<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549


                                    FORM 10-Q

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

                  For the Quarterly period ended MARCH 31, 2001


             [ ] 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 1-1098


                              COLUMBIA ENERGY GROUP
             (Exact Name of Registrant as Specified in its Charter)


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


                801 E 86th Ave, Merrillville, IN             46410
           ----------------------------------------------------------
           (Address of principal executive offices)        (Zip Code)


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


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 [ ]

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

The registrant meets the conditions set forth in General Instructions H(1)(a)
and (b) of Form 10-Q and is therefore filing this form with the reduced
disclosure format.
<PAGE>   2
                     COLUMBIA ENERGY GROUP AND SUBSIDIARIES
                           FORM 10-Q QUARTERLY REPORT
                      FOR THE QUARTER ENDED MARCH 31, 2001

                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                                           Page
<S>                                                                                        <C>
PART I      FINANCIAL INFORMATION

Item 1      Financial Statements

               Statements of Consolidated Income                                             3

               Consolidated Balance Sheets                                                   4

               Statements of Consolidated Cash Flows                                         6

               Statements of Consolidated Common Stock Equity                                7

               Statements of Consolidated Comprehensive Income                               7

               Notes                                                                         8

Item 2      Management's Discussion and Analysis of Financial Condition
               and Results of Operations                                                    12

Item 3      Quantitative and Qualitative Disclosures About Market Risk                      22


PART II     OTHER INFORMATION

Item 1      Legal Proceedings                                                               22

Item 2      Changes in Securities and Use of Proceeds                                       26

Item 3      Defaults Upon Senior Securities                                                 26

Item 4      Submission of Matters to a Vote of Security Holders                             26

Item 5      Other Information                                                               26

Item 6      Exhibits and Reports on Form 8-K                                                26

            Signature                                                                       27
</TABLE>


                                       2
<PAGE>   3
                         PART I - FINANCIAL INFORMATION
                          ITEM 1 - FINANCIAL STATEMENTS


Columbia Energy Group and Subsidiaries
STATEMENTS OF CONSOLIDATED INCOME (unaudited)

<TABLE>
<CAPTION>
                                                                                           Three Months
                                                                                          Ended March 31,
                                                                                 --------------------------------
                                                                                   2001                    2000
                                                                                 --------                --------
                                                                                            (millions)
<S>                                                                              <C>                     <C>
Net Revenues
    Energy sales                                                                 $1,168.0                $  638.3
    Less:  Products purchased                                                       854.0                   366.8
                                                                                 --------                --------

    Gross Margin                                                                    314.0                   271.5

    Transportation                                                                  258.5                   251.9
    Production gas sales                                                             46.7                    46.4
    Other                                                                            48.4                    49.6
                                                                                 --------                --------
Total Net Revenues                                                                  667.6                   619.4
                                                                                 --------                --------

Operating Expenses
    Operation and maintenance                                                       194.4                   213.4
    Depreciation and depletion                                                       57.0                    62.4
    Other taxes                                                                      65.2                    69.9
                                                                                 --------                --------
Total Operating Expenses                                                            316.6                   345.7
                                                                                 --------                --------
Operating Income                                                                    351.0                   273.7
                                                                                 --------                --------

Other Income (Deductions)
    Interest income and other, net                                                   (1.2)                    4.3
    Interest expense and related charges                                            (46.8)                  (45.7)
                                                                                 --------                --------
Total Other Income (Deductions)                                                     (48.0)                  (41.4)
                                                                                 --------                --------

Income from Continuing Operations
   before Income Taxes                                                              303.0                   232.3
Income Taxes                                                                        113.9                    88.9
                                                                                 --------                --------

Income from Continuing Operations                                                   189.1                   143.4
                                                                                 --------                --------

Discontinued Operations - net of taxes
    Income from operations                                                             --                     6.3
    Estimated (loss) on disposal                                                     (1.0)                     --
                                                                                 --------                --------
Income (Loss) from Discontinued Operations - net of taxes                            (1.0)                    6.3
                                                                                 --------                --------

Income before Cumulative Effect of Accounting Change                                188.1                   149.7

Cumulative Effect of Accounting Change - net of taxes                                 4.0                      --
                                                                                 --------                --------
Net Income                                                                       $  192.1                $  149.7
                                                                                 ========                ========
</TABLE>

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


                                       3
<PAGE>   4
                         PART I - FINANCIAL INFORMATION
                    ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)


Columbia Energy Group and Subsidiaries
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                              As of
                                                                                  -----------------------------
                                                                                    March 31,      December 31,
                                                                                      2001             2000
                                                                                  ------------     ------------
                                                                                  (unaudited)
ASSETS                                                                                      (millions)
<S>                                                                               <C>              <C>
Property, Plant and Equipment
    Gas utility and other plant, at original cost                                   $8,158.2         $8,174.2
    Accumulated depreciation                                                        (3,810.2)        (3,778.3)
                                                                                    --------         --------
    Net Gas Utility and Other Plant                                                  4,348.0          4,395.9
                                                                                    --------         --------

    Gas and oil producing properties, full cost method
       United States cost center                                                       930.2            913.6
       Canadian cost center                                                             20.0             20.2
    Accumulated depletion                                                             (279.5)          (272.7)
                                                                                    --------         --------
    Net Gas and Oil Producing Properties                                               670.7            661.1
                                                                                    --------         --------
Net Property, Plant and Equipment                                                    5,018.7          5,057.0
                                                                                    --------         --------

Investments and Other Assets
    Unconsolidated affiliates                                                           30.8             28.1
    Net assets of discontinued operations                                              250.8            236.3
    Affiliated notes receivable                                                         26.2               --
    Other                                                                               22.6             27.4
                                                                                    --------         --------
Total Investments and Other Assets                                                     330.4            291.8
                                                                                    --------         --------

Current Assets
    Cash and temporary cash investments                                                 64.8             73.5
    Accounts receivable, net                                                           940.0            683.3
    Affiliated receivable                                                               56.2              2.7
    Gas inventory                                                                       59.3            147.4
    Other inventories - at average cost                                                 14.0             14.5
    Prepayments                                                                         74.7             73.8
    Regulatory assets                                                                   70.5             57.4
    Underrecovered gas costs                                                            13.2            169.0
    Deferred property taxes                                                             37.3             45.2
    Exchange gas receivable                                                            650.8            615.9
    Price risk management asset                                                        143.0               --
    Other                                                                               70.1             (2.3)
                                                                                    --------         --------
Total Current Assets                                                                 2,193.9          1,880.4
                                                                                    --------         --------

Regulatory Assets                                                                      354.4            351.8
Deferred Charges                                                                        67.7             45.2
                                                                                    --------         --------

Total Assets                                                                        $7,965.1         $7,626.2
                                                                                    ========         ========
</TABLE>

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


                                       4
<PAGE>   5
                         PART I - FINANCIAL INFORMATION
                    ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)


Columbia Energy Group and Subsidiaries
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                               As of
                                                                    -----------------------------
                                                                      March 31,      December 31,
                                                                        2001             2000
                                                                    ------------     -------------
                                                                      (unaudited)
CAPITALIZATION AND LIABILITIES                                               (millions)
<S>                                                                 <C>              <C>
CAPITALIZATION
    Common stock equity                                               $2,251.8         $2,035.9
    Long-term debt                                                     1,640.1          1,639.1
                                                                      --------         --------
Total Capitalization                                                   3,891.9          3,675.0
                                                                      --------         --------

CURRENT LIABILITIES
    Short-term debt                                                         --            521.0
    Current maturities of long-term debt                                   0.2              0.2
    Accounts and drafts payable                                          243.2            398.0
    Affiliated payable                                                   290.0              7.2
    Accrued taxes                                                        295.6            177.1
    Accrued interest                                                      50.8             17.7
    Estimated rate refunds                                                 3.7              6.8
    Overrecovered gas costs                                              208.6               --
    Transportation and exchange gas payable                              389.4            358.5
    Deferred revenue                                                     423.3            451.5
    Price risk management liabilities                                    104.5               --
    Other                                                                278.5            366.0
                                                                      --------         --------
Total Current Liabilities                                              2,287.8          2,304.0
                                                                      --------         --------

OTHER LIABILITIES AND DEFERRED CREDITS
    Deferred income taxes, noncurrent                                    831.3            766.8
    Investment tax credits                                                30.8             31.2
    Postretirement benefits other than pensions                          111.5            114.7
    Regulatory liabilities                                                43.3             32.4
    Deferred revenue                                                     526.1            498.0
    Other                                                                242.4            204.1
                                                                      --------         --------
Total Other Liabilities and Deferred Credits                           1,785.4          1,647.2
                                                                      --------         --------

TOTAL CAPITALIZATION AND LIABILITIES                                  $7,965.1         $7,626.2
                                                                      ========         ========
</TABLE>


                                       5
<PAGE>   6
                         PART I - FINANCIAL INFORMATION
                    ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)


Columbia Energy Group and Subsidiaries
STATEMENTS OF CONSOLIDATED CASH FLOWS (unaudited)

<TABLE>
<CAPTION>
                                                                                      Three Months
                                                                                     Ended March 31,
                                                                                  ---------------------
                                                                                   2001           2000
                                                                                  ------         ------
                                                                                        (millions)
<S>                                                                               <C>            <C>
OPERATING ACTIVITIES
   Net income                                                                     $192.1         $149.7
   Adjustments to reconcile net income to net
       cash from continuing operations:
      Loss from discontinued operations                                              1.0           (6.3)
      Cumulative effect of accounting change, net of tax                            (4.0)            --
      Depreciation and depletion                                                    57.0           62.4
      Deferred income taxes                                                        (22.9)          10.4
      Earnings from equity investment, net of distributions                         (2.7)          (3.4)
      Assets held for sale                                                            --          (57.2)
      Deferred revenue                                                              (0.1)          (9.0)
      Other - net                                                                   12.1           34.8
                                                                                  ------         ------
                                                                                   232.5          181.4
   Change in components of working capital:
      Accounts receivable, net                                                    (297.9)          87.6
      Affiliated receivable                                                        (53.5)            --
      Gas inventory                                                                 88.1          132.4
      Other inventories - at average cost                                            0.5            0.4
      Prepayments                                                                   (0.9)          10.6
      Accounts payable                                                            (157.3)         (57.8)
      Affiliated payable                                                            (2.2)            --
      Accrued taxes                                                                132.8           19.6
      Accrued interest                                                              33.1           35.0
      Estimated rate refunds                                                        (3.1)         (12.9)
      Under/Overrecovered gas costs                                                364.4           78.9
      Exchange gas receivable/payable                                               (4.0)         (27.1)
      Other working capital                                                        (28.5)         (47.1)
                                                                                  ------         ------

Net Cash From Continuing Operations                                                304.0          401.0
Net Cash From Discontinued Operations                                              (15.5)          24.6
                                                                                  ------         ------
Net Cash From Operating Activities                                                 288.5          425.6
                                                                                  ------         ------

INVESTMENT ACTIVITIES
   Capital expenditures                                                            (69.6)         (73.9)
   Acquisitions and other investments - net                                          6.2          (39.7)
                                                                                  ------         ------

Net Investment Activities                                                          (63.4)        (113.6)
                                                                                  ------         ------

FINANCING ACTIVITIES
   Dividends paid                                                                     --          (18.3)
   Issuance of common stock                                                           --            0.5
   Issuance (repayment) of short-term debt                                        (521.0)        (287.5)
   Intercompany short-term financing                                               292.2             --
   Purchase of treasury stock                                                         --          (38.2)
   Other financing activities                                                       (5.0)         (11.1)
                                                                                  ------         ------

Net Financing Activities                                                          (233.8)        (354.6)
                                                                                  ------         ------

Decrease in cash and temporary cash investments                                     (8.7)         (42.6)
Cash and temporary cash investments at beginning of year                            73.5           58.1
                                                                                  ------         ------
CASH AND TEMPORARY CASH INVESTMENT AT MARCH 31*                                   $ 64.8         $ 15.5
                                                                                  ======         ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
   Cash paid for interest                                                         $  9.4         $  9.8
   Cash paid for income taxes (net of refunds)                                    $  5.3         $ 24.2
</TABLE>

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

* The Corporation considers all highly liquid short-term investments to be cash
  equivalents.


                                       6
<PAGE>   7
                         PART I - FINANCIAL INFORMATION
                    ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)

Columbia Energy Group and Subsidiaries
STATEMENTS OF CONSOLIDATED COMMON STOCK EQUITY

<TABLE>
<CAPTION>
                                                                                      As of
                                                                      -------------------------------------
                                                                         March 31,            December 31,
                                                                           2001                   2000
                                                                      --------------         --------------
                                                                        (unaudited)
                                                                                   (millions)
<S>                                                                   <C>                    <C>
Common stock, $.01 par value, authorized
   and issued 3,000 shares                                             $         --           $        0.8

Additional paid in capital                                                  1,369.8                1,369.0

Retained earnings                                                             858.3                  666.5

Accumulated other comprehensive income                                         23.7                   (0.4)
                                                                      --------------         --------------
TOTAL COMMON STOCK EQUITY                                              $    2,251.8           $    2,035.9
                                                                      ==============         ==============
</TABLE>


Columbia Energy Group and Subsidiaries
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
                                                                               For the year to date
                                                                                  period ended
                                                                      -------------------------------------
                                                                         March 31,            December 31,
                                                                           2001                   2000
                                                                      --------------         --------------
                                                                        (unaudited)
                                                                                    (millions)
<S>                                                                   <C>                    <C>
COMPREHENSIVE INCOME
    Net income                                                         $      192.1           $      133.7
    Other Comprehensive Income (Loss):
      Foreign currency translation adjustment                                  (1.1)                  (0.7)
      Net gain (loss) on cash flow hedges                                      25.2                     --
                                                                      --------------         --------------
COMPREHENSIVE INCOME                                                   $      216.2           $      133.0
                                                                      ==============         ==============
</TABLE>


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


                                       7
<PAGE>   8
                         PART I - FINANCIAL INFORMATION
                   ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)


COLUMBIA ENERGY GROUP AND SUBSIDIARIES

NOTES

1.       BASIS OF ACCOUNTING PRESENTATION

The accompanying unaudited consolidated financial statements for Columbia Energy
Group (Columbia) reflect all normal recurring adjustments that are necessary, in
the opinion of management, to present fairly the results of operations in
accordance with generally accepted accounting principles.

The accompanying financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in Columbia's
Annual Report on Form 10-K (Form 10-K) for the fiscal year ended December 31,
2000. Income for interim periods may not be indicative of results for the
calendar year due to weather variations and other factors. Certain
reclassifications have been made to the 2000 financial statements to conform to
the 2001 presentation. As discussed in Note 3, the 2000 financial statements
have been reclassified to report several energy marketing operations as
discontinued operations.

2.       ACQUISITION

On November 1, 2000, NiSource Inc. completed its acquisition of Columbia for an
aggregate consideration of approximately $6 billion, consisting of $3,888
million in cash, 72.4 million shares of common stock valued at $1,761 million,
and SAILS(SM) (units consisting of a zero coupon debt security coupled with a
forward equity contract in NiSource shares) valued at $114 million. NiSource
also assumed approximately $2 billion in Columbia debt. NiSource accounted for
the acquisition in accordance with the purchase method of accounting.

3.       RESTRUCTURING ACTIVITIES

As discussed in the 2000 Form 10-K, Columbia implemented a plan to restructure
its operations as a result of its acquisition by NiSource, discussed above. The
restructuring plan included a severance program, a transition plan to implement
operational efficiency throughout NiSource's operations and a voluntary early
retirement program. As of March 31, 2001, approximately 445 employees had been
terminated as a result of the restructuring plan. At March 31, 2001, the
consolidated balance sheet reflected an accrual of $45.8 million related to the
restructuring plan.

4.       PRESENTATION OF SEGMENT INFORMATION

Columbia revised its presentation of its primary business segment information
beginning with the reporting of second quarter 2000 results. Columbia manages
its operations in four primary segments: 1) transmission and storage, 2)
distribution, 3) exploration and production, and 4) other products and services.
The following table provides information concerning these major business
segments. Revenues include intersegment sales to affiliated subsidiaries, which
are eliminated when consolidated. Affiliated sales are recognized on the basis
of prevailing market or regulated prices. Operating income is derived from
revenues and expenses directly associated with each segment.


                                       8
<PAGE>   9
                         PART I - FINANCIAL INFORMATION
                   ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)


<TABLE>
<CAPTION>
   Three Months Ended March 31, ($ in millions)                   2001                2000
-------------------------------------------------------------------------------------------------
<S>                                                            <C>                   <C>
   REVENUES
     Transmission and Storage
       Unaffiliated                                              183.1               175.7
       Intersegment                                               72.4                69.4
-------------------------------------------------------------------------------------------------
       TOTAL                                                     255.5               245.1
-------------------------------------------------------------------------------------------------
     Distribution
       Unaffiliated                                            1,279.3               757.9
       Intersegment                                                0.3                 0.6
-------------------------------------------------------------------------------------------------
       TOTAL                                                   1,279.6               758.5
-------------------------------------------------------------------------------------------------
     Exploration and Production
       Unaffiliated                                               53.2                51.8
       Intersegment                                                1.8                 0.7
-------------------------------------------------------------------------------------------------
       TOTAL                                                      55.0                52.5
-------------------------------------------------------------------------------------------------
     Other Products and Services
       Unaffiliated                                                9.2                13.5
       Intersegment                                                0.1                  -
-------------------------------------------------------------------------------------------------
       TOTAL                                                       9.3                13.5
-------------------------------------------------------------------------------------------------
     Adjustments and eliminations                                (77.8)              (83.4)
-------------------------------------------------------------------------------------------------
     CONSOLIDATED                                              1,521.6               986.2
-------------------------------------------------------------------------------------------------
   OPERATING INCOME (LOSS)
     Transmission and Storage                                    140.4               123.9
     Distribution                                                190.2               131.2
     Exploration and Production                                   25.9                20.8
     Other Products and Services                                  (4.8)                0.2
     Corporate                                                    (0.7)               (2.4)
-------------------------------------------------------------------------------------------------
     CONSOLIDATED                                                351.0               273.7
-------------------------------------------------------------------------------------------------
</TABLE>

5.       DISCONTINUED OPERATIONS

In May 2000, as a result of its ongoing strategic assessment, Columbia announced
that it decided to sell Columbia Propane Corporation (Columbia Propane), a
propane marketer. On January 31, 2001, Columbia signed a definitive agreement to
sell the stock and assets of Columbia Propane to AmeriGas Partners L.P.
(AmeriGas) for approximately $208 million, consisting of $155 million in cash
and $53 million of AmeriGas partnership common units. The transaction, subject
to customary conditions, is expected to close in the second quarter of 2001.
Columbia has also sold substantially all the assets of Columbia Petroleum
Corporation, a diversified petroleum distribution company. Columbia Propane and
Columbia Petroleum are reported as discontinued operations and therefore the
financial statements for prior periods have been reclassified accordingly.

The revenues from discontinued operations were $207 million (Propane-$157.7
million, Petroleum-$41.7 million and Other-$7.6 million) and $346.6 million
(Gas-$131.7 million, Propane-$116.1 million, Petroleum-$85.1 million and
Other-$13.7 million) for the three months ended March 31, 2001 and March 31,
2000, respectively.


                                       9
<PAGE>   10
                         PART I - FINANCIAL INFORMATION
                   ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)


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

<TABLE>
<CAPTION>
                                                                          Three Months
                                                                         Ended March 31,
($ in millions)                                                         2001         2000
---------------------------------------------------------------------------------------------
<S>                                                                     <C>          <C>
Income from discontinued operations                                      -           10.4
Income tax expense                                                       -            4.1
---------------------------------------------------------------------------------------------
NET INCOME FROM DISCONTINUED OPERATIONS                                  -            6.3
---------------------------------------------------------------------------------------------

Estimated loss on disposal                                              1.5            -
Income tax benefits                                                     0.5            -
---------------------------------------------------------------------------------------------
NET ESTIMATED LOSS ON DISPOSAL                                          1.0            -
---------------------------------------------------------------------------------------------
</TABLE>

The net assets of the discontinued operations were as follows:

<TABLE>
<CAPTION>
                                                                       March 31,         December 31,
($ in millions)                                                          2001                2000
--------------------------------------------------------------------------------------------------------
<S>                                                                    <C>               <C>
NET ASSETS OF DISCONTINUED OPERATIONS
     Accounts receivable, net                                            69.5                91.3
     Property, plant and equipment, net                                 201.9               212.2
     Other assets                                                        62.3                70.2
     Accounts payable                                                   (45.9)              (68.3)
     Other liabilities                                                  (37.0)              (69.1)
--------------------------------------------------------------------------------------------------------
NET ASSETS OF DISCONTINUED OPERATIONS                                   250.8               236.3
--------------------------------------------------------------------------------------------------------
</TABLE>

6.       ACCOUNTING CHANGE

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

The adoption of this statement on January 1, 2001, resulted in a cumulative
after-tax increase to net income of approximately $4 million and an after-tax
reduction to other comprehensive income (OCI) of $33.6 million. The adoption
also resulted in the recognition of $160.2 million of assets and $193.8 million
of liabilities on the consolidated balance sheet. Additionally, the adoption
resulted in the reduction of the carrying value of certain long term debt by
$3.8 million. During the first quarter of 2001, $12.9 million of the net losses
included in the cumulative effect of a change in accounting principle component
of OCI were reclassified into earnings. Further detail of the assets and
liabilities recorded on the consolidated financial statements for the adoption
of SFAS No. 133 is as follows:


                                       10
<PAGE>   11
                         PART I - FINANCIAL INFORMATION
                          ITEM 1 - FINANCIAL STATEMENTS


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

As stated above, the initial recording of the cumulative effect of this
accounting change included unrealized holding losses of $4 million. However, the
activity for the quarter resulted in unrealized gains on qualifying derivatives
of $25.2 million as reported in the Statements of Consolidated Shareholder's
Equity. The activity for the quarter included:

<TABLE>
<CAPTION>
           (in millions)
------------------------------------------------------------------------------------------------------------------
<S>                                                                                                  <C>
Unrealized gains on derivatives qualifying as cash flow hedges:
Unrealized holding losses arising during the period due to cumulative effect of a change
in accounting principle, recognized at January 1, 2001, net of tax.                                  $    (33.6)

Unrealized holding gains arising during the period on derivatives qualifying as cash
flow hedges, net of tax.                                                                                   45.9

Reclassification adjustment for net losses included in net income, net of tax.                             12.9
------------------------------------------------------------------------------------------------------------------
Net unrealized gains on derivatives qualifying as cash flow hedges, net of tax.                      $     25.2
------------------------------------------------------------------------------------------------------------------
</TABLE>

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

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

Distribution

For regulatory incentive purposes, the Columbia Distribution subsidiaries enter
into contracts that allow counterparties the option to sell gas to Distribution
at specified prices during specified periods of time. Distribution charges the
counterparties a fee for this option. The changes in the fair value of the
options are primarily due to the difference between the cost of gas during the
contracted delivery period and the market price of gas during that same period.
Distribution defers a portion of the change in the fair value of the options as
either a regulatory asset or liability in accordance with SFAS No. 71,
"Accounting for the Effects of Certain Types of Regulation." The remaining
change is recognized currently in earnings.

Exploration and Production

In conjunction with certain fixed price gas delivery committments, Columbia
Energy Resources, Inc. (Columbia Resources) has purchased financial basis swaps
to transfer basis risk from the counterparty back to Columbia Resources. Because
these transactions by definition are derivatives and do not qualify for hedge
accounting, the mark to fair value of these swaps will directly impact earnings.
Additionally, Columbia Resources has engaged in commodity and basis swaps to
hedge the anticipated future sale of natural gas. These contracts are
derivatives and are designated as cash flow hedges of anticipated future sales.
The fair value of these derivatives will be recorded in other comprehensive
income (OCI) until the related sale occurs. Any ineffectiveness will be charged
to earnings. Columbia Resources has no net gain or loss recognized in earnings
due to ineffectiveness or time value in the reporting period and has not
excluded components of the derivatives' values in its assessment of hedge
effectiveness. It is anticipated that during the next 12


                                       11
<PAGE>   12
                         PART I - FINANCIAL INFORMATION
                          ITEM 1 - FINANCIAL STATEMENTS


months, expiration of forward swap contracts will result in loss recognition for
amounts currently classified in OCI of approximately $86.7 million, which will
be included in net income. Columbia Resources has forward derivative contracts
designated as cash flow hedges through December 2001. At this time, Columbia
Resources expects to continue its cash flow hedges due to the probability that
the forecasted events will occur.

Other Products and Services

Columbia Energy Services, Inc. (Columbia Energy Services) has fixed price gas
delivery commitments to three municipalities in the U.S. that qualify as
derivative instruments. Columbia Energy Services entered into a forward purchase
agreement with a gas supplier, wherein the supplier will fulfill the delivery
obligation requirements at a slight premium to index. In order to hedge this
anticipated future purchase of gas from the gas supplier, Columbia Energy
Services entered into pay fixed/receive floating swaps priced at those locations
designated for physical delivery. These swaps are designated as cash flow hedges
of the anticipated purchases. Any impacts of changes in the swaps' fair values
are included in OCI until the sales are completed. Columbia Energy Services has
no net gain or loss recognized in earnings due to ineffectiveness or time value
in the reporting period and it has not excluded any component of the derivative
instruments' value in its assessment of hedge effectiveness. It is anticipated
that during the next 12 months, expiration of forward swap contracts will result
in income recognition of amounts currently classified in OCI of approximately
$32.4 million, which will be included in net income. Columbia Energy Services
has forward swap contracts designated as cash flow hedges through December 2008.
At this time, Columbia Energy Services expects to continue its cash flow hedges
due to the probability that the forecasted transaction will occur.

Gas Transmission and Storage
The adoption and application of SFAS 133 had no impact on this segment.

Interest Rate Swaps

Columbia utilizes fixed-to-floating interest rate swap agreements to modify the
interest characteristics of a portion of its outstanding long-term debt. As a
result of these transactions, $300 million of Columbia's long-term debt is now
subject to fluctuations in interest rates. Columbia has no net gain or loss
recognized in earnings due to ineffectiveness or time value in this reporting
period. Columbia has not excluded any component of the derivative instrument's
value in its assessments of hedge effectiveness. Columbia would recognize
approximately $1 million in earnings over the remaining life of the
corresponding long-term debt if the hedging relationship was to be discontinued.


                                       12
<PAGE>   13
                         PART I - FINANCIAL INFORMATION
                ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


                       Operating Income (Loss) by Segment

<TABLE>
<CAPTION>
                                                             Three Months
                                                            Ended March 31,
                                                   --------------------------------
                                                       2001                2000
                                                   ------------        ------------
                                                              (millions)
<S>                                                <C>                 <C>
Transmission and Storage                            $    140.4          $    123.9

Distribution                                             190.2               131.2

Exploration and Production                                25.9                20.8

Other Products and Services                               (4.8)                0.2

Corporate                                                 (0.7)               (2.4)
                                                   ------------        ------------
   Consolidated                                     $    351.0          $    273.7
                                                   ============        ============
</TABLE>



                  Degree Days (Distribution Service Territory)


<TABLE>
<CAPTION>
                                                          Three Months
                                                         Ended March 31,
                                                 --------------------------------
                                                     2001                2000
                                                 ------------        ------------
<S>                                              <C>                 <C>
Actual                                                2,834                2,566

Normal                                                2,947                2,979

% Colder (warmer) than normal                            (4)                 (14)

% Colder (warmer) than prior period                      11                   (8)
</TABLE>


                                       13
<PAGE>   14
                         PART I - FINANCIAL INFORMATION
                ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


Forward Looking Statements

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

The following Management's Discussion and Analysis should be read in conjunction
with the Columbia Annual Report on Form 10-K for the fiscal year ended December
31, 2000.

Merger Agreement

On February 28, 2000, Columbia entered into an Agreement and Plan of Merger,
dated as of February 27, 2000, and subsequently amended and restated on March
31, 2000 (Merger Agreement), between Columbia and NiSource. In early June 2000,
shareholders of both companies approved the acquisition of Columbia by NiSource.

On November 1, 2000, NiSource completed the acquisition of Columbia for an
aggregate consideration of approximately $6 billion, with 30% of the
consideration paid in common stock and 70% of the consideration paid in cash and
Stock Appreciation Income Linked Securities(SM), referred to as SAILS(SM), which
are units consisting of zero coupon debt security coupled with a forward equity
contract in NiSource shares. NiSource also assumed approximately $2 billion in
Columbia debt.

                     FIRST QUARTER 2001 CONSOLIDATED RESULTS

Income from Continuing Operations

Columbia reported consolidated income from continuing operations for the first
quarter 2001 of $189.1 million, an increase of $45.7 million over the first
quarter of 2000. The improvement was largely due to additional retail sales from
the distribution segment due to the favorable effect of 11% colder weather in
the first quarter 2001 compared to the same period last year and increased
transportation revenues for the transmission and storage segment. Also improving
results were reduced operation and maintenance costs as a result of
restructuring initiatives implemented during 2000 to improve operating
efficiencies and reduce costs.


                                       14
<PAGE>   15
                         PART I - FINANCIAL INFORMATION
                ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


                        CONSOLIDATED RESULTS (CONTINUED)

Revenues

Total net revenue (operating revenues less associated products purchased costs)
for the three months ended March 31, 2001, was $667.6 million, a $48.2 million
increase over the same period last year. The increase was primarily a result of
additional retail sales due to the 11% colder weather and higher demand
revenues.

Expenses

Operating expenses for the first quarter of 2001 were $316.6 million, a decrease
of $29.1 million from the same period last year primarily due to a $19 million
decrease in operation and maintenance expense that principally reflected reduced
labor related costs. These lower costs were achieved in large part by the
success of the restructuring initiatives implemented last year that included a
voluntary incentive retirement program for employees at certain subsidiaries who
were 50 years of age and had at least 5 years of service. Depreciation and
depletion expense was down $5.4 million from last year's first quarter due to a
lower depletion rate in effect for the exploration and production operations
that resulted from higher natural gas prices. Partially offsetting this decrease
was a $1.6 million increase in depletion expense for an impairment recorded by
Columbia Energy Resources Corporation (Columbia Resources) for its Canadian
operations. Other taxes decreased $4.7 million due primarily to lower property
taxes.

Other Income (Deductions)

Other Income (Deductions), which includes interest income and other, net and
interest expense and related charges, reduced pre-tax income by $48 million for
the first three months of 2001 compared to a reduction of $41.4 million in the
same period last year. Interest income and other, net decreased $5.5 million
primarily reflecting costs of assisting low-income customers with higher winter
gas bills. Interest expense and related charges for the first quarter of 2001
were relatively unchanged from the same period last year.

Income Taxes

Income tax expense of $113.9 million for the first quarter of 2001 increased $25
million over the same period in 2000 due primarily to higher pre-tax income.

Discontinued Operations

In May 2000, as a result of its ongoing strategic assessment, Columbia announced
that it decided to sell Columbia Propane Corporation (Columbia Propane), a
propane marketer. On January 31, 2001, Columbia signed a definitive agreement to
sell the stock and assets of Columbia Propane to AmeriGas Partners L.P.
(AmeriGas) for approximately $208 million, consisting of $155 million in cash
and $53 million of AmeriGas partnership common units. The transaction, subject
to customary conditions, is expected to close in the second quarter of 2001.
Columbia has also sold substantially all the assets of Columbia Petroleum
Corporation, a diversified petroleum distribution company. Columbia Propane and
Columbia Petroleum are reported as discontinued operations and therefore the
financial statements for prior periods have been reclassified accordingly. For
the first quarter 2001, the estimated loss on disposal of the propane business
was $1 million after-tax while the propane and petroleum business reported
after-tax income of $6.3 million in the same period of 2000.

Liquidity and Capital Resources

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


                                       15
<PAGE>   16
                         PART I - FINANCIAL INFORMATION
                ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


                        CONSOLIDATED RESULTS (CONTINUED)

Net cash from operations for the first quarter of 2001 was $288.5 million, a
decrease of $137.1 million from the same period in 2000 due largely to working
capital timing changes. These changes included an increase in accounts
receivable attributable to additional natural gas sales for the distribution
operations due to colder weather when compared to last year and higher gas rates
in effect. This decrease in cash was partially offset by the recovery in
underrecovered gas costs.

Columbia satisfies its liquidity requirements primarily through internally
generated funds and through a $2.5 billion revolving credit facility (Credit
Facility) that was entered into by NiSource Finance Corp., NiSource's financing
subsidiary, with a syndicate of banks during the first quarter of 2001. The
Credit Facility will be drawn on to refinance and consolidate essentially all of
the existing short-term borrowings of NiSource's subsidiaries, including
Columbia, as they come due. This new facility is guaranteed by NiSource.

As of March 31, 2001, Columbia had $292 million of short-term borrowings
outstanding under the credit facility, mentioned above, at a weighted average
interest rate of 5.78%. In addition, at March 31, 2001, Columbia had letters of
credit issued and outstanding of $125.3 million.

In 1998, Columbia entered into several fixed-to-floating interest rate swap
agreements to modify the interest characteristics of $300 million of its
outstanding long-term debt. As a result of these transactions, that portion of
Columbia's long-term debt is now subject to fluctuations in interest rates. This
allows Columbia to benefit from a lower interest rate environment. In order to
maintain a balance between fixed and floating interest rates, Columbia is
targeting average annual floating rate debt exposure for 10 to 20% of its
outstanding long-term debt.

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

Accounting Change

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

The adoption of this statement on January 1, 2001, resulted in a cumulative
after-tax increase to net income of approximately $4 million and an after-tax
reduction to other comprehensive income (OCI) of $33.6 million. The adoption
also resulted in the recognition of $160.2 million of assets and $193.8 million
of liabilities on the consolidated balance sheet. Additionally, the adoption
resulted in the reduction of the carrying value of certain long term debt by
$3.8 million. During the first quarter of 2001, $12.9 million of the net losses
included in the cumulative effect of a


                                       16
<PAGE>   17
                         PART I - FINANCIAL INFORMATION
                ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


                        CONSOLIDATED RESULTS (CONTINUED)

change in accounting principle component of OCI were reclassified into earnings.

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

See Note 6., "Accounting Change" on page 10 for additional information.


                                       17
<PAGE>   18
                         PART I - FINANCIAL INFORMATION
                ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


                       TRANSMISSION AND STORAGE OPERATIONS

<TABLE>
<CAPTION>
                                                                                         Three Months
                                                                                        Ended March 31,
                                                                               ---------------------------------
                                                                                   2001                 2000
                                                                               ------------         ------------
                                                                                          (millions)
<S>                                                                            <C>                  <C>
OPERATING REVENUES
    Transportation revenues                                                     $    194.4              $ 185.6
    Storage revenues                                                                  44.6                 44.6
    Other revenues                                                                    16.5                 14.9
                                                                               ------------         ------------
Total Operating Revenues                                                             255.5                245.1
                                                                               ------------         ------------

OPERATING EXPENSES
    Operation and maintenance                                                         72.8                 78.6
    Depreciation                                                                      27.4                 27.3
    Other taxes                                                                       14.9                 15.3
                                                                               ------------         ------------
Total Operating Expenses                                                             115.1                121.2
                                                                               ------------         ------------

OPERATING INCOME                                                                $    140.4              $ 123.9
                                                                               ============         ============


THROUGHPUT (Bcf)
Transportation
    Columbia Transmission
        Market area                                                                  366.7                378.1
    Columbia Gulf
        Mainline                                                                     162.1                145.7
        Short-haul                                                                    37.0                 57.5
        Intrasegment eliminations                                                   (152.9)              (140.4)
                                                                               ------------         ------------
Total Throughput                                                                     412.9                440.9
                                                                               ============         ============
</TABLE>

Throughput

Columbia Transmission's throughput consists of transportation and storage
services for local distribution companies and other customers within its market
area, which covers portions of the northeastern, mid-Atlantic, mid-western,
southern states and the District of Columbia. Throughput for Columbia Gulf
reflects mainline transportation services from Rayne, Louisiana to Leach,
Kentucky and short-haul transportation services from the Gulf of Mexico to
Rayne, Louisiana.

Throughput for the transmission and storage segment totaled 412.9 billion cubic
feet (Bcf) for the first quarter of 2001, a decrease of 28 Bcf from the same
period last year. Columbia Transmission's transportation decreased 11.4 Bcf from
the first quarter of 2000, primarily due to decreased transportation from
storage reflecting reduced withdrawals from storage in the current year when
compared to the same period last year. Mainline transportation for the first
quarter of this year increased 16.4 Bcf due to colder weather, which resulted in
increased demand for transportation services. Short-haul transportation
decreased 20.5 Bcf in 2001, primarily due to reduced throughput from off-system
supply sources.

Operating Revenues

Total operating revenues were $255.5 million for the first quarter of 2001, an
increase of $10.4 million over the same period in 2000. The increase in revenues
was primarily due to higher transportation revenues from additional capacity
that was made available by customers. In addition, approximately 5 Bcf of
storage base gas was sold in both the first quarters of 2001 and 2000 that
provided additional revenues of $11.4 million and $10.9 million, respectively.


                                       18
<PAGE>   19
                         PART I - FINANCIAL INFORMATION
                ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


                 TRANSMISSION AND STORAGE OPERATIONS (CONTINUED)

Operating Income

First quarter 2001 operating income of $140.4 million increased $16.5 million
over the same period last year, due primarily to higher revenues, as discussed
above, coupled with lower payroll and benefit costs as a result of a voluntary
incentive retirement program implemented in 2000.

                             DISTRIBUTION OPERATIONS


<TABLE>
<CAPTION>
                                                                         Three Months
                                                                        Ended March 31,
                                                                  ---------------------------
                                                                      2001           2000
                                                                  ------------   ------------
                                                                           (millions)
<S>                                                               <C>            <C>
NET REVENUES
    Sales revenues                                                 $  1,156.6     $    627.8
    Less: Cost of gas sold                                              913.7          425.2
                                                                  ------------   ------------
    Net Sales Revenues                                                  242.9          202.6
                                                                  ------------   ------------

    Transportation revenues                                             123.0          130.7
    Less: Associated gas costs                                            6.4           12.7
                                                                  ------------   ------------
    Net Transportation Revenues                                         116.6          118.0
                                                                  ------------   ------------

Net Revenues                                                            359.5          320.6
                                                                  ------------   ------------

OPERATING EXPENSES
    Operation and maintenance                                           103.5          117.5
    Depreciation                                                         21.2           21.6
    Other taxes                                                          44.6           50.3
                                                                  ------------   ------------
Total Operating Expenses                                                169.3          189.4
                                                                  ------------   ------------

OPERATING INCOME                                                   $    190.2     $    131.2
                                                                  ============   ============

THROUGHPUT (Bcf)
    Sales
        Residential                                                      65.9           57.5
        Commercial                                                       25.7           20.4
        Industrial and other                                              1.4            1.4
                                                                  ------------   ------------
    Total Sales                                                          93.0           79.3
    Transportation                                                      107.7          123.3
                                                                  ------------   ------------
Total Throughput                                                        200.7          202.6
Off-System Sales                                                          5.1            7.1
                                                                  ------------   ------------
Total Sold and Transported                                              205.8          209.7
                                                                  ============   ============

SOURCES OF GAS FOR THROUGHPUT (Bcf)
    Sources of Gas Sold
        Spot market*                                                     48.6           52.7
        Producers                                                         1.9            3.3
        Storage withdrawals (injections)                                 48.1           45.3
        Other                                                            (0.5)         (14.9)
                                                                  ------------   ------------
    Total Sources of Gas Sold                                            98.1           86.4
    Gas received for delivery to customers                              107.7          123.3
                                                                  ------------   ------------
Total Sources                                                           205.8          209.7
                                                                  ============   ============
</TABLE>

* Reflects volumes under purchase contracts of less than one year.


                                       19
<PAGE>   20
                         PART I - FINANCIAL INFORMATION
                ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


                       DISTRIBUTION OPERATIONS (CONTINUED)

Throughput

In 2001, total volumes sold and transported of 205.8 Bcf for the first quarter
was relatively unchanged from the first three months of 2000. The retail sales
increase of 13.7 Bcf due to 11% colder weather and customer growth, was more
than offset by a 15.6 Bcf decrease in transportation services and 2 Bcf lower
off-system sales.

Net Revenues

Net revenues for the three months ended March 31, 2001, of $359.5
million, were up $38.9 million over the same period in 2000, primarily due to
colder weather partially offset by decreased transportation and off-system
revenues.

Operating Income

Operating income for the first quarter of 2001 of $190.2 million, increased $59
over the same period in 2000, primarily due to increased net revenues, as
discussed above, and a $20.1 million decrease in operating expenses. The lower
expenses included decreased payroll and benefit costs that resulted from a
reduced employee complement due to the voluntary incentive retirement program
implemented in 2000. In addition, other taxes decreased $5.7 million due to
lower property taxes partially offset by increased gross receipts taxes.

                      EXPLORATION AND PRODUCTION OPERATIONS

<TABLE>
<CAPTION>
                                                                                           Three Months
                                                                                          Ended March 31,
                                                                                 --------------------------------
                                                                                     2001                2000
                                                                                 ------------        ------------
                                                                                            (millions)
<S>                                                                              <C>                 <C>
OPERATING REVENUES
    Gas revenues                                                                  $     50.0          $     47.5
    Other revenues                                                                       5.0                 5.0
                                                                                 ------------        ------------
Total Operating Revenues                                                                55.0                52.5
                                                                                 ------------        ------------

OPERATING EXPENSES
    Operation and maintenance                                                           15.2                16.1
    Depreciation and depletion                                                           8.2                12.4
    Other taxes                                                                          5.7                 3.2
                                                                                 ------------        ------------
Total Operating Expenses                                                                29.1                31.7
                                                                                 ------------        ------------

Operating Income                                                                  $     25.9          $     20.8
                                                                                 ============        ============


GAS PRODUCTION STATISTICS
Production (Bcf)
    U.S.                                                                                14.5                14.1
    Canada                                                                                --                  --
                                                                                 ------------        ------------
      Total                                                                             14.5                14.1
                                                                                 ============        ============

Average U.S. Price ($ per Mcf)                                                          3.33                3.34

OIL AND LIQUIDS PRODUCTION STATISTICS
Production (000 Bbls)
    U.S.                                                                                  59                  43
    Canada                                                                                 2                   3
                                                                                 ------------        ------------
      Total                                                                               61                  46
                                                                                 ============        ============

Average Price ($ per Bbl)
    U.S.                                                                               25.88               23.65
    Canada                                                                             31.13               28.12
</TABLE>


                                       20
<PAGE>   21
                         PART I - FINANCIAL INFORMATION
                ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


                EXPLORATION AND PRODUCTION OPERATIONS (CONTINUED)

Drilling Activity

Columbia Resources seeks to achieve asset and profit growth primarily through
expanded drilling activities. Columbia Resources participated in 24 gross (22.4
net) wells during the first quarter of 2001 with a success rate of 100%, adding
12.4 net billion cubic feet equivalents (Bcfe) of gas reserves. During the same
period in 2000, Columbia Resources completed 23 gross (18.2 net) wells with a
70% success rate, adding reserves of 3 net Bcfe of gas reserves.

Volumes

Gas production of 14.5 Bcf in the first quarter of 2001 increased 0.4 Bcf over
the same period in 2000 reflecting improvements to Columbia Resources' gathering
facilities and reduced capacity constraints. Oil and liquids production
increased to 61,000 Barrels in the first quarter of 2001, up 15,000 barrels over
the 2000 first quarter.

Operating Revenues

Operating revenues for the first quarter of 2001 were $55 million, compared to
$52.5 million for the same quarter a year ago. The improvement reflected the
increase in gas and oil production while the average natural gas sales price was
relatively unchanged. Approximately 69% of Columbia Resources' first quarter
2001 natural gas production was hedged at an average price of $4.08 per thousand
cubic feet (Mcf), while approximately 22% of the current quarter's production
was sold at fixed price of $2.99 per Mcf in accordance with the terms of a
agreement entered into during 1999.

Operating Income

Operating income for the first quarter 2001 of $25.9 million, increased $5.1
million over last year's first quarter, primarily due to higher operating
revenues, as discussed above, partially offset by lower depletion expense as a
result of a lower depletion rate in effect that resulted from higher natural gas
prices. Partially offsetting this decrease was a $1.6 million increase in
depletion expense for a ceiling test write-down recorded for the Canadian
operations.


                                       21
<PAGE>   22
                         PART I - FINANCIAL INFORMATION
                ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


                           OTHER PRODUCTS AND SERVICES

<TABLE>
<CAPTION>
                                                        Three Months
                                                       Ended March 31,
                                              --------------------------------
                                                  2001                2000
                                              ------------        ------------
                                                         (millions)
<S>                                           <C>                 <C>
Operating Revenues
    Gas revenues                               $      9.1          $      9.8
    Power generation revenues                          --                 0.5
    LNG revenues                                       --                 2.0
    Other revenues                                    0.2                 1.2
                                              ------------        ------------
Total Operating Revenues                              9.3                13.5
                                              ------------        ------------

Operating Expenses
    Products purchased                                7.0                 7.7
    Operation and maintenance                         7.0                 5.4
    Depreciation                                       --                 0.1
    Other taxes                                       0.1                 0.1
                                              ------------        ------------

Total Operating Expenses                             14.1                13.3
                                              ------------        ------------

Operating Income (Loss)                        $     (4.8)         $      0.2
                                              ============        ============
</TABLE>

Operating Revenues

Operating Revenues of $9.3 million for the first quarter of 2001 decreased $4.2
million from the first quarter of 2000 primarily due to absence of LNG and power
generation revenues in the current period. These operations were sold in the
second quarter of 2000. In addition, gas revenues recorded for certain long-term
sales commitments decreased $700,000, which was offset by a similar decrease in
products purchased and therefore had effect on the period-to-period change in
operating income.

Operating Income (Loss)

Other products and services reported an operating loss of $4.8 million versus
operating income of $200,000 in 2000, primarily reflecting reduced operating
revenues, as discussed above. Also reducing operating income was $1.6 million
higher operation and maintenance expense primarily due to additional start-up
costs related to Columbia's dark-fiber optics telecommunications network that is
primarily being built along pipeline rights-of-way between New York and
Washington, D.C.


                                       22
<PAGE>   23
                         PART I - FINANCIAL INFORMATION
       ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


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



                           PART II - OTHER INFORMATION
                           ITEM 1 - LEGAL PROCEEDINGS

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

         In November 1993, the plaintiffs amended their Amended Statement of
         Claim to include allegations that the balance in the Carried Interest
         Account (an account for operating costs, which are recoverable, by
         working interest owners) which is in excess of the balance as of
         November 1988 should be reduced to zero. Columbia, on behalf of
         Columbia Canada, consented to the amendment in consideration of the
         plaintiffs' acknowledgment that approximately $63 million was properly
         charged to the account. However, Columbia and Columbia Canada continue
         to dispute the claim to the extent that the claim challenges
         expenditures incurred since November 1988, including expenditures made
         after Columbia Canada was sold to Anderson Exploration Ltd. (Anderson)
         effective December 31, 1991.

         A trial commenced in the third quarter of 1996 in the Court of Queen's
         Bench. Following multiple lengthy adjournments, the parties have
         concluded presenting their witnesses and evidence and have made their
         post-trial arguments. The parties are awaiting the courts ruling.
         Management continues to believe that its defenses are meritorious, and
         that the risk of any material liability to Columbia is de minimis.

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

2.       Transcom. On March 17, April 11 and April 21, 2000, one of Columbia's
         subsidiaries, Transcom received directives from the Philadelphia
         District of the U.S. Army Corps of Engineers (Philadelphia District)
         and an administrative order from the Pennsylvania Department of
         Environmental Protection (PA DEP) addressing alleged violations of
         federal and state laws resulting from construction activities
         associated with Transcom's laying fiber optic cable along portions of a
         route between Washington, D.C. and New York City. The order and
         directives required Transcom to largely cease construction activities.
         On September 18, 2000, Transcom entered into a voluntary settlement
         agreement with the Philadelphia District under which Transcom
         contributed $1.2 million to the Pennsylvania chapter of the Nature
         Conservancy and the Philadelphia District lifted its directives. As a
         result of the voluntary agreement with the Philadelphia District and
         communications with the PA DEP, the Maryland Department of the
         Environment and the Baltimore District of the U.S. Army Corps of
         Engineers, work in Pennsylvania and Maryland is now ongoing. Transcom
         cannot predict the nature or amount of total remedies that may be
         sought in connection with the foregoing construction activities.


                                       23
<PAGE>   24
                           PART II - OTHER INFORMATION
                      ITEM 1 - LEGAL PROCEEDINGS(CONTINUED)


3.       United States of America ex rel. Jack J. Grynberg v Columbia Gas
         Transmission Corp. et. al. The plaintiff filed a complaint under the
         False Claims Act, on behalf of the United States of America, against
         approximately seventy pipelines, including Columbia Gulf. The plaintiff
         claimed that the defendants had submitted false royalty reports to the
         government (or caused others to do so) by mismeasuring the volume and
         heating content of natural gas produced on Federal land and Indian
         lands. Plaintiff's original complaint was dismissed without prejudice
         for misjoinder of parties and for failing to plead fraud with
         specificity. The plaintiff then filed over sixty-five new False Claims
         Act complaints against over 330 defendants in numerous Federal courts.
         In 1997, one of those complaints was filed in the Federal District
         Court for the Eastern District of Louisiana against Columbia and
         thirteen affiliated entities. Plaintiff's second complaint repeats the
         mismeasurement claims previously made and adds valuation claims
         alleging that the defendants have undervalued natural gas for royalty
         purposes in various ways, including by making sales to affiliated
         entities at artificially low prices. Most of the Grynberg cases were
         transferred to Federal court in Wyoming in 1999. In December, 1999, the
         Columbia defendants filed a motion to dismiss plaintiff's second
         complaint primarily based on a failure to plead fraud with specificity.
         A hearing was held on the motion in March 2000 but the court has not
         yet ruled.

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

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

6.       Anthony Gonzalez, et al. v. National Propane Corporation, et al. On
         December 11, 1997, plaintiffs Anthony Gonzalez, Helen Pieczynski, as
         Special Administrator of the Estate of Edmund Pieczynski, deceased,
         Michael Brown and Stephen Pieczynski filed a multiple-count complaint
         for personal injuries in the Circuit Court of Cook County, Illinois
         against National Propane Corporation and the Estate of Edmund
         Pieczynski sounding in strict tort liability and negligence.
         Plaintiff's complaint arises from an explosion and fire which occurred
         in a Wisconsin vacation cottage in 1997. National Propane, L.P. filed a
         third-party complaint for contribution against Natural Gas Odorizing
         and Phillips Petroleum Company. Written discovery has been completed
         and the parties are conducting oral discovery of the fact witnesses.
         There has been no trial date set in the matter, and the next court date
         is June 27, 2001, at which time further scheduling of discovery will
         occur.

7.       Columbia Gas Transmission Corp. v. Consolidation Coal Co., et al. On
         December 21, 1999, Columbia Transmission filed a complaint in Federal
         court in Pittsburgh, Pennsylvania against


                                       24
<PAGE>   25
                           PART II - OTHER INFORMATION
                      ITEM 1 - LEGAL PROCEEDINGS(CONTINUED)


         Consolidation Coal Co. and McElroy Coal Co. (collectively, Consol),
         seeking declaratory and permanent injunctive relief enjoining Consol
         from pursuing its current plan to conduct longwall mining through
         Columbia Transmission's Victory Storage Field (Victory) in northern
         West Virginia. The complaint was served on April 10, 2000. Consol's
         current plans to longwall mine through Victory would destroy certain
         infrastructure of Victory, including all of Columbia Transmission's
         storage wells in the path of the mining. The parties are holding
         discussions concerning resolution of this matter. On December 8, 2000,
         the court denied Consol's motion to dismiss. On March 5, 2001, the
         court denied Consol's motion to transfer this action to Federal court
         in West Virginia (see McElroy Coal Company v. Columbia Gas Transmission
         Corporation below). On March 27, 2001, the court also granted
         Columbia's motion to enjoin Consol from further prosecuting the West
         Virginia action and from initiating any further actions in any other
         court raising compulsory counterclaims to this action. On April 2,
         2001, Consol filed an appeal of the March 27, 2001 order to the United
         States Court of Appeals for the Third Circuit. Consol also filed a
         Motion for Leave to File a Counterclaim on April 10, 2001, including a
         claim for inverse condemnation. The court accepted Consol's Motion for
         Leave on April 12, 2001. Meanwhile, discovery is proceeding.

8.       McElroy Coal Company v. Columbia Gas Transmission Corporation. On
         February 12, 2001, McElroy Coal Company (McElroy), an affiliate of
         Consolidation Coal Co., filed a complaint against Columbia Transmission
         in Federal court in Wheeling, West Virginia. The West Virginia
         complaint seeks declaratory and injunctive relief as to McElroy's
         alleged right to mine coal within Victory, and Columbia Transmission's
         obligation to take all necessary measures to permit McElroy to longwall
         mine. The complaint also seeks compensation for the inverse
         condemnation of any coal that cannot be mined due to Columbia
         Transmission's Victory operations. Except for the claim of inverse
         condemnation, McElroy's West Virginia complaint appears to be virtually
         identical to Consol's original counterclaim to Columbia Transmission's
         Federal court action in Pennsylvania. As discussed in Columbia Gas
         Transmission Corp. v. Consolidation Coal Co., et al, above, the federal
         court in Pittsburgh has granted Columbia's motion to enjoin McElroy
         from further prosecution of this action.


                                       25
<PAGE>   26
Item 2. Changes in Securities and Use of Proceeds

Omitted pursuant to General Instruction H.(2)(b)


Item 3. Defaults Upon Senior Securities

Omitted pursuant to General Instruction H.(2)(b)


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

Omitted pursuant to General Instruction H.(2)(b)


Item 5. Other Information

None


Item 6.  Exhibits and Reports to Form 10-Q

         Exhibit
         Number
         10-DA    Natural Gas Advance Sale Contract dated December 1, 1999,
                  between Columbia Natural Resources, Inc. and Mahonia II
                  Limited, hereby incorporated by reference in NiSource's
                  Quarterly Report on Form 10-Q for the period ended March 31,
                  2001, in exhibit 10.30.

         10-DB    First Amendment to Natural Gas Advance Sale Contract (dated
                  December 1, 1999), effective March 30, 2001, between Columbia
                  Natural Resources, Inc. and Mahonia II Limited, hereby
                  incorporated by reference in NiSource's Quarterly Report on
                  Form 10-Q for the period ended March 31, 2001, in exhibit
                  10.31.

         10-DC    Natural Gas Advance Sale Contract dated August 24, 2000,
                  between Columbia Natural Resources, Inc. and Mahonia II
                  Limited, hereby incorporated by reference in NiSource's
                  Quarterly Report on Form 10-Q for the period ended March 31,
                  2001, in exhibit 10.32.

         10-DD    First Amendment to Natural Gas Advance Sale Contract (dated
                  August 24, 2000), effective March 30, 2001, between Columbia
                  Natural Resources, Inc. and Mahonia II Limited, hereby
                  incorporated by reference in NiSource's Quarterly Report on
                  Form 10-Q for the period ended March 31, 2001, in exhibit
                  10.33.

         12*      Statements of Ratio of Earnings to Fixed Charges

                  *Filed herewith


         There were no reports on Form 8-K filed during the first quarter of
2001.


                                       26
<PAGE>   27
                                    SIGNATURE


Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.







                                                     Columbia Energy Group
                                                -------------------------------
                                                         (Registrant)






Date:  May 10, 2001                       By:       /s/ Jeffrey W. Grossman
                                                -------------------------------
                                                      Jeffrey W. Grossman
                                                 Vice President and Controller
                                                 (Principal Accounting Officer
                                                  and Duly Authorized Officer)


                                       27