
                D. WaltermireSenior
                Vice President andChief
                Financial Officer








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





Date
            Signature
            Title11/29/07
            /s/
            Douglas
                H. Yaeger
            Chairman
                of the Board,Douglas
                H. Yaeger
            President
                and Chief Executive Officer(Principal
                Executive Officer)11/29/07
            /s/
            Mark
                D. Waltermire
            Director,
                Senior Vice PresidentMark
                D. Waltermire
            and
                Chief Financial Officer(Principal
                Financial andAccounting
                Officer)11/29/07
            /s/
            Kenneth
                J. Neises
            Director,
                Executive Vice PresidentKenneth
                J. Neises
            Energy
                and Administrative Services11/29/07
            /s/
            Michael
                R. Spotanski
            Director,
                Senior Vice PresidentMichael
                R. Spotanski
            Operations
                and Marketing










77





**SCHEDULE
      II**


**THE
      LACLEDE GROUP, INC. AND SUBSIDIARY COMPANIES**


**RESERVES**


**FOR
      THE YEARS ENDED SEPTEMBER 30, 2007, 2006 AND 2005**




**COLUMN
                A**
            
            
            **COLUMN
                B**
            
            **COLUMN
                C**
            
            
            
            **COLUMN
                D**
            
            
            
            **COLUMN
                E****BALANCE
                AT**
            
            **ADDITIONS**
            
            **CHARGED**
            
            
            
            **DEDUCTIONS**
            
            
            
            **BALANCE****BEGINNING**
            
            **TO**
            
            **TO
                OTHER**
            
            
            
            **FROM**
            
            
            
            **AT
                CLOSE****DESCRIPTION**
            
            
            **OF
                PERIOD**
            
            **INCOME**
            
            **ACCOUNTS**
            
            
            
            **RESERVES**
            
            
            
            **OF
                PERIOD**(Thousands
                of Dollars)YEAR
                ENDEDSEPTEMBER
                30, 2007:DOUBTFUL
                ACCOUNTS
            
            $
            13,105
            $
            9,537
            $
            9,313
            
            (a)
            $
            20,687
            
            (b)
            $
            11,268MISCELLANEOUS:Injuries
                andproperty damage
            
            $
            11,342
            $
            12,948
            $
            —
            
            
            $
            13,525
            
            (c)
            $
            10,765Deferred
                compensation
            
            
            10,516
            
            1,399
            
            —
            
            
            
            966
            
            
            
            10,949Group
                medical claimsincurred
                but not reported
            
            
            1,940
            
            18,801
            
            —
            
            
            
            18,170
            
            (c)
            
            2,571TOTAL
            
            $
            23,798
            $
            33,148
            $
            —
            
            
            $
            32,661
            
            
            $
            24,285YEAR
                ENDEDSEPTEMBER
                30, 2006:DOUBTFUL
                ACCOUNTS
            
            $
            11,813
            $
            12,077
            $
            7,985
            
            (a)
            $
            18,770
            
            (b)
            $
            13,105MISCELLANEOUS:Injuries
                andproperty damage
            
            $
            10,544
            $
            20,806
            $
            —
            
            
            $
            20,008
            
            (c)
            $
            11,342Deferred
                compensation
            
            
            9,595
            
            1,802
            
            —
            
            
            
            881
            
            
            
            10,516Group
                medical claimsincurred
                but not reported
            
            
            2,531
            
            13,760
            
            —
            
            
            
            14,351
            
            (c)
            
            1,940TOTAL
            
            $
            22,670
            $
            36,368
            $
            —
            
            
            $
            35,240
            
            
            $
            23,798YEAR
                ENDEDSEPTEMBER
                30, 2005:DOUBTFUL
                ACCOUNTS
            
            $
            10,362
            $
            12,064
            $
            7,417
            
            (a)
            $
            18,030
            
            (b)
            $
            11,813MISCELLANEOUS:Injuries
                andproperty damage
            
            $
            8,280
            $
            11,458
            $
            —
            
            
            $
            9,194
            
            (c)
            $
            10,544Deferred
                compensation
            
            
            10,048
            
            1,252
            
            —
            
            
            
            1,705
            
            
            
            9,595Group
                medical claimsincurred
                but not reported
            
            
            2,349
            
            14,336
            
            —
            
            
            
            14,154
            
            (c)
            
            2,531TOTAL
            
            $
            20,677
            $
            27,046
            $
            —
            
            
            $
            25,053
            
            
            $
            22,670








(a)
            Accounts
                reinstated, cash recoveries, etc.(b)
            Accounts
                written off.(c)
            Claims
                settled, less reimbursements from insurance
                companies.




78





**SCHEDULE
      II**


**LACLEDE
      GAS COMPANY**


**RESERVES**


**FOR
      THE YEARS ENDED SEPTEMBER 30, 2007, 2006 AND 2005**




**COLUMN
                A**
            
            
            **COLUMN
                B**
            
            **COLUMN
                C**
            
            
            
            **COLUMN
                D**
            
            
            
            **COLUMN
                E****BALANCE
                AT**
            
            **ADDITIONS**
            
            **CHARGED**
            
            
            
            **DEDUCTIONS**
            
            
            
            **BALANCE****BEGINNING**
            
            **TO**
            
            **TO
                OTHER**
            
            
            
            **FROM**
            
            
            
            **AT
                CLOSE****DESCRIPTION**
            
            
            **OF
                PERIOD**
            
            **INCOME**
            
            **ACCOUNTS**
            
            
            
            **RESERVES**
            
            
            
            **OF
                PERIOD**(Thousands
                of Dollars)YEAR
                ENDEDSEPTEMBER
                30, 2007:DOUBTFUL
                ACCOUNTS
            
            $
            12,798
            $
            9,550
            $
            9,313
            
            (a)
            $
            20,700
            
            (b)
            $
            10,961MISCELLANEOUS:Injuries
                andproperty damage
            
            $
            4,124
            $
            1,473
            $
            —
            
            
            $
            2,469
            
            (c)
            $
            3,128Deferred
                compensation
            
            
            10,516
            
            1,399
            
            —
            
            
            
            966
            
            
            
            10,949Group
                medical claimsincurred
                but not reported
            
            
            800
            
            11,909
            
            —
            
            
            
            11,559
            
            (c)
            
            1,150TOTAL
            
            $
            15,440
            $
            14,781
            $
            —
            
            
            $
            14,994
            
            
            $
            15,227YEAR
                ENDEDSEPTEMBER
                30, 2006:DOUBTFUL
                ACCOUNTS
            
            $
            11,442
            $
            12,141
            $
            7,985
            
            (a)
            $
            18,770
            
            (b)
            $
            12,798MISCELLANEOUS:Injuries
                andproperty damage
            
            $
            4,553
            $
            2,817
            $
            —
            
            
            $
            3,246
            
            (c)
            $
            4,124Deferred
                compensation
            
            
            9,595
            
            1,802
            
            —
            
            
            
            881
            
            
            
            10,516Group
                medical claimsincurred
                but not reported
            
            
            1,500
            
            8,625
            
            —
            
            
            
            9,325
            
            (c)
            
            800TOTAL
            
            $
            15,648
            $
            13,244
            $
            —
            
            
            $
            13,452
            
            
            $
            15,440YEAR
                ENDEDSEPTEMBER
                30, 2005:DOUBTFUL
                ACCOUNTS
            
            $
            9,975
            $
            12,064
            $
            7,417
            
            (a)
            $
            18,014
            
            (b)
            $
            11,442MISCELLANEOUS:Injuries
                andproperty damage
            
            $
            4,326
            $
            3,026
            $
            —
            
            
            $
            2,799
            
            (c)
            $
            4,553Deferred
                compensation
            
            
            10,048
            
            1,252
            
            —
            
            
            
            1,705
            
            
            
            9,595Group
                medical claimsincurred
                but not reported
            
            
            1,500
            
            10,010
            
            —
            
            
            
            10,010
            
            (c)
            
            1,500TOTAL
            
            $
            15,874
            $
            14,288
            $
            —
            
            
            $
            14,514
            
            
            $
            15,648








(a)
            Accounts
                reinstated, cash recoveries, etc.(b)
            Accounts
                written off.(c)
            Claims
                settled, less reimbursements from insurance
                companies.




79





**INDEX
                TO EXHIBITS**ExhibitNo.2.01*
            -
            Agreement
                and Plan of Merger and Reorganization, filed as Appendix A to proxy
                statement/prospectus contained in the Company’s registration statement on
                Form S-4, No. 333-48794.3.01(i)*
            -
            Laclede’s
                Restated Articles of Incorporation effective March 18, 2002;
                filed as Exhibit 3.3 to Form 8-K filed
                May 29, 2002.3.01(ii)*
            -
            Bylaws
                of Laclede effective January 18, 2002; filed as Exhibit 3.4 to
                Laclede’s Form 8-K filed May 29, 2002.3.02(i)*
            -
            The
                Company’s Articles of Incorporation, as amended, filed as Exhibit 3.1 to
                the Company’s Form 8-K filed
                January 26, 2006.3.02(ii)*
            -
            The
                Company’s Bylaws, as amended, filed as Exhibit 3.2 to the Company’s Form
                8-K filed January 26, 2006.4.01*
            -
            Mortgage
                and Deed of Trust, dated as of February 1, 1945; filed as
                Exhibit 7-A to registration statement No. 2-5586.4.02*
            -
            Fourteenth
                Supplemental Indenture, dated as of October 26, 1976; filed on
                June 26, 1979 as Exhibit b-4 to registration statement No.
                2-64857.4.03*
            -
            Twenty-Second
                Supplemental Indenture dated as of November 15, 1995; filed on
                December 8, 1995 as Exhibit 4.01 to Laclede’s Form
                8-K.4.04*
            -
            Twenty-Third
                Supplemental Indenture dated as of October 15, 1997; filed on
                November 6, 1997 as Exhibit 4.01 to Laclede’s Form
                8-K.4.05*
            -
            Twenty-Fourth
                Supplemental Indenture dated as of June 1, 1999, filed on
                June 4, 1999 as Exhibit 4.01 to Laclede’s Form
                8-K.4.06*
            -
            Twenty-Fifth
                Supplemental Indenture dated as of September 15, 2000, filed on
                September 27, 2000 as Exhibit 4.01 to Laclede’s Form
                8-K.4.07*
            -
            Twenty-Seventh
                Supplemental Indenture dated as of April 15, 2004, filed on
                April 28, 2004 as Exhibit 4.01 to Laclede’s Form
                8-K.4.08*
            -
            Twenty-Eighth
                Supplemental Indenture dated as of April 15, 2004, filed on
                April 28, 2004 as Exhibit 4.02 to Laclede’s Form
                8-K.4.09*
            -
            Twenty-Ninth
                Supplemental Indenture dated as of June 1, 2006, filed on
                June 9, 2006, as Exhibit 4.1 to Laclede’s Form
                8-K4.10*
            -
            Certificate
                of Trust of Laclede Capital Trust I, dated April 4, 2002, filed
                as Exhibit 4.3 to the Company’s registration statement on Form S-3 (No.
                333-86722).4.11*
            -
            Declaration
                of Trust of Laclede Capital Trust I, dated April 4, 2002, filed
                as Exhibit 4.4 to the Company’s registration statement on Form S-3 (No.
                333-86722).4.12*
            -
            Amended
                and Restated Declaration of Trust dated December 16, 2002, filed
                as Exhibit 1 to Company’s Form 8-K dated
                December 16, 2002.4.13*
            -
            Common
                Securities Guarantee Agreement dated December 16, 2002, filed as
                Exhibit 2 to Company’s Form 8-K dated
                December 16, 2002.4.14*
            -
            Preferred
                Securities Guarantee Agreement dated December 16, 2002, filed as
                Exhibit 3 to Company’s Form 8-K dated
                December 16, 2002.








*Incorporated
      herein by reference and made a part hereof. Laclede’s File No. 1-1822; the
      Company’s File No. 1-16681.





**Bold
      items reflect management, contract or compensatory plan or
      arrangement.**


80





**INDEX
                TO EXHIBITS**ExhibitNo.4.15*
            -
            Indenture
                for Subordinated Debt Securities dated December 16, 2002, filed
                as Exhibit 4 to Company’s form 8-K dated
                December 16, 2002.4.16*
            -
            First
                Supplemental Indenture dated December 16, 2002, filed as Exhibit
                5 to Company’s Form 8-K dated
                December 16, 2002.4.17*
            -
            Laclede
                Gas Company Board of Directors’ Resolution dated August 28, 1986
                which generally provides that the Board may delegate its authority
                in the
                adoption of certain employee benefit plan amendments to certain designated
                Executive Officers; filed as Exhibit 4.12 to Laclede’s 1991
                10-K.4.17a*
            -
            Company
                Board of Directors’ Resolutions dated March 27, 2003, updating
                authority delegated pursuant to August 28, 1986 Laclede Gas
                Company resolutions; filed as Exhibit 4.19(a) to the Company’s Form 10-K
                for the year ended September 30, 2003.4.18*
            -
            Rights
                Agreement dated as of April 3, 1996; filed on
                April 3, 1996 as Exhibit 1 to Laclede’s Form
                8-A.4.19*
            -
            Rights
                Agreement dated as of October 1, 2001; filed as Exhibit 4 to the
                Company’s Form 8-A on September 6, 2001.**10.01***
            **-**
            **Laclede
                Incentive Compensation Plan, as amended; filed as Exhibit 10.03 to
                Laclede’s 1989 10-K.****10.01a***
            **-**
            **Amendment
                adopted by the Board of Directors on July 26, 1990 to the
                Incentive Compensation Plan; filed as Exhibit 10.02a to Laclede’s 1990
                10-K.****10.01b***
            **-**
            **Amendments
                adopted by the Board of Directors on August 23, 1990 to the
                Incentive Compensation Plan; filed as Exhibit 10.02b to Laclede’s 1990
                10-K.****10.01c***
            **-**
            **Amendments
                to Laclede’s Incentive Compensation Plan, effective
                January 26, 1995; filed as Exhibit 10.3 to Laclede’s 10-Q for
                the fiscal quarter ended
                March 31, 1995.****10.02***
            **-**
            **Senior
                Officers’ Life Insurance Program of Laclede, as amended; filed as Exhibit
                10.03 to Laclede’s 1990 10-K.****10.02a***
            **-**
            **Certified
                copy of resolutions of Laclede’s Board of Directors adopted on
                June 27, 1991 amending the Senior Officers’ Life Insurance
                Program; filed as Exhibit 10.01 to Laclede’s 10-Q for the fiscal quarter
                ended June 30, 1991.****10.02b***
            **-**
            **Certified
                copy of resolutions of Laclede’s Board of Directors adopted on
                January 28, 1993 amending the Senior Officers’ Life Insurance
                Program; filed as Exhibit 10.03 to Laclede’s 10-Q for the fiscal quarter
                ended March 31, 1993.****10.03***
            **-**
            **Laclede
                Gas Company Supplemental Retirement Benefit Plan, as amended and
                restated
                effective July 25, 1991; filed as Exhibit 10.05 to Laclede’s
                1991 10-K.**10.04*
            -
            Transportation
                Service Agreement For Rate Schedule FSS, Contract #3147 between
                Mississippi River Transmission Corporation (MRT) and Laclede effective
                May 1, 2002; filed as Exhibit 10.1 to Laclede’s 10-Q for the
                fiscal quarter ended June 30, 2002.10.04a*
            -
            Transportation
                Service Agreement for Rate Schedule FTS, Contract #3310 between Laclede
                and MRT effective May 1, 2002; filed as Exhibit 10.2 to
                Laclede’s 10-Q for the fiscal quarter ended
                June 30, 2002.








*Incorporated
      herein by reference and made a part hereof. Laclede’s File No. 1-1822; the
      Company’s File No. 1-16681.





**Bold
      items reflect management, contract or compensatory plan or
      arrangement.**


81





**INDEX
                TO EXHIBITS**ExhibitNo.10.04b*
            -
            Transportation
                Service Agreement for Rate Schedule FTS, Contract #3311, between
                Laclede
                and MRT effective May 1, 2002; filed as Exhibit 10.3 to
                Laclede’s 10-Q for the fiscal quarter ended
                June 30, 2002.**10.05***
            **-**
            **Amendment
                and Restatement of Retirement Plan for Non-Employee Directors as
                of
                November 1, 2002; filed as Exhibit 10.08c to the Company’s 10-K
                for the fiscal year ended
                September 30, 2002.****10.05a***
            **-**
            **Amendment
                to Terms of Retirement Plan for Non-Employee Directors as of
                October 1, 2004; filed as Exhibit 10.w to the Company’s Form
                10-Q for the quarter ended
                June 30, 2004.****10.06***
            **-**
            **Salient
                Features of the Laclede Gas Company Deferred Income Plan for Directors
                and
                Selected Executives, including amendments adopted by the Board of
                Directors on July 26, 1990; filed as Exhibit 10.12 to the
                Laclede’s 1991 10-K.****10.06a***
            **-**
            **Amendment
                to Laclede’s Deferred Income Plan for Directors and Selected Executives,
                adopted by the Board of Directors on August 27, 1992; filed as
                Exhibit 10.12a to Laclede’s 1992 10-K.****10.07***
            **-**
            **Form
                of Indemnification Agreement between Laclede and its Directors and
                Officers; filed as Exhibit 10.13 to Laclede’s 1990
                10-K.****10.08***
            **-**
            **Laclede
                Gas Company Management Continuity Protection Plan, as amended, effective
                at the close of business on January 27, 1994, by the Board of
                Directors; filed as Exhibit 10.1 to Laclede’s 10-Q for the fiscal quarter
                ended March 31, 1994.****10.09***
            **-**
            **2002
                Restricted Stock Plan for Non-Employee Directors as of
                November 1, 2002; filed as Exhibit 10.12d to the Company’s Form
                10-K for the fiscal year ended
                September 30, 2002.****10.09a***
            **-**
            **Amendment
                to the 2002 Restricted Stock Plan for Non-Employee Directors as of
                October 1, 2004; filed as Exhibit 10.3 to the Company’s Form
                10-Q for the quarter ended
                June 30, 2004.****10.09b***
            **-**
            **Amendment
                to Restricted Stock Plan for Non-Employee Directors as of
                January 1, 2006; filed as Exhibit 10.2 to the Company’s Form 8-K
                filed November 1, 2005.****10.09c***
            **-**
            **Restricted
                Stock Plan for Non-employee Directors Amendment effective
                January 1, 2007; filed as Exhibit 10.1 to the Company’s Form 8-K
                filed November 2, 2006.****10.09d**
            **-**
            **Amendment
                to Restricted Stock Plan for Non-Employee Directors effective
                January 1, 2008.****10.10***
            **-**
            **Salient
                Features of the Laclede Gas Company Deferred Income Plan II for Directors
                and Selected Executives adopted by the Board of Directors on
                September 23, 1993; filed as Exhibit 10.17 to Laclede’s 1993
                10-K.**10.11*
            -
            Amended
                and Restated Revolving Credit Agreement between the Company and U.S.
                Bank
                National Association dated August 4, 2005; filed as Exhibit 10.1
                to the Company’s 8-K filed August 5, 2005.10.12*
            -
            Amended
                and Restated Loan Agreement dated September 10, 2004 for Laclede
                with U.S. Bank National Association as administrative agent and lead
                arranger, Bank Hapoalim B.M., as syndication agent, and Southwest
                Bank of
                St. Louis as documentation agent; filed as Exhibit 10.1 on Form 8-K
                filed
                on September 13, 2004.10.12a*
            -
            Amendment
                to loan agreement in Exhibit 10.12, dated December 23, 2005;
                filed as Exhibit 10.1 to Laclede’s Form 8-K filed
                December 23, 2005.**10.13***
            **-**
            **The
                Laclede Group, Inc. Management Bonus Plan; filed as Exhibit 10.20
                to the
                Company’s Form 10-K for the year ended
                September 30, 2002.**





*Incorporated
      herein by reference and made a part hereof. Laclede’s File No. 1-1822; the
      Company’s File No. 1-16681.





**Bold
      items reflect management, contract or compensatory plan or
      arrangement.**


82





**INDEX
                TO EXHIBITS**ExhibitNo.10.14*
            -
            Stock
                Purchase Agreement between NiSource Inc. and The Laclede Group, Inc.;
                filed as Exhibit 10.21 to the Company’s Form 10-K for the year ended
                September 30, 2002.**10.15***
            **-**
            **The
                Laclede Group, Inc. 2002 Equity Incentive Plan; filed as Exhibit
                10.22 to
                the Company’s Form 10-K for the year ended
                September 30, 2002.****10.15a***
            **-**
            **Form
                of Non-Qualified Stock Option Award Agreement with Mandatory Retirement
                Provisions; filed as Exhibit 10.1 to the Company’s Form 8-K filed
                November 5, 2004.****10.15b***
            **-**
            **Form
                of Non-Qualified Stock Option Award Agreement without Mandatory Retirement
                Provisions; filed as Exhibit 10.2 to the Company’s Form 8-K filed
                November 5, 2004.****10.15c***
            **-**
            **Form
                of Restricted Stock Award Agreement, filed as Exhibit 10.17 to the
                Company’s 10-Q for the quarter ended
                March 31, 2004.****10.15d***
            **-**
            **Form
                of Performance – Contingent Restricted Stock Award Agreement, filed as
                Exhibit 10.3 to the Company’s Form 8-K filed
                November 1, 2005.****10.15e***
            **-**
            **Form
                of Performance – Contingent Restricted Stock Award Agreement, filed as
                Exhibit 10.2 to the Company’s Form 8-K filed**
              **November 2, 2006.**10.16*
            -
            Lease
                between Laclede Gas Company, as Lessee and First National Bank in
                St.
                Louis, Trustee, as Lessor; filed as Exhibit 10.23 to the Company’s Form
                10-K for the year ended September 30, 2002.10.17*
            -
            Automated
                Meter Reading Services Agreement executed March 11, 2005, filed
                as Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended
                March 31, 2005. Confidential portions of this exhibit have been
                omitted and filed separately with the SEC pursuant to a request for
                confidential treatment.**10.18***
            **-**
            **Stock
                Ownership Guidelines and Holding Requirements filed as Exhibit 10.1
                to the
                Company’s Form 8-K filed
                November 1, 2005.****10.19***
            -
            **The
                Laclede Group, Inc. Annual Incentive Plan, filed as Appendix 4 to
                the
                Company’s proxy statement filed
                December 19, 2005.****10.20***
            -
            **The
                Laclede Group, Inc. 2006 Equity Incentive Plan, filed as Appendix
                5 to the
                Company’s proxy statement, filed
                December 19, 2005.****10.21**
            **-**
            **Separation
                Agreement and General Release dated September 12, 2007 and
                effective September 20, 2007 by and between B. Cooper and the
                Company.****10.22**
            **-**
            **Retention
                Agreement dated September 24, 2007 by and among R. Shively, the
                Company and SM&P.**12
            -
            Ratio
                of Earnings to Fixed Charges.21
            -
            Subsidiaries
                of the Registrant.23
            -
            Consents
                of Independent Registered Public Accounting Firm.31
            -
            Certificates
                under Rule 13a-14(a) of the CEO and CFO of The Laclede Group, Inc.
                and
                Laclede Gas Company.32
            -
            Section
                1350 Certifications under Rule 13a-14(b) of the CEO and CFO of The
                Laclede
                Group, Inc. and Laclede Gas Company.99.1
            -
            Laclede
                Gas Company – Selected Financial Data, Management’s Discussion and
                Analysis of Financial Condition and Results of Operations, Notes
                to
                Financial Statements, management Report on Internal Control over
                Financial
                Reporting, and Reports of Independent Registered Public Accounting
                Firm.








*Incorporated
      herein by reference and made a part hereof. Laclede’s File No. 1-1822; the
      Company’s File No. 1-16681.





**Bold
      items reflect management, contract or compensatory plan or
      arrangement.**





83