December 18, 1998



Securities and Exchange Commission
Operations Center
6432 General Green Way
Alexandria, VA  22312-2413

Gentlemen:

We are transmitting herewith Indiana Gas Company, Inc.'s
Annual Report on Form 10-K for the year ended  
September 30, 1998, pursuant to the requirements of Section 13 
of the Securities Exchange Act of 1934.

Very truly yours,


/s/Douglas S. Schmidt
Douglas S. Schmidt

DSS:tmw

Enclosures
                                   
           UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                        Washington, DC.  20549
                                   
                               FORM 10-K

(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
   SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 1998

                                  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 1-6494

                  INDIANA GAS COMPANY, INC.
    Exact name of Registrant as specified in its charter)

            INDIANA                             35-0793669
(State or other jurisdiction of              (I.R.S. Employer
 incorporation or organization)               Identification
                                              No.)

  1630 North Meridian Street, Indianapolis, Indiana  46202
         (Address of principal executive offices)   (Zip Code)

Registrant's telephone number, including area code 317-926-3351

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

                                         Name of each exchange
   Title of each class                   on which registered
            None                                None

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

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

   Indicate the number of shares outstanding of each of the
Registrant's classes of common stock, as of the latest
practicable date.

Common Stock-Without par value    9,080,770      November 30, 1998
        Class                   Number of shares      Date

   Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K ( 229.405 of this
chapter) is not contained herein, and will not be contained,
to the best of the 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]



Table of Contents

                                                       
Part I                                                   
  Business                                             
  Property                                           
  Legal Proceedings                                 
  Submission of Matters to a Vote of Security Holders  
  Executive Officers of the Company                  
Part II                                               
  Market for the Registrant's Common Equity and Related
  Stockholder Matters                               
  Selected Financial Data                           
  Management's Discussion and Analysis of Results of Operations
  and Financial Condition                        
  Financial Statements and Supplementary Data   
  Changes in and Disagreements with Accountants 
Part III                                       
  Directors and Executive Officers of the Registrant 
  Executive Compensation                          
  Securities Ownership of Certain Beneficial Owners and
  Management                                     
  Certain Relationships and Related Transactions  
Part IV                                           
  Exhibits, Financial Statements Schedules, and Reports on
  Form 8-K                                     
  

Part I

Item 1.       Business

       (a)  General Development of the Business.

            Indiana Gas Company, Inc. (Indiana Gas or the
       company) is an operating public utility engaged in
       the business of providing gas utility service in
       the state of Indiana.  It was incorporated under
       the laws of the state of Indiana on July 16, 1945.
       All of the outstanding shares of common stock of
       the company are owned by Indiana Energy, Inc.
       (Indiana Energy), which is a public holding
       company.

       (c)  Narrative Description of the Business.

            During fiscal 1998, Indiana Gas supplied gas
       to about 489,000 residential, small commercial
       and contract (large commercial and industrial)
       customers in 281 communities in 48 of the 92
       counties in the state of Indiana.  The service
       area has a population of approximately 2 million
       and contains diversified manufacturing and
       agriculture-related enterprises.  The principal
       industries served include automotive parts and
       accessories, feed, flour and grain processing,
       metal castings, aluminum products, gypsum
       products, electrical equipment, metal specialties
       and glass.

            The largest communities served include
       Muncie, Anderson, Lafayette-West Lafayette,
       Bloomington, Terre Haute, Marion, New Albany,
       Columbus, Jeffersonville, New Castle and
       Richmond.  While Indiana Gas does not serve in
       Indianapolis, it does serve the counties and
       communities which border that city.

            For the fiscal year ended September 30,
       1998, residential customers provided 65 percent
       of revenues, small commercial 23 percent and
       contract 12 percent.  Approximately 99 percent of
       Indiana Gas' customers used gas for space
       heating, and revenues from these customers for
       the fiscal year were approximately 87 percent of
       total operating revenues.  Sales of gas are
       seasonal and strongly affected by variations in
       weather conditions.  Less than half of total
       margin, however, is space heating related.
       During the fiscal year ended September 30, 1998,
       Indiana Gas added approximately 11,500
       residential and commercial customers.

            Indiana Gas sells gas directly to
       residential, small commercial and contract
       customers at approved rates.  Indiana Gas also
       transports gas through its pipelines at approved
       rates to contract customers which have purchased
       gas directly from producers or through brokers
       and marketers.  The total volumes of gas provided
       to both sales and transportation customers is
       referred to as throughput.

       Gas transported on behalf of end-use customers in fiscal
       1998 represented 40 percent (45,598 MDth) of throughput
       compared to 34 percent (41,874 MDth) in 1997 and 27
       percent (34,165 MDth) in 1996.  Although revenues are
       lower, rates for transportation generally provide the same
       margins as would have been earned had the gas been sold
       under normal sales tariffs.

            Effective April 1, 1996, Indiana Gas
       purchases all of its natural gas from ProLiance
       Energy, LLC, a gas marketing affiliate of Indiana
       Energy (see Item 7, ProLiance Energy, LLC).
       Indiana Gas also holds several contracts with
       pipelines for storage of natural gas to meet a
       portion of its peaking requirements.

            Prices for gas and related services
       purchased by Indiana Gas are determined primarily
       by market conditions and rates established by the
       Federal Energy Regulatory Commission.  Indiana
       Gas' rates and charges, terms of service,
       accounting matters, issuance of securities, and
       certain other operational matters are regulated
       by the Indiana Utility Regulatory Commission
       (IURC).

            Adjustments to Indiana Gas' rates and
       charges related to the cost of gas are made
       through gas cost adjustment (GCA) procedures
       established by Indiana law and administered by
       the IURC.  The IURC has applied the statute
       authorizing the GCA procedures to reduce rates
       when necessary so as to limit net operating
       income, after adjusting to normal weather, to the
       level authorized in the last general rate order.
       The earnings test provides that no refund be paid
       to the extent a utility has not earned its
       authorized utility operating income over the
       previous 60 months (or during the period since
       the utility's last rate order, if longer).

            Information regarding environmental matters
       affecting the company is incorporated herein by
       reference to Item 7, Environmental Matters.

       Indiana Gas had 754 full-time employees and 34
       part-time employees as of September 30, 1998.

       During fiscal 1997, the Indiana Gas Board of
       Directors authorized management to undertake the
       actions necessary and appropriate to restructure
       Indiana Gas' operations.  These actions by
       Indiana Gas were consistent with Indiana Energy,
       Inc.'s (Indiana Gas' parent) growth strategy that
       was approved by its board of directors during
       fiscal 1997.  See Item 7, Growth Strategy and
       Corporate Restructuring.

Item 2.       Property

            The properties of Indiana Gas are used for
       the purchase, production, storage and
       distribution of gas and are located primarily
       within the state of Indiana.  As of September 30,
       1998, such properties included 10,716 miles of
       distribution mains; 496,281 meters; five
       reservoirs currently being used for the
       underground storage of purchased gas with
       approximately 71,484 acres of land held under
       storage easements; 8,509,841 Dth of gas in
       company-owned underground storage with a daily
       deliverability of 134,160 Dth; 5,184,527 Dth of
       gas in contract storage with a daily
       deliverability of 53,563 Dth; and five liquefied
       petroleum (propane) air-gas manufacturing plants
       with a total daily capacity of 36,700 Dth of gas.

            Indiana Gas' capital expenditures during the
       fiscal year ended September 30, 1998, amounted to
       $57.3 million.

Item 3.       Legal Proceedings

            See Item 8, Note 10 for litigation matters
       involving insurance carriers pertaining to
       Indiana Gas' former manufactured gas plants and
       storage facilities.

            See Item 8, Note 11 for discussion of
       litigation matters relating to the gas supply and
       portfolio administration agreements between
       ProLiance and Indiana Gas and ProLiance and
       Citizens Gas.

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

            No matter was submitted during the fourth
       quarter of the fiscal year ended September 30,
       1998, to a vote of security holders.

Item 4a.      Executive Officers of the Company

       The Executive Officers of the company are as
       follows:

<TABLE>
                               Family
                              Relation-   Office or                  Date Elected
        Name           Age      ship     Position Held               Or Appointed(1)
<S>                    <C>    <C>        <C>                         <C>
Lawrence A. Ferger     64     None       Chairman and Chief
                                         Executive Officer           Oct. 1, 1997
                                         Chairman, President and
                                         Chief Executive Officer     Jan. 26, 1996
                                         President and Chief
                                         Executive Officer           July 1, 1987

Niel C. Ellerbrook     49    None        President                   Oct. 1, 1997
                                         Executive Vice President
                                         and Chief Financial
                                         Officer                     Jan . 22, 1997
                                         Senior Vice President and
                                         Chief Financial Officer     July 1, 1987

Paul T. Baker          58    None        Executive Vice
                                         President and Chief
                                         Operating Officer           Oct. 1, 1997
                                         Senior Vice President
                                         and Chief Operating
                                         Officer                     Aug. 1, 1991

Anthony E. Ard         57    None        Secretary                   Jul. 31, 1998
                                         Senior Vice President of
                                         Corporate Affairs           Jan. 9, 1995
                                                                     (through
                                                                     Sep. 30, 1997)
                                         Vice President -
                                         Corporate Affairs           Jan. 11, 1993

Timothy M. Hewitt      48    None        Vice President of
                                         Operations and Engineering  Jan. 9, 1995
                                         Vice President of Sales
                                         and Field Operations        Jan. 14, 1991

(1)  Each of the officers has served continuously since the
     dates indicated unless otherwise noted.

</TABLE>

Part II


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

            All of the outstanding shares of Indiana Gas'
       common stock are owned by Indiana Energy, Inc., and
       are not traded.

            During fiscal 1998, the company paid dividends
       of $6.8 million, $6.8 million, $6.8 million and $7.0
       million in the first, second, third and fourth
       quarters, respectively.

            During fiscal 1997, the company paid dividends
       of $6.5 million, $6.5 million, $6.5 million and $6.8
       million in the first, second, third and fourth
       quarters, respectively.

Item 6.       Selected Financial Data

<TABLE>

                       INDIANA GAS COMPANY, INC.
                       AND SUBSIDIARY COMPANIES
                              (Thousands)
                                   
Year Ended September 30      1998     1997(2)    1996     1995      1994
<S>                        <C>       <C>       <C>       <C>       <C>
Operating revenues         $465,644  $530,407  $530,594  $403,810  $475,297
Margin                      194,640   207,885   210,463   185,315   194,309
Operating expenses          148,389   178,874   156,910   139,127   146,466
Operating income             46,251    29,011    53,553    46,188    47,843
Other income - net              866     1,241       984     1,451     2,790
Interest expense             16,234    16,774    15,907    15,530    16,037
Net income                 $ 30,883  $ 13,478  $ 38,630  $ 32,109  $ 34,596
                                                                       
Ratio of earnings to
 fixed charges                  3.9       2.2       4.6       4.1       4.1
                                                                       
Common shareholder's
 equity                    $240,349  $268,762  $281,534  $268,154  $260,295
Long-term debt (1)          181,975   154,733   174,733   173,693   156,851
                           $422,324  $423,495  $456,267  $441,847  $417,146
                                                                       
Total Assets at Year-End   $633,154  $665,719  $672,907  $655,933  $649,982
                                                                       
Total throughput            114,795   122,846   126,742   109,508   116,285
                                                                       
Annual heating degree days                                             
    as a percent of normal      86%      100%      108%       87%      102%
                                                                       
Utility customers served -                                             
    average                 488,771   477,235   465,166   454,817   443,498
                                                                       

(1)  Includes current maturities; excludes sinking fund requirements.
(2)  Reflects the recording of pre-tax restructuring costs of $39.5
     million in fiscal 1997 (see Item 8, Note 2).

</TABLE>

Item 7.     Management's Discussion and Analysis of Results of
            Operations and Financial Condition

      Results of Operations
      
      Net income for Indiana Gas Company, Inc. and subsidiaries (Indiana
      Gas or the company) for the last three fiscal years were as
      follows:
      
<TABLE>

      (Millions)   1998    1997(1)  1996
      <S>          <C>     <C>      <C>
      Net Income   $30.9   $13.5    $38.6

     
      (1)Reflects restructuring costs of $24.5 million after-tax (see
         Growth Strategy and Corporate Restructuring).

</TABLE>
      
      
      Margin (Operating Revenues Less Cost of Gas)
      In 1998, margin decreased 6 percent ($13.2 million) when compared
      to 1997. The decrease is primarily attributable to weather 14
      percent warmer than last year and 14 percent warmer than normal,
      offset somewhat by the addition of new residential and commercial
      customers.
      
      In 1997, margin decreased 1 percent ($2.6 million) when compared to
      1996. The decrease was primarily attributable to normal weather
      which was 7 percent warmer than the prior year, offset
      substantially by the addition of new residential and commercial
      customers.
      
      In 1998, total system throughput (combined sales and
      transportation) decreased 7 percent (8.1 MMDth) when compared to
      last year. In 1997, throughput decreased 3 percent (3.9 MMDth) when
      compared to 1996. Indiana Gas' rates for transportation generally
      provide the same margins as are earned on the sale of gas under its
      sales tariffs. Approximately one-half of total system throughput
      represents gas used for space heating and is affected by weather.
      
      Total average cost per dekatherm of gas purchased (average
      commodity and demand) was $3.65 in 1998, $3.64 in 1997 and $3.14 in
      1996. The price changes are due primarily to changing commodity
      costs in the marketplace.
      
      Operating Expenses
      Operation and maintenance expenses increased approximately $4.6
      million in 1998 when compared to 1997.  The increase is due
      primarily to service fees paid to Indiana Gas' affiliate, IEI
      Services, LLC (IEI Services) related to assets now owned by IEI
      Services.  IEI Services began providing support services to Indiana
      Gas effective October 1, 1997 (see resulting lower depreciation and
      amortization below).  The increase was offset somewhat by lower
      labor costs and related benefits resulting from work force
      reductions.
      
      Operation and maintenance expenses decreased approximately $4.6
      million in 1997 when compared to 1996. The decrease is due in part
      to lower distribution system costs than in 1996 when certain
      projects were accelerated because of the increased margin resulting
      from the very cold weather. Lower costs for uncollectible accounts
      also contributed to the decrease.
      
      Restructuring costs of $39.5 million (pre-tax) were recorded in
      1997 related to the implementation of Indiana Energy, Inc.'s new
      growth strategy during that year (see Growth Strategy and Corporate
      Restructuring).
      
      Depreciation and amortization decreased in 1998 due primarily to
      the transfer of assets to IEI Services, and assets held for
      disposal which were written down to estimated fair value in 1997.
      The decrease was offset somewhat by additions to plant to serve new
      customers and to maintain dependable service to existing customers.
      Depreciation and amortization expense increased in 1997 as the
      result of additions to plant to serve new customers and to maintain
      dependable service to existing customers.
      
      Federal and state income taxes increased in 1998, while decreasing
      in 1997, due primarily to the recording of restructuring costs in
      1997.
      
      Taxes other than income taxes decreased in 1998 due to lower
      property tax expense and lower gross receipts tax expense. Taxes
      other than income taxes remained approximately the same for 1997
      when compared to 1996.
      
      Interest Expense
      Interest expense decreased in 1998 due to a decrease in interest
      rates, offset somewhat by an increase in average debt outstanding.
      Interest expense increased in 1997 due to an increase in average
      debt outstanding, slightly offset by a decrease in interest rates.
      
      Other Operating Matters
      
      
      Growth Strategy and Corporate Restructuring
      In April 1997, the Board of Directors of Indiana Energy, Inc.
      (Indiana Energy), Indiana Gas' parent, approved a new growth
      strategy designed to support Indiana Energy's transition into a
      more competitive environment. As part of the current growth
      strategy, Indiana Energy will endeavor to become a leading regional
      provider of energy products and services and to grow its
      consolidated earnings per share by an average of 10 percent
      annually through 2003. To achieve such earnings growth, Indiana
      Energy's aim is to grow the earnings contribution from non-utility
      operations to over 25 percent of its total annual earnings by 2003,
      and to aggressively manage costs within its utility operations.
      
      During 1997, the Indiana Gas Board of Directors authorized
      management to undertake the actions necessary and appropriate to
      restructure Indiana Gas' operations and recognize a resulting
      restructuring charge of $39.5 million ($24.5 million after-tax) for
      fiscal 1997 as described below.
      
      In July 1997, Indiana Energy advised its employees of its plan to
      reduce its work force from about 1,025 full-time employees at June
      30, 1997, to approximately 800 employees by 2002. The reductions
      are being implemented through involuntary separation and attrition.
      Indiana Gas recorded restructuring costs of $5.4 million during
      fiscal 1997 related to the work force reductions. These costs
      include separation pay in accordance with Indiana Gas' severance
      policy, and net curtailment losses related to these employees'
      postretirement and pension benefits. As a result primarily of
      initial work force reductions during September 1997 and attrition,
      Indiana Energy employees totaled approximately 890 as of September
      30, 1998.
      
      Further, Indiana Gas' management committed to sell, abandon or
      otherwise dispose of certain assets, including buildings, gas
      storage fields and intangible plant. Indiana Gas recorded
      restructuring costs of $34.1 million during fiscal 1997 to adjust
      the carrying value of those assets to estimated fair value. Net
      assets held for disposal totaled $8.0 million at September 30,
      1997, and were disposed of during fiscal 1998.
      
      In October 1997, Indiana Energy formed a new business unit, IEI
      Services, LLC (IEI Services), to provide support services to
      Indiana Energy and its subsidiaries. The formation of IEI Services
      was established by a contribution of $32 million of fixed assets at
      net book value from Indiana Gas, which subsequently dividended its
      membership interest to Indiana Energy. The contributed assets
      relate to the provision of administrative services.  IEI Services
      provides information technology, financial, human resources,
      building and fleet services. These services had been provided by
      Indiana Gas in the past.
      
      As a result of the restructuring, Indiana Energy has already
      realized, and expects further, reductions in future operating
      costs, which should help the company to be more successful in an
      increasingly competitive energy marketplace.
      
      ProLiance Energy, LLC
      ProLiance Energy, LLC (ProLiance), a nonregulated marketing
      affiliate of Indiana Energy, began providing natural gas and
      related services to Indiana Gas and Citizens Gas and Coke Utility
      (Citizens Gas) effective April 1, 1996.
      
      The sale of gas and provision of other services to Indiana Gas by
      ProLiance is subject to regulatory review through the quarterly gas
      cost adjustment proceeding currently pending before the IURC.
      
      On September 12, 1997, the Indiana Utility Regulatory Commission
      (IURC) issued a decision finding the gas supply and portfolio
      administration agreements between ProLiance and Indiana Gas and
      ProLiance and Citizens Gas (the gas supply agreements) to be
      consistent with the public interest. The IURC's decision reflected
      the significant gas cost savings to customers obtained by
      ProLiance's services and suggested that all material provisions of
      the agreements between ProLiance and the utilities are reasonable.
      Nevertheless, with respect to the pricing of gas commodity
      purchased from ProLiance and two other pricing terms, the IURC
      concluded that additional findings in the gas cost adjustment (GCA)
      process would be appropriate and directed that these matters be
      considered further in the pending, consolidated GCA proceeding
      involving Indiana Gas and Citizens Gas. The IURC has not yet
      established a schedule for conducting these additional proceedings.
      
      The IURC's September 12, 1997, decision was appealed to the Indiana
      Court of Appeals by certain Petitioners including the Indiana
      Office of Utility Consumer Counselor and the Citizens Action
      Coalition of Indiana. On October 8, 1998, the Indiana Court of
      Appeals issued a decision which reversed and remanded the case to
      the IURC with instructions that the gas supply agreements be
      disapproved. The basis for the decision is that because the gas
      supply agreements provide for index based pricing of gas commodity
      sold by ProLiance to the utilities, they should have been the
      subject of an application for approval of an alternative regulatory
      plan under Indiana statutory law. The court held that absent this
      type of application, the IURC exceeded its authority in
      implementing what the court saw to be alternative regulatory
      treatment.
      
      Management believes the decision incorrectly applies the statute
      and has decided to petition for transfer of the case to the Indiana
      Supreme Court. If the Supreme Court does not overturn the Court of
      Appeals' decision, the matter will be remanded to the IURC for
      further proceedings. Whether or not the Supreme Court reverses the
      Court of Appeals' decision, the reasonableness of the gas costs
      incurred by Indiana Gas under the gas supply agreements will be
      further reviewed in the consolidated GCA proceeding. Management
      takes note of the fact that the Court of Appeals has not challenged
      the IURC findings that the agreements provide significant economic
      value to customers and are in the public interest. Indiana Gas is
      continuing to utilize ProLiance for its gas supply.
      
      On or about August 11, 1998, Indiana Gas, Citizens Gas and
      ProLiance each received a Civil Investigative Demand ("CID") from
      the United States Department of Justice requesting information
      relating to Indiana Gas' and Citizens Gas' relationship with and
      the activities of ProLiance. The Department of Justice issued the
      CID to gather information regarding ProLiance's formation and
      operations, and to determine if trade or commerce has been
      restrained. Indiana Gas is providing the Department of Justice with
      information regarding the formation of ProLiance in connection with
      the CID.
      
      While the results of the ProLiance issues mentioned above cannot be
      predicted, management does not expect these matters to have a
      material impact on Indiana Gas' financial position or results of
      operations.  However, no assurance can be provided.
      
      The Year 2000 Issue
      Many existing computer programs use only two digits to identify a
      year in the date field. These programs were designed and developed
      without considering the impact of the upcoming change in the
      century. If not corrected, many computer applications could fail or
      create erroneous results by or at the year 2000. This issue relates
      not only to information technology (IT) but also to non-IT related
      equipment and plant that may contain embedded date-sensitive
      microcontrollers or microchips.
      
      The company has identified what it believes are its most
      significant worst case Year 2000 scenarios for the purpose of
      helping it to focus its Year 2000 efforts. These scenarios are the
      interference with the company's ability to (1) receive and deliver
      gas to customers, (2) monitor gas pressure throughout the company's
      gas distribution system, (3) bill and receive payments from
      customers, and (4) maintain continuous operation of its computer
      systems. As discussed below, the company is taking the steps
      necessary to ensure that these worst case scenarios are addressed.
      
      The company has evaluated the Year 2000 readiness of all IT
      hardware and software including the mainframe, network, servers,
      personal computers, system and application software and
      telecommunications. Almost all hardware was found to be in
      compliance as a result of projects conducted in 1997 and 1998.
      Replacements of major customer information and billing systems,
      which had already begun in 1997, are scheduled to be completed by
      the first quarter of 1999. These new systems, driven by the need
      for additional functionality and business flexibility, were also
      designed to be Year 2000 compliant. Other maintenance and project
      activities conducted in 1998 and scheduled for 1999 have been
      initiated to bring the remaining software environment into
      compliance. The projects include replacements, upgrades and
      rewrites. The company's plan for IT items includes the following
      phases and timeline: (a) Assessment - will be completed in 1998,
      (b) Strategy - will be completed in 1998 and (c) Design,
      Implementation, Testing and Validation - in process and to be
      substantially completed by June 30, 1999. The company has not found
      it necessary to postpone work on any other critical IT projects
      because of efforts to achieve Year 2000 compliance.
      
      Non-IT systems with embedded microcontrollers or microchips are
      being evaluated and tested to determine if they are Year 2000
      compliant. These systems include buildings, transportation,
      monitoring equipment, process controls, engineering and
      construction. The internal assessment process has generally been
      completed, and few compliance issues have been found to date. These
      consist primarily of needed software upgrades for equipment in the
      gas control system. It is anticipated these upgrades will be
      completed and tested by December 31, 1998.
      
      The company is currently in the process of contacting its major
      vendors, suppliers and customers to gather information regarding
      the status of their Year 2000 compliance. While compliance issues
      may be identified from these inquiries and any issues raised will
      be addressed, this process may not fully ensure these parties' Year
      2000 compliance. Disruptions in the operations of these parties
      could have an adverse financial and operational effect on the
      company.
      
      The company is also formulating a contingency plan related to Year
      2000 issues. This plan will include modifying the company's already
      existing plans for business resumption, information technology
      disaster recovery and gas supply contingencies, and would allow
      for, among other things, alternate recovery locations, backup power
      generation, adequate material supplies and personnel requirements.
      This plan is expected to be in place, tested and refined as needed
      by December 31, 1999.
      
      Total costs expected to be incurred by the company to remedy its
      Year 2000 issues are estimated at $1.5 million, which include costs
      estimated to replace certain existing systems sooner than otherwise
      planned.
      
      Management expects that Year 2000 issues will be addressed on a
      schedule and in a manner that will prevent such issues from having
      a material impact on the company's financial position or results of
      operations. However, while the company has and will continue to
      manage its Year 2000 compliance plan, there can be no assurance
      that the company will be successful in identifying and addressing
      all material Year 2000 issues including those related to the
      company's vendors, suppliers and customers.
      
      Environmental Matters
      Indiana Gas is currently conducting environmental investigations
      and work at 26 sites that were the locations of former manufactured
      gas plants. It has been seeking to recover the costs of the
      investigations and work from insurance carriers and other
      potentially responsible parties (PRPs). The IURC has determined
      that these costs are not recoverable from utility customers.
      
      Indiana Gas has completed the process of identifying PRPs and now
      has PRP agreements in place covering 19 of the 26 sites.  The
      agreements provide for coordination of efforts and sharing of
      investigation and clean-up costs incurred and to be incurred at the
      sites.  PSI Energy, Inc. is a PRP on all 19 sites.  Northern
      Indiana Public Service Company is a PRP on 5 of the 19 sites.
      These agreements limit Indiana Gas' share of past and future
      response costs at these 19 sites to between 20 and 50 percent.
      Based on the agreements, Indiana Gas has recorded a receivable from
      PRPs for their unpaid share of the liability for work performed by
      Indiana Gas to date, as well as accrued Indiana Gas' proportionate
      share of the estimated cost related to work not yet performed.
      
      On April 14, 1995, Indiana Gas filed suit in the United States
      District Court for the Northern District of Indiana, Fort Wayne
      Division (the District Court) against a number of insurance
      carriers for payment of claims for investigation and clean-up costs
      already incurred, as well as for a determination that the carriers
      are obligated to pay these costs in the future. On October 2, 1996,
      the District Court granted several motions filed by defendant
      insurance carriers for summary judgment on a number of issues
      relating to the insurers' obligations to Indiana Gas under
      insurance policies issued by these carriers. Indiana Gas appealed
      all adverse rulings to the United States Court of Appeals for the
      Seventh Circuit. On April 6, 1998, the appeals court issued a
      decision vacating the summary judgment and dismissing the District
      Court action for lack of diversity jurisdiction. The insurers asked
      the United States Supreme Court to review the Seventh Circuit's
      decision, however their petition was denied. Because the District
      Court's adverse rulings have been vacated, Indiana Gas has filed a
      complaint in Indiana state court to continue its pursuit of
      insurance coverage. As of September 30, 1998, Indiana Gas has
      obtained settlements from some insurance carriers in an aggregate
      amount of approximately $14.7 million.
      
      These environmental matters have had no material impact on earnings
      since costs recorded to date total approximately $15.0 million.
      While Indiana Gas has recorded all costs which it presently expects
      to incur in connection with remediation activities, it is possible
      that future events may require some level of additional remedial
      activities which are not presently foreseen.
      
      For further information regarding the status of investigation and
      remediation of the sites, PRPs and financial reporting see Note 10
      of the Notes to Consolidated Financial Statements.
      
      Gas Cost Adjustment
      Adjustments to Indiana Gas' rates and charges related to the cost
      of gas are made through gas cost adjustment (GCA) procedures
      established by Indiana law and administered by the IURC. The GCA
      passes through increases and decreases in the cost of gas to
      Indiana Gas' customers dollar for dollar.
      
      In addition, the IURC has applied the statute authorizing the GCA
      procedures to reduce rates when necessary so as to limit utility
      operating income, after adjusting to normal weather, to the level
      authorized in the last general rate order. The earnings test
      provides that no refund be paid to the extent a utility has not
      earned its authorized utility operating income over the previous 60
      months (or during the period since the utility's last rate order,
      if longer).
      
      New Accounting Standards
      In June 1997, the Financial Accounting Standards Board (FASB)
      issued Statement of Financial Accounting Standards No. 131,
      Disclosures about Segments of an Enterprise and Related
      Information. This statement establishes standards for the way that
      public companies report information about operating segments in
      annual financial statements and requires that those companies
      report selected information about operating segments in annual and
      interim financial reports issued to shareholders. This statement
      becomes effective for the company's 1999 annual financial
      statements.
      
      In February 1998, the FASB issued Statement of Financial Accounting
      Standards No. 132, Employers' Disclosures about Pensions and Other
      Postretirement Benefits. This statement standardizes the disclosure
      requirements for pensions and other postretirement benefits. It
      does not change measurement or recognition of amounts related to
      those plans. The company has adopted the new disclosure
      requirements of this statement for 1998 (see Note 7 of the Notes to
      Consolidated Financial Statements).
      
      In March 1998, the American Institute of Certified Public
      Accountants issued Statement of Position 98-1, Accounting for the
      Costs of Computer Software Developed or Obtained for Internal Use.
      This statement provides guidance primarily on whether costs
      incurred related to internal use computer software should be
      capitalized or expensed. This statement is effective for the
      company in fiscal 2000. The company does not expect this statement
      to have a material impact on its financial position or results of
      operations.
      
      Liquidity and Capital Resources
      Indiana Gas' capitalization objectives are 55-65 percent common
      equity and preferred stock and 35-45 percent long-term debt.
      Indiana Gas' common equity component was 56 percent of its total
      capitalization at September 30, 1998.
      
      New construction, normal system maintenance and improvements, and
      information technology investments needed to provide service to a
      growing customer base will continue to require substantial
      expenditures. Total capital required to fund capital expenditures
      and refinancing requirements for 1997 and 1998, along with
      estimated amounts for 1999 through 2001, is as follows:

<TABLE>
      
      Thousands                   1997       1998      1999     2000     2001
      <S>                        <C>       <C>       <C>      <C>      <C>
      Capital expenditures       $72,000   $ 57,000  $61,000  $60,000  $58,000
      Refinancing requirements         -     93,000   10,000        -        -
                                 $72,000   $150,000  $71,000  $60,000  $58,000

</TABLE>
      
      Indiana Gas' long-term goal is to internally fund at least 75
      percent of its capital expenditure program. This will help Indiana
      Gas to maintain its high creditworthiness. The long-term debt of
      Indiana Gas is currently rated Aa2 by Moody's Investors Service and
      AA- by Standard & Poor's Corporation. In 1998, 64 percent of
      Indiana Gas' capital expenditures was funded internally (i.e., from
      net income less dividends plus charges to net income not requiring
      funds). In 1997, 58 percent of capital expenditures was provided by
      funds generated internally. External funds required for the 1998
      construction program were obtained primarily through a combination
      of short-term and long-term debt.  Indiana Gas' ratio of earnings
      to fixed charges for 1998 was 3.9 (see Exhibit 12).
      
      In October 1997, Indiana Gas filed a registration statement with
      the Securities and Exchange Commission with respect to the issuance
      of up to $95 million in debt securities and in November 1997 filed
      a prospectus supplement with respect to $95 million in Medium-Term
      Notes, Series F. Issues under this registration statement were as
      follows:

<TABLE>
      
                                     Interest      Maturity
      Issue Date     Principal         Rate          Date
      <S>          <C>               <C>           <C>
      12-05-97     $15 million       6.36%         12-06-04
      12-09-97     $20 million       6.34%         12-10-27
      01-14-98     $15 million       5.75%         01-15-03
      04-15-98     $15 million       6.75%         03-15-28
      05-04-98     $10 million       6.36%         05-01-28
      06-30-98     $20 million       6.55%         06-30-28

</TABLE>
      
      The net proceeds from the sale of these new debt securities were
      used to refinance certain of Indiana Gas' long-term debt issues and
      to refinance short-term obligations incurred in connection with
      Indiana Gas' ongoing construction program and other corporate
      purposes.
      
      In December 1997, Indiana Gas retired $35 million of 6 5/8% Series
      D Notes and, called and redeemed $24.7 million of 8 1/2% Series B
      Debentures. In March 1998, Indiana Gas redeemed $33 million of its
      9 1/8% Series A Notes. The premiums paid in connection with the
      redemptions, which totaled $5.5 million, have been deferred and are
      being amortized over 15 years.
      
      Provisions under which certain of Indiana Gas' Series E and Series
      F Medium-Term Notes were issued entitle the holders of $60 million
      of these notes to put the debt back to Indiana Gas at face value at
      certain specified dates before maturity beginning in 2000. Long-
      term debt subject to the put provisions during the three years
      following 1998 totals $5 million.
      
      Short-term cash working capital is required primarily to finance
      customer accounts receivable, unbilled utility revenues resulting
      from cycle billing, gas in underground storage and capital
      expenditures until permanently financed. Short-term borrowings tend
      to be greatest during the heating season when accounts receivable
      and unbilled utility revenues are at their highest. Indiana Gas'
      commercial paper is rated P-1 by Moody's and A-1+ by Standard &
      Poor's. Recently, bank lines of credit have been the primary source
      of short-term financing.
      
      Forward-Looking Information
      
      A "safe harbor" for forward-looking statements is provided by the
      Private Securities Litigation Reform Act of 1995 (Reform Act of
      1995). The Reform Act of 1995 was adopted to encourage such forward-
      looking statements without the threat of litigation, provided those
      statements are identified as forward-looking and are accompanied by
      meaningful cautionary statements identifying important factors that
      could cause the actual results to differ materially from those
      projected in the statement. Certain matters described in
      Management's Discussion and Analysis of Results of Operations and
      Financial Condition, including, but not limited to, Indiana
      Energy's earnings growth strategy, ProLiance and Year 2000 issues,
      are forward-looking statements. Such statements are based on
      management's beliefs, as well as assumptions made by and
      information currently available to management. When used in this
      filing the words "aim," "anticipate," "endeavor," "estimate,"
      "expect," "objective," "projection," "forecast," "goal," and
      similar expressions are intended to identify forward-looking
      statements. In addition to any assumptions and other factors
      referred to specifically in connection with such forward-looking
      statements, factors that could cause Indiana Energy, Inc. and
      subsidiary companies' actual results to differ materially from
      those contemplated in any forward-looking statements include, among
      others, the following:
           Factors affecting utility operations such as unusual weather
           conditions; catastrophic weather-related damage; unusual
           maintenance or repairs; unanticipated changes to gas supply
           costs, or availability due to higher demand, shortages,
           transportation problems or other developments; environmental
           or pipeline incidents; or gas pipeline system constraints.

           Increased competition in the energy environment, including
           effects of industry restructuring and unbundling.

           Regulatory factors such as unanticipated changes in rate-
           setting policies or procedures; recovery of investments
           made under traditional regulation, and the frequency and
           timing of rate increases.

           Financial or regulatory accounting principles or policies
           imposed by the Financial Accounting Standards Board, the
           Securities and Exchange Commission, the Federal Energy
           Regulatory Commission, state public utility commissions,
           state entities which regulate natural gas transmission,
           gathering and processing, and similar entities with
           regulatory oversight.

           Economic conditions including inflation rates and monetary
           fluctuations.

           Changing market conditions and a variety of other factors
           associated with physical energy and financial trading
           activities, including, but not limited to, price, basis,
           credit, liquidity, volatility, capacity, interest rate
           and warranty risks.

           Availability or cost of capital, resulting from changes in:
           Indiana Energy, Inc. and its subsidiaries, interest rates,
           and securities ratings or market perceptions of the utility
           industry and energy-related industries.

           Employee workforce factors, including changes in key executives,
           collective bargaining agreements with union employees or work
           stoppages.

           Legal and regulatory delays and other obstacles associated with
           mergers, acquisitions and investments in joint ventures such as
           the ProLiance judicial and administrative proceedings.

           Costs and other effects of legal and administrative proceedings,
           settlements, investigations, claims and other matters, including,
           but not limited to, those described in the Other Operating
           Matters section of Management's Discussion and Analysis of
           Results of Operations and Financial Condition.

           Changes in federal, state or local legislative requirements,
           such as changes in tax laws or rates, environmental laws and
           regulations.

           The inability of Indiana Energy, Inc. and its subsidiaries
           and their vendors, suppliers and customers to achieve Year
           2000 readiness.

      Indiana Energy, Inc. and its subsidiaries undertake no obligation
      to publicly update or revise any forward-looking statements,
      whether as a result of changes in actual results, changes in
      assumptions, or other factors affecting such statements.
       
       
       
Item 8.    Financial Statements and Supplementary Data
       
      Management's Responsibility for Financial Statements
      
      The management of the company is responsible for the preparation of
      the consolidated financial statements and the related financial
      data contained in this report. The financial statements are
      prepared in conformity with generally accepted accounting
      principles and follow accounting policies and principles applicable
      to regulated public utilities.
      
      The integrity and objectivity of the data in this report, including
      required estimates and judgments, are the responsibility of
      management. Management maintains a system of internal controls and
      utilizes an internal auditing program to provide reasonable
      assurance of compliance with company policies and procedures and
      the safeguard of assets.
      
      The board of directors pursues its responsibility for these
      financial statements through its audit committee, which meets
      periodically with management, the internal auditors and the
      independent auditors, to assure that each is carrying out its
      responsibilities. Both the internal auditors and the independent
      auditors meet with the Audit Committee of the company's board of
      directors, with and without management representatives present, to
      discuss the scope and results of their audits, their comments on
      the adequacy of internal accounting controls and the quality of
      financial reporting.
      
      
      /s/ Niel C. Ellerbrook
      Niel C. Ellerbrook
      President
      
      
      Report of Independent Public Accountants
      
      To the Shareholders and Board of Directors of Indiana Gas Company,
      Inc.:
      
      We have audited the accompanying consolidated balance sheets and
      schedules of long-term debt of Indiana Gas Company, Inc. (an
      Indiana corporation and wholly owned subsidiary of Indiana Energy,
      Inc.) and subsidiary companies as of September 30, 1998, and 1997,
      and the related consolidated statements of income, common
      shareholder's equity and cash flows for each of the three years in
      the period ended September 30, 1998. These financial statements are
      the responsibility of the company's management. Our responsibility
      is to express an opinion on these financial statements based on our
      audits.
      
      We conducted our audits in accordance with generally accepted
      auditing standards. 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 Indiana
      Gas Company, Inc. and subsidiary companies, as of September 30,
      1998, and 1997, and the results of their operations and their cash
      flows for each of the three years in the period ended September 30,
      1998, in conformity with generally accepted accounting principles.
      
      
      /s/ Arthur Andersen LLP
      Arthur Andersen LLP
      Indianapolis, Indiana
      October 30, 1998


<TABLE>
                                               INDIANA GAS COMPANY, INC.
                                               AND SUBSIDIARY COMPANIES

                                          CONSOLIDATED STATEMENTS OF INCOME
                                                     (Thousands)




                                                                  Year Ended September 30
                                                          1998           1997        1996
<S>                                                  <C>            <C>            <C>
OPERATING REVENUES                                   $   465,644    $   530,407    $   530,594
COST OF GAS (See Note 11)                                271,004        322,522        320,131
MARGIN                                                   194,640        207,885        210,463

OPERATING EXPENSES:
    Operation and maintenance                             84,168         79,567         84,136
    Restructuring costs (See Note 2)                           -         39,531              -
    Depreciation and amortization                         32,353         35,054         33,232
    Income taxes                                          17,449          7,852         23,174
    Taxes other than income taxes                         14,419         16,870         16,368
                                                         148,389        178,874        156,910

OPERATING INCOME                                          46,251         29,011         53,553

OTHER INCOME - NET                                           866          1,241            984

INCOME BEFORE INTEREST EXPENSE                            47,117         30,252         54,537

INTEREST EXPENSE                                          16,234         16,774         15,907

NET INCOME                                           $    30,883    $    13,478    $    38,630


The accompanying notes are an integral part of these statements.

</TABLE>

<TABLE>
                                           INDIANA GAS COMPANY, INC.
                                            AND SUBSIDIARY COMPANIES

                                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                  (Thousands)


                                                                               Year Ended September 30
                                                                         1998          1997         1996
<S>                                                                  <C>           <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                        $   30,883    $   13,478   $   38,630

   Adjustments to reconcile net income to cash
     provided from operating activities -
       Noncash restructuring costs                                            -        32,838            -
       Depreciation and amortization                                     32,540        35,241       33,419
       Deferred income taxes                                              1,591       (12,618)         804
       Investment tax credit                                               (930)         (930)        (930)
       Gain on sale of assets                                            (1,219)            -            -
                                                                         31,982        54,531       33,293
       Changes in assets and liabilities -
         Receivables - net                                               11,552       (10,524)      (3,818)
         Inventories                                                       (272)       24,026       19,966
         Accounts payable, customer deposits, advance
            payments and other current liabilities                      (30,439)       (4,519)     (13,658)
         Accrued taxes and interest                                      (5,042)        4,528       (4,020)
         Recoverable/refundable gas costs                                16,573        (3,133)      (7,593)
         Accrued postretirement benefits other than pensions              2,131         8,134        3,505
         Other - net                                                      2,760           900        2,275

           Total adjustments                                             29,245        73,943       29,950

             Net cash flows from operations                              60,128        87,421       68,580

CASH FLOWS REQUIRED FOR FINANCING ACTIVITIES:
    Sale of long-term debt                                               95,000        15,000       20,000
    Reduction in long-term debt                                         (92,758)            -      (18,960)
    Net change in short-term borrowings                                  13,705        (4,236)      22,011
    Dividends on common stock                                           (27,250)      (26,250)     (25,250)

        Net cash flows required for financing activities                (11,303)      (15,486)      (2,199)

CASH FLOWS REQUIRED FOR INVESTING ACTIVITIES:
    Capital expenditures                                                (57,335)      (71,907)     (66,381)
    Proceeds from sale of assets                                          9,204             -            -

        Net cash flows required for investing activities                (48,131)      (71,907)     (66,381)

NET INCREASE (DECREASE) IN CASH                                             694            28            -

CASH AND CASH EQUIVALENTS AT BEGINNING OF
    PERIOD                                                                   48            20           20

CASH AND CASH EQUIVALENTS AT END OF PERIOD                           $      742    $       48   $       20

The accompanying notes are an integral part of these statements.

</TABLE>

<TABLE>
                                        INDIANA GAS COMPANY, INC.
                                        AND SUBSIDIARY COMPANIES

                                      CONSOLIDATED BALANCE SHEETS

                                                 ASSETS
                                               (Thousands)


                                                                      September 30
                                                                   1998         1997
<S>                                                           <C>           <C>
UTILITY PLANT:
    Original cost                                             $   937,977   $   951,617
    Less - accumulated depreciation and amortization              370,872       361,936
                                                                  567,105       589,681


CURRENT ASSETS:
    Cash and cash equivalents                                         742            48
    Accounts receivable, less reserves of
        $900 and $1,784 respectively (See Note 11)                 16,145        25,186
    Accrued unbilled revenues                                       6,453         8,964
    Liquefied petroleum gas - at average cost                         883           872
    Gas in underground storage - at last-in,
        first-out cost                                             19,373        19,240
    Recoverable gas costs                                               -         5,843
    Prepayments and other                                           4,760         3,758
                                                                   48,356        63,911


DEFERRED CHARGES AND OTHER ASSETS:
    Unamortized debt discount and expense                          12,874         6,980
    Regulatory income tax asset                                     1,778             -
    Other                                                           3,041         5,147
                                                                   17,693        12,127

                                                              $   633,154   $   665,719


The accompanying notes are an integral part of these statements.

</TABLE>

<TABLE>
                                               INDIANA GAS COMPANY, INC.
                                               AND SUBSIDIARY COMPANIES

                                              CONSOLIDATED BALANCE SHEETS

                                          SHAREHOLDER'S EQUITY AND LIABILITIES
                                                       (Thousands)


                                                                                 September 30
                                                                              1998         1997
<S>                                                                      <C>           <C>
CAPITALIZATION:
    Common stock and paid-in capital                                     $   142,995   $   142,995
    Retained earnings                                                         97,354       125,767
        Total common shareholder's equity                                    240,349       268,762
    Long-term debt                                                           181,975       154,733
                                                                             422,324       423,495

CURRENT LIABILITIES:
    Maturities and sinking fund requirements of long-term debt                10,000        35,000
    Notes payable                                                             33,705        20,000
    Accounts payable (See Note 11)                                            17,847        39,456
    Refundable gas costs                                                      10,730             -
    Customer deposits and advance payments                                    19,229        20,405
    Accrued taxes                                                              4,469         8,659
    Accrued interest                                                           1,728         2,580
    Other current liabilities                                                 16,451        24,105
                                                                             114,159       150,205

DEFERRED CREDITS AND OTHER LIABILITIES:
    Deferred income taxes                                                     60,448        55,205
    Accrued postretirement benefits other than pensions                       25,169        23,038
    Unamortized investment tax credit                                          9,313        10,243
    Regulatory income tax liability                                                -         1,874
    Other                                                                      1,741         1,659
                                                                              96,671        92,019

COMMITMENTS AND CONTINGENCIES (See Notes 8, 10 & 11)                               -             -

                                                                         $   633,154   $   665,719


The accompanying notes are an integral part of these statements.
</TABLE>

<TABLE>
                                      INDIANA GAS COMPANY, INC.
                                      AND SUBSIDIARY COMPANIES

                         CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDER'S EQUITY
                                      (Thousands except shares)





                                                     COMMON STOCK AND
                                                     PAID-IN CAPITAL           RETAINED
                                                   SHARES       AMOUNT         EARNINGS        TOTAL
<S>                                               <C>       <C>             <C>            <C>
BALANCE AT SEPTEMBER 30, 1995                     9,080,770   $   142,995   $    125,159   $   268,154

  Net income                                                                      38,630        38,630

  Common stock dividends ($2.78 per share)                                       (25,250)      (25,250)

BALANCE AT SEPTEMBER 30, 1996                     9,080,770       142,995        138,539       281,534

  Net income                                                                      13,478        13,478

  Common stock dividends ($2.89 per share)                                       (26,250)      (26,250)

BALANCE AT SEPTEMBER 30, 1997                     9,080,770       142,995        125,767       268,762

  Net income                                                                      30,883        30,883

  Common stock dividends ($3.00 per share)                                       (27,250)      (27,250)

  Noncash dividend                                                               (32,046)      (32,046)

BALANCE AT SEPTEMBER 30, 1998                     9,080,770   $   142,995   $     97,354   $   240,349



The accompanying notes are an integral part of these statements.

</TABLE>

<TABLE>
                                                  INDIANA GAS COMPANY, INC.
                                                  AND SUBSIDIARY COMPANIES

                                          CONSOLIDATED SCHEDULES OF LONG-TERM DEBT
                                                         (Thousands)



                                                                                               September 30
                                                                                          1998             1997
<S>                                                                                  <C>               <C>
LONG-TERM DEBT:
Unsecured Notes Payable
   6 5/8% Series D, due December 1, 1997                                             $         -       $    35,000
   8.90%, due July 15, 1999                                                               10,000            10,000
   5.75% Series F, due January 15, 2003                                                   15,000                 -
   6.36% Series F, due December 6, 2004                                                   15,000                 -
   6.54% Series E, due July 9, 2007                                                        6,500             6,500
   6.69% Series E, due June 10, 2013                                                       5,000             5,000
   7.15% Series E, due March 15, 2015                                                      5,000             5,000
   6.69% Series E, due December 21, 2015                                                   5,000             5,000
   6.69% Series E, due December 29, 2015                                                  10,000            10,000
   9 3/8%, due January 15, 2021                                                           25,000            25,000
   9 1/8% Series A, due February 15, 2021 ($33 million redeemed March 31, 1998)            7,000            40,000
   8 1/2% Series B Debentures, called and redeemed December 15, 1997                           -            24,733
   6.31% Series E, due June 10, 2025                                                       5,000             5,000
   6.53% Series E, due June 27, 2025                                                      10,000            10,000
   6.42% Series E, due July 7, 2027                                                        5,000             5,000
   6.68% Series E, due July 7, 2027                                                        3,500             3,500
   6.34% Series F, due December 10, 2027                                                  20,000                 -
   6.75% Series F, due March 15, 2028                                                     14,975                 -
   6.36% Series F, due May 1, 2028                                                        10,000                 -
   6.55% Series F, due June 30, 2028                                                      20,000                 -
                                                                                         191,975           189,733

Less - Maturities and sinking fund requirements                                           10,000            35,000

                                                                                     $   181,975       $   154,733


The accompanying notes are an integral part of these statements.

</TABLE>

      Notes to Consolidated Financial Statements
      
      1.  Summary of Significant Accounting Practices
      
      A.  Consolidation
      Indiana Gas Company, Inc. and its subsidiaries (Indiana Gas or the
      company) provide natural gas and transportation services to a
      diversified base of customers in 281 communities in 48 of Indiana's
      92 counties.
      
      B.  Utility Plant and Depreciation
      Except as described below, utility plant is stated at the original
      cost and includes allocations of payroll-related costs and
      administrative and general expenses, as well as an allowance for
      the cost of funds used during construction. Upon normal retirement
      of a depreciable unit of property, the cost is credited to utility
      plant and charged to accumulated depreciation together with the
      cost of removal, less any salvage. No gain or loss is recognized
      upon normal retirement.
      
      Provisions for depreciation of utility property are determined by
      applying straight-line rates to the original cost of the various
      classifications of property. The average depreciation rate was
      3.9 percent for 1998, and 4.1 percent for 1997 and 1996.
      
      Cost in excess of underlying book value of acquired gas
      distribution companies is reflected as a component of utility plant
      and is being amortized primarily over 40 years.
      
      C.  Unamortized Debt Discount and Expense
      Indiana Gas was authorized as part of an August 17, 1994, order
      from the Indiana Utility Regulatory Commission (IURC) to amortize
      over a 15-year period the debt discount and expense related to new
      debt issues and future premiums paid for debt reacquired in
      connection with refinancing. Debt discount and expense for issues
      in place prior to this order are being amortized over the lives of
      the related issues. Premiums paid prior to this order for debt
      reacquired in connection with refinancing are being amortized over
      the life of the refunding issue.
      
      D.  Cash Flow Information
      For the purposes of the Consolidated Statements of Cash Flows, the
      company considers cash investments with an original maturity of
      three months or less to be cash equivalents. Cash paid during the
      periods reported for interest and income taxes were as follows:

<TABLE>

      Thousands                              1998      1997      1996
      <S>                                  <C>       <C>       <C>
      Interest (net of amount capitalized) $ 15,341  $ 15,129  $ 15,435
      Income taxes                         $ 20,391  $ 19,142  $ 29,451

</TABLE>
      
      E.  Revenues
      To more closely match revenues and expenses, Indiana Gas records
      revenues for all gas delivered to customers but not billed at the
      end of the accounting period.
      
      F.  Gas in Underground Storage
      Based on the average cost of purchased gas during September 1998,
      the cost of replacing the current portion of gas in underground
      storage exceeded last-in, first-out cost at September 30, 1998, by
      approximately $10,627,000.
      
      G.  Refundable or Recoverable Gas Cost
      The cost of gas purchased and refunds from suppliers, which differ
      from amounts recovered through rates, are deferred and are being
      recovered or refunded in accordance with procedures approved by the
      IURC.
      
      H.  Allowance For Funds Used During Construction
      An allowance for funds used during construction (AFUDC), which
      represents the cost of borrowed and equity funds used for
      construction purposes, is charged to construction work in progress
      during the period of construction and included in "Other Income -
      net" on the Consolidated Statements of Income. An annual AFUDC rate
      of 6.0 percent was used for 1998, while an annual rate of 7.5
      percent was used for 1997 and 1996.
      
      The table below reflects the total AFUDC capitalized and the
      portion of which was computed on borrowed and equity funds for all
      periods reported.

<TABLE>
      
      Thousands                  1998    1997   1996
      <S>                       <C>     <C>     <C>
      AFUDC - borrowed funds    $  448  $  596  $ 283
      AFUDC - equity funds         371     487    232
      Total AFUDC capitalized   $  819  $1,083  $ 515

</TABLE>
      
      I.  Use of Estimates
      The preparation of financial statements in conformity with
      generally accepted accounting principles requires management to
      make estimates and assumptions that affect the reported amounts of
      assets and liabilities and disclosure of contingent assets and
      liabilities at the date of the financial statements and the
      reported amounts of revenues and expenses during the reporting
      period. Actual results could differ from those estimates.
      
      J.  Regulatory Assets and Liabilities
      Indiana Gas is subject to the provisions of Statement of Financial
      Accounting Standards No. 71, Accounting for the Effects of Certain
      Types of Regulation (SFAS 71). Regulatory assets represent probable
      future revenue to Indiana Gas associated with certain costs which
      will be recovered from customers through the ratemaking process.
      Regulatory liabilities represent probable future reductions in
      revenues associated with amounts that are to be credited to
      customers through the ratemaking process. Regulatory assets and
      liabilities reflected in the Consolidated Balance Sheet as of
      September 30 (in thousands) relate to the following:
      

<TABLE>

      Regulatory Assets                                  1998
      <S>                                              <C>
      Postretirement benefits other than pensions      $  2,688
      Unamortized debt discount and expense              11,388
      Amounts due from customers - income taxes, net      1,778
      Deferred acquisition costs                            677
                                                        $16,531
      
      Regulatory Liabilities
      Gas costs due to customers, net                   $10,730
                                                        $10,730

</TABLE>
      
      It is Indiana Gas' policy to continually assess the recoverability
      of costs recognized as regulatory assets and the ability to
      continue to account for its activities in accordance with SFAS 71,
      based on the criteria set forth in SFAS 71. Based on current
      regulation, Indiana Gas believes that its use of regulatory
      accounting is appropriate. If all or part of Indiana Gas'
      operations cease to meet the criteria of SFAS 71, a write-off of
      related regulatory assets and liabilities would be required. In
      addition, Indiana Gas would be required to determine any impairment
      to the carrying costs of deregulated plant and inventory assets.
      
      K.  Reclassifications
      Certain reclassifications have been made in the company's financial
      statements of prior years to conform to the current year
      presentation.  These reclassifications have no impact on previously
      reported net income.
      
      2. Corporate Restructuring
      In April 1997, the Board of Directors of Indiana Energy, Inc.
      (Indiana Energy), Indiana Gas' parent, approved a new growth
      strategy designed to support Indiana Energy's transition into a
      more competitive environment.
      
      During 1997, the Indiana Gas Board of Directors authorized
      management to undertake the actions necessary and appropriate to
      restructure Indiana Gas' operations and recognize a resulting
      restructuring charge of $39.5 million ($24.5 million after-tax) for
      fiscal 1997 as described below.
      
      In July 1997, Indiana Energy advised its employees of its plan to
      reduce its work force from about 1,025 full-time employees at June
      30, 1997, to approximately 800 employees by 2002. The reductions
      are being implemented through involuntary separation and attrition.
      Indiana Gas recorded restructuring costs of $5.4 million during
      fiscal 1997 related to the work force reductions. These costs
      include separation pay in accordance with Indiana Gas' severance
      policy, and net curtailment losses related to these employees'
      postretirement and pension benefits. As a result primarily of
      initial work force reductions during September 1997 and attrition,
      Indiana Energy employees totaled approximately 890 as of September
      30, 1998.
      
      Further, Indiana Gas' management committed to sell, abandon or
      otherwise dispose of certain assets, including buildings, gas
      storage fields and intangible plant. Indiana Gas recorded
      restructuring costs of $34.1 million during fiscal 1997 to adjust
      the carrying value of those assets to estimated fair value. Net
      assets held for disposal totaled $8.0 million at September 30,
      1997, and were disposed of during fiscal 1998.
      
      In October 1997, Indiana Energy formed a new business unit, IEI
      Services, LLC (IEI Services), to provide support services to
      Indiana Energy and its subsidiaries. The formation of IEI Services
      was established by a contribution of $32 million of fixed assets at
      net book value from Indiana Gas, which subsequently dividended its
      membership interest to Indiana Energy. The contributed assets
      relate to the provision of administrative services.  IEI Services
      provides information technology, financial, human resources,
      building and fleet services. These services had been provided by
      Indiana Gas in the past.
      
      3.  Short-Term Borrowings
      Indiana Gas has available committed lines of credit of $65 million
      with approximately $33.7 million outstanding at September 30, 1998.
      These lines of credit are renewable annually and may be adjusted
      quarterly as borrowings fluctuate with seasonal needs and other
      short-term funding requirements. Indiana Gas' Board of Directors
      has authorized borrowings of up to $150 million under bank lines of
      credit. Indiana Gas has agreed to compensate the participating
      banks with arrangements that vary from no commitment fees to a
      combination of fees that are mutually agreeable. Notes payable to
      banks bore interest at rates negotiated with the bank at the time
      of borrowing.
      
      Bank loans outstanding during the reported periods were as follows:
      
<TABLE>

      Thousands                                            1998      1997      1996
      <S>                                                <C>       <C>       <C>
      Outstanding at year end                            $ 33,705  $ 20,000  $ 24,236
      Weighted average interest rates at year end            5.6%      5.7%      5.4%
      Weighted average interest rates during the year        5.7%      5.5%      5.7%
      Weighted average total outstanding during the year $ 32,293  $ 28,959  $  5,930
      Maximum total outstanding during the year          $ 90,900  $ 89,725  $ 28,150

</TABLE>
      
      4.  Long-Term Debt
      In October 1997, Indiana Gas filed a registration statement with
      the Securities and Exchange Commission with respect to the issuance
      of up to $95 million in debt securities and in November 1997 filed
      a prospectus supplement with respect to $95 million in Medium-Term
      Notes, Series F. Issues under this registration statement were as
      follows:

<TABLE>
      
                                   Interest       Maturity
      Issue Date   Principal         Rate           Date
      <S>          <C>             <C>            <C>
      12-05-97     $15 million       6.36%        12-06-04
      12-09-97     $20 million       6.34%        12-10-27
      01-14-98     $15 million       5.75%        01-15-03
      04-15-98     $15 million       6.75%        03-15-28
      05-04-98     $10 million       6.36%        05-01-28
      06-30-98     $20 million       6.55%        06-30-28

</TABLE>
      
      The net proceeds from the sale of these new debt securities were
      used to refinance certain of Indiana Gas' long-term debt issues and
      to refinance short-term obligations incurred in connection with
      Indiana Gas' ongoing construction program and other corporate
      purposes.
      
      In December 1997, Indiana Gas retired $35 million of 6 5/8% Series
      D Notes and, called and redeemed $24.7 million of 8 1/2% Series B
      Debentures. In March 1998, Indiana Gas redeemed $33 million of its
      9 1/8% Series A Notes. The premiums paid in connection with the
      redemptions, which totaled $5.5 million, have been deferred and are
      being amortized over 15 years.
      
      Consolidated maturities and sinking fund requirements on long-term
      debt subject to mandatory redemption during the five years
      following 1998 are $10,000,000 in 1999, none in 2000 and 2001,
      $3,250,000 in 2002 and $18,250,000 in 2003.
      
      Provisions under which certain of Indiana Gas' Series E and Series
      F Medium Term Notes were issued entitle the holders of $60 million
      of these notes to put the debt back to Indiana Gas at face value at
      certain specified dates before maturity beginning in 2000. Long-
      term debt subject to the put provisions during the five years
      following 1998 totals $5,000,000 in 2000 and $11,500,000 in 2002.
      
      5.  Fair Value of Financial Instruments
      The estimated fair values of the company's financial instruments
      were as follows:

<TABLE>
      
                                   September 30, 1998   September 30, 1997
                                    Carrying  Fair        Carrying  Fair
      Thousands                      Amount   Value       Amount    Value
      <S>                          <C>        <C>       <C>         <C>
      Cash and cash equivalents    $    742   $    742  $     48    $     48
      Notes payable                $ 33,705   $ 33,705  $ 20,000    $ 20,000
      Long-term debt (includes
        amounts due within
        one year)                  $191,975   $208,870  $189,733    $196,750

</TABLE>
      
      Certain methods and assumptions must be used to estimate the fair
      value of financial instruments. Because of the short maturity of
      cash and cash equivalents and notes payable, the carrying amounts
      approximate fair values for these financial instruments. The fair
      value of the company's long-term debt was estimated based on the
      quoted market prices for the same or similar issues or on the
      current rates offered to the company for debt of the same remaining
      maturities.
      
      Under current regulatory treatment, call premiums on reacquisition
      of long-term debt are generally recovered in customer rates over
      the life of the refunding issue or over a 15-year period (see Note
      1C). Accordingly, any reacquisition would not be expected to have a
      material effect on the company's financial position or results of
      operations.
      
      6.  Capital Stock
      Indiana Gas has 16 million shares of authorized no par value common
      stock.
      
      Indiana Gas also has 4 million shares of authorized and unissued
      preferred stock.
      
      7.  Retirement Plans and Other Postretirement Benefits
      The following reflects the new disclosure requirements set forth by
      Statement of Financial Accounting Standards No. 132, Employers'
      Disclosures about Pensions and Other Postretirement Benefits.
      
      Indiana Energy, Inc. and subsidiaries have multiple defined benefit
      pension and other postretirement benefit plans. The nonpension
      plans include plans for health care and life insurance. All of the
      plans are non-contributory with the exception of the health care
      plan which contains cost-sharing provisions whereby employees
      retiring after January 1, 1996, are required to make contributions
      to the plan when increases in the companies' health care costs
      exceed the general rate of inflation, as measured by the Consumer
      Price Index (CPI).  Indiana Gas is a participating company in those
      plans and all amounts disclosed below relate solely to Indiana Gas.
      
      The IURC has authorized Indiana Gas to recover the costs related to
      postretirement benefits other than pensions under the accrual
      method of accounting consistent with Statement of Financial
      Accounting Standards No. 106, Employers' Accounting for
      Postretirement Benefits Other Than Pensions. Amounts accrued prior
      to that authorization were deferred as allowed by the IURC and are
      currently being amortized.
      
      Net periodic benefit cost, excluding the 1997 curtailment loss
      related to the postretirement health care and life insurance plans,
      consisted of the following components:

<TABLE>
      
                               Pension Benefits         Other Benefits
      Thousands               1998    1997    1996     1998   1997   1996
      <S>                   <C>      <C>     <C>      <C>    <C>    <C>
      Service cost          $ 1,133  $1,268  $ 1,174  $  608 $  770 $  806
      Interest cost           4,504   4,847    4,730   3,075  3,311  3,264
      Expected return
        on plan assets       (6,393) (6,606)  (6,058)      -      -      -
      Amortization of
        transition
        obligation (asset)     (316)   (309)    (309)  1,955  2,280  2,280
      Amortization of
        loss (gain)
        and other               (19)    884      757   1,354  1,397    978
      Net periodic
        benefit cost        $(1,091) $   84  $   294  $6,992 $7,758 $7,328

</TABLE>
      
      A reconciliation of the plans' benefit obligations, fair value of
      plan assets, funded status and amounts recognized in the company's
      statement of financial position follows:

<TABLE>
      
                                       Pension Benefits        Other Benefits
      Thousands                         1998      1997         1998       1997
      <S>                              <C>       <C>         <C>        <C>
      Benefit obligation at
        beginning of year              $65,977   $62,963     $ 42,883   $ 45,070
      Service cost                       1,133     1,268          608        770
      Interest cost                      4,504     4,847        3,075      3,311
      Actuarial loss
        (gain) and other                 9,553     1,301        3,998     (3,425)
      Benefits paid                     (4,460)   (4,402)      (3,064)    (2,843)
      Benefit obligation at
        the end of the year             76,707    65,977       47,500     42,883
      
      Fair value of plan assets
        at beginning of year            87,801    75,748            -          -
      Actual return on plan assets      14,194    16,013            -          -
      Employer contributions                93       442        3,064      2,843
      Benefits paid                     (4,460)   (4,402)      (3,064)    (2,843)
      Fair value of plan assets
        at end of year                  97,628    87,801            -          -
      
      
      Funded status                     20,921    21,824      (47,500)   (42,883)
      Unrecognized prior service cost    3,602     2,527            -          -
      Unrecognized net obligation
        (assets) from transition        (1,198)   (1,514)      29,330     31,286
      Unrecognized net (gain)
        loss and other                 (19,371)  (19,380)      (6,999)   (11,441)
      Prepaid (accrued) benefit cost
        at end of year                 $ 3,954   $ 3,457     $(25,169)  $(23,038)

</TABLE>
      
      The aggregate benefit obligation and aggregate fair value of plan
      assets for pension plans with benefit obligations in excess of plan
      assets were, in thousands, $5,503 and $0, respectively as of
      September 30, 1998, and $4,485 and $0, respectively as of September
      30, 1997.
      
      Weighted-average assumptions used in the accounting for these plans
      were as follows:
      
<TABLE>
                             Pension Benefits         Other Benefits
      Thousands              1998        1997         1998       1997
      <S>                  <C>         <C>            <C>        <C>
      Discount rate          6.75%       7.75%        6.75%      7.75%
      Expected return
         on plan assets      9.00%       9.00%         n/a        n/a
      Rate of compensation
         increase          5% to 5.5%  5% to 5.5%      n/a        n/a
      CPI rate                n/a         n/a          3.5%       3.5%

</TABLE>
      
      The assumed health care cost trend rate for medical gross eligible
      charges used in measuring the postretirement benefit obligation for
      the health care plan as of September 30, 1998, was 7.1 percent for
      fiscal 1999. This rate is assumed to decrease gradually through
      fiscal 2004 to 5.0 percent and remain at that level thereafter.
      
      A 1 percent change in the assumed health care cost trend rates for
      the company's postretirement health care plan would have the
      following effects:

<TABLE>
      
      Thousands                                1% Increase    1% Decrease
      <S>                                      <C>            <C>
      Effect on the aggregate of the service
         and interest cost components           $   78         $  (70)
      
      Effect on the postretirement
         benefit obligation                     $1,037         $ (932)

</TABLE>
      
      The company also participates in Indiana Energy's defined
      contribution retirement savings plan which is qualified under
      sections 401(a) and 401(k) of the Internal Revenue Code. During
      1998, 1997 and 1996, the company made contributions to this plan of
      $1,827,000, $2,360,000 and $2,445,000, respectively.
      
      8.  Commitments
      Estimated capital expenditures for 1999 are $61 million. Lease
      commitments, including the lease of the company's corporate
      headquarters, are $1,638,000 in 1999, $1,446,129 in 2000,
      $1,352,259 in 2001, $1,352,259 in 2002, $1,305,415 in 2003 and
      $4,605,000 in total for all later years. There are no leases that
      extend beyond 2036. Indiana Gas has storage and supply contracts
      that extend up to six years. Total lease expense was $992,000 in
      1998, $2,200,000 in 1997 and $2,863,000 in 1996.
      
      9.  Income Taxes
      Indiana Energy, Inc. and subsidiary companies file a consolidated
      federal income tax return.  Indiana Gas' current and deferred tax
      expense is computed on a separate company basis.  The components of
      consolidated income tax expense for Indiana Gas, including amounts
      in "Other Income - Net" on the Consolidated Statements of Income,
      were as follows:

<TABLE>
      
      Thousands                      1998      1997      1996
      <S>                          <C>       <C>       <C>
      Current:
         Federal                   $14,585   $17,817   $19,587
         State                       2,265     2,878     3,107
                                    16,850    20,695    22,694
      Deferred:
         Federal                     1,435   (11,678)      709
         State                         156      (940)       95
                                     1,591   (12,618)      804
      Amortization of investment
         tax credits                  (930)     (930)     (930)
      Consolidated income tax
         expense                   $17,511   $ 7,147   $22,568

</TABLE>
      
      The recording of restructuring costs of $39.5 million in 1997 had
      the effect of decreasing deferred income tax expense by
      approximately $15.0 million.
      
      Effective income tax rates were 36.18 percent, 34.65 percent and
      36.88 percent of pretax income for 1998, 1997 and 1996,
      respectively. This compares with a combined federal and state
      income tax statutory rate of 37.93 percent for all years reported.
      Individual components of these rate differences were not
      significant except investment tax credit which amounted to (1.9%)
      in 1998, (4.5%) in 1997 and (1.5%) in 1996.
      
      As required by the IURC, Indiana Gas uses a normalized method of
      accounting for deferred income taxes. Deferred income taxes reflect
      the net tax effect of temporary differences between the carrying
      amounts of assets and liabilities for financial reporting purposes
      and the amounts used for income tax purposes. Deferred income taxes
      are provided for taxes not currently payable due to, among other
      things, the use of various accelerated depreciation methods,
      shorter depreciable lives and the deduction of certain construction
      costs for tax purposes. Taxes deferred in prior years are being
      charged and income credited as these tax effects reverse over the
      lives of the related assets.
      
      Significant components of Indiana Gas' net deferred tax liability
      as of September 30, 1998, and 1997, are as follows:
      
<TABLE>

      Thousands                                 1998       1997
      <S>                                     <C>        <C>
      Deferred tax liabilities:
         Accelerated depreciation             $ 50,775   $ 51,413
         Property basis differences              6,435      2,101
         Acquisition adjustment                  6,097      6,286
         Other                                  (6,792)    (1,645)
      Deferred tax assets:
         Deferred investment tax credit         (3,533)    (3,884)
         Regulatory income tax asset
             (liability)                           674       (711)
      Less deferred income taxes related
         to current assets and liabilities       6,792      1,645
      Balance as of September 30              $ 60,448   $ 55,205

</TABLE>
      
      Investment tax credits have been deferred and are being credited to
      income over the life of the property giving rise to the credit. The
      Tax Reform Act of 1986 eliminated investment tax credits for
      property acquired after January 1, 1986.
      
      10.  Environmental Costs
      In the past, Indiana Gas and others, including former affiliates,
      and/or previous landowners, operated facilities for the
      manufacturing of gas and storage of manufactured gas. These
      facilities are no longer in operation and have not been operated
      for many years. Under currently applicable environmental laws and
      regulations, Indiana Gas, and the others, may now be required to
      take remedial action if certain byproducts are found above a
      regulatory threshold at these sites.
      
      Indiana Gas has identified the existence, location and certain
      general characteristics of 26 gas manufacturing and storage sites.
      Based upon the site work completed to date, Indiana Gas believes
      that a level of contamination that may require some level of
      remedial activity may be present at a number of the sites. Removal
      activities have been conducted at several sites and a remedial
      investigation/feasibility study (RI/FS) is nearing completion at
      one of the sites under an agreed order between Indiana Gas and the
      Indiana Department of Environmental Management. Although Indiana
      Gas has not begun an RI/FS at additional sites, Indiana Gas is
      currently conducting some level of remedial activities including
      groundwater monitoring at certain sites where deemed appropriate
      and will continue its evaluation of the sites as appropriate and
      necessary.
      
      Based upon the work performed to date, Indiana Gas has accrued
      investigation, remediation, groundwater monitoring and related
      costs for the sites. Estimated costs of certain remedial actions
      that may likely be required have also been accrued. Costs
      associated with environmental remedial activities are accrued when
      such costs are probable and reasonably estimable. Indiana Gas does
      not believe it can provide an estimate of the reasonably possible
      total remediation costs for any site prior to completion of an
      RI/FS and the development of some sense of the timing for
      implementation of the potential remedial alternatives, to the
      extent such remediation is required. Accordingly, the total costs
      which may be incurred in connection with the remediation of all
      sites, to the extent remediation is necessary, cannot be determined
      at this time.
      
      Indiana Gas has been seeking to recover the costs it has incurred
      and expects to incur relating to the 26 sites from insurance
      carriers and other potentially responsible parties (PRPs). The IURC
      has determined that these costs are not recoverable from utility
      customers.
      
      Indiana Gas has completed the process of identifying PRPs and now
      has PRP agreements in place covering 19 of the 26 sites.  The
      agreements provide for coordination of efforts and sharing of
      investigation and clean-up costs incurred and to be incurred at the
      sites.  PSI Energy, Inc. is a PRP on all 19 sites.  Northern
      Indiana Public Service Company is a PRP on 5 of the 19 sites.
      These agreements limit Indiana Gas' share of past and future
      response costs at these 19 sites to between 20 and 50 percent.
      Based on the agreements, Indiana Gas has recorded a receivable from
      PRPs for their unpaid share of the liability for work performed by
      Indiana Gas to date, as well as accrued Indiana Gas' proportionate
      share of the estimated cost related to work not yet performed.
      
      On April 14, 1995, Indiana Gas filed suit in the United States
      District Court for the Northern District of Indiana, Fort Wayne
      Division (the District Court) against a number of insurance
      carriers for payment of claims for investigation and clean-up costs
      already incurred, as well as for a determination that the carriers
      are obligated to pay these costs in the future. On October 2, 1996,
      the District Court granted several motions filed by defendant
      insurance carriers for summary judgment on a number of issues
      relating to the insurers' obligations to Indiana Gas under
      insurance policies issued by these carriers. Indiana Gas appealed
      all adverse rulings to the United States Court of Appeals for the
      Seventh Circuit. On April 6, 1998, the appeals court issued a
      decision vacating the summary judgment and dismissing the District
      Court action for lack of diversity jurisdiction. The insurers asked
      the United States Supreme Court to review the Seventh Circuit's
      decision, however, their petition was denied. Because the District
      Court's adverse rulings have been vacated, Indiana Gas has filed a
      complaint in Indiana state court to continue its pursuit of
      insurance coverage. As of September 30, 1998, Indiana Gas has
      obtained settlements from some insurance carriers in an aggregate
      amount of approximately $14.7 million.
      
      These environmental matters have had no material impact on earnings
      since costs recorded to date total approximately $15.0 million.
      While Indiana Gas has recorded all costs which it presently expects
      to incur in connection with remediation activities, it is possible
      that future events may require some level of additional remedial
      activities which are not presently foreseen.
      
      11.  Affiliate Transactions
      ProLiance Energy, LLC (ProLiance), a non-regulated marketing
      affiliate of Indiana Energy, began providing natural gas supply and
      related services to Indiana Gas effective April 1, 1996. Indiana
      Gas' purchases from ProLiance for resale and for injections into
      storage for 1998, 1997 and 1996 totaled $269.2 million, $306.1
      million and $117.9 million, respectively.  ProLiance assumed the
      business of Indiana Energy Services, Inc. (IES), an indirect wholly
      owned subsidiary of Indiana Energy who provided natural gas and
      related services to Indiana Gas from January 1, 1996, to March 31,
      1996.  Indiana Gas' purchases from IES for the three months ended
      March 31, 1996, totaled $102.7 million.
      
      The sale of gas and provision of other services to Indiana Gas by
      Indiana Energy's marketing affiliates are subject to regulatory
      review through the quarterly gas cost adjustment proceeding
      currently pending before the IURC.
      
      On September 12, 1997, the Indiana Utility Regulatory Commission
      (IURC) issued a decision finding the gas supply and portfolio
      administration agreements between ProLiance and Indiana Gas and
      ProLiance and Citizens Gas (the gas supply agreements) to be
      consistent with the public interest. The IURC's decision reflected
      the significant gas cost savings to customers obtained by
      ProLiance's services and suggested that all material provisions of
      the agreements between ProLiance and the utilities are reasonable.
      Nevertheless, with respect to the pricing of gas commodity
      purchased from ProLiance and two other pricing terms, the IURC
      concluded that additional findings in the gas cost adjustment (GCA)
      process would be appropriate and directed that these matters be
      considered further in the pending, consolidated GCA proceeding
      involving Indiana Gas and Citizens Gas. The IURC has not yet
      established a schedule for conducting these additional proceedings.
      
      The IURC's September 12, 1997, decision was appealed to the Indiana
      Court of Appeals by certain Petitioners including the Indiana
      Office of Utility Consumer Counselor and the Citizens Action
      Coalition of Indiana. On October 8, 1998, the Indiana Court of
      Appeals issued a decision which reversed and remanded the case to
      the IURC with instructions that the gas supply agreements be
      disapproved. The basis for the decision is that because the gas
      supply agreements provide for index based pricing of gas commodity
      sold by ProLiance to the utilities, they should have been the
      subject of an application for approval of an alternative regulatory
      plan under Indiana statutory law. The court held that absent this
      type of application, the IURC exceeded its authority in
      implementing what the court saw to be alternative regulatory
      treatment.
      
      Management believes the decision incorrectly applies the statute
      and has decided to petition for transfer of the case to the Indiana
      Supreme Court. If the Supreme Court does not overturn the Court of
      Appeals' decision, the matter will be remanded to the IURC for
      further proceedings. Whether or not the Supreme Court reverses the
      Court of Appeals' decision, the reasonableness of the gas costs
      incurred by Indiana Gas under the gas supply agreements will be
      further reviewed in the consolidated GCA proceeding. Management
      takes note of the fact that the Court of Appeals has not challenged
      the IURC findings that the agreements provide significant economic
      value to customers and are in the public interest. Indiana Gas is
      continuing to utilize ProLiance for its gas supply.
      
      On or about August 11, 1998, Indiana Gas, Citizens Gas and
      ProLiance each received a Civil Investigative Demand ("CID") from
      the United States Department of Justice requesting information
      relating to Indiana Gas' and Citizens Gas' relationship with and
      the activities of ProLiance. The Department of Justice issued the
      CID to gather information regarding ProLiance's formation and
      operations, and to determine if trade or commerce has been
      restrained. Indiana Gas is providing the Department of Justice with
      information regarding the formation of ProLiance in connection with
      the CID.
      
      While the results of the ProLiance issues mentioned above cannot be
      predicted, management does not expect these matters to have a
      material impact on Indiana Gas' financial position or results of
      operations.  However, no assurance can be provided.
      
      CIGMA, LLC, owned jointly and equally by IGC Energy, Inc., an
      indirect wholly owned subsidiary of Indiana Energy, and Citizens By-
      Products Coal Company, a wholly owned subsidiary of Citizens Gas,
      provides materials acquisition and related services that are used
      by Indiana Gas. Indiana Gas' purchases of these services during
      1998 and 1997 totaled $15.6 million and $9.6 million, respectively.
      
      IEI Services, a wholly owned subsidiary of Indiana Energy, began
      providing support services to Indiana Gas effective October 1,
      1997.  Services provided include information technology, financial,
      human resources, building and fleet services.  Amounts billed by
      IEI Services to Indiana Gas for 1998 totaled $26.7 million.
      
      Indiana Gas also participates in a centralized cash management
      program with its parent, affiliated companies and banks which
      permits funding of checks as they are presented.
      
      Amounts owed to affiliates totaled $15.0 million and $36.3 million
      at September 30, 1998 and 1997, respectively, and are included in
      Accounts Payable on the Consolidated Balance Sheets.
      
      Amounts due from affiliates totaled $5.4 million and $11.6 million
      at September 30, 1998 and 1997, respectively, and are included in
      Accounts Receivable on the Consolidated Balance Sheets.
      
      12.  New Accounting Standards
      In June 1997, the Financial Accounting Standards Board (FASB)
      issued Statement of Financial Accounting Standards No. 131,
      Disclosures about Segments of an Enterprise and Related
      Information.  This statement establishes standards for the way that
      public companies report information about operating segments in
      annual financial statements and requires that those companies
      report selected information about operating segments in annual and
      interim financial reports issued to shareholders. This statement
      becomes effective for the company's 1999 annual financial
      statements.
      
      In February 1998, the FASB issued Statement of Financial Accounting
      Standards No. 132, Employers' Disclosures about Pensions and Other
      Postretirement Benefits. This statement standardizes the disclosure
      requirements for pensions and other postretirement benefits. It
      does not change measurement or recognition of amounts related to
      those plans. The company has adopted the new disclosure
      requirements of this statement for 1998 (see Note 7).
      
      In March 1998, the American Institute of Certified Public
      Accountants issued Statement of Position 98-1, Accounting for the
      Costs of Computer Software Developed or Obtained for Internal Use.
      This statement provides guidance primarily on whether costs
      incurred related to internal use computer software should be
      capitalized or expensed. This statement is effective for the
      company in fiscal 2000. The company does not expect this statement
      to have a material impact on its financial position or results of
      operations.
      
      13.  Summarized Financial Data (Unaudited)
      Summarized quarterly financial data (in thousands of dollars) for
      1998 and 1997 are as follows:

<TABLE>
      
      1998: THREE MONTHS ENDED      DEC. 31  MAR. 31   JUNE 30   SEP. 30
      <C>                          <C>       <C>       <C>       <C>
      Operating revenues           $170,132  $163,131  $70,560   $61,821
      Operating income (loss)        20,828    23,427    3,929    (1,933)
      Net income (loss)              16,589    19,258      321    (5,285)
      
      1997: THREE MONTHS ENDED      DEC. 31  MAR. 31   JUNE 30   SEP. 30(1)
      Operating revenues           $172,481  $215,695  $83,733   $58,498
      Operating income (loss)        20,260    27,153    7,799   (26,201)
      Net income (loss)              16,419    23,139    4,309   (30,389)
      
      
      (1) Reflects the recording of restructuring costs of $39.5 million
          ($24.5 million after-tax), during the fourth quarter of fiscal
          1997 (see Note 2).
      
      Note: Because of the seasonal factors that significantly affect the
      companies' operations, the results of operations for interim
      periods within fiscal years are not comparable.

</TABLE>
      
Item 9.       Changes in and Disagreements with Accountants

       None.


Part III

Item 10.    Directors and Executive Officers of the Registrant

       Except for the list of the executive officers, which
       can be found in Part I, Item 4(a) of this report,
       the information required to be shown in this part
       for Item 10, Directors and Executive Officers of the
       Registrant is incorporated by reference here from
       the definitive proxy statement of the registrant's
       parent company, Indiana Energy, Inc.  That statement
       was prepared according to Regulations 14A and S-K
       and filed electronically with the Securities and
       Exchange Commission on December 3, 1998.  The
       information is included in the report attached as
       Exhibit 99.

Item 11.    Executive Compensation

       The information required to be shown in this part
       for Item 11, Executive Compensation, is incorporated
       by reference here from the definitive proxy
       statement of the registrant's parent company,
       Indiana Energy, Inc.  That statement was prepared
       according to Regulations 14A and S-K and filed
       electronically with the Securities and Exchange
       Commission on December 3, 1998.  The information is
       included in the report attached as Exhibit 99.

       Contained in the Indiana Energy proxy statement,
       Summary Compensation Table, Column C and Column D,
       Salary Amounts and Bonus Amounts, are some
       compensation dollars which are allocated to
       subsidiaries of Indiana Energy other than Indiana
       Gas.  The named executives received the following
       compensation, including Bonus,  for the years ended
       September 30, 1998, 1997 and 1996, as it relates to
       only Indiana Gas.


<TABLE>                                           
                       1998      1997      1996
<S>                  <C>       <C>       <C>
Lawrence A. Ferger   $588,101  $575,144  $512,580
Paul T. Baker         383,881   362,671   327,217
Niel C. Ellerbrook    277,569   291,194   238,213
Anthony E. Ard        196,858   207,087   171,448
Timothy M. Hewitt     196,947   187,487   168,065

</TABLE>

Item 12.    Securities Ownership of Certain Beneficial
            Owners and Management

       The information required to be shown in this part
       for Item 12, Securities Ownership of Certain
       Beneficial Owners and Management, is incorporated by
       reference here from the definitive proxy statement
       of the registrant's parent company, Indiana Energy,
       Inc.  That statement was prepared according to
       Regulations 14A and S-K and filed electronically
       with the Securities and Exchange Commission on
       December 3, 1998.  The information is included in
       the report attached as Exhibit 99.

Item 13.    Certain Relationships and Related Transactions

       The information required to be shown in this part
       for Item 13, Certain Relationships and Related
       Transactions is incorporated by reference here from
       the definitive proxy statement of the registrant's
       parent company, Indiana Energy, Inc. That statement
       was prepared according to Regulations 14A and S-K
       and filed electronically with the Securities and
       Exchange Commission on December 3, 1998.  The
       information is included in the report attached as
       Exhibit 99.


Part IV

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

       The following documents are filed as part of this
       report:

       (a)-1     Financial Statements


                                                             Location in 10-K
Report of Independent Public Accountants                          Item 8

Consolidated Statements of Income - 1998, 1997 and 1996           Item 8

Consolidated Statements of Cash Flows - 1998, 1997 and 1996       Item 8

Consolidated Balance Sheets at September 30, 1998 and 1997        Item 8

Consolidated Statements of Common Shareholder's Equity -
       1998, 1997 and 1996                                        Item 8

Consolidated Schedules of Long-Term Debt as of
       September 30, 1998 and 1997                                Item 8

Notes to Financial Statements                                     Item 8


  (a)-2 Financial Statement Schedules

        Report of Independent Public Accountants on Schedules

  Schedule II.     
        
        Valuation and Qualifying Accounts - 1998, 1997 and 1996

  (a)-3   Exhibits

          See Exhibit Index

  (b)     Reports on Form 8-K

       On July 31, 1998, Indiana Gas filed a Current Report on Form 8-
       K with respect to the release by Indiana Energy, Inc. (Indiana
       Energy) of unaudited summary financial information to the
       investment community regarding Indiana Energy's consolidated
       results of operations, financial position and cash flows for
       the three-, nine- and twelve-month periods ended June 30,
       1998.  Items reported include:
       
                    Item 5.   Other Events
       
                    Item 7.   Exhibits
       
                       99  Financial Analyst Report - Third Quarter 1998

       On October 9, 1998, Indiana Gas filed a Current Report on Form
       8-K with respect to a press release (dated October 9, 1998),
       announcing the decision by Indiana Gas, Citizens Gas and
       ProLiance to appeal the October 8, 1998, Indiana Court of
       Appeals decision regarding ProLiance.  Items reported include:
       
                    Item 5.   Other Events
                             Press release dated October 9, 1998
       
       On October 30, 1998, Indiana Gas filed a Current Report on
       Form 8-K with respect to the release by Indiana Energy, Inc.
       (Indiana Energy) of summary financial information to the
       investment community regarding Indiana Energy's consolidated
       results of operations, financial position and cash flows for
       the three- and twelve-month periods ended September 30, 1998.
       Items reported include:
       
                    Item 5.   Other Events
       
                    Item 7.   Exhibits
       
                       99  Financial Analyst Report - Fourth Quarter 1998


                             EXHIBIT INDEX

  Exhibit No.         Description               Reference
                                         
3-A             Amended and Restated     Exhibit 3-A to Indiana
                Articles of              Gas' Quarterly Report
                Incorporation.           on Form 10-Q for the
                                         quarterly period ended
                                         March 31, 1997.
                                         
3-B             Amended and Restated     Exhibit 3-B to Indiana
                Code of By-Laws.         Gas' Quarterly Report
                                         on Form 10-Q for the
                                         quarterly period ended
                                         March 31, 1997.
                                         
4-A             Indenture dated          Exhibit 4(a) to
                February 1, 1991,        Indiana Gas Company,
                between Indiana Gas      Inc.'s Current Report
                and Continental Bank,    on Form 8-K dated
                National Association.    February 1, 1991, and
                                         filed February 15,
                                         1991; First
                                         Supplemental Indenture
                                         thereto dated as of
                                         February 15, 1991,
                                         (incorporated by
                                         reference to Exhibit
                                         4(b) to Indiana Gas
                                         Company, Inc.'s
                                         Current Report on Form
                                         8-K dated February 1,
                                         1991, and filed
                                         February 15, 1991);
                                         Second Supplemental
                                         Indenture thereto
                                         dated as of September
                                         15, 1991,
                                         (incorporated by
                                         reference to Exhibit
                                         4(b) to Indiana Gas
                                         Company, Inc.'s
                                         Current Report on Form
                                         8-K dated September
                                         15, 1991, and filed
                                         September 25, 1991);
                                         Third Supplemental
                                         Indenture thereto
                                         dated as of September
                                         15, 1991 (incorporated
                                         by reference to
                                         Exhibit 4(c) to
                                         Indiana Gas Company,
                                         Inc.'s Current Report
                                         on Form 8-K dated
                                         September 15, 1991 and
                                         filed September 25,
                                         1991);
                                         
                                         Fourth Supplemental
                                         Indenture thereto
                                         dated as of
                                         December 2, 1992,
                                         (incorporated by
                                         reference
                                         to Exhibit 4(b) to
                                         Indiana
                                         Gas Company, Inc.'s
                                         Current Report on Form
                                         8-K dated December 1,
                                         1992, and filed
                                         December 8, 1992);
                                         Officers' Certificate
                                         pursuant to Section
                                         301 of the Indenture
                                         dated as of
                                         April 5, 1995,
                                         (incorporated by
                                         reference to Exhibit
                                         4(a) to Indiana Gas
                                         Company, Inc.'s
                                         Current Report on Form
                                         8-K dated and filed
                                         April 5, 1995); and
                                         Officers' Certificate
                                         pursuant to Section
                                         301 of the Indenture
                                         dated as of November
                                         19, 1997 (incorporated
                                         by reference to
                                         Exhibit 4 to Indiana
                                         Gas Company, Inc.'s
                                         Report on Form 8-K
                                         dated November 19,
                                         1997 and filed
                                         December 5, 1997).
                                         
10-A            Employment Agreement     Exhibit 10-A to
                between Indiana          Indiana Energy's 1997
                Energy, Inc. and         Annual Report on Form
                Lawrence A. Ferger       10-K.
                effective October 1,
                1997.
                                         
10-B            Employment Agreement     Exhibit 10-B to
                between Indiana          Indiana Energy's 1997
                Energy, Inc. and Niel    Annual Report on Form
                C. Ellerbrook            10-K.
                effective October 1,
                1997.
                                         
10-C            Employment Agreement     Exhibit 10-C to
                between Indiana          Indiana Energy's 1997
                Energy, Inc. and Paul    Annual Report on Form
                T. Baker effective       10-K.
                October 1, 1997.
                                         
10-D            Employment Agreement     Exhibit 10-D to
                between Indiana          Indiana Energy's
                Energy, Inc. and         1997Annual Report on
                Anthony E. Ard           Form 10-K.
                effective October 1,
                1997.
                                         
10-E            Termination Benefits     Exhibit 10-E to
                Agreement between        Indiana Energy, Inc.'s
                Indiana Energy, Inc.     1997 Annual Report on
                and Lawrence A.          Form 10-K.
                Ferger as amended and
                restated effective
                October 1, 1997.
                                         
10-F            Termination Benefits     Exhibit 10-F to
                Agreement between        Indiana Energy, Inc.'s
                Indiana Energy, Inc.     1997 Annual Report on
                and Paul T. Baker as     Form 10-K.
                amended and restated
                effective October 1,
                1997.
                                         
10-G            Termination Benefits     Exhibit 10-G to
                Agreement between        Indiana Energy, Inc.'s
                Indiana Energy, Inc.     1997 Annual Report on
                and Niel C.              Form 10-K.
                Ellerbrook as amended
                and restated
                effective October 1,
                1997.
                                         
10-H            Termination Benefits     Exhibit 10-H to
                Agreement between        Indiana Energy, Inc.'s
                Indiana Energy, Inc.     1997 Annual Report on
                and Anthony E. Ard as    Form 10-K.
                amended and restated
                effective October 1,
                1997.
                                         
10-I            Termination Benefits     Exhibit 10-I to
                Agreement between        Indiana Energy, Inc.'s
                Indiana Energy, Inc.     1997 Annual Report on
                and Timothy M. Hewitt    Form 10-K.
                as amended and
                restated effective
                October 1, 1997.
                                         
10-J            Indiana Energy, Inc.     Exhibit 10-J to
                Unfunded Supplemental    Indiana Energy, Inc.'s
                Retirement Plan for a    1997 Annual Report on
                Select Group of          Form 10-K.
                Management Employees
                as amended and
                restated effective
                October 1, 1997.
                                         
10-K            Indiana Energy, Inc.     Exhibit 10-K to
                Executive                Indiana Energy, Inc.'s
                Compensation Deferral    1997 Annual Report on
                Plan as amended and      Form 10-K.
                restated effective
                October 1, 1997.
                                         
10-L            Indiana Energy, Inc.     Exhibit 10-A to
                Directors                Indiana Energy's
                Compensation Deferral    Quarterly Report on
                Plan as amended and      Form 10-Q for the
                restated effective       quarterly period ended
                May 1, 1997.             June 30, 1997.
                                         
10-M            Indiana Energy, Inc.     Exhibit 10-O to
                Executive Restricted     Indiana Energy, Inc.'s
                Stock Plan as amended    1998 Annual Report on
                and restated             Form 10-K.
                effective October 1,
                1998.
                                         
10-N            Indiana Energy, Inc.     Exhibit 10-D to
                Annual Management        Indiana Energy's 1987
                Incentive Plan           Annual Report on Form
                effective October 1,     10-K.
                1987.
                                         
10-O            First Amendment to       Exhibit 10-Q to
                the Indiana Energy,      Indiana Energy's 1998
                Inc. Annual              Annual Report on Form
                Management Incentive     10-K.
                Plan (set forth in 10-
                N above) effective
                October 1, 1997.
                                         
10-P            Indiana Energy, Inc.     Exhibit 10-B to
                Directors' Restricted    Indiana Energy's
                Stock Plan, as           Quarterly Report on
                amended and restated     Form 10-Q for the
                effective May 1,         quarterly period ended
                1997.                    June 30, 1997.
                                         
10-Q            Formation Agreement      Exhibit 10-C to
                among Indiana Energy,    Indiana Energy's
                Inc., Indiana Gas        Quarterly Report on
                Company, Inc., IGC       Form 10-Q for the
                Energy, Inc., Indiana    quarterly period ended
                Energy Services,         March 31, 1996.
                Inc., Citizens Gas &
                Coke Utility,
                Citizens Energy
                Services Corporation
                and ProLiance Energy,
                LLC, effective March
                15, 1996.
                                         
10-R            Gas Sales and            Exhibit 10-C to
                Portfolio                Indiana Gas' Quarterly
                Administration           Report on Form 10-Q
                Agreement between        for the quarterly
                Indiana Gas              period ended March 31,
                Company, Inc. and        1996.
                ProLiance Energy,
                LLC, effective
                March 15, 1996,
                for services to
                begin April 1,
                1996.
                                         
10-S            Amended appendices to    Exhibit 10-R to
                the Gas Sales and        Indiana Gas' 1997
                Portfolio                Annual Report on Form
                Administration           10-K.
                Agreement between
                Indiana Gas Company,
                Inc. and ProLiance
                Energy, LLC referred
                to above in Exhibit
                10-R, effective
                November 1, 1997.
                                         
10-T            Exhibit 10-T schedules material gas contracts
                which are in effect between Indiana Gas
                Company, Inc. and suppliers other than its
                affiliate, ProLiance Energy, LLC.

<TABLE>

Exh.                                                           Days of            Effect.  Expir.
No.      Type of Contract    Supplier           Contract No.   Wthdrwl.  Dth/Day  Date     Date     Reference
<S>      <C>                 <C>                <C>            <C>       <C>      <C>      <C>      <C>
10-T.1   Firm Transportation Panhandle Eastern  P PLT 011716             51,431   5/1/93   3/31/99  6/30/93
                                                                                                    Form 10-Q,
                                                                                                    Exh. 10-A,
                                                                                                    File 1-6494.

10-T.2   Firm Storage        ANR                T,E & S 05787  100       50,000   4/1/92   3/31/02  1992 Form
                                                                                                    10-K,
                                                                                                    Exh. 10-R,
                                                                                                    File 1-6494.

10-T.3   Firm Storage-
            Related
            Transportation   ANR                T,E & S 05788            50,000   4/1/92   3/31/02  1992 Form
                                                                                                    10-K,
                                                                                                    Exh. 10-S,
                                                                                                    File 1-6494.
</TABLE>

12               Computation of Ratio of Earnings
                 to Fixed Charges                    Filed herewith.

21               Subsidiaries of Indiana Gas
                 Company, Inc.                       Filed herewith.

27               Financial Data Schedule             Filed herewith.

99               Indiana Energy, Inc.'s
                 (parent  company) Definitive
                 Proxy Statement for Annual
                 Meeting of Shareholders to be
                 held on January 27, 1999.           Filed herewith.


REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES

To Indiana Gas Company, Inc.:

     We have audited in accordance with generally accepted
auditing standards, the consolidated financial statements included
in Item 8, in this Form 10-K, and have issued our report thereon
dated October 30, 1998.  Our audit was made for the purpose of
forming an opinion on those statements taken as a whole.  The
schedules listed in Item 14(a)-2 are the responsibility of the
company's management and are presented for purposes of complying
with the Securities and Exchange Commission's rules and are not
part of the basic financial statements.  These schedules have been
subjected to the auditing procedures applied in the audit of the
basic financial statements and, in our opinion, fairly state in
all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a
whole.


/s/ Arthur Andersen LLP
Arthur Andersen LLP

Indianapolis, Indiana
October 30, 1998

<TABLE>

                               INDIANA GAS COMPANY, INC.
                                AND SUBSIDIARY COMPANIES

                    SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                              YEAR ENDED SEPTEMBER 30, 1998
                                      (Thousands)

             Col. A                 Col. B         Col. C             Col. D        Col. E    Col. F
                                                   Additions          Deductions
                                                      (1)       (2)
                                                                      For Purposes
                                    Balance at     Charged to         For Which               Balance at
                                    September 30,  Costs and          Reserves      Other     September 30,
           Description              1997           Expenses    Other  Were Created  Changes   1998
<S>                                 <C>            <C>         <C>    <C>           <C>       <C>

RESERVE DEDUCTED FROM APPLICABLE
   ASSETS:
 Reserve for uncollectible accounts $    1,784     $   3,470   $  0   $    4,354    $  0      $     900

</TABLE>

<TABLE>
                               INDIANA GAS COMPANY, INC.
                                AND SUBSIDIARY COMPANIES

                    SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                              YEAR ENDED SEPTEMBER 30, 1997
                                      (Thousands)

             Col. A                 Col. B         Col. C             Col. D        Col. E    Col. F
                                                   Additions          Deductions
                                                      (1)       (2)
                                                                      For Purposes
                                    Balance at     Charged to         For Which               Balance at
                                    September 30,  Costs and          Reserves      Other     September 30,
           Description              1996           Expenses    Other  Were Created  Changes   1997
<S>                                 <C>            <C>         <C>    <C>           <C>       <C>
RESERVE DEDUCTED FROM APPLICABLE
  ASSETS:
Reserve for uncollectible accounts  $  1,853       $ 2,655     $    0 $  2,724      $   0     $  1,784

</TABLE>


<TABLE>
                               INDIANA GAS COMPANY, INC.
                               AND SUBSIDIARY COMPANIES

                   SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                            YEAR ENDED SEPTEMBER 30, 1996
                                   (Thousands)

             Col. A                 Col. B         Col. C             Col. D        Col. E   Col. F
                                                   Additions          Deductions
                                                      (1)       (2)
                                                                      For Purposes
                                    Balance at     Charged to         For Which              Balance at
                                    September 30,  Costs and          Reserves      Other    September 30,
           Description              1995           Expenses    Other  Were Created  Changes  1996

<S>                                 <C>            <C>         <C>    <C>           <C>      <C>
RESERVE DEDUCTED FROM APPLICABLE
 ASSETS:
Reserve for uncollectible accounts  $  1,662       $ 3,803     $    0 $  3,612      $   0    $  1,853

</TABLE>


                      SIGNATURES

Pursuant to the requirements of the 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.

                             INDIANA GAS COMPANY, INC.



Dated December 18, 1998             /s/ Lawrence A. Ferger
                                    Lawrence A. Ferger,
                                    Chairman and Chief
                                    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.

   Signature                Title                        Date



/s/ Lawrence A. Ferger   Chairman and               December 18, 1998
Lawrence A. Ferger       Chief Executive Officer



/s/ Niel C. Ellerbrook   President and Director     December 18, 1998
Niel C. Ellerbrook



/s/ Paul T. Baker        Executive Vice President,  December 18, 1998
Paul T. Baker            Chief Operating Officer
                         and Director


/s/ Jerome A. Benkert    Vice President and         December 18, 1998
Jerome A. Benkert        Controller                 



/s/ Loren K. Evans       Director                   December 18, 1998
Loren K. Evans



/s/ Otto N. Frenzel III  Director                   December 18, 1998
Otto N. Frenzel III



/s/ William G. Mays      Director                   December 18, 1998
William G. Mays



/s/ John E. Worthen      Director                   December 18, 1998
John E. Worthen