<PAGE>
             As filed with the United States Securities and Exchange
                         Commission on March 27, 2002.

                UNITED STATES 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 DECEMBER 31, 2001

                                       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 001-16189

                              COLUMBIA ENERGY GROUP
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

             Delaware                                13-1594808
----------------------------------------        -------------------
   (State or other jurisdiction of                (I.R.S. Employer
    incorporation or organization)               Identification No.)

        801 East 86th Avenue
        Merrillville, Indiana                          46410
----------------------------------------        -------------------
(Address of principal executive offices)             (Zip Code)

        Registrant's telephone number, including area code (877) 647-5990

Securities registered pursuant to Section 12(b) of the Act:

                    Name of Each Exchange on Which Registered
                    -----------------------------------------
                             New York Stock Exchange

                                   Debentures
--------------------------------------------------------------------------------
6.61% Series B due November 28, 2002        7.32% Series E due November 28, 2010
6.80% Series C due November 28, 2005        7.42% Series F due November 28, 2015
7.05% Series D due November 28, 2007        7.62% Series G due November 28, 2025

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the proceeding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes |X| or No | |

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|

As of November 1, 2000, all shares of the registrant's Common Shares, $.01 par
value, were issued and outstanding, all held beneficially and of record by
NiSource, Inc.

THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I. (1) (A)
AND (B) OF FORM 10-K AND IS FILING THIS FORM 10-K UNDER THE REDUCED DISCLOSURE
FORMAT.

                       Documents Incorporated by Reference
                       -----------------------------------
                                      None
<PAGE>
                                    CONTENTS

<TABLE>
<CAPTION>
                                                                                                             Page
Part I                                                                                                        No.
                                                                                                             ----
<S>                                                                                                          <C>
         Item 1.  Business...........................................................................         3

         Item 2.  Properties.........................................................................         4

         Item 3.  Legal Proceedings..................................................................         5

         Item 4.  Submission of Matters to a Vote of Security Holders................................         7

Part II

         Item 5.  Market for the Registrant's Common Equity and Related Stockholder Matters..........         7

         Item 6.  Selected Financial Data............................................................         7

         Item 7.  Management's Narrative and Analysis of Results of Operations.......................         8

         Item 8.  Financial Statements and Supplementary Data........................................        12

         Item 9.  Change In and Disagreements with Accountants on Accounting and
                  Financial Disclosure...............................................................        44

Part III

         Item 10. Directors and Executive Officers of the Registrant.................................        44

         Item 11. Executive Compensation.............................................................        44

         Item 12. Security Ownership of Certain Beneficial Owners and Management.....................        44

         Item 13. Certain Relationships and Related Transactions.....................................        44

Part IV

         Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....................        45

         Signatures..................................................................................        46

         Exhibits....................................................................................        47
</TABLE>


                                       2
<PAGE>
                                     PART I

ITEM 1. BUSINESS

COLUMBIA ENERGY GROUP AND SUBSIDIARIES

Columbia Energy Group (Columbia) and its subsidiaries are primarily engaged in
natural gas transmission, natural gas distribution, and exploration for and
production of natural gas and oil. Columbia, organized under the laws of the
State of Delaware on September 30, 1926, is a registered holding company under
the Public Utility Holding Company Act of 1935, as amended, (1935 Act) and
derives substantially all its revenues and earnings from the operating results
of its 19 direct subsidiaries.

Merger with NiSource Inc.

On November 1, 2000, NiSource Inc. (NiSource) completed the acquisition of
Columbia for an aggregate consideration of approximately $6 billion, with 30% of
the consideration paid in NiSource common stock and the remaining 70% paid in
cash and Stock Appreciation Income Linked SecuritiesSM (SAILSSM). In addition,
NiSource assumed approximately $2 billion in Columbia debt.

Presentation of Segment Information

Columbia meets the conditions specified in General Instruction I(1)(a) and (b)
to Form 10-K and is permitted to use the reduced disclosure format for wholly
owned subsidiaries of companies, such as NiSource, that are reporting companies
under the Securities Exchange Act of 1934. Accordingly, the Narrative and
Analysis of Results of Operations is included in this report, and Columbia has
omitted from this report the information called for by Item 7 (Management's
Narrative and Analysis of Results of Operations).

Columbia operates in four segments: Gas Distribution, Gas Transmission and
Storage, Exploration and Production and Other.

Distribution Operations

Columbia's five distribution subsidiaries provide natural gas service to nearly
2.1 million residential, commercial and industrial customers in Ohio,
Pennsylvania, Virginia, Kentucky and Maryland. These operations include 33,215
miles of pipelines, 3,300 acres of underground storage, 8 storage wells and one
compressor station with 800 horsepower (hp) of installed capacity. The
distribution subsidiaries are currently pursuing transportation programs that
allow residential and small commercial customers the opportunity to choose their
natural gas suppliers and to use the distribution subsidiaries for
transportation service only.

Transmission and Storage Operations

Columbia's gas transmission and storage subsidiaries own and operate
approximately 15,846 miles of interstate pipelines and operate one of the
nation's largest underground natural gas storage systems capable of storing
approximately 670 billion cubic feet (Bcf) of natural gas. Through its
subsidiaries, Columbia Gas Transmission Corporation (Columbia Transmission) and
Columbia Gulf Transmission Company (Columbia Gulf), it owns and operates an
interstate pipeline network extending from offshore in the Gulf of Mexico to
Lake Erie, New York and the eastern seaboard. Together, these companies serve
customers in 15 northeastern, mid-Atlantic, midwestern and southern states and
the District of Columbia. The gas transmission and storage subsidiaries are
engaged in several projects that will expand their service territory and
throughput. The largest such project is Millennium Pipeline, which will replace
parts of an existing Columbia Transmission pipeline and will transport 700,000
Dekatherms (Dth) of natural gas per day to growing markets in New York and the
northeast United States.

Exploration and Production Operations

Columbia Energy Resources, Inc. (Columbia Resources), is one of the largest
independent natural gas and oil producers in the Appalachian Basin and also has
production operations in Canada. Columbia Resources produced nearly 54.1 billion
cubic feet equivalent (Bcfe) of natural gas and oil for the twelve months ended
December 31, 2001. Columbia Resources has financial interests in over 8,000
wells, and has net proven gas and oil reserve holdings of 1.1 trillion cubic
feet equivalent (Tcfe). Columbia Resources also owns and operates approximately
6,200 miles of gathering pipelines. Columbia Resources seeks to achieve asset
and profit growth primarily through aggressive drilling activities. For the year
ended 2001, Columbia Resource discovered 70 net Bcfe of gas and oil reserves and
participated in 183 gross (172.2 net) wells with a success rate of 94 percent.


                                       3
<PAGE>
ITEM 1. BUSINESS (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES

Other Products and Services

Columbia Transmission Communications Corporation (Transcom), a wholly owned
subsidiary of Columbia, owns a dark-fiber optics telecommunications network
primarily along pipeline rights-of-way between New York and Washington, D.C. The
route covers 260 miles and provides access to 16 million people in the busiest
telecommunications corridor in the United States.

For additional discussion of Columbia's business segments, including financial
information for the last three fiscal years, see the Notes to Consolidated
Financial Statements.

Competition

The regulatory frameworks applicable to Columbia's operations, at both the state
and federal levels, are undergoing fundamental changes. These changes have had
and will continue to have an impact on Columbia's operations, structure and
profitability. At the same time, competition within the gas industries will
create opportunities to compete for new customers and revenues. Management
continually seeks new ways to be more competitive and profitable in this
changing environment, including providing its gas customers with increased
customer choice for new products and services and acquiring companies that will
provide improved economies of scale and efficiencies.

Open access to natural gas supplies over interstate pipelines and the
deregulation of the commodity price of gas has led to tremendous change in the
energy markets, which continue to evolve. During the past few years, LDC
customers and marketers began to purchase gas directly from producers and
marketers and an open competitive market for gas supplies emerged. This
separation or "unbundling" of the transportation and other services offered by
pipelines and LDCs allows customers to select the service they want independent
from the purchase of the commodity. Columbia's gas distribution subsidiaries are
involved in programs that provide residential customers the opportunity to
purchase their natural gas requirements from third parties and use the Columbia
gas distribution subsidiaries for transportation services only.

Columbia's other operations also experience competition for energy sales and
related services from third party providers. Columbia meets these challenges
through innovative programs aimed at providing energy products and services at
competitive prices while also providing new services that are responsive to the
evolving energy market and customer requirements.

Other Relevant Business Information

Columbia's customer base is broadly diversified, with no single customer
accounting for a significant portion of revenues.

As of January 31, 2002, Columbia had 4,798 full-time employees of which 1,803
are subject to collective bargaining agreements.

Columbia's subsidiaries are subject to extensive federal, state and local laws
and regulations relating to environmental matters. These laws and regulations,
which are constantly changing, require expenditures for corrective action at
various operating facilities, waste disposal sites and former gas manufacturing
sites for conditions resulting from past practices that have subsequently become
subject to environmental regulation. Information relating to environmental
matters is detailed in Note 14G of the Notes to Consolidated Financial
Statements.

ITEM 2.  PROPERTIES

Information relating to properties is included in Item 1, Business and is
incorporated by reference herein. Assets under lien and other guarantees are
described in Note 14D of the Notes to Consolidated Financial Statements.

Neither Columbia nor any subsidiary knows of material defects in the title to
any real properties of the subsidiaries of Columbia or any material adverse
claim of any right, title, or interest therein, pending or contemplated.
Substantially all of Columbia Transmission's property has been pledged to
Columbia as security for First Mortgage Bonds issued by Columbia Transmission to
Columbia.


                                       4
<PAGE>
ITEM 3. LEGAL PROCEEDINGS

COLUMBIA ENERGY GROUP AND SUBSIDIARIES

1.    CANADA SOUTHERN PETROLEUM LTD. V. COLUMBIA GAS DEVELOPMENT OF CANADA LTD.

      This action was originally filed March 7, 1990. The plaintiffs asserted,
      among other things, that the defendant working interest owners, including
      Columbia Gas Development of Canada Ltd. (Columbia Canada) and various
      Amoco affiliates, breached an alleged fiduciary duty to ensure the
      earliest feasible marketing of gas from the Kotaneelee field (Yukon
      Territory, Canada). The plaintiffs sought, among other remedies, the
      return of the defendants' interests in the Kotaneelee field to the
      plaintiffs, a declaration that such interests are held in trust for the
      plaintiffs and an order requiring the defendants to promptly market
      Kotaneelee gas or assessing damages.

      In November 1993, the plaintiffs amended their Amended Statement of Claim
      to include allegations that the balance in the Carried Interest Account
      (an account for operating costs, which are recoverable, by working
      interest owners), which is in excess of the balance as of November 1988,
      should be reduced to zero. Columbia, on behalf of Columbia Canada,
      consented to the amendment in consideration of the plaintiffs'
      acknowledgment that approximately $63 million was properly charged to the
      account.

      Pursuant to an Indemnification Agreement regarding the Kotaneelee
      Litigation entered into when Columbia Canada was sold to Anderson
      Exploration Ltd. (Anderson), Columbia agreed to indemnify and hold
      Anderson harmless for losses due to this litigation arising out of actions
      occurring prior to December 31, 1991. An escrow account provides security
      for the indemnification obligation and is funded by a letter of credit
      with a face amount of approximately $35,835,000 (Cdn).

      A trial commenced in the third quarter of 1996 in the Court of Queen's
      Bench for the Province of Alberta and judgment was issued in September
      2001. The court has finalized a judgment dismissing most of the
      plaintiffs' claims, including the fiduciary duty claim, but did order a
      reduction of the Carried Interest Account in the amount of $5.3 million
      (Cdn.) and ordered that the defendants were not entitled to charge the
      plaintiffs processing fees. The inability to charge the plaintiffs
      processing fees does not affect Columbia. The monetary value of these two
      items has not been determined. The plaintiffs have filed an appeal of the
      judgment. The Court has not yet set a date when it will hear the appeal;
      however, it has established a schedule for the filing of the arguments and
      responses of the parties, all of which must be completed by November 30,
      2002.

2.    TRANSCOM.

      On March 17, April 11 and April 21, 2000, one of Columbia's subsidiaries,
      Transcom, received directives from the Philadelphia District of the U.S.
      Army Corps of Engineers (Philadelphia District) and an administrative
      order from the Pennsylvania Department of Environmental Protection (PA
      DEP) addressing alleged violations of federal and state laws resulting
      from construction activities associated with Transcom's laying fiber optic
      cable along portions of a route between Washington, D.C. and New York
      City. The order and directives required Transcom to largely cease
      construction activities. On September 18, 2000, Transcom entered into a
      voluntary settlement agreement with the Philadelphia District under which
      Transcom contributed $1.2 million to the Pennsylvania chapter of the
      Nature Conservancy and the Philadelphia District lifted its directives. As
      a result of the voluntary agreement with the Philadelphia District and
      communications with the PA DEP, the Maryland Department of the Environment
      and the Baltimore District of the U.S. Army Corps of Engineers, work in
      Pennsylvania and Maryland was allowed to continue and has been completed.
      On October 25, 2001, Transcom entered into a Consent Order and Agreement
      with PA DEP in settlement of its enforcement action under which Transcom
      paid $80,633 in penalties and $223,567 to fund six community environmental
      projects.

3.    UNITED STATES OF AMERICA EX REL. JACK J. GRYNBERG V. COLUMBIA GAS
      TRANSMISSION CORP., ET AL.

      The plaintiff filed a complaint under the False Claims Act, on behalf of
      the United States of America, against approximately seventy pipelines. The
      plaintiff claimed that the defendants had submitted false royalty reports
      to the government (or caused others to do so) by mismeasuring the volume
      and heating content of natural gas produced on Federal land and Indian
      lands. Plaintiff's original complaint was dismissed without prejudice for
      misjoinder of parties and for failing to plead fraud with specificity. In
      1997, the plaintiff then filed over sixty-five new False Claims Act
      complaints against over 330 defendants in numerous Federal courts. One of
      those complaints was filed in the Federal District Court for the Eastern
      District of Louisiana against Columbia and twelve affiliated entities.
      Plaintiff's second complaint repeats the mismeasurement claims previously
      made and adds valuation claims alleging that the defendants have
      undervalued natural gas for royalty purposes in various ways, including by
      making sales to affiliated entities at artificially low prices. Most of
      the Grynberg cases were


                                       5
<PAGE>
ITEM 3. LEGAL PROCEEDINGS (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES

      transferred to Federal court in Wyoming in 1999. In December 1999, the
      Columbia defendants filed a motion to dismiss plaintiff's second complaint
      primarily based on a failure to plead fraud with specificity. In May 2001,
      the Court denied the Columbia defendants' motion to dismiss. The Columbia
      defendants joined together with numerous other defendants and filed a
      motion requesting the district court to amend its order to include a
      certification so that the defendants could request permission from the
      United States Court of Appeals for the Tenth Circuit to appeal a
      controlling question of law. That motion was denied on July 2, 2001.

4.    QUINQUE OPERATING CO. ET AL V. GAS PIPELINES, ET AL.

      Plaintiff filed an amended complaint in Stevens County, Kansas state court
      on September 23, 1999, against over 200 natural gas measurers, mostly
      natural gas pipelines, including Columbia and fourteen affiliated
      entities. The allegations in Quinque are similar to those made in
      Grynberg; however, Quinque broadens the claims to cover all oil and gas
      leases (other than the Federal and Indian leases that are the subject of
      Grynberg). Quinque asserts a breach of contract claim, negligent or
      intentional misrepresentation, civil conspiracy, common carrier liability,
      conversion, violation of a variety of Kansas statutes and other common law
      causes of action. Quinque purports to be a nationwide class action filed
      on behalf of all similarly situated gas producers, royalty owners,
      overriding royalty owners, working interest owners and certain state
      taxing authorities. The defendants had previously removed the case to
      Federal court. On January 12, 2001, the Federal court remanded the case to
      state court. In June 2001, the plaintiff voluntarily dismissed nine of the
      thirteen Columbia entities. Discovery relating to personal jurisdiction
      has begun.

5.    VIVIAN K. KERSHAW ET AL. V. COLUMBIA NATURAL RESOURCES, INC., ET AL.

      In February 2000, plaintiff filed a complaint in New York state court
      against Columbia, Columbia Natural Resources, Inc. and Columbia
      Transmission. The complaint alleges that Kershaw owns an interest in an
      oil and gas lease in New York and that the defendants have underpaid
      royalties on those leases by, among other things, failing to base
      royalties on the price at which natural gas is sold to the end user and by
      improperly deducting post-production costs. The complaint also seeks class
      action status on behalf of all royalty owners in oil and gas leases
      operated by Columbia Resources. Plaintiff seeks the alleged royalty
      underpayments and punitive damages. Columbia Resources and Columbia
      Transmission removed the case to Federal court in March 2000. The Federal
      court has now remanded Kershaw back to New York state court. The Columbia
      defendants' motion to dismiss was partially granted and partially denied
      by the New York state court judge on September 24, 2001.

6.    ANTHONY GONZALEZ, ET AL. V. NATIONAL PROPANE CORPORATION, ET AL.

      On December 11, 1997, plaintiffs Anthony Gonzalez, Helen Pieczynski, as
      Special Administrator of the Estate of Edmund Pieczynski, deceased,
      Michael Brown and Stephen Pieczynski filed a multiple-count complaint for
      personal injuries in the Circuit Court of Cook County, Illinois against
      National Propane Corporation and the Estate of Edmund Pieczynski sounding
      in strict tort liability and negligence. National Propane Corporation was
      acquired by Columbia in 1999, and this litigation was retained by Columbia
      when Columbia Propane was sold in 2001. Plaintiff's complaint arises from
      an explosion and fire, which occurred in a Wisconsin vacation cottage in
      1997. National Propane, L.P. filed a third-party complaint for
      contribution against Natural Gas Odorizing and Phillips Petroleum Company.
      Written discovery has been completed and the parties are conducting oral
      discovery of the fact witnesses. The case has a scheduled trial date of
      October 17, 2002.

7.    COLUMBIA GAS TRANSMISSION CORP. V. CONSOLIDATION COAL CO., ET AL.

      On December 21, 1999, Columbia Transmission filed a complaint in Federal
      court in Pittsburgh, Pennsylvania against Consolidation Coal Co. and
      McElroy Coal Co. (collectively, Consol), seeking declaratory and permanent
      injunctive relief enjoining Consol from pursuing its current plan to
      conduct longwall mining through Columbia Transmission's Victory Storage
      Field (Victory) in northern West Virginia. The complaint was served on
      April 10, 2000. In October 2001, the parties reached an agreement in
      principle to settle this matter and the related case described below.

8.    MCELROY COAL COMPANY V. COLUMBIA GAS TRANSMISSION CORPORATION.

      On February 12, 2001, McElroy Coal Company (McElroy), an affiliate of
      Consolidation Coal Co., filed a complaint against Columbia Transmission in
      Federal court in Wheeling, West Virginia. The West Virginia complaint
      seeks declaratory and injunctive relief as to McElroy's alleged right to
      mine coal within Victory, and Columbia Transmission's obligation to take
      all necessary measures to permit McElroy to longwall mine. The complaint
      also seeks compensation for the inverse condemnation of any coal that
      cannot be mined due to


                                       6
<PAGE>
ITEM 3. LEGAL PROCEEDINGS

COLUMBIA ENERGY GROUP AND SUBSIDIARIES

      Columbia Transmission's Victory operations. Except for the claim of
      inverse condemnation, McElroy's West Virginia complaint appears to be
      virtually identical to Consol's original counterclaim to Columbia
      Transmission's Federal court action in Pennsylvania. On April 10, 2001,
      the West Virginia case was dismissed without prejudice. In October 2001,
      the parties reached an agreement in principle to settle this matter and
      the related case described above.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

                                     PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS

NiSource is the holder of record of all the outstanding common equity securities
of Columbia.

ITEM 6. SELECTED FINANCIAL DATA

Omitted pursuant to General Instruction I(2)(A).


                                       7
<PAGE>
ITEM 7. MANAGEMENT'S NARRATIVE AND ANALYSIS OF RESULTS OF OPERATIONS

COLUMBIA ENERGY GROUP AND SUBSIDIARIES

<TABLE>
<CAPTION>
INDEX                                                                     PAGE
--------------------------------------------------------------------------------
<S>                                                                       <C>
Consolidated Review...................................................     8
Liquidity and Capital Resources.......................................    11
--------------------------------------------------------------------------------
</TABLE>

The information required by this Item is presented in a reduced disclosure
format pursuant to General Instruction I to Form 10-K. The notes to our
consolidated financial statements contain information that is pertinent to the
following analysis.

The Management's Narrative and Analysis of Results of Operations, including
statements regarding market risk sensitive instruments, contains
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Investors and prospective investors should understand that many
factors govern whether any forward-looking statement contained herein will be or
can be realized. Any one of those factors could cause actual results to differ
materially from those projected. These forward-looking statements include, but
are not limited to, statements concerning Columbia's plans, dispositions,
objectives, expected performance, expenditures and recovery of expenditures
through rates, stated on a consolidated basis, any and all underlying
assumptions and other statements that are other than historical fact. From time
to time, Columbia may publish or otherwise make available forward-looking
statements of this nature. All such subsequent forward-looking statements,
whether written or oral and whether made by or on behalf of Columbia, are also
expressly qualified by these cautionary statements. All forward-looking
statements are based on assumptions that management believes to be reasonable;
however, there can be no assurance that actual results will not differ
materially. Realization of Columbia's objective and expected performance is
subject to a wide range of risks and can be adversely affected by, among other
things, increased competition in deregulated energy markets, weather conditions,
fluctuations in supply and demand for energy commodities, service territories,
successful consummation of dispositions, growth opportunities for Columbia's
regulated and non-regulated businesses, dealings with third parties over whom
Columbia has no control, the regulatory process, regulatory and legislative
changes, changes in general economic, capital and commodity market conditions
and counter-party credit risk, many of which are beyond the control of Columbia.

                               CONSOLIDATED REVIEW

Columbia's income from continuing operations for 2001 was $236.5 million, a
decrease of $36.2 million from 2000. The decrease is largely due to
environmental and litigation expenditures, a one-time charge of $58.0 million
after-tax for the impairment of assets related to Transcom, record setting warm
weather and the continuing economic downturn in the industrial and manufacturing
sectors. In addition, 2000 was favorably impacted by the sales of Columbia
Electric and Cove Point LNG resulting in after-tax gains of $86.4 and $58.9
million, respectively. Tempering these reductions in income were a reduction in
property taxes, reduction in operations and maintenance costs resulting from
restructuring initiatives implemented during 2000 and increased gas production
revenues, net of associated depletion. In addition, the results for 2000
included approximately $160 million after-tax of merger-related expenditures.

Discontinued operations, which reflect Columbia's propane operations that were
sold on August 21, 2001, incurred an after-tax loss of $50.6 million in 2001,
which includes a litigation contingency. Taking into account income from
continuing operations and the loss from discontinued operations, Columbia
reported net income of $189.9 million in 2001, versus $111.8 million in the
prior year.

Income from continuing operations for 2000 of $272.7 million decreased $109.2
million from 1999. The decrease primarily reflected approximately $160 million
after-tax of merger-related expenditures in 2000, partially offset by gains on
the sales of Columbia Electric and the Cove Point LNG facilities, which improved
after-tax income by $86.4 million and $58.9 million, respectively. Also
improving 2000 results was 9% colder weather compared to 1999.

Net Revenues

Total net revenues of $1,977.4 million for 2001 reflected an increase of
approximately $40.9 million over 2000 primarily due to 6% colder weather during
the first half of 2001. Also contributing to this increase was the increase in
gas production with increases in both volumes and prices. Offsetting these
increases to net revenues was a decrease due to the sales of Columbia Electric
and Cove Point LNG.


                                       8
<PAGE>
ITEM 7. MANAGEMENT'S NARRATIVE AND ANALYSIS OF RESULTS OF OPERATIONS (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES

For 2000, total net revenues of $1,936.5 million increased $28.5 million over
1999, primarily due to the effect of colder weather during the fourth quarter,
an improvement in transportation revenue and increased natural gas prices and
production for Columbia Resources' operations. Tempering these improvements was
a 1999 gain recorded on the termination of a co-generation power purchase
contract and a decline in off-system sales.

Expenses

Total operating expenses for 2001 were $1,432.4 million, a decrease of $121.8
million from 2000, due primarily to lower operations and maintenance costs
relating to merger-related savings. Also contributing to this decrease was lower
payroll and benefits costs, which resulted from the 2000 Voluntary Incentive
Retirement Program (VIRP). Other taxes decreased $23.3 million, primarily due to
lower property taxes. Offsetting these decreases were environmental and
litigation contingencies and the $89.2 million impairment charge relating to
Transcom. Depreciation and depletion expenses increased $11.1 million, due in
part to the write down of certain impaired assets in Columbia Resources'
Canadian producing region and higher depletion expense. In addition, higher
uncollectibles in the Distribution Operations subsidiaries increased $24.6
million over the prior year, primarily resulting from the higher cost of gas in
the 2000-2001 heating period. This negative variance was reduced by the impact
of a favorable order that allows regulatory recovery of customer bad debts
totaling approximately $19.5 million.

Total operating expenses for 2000 were $1,554.2 million, an increase of $331.6
million compared to 1999, reflecting higher expenses in 2000 attributable to
merger-related activities and employee-related costs for Columbia Electric's
projects. Partially offsetting this increase were reduced labor and benefits
cost as a result of implementing the 2000 VIRP and the positive impact of the
1997 Columbia of Ohio regulatory settlement.

<TABLE>
<CAPTION>

Twelve Months Ended December 31, (in millions)       2001            2000          1999
-----------------------------------------------------------------------------------------
<S>                                                <C>             <C>           <C>
Interest income and other, net                     $  14.3         $ 236.3       $  34.9
Interest expense and related charges                (170.1)         (169.6)       (164.2)
-----------------------------------------------------------------------------------------
TOTAL OTHER INCOME (DEDUCTIONS)                    $(155.8)        $  66.7       $(129.3)
-----------------------------------------------------------------------------------------
</TABLE>

Other income (deductions) decreased income by $155.8 million in 2001 compared to
an increase to net income of $66.7 million in 2000. Interest income and other,
net, of $14.3 million was $222.0 million less than the year earlier, due to the
earlier period having been favorably impacted by a $130.5 million and $90.5
million pre-tax gain on the sales of Columbia Electric and Cove Point LNG,
respectively. Interest expense and related charges of $170.1 million remained
relatively constant.

For 2000, other income (deductions) improved income by $66.7 million compared to
a reduction of $129.3 million in 1999. Interest income and other, net, of $236.3
million was $201.4 million greater than in the year earlier, due largely to the
gain from the sale of Columbia Electric and the Cove Point facilities in 2000.
Tempering this increase was an improvement in 1999 from the sale of Columbia's
interests in a pipeline partnership amounting to $12.1 million and from the sale
of coal properties for $2.9 million. Interest expense and related charges of
$169.6 million increased $5.4 million due largely to higher short-term
borrowings to finance acquisitions and fund Columbia's stock repurchase program,
as discussed below, tempered by lower interest on contingent taxes.

Income Taxes

Income tax expense in 2001 totaled $152.7 million, a decrease of $23.6 million
from 2000; primarily due to tax benefits and 2000 income tax expense was higher
as a result of the gain on the sales of Columbia Electric and Cove Point LNG.

Income tax expense of $176.3 million for 2000 increased $2.1 million from 1999.
Lower pre-tax income for 2000 was offset by utilization of certain tax benefits
and state tax planning initiatives during 1999.

Discontinued Operations

During 2000, Columbia undertook an evaluation of the appropriateness of
remaining in certain businesses given the rapidly changing energy industry and
the pending merger with NiSource. As a result of this assessment, Columbia
decided to exit the energy marketing operations, which included the propane,
petroleum and Columbia Energy Services' mass marketing business, as discussed
below. In accordance with generally accepted accounting principles, the results
from these businesses were reported as discontinued operations.


                                       9
<PAGE>
ITEM 7. MANAGEMENT'S NARRATIVE AND ANALYSIS OF RESULTS OF OPERATIONS (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES

Discontinued operations reflected an after-tax loss of $50.6 million in 2001
compared to an after-tax loss of $160.9 million in 2000. The loss was primarily
related to an additional loss recorded for the sale of the propane operations.

In May 2000, Columbia Energy Services sold its internet-based energy marketing
operation, Energy.com. Also in May 2000, Columbia announced that it was in the
process of preparing its propane and petroleum businesses for sale. In August
2001, NiSource sold Columbia Propane Corporation and incurred an after-tax loss
of $50.6 million.

In the third quarter of 2000, Columbia sold its retail energy mass marketing
business to The New Power Company, a national residential and small business
energy provider.

Late in 2000, Columbia sold its interest in Columbia Electric's four power
generation plants to a partnership between Delta Power Company and John Hancock
Life Insurance Company and the remainder of Columbia Electric to Orion Power.
The gain of the sale of these assets resulted in an improvement to consolidated
net income of approximately $86.4 million.

Accounting Change

Effective January 1, 2001, Columbia adopted the Financial Accounting Standards
Board's (FASB) Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities", as subsequently
amended by SFAS No. 137 and SFAS No. 138 (collectively referred to as SFAS No.
133). These statements establish accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives) and for hedging
activities. SFAS No. 133 requires an entity to recognize all derivatives as
either assets or liabilities on the balance sheet and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b) a hedge of
the exposure to variable cash flows of a forecasted transaction, or (c) a hedge
of the foreign currency exposure of a net investment in a
foreign-currency-denominated forecasted transaction. The accounting for changes
in the fair value of a derivative depends on the intended use of the derivative
and resulting designation.

The adoption of this statement on January 1, 2001, resulted in a cumulative
after-tax increase to net income of approximately $4.0 million and an after-tax
reduction to accumulated other comprehensive income (OCI) of approximately $33.6
million. The adoption also resulted in the recognition of $160.2 million of
assets and $193.8 million of liabilities on the consolidated balance sheet.
Additionally, the adoption resulted in the reduction of the carrying value of
certain long-term debt by $3.8 million. Approximately $6.4 million of the net
losses included in the cumulative effect of a change in accounting principle
component of OCI were reclassified into earnings during 2001.

Refer to "Summary of Significant Accounting Policies - Accounting for Risk
Management Activities" and "Risk Management Activities" in the Notes to the
Consolidated Financial Statements for further discussion of Columbia's risk
management.

Change in Accounting Method

During the fourth quarter of 2001, Columbia changed its method of accounting for
acquisition, exploration and development activities related to oil and gas
reserves from the full cost method to the successful efforts method. Under the
successful efforts method of accounting, except for property acquisition costs,
only costs associated with specific discovered reserves are capitalized.
Capitalized costs include mineral interests in properties, wells and related
equipment and facilities, support equipment, and uncompleted wells. Depletion
expense is equal to annual production multiplied by the depletion rate per unit
that is derived by spreading the total costs capitalized under successful
efforts over the number of units expected to be extracted over the life of the
reserves on a lease basis. Compared to the full cost method, the change to
successful efforts reduced operating income by $28.0 million, $36.0 million and
$9.8 million for 2001, 2000 and 1999, respectively.


                                       10
<PAGE>
ITEM 7. MANAGEMENT'S NARRATIVE AND ANALYSIS OF RESULTS OF OPERATIONS (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES

                         LIQUIDITY AND CAPITAL RESOURCES

A significant portion of Columbia's operations is subject to seasonal
fluctuations in cash flow. During the heating season, which is primarily from
November through March, cash receipts from sales and transportation services
typically exceed cash requirements. Conversely, during the remainder of the
year, cash on hand together with external short-term and long-term financing, as
needed, is used to purchase gas to place in storage for heating season
deliveries, perform necessary maintenance of facilities, make capital
improvements in plant and expand service.

Net cash from continuing operations for the year ended December 31, 2001 was
$743.9 million, a $210.7 million increase from the same period in 2000. The
increase was primarily due to the increase of cash receipts from accounts
receivable, previously underrecovered gas cost, and exchange gas receivable,
partially offset by the receipt of cash for forward gas sales in 2000.

Columbia satisfies its liquidity requirements primarily through internally
generated funds and through intercompany borrowings from NiSource Finance Corp.
(NFC), NiSource's financing subsidiary. NFC actively borrows funds in the
commercial paper market and maintains a $2.5 billion revolving credit facility
with a syndicate of banks for back-up liquidity purposes. The credit facility is
guaranteed by NiSource.

As of December 31, 2001, Columbia had $72.5 million of intercompany short-term
borrowings with NiSource Finance Corp. outstanding at a weighted average
interest rate of 2.88%. In addition, at December 31, 2001, Columbia had letters
of credit outstanding issued and outstanding of $47.7 million.

Columbia has entered into interest rate swap agreements to modify the interest
characteristics of its outstanding long-term debt. At December 31, 2001,
Columbia had four interest rate swap agreements outstanding effective through
November 28, 2002, on $200.0 million notional amount of its 6.61% Series B
Debentures due November 28, 2002. In addition, Columbia has two other
outstanding interest rate swap agreements, including a $100.0 million notional
value swap effective through November 28, 2005 on its 6.80% Series C Debentures
due November 28, 2005 and a $281.5 million notional value swap effective through
November 28, 2007 on its 7.05% Series D Debentures due November 28, 2007. The
Series D swap can be terminated at the option of the counter party at any time
between the optional termination date of November 28, 2005 and the stated
termination date of November 28, 2007. Under the terms of all the swap
agreements, Columbia pays interest based on a floating rate index and receives
interest based on a fixed rate. The effect of these agreements is to modify the
interest rate characteristics of a portion of Columbia's long-term debt from
fixed to variable.

Columbia has an effective shelf registration statement on file with the
Securities and Exchange Commission (SEC) for the issuance of up to $1 billion in
aggregate of debentures, common stock or preferred stock in one or more series.
Currently, Columbia has $750 million available under the shelf registration.

In October 1999, Columbia of Ohio entered into an agreement to sell, without
recourse, substantially all of its trade accounts receivable to Columbia
Accounts Receivable Corporation (CARC), a wholly owned subsidiary of Columbia.
At the same time, CARC entered into an agreement, with a third party, Canadian
Imperial Bank of Commerce (CIBC), to sell a percentage ownership interest in a
defined pool of accounts receivable (Sales Program). Under this Sales Program,
CARC can transfer an undivided interest in a designated pool of its accounts
receivable on an ongoing basis up to a maximum of either $125.0 million or
$100.0 million, as determined by the seasonal fluctuation in Columbia of Ohio's
account receivable balances and the mutual consent of both parties. The amount
available at any measurement date varies based upon the level of eligible
receivables. Under these agreements, CARC may not sell any new affiliate
receivables to the conduit if Columbia's debt rating falls below BBB or Baa2 at
Standard and Poor's and Moody's, respectively. In addition, if Columbia's debt
rating falls below investment grade, the agreements terminate and CARC may not
sell any new affiliate receivables to the conduit. Under this agreement,
approximately $82.8 million of receivables were sold as of December 31, 2001.

Management believes that its sources of funding are sufficient to meet the
short-term and long-term liquidity needs of Columbia.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See Item 8, Note 7 for a discussion of risk management activities.

                                       11
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

COLUMBIA ENERGY GROUP AND SUBSIDIARIES

<TABLE>
<CAPTION>

INDEX                                                                     PAGE
-------------------------------------------------------------------------------
<S>                                                                      <C>
Report of Independent Public Accountants.............................      13
Statements of Consolidated Income....................................      14
Consolidated Balance Sheets..........................................      15
Statements of Consolidated Cash Flows................................      17
Statements of Consolidated Common Stock Equity.......................      18
Notes of Consolidated Financial Statements...........................      19
Schedule II - Valuation and Qualifying Accounts......................      44
-------------------------------------------------------------------------------
</TABLE>


                                       12
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholder of Columbia Energy Group:

We have audited the accompanying consolidated balance sheets of Columbia Energy
Group (a Delaware corporation, the "Corporation" and a wholly owned subsidiary
of NiSource Inc.) and subsidiaries as of December 31, 2001, and 2000, and the
related statements of consolidated income, cash flows and common stock equity
for the three years then ended December 31, 2001. These financial statements are
the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the 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, the financial statements referred to above present fairly, in
all material respects, the financial position of the Corporation and
subsidiaries as of December 31, 2001, and 2000, and the results of their
operations and their cash flows for the three years then ended, in conformity
with accounting principles generally accepted in the United States.

As explained in Note 1E to the financial statements, the Corporation has given
retroactive effect to the change in accounting for acquisition, exploration and
development activities related to oil and gas reserves from the full cost method
to the successful efforts method. Further, as explained in Note 7 to the
financial statements, effective January 1, 2001, the Corporation adopted
Statement of Financial Accounting Standards No. 133, "Accounting for Derivatives
Instruments and Hedging Activities," as amended.

Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in the
Index to Item 8, Financial Statements and Supplementary Data, is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic consolidated financial statements. This schedule has been
subjected to the auditing procedures applied in our audits of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.


ARTHUR ANDERSEN LLP

New York, New York
January 29, 2002


                                       13
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME

<TABLE>
<CAPTION>
Year ended December 31, (in millions)                             2001           2000           1999
------------------------------------------------------------------------------------------------------
<S>                                                           <C>            <C>            <C>
NET REVENUES
   Energy sales                                               $ 2,566.0      $ 1,723.1      $ 1,717.8
   Less: Products purchased                                     1,692.5          922.5          905.6
------------------------------------------------------------------------------------------------------
   Gross Margin                                                   873.5          800.6          812.2
   Transportation                                                 801.3          801.2          719.2
   Production gas sales                                           153.0          154.9          120.2
   Other                                                          149.6          179.8          256.4
------------------------------------------------------------------------------------------------------
Total Net Revenues                                              1,977.4        1,936.5        1,908.0
------------------------------------------------------------------------------------------------------

OPERATING EXPENSES
   Operation and maintenance                                      937.8        1,136.6          852.9
   Settlement of gas supply charges                                  --             --          (31.7)
   Depreciation and depletion                                     226.2          215.1          198.3
   Loss on impairment of telecommunications assets                 89.2             --             --
   Other taxes                                                    179.2          202.5          203.1
------------------------------------------------------------------------------------------------------
Total Operating Expenses                                        1,432.4        1,554.2        1,222.6
------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------
OPERATING INCOME                                                  545.0          382.3          685.4
------------------------------------------------------------------------------------------------------
OTHER INCOME (DEDUCTIONS)
   Interest income and other, net                                  14.3          236.3           34.9
   Interest expense and related charges                          (170.1)        (169.6)        (164.2)
------------------------------------------------------------------------------------------------------
Total Other Income (Deductions)                                  (155.8)          66.7         (129.3)
------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS
   BEFORE INCOME TAXES                                            389.2          449.0          556.1
INCOME TAXES                                                      152.7          176.3          174.2
------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS                                 236.5          272.7          381.9
------------------------------------------------------------------------------------------------------
DISCONTINUED OPERATIONS - NET OF TAXES
   Income (Loss) from operations                                     --           (1.6)        (112.9)
   Estimated (loss) on disposal                                   (50.6)        (159.3)         (25.8)
------------------------------------------------------------------------------------------------------
Loss from Discontinued Operations - net of taxes                  (50.6)        (160.9)        (138.7)
------------------------------------------------------------------------------------------------------
   Cumulative effect of change in accounting principle              4.0             --             --
------------------------------------------------------------------------------------------------------
NET INCOME                                                    $   189.9      $   111.8      $   243.2
======================================================================================================
</TABLE>

The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.


                                       14
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

As of December 31, (in millions)                                        2001           2000
----------------------------------------------------------------------------------------------
<S>                                                                  <C>            <C>
ASSETS
PROPERTY, PLANT AND EQUIPMENT
   Gas utility and other plant, at original cost                     $ 8,267.0      $ 8,174.2
   Accumulated depreciation                                           (3,879.1)      (3,778.3)
----------------------------------------------------------------------------------------------
   Net Gas Utility and Other Plant                                     4,387.9        4,395.9
----------------------------------------------------------------------------------------------
   Gas and oil producing properties, successful efforts method
    United States cost center                                            934.2          779.4
    Canadian cost center                                                  14.2           12.5
   Accumulated depletion                                                (407.4)        (319.2)
----------------------------------------------------------------------------------------------
   Net Gas and Oil Producing Properties                                  541.0          492.7
----------------------------------------------------------------------------------------------
Net Property, Plant and Equipment                                      4,928.9        4,888.6
----------------------------------------------------------------------------------------------

INVESTMENTS AND OTHER ASSETS
   Unconsolidated affiliates                                              28.9           28.1
   Net assets of discontinued operations                                  30.0          236.3
   Affiliated Notes Receivable                                            23.9             --
   Other                                                                  16.8           27.4
----------------------------------------------------------------------------------------------
Total Investments and Other Assets                                        99.6          291.8
----------------------------------------------------------------------------------------------

CURRENT ASSETS
   Cash and temporary cash investments                                    53.8           73.5
   Accounts receivable
    Customer (less allowance for doubtful accounts
      of $25.3 and $15.8, respectively)                                  385.0          569.8
    Affiliated                                                            81.3            2.7
    Other                                                                 29.9          113.5
   Gas inventory                                                         195.7          147.4
   Other inventories - at average cost                                    14.5           14.5
   Prepayments                                                            84.4           73.8
   Regulatory assets                                                      75.4           57.4
   Underrecovered gas costs                                               60.1          169.0
   Deferred property taxes                                                48.7           45.2
   Exchange gas receivable                                               186.8          615.9
   Price risk management assets                                           65.8             --
   Other                                                                 103.1           (2.3)
----------------------------------------------------------------------------------------------
Total Current Assets                                                   1,384.5        1,880.4
----------------------------------------------------------------------------------------------

REGULATORY ASSETS                                                        364.2          351.8
DEFERRED CHARGES                                                         117.5           45.2
----------------------------------------------------------------------------------------------
TOTAL ASSETS                                                         $ 6,894.7      $ 7,457.8
==============================================================================================
</TABLE>

The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.


                                       15
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

As of December 31, (in millions)                               2001          2000
-------------------------------------------------------------------------------------
<S>                                                         <C>           <C>
CAPITALIZATION AND LIABILITIES
COMMON STOCK EQUITY
   Common stock, par value $.01 per share - issued
     3,000 and 79,539,295 shares, respectively              $       --    $      0.7
   Additional paid in capital                                  1,370.5       1,369.1
   Retained earnings                                             755.3         565.7
   Accumulated other comprehensive income                         51.3          (0.4)
-------------------------------------------------------------------------------------
Total Common Stock Equity                                      2,177.1       1,935.1
Long-Term Debt                                                 1,356.9       1,639.1
-------------------------------------------------------------------------------------
Total Capitalization                                           3,534.0       3,574.2
-------------------------------------------------------------------------------------

CURRENT LIABILITIES
   Short-term debt                                                  --         521.0
   Current maturities of long-term debt                          281.7           0.2
   Accounts and drafts payable                                   214.1         398.0
   Affiliated payable                                            103.2           7.2
   Accrued taxes                                                 232.8         177.1
   Accrued interest                                               28.6          17.7
   Estimated rate refunds                                          9.1           6.8
   Overrecovered gas costs                                        45.6            --
   Transportation and exchange gas payable                       285.1         358.5
   Deferred revenue                                               89.0         451.5
   Customer accounts receivable credit balances                  120.6          45.9
   Other                                                         341.7         320.1
-------------------------------------------------------------------------------------
Total Current Liabilities                                      1,751.5       2,304.0
-------------------------------------------------------------------------------------

OTHER LIABILITIES AND DEFERRED CREDITS
   Deferred income taxes, noncurrent                             759.4         699.3
   Investment tax credits                                         29.8          31.2
   Postretirement benefits other than pensions                   104.9         114.7
   Regulatory liabilities                                         32.9          32.4
   Deferred revenue                                              435.4         498.0
   Other                                                         246.8         204.0
-------------------------------------------------------------------------------------
Total Other Liabilities and Deferred Credits                   1,609.2       1,579.6
-------------------------------------------------------------------------------------
TOTAL CAPITALIZATION AND LIABILITIES                        $  6,894.7    $  7,457.8
=====================================================================================
</TABLE>

The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.


                                       16
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS

<TABLE>
<CAPTION>

Year Ended December 31, (in millions)                                             2001            2000            1999
------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>             <C>             <C>
OPERATING ACTIVITIES
   Net Income                                                                   $ 189.9         $ 111.8         $ 243.2
   Adjustments to reconcile net income to net cash from continuing
     operations:
     Loss from discontinued operations                                               --             1.5           112.8
     Estimated loss on disposal                                                    50.6           159.4            25.8
     Depreciation and depletion                                                   226.2           215.1           198.3
     Deferred income taxes                                                        (51.1)          119.5            47.6
     Gain on sale of investments                                                    4.8          (221.0)             --
     Loss/Earnings from equity investment, net of distributions                    (0.8)          (16.4)           23.3
     Loss on impairment of telecommunications asset                                89.2              --              --
     Deferred revenue                                                            (362.5)          197.2           109.4
     Other - net                                                                   91.8            47.9           (59.0)
------------------------------------------------------------------------------------------------------------------------
                                                                                  238.1           615.0           701.4
------------------------------------------------------------------------------------------------------------------------
   Changes in components of working capital:
     Accounts receivable, net                                                     155.8          (200.6)         (145.9)
     Sale of accounts receivable                                                     --              --            81.1
     Gas inventory                                                                (48.3)           (2.5)           41.1
     Prepayments                                                                  (10.6)           (3.1)           (7.4)
     Accounts payable                                                             (87.8)          142.4            87.6
     Accrued taxes                                                                 55.7           (58.1)           (2.5)
     Accrued interest                                                              10.9           (13.6)           15.1
     Estimated rate refunds                                                         2.3           (14.6)          (37.8)
     Estimated supplier obligations                                                  --              --           (40.6)
     Under/Overrecovered gas costs                                                108.9          (143.0)          (35.7)
     Exchange gas receivable/payable                                              355.7          (279.5)           78.4
     Deferred revenue                                                             (62.6)          411.5            27.9
     Other working capital                                                         25.8            79.3             9.9
------------------------------------------------------------------------------------------------------------------------
Net Cash from Continuing Operations                                               743.9           533.2           772.6
Net Cash from Discontinued Operations                                             154.2            12.8          (246.3)
------------------------------------------------------------------------------------------------------------------------
Net Cash from Operating Activities                                                898.1           546.0           526.3
------------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
   Capital expenditures                                                          (371.1)         (464.0)         (437.2)
   Purchases and sales of investments - net                                        12.4           312.9           (62.1)
------------------------------------------------------------------------------------------------------------------------
Net Investment Activities                                                        (358.7)         (151.1)         (499.3)
------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
   Retirement of long-term debt                                                      --          (310.9)          (52.5)
   Dividends paid                                                                  (0.3)          (54.1)          (71.8)
   Issuance of common stock                                                          --             6.5            15.5
   Issuance (repayment) of short-term debt                                       (521.0)           55.5           320.7
   Purchase of treasury stock                                                        --          (114.1)         (135.0)
   Other financing activities                                                     (37.8)           37.6           (66.6)
------------------------------------------------------------------------------------------------------------------------
Net Financing Activities                                                         (559.1)         (379.5)           10.3
------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in cash and temporary cash investments                        (19.7)           15.4            37.3
Cash and temporary cash investments at beginning of year                           73.5            58.1            20.8
------------------------------------------------------------------------------------------------------------------------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF YEAR                              $  53.8         $  73.5         $  58.1
========================================================================================================================

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
   Cash paid for interest                                                          98.8           162.7           148.6
   Cash paid for income taxes (net of refunds)                                    143.5            69.2            61.6
------------------------------------------------------------------------------------------------------------------------
</TABLE>

The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.


                                       17
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED COMMON STOCK EQUITY

<TABLE>
<CAPTION>
                                                  Common Stock*
                                         -----------------------------                                      Accumulated
                                           Shares                       Additional              Unearned       Other
                                         Outstanding   Par    Treasury   Paid In    Retained    Employee    Comprehensive
(in millions, except for share amounts)  (Thousands)  Value     Stock    Capital    Earnings  Compensation  Income (Loss)    Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>          <C>     <C>       <C>         <C>       <C>           <C>            <C>
BALANCE AT DECEMBER 31, 1999               81,308     $ 0.8   $(135.0)   $1,611.6    $508.0       $(0.6)        $ 0.3      $1.985.1
Comprehensive Income:                                                                                                            --
   Net income                                                                         111.8                                   111.8
   Loss on foreign currency translation                                                                          (0.7)         (0.7)
Comprehensive Income                                                                                                          111.1
Cash dividends:                                                                                                                  --
   Common stock                                                                       (54.1)                                  (54.1)
Common stock issued:                                                                                                             --
   Long-term incentive plan                   120                             6.6                   0.6                          7.2
   Reduction in par value                              (0.1)                                                                   (0.1)
Purchase of treasury stock                 (1,889)             (114.1)                                                       (114.1)
Retirement of treasury stock                                    249.1      (249.1)                                               --
------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2000               79,539     $ 0.7   $    --    $1,369.1    $565.7       $  --         $(0.4)     $1,935.1
------------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income:                                                                                                            --
   Net income                                                                         189.9                                   189.9
   Net unrealized gains on
     derivatives**                                                                                               52.4          52.4
   Loss on foreign currency
     translation                                                                                                 (0.7)         (0.7)
Comprehensive Income                                                                                                          241.6
Cash dividends:                                                                                                                  --
   Common stock                                                                        (0.3)                                   (0.3)
Common stock issued:                                                                                                             --
   Long-term incentive plan                             0.1                  (0.1)                                               --
   Reduction in issued shares             (79,536)     (0.8)                  0.8                                                --
Purchase of treasury stock                                                                                                       --
Retirement of treasury stock                                                  0.7                                               0.7
Recapitalization                                                                                                                 --
   Tax savings allocation                                                                                                        --
------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2001                    3     $  --   $    --    $1,370.5    $755.3       $  --         $51.3      $2,177.1
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>




*     Effective May 19, 1999, the authorized number of shares of common stock
      increased from 100 million to 200 million and the par value of common
      stock decreased from $10 to $.01 per share.

**    Net of taxes amounting to $36.4 million.


The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.



                                       18
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of Columbia Energy Group (Columbia) and all subsidiaries. All
intercompany accounts and transactions have been eliminated. Certain
reclassifications have been made to the prior period financial statements to
conform to the 2001 presentation.

B. CASH AND CASH EQUIVALENTS. Columbia considers all investments with original
maturities of three months or less to be cash equivalents.

C. BASIS OF ACCOUNTING FOR RATE-REGULATED SUBSIDIARIES. Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of Certain Types of
Regulation" (SFAS No. 71), provides that rate-regulated subsidiaries account for
and report assets and liabilities consistent with the economic effect of the way
in which regulators establish rates, if the rates established are designed to
recover the costs of providing the regulated service and if the competitive
environment makes it probable that such rates can be charged and collected.
Columbia's rate-regulated subsidiaries follow the accounting and reporting
requirements of SFAS No. 71. Certain expenses and credits subject to utility
regulation or rate determination normally reflected in income are deferred on
the balance sheet and are recognized in income as the related amounts are
included in service rates and recovered from or refunded to customers. In the
event that regulation significantly changes the opportunity for Columbia to
recover its costs in the future, all or a portion of Columbia's regulated
operations may no longer meet the criteria for the application of SFAS No. 71.
In such event, a write-down of all or a portion of Columbia's existing
regulatory assets and liabilities could result. If transition cost recovery is
approved by the appropriate regulatory bodies that would meet the requirements
under generally accepted accounting principles for continued accounting as
regulatory assets and liabilities during such recovery period, the regulatory
assets and liabilities would be reported at the recoverable amounts. If Columbia
would not be able to continue to apply the provisions of SFAS No. 71, Columbia
would have to apply the provisions of SFAS No. 101, "Regulated Enterprises -
Accounting for the Discontinuation of Application of FASB Statement No. 71." In
management's opinion, Columbia's regulated subsidiaries will be subject to SFAS
No. 71 for the foreseeable future.

Regulatory assets and liabilities were comprised of the following items:

<TABLE>
<CAPTION>

At December 31, (in millions)                                                                 2001           2000
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>            <C>
ASSETS
   Environmental costs                                                                      $  69.2        $  82.8
   Postemployment and postretirement benefits costs                                           137.1          149.6
   Percent of income plan receivables                                                          24.5            6.4
   Retirement income plan costs                                                                14.3           21.1
   Regulatory effects of accounting for income taxes                                           80.2           77.0
   Post in-service carrying charges                                                            13.2           15.3
   Underrecovered gas costs                                                                    60.1          169.0
   Depreciation                                                                                64.5           39.9
   Other                                                                                       36.6           17.1
-------------------------------------------------------------------------------------------------------------------
TOTAL REGULATORY ASSETS                                                                     $ 499.7        $ 578.2
-------------------------------------------------------------------------------------------------------------------
LIABILITIES
   Rate refunds and reserves                                                                $   9.1        $   6.8
   Overrecovered gas costs                                                                     45.6             --
   Regulatory effects of accounting for income taxes                                           30.0           32.6
   Other                                                                                        8.5            8.4
-------------------------------------------------------------------------------------------------------------------
TOTAL REGULATORY LIABILITIES                                                                $  93.2        $  47.8
-------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       19
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Regulatory assets of $135.5 million and $ 226.4 million and regulatory
liabilities of $60.3 million and $15.4 million at December 31, 2001 and 2000,
respectively, are included in current assets and current liabilities. Regulatory
assets of approximately $238.5 million are not presently included in the rate
base and consequently are not earning a return on investment. These regulatory
assets are being recovered through cost of service. The remaining recovery
periods generally range from one to fifteen years. Regulatory assets of
approximately $96.4 million require specific rate action.

The Public Utility Commission of Ohio (PUCO) authorized Columbia of Ohio to
revise its depreciation accrual rates for the period January 1, 1999 through
December 31, 2004. The revised depreciation rates are lower than those which
would have been utilized if Columbia of Ohio were not subject to regulation. The
amount of depreciation that would have been recorded for 2001 had Columbia of
Ohio not been subject to rate regulation is $34.0 million, a $24.6 million
increase over the $9.4 million reflected in rates. Including amounts for years
prior to 2001, a regulatory asset has been established in the amount of $64.5
million at December 31, 2001.

D. UTILITY PLANT AND OTHER PROPERTY AND RELATED DEPRECIATION. Property, plant
and equipment (principally utility plant) are stated at cost. The cost of gas
utility and other plant of the rate-regulated subsidiaries includes an allowance
for funds used during construction (AFUDC). Property, plant and equipment of
other subsidiaries include interest during construction (IDC). The 2001
before-tax rates for AFUDC and IDC were 7.56% and 6.82%, respectively. The 2000
and 1999 before-tax rates for AFUDC were 6.84% and 5.91%, respectively, and for
IDC were 6.82% and 6.94%, respectively.

Improvements and replacements of retirement units are capitalized at cost. When
units of property are retired, the accumulated provision for depreciation is
charged with the cost of the units and the cost of removal, net of salvage.
Maintenance, repairs and minor replacements of property are charged to expense.

Columbia's subsidiaries provide for annual depreciation on a composite
straight-line basis. The average annual depreciation rate for the distribution
subsidiaries' property was 2.8% in 2001, 2000, and 1999. The average annual
depreciation rate for the transmission subsidiaries' property was 2.4% in 2001,
2000 and 1999.

E. GAS AND OIL PRODUCING PROPERTIES. During the fourth quarter of 2001, Columbia
changed its method of accounting for acquisition, exploration and development
activities related to oil and gas reserves from the full cost method to the
successful efforts method. Under the successful efforts method of accounting,
except for property acquisition costs, only costs associated with specific
discovered reserves are capitalized. Capitalized costs include mineral interests
in properties, wells and related equipment and facilities, support equipment and
uncompleted wells. Depletion expense is equal to annual production multiplied by
the depletion rate per unit that is derived by spreading the total costs
capitalized under successful efforts over the number of units expected to be
extracted over the life of the reserves on a lease basis. The costs capitalized
using the successful efforts method, net of accumulated depletion, are subject
to impairment under SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" (SFAS No. 121), through
2001. Beginning January 1, 2002, the net capitalized costs will be subject to
impairment testing under SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" (SFAS No. 144), which supercedes SFAS No. 121.
Columbia, as well as the Securities Exchange Commission (SEC), believes that the
successful efforts method is preferable when compared with the full cost method.
The accounting change requires that the financial statements of all periods
presented be restated to take into account the effect of the change. Compared to
full cost, the change to successful efforts reduced operating income by $28.0
million, $36.0 million and $9.8 million for 2001, 2000 and 1999, respectively.

F. INTANGIBLE ASSETS. Intangible assets are recorded at cost (i.e. estimated
fair value) and are amortized on a straight-line basis. Customer lists are being
amortized over periods of 10 to 20 years. Intangible assets are immaterial to
the consolidated financial statements.

G. REVENUE RECOGNITION. Columbia's gas distribution subsidiaries bill customers
on a monthly cycle billing basis. Revenues are recorded on the accrual basis and
include an estimate for gas delivered but unbilled at the end of each accounting
period. Cash received in advance from sales of commodities to be delivered in
the future is deferred and recognized as income upon delivery of the commodity.


                                       20
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

H. ESTIMATED RATE REFUNDS. Certain rate-regulated subsidiaries collect revenues
subject to refund pending final determination in rate proceedings. In connection
with such revenues, estimated rate refund liabilities are recorded which reflect
management's current judgment of the ultimate outcome of the proceedings. No
provisions are made when, in the opinion of management, the facts and
circumstances preclude a reasonable estimate of the outcome.

I. ACCOUNTS RECEIVABLE SALES PROGRAM. Columbia enters into agreements with third
parties to sell certain accounts receivable without recourse. These sales are
reflected as reductions of accounts receivable in the accompanying consolidated
balance sheets and as operating cash flows in the accompanying consolidated
statements of cash flows. The costs of this program, which are based upon the
purchasers' level of investment and borrowing costs, are charged to other income
in the accompanying consolidated statements of income.

J. USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect 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 period. Actual results could differ from those estimates.

K. GAS COST ADJUSTMENT CLAUSE. Columbia's gas distribution subsidiaries defer
differences between gas purchase costs and the recovery of such costs in
revenues, and adjust future billings for such deferrals on a basis consistent
with applicable tariff provisions.

L. GAS INVENTORY. The distribution subsidiaries' gas inventory is carried at
cost on a last-in, first-out (LIFO) basis. The excess of replacement cost of gas
inventory at December 31, 2001, over the carrying value is approximately $37.2
million. Liquidation of LIFO layers related to gas delivered by the distribution
subsidiaries does not affect income since the effect is passed through to
customers as part of purchased gas adjustment tariffs.

M. ACCOUNTING FOR RISK MANAGEMENT ACTIVITIES. Statement of Financial Accounting
Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as subsequently amended by SFAS No. 137 and SFAS No. 138
(collectively referred to as SFAS No. 133), establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives) and for
hedging activities. SFAS No. 133 requires an entity to recognize all derivatives
as either assets or liabilities on the balance sheet and measure those
instruments at fair value. If certain conditions are met, a derivative may be
specifically designated as (a) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment, (b)
a hedge of the exposure to variable cash flows of a forecasted transaction, or
(c) a hedge of the foreign currency exposure of a net investment in a
foreign-currency-denominated forecasted transaction. The accounting for changes
in the fair value of a derivative depends on the intended use of the derivative
and resulting designation.

Unrealized and realized gains and losses are recognized each period as
components of accumulated other comprehensive income (OCI), regulatory assets
and liabilities or earnings depending on the nature of such derivatives. For
subsidiaries that utilize derivatives for cash flow hedges, the effective
portions of the gains and losses are recorded to OCI and are recognized in
earnings concurrent with the disposition of the hedged risks. If a forecasted
transaction does not occur, the gains or losses are recognized currently in
earnings. For fair value hedges, the gains and losses are recorded in earnings
each period along with the change in the fair value of the hedged item. For
hedges of foreign currency the accounting treatment generally follows the
treatment for cash flow hedges or fair value hedges depending on the nature of
the foreign currency hedge. As a result of the rate-making process, the
rate-regulated subsidiaries generally record gains and losses as regulatory
liabilities or assets and recognize such gains or losses in earnings when
recovered in revenues.

In order for a derivative contract to be designated as a hedge, the relationship
between the hedging instrument and the hedged item or transaction must be highly
effective. The effectiveness test is performed at the inception of the hedge and
each reporting period thereafter, throughout the period that the hedge is
designated. Any amounts determined to be ineffective are recorded currently in
earnings.


                                       21
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

N. INCOME TAXES AND INVESTMENT TAX CREDITS. Columbia and its subsidiaries record
income taxes to recognize full interperiod tax allocations. Under the liability
method of income tax accounting, deferred income taxes are recognized for the
tax consequences of temporary differences by applying enacted statutory tax
rates applicable to future years to differences between the financial statement
carrying amounts and the tax basis of existing assets and liabilities.
Previously recorded investment tax credits of the regulated subsidiaries were
deferred and are being amortized over the life of the related properties to
conform to regulatory policy.

Columbia joins in the filing of consolidated federal and state income tax
returns with its parent company, NiSource Inc., and certain of NiSource's other
affiliated companies. On January 14, 2002, NiSource Inc. and its subsidiaries
filed an application with the Securities Exchange Commission to request approval
for a proposed Tax Allocation Agreement. Under the proposed Tax Allocation
Agreement, which would apply to 2001 and later tax years, the consolidated tax
would be allocated among the members of the group in proportion to each member's
relative contribution to the group's consolidated tax liability.

O. ENVIRONMENTAL EXPENDITURES. Columbia accrues for costs associated with
environmental remediation obligations when such costs are probable and can be
reasonably estimated, regardless of when expenditures are made. The undiscounted
estimated future expenditures are based on currently enacted laws and
regulations, existing technology and, when possible, site-specific costs. The
liability is adjusted as further information is discovered or circumstances
change. Rate-regulated subsidiaries applying SFAS No. 71 establish a regulatory
asset on the balance sheet to the extent that future recovery of environmental
remediation costs is probable through the regulatory process.

P. AFFILIATED COMPANY TRANSACTIONS. Columbia receives executive, financial,
sales and marketing, and administrative and general services from an affiliate,
NiSource Corporate Services Company (NSC), a wholly-owned subsidiary of
NiSource. The costs of these services are charged to Columbia based on payroll
costs and expenses incurred by NSC employees for the benefit of Columbia. These
costs totaled $199.2 million for 2001 consisting primarily of employee
compensation and benefits.

Columbia recorded gas sales, transportation and storage revenues from
affiliates of $74.2 million and purchased natural gas from affiliated companies
in the amount of $17.7 million during 2001.

Columbia had notes receivable from NSC totaling $26.2 million, of which $2.3
million is current at December 31, 2001. The interest is payable semi-annually
and is based on rates ranging from 7.1% to 8.1%. The maturities range from
November 2002 to November 2025.

2.    REGULATORY MATTERS

Columbia's Distribution Operations (Distribution) subsidiaries continue to
develop customer choice opportunities through regulatory initiatives in all of
its jurisdictions. While these programs are intended to provide all customer
classes with the opportunity to obtain gas supplies from alternative marketers,
Distribution expects to play a substantial role in supplying gas commodity
services to its customers in the foreseeable future. As customers enroll in
these programs and purchase their gas from other suppliers, the Distribution
subsidiaries are left with pipeline capacity they have contracted for, but no
longer need. The state commissions in jurisdictions served by Distribution are
at various stages in addressing these issues and other transition
considerations. Distribution is currently recovering, or has the opportunity to
recover, the costs resulting from the unbundling of its services and believes
that most of such future costs will be mitigated or recovered. Regulations will
have to be implemented to provide for the recovery of transition capacity costs
and other costs incurred by a utility serving as the supplier of last resort if
the marketing company cannot supply the gas. Methodologies for mitigating or
recovering transition costs include incentive sharing mechanisms, decontracting
of pipeline capacity and mandatory assignment of pipeline capacity to
alternative suppliers.

In December 1999, the Public Utilities Commission of Ohio (PUCO) approved a
request from Columbia Gas of Ohio, Inc. (Columbia of Ohio) that extends Columbia
of Ohio's Customer CHOICESM program through October 31, 2004, freezes base rates
through October 31, 2004 and resolves the issue of transition costs from
pipeline capacity. Under the agreement, Columbia of Ohio assumes total financial
risk for mitigation of transition capacity costs at no additional cost to
customers. Columbia of Ohio has the opportunity to utilize non-traditional
revenue sources as a means of offsetting the costs.

On November 20, 2001, PUCO issued final rules to implement the provisions of
choice legislation enacted by the Ohio General Assembly on March 27, 2001. The
new rules establish the process for PUCO certification and regulation of
competitive retail natural gas suppliers, establish minimum service standards
for competitive natural gas suppliers, and specify the procedures for
establishment of governmental aggregation programs, in which consumers have the
right to "opt-out" of the program. The new rules are expected to become
effective in mid-2002. A number of parties, including Columbia of Ohio, have
requested rehearing on certain provisions of these rules. The PUCO has granted a
rehearing.


                                       22
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

As part of the Kentucky Public Service Commission order approving the
acquisition of Columbia, Columbia of Kentucky is required to file a rate case
that includes an estimate of net merger savings and a mechanism to reflect
merger savings on customers' bills.

3.    NISOURCE ACQUISITION

On November 1, 2000, NiSource Inc. (NiSource) completed its acquisition of
Columbia for an aggregate consideration of approximately $6 billion, primarily
consisting of 72.4 million shares of common stock valued at $1,761 million, with
the remaining approximately $3,888 million paid in cash and Stock Appreciation
Income Linked Securities(SM), referred to as SAILS(SM), (units each consisting
of zero coupon debt security coupled with a forward equity contract) valued at
$114 million. NiSource also assumed approximately $2 billion in Columbia debt.
As part of the Merger Agreement, the stock options under Columbia's Long-Term
Incentive Plans were cancelled. The holders of the stock options received
approximately $120.6 million from the cash-out of the stock options. The
acquisition of Columbia by NiSource triggered change in control payments of
approximately $44.5 million under certain employment agreements. The cost of the
cash-out of the stock options and the change of control payments of
approximately $155.9 million were charged to 2000. As provided for in the Merger
Agreement, NiSource organized a new company that serves as the holding company
for Columbia and its subsidiaries.

4.    RESTRUCTURING ACTIVITIES

During 2000, Columbia developed and began the implementation of a plan to
restructure its operations as a result of the acquisition of Columbia by
NiSource. The restructuring plan included a severance program, a transition plan
to implement operational efficiency throughout Columbia's operations and a
voluntary early retirement program. During 2001, the restructuring initiative
was continued with the addition of a plan to restructure the operations within
Distribution.

As a result of the restructuring plan initiated during 2001, approximately 200
positions will be eliminated. For all of the plans, a total of approximately 750
management, professional, administrative and technical positions will be
eliminated. As of December 31, 2001, approximately 450 employees had been
terminated.

During 2001, Columbia recorded a pre-tax charge amounting to $10.8 million
comprised primarily of severance and related benefits costs for the plans to
restructure the operations within Distribution. In October 2000, a pre-tax
charge of $66.9 million was recorded for severance and related benefits costs.
Adjustments to the October 2000 charge amounting to $6.8 million were recorded
during 2001 to take into account a reduction in the estimated future payments
under the plan. At December 31, 2001 and 2000, the consolidated balance sheets
reflected liabilities of $31.4 million and $61.7 million related to the
restructuring plans, respectively.

A portion of the liability related to the October 2000 charge was transferred to
NiSource. This related to the merger of Columbia Energy Group Services, Inc.
with NiSource Corporate Services, Inc. The reported liabilities and employee
counts have been reduced to take into account the effect at the merger.

5.    DISCONTINUED OPERATIONS

On August 21 2001, Columbia sold the stock and assets of Columbia
Propane to AmeriGas Partners L.P. (AmeriGas) for approximately $196.0 million,
consisting of $152.0 million in cash and $44.0 million of AmeriGas partnership
common units. The loss on the sale of Columbia Propane amounted to an after-tax
loss of $50.6 million. Columbia has also sold substantially all the assets of
Columbia Petroleum Corporation. At December 31, 2000, Columbia Propane and
Columbia Petroleum were reported as net assets of discontinued operations on
the consolidated balance sheet. Remaining assets are reported as net assets of
discontinued operations on the December 31, 2001 consolidated balance sheet.

In the third quarter 2000, Columbia sold Columbia Energy Services' Retail Mass
Marketing business to The New Power Company. The proceeds from the sale were
$44.2 million. Columbia Energy Services ceased operations of its Major Accounts
business during the third quarter of 2000. Columbia Energy Services' Wholesale
and Trading operations, Major Accounts and Retail Mass Markets businesses are
reported as discontinued operations and, as of December 31, 2000, essentially
ceased all operations.


                                       23
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The loss from discontinued operations and the estimated loss on disposal
information are provided in the following table:

<TABLE>
<CAPTION>

($ in millions)                                    2001          2000       1999
----------------------------------------------------------------------------------
<S>                                               <C>          <C>         <C>
Loss from discontinued operations                    --          (2.1)     (176.0)
Income tax benefit                                   --          (0.5)      (63.1)
----------------------------------------------------------------------------------
NET LOSS FROM DISCONTINUED OPERATIONS                --          (1.6)     (112.9)

Estimated loss on disposal                        (95.6)       (226.6)      (39.5)
Income tax benefits                               (45.0)        (67.3)      (13.7)
----------------------------------------------------------------------------------
NET LOSS ON DISPOSAL                              (50.6)       (159.3)      (25.8)
----------------------------------------------------------------------------------
</TABLE>

The net assets of the discontinued operations were as follows:

<TABLE>
<CAPTION>

($ in millions)                                    2001         2000       1999
----------------------------------------------------------------------------------
<S>                                             <C>         <C>         <C>
NET ASSETS OF DISCONTINUED OPERATIONS
   Accounts receivable, net                     $    --     $    91.3   $   416.7
   Property, plant and equipment, net                --         212.2       212.0
   Other assets                                    30.0          70.2       239.6
   Accounts payable                                  --         (68.3)     (388.4)
   Other liabilities                                 --         (69.1)      (69.9)
----------------------------------------------------------------------------------
NET ASSETS OF DISCONTINUED OPERATIONS           $  30.0     $   236.3   $   410.0
----------------------------------------------------------------------------------
</TABLE>

6.   RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

A.   SFAS NOS. 141 AND 142 - BUSINESS COMBINATIONS AND GOODWILL AND OTHER
INTANGIBLE ASSETS. In July 2001, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141,
"Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." The key requirements of the two interrelated Statements include
mandatory use of the purchase method of accounting for business combinations,
discontinuance of goodwill amortization, a revised framework for testing for
goodwill impairment at a "reporting unit" level, and new criteria for the
identification and potential amortization of other intangible assets. Other
changes to existing accounting standards involve the amount of goodwill to be
used in determining the gain or loss on the disposal of assets and a
requirement to test goodwill for impairment at least annually.

The Business Combinations Statement is generally effective for combinations
initiated after June 30, 2001. The Statement on Goodwill and Other Intangible
Assets is effective for fiscal years beginning after December 15, 2001;
however, for business combinations consummated after June 30, 2001 the
requirements to discontinue goodwill amortization are effective upon issuance
of the Statements. The first part of the annual impairment test is to be
performed within six months of adopting the Statement on Goodwill and Other
Intangible Assets.

Northern Indiana adopted the provisions of the Business Combinations Statement
on July 1, 2001, and adopted the Goodwill and Other Intangible Assets Statement
on January 1, 2002. The statements do not have a material impact on its results
of operations.

B.   SFAS NO. 143 - ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS. In July 2001,
the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." The
Statement requires entities to record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred. When the liability
is initially recorded, the entity capitalizes a cost by increasing the carrying
amount of the related long-lived asset. Over time, the liability is accreted to
its then present value, and the capitalized cost is depreciated over the useful
life of the related asset. Upon settlement of the liability, an entity either
settles the obligation for its recorded amount or incurs a gain or loss. The
Statement is effective for fiscal years beginning after June 15, 2002, with
earlier application encouraged. Northern Indiana is currently evaluating the
impact that the Statement will have on its financial position and results of
operations.

C.   SFAS NO. 144 - ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED
ASSETS. In October 2001, the Financial Accounting Standards Board issued SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS
No. 144). The Statement replaces SFAS No. 121, although it retains the two-step
impairment testing methodology used in SFAS No. 121. The accounting and
reporting provisions of Accounting Principals Board Opinion No. 30, "Reporting
the Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions" (APBO No. 30), are superceded by SFAS No. 144, except that the
Statement preserves the requirement of APBO No. 30 to report discontinued
operations separately from continuing operations. The Statement covers a variety
of implementation issues inherent in SFAS No. 121, unifies the framework used in
accounting for assets to be disposed of and discontinued operations and broadens
the reporting of discontinued operations to include all components of an entity
with operations that can be distinguished from the rest of the entity and that
will be eliminated from the ongoing operations of the entity in a disposal
transaction.

The Statement is effective for fiscal years beginning after December 15, 2001.
Northern Indiana adopted SFAS No. 144 on January 1, 2002. Northern Indiana does
not expect the adoption of the Statement to have a material impact on its
financial position and results of operations.


7.   RISK MANAGEMENT ACTIVITIES

Columbia is exposed to market risk due to fluctuations in commodity prices,
primarily at its exploration and production subsidiary. In order to help
minimize this risk, Columbia has adopted a policy that provides for commodity
hedging activities to help ensure stable cash flow, favorable prices and
margins. Financial instruments authorized for use by Columbia for hedging
include futures, swaps and options. Columbia is also exposed to interest rate
risk and has entered into interest rate swaps to hedge a portion of the interest
rate risk associated with its long-term debt.

ACCOUNTING CHANGE - SFAS NO. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES." Effective January 1, 2001, Columbia adopted the Financial
Accounting Standards Board's (SFAS) No. 133 which establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. SFAS No. 133 requires an entity to
recognize all derivatives as either assets or liabilities on the balance sheet
and measure those instruments at fair value. If certain conditions are met, a
derivative may be specifically designated as (a) a hedge of the exposure to
changes in the fair value of a recognized asset or liability or an unrecognized
firm commitment, (b) a hedge of the exposure to variable cash flows of a
forecasted transaction, or (c) a hedge of the foreign currency exposure of a net
investment in a foreign-currency-denominated forecasted transaction. The
accounting for changes in the fair value of a derivative depends on the intended
use of the derivative and resulting designation.

The adoption of this statement on January 1, 2001, resulted in a
cumulative after-tax increase to net income of approximately $4.0 million and
an after-tax reduction to OCI of approximately $33.6 million. The
adoption also resulted in the recognition of $160.2 million of assets and
$193.8 million of liabilities on the consolidated balance sheet. Additionally,
the adoption resulted in the reduction of the carrying value of certain
long-term debt by $3.8 million. During 2001, approximately $6.4 million of the
net losses previously included in the cumulative effect of a change in
accounting principle component of OCI were reclassified into earnings. Further
detail of the assets and liabilities recorded on the consolidated financial
statements for the adoption of SFAS No. 133 is as follows:


                                       24
<PAGE>
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>

(in millions)                                    ASSETS            LIABILITIES
------------------------------------------------------------------------------
<S>                                             <C>                <C>
Price Risk Management                           $ 153.6               $ 209.8
Deferred Taxes                                       --                 (16.0)
Regulatory                                          6.6                    --
Debt                                                 --                  (3.8)
------------------------------------------------------------------------------
TOTAL                                           $ 160.2               $ 190.0
------------------------------------------------------------------------------
</TABLE>

As stated above, the initial recording of the cumulative effect of this
accounting change included unrealized holding losses in OCI of $33.6 million.
However, the activity for 2001 resulted in unrealized gains on qualifying
derivatives of $52.4 million. The activity for 2001 included:

<TABLE>
<CAPTION>

(in millions)                                                                                 2001
----------------------------------------------------------------------------------------------------
<S>                                                                                         <C>
Unrealized gains (losses) on derivatives qualifying as cash flow hedges:

   Unrealized hedging losses arising as a result of the cumulative effect of a
     change in accounting principle, recognized at January 1, 2001, net of tax              $ (33.6)

   Unrealized hedging gains arising during the period on derivatives qualifying as
     cash flow hedges, net of tax                                                              87.8

   Reclassification adjustment for net (gain) included in net income, net of tax
     (including losses of $6.4 million related to the cumulative effect a of
     change in accounting principle)                                                           (1.8)
----------------------------------------------------------------------------------------------------
Net unrealized gains on derivatives qualifying as cash flow hedges, net of tax               $ 52.4
----------------------------------------------------------------------------------------------------
</TABLE>

Columbia's senior management takes an active role in the risk management process
and has developed policies and procedures that require specific administrative
and business functions to assist in the identification, assessment and control
of various risks. In recognition of the increasingly varied and complex nature
of the energy business, Columbia's risk management policies and procedures
continue to evolve and are subject to ongoing review and modification.

Following is additional information regarding the impact of SFAS No. 133 by
segment.

GAS DISTRIBUTION. For regulatory incentive purposes, the Columbia gas
distribution subsidiaries (Columbia LDCs) enter into contracts that allow
counterparties the option to sell gas to Columbia LDCs at first of the month
prices for a particular month of delivery. Columbia LDCs charge the
counterparties a fee for this option. The changes in the fair value of the
options are primarily due to the changing expectations of the future intra-month
volatility of gas prices. Columbia LDCs defer a portion of the change in the
fair value of the options as either a regulatory asset or liability in
accordance with SFAS No. 71. The remaining change is recognized currently in
earnings.

EXPLORATION AND PRODUCTION. In conjunction with certain fixed price gas delivery
commitments, Columbia Resources has purchased financial basis swaps to transfer
basis risk from the counterparty back to Columbia Resources. Because these
transactions by definition are derivatives and do not qualify for hedge
accounting, the changes in the fair value of these swaps directly impact
earnings. Additionally, Columbia Resources has engaged in commodity and basis
swaps to hedge the anticipated future sale of natural gas. These contracts are
derivatives and are designated as cash flow hedges of anticipated future sales.
The fair value of the effective portions of these derivatives are recorded in
OCI until the related sale. Any ineffectiveness is charged to earnings. Columbia
Resources has a net gain of approximately $0.7 million recognized in earnings
due to time value in the reporting period and has not excluded components of the
derivatives' values in its assessment of hedge effectiveness. It is anticipated
that during the next 12 months, expiration of derivatives contracts will result
in income recognition for


                                       25
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

amounts currently classified in OCI of approximately $17.6 million, net of tax,
which will be included in net income. Columbia Resources has forward derivative
contracts designated as cash flow hedges through December 2002. During 2001,
Columbia Resources reclassified $2.4 million of certain cash flow hedges into
earnings due to the probability that the forecasted transaction would not occur.

OTHER. Columbia Energy Services, Inc. (Columbia Energy Services) has fixed price
gas delivery commitments to three municipalities in the United States. Columbia
Energy Services entered into a forward purchase agreement with a gas supplier,
wherein the supplier will fulfill the delivery obligation requirements at a
slight premium to index. In order to hedge this anticipated future purchase of
gas from the gas supplier, Columbia Energy Services entered into pay
fixed/receive floating swaps priced at the locations designated for physical
delivery. These swaps are designated as cash flow hedges of the anticipated
purchases. Changes in the effective portions of the swaps' fair values are
included in OCI until the sales are completed. Any ineffectiveness is included
in earnings. Columbia Energy Services has no net gain or loss recognized in
earnings due to ineffectiveness. It is anticipated that during the next 12
months, expiration of forward swap contracts will result in income recognition
of amounts currently classified in OCI of approximately $1.5 million, net of
tax. Columbia Energy Services has forward swap contracts designated as cash flow
hedges through December 2008. At this time, Columbia Energy Services expects to
continue its cash flow hedges due to the probability that the forecasted
transactions will occur.

Interest Rate Swaps

Columbia has entered into interest rate swap agreements to modify the interest
characteristics of its outstanding long-term debt. At December 31, 2001,
Columbia had four interest rate swap agreements outstanding effective through
November 28, 2002, on $200.0 million notional amount of its 6.61% Series B
Debentures due November 28, 2002. In addition, Columbia has two other
outstanding interest rate swap agreements, including a $100.0 million notional
value swap effective through November 28, 2005 on its 6.80% Series C Debentures
due November 28, 2005 and a $281.5 million notional value swap effective through
November 28, 2007 on its 7.05% Series D Debentures due November 28, 2007. The
Series D swap can be terminated at the option of the counter party at any time
between the optional termination date of November 28, 2005 and the stated
termination date of November 28, 2007. Under the terms of all the swap
agreements, Columbia pays interest based on a floating rate index and receives
interest based on a fixed rate. The effect of these agreements is to modify the
interest rate characteristics of a portion of Columbia's long-term debt from
fixed to variable. As a result of these transactions, $581.5 million of
Columbia's long-term debt is now subject to fluctuations in interest rates.
These interest rate swaps are designated as fair value hedges. The effectiveness
of the interest rate swaps in offsetting the exposure to changes in the debt's
fair value is measured using the short-cut method. Columbia had no net gain or
loss recognized in earnings due to ineffectiveness during 2001.

8.    INCOME TAXES

The components of income tax expense are as follows:

<TABLE>
<CAPTION>
Year Ended December 31, (in millions)                                              2001            2000            1999
-------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>             <C>             <C>
INCOME TAXES
Current
   Federal                                                                       $ 178.6         $  63.4         $ 125.7
   State                                                                            25.2             7.4             4.8
-------------------------------------------------------------------------------------------------------------------------
Total Current                                                                      203.8            70.8           130.5
-------------------------------------------------------------------------------------------------------------------------
Deferred
   Federal                                                                         (54.2)           87.9            67.5
   State                                                                             4.5            19.0           (22.3)
-------------------------------------------------------------------------------------------------------------------------
Total Deferred                                                                     (49.7)          106.9            45.2
-------------------------------------------------------------------------------------------------------------------------
Deferred Investment Credits                                                         (1.4)           (1.4)           (1.5)
-------------------------------------------------------------------------------------------------------------------------
Income Taxes Included in Continuing Operations                                     152.7           176.3           174.2
-------------------------------------------------------------------------------------------------------------------------
Income Taxes Related to Discontinued Operations                                    (45.0)          (67.7)          (76.8)
-------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME TAXES                                                               $ 107.7         $ 108.6         $  97.4
-------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       26
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Total income taxes from continuing operations are different from the amount that
would be computed by applying the statutory Federal income tax rate to book
income before income tax. The major reasons for this difference are as follows:

<TABLE>
<CAPTION>
Year Ended December 31, (in millions)                                 2001                  2000                 1999
------------------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>          <C>      <C>          <C>      <C>          <C>
Income before income taxes from continuing operations         $ 389.2               $ 449.0               $ 556.1
Tax expense at statutory federal income tax rate                136.2      35.0%      157.2      35.0%      194.6      35.0%
Increases (reductions) in taxes resulting from:
   State income taxes, net of federal income tax benefit         19.3       4.9        17.2       3.8       (11.4)     (2.1)
   Estimated non-deductible expenses                              1.4       0.4        17.5       3.9         1.4       0.2
   Effect of change in deferred taxes previously provided          --        --        (3.3)     (0.7)       (3.5)     (0.6)
   Other                                                         (4.2)     (1.1)      (12.3)     (2.7)       (6.9)     (1.2)
------------------------------------------------------------------------------------------------------------------------------
Income Taxes from Continuing Operations                       $ 152.7      39.2%    $ 176.3      39.3%    $ 174.2      31.3%
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Deferred income taxes result from temporary differences between the financial
statement carrying amounts and the tax basis of existing assets and liabilities.
The principal components of Columbia's net deferred tax liability are as
follows:

<TABLE>
<CAPTION>
At December 31, (in millions)                                                                2001            2000
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                        <C>             <C>
DEFERRED TAX LIABILITIES
   Property basis differences                                                              $ 749.4         $ 701.4
   Gas purchase costs                                                                         33.9            80.1
   Investment in Partnerships                                                                  2.7             2.9
   Other                                                                                      42.3            33.5
-------------------------------------------------------------------------------------------------------------------
Gross Deferred Tax Liabilities                                                               828.3           817.9
-------------------------------------------------------------------------------------------------------------------
DEFERRED TAX ASSETS
   Estimated rate refunds                                                                     (4.3)           (5.9)
   Inventory                                                                                 (18.2)          (15.9)
   Benefit plan accruals                                                                      (3.8)           (7.2)
   Contingent liabilities                                                                    (52.1)           (7.1)
   State tax loss carryforwards                                                              (19.0)          (33.6)
   Deferred revenue                                                                             --            (6.0)
   Other                                                                                     (57.2)          (32.9)
-------------------------------------------------------------------------------------------------------------------
Gross Deferred Tax Assets                                                                   (154.6)         (108.6)
-------------------------------------------------------------------------------------------------------------------
Deferred Tax Asset Valuation Allowance*                                                         --             7.7
-------------------------------------------------------------------------------------------------------------------
Total Net Deferred Tax Liability                                                             673.7           717.0
-------------------------------------------------------------------------------------------------------------------
Deferred income taxes related to current assets and liabilities                               85.7           (17.7)
-------------------------------------------------------------------------------------------------------------------
DEFERRED INCOME TAXES - NONCURRENT                                                         $ 759.4         $ 699.3
-------------------------------------------------------------------------------------------------------------------
</TABLE>

*     As reflected by the valuation allowance in the table above, Columbia had
      potential tax benefits of $7.7 million at December 31, 2000, which were
      not recognized in the statements of consolidated income when generated.
      These benefits resulted primarily from state income tax operating loss
      carryforwards, which were available to reduce future tax liabilities. This
      valuation allowance is zero at December 31, 2001. The net decrease of $7.7
      million in the valuation allowance reflects the write-off of deferred tax
      assets related to net operating loss carryforwards in states where certain
      Columbia subsidiaries no longer have operations.

The tax loss carryforward benefits of $19 million shown in the table above
expire after 2006.


                                       27
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9.    PENSION AND OTHER POSTRETIREMENT BENEFITS

Columbia has a noncontributory, qualified defined benefit pension plan covering
essentially all employees. Benefits are based primarily on years of credited
service and employees' highest three-year average annual compensation in the
final five years of service. Effective January 1, 2000, Columbia adopted a cash
balance feature to the pension plan that provides benefits based on a
percentage, which may vary with age and years of service, of current eligible
compensation and current interest credits. Columbia's funding policy complies
with Federal law and tax regulations. In addition, Columbia has a nonqualified
pension plan that provides benefits to some employees in excess of the qualified
plan's Federal tax limits. Columbia also provides medical coverage and life
insurance to retirees. Essentially all active employees are eligible for these
benefits upon retirement after completing ten consecutive years of service after
age 45. Normally, spouses and dependents of retirees are also eligible for
medical benefits. Columbia is reflecting the information presented below as of
September 30, rather than December 31. The effect of utilizing September 30,
rather than December 31, is not significant.

In 2001, Columbia recorded a reduction in its pension benefit obligation
amounting to $23.9 million due to the finalization of the number of employees
who elected to convert to an account balance plan from the previous final pay
benefit structure. Columbia recorded curtailment gains to net periodic benefits
cost in 2001 amounting to $3.3 million and $8.9 million for pensions and other
benefits, respectively, related to the reduction in future benefit accruals
associated with employees of Columbia Propane. Also, in 2001 a settlement gain
of $8.4 million was recorded related to terminated employees who elected to
receive lump-sum payments from the pension plan.

During 2000, Columbia announced the introduction of a voluntary incentive
retirement program (VIRP). Approximately 1,880 employees were eligible for the
VIRP, which provides a retirement incentive for active employees who were age
fifty and above with at least five years of service as of certain
retirement-window dates. During the acceptance periods, approximately 1,337
employees elected early retirement. The majority of the retirements occurred
during 2000. The VIRP resulted in special termination benefits of $59.3 million
and curtailment losses of $47.7 million. The curtailment losses were offset by
previously unrecognized actual gains. As a result of the VIRP, Columbia
recognized $35.7 million of net settlement gains.

On October 13, 2000, the Columbia Retirement Board determined that, under the
terms of the Retirement Plan of Columbia Energy Group Companies (The Plan), a
partial plan termination had occurred. As a result, participants in the Plan
will be granted additional vesting service if they have terminated their
employment with Columbia Energy Group or any of its subsidiaries between January
1, 1999 and June 30, 2001. Employees who have terminated employment during this
time period with less than 5 years of plan participation will be 100% vested in
the Plan as of their date of termination. As a result, Columbia recorded
additional expense of approximately $3.1 million in October 2000.


                                       28
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following tables provide a reconciliation of the plans' funded status and
amounts reflected in Columbia's consolidated balance sheets at December 31:

<TABLE>
<CAPTION>
                                                                PENSION BENEFITS                    OTHER BENEFITS
                                                           --------------------------          -------------------------
(in millions)                                                  2001              2000              2001            2000
========================================================================================================================
<S>                                                        <C>               <C>               <C>             <C>
CHANGE IN BENEFIT OBLIGATION
   Benefit obligation at beginning of year                 $  776.6          $  883.8          $  260.0        $  182.2
   Service cost                                                27.6              29.5               9.1            11.1
   Interest cost                                               61.8              65.0              21.2            16.6
   Plan participants' contributions                              --                --              12.1             2.6
   Plan amendments                                            (23.9)               --                --              --
   Actuarial (gain) loss                                      (50.1)             13.3                --           (10.5)
   Additional liability for disabled participants                --                --              (8.2)             --
   Partial plan termination                                      --               3.1                --              --
   Curtailments                                                (5.0)             47.7             (11.2)           35.4
   Settlement payments                                        (76.2)           (269.2)               --              --
   Settlement (gain) or loss                                   15.8                --                --              --
   Special termination benefits                                  --              59.3                --            31.9
   Benefits paid                                              (46.1)            (55.9)            (11.6)           (9.3)
------------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year                             680.5             776.6             271.4           260.0
------------------------------------------------------------------------------------------------------------------------

CHANGE IN PLAN ASSETS
   Fair value of plan assets at beginning of year           1,012.1           1,201.1             140.3           115.8
   Actual return on plan assets                               (90.8)            135.7             (29.1)           13.6
   Columbia contributions                                       1.8               0.4              24.8            17.5
   Plan participants' contributions                              --                --                --             2.6
   Settlements                                                (76.2)           (269.2)               --              --
   Benefits paid                                              (46.1)            (55.9)            (11.6)           (9.2)
------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year                      800.8           1,012.1             124.4           140.3
------------------------------------------------------------------------------------------------------------------------

   Funded status of plan at end of year                       120.3             235.5            (147.0)         (119.7)
   Unrecognized actuarial net gain                            (94.4)           (266.8)             (2.9)          (32.3)
   Unrecognized prior service cost                              5.8              41.3              13.8             2.4
   Unrecognized transition obligation                           0.9               2.3                --              --
   Fourth quarter contributions                                  --               0.4               5.9             7.0
------------------------------------------------------------------------------------------------------------------------
PREPAID (ACCRUED) BENEFIT COST                             $   32.6          $   12.7          $ (130.2)       $ (142.6)
------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                                                  PENSION BENEFITS                   OTHER BENEFITS
                                                               ----------------------              ---------------------
(in millions)                                                  2001              2000              2001            2000
========================================================================================================================
<S>                                                            <C>               <C>               <C>             <C>
WEIGHTED-AVERAGE ASSUMPTIONS AS OF
   SEPTEMBER 30,
   Discount rate assumption                                    7.50%             8.00%             7.50%           8.00%
   Compensation growth rate assumption                         4.50%             4.50%             4.50%           4.50%
   Medical cost trend assumption                                 --                --              6.00%           5.50%
   Assets earnings rate assumption*                            9.00%             9.00%             9.00%           9.00%
------------------------------------------------------------------------------------------------------------------------
</TABLE>

*     One of the several established medical trusts and the trust established
      for life insurance are subject to taxation which results in an after-tax
      asset earnings rate that is less than 9.00%


                                       29
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following table provides the components of the plans expense for each of the
three years:

<TABLE>
<CAPTION>
                                                                   PENSION BENEFITS                     OTHER BENEFITS
                                                           -------------------------------     --------------------------------
(in millions)                                                 2001        2000        1999        2001        2000        1999
===============================================================================================================================
<S>                                                        <C>         <C>         <C>         <C>         <C>         <C>
NET PERIODIC COST
   Service cost                                            $  27.6     $  29.5     $  30.6     $   9.1     $  11.1     $  12.6
   Interest cost                                              61.8        65.0        62.9        21.2        16.6        14.0
   Expected return on assets                                 (88.3)      (98.0)      (94.1)       (9.2)       (7.7)       (9.4)
   Amortization of transition obligation                       1.2         1.2         1.2          --          --          --
   Recognized gain                                           (12.6)      (18.3)      (10.2)       (1.1)       (1.7)       (2.1)
   Prior service cost amortization                             3.9         3.9         3.7         0.2         0.2        (0.4)
   Special charge for partial plan termination                  --         3.1          --          --          --          --
   Special termination benefit charge                           --        59.3          --          --        31.9          --
   Curtailment credit                                         (3.3)         --          --        (8.9)         --          --
   Settlement gain                                            (8.4)      (95.0)         --          --          --        (6.1)
-------------------------------------------------------------------------------------------------------------------------------
NET PERIODIC BENEFITS COST (BENEFIT)                       $ (18.1)    $ (49.3)    $  (5.9)    $  11.3     $  50.4     $   8.6
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A one-percentage-point change in assumed
health care cost trend rates would have the following effects:

<TABLE>
<CAPTION>
                                                                                                          1% point    1% point
(in millions)                                                                                             increase    decrease
===============================================================================================================================
<S>                                                                                                       <C>         <C>
Effect on service and interest components of net periodic cost                                             $   4.4     $  (3.6)
Effect on accumulated postretirement benefit obligation                                                    $  24.6     $ (21.0)
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

During 1999, Columbia and the trusts established by Columbia purchased insurance
policies that provide both medical and life insurance with respect to
liabilities to a selected class of current retirees. As a result, pre-tax gains
in the amount of $6.1 million were recorded in 1999. Such gain is reflected in
the consolidated financial statements as a $5.7 million reduction to benefits
expense, and a $0.4 million liability of certain rate-regulated companies.

10.    COMMON STOCK EQUITY

TREASURY STOCK. In March 2000, Columbia announced that it had restarted its open
market share repurchase program that was authorized by Columbia's Board. Under
the recommenced program, Columbia was allowed to repurchase up to $300 million
of its common shares through July 14, 2000. The repurchase program authorized
Columbia to make purchases in the open market or otherwise. The timing and terms
of purchases, and the number of shares actually purchases, were determined by
management based on several factors including market conditions. Purchased
shares were held in treasury at cost and were available for general corporate
purposes, resale or retirement. During 2000, Columbia purchased 1,889,800 common
shares at a cost of $114.1 million under the recommenced program. As of July 14,
2000, Columbia had purchased 4,368,300 common shares at a cost of $249.1
million. In November 2000, as part of the merger of Columbia with NiSource, the
Treasury Stock was retired.


                                       30
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11.   LONG-TERM DEBT

The long-term debt (exclusive of current maturities) of Columbia and its
subsidiaries is as follows:

<TABLE>
<CAPTION>
At December 31, (in millions)                                                              2001            2000
================================================================================================================
<S>                                                                                   <C>             <C>
COLUMBIA ENERGY GROUP DEBENTURES
    6.61% Series B due November 28, 2002                                              $      --       $   281.5
    6.80% Series C due November 28, 2005                                                  281.5           281.5
    7.05% Series D due November 28, 2007                                                  281.5           281.5
    7.32% Series E due November 28, 2010                                                  281.5           281.5
    7.42% Series F due November 28, 2015                                                  281.5           281.5
    7.62% Series G due November 28, 2025                                                  229.2           229.2
----------------------------------------------------------------------------------------------------------------
Total Debentures                                                                        1,355.2         1,636.7

Subsidiary Debt:
    Capitalized lease obligations                                                           2.2             2.4
Fair Value of Interest Rate Swaps                                                          (0.5)             --
----------------------------------------------------------------------------------------------------------------
TOTAL LONG-TERM DEBT                                                                  $ 1,356.9       $ 1,639.1
----------------------------------------------------------------------------------------------------------------
</TABLE>

Columbia has entered into interest rate swap agreements to modify the interest
characteristics of its outstanding long-term debt. At December 31, 2001,
Columbia had four interest rate swap agreements outstanding effective through
November 28, 2002, on $200.0 million notional amount of its 6.61% Series B
Debentures due November 28, 2002. In addition, Columbia has two other
outstanding interest rate swap agreements, including a $100.0 million notional
value swap effective through November 28, 2005 on its 6.80% Series C Debentures
due November 28, 2005 and a $281.5 million notional value swap effective through
November 28, 2007 on its 7.05% Series D Debentures due November 28, 2007. The
Series D swap can be terminated at the option of the counter party at any time
between the optional termination date of November 28, 2005 and the stated
termination date of November 28, 2007. Under the terms of all the swap
agreements, Columbia pays interest based on a floating rate index and receives
interest based on a fixed rate. The effect of these agreements is to modify the
interest rate characteristics of a portion of Columbia's long-term debt from
fixed to variable.

The aggregate maturities of long-term debt and capitalized lease obligations
during the next five years are as follows:

<TABLE>
<CAPTION>
($ in millions)
================================================================================================================
<S>                                                                                                     <C>
2002                                                                                                      281.7
2003                                                                                                        0.2
2004                                                                                                        0.3
2005                                                                                                      281.9
2006                                                                                                        0.4
After                                                                                                   1,074.6
----------------------------------------------------------------------------------------------------------------
</TABLE>

12.   SHORT-TERM DEBT AND CREDIT FACILITIES

At the beginning of 2001, Columbia had two unsecured bank revolving credit
facilities available that totaled $900 million (Credit Facilities). The Credit
Facilities consisted of a 364-day facility totaling $850 million and a two-year
facility totaling $50 million. The Credit Facilities were terminated during 2001
and replaced with NiSource revolving credit facilities. No borrowings were
outstanding under the Credit Facilities at December 31, 2000.

At December 31, 2001, Columbia had $47.7 million of letters of credit
outstanding. Of the letters of credit outstanding, $17.0 million was issued
under the NiSource revolving credit facilities. Fees on the letters of credit
issued ranged from 0.8% to 1.0%.

At December 31, 2001, approximately $19.9 million of investments were pledged as
collateral on outstanding letters of credit related to Columbia's wholly owned
insurance company.


                                       31
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13.   FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate fair
value:

INVESTMENTS. Where feasible, the fair value of investments is estimated based on
market prices for those or similar investments.

LONG-TERM DEBT. The fair values of these securities are estimated based on the
quoted market prices for the same or similar issues or on the rates offered for
securities of the same remaining maturities. Certain premium costs associated
with the early settlement of long-term debt are not taken into consideration in
determining fair value.

The carrying values and estimated fair values of financial instruments were as
follows:

<TABLE>
<CAPTION>
                                                CARRYING      ESTIMATED     Carrying      Estimated
                                                  AMOUNT     FAIR VALUE       Amount     Fair Value
At December 31, ($ in millions)                     2001           2001         2000           2000
====================================================================================================
<S>                                             <C>          <C>            <C>          <C>
Long-term investments                                5.4            5.2         17.5           17.2
Long-term debt (including current portion)       1,638.6        1,676.6      1,647.4        1,586.7
----------------------------------------------------------------------------------------------------
</TABLE>

A portion of the long-term debt relates to utility operations. The utilities are
subject to regulation and gains or losses may be included in rates over a
prescribed amortization period, if in fact settled at amounts approximating
those above.

In October 1999, Columbia of Ohio entered into an agreement to sell, without
recourse, substantially all of its trade accounts receivable to Columbia
Accounts Receivable Corporation (CARC), a wholly owned subsidiary of Columbia.
At the same time, CARC entered into an agreement, with a third party, Canadian
Imperial Bank of Commerce (CIBC), to sell a percentage ownership interest in a
defined pool of accounts receivable (Sales Program). Under this Sales Program,
CARC can transfer an undivided interest in a designated pool of its accounts
receivable on an ongoing basis up to a maximum of either $125.0 million or
$100.0 million, as determined by the seasonal fluctuation in Columbia of Ohio's
account receivable balances and the mutual consent of both parties. The amount
available at any measurement date varies based upon the level of eligible
receivables. Under these agreements, CARC may not sell any new affiliate
receivables to the conduit if Columbia's debt rating falls below BBB or Baa2 at
Standard and Poor's and Moody's, respectively. In addition, if Columbia's debt
rating falls below investment grade, the agreements terminate and CARC may not
sell any new affiliate receivables to the conduit. Under this agreement,
approximately $82.8 million of receivables were sold as of December 31, 2001.

Under a separate agreement, in conjunction with the Sales Program, Columbia of
Ohio acts as agent for CIBC, the ultimate purchaser of the receivables, by
performing record keeping and cash collection functions for the accounts
receivable sold by CARC. Columbia of Ohio receives a fee, which provides
adequate compensation, for such services.

14.   OTHER COMMITMENTS AND CONTINGENCIES

A. BANKRUPTCY MATTERS. On November 28, 1995, Columbia and its wholly owned
subsidiary, Columbia Transmission emerged from Chapter 11 protection of the
United States Bankruptcy Code under the jurisdiction of the United States
Bankruptcy Court for the District of Delaware (Bankruptcy Court). Both Columbia
and Columbia Transmission had operated under Chapter 11 protection from July 31,
1991, until emergence.

B. CAPITAL EXPENDITURES. Capital expenditures for 2002 are currently estimated
at $325.7 million. Of this amount, $130.8 million is for transmission and
storage operations, $103.9 million for distribution operations and $91.0 is
million for exploration and production operations.

C. OTHER LEGAL PROCEEDINGS. In the normal course of its business, Columbia and
its subsidiaries have been named as defendants in various legal proceedings. In
the opinion of management, the ultimate disposition of these currently asserted
claims would not have a material adverse impact on Columbia's consolidated
financial position or results of operations.


                                       32
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

D. ASSETS UNDER LIEN. Substantially all of Columbia Transmission's properties
have been pledged to Columbia as security for debt owed by Columbia Transmission
to Columbia.

E. GUARANTEES AND INDEMNITIES. At December 31, 2001, Columbia had $1,727.8
million in guarantees outstanding, the majority of which expire in 2006 and
beyond. These guarantees were primarily related to forward sales agreements. In
connection with the purchase of National Propane Partners, L.P. (National
Propane) interests, Columbia has provided an indemnity to reimburse the former
Managing General Partner for income taxes that would be due if certain actions
by Columbia result in the recognition of certain types of income or gain by the
former Managing General Partner.

F. INTERNAL REVENUE SERVICE (IRS) AUDIT. On June 19, 2001, Columbia received a
refund of $24.7 million in final settlement of tax issues related to its 1995
federal income tax return. The 1995 tax year is now closed. The field audit of
tax years 1996 and 1997 was completed on January 28, 2002 with the issuance of
the Revenue Agent's Report on that date. A payment of $826,000 was made to the
United States Treasury on December 11, 2001 in settlement of tax and interest
related to the agreed issues for those years. Settlement of the unagreed issues
in that report will be pursued through administrative and judicial channels. The
field audit of Columbia's 1998 through 2000 tax years commenced on February 19,
2002. Management believes adequate reserves have been established for issues
related to these returns.

G.    ENVIRONMENTAL MATTERS.

GENERAL. Columbia's subsidiaries are subject to extensive federal, state and
local laws and regulations relating to environmental matters. These laws and
regulations, which are constantly changing, require expenditures for corrective
action at various operating facilities, waste disposal sites and former gas
manufacturing sites for conditions resulting from past practices that have
subsequently become subject to environmental regulation. Columbia's subsidiaries
have implemented programs to continually review compliance with existing
environmental standards and have reviewed past operational activities and
conducted remediation programs where necessary.

DISTRIBUTION OPERATIONS. Several Columbia Distribution subsidiaries are a
"potentially responsible party" (PRP) at waste disposal sites under the
Comprehensive Environmental Response Compensation and Liability Act (CERCLA)
(commonly known as Superfund) and similar state laws, including at former
manufactured gas plant (MGP) sites which such subsidiaries, or their corporate
predecessors, own or owned and operated. Distribution subsidiaries may be
required to share in the cost of clean-up of such sites. In addition, some
Distribution subsidiaries have corrective action liability under the Resource
Conservation and Recovery Act (RCRA) for closure and clean-up costs associated
with underground storage tanks, and under the Toxic Substances Control Act
(TSCA) for cleanup of polychlorinated biphenyls (PCBs) released at various
facilities.

Distribution is party to or otherwise involved in the clean-up of one waste
disposal site under Superfund. The potential liability at this site is de
minimis.

A program has been instituted to identify and investigate former MGP sites where
Distribution subsidiaries or predecessors are the current or former owner. The
investigation has identified 39 such sites. Initial investigation has been
conducted at 7 sites. Investigation activities have been completed or are in
progress at 5 sites. Remedial measures have been implemented or completed at 3
sites. Only those site investigation, characterization and remediation costs
currently known and determinable can be considered "probable and reasonably
estimable" under Statement of Financial Accounting Standards No. 5, "Accounting
for Contingencies" (SFAS No. 5).

As costs become probable and reasonably estimable, the associated reserves will
be adjusted as appropriate. Distribution is unable, at this time, to accurately
estimate the time frame and potential costs of the entire program. Management
expects that as characterization is completed and additional remediation work is
performed and more facts become available, Distribution will be able to develop
a probable and reasonable estimate for the entire program or a major portion
thereof consistent with Securities and Exchange Commission's Staff Accounting
Bulletin No. 92, SFAS No. 5, and American Institute of Certified Public
Accountants Statement of Position 96-1.


                                       33
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

As of December 31, 2001, a reserve of approximately $49.7 million has been
recorded to cover probable environmental response actions. The ultimate
liability in connection with these sites will depend upon many factors,
including the volume of material contributed to the site, years of ownership or
operation, the number of other PRPs and their financial viability and the extent
of environmental response actions required. Based upon investigations and
management's understanding of current environmental laws and regulations,
Distribution believes that any environmental response actions required, after
consideration of insurance coverage, contributions from other PRPs and rate
recovery, will not have a material effect on its financial position.

Until the 1960s, gas regulators containing small quantities of mercury were
installed in homes on some natural gas systems. The purpose of these regulators
was to reduce the pressure of the natural gas flowing from the service line for
use inside of the home. In 2000, several unaffiliated gas distribution companies
were involved in highly publicized testing and clean-up programs resulting from
mercury spills associated with the removal of gas regulators containing mercury.
Some Distribution subsidiaries historically utilized gas regulators that
contained small quantities of mercury. All Distribution subsidiaries have
implemented programs to investigate, maintain and/or remove and replace gas
regulators containing mercury, including procedures ensuring that any accidental
mercury spills are detected and properly cleaned up. To date no significant
problems associated with past or current use or removal of mercury regulators
have been identified. As a result, Distribution believes it is unlikely that any
financial exposure from this matter would have a material effect on its
financial position or results of operations of its Distribution subsidiaries.

TRANSMISSION AND STORAGE OPERATIONS. Columbia Transmission continues to conduct
characterization and remediation activities at specific sites under a 1995 EPA
Administrative Order by Consent (AOC). The program pursuant to the AOC covers
approximately 240 facilities, approximately 13,000 liquid removal points,
approximately 2,200 mercury measurement stations and about 3,700 storage well
locations. As of December 31, 2001, field characterization has been performed at
all sites. Site characterization reports and remediation plans, which must be
submitted to the EPA for approval, are in various stages of development and
completion. Remediation has been completed at the mercury measurement stations,
liquid removal point sites, storage well locations and at a number of the 240
facilities.

Only those site investigation, characterization and remediation costs currently
known and determinable can be considered "probable and reasonably estimable"
under Statement of Financial Accounting Standards No. 5, "Accounting for
Contingencies" (SFAS No. 5). As costs become probable and reasonably estimable,
the associated reserves will be adjusted as appropriate. Columbia Transmission
is unable, at this time, to accurately estimate the time frame and potential
costs of the entire program. Management expects that as characterization reports
and remediation plans are completed and approved by the EPA and additional
remediation work is performed, Columbia Transmission should be able to develop a
probable and reasonable estimate for the entire program or a major portion
thereof, consistent with Securities and Exchange Commission's Staff Accounting
Bulletin No. 92, SFAS No. 5, and American Institute of Certified Public
Accountants Statement of Position 96-1.

Columbia Transmission and Columbia Gulf are PRPs at several waste disposal
sites. The potential liability is believed to be de minimis, however, the final
allocation of clean-up costs has yet to be determined. As site investigations
and clean-ups proceed, waste disposal site liability is reviewed periodically
and adjusted as additional information becomes available.

At the end of 2001, the remaining environmental liability recorded on the
balance sheet for the gas transmission and storage operations was $90.5 million.
Columbia Transmission's environmental cash expenditures are expected to be
approximately $12.5 million in 2002. These expenditures will be charged against
the previously recorded liability. A regulatory asset has been recorded to the
extent environmental expenditures are expected to be recovered through rates.
Management does not believe that Columbia Transmission's environmental
expenditures will have a material adverse effect on NiSource's operations,
liquidity or financial position, based on known facts, existing laws,
regulations, Columbia Transmission's cost recovery settlement with customers and
the time period over which expenditures will be made.


                                       34
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TRANSCOM. In spring 2000, one of Columbia's subsidiaries, Transcom received
directives from the Philadelphia District of the U.S. Army Corps of Engineers
(Philadelphia District) and an administrative order from Pennsylvania Department
of Environmental Protection (PA DEP) addressing alleged violations of federal
and state laws resulting from construction activities associated with Transcom's
laying fiber optic cable along portions of a route between Washington, D.C. and
New York City. The order and directives required Transcom to largely cease
construction activities. On September 18, 2000, Transcom entered into a
voluntary settlement agreement with the Philadelphia District under which
Transcom contributed $1.2 million to the Pennsylvania chapter of the Nature
Conservancy and the Philadelphia District lifted its directives. As a result of
the voluntary agreement with the Philadelphia District and communications with
the PA DEP, the Maryland Department of the Environment and the Baltimore
District of the US Army Corps of Engineers, work in Pennsylvania and Maryland
was allowed to be continued and has been completed. On October 25, 2001,
Transcom entered into a Consent Order and Agreement with PA DEP in settlement of
its enforcement action under which Transcom paid $80,633 in penalties and
$223,567 to fund six community environmental projects.

DISCONTINUED OPERATIONS. Columbia affiliates have retained environmental cleanup
liability associated with some its former companies including Columbia Propane,
Columbia Petroleum, and some local gas distribution companies. The primary
environmental liability associated with former propane operations pertains to a
former MGP site in Wisconsin for which accruals have been made. In addition,
three other MGP sites are being evaluated for potential liability, one of which
is owned by a Columbia affiliate. Environmental liability associated with former
petroleum operations includes relatively minor cleanups of product spills at
third party properties and liability for pre-existing environmental conditions
at former petroleum terminals pursuant to sale agreements. A Columbia affiliate
may retain liability for two former MGP sites associated with a previously
divested local gas distribution company for which accruals have been made.

The ultimate liability in connection with these sites will depend upon many
factors including the extent of environmental response actions required, other
PRPs and their financial viability, and indemnification from previous facility
owners. Only those corrective action costs currently known and determinable can
be considered "probable and reasonably estimable" under Statement of Financial
Accounting Standards No. 5, "Accounting for Contingencies" (SFAS No. 5) and
consistent with American Institute of Certified Public Accountants Statement of
Position 96-1. As costs become probable and reasonably estimable, the associated
reserves will be accrued as appropriate. As of December 31, 2001, a reserve of
approximately $6.5 million has been recorded to cover probable environmental
response actions associated with former Columbia companies. Columbia believes
that any environmental response actions required at former operations for which
it is ultimately liable, after consideration of insurance coverage and
contributions from other PRPs, will not have a material adverse effect on its
consolidated financial results.

ENVIRONMENTAL RESERVES. The eventual total cost of full future environmental
compliance for Columbia is difficult to estimate due to, among other things: (1)
the possibility of as yet unknown contamination, (2) the possible effect of
future legislation and new environmental agency rules, (3) the possibility of
future litigation, (4) the possibility of future designations as a potential
responsible party by the EPA and the difficulty of determining liability, if
any, in proportion to other responsible parties, (5) possible insurance and rate
recoveries, and (6) the effect of possible technological changes relating to
future remediation. However, reserves have been established based on information
currently available, which resulted in a total recorded net liability of
approximately $146.7 million for Columbia at December 31, 2001. As new issues
are identified, additional liabilities will be recorded.

It is management's continued intent to address environmental issues in
cooperation with regulatory authorities in such a manner as to achieve mutually
acceptable compliance plans. However, there can be no assurance that fines and
penalties will not be incurred. Management expects most environmental assessment
and remediation costs to be recoverable through rates.


                                       35
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

H. OPERATING LEASES. Payments made in connection with operating leases are
primarily charged to operation and maintenance expense as incurred. Such amounts
were $32.6 million in 2001, $71.6 million in 2000 and $61.5 million in 1999.

Future minimum rental payments required under operating leases that have initial
or remaining noncancellable lease terms in excess of one year are:

<TABLE>
<CAPTION>
($ in millions)
================================================================================
<S>                                                                       <C>
2002                                                                      20.4
2003                                                                      20.5
2004                                                                      20.2
2005                                                                      19.8
2006                                                                      18.8
After                                                                     65.3
--------------------------------------------------------------------------------
</TABLE>

I. PURCHASE COMMITMENTS. Columbia has service agreements that provide for
pipeline capacity, transportation and storage services. These agreements, which
have expiration dates ranging from 2002 to 2014, provide for Columbia to pay
fixed monthly charges. The estimated aggregate amounts of such payments at
December 31, 2001, were:

<TABLE>
<CAPTION>
($ in millions)
================================================================================
<S>                                                                      <C>
2002                                                                      49.0
2003                                                                      37.1
2004                                                                      32.5
2005                                                                      27.4
2006                                                                      21.4
After                                                                    132.1
--------------------------------------------------------------------------------
</TABLE>

Costs incurred under these contracts are generally recovered under Columbia's
regulatory cost recovery mechanisms (See Note 2).

15.   TELECOMMUNICATION NETWORK (TRANSCOM)

In September and October 2000, management held discussions with investment
banking firms seeking strategic options for the Transcom assets. Although
significant uncertainties existed surrounding the estimated costs to complete
the fiber optic network, time to market in a competitive environment, and delays
due to construction deficiencies and environmental issues, management decided to
complete the Transcom network and sell the completed network.

The Company received subsequent information pertaining to the estimated
construction costs and delays. Consequently, management concluded that the
carrying value of the telecommunication assets exceeded the realizable value by
approximately $89.2 million. During 2001, Columbia recorded a charge for such
excess carrying amount.

In August 2001, Transcom invited potential buyers to submit bids for the assets.
Based on these bids, present market conditions preclude Transcom from realizing
the carrying value of the assets by selling at the present time. Therefore
management has decided to operate the network, while continuing to evaluate
market conditions for possible sale. At December 31, 2001, the anticipated cash
flow from Transcom's business plan indicates that the asset's current carrying
value is realizable. However, economic and other events may adversely affect
Transcom's ability to achieve such plan.


                                       36
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

16.   INTEREST INCOME AND OTHER, NET

<TABLE>
<CAPTION>
Year Ended December 31, (in millions)                    2001           2000          1999
===========================================================================================
<S>                                                   <C>            <C>           <C>
Interest income                                       $  16.5        $  22.8       $  20.0
Gain on sale of assets                                    4.8          221.0            --
Miscellaneous                                            (7.0)          (7.5)         14.9
-------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME AND OTHER, NET                  $  14.3        $ 236.3       $  34.9
-------------------------------------------------------------------------------------------
</TABLE>

17.   INTEREST EXPENSE AND RELATED CHARGES

<TABLE>
<CAPTION>
Year Ended December 31, (in millions)                    2001           2000          1999
===========================================================================================
<S>                                                   <C>            <C>           <C>
Interest on debentures                                $ 117.0        $ 134.6       $ 138.0
Interest on short-term debt                              15.3           26.3          18.2
Discount on prepayment transactions                      27.1           22.6           2.3
Interest on rate refunds                                 (0.6)           0.6           3.1
Interest on prior years' taxes                           14.3          (11.5)          6.2
Allowance for borrowed funds used
   and interest during construction                      (3.0)          (3.0)         (3.6)
-------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE AND RELATED CHARGES            $ 170.1        $ 169.6       $ 164.2
-------------------------------------------------------------------------------------------
</TABLE>


                                       37
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

18.   SEGMENTS OF BUSINESS

Columbia is a registered holding company under the Public Utility Holding
Company Act of 1935, as amended, and derives substantially all of its revenues
and earnings from the operating results of its 19 direct subsidiaries. During
2000, Columbia revised the presentation of its business segments and, in
accordance with generally accepted accounting principles; all prior periods have
been restated. Columbia's operations are divided into four primary business
segments. The transmission and storage segment offers transportation and storage
services for local distribution companies, marketers and industrial and
commercial customers located in northeastern, mid-Atlantic, midwestern and
southern states and the District of Columbia. The distribution segment provides
natural gas service and transportation for residential, commercial and
industrial customers in Ohio, Pennsylvania, Virginia, Kentucky and Maryland. The
exploration and production segment explores for, develops, produces and markets
gas and oil in the United States and in Canada. The other products and services
segment primarily engages in the operation of a dark-fiber optics
telecommunications network along its pipeline rights-of-way between Washington,
D.C. and New York City.

<TABLE>
<CAPTION>
(in millions)                                                    2001               2000               1999
============================================================================================================
<S>                                                         <C>                <C>                <C>
REVENUES
DISTRIBUTION
   Unaffiliated                                             $ 2,787.0          $ 2,037.9          $ 2,021.9
   Intersegment and affiliates                                    7.4               (2.0)               1.0
------------------------------------------------------------------------------------------------------------
Total                                                         2,794.4            2,035.9            2,022.9
------------------------------------------------------------------------------------------------------------
TRANSMISSION AND STORAGE
   Unaffiliated                                                 615.7              607.7              571.5
   Intersegment and affiliates                                  254.0              248.1              264.9
------------------------------------------------------------------------------------------------------------
Total                                                           869.7              855.8              836.4
------------------------------------------------------------------------------------------------------------
EXPLORATION AND PRODUCTION
   Unaffiliated                                                 170.4              176.5              143.5
   Intersegment and affiliates                                   65.3                2.0                1.4
------------------------------------------------------------------------------------------------------------
Total                                                           235.7              178.5              144.9
------------------------------------------------------------------------------------------------------------
OTHER PRODUCTS AND SERVICES
   Unaffiliated                                                  27.2               49.9               96.6
   Intersegment and affiliates                                    0.2                0.2               (0.3)
------------------------------------------------------------------------------------------------------------
Total                                                            27.4               50.1               96.3
------------------------------------------------------------------------------------------------------------
Adjustments and eliminations                                   (249.3)            (237.0)            (267.0)
------------------------------------------------------------------------------------------------------------
Tranportation Cost *                                             (8.0)             (24.3)             (19.9)
------------------------------------------------------------------------------------------------------------
CONSOLIDATED REVENUES                                       $ 3,669.9          $ 2,859.0          $ 2,813.6
------------------------------------------------------------------------------------------------------------
</TABLE>

*     Tranportation revenues on consolidated income statement were reduced by
      these costs.

<TABLE>
<CAPTION>
(in millions)                                                    2001               2000               1999
============================================================================================================
<S>                                                         <C>                <C>                <C>
OPERATING INCOME (LOSS)
   Distribution                                             $   248.8          $   176.0          $   254.6
   Transmission and Storage                                     362.2              264.9              350.1
   Exploration and Production                                    51.0               13.3               34.4
   Other Products and Services                                 (112.3)             (32.3)              63.9
   Corporate                                                     (4.7)             (39.6)             (17.6)
------------------------------------------------------------------------------------------------------------
CONSOLIDATED                                                $   545.0          $   382.3          $   685.4
------------------------------------------------------------------------------------------------------------
</TABLE>


                                       38
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

19.   QUARTERLY FINANCIAL DATA (UNAUDITED)

Quarterly financial data does not always reveal the trend of Columbia's business
operations due to nonrecurring transactions and seasonal weather patterns, which
affect earnings, related components of net revenues and operating income.

<TABLE>
<CAPTION>
                                                     First         Second          Third         Fourth
($ in millions, except per share data)             Quarter        Quarter        Quarter        Quarter
==========================================================================================================
<S>                                                <C>            <C>            <C>            <C>
2001
   Net Revenues                                      667.6          385.6          356.3          567.9
   Operating Income (Loss)                           342.8            6.7(c)       (30.1)         225.6
   Income from Continuing Operations                 184.3          (18.2)         (45.5)         115.9
   Gain (Loss) from Discontinued Operations -
     net of taxes                                     (1.0)            --          (61.1)          11.5
   Net Income (Loss)                                 187.3          (18.2)        (106.6)         127.4

2000
   Net Revenues                                      619.4          386.6          354.0          576.5
   Operating Income                                  273.7           79.6           73.6          (44.6)
   Income from Continuing Operations                 143.4           82.9           19.5           26.9
   (Loss) from Discontinued Operations -
     net of taxes                                      6.3          (35.2)         (83.3)         (48.7)
   Net Income (Loss)                                 149.7           47.7(a)       (63.8)         (21.8)
----------------------------------------------------------------------------------------------------------
</TABLE>

(a)   Includes $58.9 million gain on the sale of Cove Point LNG
(b)   Includes $86.4 million gain on the sale of Columbia Electric's four power
      generation plants and the remainder of Columbia Electric.
(c)   Includes $89.2 million loss on impairment of telecommunications assets.



                                       39
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

20.   EXPLORATION AND PRODUCTION ACTIVITIES (UNAUDITED)

Reserve information contained in the following tables for the U.S. and Canadian
properties is management's estimate, which was reviewed by the independent
consulting firms of Ryder Scott Company Petroleum Engineers for the U.S.
reserves and Sproule Associates Limited for the Canadian reserves. Reserves are
reported as net working interest. Gross revenues are reported after deduction of
royalty interest payments.

RESERVE QUANTITY INFORMATION

<TABLE>
<CAPTION>
                                                                    United States                         Canada
                                                             --------------------------          ------------------------
                                                                           Oil & Other                       Oil & Other
                                                                 Gas           Liquids             Gas           Liquids
Proved Reserves                                                 (Bcf)        (000 Bbls)           (Bcf)        (000 Bbls)
=========================================================================================================================
<S>                                                          <C>           <C>                   <C>         <C>
Reserves as of December 31, 1998                               789.5             1,771             1.0                64
   Revisions of previous estimate                               34.4                99               -                 9
   Extensions, discoveries and
      other additions                                          116.8                38             0.3                40
   Production                                                  (45.6)             (175)           (0.2)              (10)
   Purchase of reserves-in-place                                58.2               539               -                 -
   Sale of reserves-in-place                                    (2.8)               --               -                 -
-------------------------------------------------------------------------------------------------------------------------
Reserves as of December 31, 1999                               950.5             2,272             1.1               103
   Revisions of previous estimate                               82.2              (764)             --                (9)
   Extensions, discoveries and
      other additions                                          120.1                30              --                95
   Production                                                  (52.3)             (204)           (0.1)              (11)
   Purchase of reserves-in-place                                 2.5                 4              --                --
   Sale of reserves-in-place                                    (4.4)             (117)             --                --
-------------------------------------------------------------------------------------------------------------------------
Reserves as of December 31, 2000                             1,098.6             1,221             1.0               178
   Revisions of previous estimate                              (90.9)             (106)             --               (63)
   Extensions, discoveries and
      other additions                                           62.2                --              --                --
   Production                                                  (53.9)             (213)           (0.1)               (7)
   Purchase of reserves-in-place                                  --                --              --                --
   Sale of reserves-in-place                                    (3.2)               (7)             --                --
-------------------------------------------------------------------------------------------------------------------------
RESERVES AS OF DECEMBER 31, 2001                             1,012.8               895             0.9               108
-------------------------------------------------------------------------------------------------------------------------
Proved developed reserves as of December 31,
   1999                                                        697.2             1,953             1.1               103
   2000                                                        820.6             1,043             1.0               178
   2001                                                        729.0               728             0.9               108
-------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       40
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

CAPITALIZED COSTS

<TABLE>
<CAPTION>
                                                United States                    Canada                          Total
                                       -----------------------------    -------------------------    -----------------------------
($ in millions)                          2001       2000       1999      2001     2000      1999       2001       2000       1999
==================================================================================================================================
<S>                                    <C>        <C>        <C>         <C>      <C>       <C>      <C>        <C>        <C>
CAPITALIZED COSTS AT YEAR END

   Proved properties                    889.1      762.6      729.1      10.3      4.5       1.7      899.4      767.1      730.8
   Unproved properties (a)               45.1       36.8       30.7       3.9      8.0       8.7       49.0       44.8       39.4
----------------------------------------------------------------------------------------------------------------------------------
Total capitalized costs                 934.2      799.4      759.8      14.2     12.5      10.4      948.4      811.9      770.2
Accumulated depletion                  (399.7)    (314.8)    (317.5)     (7.7)    (4.4)       --     (407.4)    (319.2)    (317.5)
----------------------------------------------------------------------------------------------------------------------------------
NET CAPITALIZED COSTS                   534.5      484.6      442.3       6.5      8.1      10.4      541.0      492.7      452.7
----------------------------------------------------------------------------------------------------------------------------------

COSTS CAPITALIZED DURING YEAR

   Acquisition properties
     Proved                               2.0        1.6        0.5        --       --        --        2.0        1.6        0.5
     Unproved                             6.7       14.5        0.8        --      1.1       1.4        6.7       15.6        2.2
   Exploration                            7.2       25.1        5.0       1.5      2.2       1.3        8.7       27.3        6.3
   Development                           75.7       45.9       99.4       2.4       --       2.9       78.1       45.9      102.3
----------------------------------------------------------------------------------------------------------------------------------
COSTS CAPITALIZED                        91.6       87.1      105.7       3.9      3.3       5.6       95.5       90.4      111.3
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(a)   Represents expenditures associated with properties on which evaluations
      have not been completed.

OTHER EXPLORATION AND PRODUCTION DATA

<TABLE>
<CAPTION>
                                                                              United States                     Canada
                                                                        ------------------------     -----------------------------
($ in millions)                                                          2001     2000      1999       2001       2000       1999
==================================================================================================================================
<S>                                                                     <C>      <C>       <C>       <C>         <C>        <C>
Average sales price per Mcf of gas ($)(a)                                4.04     2.99      2.66       3.99       3.79       2.25
Average sales price per barrel of oil and
   other liquids ($)                                                    22.52    25.01     14.69      23.63      30.86      19.43
Production (lifting) cost per dollar of
   gross revenue ($)                                                     0.16     0.18      0.19       1.14       0.38       0.20
Depletion rate per dollar of gross
   revenue ($)                                                           0.25     0.22      0.23       5.43       5.38         --
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(a)   Includes the effect of hedging activities

HISTORICAL RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                United States                    Canada                          Total
                                       -----------------------------    -------------------------    -----------------------------
($ in millions)                          2001       2000       1999      2001     2000      1999       2001       2000       1999
==================================================================================================================================
<S>                                    <C>         <C>        <C>       <C>       <C>       <C>      <C>         <C>        <C>
Gross revenues
    Unaffiliated                        157.4      159.6      122.4       0.7      0.8       0.5      158.1      160.4      122.9
    Affiliated                           65.3        2.0        1.4        --       --        --       65.3        2.0        1.4
Production costs                         35.7       28.4       23.7       0.8      0.3       0.1       36.5       28.7       23.8
Depletion                                54.7       35.2       28.4       3.8      4.3        --       58.5       39.5       28.4
Exploratory expense                      21.9       18.9       12.8       3.8      7.2       1.5       25.7       26.1       14.3
Income tax expense                       42.5       29.8       21.6      (2.7)    (3.9)     (0.5)      39.8       25.9       21.1
----------------------------------------------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS                    67.9       49.3       37.3      (5.0)    (7.1)     (0.6)      62.9       42.2       36.7
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       41
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Results of operations for exploration and production activities exclude
administrative and general costs, corporate overhead and interest expense.
Income tax expense is expressed at statutory rates less Section 29 credits.

<TABLE>
<CAPTION>
                                            United States                    Canada                          Total
                                   ------------------------------    -------------------------   --------------------------------
($ in millions)                      2001        2000       1999      2001     2000      1999       2001        2000        1999
=================================================================================================================================
<S>                               <C>        <C>         <C>         <C>       <C>       <C>     <C>        <C>          <C>
Future cash inflows               3,158.8    11,475.5    2,805.4       4.7     14.5       5.5    3,163.5    11,490.0     2,810.9
Future production costs            (793.5)   (1,608.9)    (739.8)     (2.1)    (2.9)     (2.1)    (795.6)   (1,611.8)     (741.9)
Future development costs           (311.8)     (302.7)    (258.3)     (0.1)    (0.2)     (0.1)    (311.9)     (302.9)     (258.4)
Future income tax expense          (792.1)   (3,835.1)    (692.1)      2.5     (3.0)     (1.2)    (789.6)   (3,838.1)     (693.3)
---------------------------------------------------------------------------------------------------------------------------------
Future net cash flows             1,261.4     5,728.8    1,115.2       5.0      8.4       2.1    1,266.4     5,737.2     1,117.3
Less:  10% discount                 712.4     3,420.4      603.6       2.1      3.5       0.7      714.5     3,423.9       604.3
---------------------------------------------------------------------------------------------------------------------------------
STANDARDIZED MEASURE
   OF DISCOUNTED FUTURE
   NET CASH FLOW                    549.0     2,308.4      511.6       2.9      4.9       1.4      551.9     2,313.3       513.0
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Future cash inflows are computed by applying year-end prices to estimated future
production of proved gas and oil reserves. Future expenditures (based on
year-end costs) represent those costs to be incurred in developing and producing
the reserves. Discounted future net cash flows are derived by applying a 10%
discount rate, as required by the Financial Accounting Standards Board, to the
future net cash flows. This data is not intended to reflect the actual economic
value of Columbia's gas and oil producing properties or the true present value
of estimated future cash flows since many arbitrary assumptions are used. The
data does provide a means of comparison among companies through the use of
standardized measurement techniques.

A reconciliation of the components resulting in changes in the standardized
measure of discounted cash flows attributable to proved gas and oil reserves for
the three years ending December 31, follows:

<TABLE>
<CAPTION>
                                           United States                      Canada                             Total
                                 --------------------------------    -------------------------    ---------------------------------
($ in millions)                      2001        2000       1999      2001     2000      1999         2001        2000        1999
===================================================================================================================================
<S>                              <C>         <C>          <C>        <C>       <C>       <C>      <C>         <C>           <C>
BEGINNING OF YEAR                 2,308.4       511.6      380.6       4.9      1.4       0.8      2,313.3       513.0       381.4
-----------------------------------------------------------------------------------------------------------------------------------
Gas and oil sales net
   of production costs             (187.0)     (133.2)    (100.1)      0.1     (0.5)     (0.4)      (186.9)     (133.7)     (100.5)
Net changes in prices
   and production costs          (2,789.9)    2,828.2       74.7      (5.0)     4.5       0.6     (2,794.9)    2,832.7        75.3
Change in future
   development costs                (14.1)      (19.0)     (35.8)      0.1     (0.2)       --        (14.0)      (19.2)      (35.8)
Extensions, discoveries
   and other additions,
   net of related costs              55.7       448.2      107.5        --      1.2       0.6         55.7       449.4       108.1
Revisions of previous
   estimates, net of
   related costs                    (85.2)      314.9       33.7      (0.4)    (0.1)      0.1        (85.6)      314.8        33.8
Sales of reserves-in-
   place                            (17.2)       (5.9)      (2.9)       --       --        --        (17.2)       (5.9)       (2.9)
Purchases of reserves-
   in-place                            --        16.3       54.6        --       --        --           --        16.3        54.6
Accretion of discount               384.9        82.0       60.0       0.7      0.2       0.1        385.6        82.2        60.1
Net change in income
   taxes                          1,197.2    (1,233.1)     (88.9)      3.1     (0.9)     (0.3)     1,200.3    (1,234.0)      (89.2)
Timing of production
   and other changes               (303.8)     (501.6)      28.2      (0.6)    (0.7)     (0.1)      (304.4)     (502.3)       28.1
-----------------------------------------------------------------------------------------------------------------------------------
END OF YEAR                         549.0     2,308.4      511.6       2.9      4.9       1.4        551.9     2,313.3       513.0
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       42
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SCHEDULE II -- Valuation and Qualifying Accounts

<TABLE>
<CAPTION>
                                                              Additions - Charged to
                                                             ------------------------
                                               Beginning                       Other                        Ending
Year Ended December 31, ($ in millions)          Balance       Income       Accounts      Deductions       Balance
-------------------------------------------------------------------------------------------------------------------
<S>                                            <C>             <C>          <C>           <C>              <C>
Allowance for doubtful accounts (a)
   2001                                             15.8         24.9           60.7            76.1          25.3
   2000                                             11.3         19.7           28.3            43.5          15.8
   1999                                             13.4         17.4           30.6            50.1          11.3

Restructuring Activities (b)
   2001                                             61.7          4.0          (23.6)           10.7          31.4

Environmental
   2001                                            106.4         35.0             --             1.1         140.2
   2000                                            123.6          0.5             --            17.7         106.4
   1999                                            140.9          0.2             --            17.5         123.6
-------------------------------------------------------------------------------------------------------------------
</TABLE>

(a)   Other Accounts primarily reflect reclassifications to a regulatory asset
      of the uncollectible accounts related to the Percent of Income Plan (PIP)
      of Columbia Gas of Ohio, Inc. and Deductions principally reflect amounts
      charged off as uncollectible less amounts recovered.
(b)   Deductions primarily reflect payments of severance and related termination
      benefits.

ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
        DISCLOSURE

There has not been a change of accountants nor any disagreements concerning
accounting and financial disclosure within the past two years.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Omitted pursuant to General Instruction I. (2) (c).

ITEM 11. EXECUTIVE COMPENSATION

Omitted pursuant to General Instruction I. (2) (c).

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Omitted pursuant to General Instruction I. (2) (c).

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Omitted pursuant to General Instruction I. (2) (c).


                                       43
<PAGE>
                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

COLUMBIA ENERGY GROUP AND SUBSIDIARIES

Exhibits

Reference is made to the list of exhibits filed as part of this Annual Report on
Form 10-K.

Pursuant to Item 601(b), paragraph (4)(iii)(A) of Regulation S-K, certain
instruments representing long-term debt of Columbia or its subsidiaries have not
been included as Exhibits because such debt does not exceed 10% of the total
assets of Columbia and its subsidiaries on a consolidated basis. Columbia agrees
to furnish a copy of any such instrument to the U.S. Securities and Exchange
Commission upon request.

Financial Statement Schedules

All of the financial statements and financial statement schedules filed as a
part of this Annual Report on Form 10-K are included in Item 8.

Reports on Form 8-K

None.


                                       44
<PAGE>
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.

                                                     COLUMBIA ENERGY GROUP
                                           -------------------------------------
                                                         (Registrant)


Dated:      March 27, 2002            By:          /s/  Michael W. O'Donnell
       ------------------------            -------------------------------------
                                                     Michael W. O'Donnell
                                                    President and Director
                                                 (Principal Executive 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.

Dated:      March 27, 2002            By:          /s/  Michael W. O'Donnell
       ------------------------            -------------------------------------
                                                     Michael W. O'Donnell
                                                    President and Director
                                                 (Principal Executive Officer)


Dated:      March 27, 2002            By:          /s/  Dennis W. McFarland
       ------------------------            -------------------------------------
                                                      Dennis W. McFarland
                                                 Vice President and Treasurer
                                                 (Principal Financial Officer)


Dated:      March 27, 2002            By:          /s/  Jeffrey W. Grossman
       ------------------------            -------------------------------------
                                                      Jeffrey W. Grossman
                                                        Vice President
                                                (Principal Accounting Officer)


Dated:      March 27, 2002            By:           /s/  Stephen P. Adik
       ------------------------            -------------------------------------
                                                        Stephen P. Adik
                                                            Director


                                       45
<PAGE>
EXHIBITS

Reference is made in the two right-hand columns below to those exhibits, which
have heretofore been filed with the U.S. Securities and Exchange Commission.
Exhibits so referred to are incorporated herein by reference.

<TABLE>
<CAPTION>

                                                                                           NiSource Reference
                                                                                      -------------------------
Exhibit                           Description of Item                                  File No.         Exhibit
-------                           -------------------                                 ---------         -------
<S>           <C>                                                                      <C>              <C>
3-A       -   Restated Certificate of Incorporation of The Columbia                      1-1098           3-A
              Gas System, Inc., as amended dated as of November 28,
              1995.

3-B       -   By-Laws of The Columbia Gas System, Inc., as amended                       1-1098           3-B
              dated November 18, 1987.

3-C       -   Certificate of Ownership and Merger, Merging Columbia                      1-1098           3-C
              Energy Group, Inc. into The Columbia Gas System, Inc.

3-D       -   Amended and Restated By-Laws of Columbia Energy Group as                   1-1098           3-D
              of February 22, 2000.

4-A       -   Indenture between The Columbia Gas System, Inc. and                       33-64555          4-S
              Marine Midland Bank, N.A. Trustee, dated as of November
              28, 1995.

4-B       -   First Supplemental Indenture, between The Columbia Gas                    33-64555          4-T
              System, Inc. and Marine Midland Bank, N.A. Trustee,
              dated as of November 28, 1995.

4-C       -   Second Supplemental Indenture, between The Columbia Gas                   33-64555          4-U
              System, Inc., and Marine Midland Bank, N.A. Trustee,
              dated as of November 28, 1995.

4-D       -   Third Supplemental Indenture, between The Columbia Gas                    33-64555          4-V
              System, Inc. and Marine Midland Bank, N.A. Trustee,
              dated as of November 28, 1995.

4-E       -   Fourth Supplemental Indenture, between The Columbia Gas                   33-64555          4-W
              System, Inc. and Marine Midland Bank, N.A. Trustee,
              dated as of November 28, 1995.

4-F       -   Fifth Supplemental Indenture, between The Columbia Gas                    33-64555          4-X
              System, Inc. and Marine Midland Bank, N.A. Trustee,
              dated as of November 28, 1995.

4-G       -   Sixth Supplemental Indenture, between The Columbia Gas                    33-64555          4-Y
              System, Inc. and Marine Midland Bank, N.A. Trustee,
              dated as of November 28, 1995.

4-H       -   Seventh Supplemental Indenture, between The Columbia Gas                  33-64555          4-Z
              System, Inc. and Marine Midland Bank, N.A., Trustee,
              dated as of November 28, 1995.

4-I       -   Instrument of Resignation, Appointment and Acceptance                      1-1098           4-I
              dated as of March 1, 1999, between Columbia Energy Group
              and Marine Midland Bank, as Resigning Trustee and The
              First National Bank of Chicago, as Successor Trustee.

10-P(a)   -   Pension Restoration Plan of The Columbia Gas System,                       1-1098           10-P
              Inc., amended October 9, 1991.

10-Q(a)   -   Thrift Restoration Plan of The Columbia Gas System, Inc.                   1-1098           10-Q
              dated January 1, 1989.

10-T      -   Agreement and Bridge Agreement dated December 1, 1993,                     1-1098           10-T
              between Columbia Gas Transmission Corporation and Consol
              Pennsylvania Coal Company.

10-AE     -   U.S. Environmental Protection Agency Administrative                        1-1098          10-AE
              Order by Consent for Removal Actions for Columbia Gas
              Transmission Corporation dated September 22,1994.
</TABLE>

(a)   Executive Compensation arrangements filed pursuant to Item 14 of
      Form 10-K.


                                       46
<PAGE>
EXHIBITS (continued)

<TABLE>
<CAPTION>
                                                                                           NiSource Reference
                                                                                      -------------------------
Exhibit                           Description of Item                                  File No.         Exhibit
-------                           -------------------                                 ---------         -------
<S>           <C>                                                                     <C>               <C>
10-AF     -   Amended and Restated Indenture of Mortgage and Deed of                   1-1098           10-AF
              Trust by Columbia Gas Transmission Corporation to
              Wilmington Trust Company, dated as of November 28, 1995.

10-BB(a)  -   Annual Incentive Compensation Plan of The Columbia Gas                   1-1098           10-BB
              System, Inc., as amended, dated as of November 16, 1988.

10-BC(a)  -   Employment Agreement between Oliver G. Richard III and                   1-1098           10-BC
              The Columbia Gas System, Inc., dated March 15, 1995.

10-BE(a)  -   Employment Agreement between Peter M. Schwolsky and The                  1-1098           10-BE
              Columbia Gas System, Inc., dated May 30, 1995.

10-BF(a)  -   Employment Agreement between Catherine Good Abbott and                   1-1098
              The Columbia Gas System, Inc., dated January 17, 1996.

10-BG     -   Third amendment to employment agreement by and between                   1-1098
              the Columbia Energy Group and Oliver G. Richard III,
              effective July 21, 2000.

10-BH     -   Second amendment to employment agreement by and between                  1-1098
              the Columbia Energy Group and Peter M. Schwolsky,
              effective July 21, 2000.

10-BI     -   Second amendment to employment agreement by and between                  1-1098
              the Columbia Energy Group and Catherine Good Abbott,
              effective July 21, 2000.

10-BU     -   Share Sale and Purchase Agreement between The Columbia                   1-1098           10-BU
              Gas System, Inc. and Anderson Exploration Ltd. dated
              November 25, 1991.

10-BV     -   Security Agreement dated as of January 15, 1992, between                 1-1098           10-BV
              The Columbia Gas System, Inc. and Anderson Exploration
              Ltd. and Montreal Trust Company of Canada.

10-BW     -   Kotaneelee Litigation Indemnity Agreement dated as of                    1-1098           10-BW
              December 31, 1991, among The Columbia Gas System, Inc.
              and Columbia Gas Development of Canada Ltd. and Anderson
              Exploration Ltd.

10-BX     -   Specified Litigation Indemnity Agreement made as of                      1-1098           10-BX
              December 31, 1991, among The Columbia Gas System, Inc.
              and Columbia Gas Development of Canada Ltd. and Anderson
              Exploration Ltd.

10-BY(a)  -   Columbia Gas Restoration Security Trust Agreement dated                  1-1098           10-BY
              June 1, 1991, with Dauphin Deposit Bank and Trust
              Company.

10-BZ     -   Natural Gas Advance Sale Contract dated August 24, 2000,
              between Columbia Natural Resources, Inc., and Mahoma II
              Limited.

10-CA(a)  -   The Columbia Gas System, Inc. Retirement Plan for                        1-1098           10-CA
              Outside Directors, as amended, August 21, 1991.

10-CB     -   Credit Agreement, dated as of November 28, 1995, among                   1-1098           10-CB
              The Columbia Gas System, Inc., certain banks party
              thereto and Citibank, N.A.

10-CC     -   First Amendment and Supplement to Credit Agreement,                      1-1098           10-CC
              dated December 6, 1995.
</TABLE>

(a)   Executive Compensation arrangements filed pursuant to Item 14 of
      Form 10-K.


                                       47
<PAGE>
EXHIBITS (continued)

<TABLE>
<CAPTION>
                                                                                          NiSource Reference
                                                                                      -------------------------
Exhibit                           Description of Item                                  File No.         Exhibit
-------                           -------------------                                 ---------         -------
<S>           <C>                                                                     <C>               <C>
10-CD     -   Credit Agreement for $450,000,000, dated March 11, 1998,                 1-1098           10-CD
              among Columbia Energy Group and certain banks party
              thereto and Citibank, N.A. as Administrative and
              Syndication Agent.

10-CE     -   Credit Agreement for $900,000,000, dated March 11, 1998,                 1-1098           10-CE
              among Columbia Energy Group and certain banks party
              thereto and Citibank, N.A. as Administrative and
              Syndication Agent.

10-CF     -   Memorandum of Understanding among the Millennium                         1-1098           10-CF
              Pipeline Project partners (Columbia Transmission, West
              Coast Energy, MCN Investment Corp. and TransCanada
              Pipelines Limited) dated December 1, 1997.

10-CG     -   Agreement of Limited Partnership of Millennium Pipeline                  1-1098           10-CG
              Company, L.P. dated May 31, 1998.

10-CH     -   Contribution Agreement Between Columbia Gas Transmission                 1-1098           10-CH
              Corporation and Millennium Pipeline Company, L.P. dated
              July 31, 1998.

10-CI     -   Regulations of Millennium Pipeline Management Company,                   1-1098           10-CI
              L.L.C. dated May 31, 1998.

10-CJ     -   Amended and Restated Agreement of Cove Point LNG Limited                 1-1098           10-CJ
              Partnership between Columbia LNG and PEPCO Energy
              Company, Inc. dated January 27, 1994.

10-CK     -   Amended and Restated 364-Day Credit Agreement among                      1-1098           10-CK
              Columbia Energy Group and certain banks party thereto
              and Citibank, N. A. as Administrative and Syndication
              Agent dated as of March 10, 1999.

10-CM     -   Plan of Reorganization for Columbia Gas Transmission                     1-1098           10-CM
              Corporation as filed with the United States Bankruptcy
              Court for the District of Delaware on January 18, 1994.

10-CQ     -   $50,000,000 Amended and Restated Credit Agreement dated                  1-1098           10-CQ
              October 11, 2000, among Columbia Energy Group and
              certain banks party thereto and Citibank, N.A. as
              Administrative and Syndication Agent.

10-CR     -   $850,000,000 Amended and Restated Credit Agreement dated                 1-1098           10-CR
              October 11, 2000, among Columbia Energy Group and
              certain banks party thereto and Citibank, N.A. as
              Administrative and Syndication Agent.

10-DA     -   Natural Gas Advance Sale Contract dated December 1,                     001-16189         10.30
              1999, between Columbia Natural Resources, Inc. and
              Mahonia II Limited

10-DB     -   First Amendment to Natural Gas Advance Sale Contract                    001-16189         10.31
              (dated December 1, 1999), effective March 30, 2001,
              between Columbia Natural Resources, Inc. and Mahonia II
              Limited.

10-DC     -   Natural Gas Advance Sale Contract dated August 24, 2000,                001-16189         10.32
              between Columbia Natural Resources, Inc. and Mahonia II
              Limited

10-DD     -   First Amendment to Natural Gas Advance Sale Contract                    001-16189         10.33
              (dated August 24, 2000), effective March 30, 2001,
              between Columbia Natural Resources, Inc. and Mahonia II
              Limited.
</TABLE>


                                       48
<PAGE>
EXHIBITS (continued)

<TABLE>
<CAPTION>
                                                                                           NiSource Reference
                                                                                      -------------------------
Exhibit                           Description of Item                                  File No.         Exhibit
-------                           -------------------                                 ---------         -------
<S>           <C>                                                                     <C>               <C>

10-P      -   Pension Restoration Plan of the Columbia Gas System,                    001-16189         10.27
              Inc., amended and restated March 1, 1997.

10-Q      -   Thrift Restoration Plan of the Columbia Gas System,                     001-16189         10.28
              Inc., amended and restated January 1, 2000.

12*       -   Statements of Ratio of Earnings to Fixed Charges

23-A      -   Written consent, dated February 1, 2002, to the filing                  001-16189         23.2
              and use of information contained in such letter report,
              in Reports and Registration Statements filed during
              2001, of Ryder Scott Company Petroleum Engineers,
              independent petroleum and natural gas cons

23-B      -   Written consent, dated January 24, 2002, to the filing                  001-16189         23.3
              and use of information contained in such letter report,
              in Reports and Registration Statements filed during
              2001, of Sproule Associates Limited, independent
              petroleum and natural gas consultants.

</TABLE>

* Filed herewith


                                       49