<PAGE>


                                  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 SEPTEMBER 30, 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 East 86th Avenue, 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>
                     COLUMBIA ENERGY GROUP AND SUBSIDIARIES
                           FORM 10-Q QUARTERLY REPORT
                     FOR THE THIRD ENDED SEPTEMBER 30, 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 Narrative Analysis of Results of Operations ..     14

         Item 3. Quantitative and Qualitative Disclosures About Market Risk      17


PART II  OTHER INFORMATION

         Item 1. Proceedings ...............................................     18

         Item 2. Changes in Securities and Use of Proceeds .................     20

         Item 3. Defaults Upon Senior Securities ...........................     20

         Item 4. Submission of Matters to a Vote of Security Holders .......     20

         Item 5. Other Information .........................................     20

         Item 6. Exhibits and Reports on Form 8-K ..........................     20

         Signature .........................................................     21
</TABLE>


                                       2
<PAGE>
                                     PART I

ITEM 1.  FINANCIAL STATEMENTS

COLUMBIA ENERGY GROUP AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME (unaudited)

<TABLE>
<CAPTION>
                                                                  Three Months                Nine Months
                                                              Ended September 30,         Ended September 30,
                                                              ------------------       -----------------------
(in millions)                                                 2001          2000          2001           2000
--------------------------------------------------------------------------------------------------------------
<S>                                                           <C>           <C>         <C>            <C>
NET REVENUES
   Energy sales                                               390.2         159.2       2,082.1        1,020.6
   Less:  Products purchased                                  238.7          25.3       1,446.5          468.3
--------------------------------------------------------------------------------------------------------------
   Gross Margin                                               151.5         133.9         635.6          552.3
   Transportation                                             151.9         147.5         574.5          563.3
   Production gas sales                                        36.0          33.5         103.4          115.3
   Other                                                       31.9          39.1         111.0          129.1
--------------------------------------------------------------------------------------------------------------
Total Net Revenues                                            371.3         354.0       1,424.5        1,360.0
--------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
   Operation and maintenance                                  225.9         204.9         622.8          638.9
   Depreciation and depletion                                  52.3          43.5         165.4          153.0
   Loss on impairment of telecommunication assets                --            --          89.2             --
   Other taxes                                                 29.1          32.0         128.5          141.3
--------------------------------------------------------------------------------------------------------------
Total Operating Expenses                                      307.3         280.4       1,005.9          933.2
--------------------------------------------------------------------------------------------------------------
OPERATING INCOME                                               64.0          73.6         418.6          426.8
--------------------------------------------------------------------------------------------------------------
OTHER INCOME (DEDUCTIONS)
   Interest Income and other, net                               2.7           5.7           6.1          103.8
   Interest expense and related charges                       (40.4)        (48.3)       (125.9)        (139.2)
--------------------------------------------------------------------------------------------------------------
Total Other Income (Deductions)                               (37.7)        (42.6)       (119.8)         (35.4)
--------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS
   BEFORE INCOME TAXES                                         26.3          31.0         298.8          391.4
INCOME TAX EXPENSE (BENEFIT)                                   12.5          11.5         116.2          145.6
--------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS                              13.8          19.5         182.6          245.8
--------------------------------------------------------------------------------------------------------------
DISCONTINUED OPERATIONS - NET OF TAXES
   (Loss) from operations                                        --            --            --           (1.5)
   Estimated (loss) on disposal                               (30.8)        (83.3)        (31.8)        (110.7)
--------------------------------------------------------------------------------------------------------------
(Loss) from Discontinued Operations - net of taxes            (30.8)        (83.3)        (31.8)        (112.2)
--------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
   OF ACCOUNTING CHANGE                                       (17.0)        (63.8)        150.8          133.6
Cumulative Effect of Accounting Change - net of taxes            --            --           4.0             --
--------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS)                                             (17.0)        (63.8)        154.8          133.6
==============================================================================================================
</TABLE>


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


                                       3
<PAGE>
ITEM 1.  FINANCIAL STATEMENTS (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                           SEPTEMBER 30,    December 31,
(in millions)                                                   2001           2000
----------------------------------------------------------------------------------------
                                                            (unaudited)
<S>                                                         <C>             <C>
ASSETS
PROPERTY, PLANT AND EQUIPMENT
   Gas utility and other plant, at original cost            $8,192.9        $8,174.2
   Accumulated depreciation                                 (3,852.8)       (3,778.3)
--------------------------------------------------------------------------------------
   Net Gas Utility and Other Plant                           4,340.1         4,395.9
--------------------------------------------------------------------------------------
   Gas and oil producing properties, full cost method
     United States cost center                                 975.2           913.6
     Canadian cost center                                       22.0            20.2
   Accumulated depletion                                      (311.1)         (272.7)
--------------------------------------------------------------------------------------
   Net Gas and Oil Producing Properties                        686.1           661.1
--------------------------------------------------------------------------------------
Net Property, Plant and Equipment                            5,026.2         5,057.0
--------------------------------------------------------------------------------------
INVESTMENTS AND OTHER ASSETS
   Unconsolidated affiliates                                    75.8            28.1
   Net assets of discontinued operations                        24.1           236.3
   Affiliated notes receivable                                  26.2              --
   Other                                                        17.3            27.4
--------------------------------------------------------------------------------------
Total Investments and Other Assets                             143.4           291.8
--------------------------------------------------------------------------------------
CURRENT ASSETS
   Cash and temporary cash investments                          42.3            73.5
   Accounts receivable, net                                    356.5           683.3
   Affiliated receivable                                        60.0             2.7
   Gas inventory                                               293.8           147.4
   Other inventories - at average cost                          13.9            14.5
   Prepayments                                                  90.5            73.8
   Regulatory assets                                            72.6            57.4
   Underrecovered gas costs                                     10.3           169.0
   Deferred property taxes                                      15.0            45.2
   Exchange gas receivable                                     275.5           615.9
   Price risk management asset                                 122.4              --
   Other                                                        63.8            (2.3)
--------------------------------------------------------------------------------------
Total Current Assets                                         1,416.6         1,880.4
--------------------------------------------------------------------------------------
REGULATORY ASSETS                                              348.2           351.8
DEFERRED CHARGES                                                60.5            45.2
--------------------------------------------------------------------------------------
TOTAL ASSETS                                                $6,994.9        $7,626.2
======================================================================================
</TABLE>


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


                                       4
<PAGE>
ITEM 1.  FINANCIAL STATEMENTS (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                   SEPTEMBER 30,    December 31,
(in millions)                                          2001           2000
--------------------------------------------------------------------------------
                                                    (unaudited)
<S>                                                <C>              <C>
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
   Common stock equity                               $2,266.2       $2,035.9
   Long-term debt                                     1,648.4        1,639.1
--------------------------------------------------------------------------------
Total Capitalization                                  3,914.6        3,675.0
--------------------------------------------------------------------------------
CURRENT LIABILITIES
   Short term debt                                         --          521.0
   Current maturities of long-term debt                   0.2            0.2
   Accounts and drafts payable                          238.0          398.0
   Affiliated payable                                   126.7            7.2
   Accrued taxes                                        148.6          177.1
   Accrued interest                                      51.4           17.7
   Estimated rate refunds                                 8.3            6.8
   Overrecovered gas costs                              155.8             --
   Transportation and exchange gas payable              211.1          358.5
   Deferred revenue                                      91.6          451.5
   Other                                                365.6          366.0
--------------------------------------------------------------------------------
Total Current Liabilities                             1,397.3        2,304.0
--------------------------------------------------------------------------------
OTHER LIABILITIES AND DEFERRED CREDITS
   Deferred income taxes, noncurrent                    833.9          766.8
   Investment tax credits                                30.1           31.2
   Postretirement benefits other than pensions          108.1          114.7
   Regulatory liabilities                                33.2           32.4
   Deferred revenue                                     464.6          498.0
   Other                                                213.1          204.1
--------------------------------------------------------------------------------
Total Other Liabilities and Deferred Credits          1,683.0        1,647.2
--------------------------------------------------------------------------------
TOTAL CAPITALIZATION AND LIABILITIES                 $6,994.9       $7,626.2
================================================================================
</TABLE>

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


                                       5
<PAGE>
ITEM 1.  FINANCIAL STATEMENTS (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)


<TABLE>
<CAPTION>
Nine Months Ended September 30, (in millions)                                            2001             2000
-----------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>              <C>
OPERATING ACTIVITIES
   Net Income                                                                            154.8            133.6
   Adjustments to reconcile net income to net cash from continuing operations:
    Loss from discontinued operations                                                       --              1.5
    Loss from disposal of discontinued operations                                         31.8            110.7
    Cumulative effect of accounting change, net of tax                                    (4.0)              --
    Depreciation and depletion                                                           165.4            153.0
    Deferred income taxes                                                                (35.6)            64.6
    Gain on sale of partnership                                                                           (90.5)
    Earnings from equity investment, net of distributions                                (43.0)            (9.7)
    Loss on impairment of telecommunication assets                                        89.2               --
    Deferred revenue                                                                     (33.4)           211.4
    Other - net                                                                           52.8             21.4
-----------------------------------------------------------------------------------------------------------------
                                                                                         378.0            596.0
-----------------------------------------------------------------------------------------------------------------
   Changes in components of working capital:
    Accounts receivable, net                                                             320.9            112.2
    Affiliated receivable                                                                (83.5)            77.7
    Gas inventory                                                                       (146.4)           (91.6)
    Other inventories - at average cost                                                    0.6              1.5
    Prepayments                                                                          (16.7)            (9.3)
    Accounts payable                                                                    (160.0)           (12.3)
    Affiliated payable                                                                   119.5               --
    Accrued taxes                                                                        (28.6)           (71.6)
    Accrued interest                                                                      33.7             43.2
    Estimated rate refunds                                                                 1.5            (14.1)
    Under/Overrecovered gas costs                                                        158.7            (57.6)
    Exchange gas receivable/payable                                                      193.0           (256.8)
    Deferred revenue                                                                    (359.9)           396.0
    Other working capital                                                                143.1             41.3
-----------------------------------------------------------------------------------------------------------------
Net Cash from Continuing Operations                                                      553.9            754.6
Net Cash from Discontinued Operations                                                    178.9             17.9
-----------------------------------------------------------------------------------------------------------------
Net Cash from Operating Activities                                                       732.8            772.5
-----------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
   Capital expenditures                                                                 (257.8)          (305.9)
   Capital expenditures - assets held for sale                                              --            (41.1)
   Sale and purchase of investments                                                        8.2            107.5
-----------------------------------------------------------------------------------------------------------------
Net Investment Activities                                                               (249.6)          (239.5)
-----------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
   Dividends paid                                                                           --            (54.1)
   Issuance of common stock                                                                 --              5.4
   Issuance (repayment) of short-term debt                                              (521.0)          (411.4)
   Purchase of treasury stock                                                               --           (114.1)
   Other financing activities                                                              5.8             13.4
-----------------------------------------------------------------------------------------------------------------
Net Financing Activities                                                                (515.2)          (560.8)
-----------------------------------------------------------------------------------------------------------------
Increase (Decrease) in cash and temporary cash investments                               (31.1)           (27.8)
Cash and temporary cash investments at beginning of year                                  73.5             58.1
-----------------------------------------------------------------------------------------------------------------
CASH AND TEMPORARY CASH INVESTMENTS AT SEPTEMBER 30*                                      42.4             30.3
=================================================================================================================

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
    Cash paid for interest                                                                 9.8             89.0
    Cash paid for income taxes (net of refunds)                                            8.9             68.2
-----------------------------------------------------------------------------------------------------------------
</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>
ITEM 1.  FINANCIAL STATEMENTS (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED COMMON STOCK EQUITY


<TABLE>
<CAPTION>
                                                   SEPTEMBER 30,        December 31,
(in millions)                                          2001                 2000
------------------------------------------------------------------------------------
                                                    (unaudited)
<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                                       821.0                666.5
Accumulated other comprehensive income                   75.4                 (0.4)
------------------------------------------------------------------------------------
TOTAL COMMON STOCK EQUITY                            $2,266.2             $2,035.9
====================================================================================
</TABLE>


COLUMBIA ENERGY GROUP AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
                                                               SEPTEMBER 30,          December 31,
For the Year to Date Period Ended, (in millions)                   2001                   2000
---------------------------------------------------------------------------------------------------
                                                                (unaudited)
<S>                                                               <C>                    <C>
COMPREHENSIVE INCOME
    Net income                                                    $ 154.8                $ 133.7
    Other comprehensive income (loss) -  net of tax
      Foreign currency translation adjustment                        (1.3)                  (0.7)
      Change on value of marketable securities                        3.0                     --
      Net gain on cash flow hedges                                   73.7                     --
---------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME                                              $ 230.2                $ 133.0
===================================================================================================
</TABLE>

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


                                       7
<PAGE>
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 5, 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 SAILSSM (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, but did
not "push-down" the purchase accounting adjustments to the financial statements
of Columbia.

3.    RESTRUCTURING ACTIVITIES

As discussed in the Form 10-K, Columbia implemented a plan to restructure its
operations as a result of its acquisition by NiSource, discussed above. As a
result of the restructuring plan, it is estimated that approximately 781
management, professional, administrative and technical positions have been or
will be eliminated. 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 September 30, 2001,
approximately 625 employees had been terminated as a result of the restructuring
plan. Approximately 90 and 337 terminations occurred for the three months and
nine months ended September 30, 2001, respectively. At September 30, 2001, the
consolidated balance sheet reflected an accrual of $33.8 million related to the
restructuring plan. This is a $5.8 million decrease in the accrual from the
previous quarter ended June 30, 2001 and $27.9 million decrease year-to-date.

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>
ITEM 1.  FINANCIAL STATEMENTS (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES


<TABLE>
<CAPTION>
                                               Three Months                           Nine Months
                                              Ended September 30,                  Ended September 30,
                                           ------------------------             ---------------------------
($ in millions)                             2001               2000               2001                2000
------------------------------------------------------------------------------------------------------------
<S>                                        <C>                <C>               <C>                 <C>
REVENUES
TRANSMISSION AND STORAGE
   Unaffiliated                             129.0              133.9              453.9               444.3
   Intersegment and affiliates               54.9               53.2              181.4               176.4
------------------------------------------------------------------------------------------------------------
Total                                       183.9              187.1              635.3               620.7
------------------------------------------------------------------------------------------------------------
DISTRIBUTION
   Unaffiliated                             410.5              196.7            2,237.8             1,233.3
   Intersegment and affiliates                3.0                0.1                3.0                 0.9
------------------------------------------------------------------------------------------------------------
Total                                       413.5              196.8            2,240.8             1,234.2
------------------------------------------------------------------------------------------------------------
EXPLORATION AND PRODUCTION
   Unaffiliated                              43.5               39.4              117.7               131.3
   Intersegment and affiliates               17.3                0.5               45.8                 1.4
------------------------------------------------------------------------------------------------------------
Total                                        60.8               39.9              163.5               132.7
------------------------------------------------------------------------------------------------------------
OTHER PRODUCTS AND SERVICES
   Unaffiliated                               6.2               10.4               20.0                38.9
   Intersegment and affiliates                0.1               (0.2)               0.2                (0.2)
------------------------------------------------------------------------------------------------------------
Total                                         6.3               10.2               20.2                38.7
------------------------------------------------------------------------------------------------------------
Adjustments and eliminations                (53.5)             (53.3)            (178.5)             (178.2)
------------------------------------------------------------------------------------------------------------
CONSOLIDATED                                611.0              380.7            2,881.3             1,848.1
------------------------------------------------------------------------------------------------------------

OPERATING INCOME (LOSS)
   Transmission and Storage                  50.5               61.3              263.3               252.1
   Distribution                              (1.4)              12.3              204.7               149.9
   Exploration and Production                21.1               15.5               57.1                51.3
   Other Products and Services               (2.8)             (15.8)            (101.5)              (14.5)
   Corporate                                 (3.4)               0.3               (5.0)              (12.0)
------------------------------------------------------------------------------------------------------------
CONSOLIDATED                                 64.0               73.6              418.6               426.8
------------------------------------------------------------------------------------------------------------
</TABLE>


5. DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE

On August 21, 2001, Columbia sold the stock and assets of Columbia Propane
Corporation (Columbia Propane) to AmeriGas Partners L.P. (AmeriGas) for
approximately $196.0 million, consisting of $152.0 million in cash and $44.0
million of AmeriGas partnership common units. 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 are provided in the following table:

<TABLE>
<CAPTION>
                                    Three Months                     Nine Months
                               Ended September 30,               Ended September 30,
                             ----------------------            ------------------------
($ in millions)              2001              2000             2001              2000
---------------------------------------------------------------------------------------
<S>                         <C>              <C>               <C>               <C>
Propane                      20.8              49.9             229.6             213.7
Petroleum                      --              73.6              48.8             217.4
Gas                            --              20.8                --             186.9
Other                          --               8.8                --              39.9
---------------------------------------------------------------------------------------
TOTAL                        20.8             153.1             278.4             657.9
---------------------------------------------------------------------------------------
</TABLE>


                                       9
<PAGE>
ITEM 1.  FINANCIAL STATEMENTS (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES


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


<TABLE>
<CAPTION>
                                                       Three Months                          Nine Months
                                                     Ended September 30,                  Ended September 30,
                                                 ---------------------------          --------------------------
($ in millions)                                    2001               2000              2001               2000
----------------------------------------------------------------------------------------------------------------
<S>                                               <C>               <C>                <C>                <C>
Loss from discontinued operations                    --                 --                --                2.0
Income tax benefit                                   --                 --                --                0.5
----------------------------------------------------------------------------------------------------------------
NET LOSS FROM DISCONTINUED OPERATIONS                --                 --                --                1.5
----------------------------------------------------------------------------------------------------------------

Loss on disposal                                  (47.4)             128.2             (48.9)             166.3
Income tax benefits                               (16.6)              44.9             (17.1)              55.6
----------------------------------------------------------------------------------------------------------------
NET LOSS ON DISPOSAL                              (30.8)              83.3             (31.8)             110.7
----------------------------------------------------------------------------------------------------------------
</TABLE>


The net assets of the discontinued operations were as follows:


<TABLE>
<CAPTION>
                                               SEPTEMBER 30,      December 31,
($ in millions)                                   2001               2000
-----------------------------------------------------------------------------
<S>                                           <C>                 <C>
NET ASSETS OF DISCONTINUED OPERATIONS
   Accounts receivable, net                          --               91.3
   Property, plant and equipment, net                --              212.2
   Other assets                                     8.7               70.2
   Accounts payable                                (0.6)             (68.3)
   Other liabilities                               15.9              (69.1)
-----------------------------------------------------------------------------
NET ASSETS OF DISCONTINUED OPERATIONS              24.0              236.3
-----------------------------------------------------------------------------
</TABLE>


6.    TELECOMMUNICATION NETWORK (TRANSCOM)

Management has held discussions with investment banking firms seeking strategic
options for the assets of Columbia Transmission Communications Corporation
(Transcom), a fiber optics telecommunications network. Prior to the second
quarter of 2001, significant uncertainties existed surrounding the estimated
costs to complete the fiber optic network, time to market in a competitive
environment, and delays due to construction deficiencies and environmental
issues. During the second quarter of 2001, the Company received subsequent
information pertaining to the estimated construction costs and delays.
Consequently, management concluded that the carrying value of the
telecommunication assets at June 30, 2001 exceeded the realizable value by
approximately $89.2 million. The Company recorded a charge of $89.2 million to
Operating Income in the second quarter of 2001. During the third quarter of
2001, Transcom commenced operations and the Company developed a business plan to
realize the value of such assets. Management will continue to evaluate market
conditions and the related operations of the Transcom operations.

7.    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.


                                       10

<PAGE>
ITEM 1.  FINANCIAL STATEMENTS (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES


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 third quarter of 2001, $4.4 million of the net gains
included in the cumulative effect of a change in accounting principle component
of OCI were reclassified into earnings. During the nine months ended September
30, 2001, $14.7 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:

<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 $33.6 million. However,
the activity for the third quarter of 2001 and the nine months ended September
30, 2001 resulted in unrealized gains on qualifying derivatives of approximately
$4.3 and $73.7 million, respectively, as reported in the Statements of
Consolidated Shareholder's Equity. The activity for the periods included:

<TABLE>
<CAPTION>
                                                                             Three Months            Nine Months
                                                                          Ended September 30,     Ended September 30,
                                                                          -------------------     --------------------
(in millions)                                                                    2001                      2001
----------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                    <C>
UNREALIZED GAINS ON DERIVATIVES QUALIFYING AS CASH
   FLOW HEDGES:
   Unrealized holding gain (loss) 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                      11.4                      95.8

   Reclassification adjustment for net loss (gain) included in net
     income, net of tax (including gains of $4.4 and losses of
     $14.7 million, respectively, related to the cumulative
     effect of change in accounting principle)                                   (7.1)                     11.5
----------------------------------------------------------------------------------------------------------------------
   Net unrealized gains on derivatives qualifying as cash
     flow hedges, net of tax                                                  $   4.3                   $  73.7
----------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       11
<PAGE>
ITEM 1.  FINANCIAL STATEMENTS (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES


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 commitments, 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 is recorded in OCI until the related sale
occurs. Any ineffectiveness is charged to earnings. It is anticipated that
during the next 12 months, expiration of forward swap contracts will result in
income recognition for amounts currently classified in OCI of approximately
$28.6 million, net of tax, which will be included in net income. Columbia
Resources has forward derivative contracts designated as cash flow hedges
through December 2002. Columbia Resources reclassified $2.4 million of certain
cash flow hedges into earnings due to the probability that the forecasted
transaction would not occur.

Other

Columbia Energy Services, Inc. (Columbia Energy Services) has fixed price gas
delivery commitments to three municipalities in the U.S. 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. 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 $3.1 million, net of
tax, 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.


                                       12
<PAGE>
ITEM 1.  FINANCIAL STATEMENTS (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES


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 in this reporting period. Columbia
would recognize approximately $0.7 million in earnings over the remaining life
of the corresponding long-term debt if the hedging relationship was to be
discontinued.

8.    RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

On July 20, 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." The key
concepts from the two interrelated Statements include mandatory use of the
purchase method in accounting for business combinations, discontinuance of
goodwill amortization, a revised framework for testing for goodwill impairment
at a "reporting unit" level, and new criteria for the identification and
potential amortization of other intangible assets. Other changes to existing
accounting standards involve the amount of goodwill to be used in determining
the gain or loss on the disposal of assets and a requirement to test goodwill
for impairment at least annually under the revised framework.

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

Columbia adopted the provisions of the Business Combinations Statement on July
1, 2001, and will adopt the Goodwill and Other Intangible Assets Statement on
January 1, 2002. Although Columbia is currently evaluating the effects of the
Statements, the Company does not expect the adoption of the Statements to have a
material impact on its results of operations.

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

On October 3, 2001 the Financial Accounting Standards Board issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." The Statement
replaces SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of," although it retains the impairment
testing methodology used in SFAS No. 121. The accounting and reporting
provisions of Accounting Principals Board Opinion (APBO) No. 30, "Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions," are superceded by SFAS No. 144, except that the Statement
preserves the requirement of APBO No. 30 to report discontinued operations
separately from continuing operations. The Statement covers a variety of
implementation issues inherent in SFAS No. 121, unifies the framework used in
accounting for assets to be disposed of and discontinued operations, and
broadens the reporting of discontinued operations to include all components of
an entity with operations that can be distinguished from the rest of the entity
and that will be eliminated from the ongoing operations of the entity in a
disposal transaction. The Statement is effective for fiscal years beginning
after December 15, 2001. Columbia will adopt SFAS No. 144 on January 1, 2002.
The Company does not expect the adoption of the Statement to have a material
impact on its results of operations.


                                       13
<PAGE>
ITEM 2.  MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS

COLUMBIA ENERGY GROUP AND SUBSIDIARIES


Columbia meets the conditions specified in General Instruction H(1)(a) and (b)
to Form 10-Q and is permitted to use the reduced disclosure format for
wholly-owned subsidiaries of companies, such as NiSource, that are reporting
companies under the Securities Exchange Act of 1934. Accordingly, this Columbia
Management's Narrative Analysis of Results of Operations is included in this
report, and Columbia has omitted from this report the information called for by
Part I. Item 2 (Management's Discussion and Analysis of Financial Condition and
Results of Operations).

Forward Looking Statements

The Management's Narrative 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.

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

                     THIRD QUARTER 2001 CONSOLIDATED RESULTS

Income from Continuing Operations

Columbia reported a net profit from continuing operations for the third quarter
2001 of $13.8 million, a decrease of $5.7 million over the third quarter of
2000. Increased operating and maintenance and depletion expenses were offset
somewhat by higher net revenues and lower interest expense. Including
discontinued operations, Columbia reported a net loss of $17.0 million for the
third quarter of 2001 compared to a net loss of $63.8 for the same period in
2000.

Net Revenues

Third quarter 2001 consolidated net revenues (operating revenues less associated
products purchased costs) were $371.3 million, a $17.3 million increase over the
same period last year. Higher revenue in the exploration and production segment
was the primary reason for this increase. Distribution net revenues also
slightly increased. Net revenues decreased in the transmission segment, due to
decreased throughput. Decreases in the other segment occurred due to the
elimination of the revenues of Cove Point LNG and Columbia Electric, which were
sold in 2000.

Expenses

Operating expenses for the third quarter of 2001 were $307.3 million, an
increase of $26.9 million over the same period last year. The increase was
largely due to additional administrative costs and a charge of $6.8 million due
to a change in the Millennium Pipeline project scope. Depreciation and depletion
expenses increased by $8.8 million, primarily due to increased depletion expense
in Columbia Energy Resources.


                                       14
<PAGE>
ITEM 2.  MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES


Other Income (Deductions)

Other Income (Deductions) reduced pre-tax income by $37.7 million for the third
quarter of 2001 compared to a reduction of $42.6 million in the same period last
year. This change is primarily due to reduced interest expense on long term
debentures and reduced short-term debt. Interest income and other, net for the
third quarter of 2001 of $2.7 million was down $3.0 million, as a result of
reduced short-term investments.

Income Taxes

Income tax expense of $12.5 million in the third quarter of 2001 increased by $1
million over the same period last year. A change in the effective tax rate
contributed to the increase.

Discontinued Operations

Discontinued operations, which reflect Columbia's propane operations that were
sold on August 21, 2001, posted an after-tax loss on disposal of $30.8 million
for the third quarter of 2001. In the third quarter of 2000, Columbia's
discontinued operations, which included petroleum as well as propane operations,
recorded an after-tax loss on disposal of $83.3 million.

                         NINE-MONTH CONSOLIDATED RESULTS

Income from Continuing Operations

Columbia's income from continuing operations for the first nine months of 2001
was $182.6 million, a decrease of $63.2 million from the corresponding 2000
period. The decrease was largely due to a one-time charge of $89.2 million
($52.0 million after-tax) for the asset impairment relating to the fiber optics
telecommunications network in the second quarter of 2001. In addition, the
earlier period had been favorably impacted by a $59.0 million after-tax gain on
the sale of Cove Point LNG. Also contributing to this decrease is an increase in
depletion expense and a decrease in interest income. Tempering these decreases
were increased revenues, primarily in transmission and distribution. Reduced
operation and maintenance costs, mainly labor and benefits, as a result of
restructuring initiatives implemented during 2000, also helped offset the
above-mentioned decreases. Net income for the nine months ending was $154.8
million in 2001 compared to $133.6 million in the same period 2000.

Net Revenues

For the nine months ended September 30, 2001, net revenues of $1,424.5 million
increased $64.5 million over the same period in 2000. The improvement was
primarily a result of colder weather in the first half of 2001 (6% colder than
the first six months of 2000), which increased net revenues in distribution and
transmission. Transmission revenues also increased due to contracts signed in
the first quarter when the colder weather increased demand. Exploration and
production net revenues increased due to higher gas prices in the first nine
months of the year when compared to the 2000 period. Offsetting the increase is
a decrease in net revenue due to the sale of Cove Point LNG and Columbia
Electric Corp.

Expenses

Operating expenses for the first nine months of 2001 were $1,005.9 million, an
increase of $72.7 million over the same period last year. The increased expense
was primarily due to the $89.2 million expense provision recorded for the asset
impairment relating to the fiber optics telecommunications network. Depreciation
and depletion expenses increased $12.4 million, due in part to a ceiling test
write-down in Columbia Resources' Canadian region and higher depletion expense.
Tempering these increases were a $16.1 million decrease in operation and
maintenance expenses. The voluntary incentive retirement program implemented in
2000 helped reduce payroll and benefit costs along with restructuring
initiatives, which improved operating efficiencies and contributed to expense
reductions. Other taxes decreased $12.8 million as a result of lower property
taxes, though partially offset by increased gross receipts taxes.

Other Income (Deductions)

Other Income (Deductions) reduced income by $119.8 million for the first nine
months of 2001, compared to a reduction to income of $35.4 million in the same
period last year. Interest income and other, net of $6.1 million, decreased
$97.7 million. The earlier period had been favorably impacted by a $90.6 million
pre-tax gain on the sale of Cove Point LNG. Interest expense and related charges
decreased $13.3 million in the first nine months of 2001, due to a reduction in
short-term borrowings related to the 2000 stock repurchase program and lower
interest on contingent taxes.


                                       15
<PAGE>
ITEM 2.  MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES


Income Taxes

Income tax expense of $116.2 million in the first nine months of 2001 decreased
$29.4 million from the same period last year, primarily from the tax benefit
recorded due to the loss on the fiber optics telecommunications network. In
addition, income tax expense was higher in the prior period due to the gain on
the sale of Cove Point LNG.

Discontinued Operations

Discontinued operations, which reflect Columbia's propane operations that were
sold on August 21, 2001, posted an after-tax loss on disposal of $31.8 million
for the first nine months of 2001. In the first nine months of 2000, Columbia's
discontinued operations, which included petroleum as well as propane operations,
recorded loss from operations of $1.5 million and an after-tax loss on disposal
of $110.7 million.

Change in Accounting Principle

On January 1, 2001, Columbia adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities".  This change in accounting, net of
taxes, contributed $4.0 million to net income.

                         LIQUIDITY AND CAPITAL RESOURCES

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

Net cash from continuing operations for the first nine months of 2001 was $553.9
million, a decrease of $200.7 million from the same period in 2000. This
decrease was primarily due to reduced deferred revenue due to forward sale
contracts obtained in 2000. Offsetting the decrease were increases due to timing
differences associated with exchange gas activity and other working capital
items, including underrecovered gas costs.

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

As of September 30, 2001, Columbia had $148.8 million of intercompany short-term
borrowings with NiSource Finance Corp. outstanding at a weighted average
interest rate of 3.52%. In addition, at September 30, 2001, Columbia had letters
of credit issued and outstanding of $47.7 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


                                       16
<PAGE>
ITEM 2.  MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES


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 third quarter of 2001, $4.4 million of the net gains
included in the cumulative effect of a change in accounting principle component
of OCI were reclassified into earnings. During the nine months ended September
30, 2001, $14.7 million of the net losses included in the cumulative effect of a
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 11 for additional information.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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


                                       17
<PAGE>
                                     PART II

ITEM 1.  LEGAL PROCEEDINGS

COLUMBIA ENERGY GROUP AND SUBSIDIARIES

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

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

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

      A trial commenced in the third quarter of 1996 in the Court of Queen's
      Bench and judgment was issued in September 2001. The court has finalized a
      judgment dismissing most of the plaintiffs' claims, including the
      fiduciary duty claim, but did order a reduction of the Carried Interest
      Account in the amount of $5.3 million (Cdn.) and ordered that the
      defendants were not entitled to charge the plaintiffs processing fees.
      The monetary value of these two items has not been determined. The
      plaintiffs have publicly announced their intention to appeal.

2.    TRANSCOM.

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

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. In
      1997, the


                                       18
<PAGE>
ITEM 1.  LEGAL PROCEEDINGS (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES


      plaintiff then filed over sixty-five new False Claims Act complaints
      against over 330 defendants in numerous Federal courts. One of those
      complaints was filed in the Federal District Court for the Eastern
      District of Louisiana against Columbia and 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. In May 2001, the Court denied the Columbia defendants'
      motion to dismiss. The Columbia defendants joined together with numerous
      other defendants and have filed a motion requesting the district court to
      amend its order to include a certification so that the defendants could
      request permission from the United States Court of Appeals for the Tenth
      Circuit to appeal a controlling question of law. That motion was denied on
      July 2, 2001.

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


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

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

      In February 2000, plaintiff filed a complaint in New York state court
      against Columbia 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. The Columbia defendants' motion to dismiss was partially
      granted and partially denied by the New York state court judge on
      September 24, 2001.

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

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

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

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


                                       19
<PAGE>
ITEM 1.  LEGAL PROCEEDINGS (continued)

COLUMBIA ENERGY GROUP AND SUBSIDIARIES


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. On April 10,
      2001, the West Virginia case was dismissed without prejudice. In October
      2001, the parties reached an agreement in principle to settle this matter
      and the related case described above.


ITEM 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

<TABLE>
<CAPTION>
       Exhibit
       Number
       ------
<S>               <C>
       10-P       Pension Restoration Plan of the Columbia Gas System, Inc., amended
                  and restated March 1, 1997, hereby incorporated by reference in
                  NiSource's Quarterly Report on Form 10-Q for the period ended
                  September 30, 2001, in exhibit 10.27.

       10-Q       Thrift Restoration Plan of the Columbia Gas System, Inc., amended
                  and restated January 1, 2000, hereby incorporated by reference in
                  NiSource's Quarterly Report on Form 10-Q for the period ended
                  September 30, 2001, in exhibit 10.28.

       12*        Statements of Ratio of Earnings to Fixed Charges
                  *Filed herewith
</TABLE>

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


                                       20
<PAGE>
                                    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:  November 9, 2001          By:      /s/ Jeffrey W. Grossman
                                        -----------------------------
                                            Jeffrey W. Grossman
                                       Vice President and Controller
                                       (Principal Accounting Officer
                                       and Duly Authorized Officer)


                                       21