UNITED STATES
                  SECURITIES AND EXCHANGE COMMISSION
                        Washington, D.C.  20549
                               FORM 10-K
(Mark One)
  [ X ]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
              THE SECURITIES EXCHANGE ACT OF 1934

             For the fiscal year ended September 30, 1997
                                  OR
 [    ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
             OF THE SECURITIES EXCHANGE ACT OF 1934

                     Commission File Number 1-5540

                      PEOPLES ENERGY CORPORATION
        (Exact name of registrant as specified in its charter)

              Illinois                             36-2642766
        (State or other jurisdiction of          (IRS Employer
        incorporation or organization)           Identification No.)

  24th Floor, 130 East Randolph Drive, Chicago, Illinois   60601-6207
  (Address of principal executive offices)                 (Zip Code)

  Registrant's telephone number, including area code:  (312) 240-4000

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

                                                Name on each exchange
            Title of Each Class                 on which registered
          Common Stock, without par value     New York Stock Exchange
                                              Chicago Stock Exchange
                                              Pacific Stock Exchange

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (#229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [ X ]

State the aggregate market value of the voting stock held by non-
affiliates of the registrant:

     Approximately $1.29 billion computed on the basis of the
     closing market price of $36.625 for a share of Common
     Stock on November 28, 1997.

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

   Common Stock, without par value, 35,158,159 shares outstanding at
         November 29, 1997.

                  Documents Incorporated by Reference
          Document                                  Part of Form 10-K
Portions of the Company's Notice of Annual Meeting 
and Proxy Statement to be filed on or about 
December 29, 1997                                      Part III

CONTENTS

                                                            Page
Item No.                                                     No  

       Part I

  1.   Business                                              3

  2.   Properties                                            8

  3.   Legal Proceedings                                     8

  4.   Submission of Matters to a Vote of Security Holders   8

       Executive Officers of the Company                     9

       Part II

  5.   Market for the Company's Common Stock and Related
           Stockholder Matters                              11

  6.   Selected Financial Data                              12

  7.   Management's Discussion and Analysis of Results
           of Operations and Financial Condition            13

  8.   Financial Statements and Supplementary Data          19

  9.   Changes in and Disagreements with Accountants on
           Accounting and Financial Disclosure              41

       Part III

 10.   Directors and Executive Officers of the Company      42

 11.   Executive Compensation                               42

 12.   Security Ownership of Certain Beneficial Owners and
           Management                                       42

 13.   Certain Relationships and Related Transactions       42

       Part IV

 14.   Exhibits, Financial Statement Schedules, and Reports
           on Form 8-K                                      43

Signatures                                                  45

Exhibit Index                                               46


                       Peoples Energy Corporation

                       ANNUAL REPORT ON FORM 10-K

                  FISCAL YEAR ENDED SEPTEMBER 30, 1997

                                 PART I

ITEM 1.  BUSINESS

GENERAL

     Peoples Energy Corporation (Company) is solely a holding company and
does not engage directly in any business of its own. Income is derived
principally from the Company's utility subsidiaries, The Peoples Gas Light and
Coke Company (Peoples Gas) and North Shore Gas Company (North Shore Gas).
The Company also derives income from its other subsidiaries, Peoples 
District Energy Corporation (Peoples District Energy), Peoples
Energy Services Corporation (Peoples Energy Services), Peoples Energy
Resources Corp. (Peoples Energy Resources), Peoples NGV Corp., and
Peoples Energy Ventures Corporation (Peoples Energy Ventures).  The
Company and its subsidiaries had 2,868 employees at September 30, 1997.

   The Company was incorporated in 1967 under the Illinois Business
Corporation Act and has its principal executive offices at 130 East
Randolph Drive, Chicago, Illinois  60601-6207 (Telephone 312-240-4000).

   Peoples Gas, an operating public utility, is engaged primarily in the
purchase, storage, distribution, sale, and transportation of natural gas.
It has approximately 836,000 residential, commercial, and industrial
retail sales and transportation customers within the City of Chicago
(City).

   North Shore Gas, an operating public utility, is engaged primarily in
the purchase, storage, distribution, sale, and transportation of natural
gas.  It has about 140,000 residential, commercial, and industrial retail
sales and transportation customers within its service area of
approximately 275 square miles, located in Northeastern Illinois.

   Peoples District Energy, a wholly owned subsidiary of the Company, is
a 50 per cent participant in a partnership that provides district energy
services to the McCormick Place Exposition and Convention Center in
Chicago, Illinois (McCormick Place) under a long-term contract with the
Metropolitan Pier and Exposition Authority.  Neither the partnership nor
its partners are regulated as a public utility.

   Peoples Energy Services provides nonregulated retail energy sales to
commercial, industrial and large residential customers. Peoples Energy
Services also offers energy management services to large-volume gas users
and other energy related products and services to a wide
variety of customers.

   Peoples Energy Resources owns and operates a new plant near Chicago
that gasifies liquid propane and ethane to assist utilities and marketers
in meeting peak day demand.  The company also is pursuing new
opportunities to expand non-utility supply and storage services.

   Peoples NGV Corp. operates a fueling station for natural gas fueled
vehicles, and it is a participant in a partnership that was formed to
develop on-site fueling services for natural gas-powered fleet vehicles.
Neither the partnership nor its partners are regulated as a pubic
utility.

   Peoples Energy Ventures will pursue diversified energy-related
investments such as oil and gas exploration and production, electric
power generation, and gas pipelines.

COMPETITION

   Peoples Gas and North Shore Gas are authorized by statute and/or
certificates of public convenience and necessity to conduct operations in
the territories they serve.  In addition, these subsidiaries operate
under franchises and license agreements granted them by the communities they 
serve. Peoples Gas holds a perpetual, non-exclusive franchise from the City.
North Shore Gas' franchises with communities within its service territory
are of various terms and expiration dates.

   Absent extraordinary circumstances, potential competitors are barred
from constructing competing gas distribution systems in the utility
subsidiaries' service territories by a judicial doctrine known as the
"first in the field" doctrine.  In addition, the high cost of installing
duplicate distribution facilities would render the construction of a
competing system impractical.

   Competition in varying degrees exists between natural gas and other
fuels or forms of energy available to consumers in Peoples Gas' and North
Shore Gas' service areas.  The capital cost of heating and cooling
facilities in new high-rise buildings is higher for gas than for
electricity.  This circumstance, combined with relatively 
stagnant high-rise construction activity, has adversely affected the 
ability of Peoples Gas to attach commercial high-rise buildings.

   On December 16, 1997, the State of Illinois enacted legislation to 
restructure the electric market in Illinois.  Under the legislation, 
approximately one-third of non-residential electric customers, 
including customers with very large loads, will be able to purchase 
electric power from the supplier of their choice beginning on October 
1, 1999.  All non-residential customers will have this choice by 
December 31, 2000.  All residential customers will be given choice on 
May 1, 2002.  Customers who buy their electricity from a supplier other 
than the local electric utility will be required to pay transition charges 
to the utility through the year 2006.  These charges are intended to 
compensate the electric utilities for revenues lost because of customers
buying electricity from other suppliers.  The legislation also allows an
electric utility to issue bonds, in aggregate amounts up to 50% of its
Illinois jurisdictional capitalization, to be financed by a specific charge 
to its customers.  An electric utility also may transfer up to 15% of its 
assets to an affiliated or unaffiliated entity without approval from the 
Illinois  Commerce Commission.  In return for these and other benefits, 
electric  utilities are required to reduce their rates to residential customers.
The state's two largest electric utilities, including the utility that serves 
northeastern Illinois, must reduce their residential rates by 15% on 
August 1, 1998 and by another 5% on May 1, 2002.  The legislation does not 
require electric utilities to divest their power generation assets.  It is 
too early to determine what effects this restructuring of the electric 
market will have on the competitive position of the Company's subsidiaries.

   In addition to restructuring the electric market, the legislation
provides for additional funding for assistance to low-income energy
users, including customers of the Company's utility subsidiaries.  The
legislation creates a fund, financed by charges to electric and gas
customers of public utilities and participating municipal utilities and
electric co-ops, which supplements currently available federal
energy assistance.

   A substantial portion of the gas that Peoples Gas and North Shore Gas
deliver to their customers consists of gas that the subsidiaries'
customers purchase directly from producers and marketers rather than from
the subsidiaries.  These direct customer purchases have little effect on
net income because the utilities provide transportation service for such
gas volumes and recover margins similar to those applicable to
conventional gas sales.

   A pipeline may seek to provide transportation service directly to end-
users.  Such direct service by a pipeline to an end-user would bypass the
local distributor's service and reduce the distributor's earnings.
However, none of the subsidiaries' pipeline suppliers has undertaken any
service bypassing the subsidiaries.  Both utility subsidiaries have a
bypass rate approved by the Illinois Commerce Commission (Commission)
which allows the utilities to renegotiate rates with customers that are
potential bypass candidates.  (See Other Matters - Large Volume Gas
Service Agreements in Item 7.)


SALES AND RATES

   Peoples Gas and North Shore Gas sell natural gas having an average
heating value of approximately 1,000 British thermal units (Btu's) per
cubic foot.*  Sales are made and service rendered by Peoples Gas and
North Shore Gas pursuant to rate schedules on file with the Commission
containing various service classifications largely reflecting customers'
different uses and levels of consumption.  The Gas Charge is determined
in accordance with the provisions in Rider 2, Gas Charge, to recover the
costs incurred by Peoples Gas and North Shore Gas to purchase, transport,
manufacture, and store gas supplies.  The level of the Gas Charge under
both subsidiaries' rate schedules is adjusted monthly to reflect
increases or decreases in natural gas supplier charges, purchased storage
service costs, transportation charges, and liquefied petroleum gas costs.
In addition, under the tariffs of Peoples Gas and North Shore Gas, the
difference for any month between costs recoverable through the Gas Charge
and the revenues billed to customers under the Gas Charge is refunded to
or recovered from customers.  Consistent with these tariff provisions,
such difference for any month is recorded either as a current liability
or a current asset (with a contra entry to Gas Costs).  Peoples Gas and
North Shore Gas have been recovering, through their rates, pipeline
charges billed for transition costs resulting from the implementation of
Federal Energy Regulatory Commission (FERC) Order No. 636.  (See Notes
1L, 2A, and 2B of the Notes to Consolidated Financial Statements.)

   The business of the Company's utility subsidiaries is influenced by
seasonal weather conditions because a large element of the subsidiaries'
customer load consists of space heating.  Weather-related deliveries can,
therefore, have a significant positive or negative impact on net income.
(For discussion of the effect of the seasonal nature of gas revenues on
cash flow, see Liquidity in Item 7.)

   The basic marketing plans of Peoples Gas and North Shore Gas are to
maintain their existing shares in all market segments and develop
opportunities emerging from changes in the utility environment and
technological equipment advances for new, expanded, or current natural
gas applications, including cogeneration, prime movers, natural gas-
fueled vehicles, and natural gas air-conditioning.

STATE LEGISLATION AND REGULATION

   Peoples Gas and North Shore Gas are subject to the jurisdiction of and
regulation by the Commission, which has general supervisory and
regulatory powers over practically all phases of the public utility
business in Illinois, including rates and charges, issuance of
securities, services and facilities, systems of accounts, investments,
safety standards, transactions with affiliated interests, as defined in
the Illinois Public Utilities Act, and other matters.

   In 1994, the Commission entered orders providing for full recovery by
the Company of FERC Order 636 transition costs from the Company's gas
service customers.  The Commission's orders have been appealed to the
Illinois Supreme Court.  (See Notes 1L, 2A, and 2B of the Notes to
Consolidated Financial Statements.)

   On November 8, 1995, the Commission issued orders approving changes in
rates for Peoples Gas and North Shore Gas.  (See Note 2A of the Notes to
Consolidated Financial Statements.)

FEDERAL LEGISLATION AND REGULATION

   The Company is a holding company as defined in the Public Utility
Holding Company Act of 1935 (Act).  By Order entered on December 6, 1968
(Holding Company Act Release No. 16233), the Securities and Exchange
Commission, pursuant to Section 3(a)(1) of the Act, exempted the Company
and its subsidiary companies as such from the provisions of the Act,
other than Section 9(a)(2) thereof.


*  All volumes of natural gas set forth in this report are stated on a
1,000 Btu (per cubic foot) billing basis.
(100 cubic feet = 1 therm; 10 therms = 1 Dekatherm - Dth)

   Most of the gas distributed by Peoples Gas and North Shore Gas is
transported to the utilities' distribution systems by interstate
pipelines.  In their provision of gas sales services (gathering,
transportation and storage services, and gas supply) pipelines are
regulated by the FERC under the Natural Gas Act and the Natural Gas
Policy Act of 1978.  (See "Sales and Rates" and "Current Gas Supply" in
Item 1.)

ENVIRONMENTAL MATTERS

   The Company and its subsidiaries are subject to federal and state
environmental laws.  Peoples Gas and North Shore Gas are conducting
environmental investigations and work at certain sites that were the
location of former manufactured gas plant operations.  (See Note 3A of
the Notes to Consolidated Financial Statements.)  In addition, North
Shore Gas has received a demand for payment of environmental response
costs at a former mineral processing site in Denver, Colorado.  (See Note
3B of the Notes to Consolidated Financial Statements.)  Also, North Shore
Gas was informed by the Illinois Environmental Protection Agency (IEPA)
that it was not in compliance with certain provisions of the Illinois
Environmental Protection Act which prohibit water pollution within the
State of Illinois.  (See Note 3C of the Notes to Consolidated Financial
Statements.)

CURRENT GAS SUPPLY

   Peoples Gas and North Shore Gas have each entered into various long-
term and short-term firm gas supply contracts.  When used in conjunction
with contract peaking and contract storage, Peoples Gas' company-owned
storage, and the peak-shaving facilities of the utilities, such supply is
deemed sufficient to meet current and foreseeable peak and annual market
requirements.

   Although the Company believes North American supply to be sufficient
to meet U.S. market demands for the foreseeable future, it is unable to
quantify or otherwise make specific representations regarding national
supply availability.



   The following tabulation shows the expected design peak-day
availability of gas in thousands of dekatherms (MDth) during the 1997-
1998 heating season for Peoples Gas and North Shore Gas:
<TABLE>
<CAPTION>

                         Peoples Gas                   North Shore Gas
                       Design Peak-Day     Year of     Design Peak-Day    Year of
                         Availability       Contract     Availability      Contract
Source                       (MDth)       Expiration          (MDth)      Expiration
<S>                            <C>         <C>                   <C>     <C>
Firm direct purchases (1)      608         1998-2000             90      1998-2000
Liquefied petroleum gas         40                               40 (2)
Peaking Service:
   Peoples Energy Resources     60            (3)
   The Uno-Ven Co.              10            (4)
Storage gas:
   Leased (5)                  563         1998-2000            165       1998-2000
   Peoples-Manlove (6)         993                               63         (7)
Customer-owned (8)             260                               50
Total expected design
   peak-day availability     2,534                              408


(1)Consists of firm gas purchases from non-pipeline suppliers delivered
   utilizing firm pipeline transportation.  The majority of the gas
   purchase contracts are negotiated annually.  The terms of the
   transportation contracts vary, with the longest term being 5 years.

(2)Reflects derating of capacity, as accepted by the Commission Staff in
   Docket 91-0581.

(3)The contract with Peoples Energy Resources is for an initial term
   expiring November 30, 1999; the contract continues in effect from
   year to year thereafter unless canceled by either party upon 12
   months' prior notice.

(4)The contract with The Uno-Ven Company was for an initial term ending
   September 30, 1997; however, by its terms, the contract continues in
   effect for an additional two year term subject to cancellation by
   either party any time on or after September 30, 1997 upon one year's
   prior notice.

(5)Consists of leased storage services required to meet design day
   requirements with contract lengths varying  from 3 to 5 years.

(6)Manlove Field, Peoples Gas' underground storage facility located near
   Champaign, Illinois, has a seasonal top-gas capacity (excluding
   volumes required to support late-season peaking requirements) of
   approximately 27,000 MDth, of which approximately 1,566 MDth is
   dedicated to North Shore Gas.  Peoples Gas also owns a liquefied
   natural gas (LNG) plant at Manlove Field for the primary purpose of
   supporting late-season deliverability from the storage facility.  The
   LNG plant has a storage capacity of 2,000 MDth and is capable of
   regasifying 300 MDth of gas per day.  For the 1997-98 heating season,
   Manlove Field complex will have a maximum peak-day delivery
   capability of approximately 1,056 MDth (including 63 MDth for the use
   of North Shore Gas).

(7)The contract with Peoples Gas was for an initial term expiring May 1,
   1990.  However, by its terms, the contract continues in effect unless
   canceled by either party upon 120 days notice prior to April 30 of
   any year thereafter.

(8)  Consists of gas supplies purchased directly from producers and
   marketers by the utilities' commercial, industrial, and larger
   residential customers.


</TABLE>

   The sources of gas supply (including gas transported for customers) in
MDth for Peoples Gas and North Shore Gas for the three fiscal years ended
September 30, 1997, 1996 and 1995, were as follows:
<TABLE>
<CAPTION>

                                           Peoples Gas               North Shore Gas
                                     1997      1996      1995     1997    1996     1995

 <S>                               <C>        <C>      <C>       <C>      <C>     <C>
 Gas purchases                     156,097    174,552  103,476   27,226   27,940  20,250
 Synthetic natural gas (SNG) (a)         -          -    7,622        -        -       -
 Liquefied petroleum gas produced        7        114       14       20      151       9
 Customer-owned gas-received        91,476     93,141   93,225   12,618   12,777  12,379
 Underground storage-net            (3,786)       228   28,352     (123)     468   3,103
 Exchange gas-net                      (39)    (4,446)       -     (151)    (104)      -
 Company use, franchise
    requirements, and
    unaccounted-for gas              (2,071)   (3,169)  (3,733)    (546)    (983)   (636)
       Total (b)                    241,684   260,420  228,956    39,044  40,249  35,105





(a) The SNG facility terminated production during fiscal 1995

(b) See "Gas Sold and Transported" in Item 6.

</TABLE>
SYNTHETIC NATURAL GAS SUPPLY

   Peoples Gas owned and operated an SNG plant, the McDowell Energy
Center, located near Joliet, Illinois that used refinery fuel gas and a
variety of natural gas liquids, including ethane, naphtha, natural
gasoline, normal butane, propane, and ethane/propane mix as feedstock for
the production of SNG.  The SNG facility terminated production in fiscal
1995.


ITEM 2.  PROPERTIES

   All of the principal plants and properties of Peoples Gas and North
Shore Gas have been maintained in the ordinary course of business and are
believed to be in satisfactory operating condition.  The distribution
facilities serve the City and other areas in Northeastern Illinois.
Peoples Gas owns and operates an underground gas storage reservoir and an
LNG plant at Manlove Field located near Champaign, Illinois.  Peoples Gas
also owns a transmission system that transports gas from Manlove Field to
Chicago.  The underground storage reservoir and LNG plant also serve
North Shore Gas.  General properties include a substantial investment in
office and service buildings, garages, repair shops, and motor vehicles,
together with the equipment, tools, and fixtures necessary to conduct
utility business.

   Most of the principal plants and properties of Peoples Gas and North
Shore Gas, other than mains, services, meters, regulators, and cushion
gas in underground storage, are located on property owned in fee.
Substantially all gas mains are located under public streets, alleys, and
highways, or under property owned by others under grants of easements.
Meters and house regulators in use and a portion of services are located
on premises being served.  Certain storage wells and other facilities of
the Manlove Field storage reservoir, and certain portions of the
transmission system are located on land held pursuant to leases,
easements, or permits.

   Substantially all of the physical properties now owned or hereafter
acquired by Peoples Gas and North Shore Gas are subject to (a) the first-
mortgage lien of each Company's mortgage to First Trust, National
Association, as Trustee, to secure the principal amount of each Company's
outstanding first mortgage bonds and (b) in certain cases, other
exceptions and defects that do not interfere with the use of the
property.


ITEM 3.  LEGAL PROCEEDINGS

   See Notes 2 and 3 of the Notes to Consolidated Financial Statements.


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

   None.



                    EXECUTIVE OFFICERS OF THE COMPANY


   The following is a list of the names, ages, and positions of the
executive officers of the Company.  Executive officers were elected to
serve for a term of one year or until their successors are duly elected
and qualified, except for Messrs. Luebbers, Morrow, O'Connell, and Ms. Rogers, 
who were appointed.

                      Age at
        Name         11/30/97                 Position with the Company


Kenneth S. Balaskovits   55    Vice President and Controller (1993) of the 
                               Company. Mr. Balaskovits is also Vice President 
                               and Controller and Director (1993) of Peoples
                               Gas and North Shore Gas.  Mr. Balaskovits has 
                               been an employee of the Company and/or its
                               subsidiaries since 1967.

Emmet P. Cassidy         64    Secretary and Treasurer (1989) of the Company.
                               Mr. Cassidy is also Secretary and Treasurer
                               (1989) of Peoples Gas and North Shore Gas. 
                               Prior to that, he was Assistant Secretary and
                               Assistant Treasurer of the Company and both 
                               subsidiaries (1981-1989).  Mr. Cassidy has 
                               been an employee of the Company and/or its
                               subsidiaries since 1955.

J. Bruce Hasch           59    President and Chief Operating Officer (1990) 
                               and Director (1987) of the Company.
                               Mr. Hasch is also President and Chief Operating 
                               Officer (1990) and a Director (1986) of Peoples 
                               Gas and North Shore Gas.  Prior to becoming 
                               President, Mr. Hasch was Executive Vice President
                               (1985-1990) of the Company and its
                               subsidiaries and Vice President (1981-1985) of
                               both subsidiary companies. Mr. Hasch has been an 
                               employee of the Company and/or its subsidiaries 
                               since 1960, including 16 years with Natural Gas 
                               Pipeline Company of America, a former subsidiary.

James Hinchliff           57   Senior Vice President and General Counsel 
                               (1989) of the Company.
                               Mr. Hinchliff is also Senior Vice President and 
                               General Counsel (1989) and a Director (1985) of
                               Peoples Gas and North Shore Gas.  Prior to that, 
                               he was Vice President and General Counsel 
                               (1984-1989) of the Company and of both 
                               subsidiaries, and he was Assistant General 
                               Counsel of the Company (1979-1984) and of both 
                               subsidiaries (1981-1984). Mr. Hinchliff has been 
                               an employee of the Company and/or its 
                               subsidiaries since 1972.

                       Age at
       Name           11/30/97          Position with the Company

James M. Luebbers         51   Vice President of the Company.  Mr. Luebbers is 
                               also Vice President of Peoples Gas and North
                               Shore Gas. Mr. Luebbers has been an employee of
                               the Company and/or its subsidiaries since 1969.

William E. Morrow         41   Vice President of the Company. Mr. Morrow is also
                               Vice President of Peoples Gas and North Shore 
                               Gas.  Mr. Morrow has been an employee of the  
                               Company and/or its subsidiaries since 1979.

Kevin O'Connell           51   Vice President of the Company.  Mr. O'Connell is
                               also Vice President of Peoples Gas and North
                               Shore Gas.  Mr. O'Connell has been an employee of
                               the Company and/or its subsidiaries since 1997.

Thomas M. Patrick         51   Executive Vice President (1996) of the Company.
                               Mr. Patrick is also Executive Vice President and 
                               Director  (1997) of Peoples Gas and North Shore 
                               Gas.  Prior to becoming Executive Vice President,
                               Mr. Patrick was Vice President (1989-1996) of 
                               both subsidiaries.  Mr. Patrick has been an 
                               employee of the Company and/or its subsidiaries
                               since 1976.

Desiree Rogers            38   Vice President of the Company. Ms. Rogers is also
                               Vice President of Peoples Gas and North Shore 
                               Gas. Ms. Rogers has been an employee of the 
                               Company and/or its subsidiaries since 1997.

Richard E. Terry          60   Chairman of the Board and Chief Executive 
                               Officer (1990) and Director (1984) of the 
                               Company. Mr. Terry is also Chairman of the Board 
                               and Chief Executive Officer (1990) and a Director
                               (1982) of Peoples Gas and North Shore Gas.  Prior
                               to becoming Chairman, Mr. Terry was President and
                               Chief Operating Officer (1987-1990), Executive
                               Vice President (1984-1987), and Vice President 
                               and General Counsel (1981-1984) of the Company 
                               and its subsidiaries.  Mr. Terry has been an
                               employee of the Company and/or its subsidiaries 
                               since 1972.
 

                                 PART II

ITEM 5.  MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER
      MATTERS

   The common stock of the Company is listed on the New York, Chicago,
and Pacific Stock Exchanges (trading symbol: PGL).  At November 30, 1997,
there were 27,763 registered shareholders.

   The common stock price range and dividends declared per common share
by quarters for fiscal 1997 and 1996 were as follows:

Fiscal                    Stock Price                 Dividends
Quarters         High            Low        Close     Declared

1997
 Fourth       $39-11/16        $36-5/8   $37-11/16       $0.47
 Third          39-7/8          31-1/4     37-7/16        0.47
 Second         35-5/8          32-5/8     33-1/8         0.47
 First          37-3/8           33        33-7/8         0.46

1996
 Fourth        $36-1/8          $30-7/8   $34            $0.46
 Third          33-1/2          29-5/8     33-1/2         0.46
 Second         33-1/4          29-7/8     32-3/8         0.46
 First          32              27-1/8     31-3/4         0.45


<TABLE>
<CAPTION>

          
 ITEM 6.  SELECTED FINANCIAL DATA
<S>                                                 <C>            <C>            <C>            <C>            <C>
For fiscal years ended September 30,                      1997           1996           1995           1994           1993
COMMON STOCK INFORMATION
Earnings per share                                  $      2.81    $      2.96    $      1.78    $      2.13    $      2.11
Cash dividends declared per share                   $      1.87    $      1.83    $      1.80    $     1.795    $     1.775
Book value per share at year-end                    $     20.43    $     19.48    $     18.38    $     18.39    $     18.05
Average shares outstanding (thousands)                   35,000         34,942         34,901         34,854         34,809
OPERATING RESULTS (thousands)
Operating Revenues:
  Residential                                       $   941,557    $   883,100    $   752,796    $   951,037    $   929,407
  Commercial                                            146,412        141,594        116,113        160,912        156,377
  Industrial                                             28,918         32,075         24,128         41,979         41,354
  Transportation (a)                                    134,086        128,876        122,814        110,128        117,949
  Other                                                  23,397         13,032         17,550         15,432         13,854
    Total Operating Revenues                          1,274,370      1,198,677      1,033,401      1,279,488      1,258,941
Less- Gas costs                                         615,602        529,875        457,436        669,039        646,351
    - Revenue taxes                                     126,224        121,172        109,720        132,734        131,673
  Net Operating Revenues                            $   532,544    $   547,630    $   466,245    $   477,715    $   480,917
Net Income                                          $    98,404    $   103,438    $    62,154    $    74,399    $    73,375
ASSETS AT YEAR-END (thousands)
Property, plant and equipment                       $ 2,117,509    $ 2,046,156    $ 2,088,277    $ 2,019,379    $ 1,950,981
Less - Accumulated depreciation                         715,279        665,077        715,208        677,447        632,965
  Net Property, Plant and Equipment                 $ 1,402,230    $ 1,381,079    $ 1,373,069    $ 1,341,932    $ 1,318,016
Total assets                                        $ 1,820,805    $ 1,783,750    $ 1,822,492    $ 1,809,286    $ 1,765,870
Capital expenditures - construction                 $    89,404    $    85,620    $    95,941    $    87,218    $   131,669
CAPITALIZATION AT YEAR-END (thousands)
Common equity                                       $   716,499    $   681,185    $   641,694    $   641,378    $   628,451
Long-term debt of subsidiaries                          527,004        527,064        621,874        626,075        528,075
  Total Capitalization                              $ 1,243,503    $ 1,208,249    $ 1,263,568    $ 1,267,453    $ 1,156,526
FINANCIAL RATIOS (per cent)
Capitalization at Year-end:
  Common equity                                              58             56             51             51             54
  Long-term debt of subsidiaries                             42             44             49             49             46
    Total Capitalization                                    100            100            100            100            100
Return on common equity at year-end                        13.7           15.2            9.7           11.6           11.7
GAS SOLD AND TRANSPORTED (MDth)
Gas Sales:
  Residential                                           142,836        154,128        130,571        142,876        144,199
  Commercial                                             24,910         27,390         22,079         26,206         26,185
  Industrial                                              5,361          6,803          5,059          7,325          7,623
Transportation (a)                                      107,621        112,348        106,352        102,023         99,607
  Total Gas Sales and Transportation                    280,728        300,669        264,061        278,430        277,614
Margin per Dth delivered                            $      1.90    $      1.82    $      1.77    $      1.72    $      1.73
NUMBER OF CUSTOMERS (average)
Residential                                             910,657        910,236        906,881        905,461        904,316
Commercial                                               50,914         50,719         50,872         50,955         50,736
Industrial                                                3,708          3,696          3,783          3,927          4,069
Transportation (a)                                       10,959         11,348         10,934         10,247          9,734
  Total Customers                                       976,238        975,999        972,470        970,590        968,855
DEGREE DAYS                                               6,806          7,080          5,897          6,701          6,679
Per cent of normal (6,536)                                  104            108             90            103            102



 (a) Includes commercial, industrial, and larger residential customers.
</TABLE>

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

RESULTS OF OPERATIONS

Net Income

   Net income decreased $5.0 million, to $98.4 million, in fiscal 1997
from 1996, primarily a result of decreased gas deliveries due to
weather that was four per cent warmer than the previous fiscal year and
conservation. Also hindering this year's comparative results were the
year-ago period's gain on the expiration of gas storage contracts (see
Note 6 of the Notes to Consolidated Financial Statements), increased
computer support services associated with the implementation of a new
customer information system, and increased depreciation and
amortization expense. Partially offsetting these effects were a
decrease in pension expense (see Note 7A of the Notes to Consolidated
Financial Statements), a full year's effect of the utilities' November
1995 rate increases (see Note 2A of the Notes to the Consolidated
Financial Statements), decreased net interest expense and a tax accrual
adjustment.

   In 1996, net income increased $41.3 million, to $103.4 million, due
chiefly to weather that was 20 per cent colder than in 1995 and to the
aforementioned rate increases. In addition, net income benefited from
the previously mentioned gain associated with the expiration of certain
natural gas storage contracts and a net credit in pension expense.
These increases were partly offset by the fiscal year's higher
operating costs, primarily the result of the prior year's recognition
of the federal income tax settlement (see Note 8D of the Notes to
Consolidated Financial Statements).

<TABLE>
<CAPTION>

   A summary of variations affecting income between years is presented
below, with explanations of significant differences following:

                                                   Fiscal 1997              Fiscal 1996
                                                    over 1996               over 1995
                                                Amount                  Amount
                                               (000's)     Per Cent    (000's)    Per Cent
<S>                                           <C>            <C>       <C>          <C>
Net operating revenues (a)                    $(15,086)      (2.8)     $81,385      17.5
Operation and maintenance expenses             (16,925)      (6.4)      25,134      10.4
Depreciation and amortization expens             3,439        4.9        4,227       6.4
Income taxes                                    (2,025)      (3.6)      27,895      97.1
Other income and deductions                     (6,163)     (21.3)      17,456      37.6
Net income                                      (5,034)      (4.9)      41,284      66.4


(a) Operating revenues, net of gas costs and revenue taxes.
</TABLE>
  

Net Operating Revenues

   Gross revenues of Peoples Gas and North Shore Gas are affected by
changes in the unit cost of the utilities' gas purchases and do not
include the cost of gas supplies for customers who purchase gas
directly from producers and marketers rather than from the utilities.
The direct customer purchases have little effect on net income because
the utilities provide transportation service for such gas volumes and
recover margins similar to those applicable to conventional gas sales.
Except for the effect of customer conservation that may result from
substantial increases in the commodity cost of gas supplies, changes in
the unit cost of gas do not significantly affect net income because the
utilities' tariffs provide for dollar-for-dollar recovery of gas costs.
(See Note 1L of the Notes to Consolidated Financial Statements.)  The
utilities' tariffs also provide for dollar-for-dollar recovery of the
cost of revenue taxes imposed by the state and various municipalities.

   Since income is not significantly affected by changes in revenue
from customers' gas purchases from producers or marketers rather than
from the subsidiaries, changes in gas costs (except for the effect of
customer conservation that may result from substantial increases in the
commodity cost of gas supplies), or changes in revenue taxes, the
discussion below pertains to "net operating revenues" (operating
revenues, net of gas costs and revenue taxes).  The Company considers
net operating revenues to be a more pertinent measure of operating
results than gross revenues.

   Net operating revenues decreased $15.1 million, to $532.5 million,
in 1997.  Natural gas deliveries decreased 20.0 bcf, to 280.7 bcf,
primarily due to weather that was four per cent warmer than in 1996 and
conservation.  Net operating revenues decreased approximately $24.2
million ($14.6 million after income taxes) as a result of customer
conservation measures and warmer weather.  However, a full year's
effect of the utilities' rate increases improved net operating revenues
by approximately $4.5 million ($2.7 million after income taxes).

   In 1996, net operating revenues increased $81.4 million, to $547.6
million.  Natural gas deliveries increased 36.6 bcf, to 300.7 bcf, due
to weather that was 20 per cent colder than in 1995 and over eight per
cent colder than normal.  Net operating revenues increased
approximately $29 million ($17.5 million after income taxes) as a
result of the colder weather.  Also, the aforementioned rate increases
for the Company's utility subsidiaries improved net operating revenues
by about $34.7 million ($20.9 million after income taxes).

   See Other Matters - Operating Statistics for details of selected
financial and operating information by gas service classification.

Operation and Maintenance Expenses

   Operation and maintenance expenses decreased $16.9 million, to
$249.0 million, in 1997, due chiefly to an $18.6 million decrease in
pension expense caused by changes in settlement accounting attributed
to employees choosing early retirement and actuarial assumptions (see
Note 7A of the Notes to Consolidated Financial Statements), lower
reengineering expenses ($2.5 million), and reductions in costs
associated with liability insurance premiums and claim settlements
($2.3 million) and group insurance expense ($1.7 million).  These
decreases were partially offset by an increase in payments for outside
services ($3.7 million) and higher administrative and general expenses.

   In 1996, operation and maintenance expenses increased $25.1 million,
to $266.0 million, due principally to the reduction of expense from the
prior year's recognition of about $14 million for an IRS settlement.
(See Note 8D of the Notes to Consolidated Financial Statements.)  Also,
the provision for uncollectible accounts increased ($5.4 million), due
largely to greater sales revenue attributable to the colder weather and
higher rates.  In addition, increases between years resulted from
greater labor costs ($4.1 million), outside services ($2.4 million),
distribution system expenses ($3.1 million), and environmental costs
recovered through rates ($3.3 million).  These increases were offset,
in part, by decreased pension costs ($12.9 million).

Depreciation and Amortization Expense

   Depreciation and amortization expense increased $3.4 million, to
$74.1 million, in 1997, due chiefly to depreciable property additions.

   In 1996, depreciation and amortization expense increased $4.2
million, to $70.6 million, due mainly to depreciable property additions
and the amortization of costs associated with the closing of the
synthetic natural gas-making plant.

Income Taxes

   Income taxes, exclusive of the $1.8 million included in other income
and deductions, declined $2.0 million, to $54.6 million, in 1997, due
to a tax accrual adjustment.

   In 1996, income taxes, exclusive of the $5.8 million included in
other income and deductions, increased $27.9 million, to $56.6 million,
due principally to higher pre-tax income.

Other Income and Deductions

   Other income and deductions increased $6.2 million from the prior
year, due primarily to the prior period's gain associated with the
expiration of natural gas storage contracts.  (See Note 6 of the Notes
to Consolidated Financial Statements.)  Partially offsetting this
increase were reductions in interest expense on long-term debt,
resulting from the utility subsidiaries' early redemption of first
mortgage bonds (see Note 13B of the Notes to Consolidated Financial
Statements), and on amounts refunded to customers.

   In 1996, other income and deductions decreased $17.5 million from
the prior year, due largely to the gain of $8.9 million, after income
taxes, associated with the expiration of certain natural gas storage
contracts.  Additionally, fiscal year 1996 included lower interest on
long-term debt.  These decreases were offset, in part, by decreased
interest income reflecting lower cash balances.

Other Matters

Effect of Weather.  Weather variations affect the volumes of gas
delivered for heating purposes and, therefore, can have a significant
positive or negative impact on net income, cash position, and coverage
ratios.

Accounting Standards.  In February 1997, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share".  This statement
simplifies the calculation of earnings per share (EPS) and increases
conformity to international standards.  Under SFAS No. 128, primary EPS
is replaced by "basic" EPS, which excludes the effects of any dilution.
It is calculated by dividing net income available to common
shareholders by the weighted-average number of common shares
outstanding for the period.  "Diluted" EPS, which is computed similarly
to fully diluted EPS, reflects the potential dilution that could occur
if securities or other contracts to issue common stock were exercised
or converted into common stock.

   The Company is required to adopt the new standard for its fiscal
1998 financial statements (including interim financial statements).
Early adoption is not permitted.  Pro forma EPS, as if the Company
adopted SFAS No. 128 as of October 1 of each period presented, are as
follows:

         Fiscal Years     1997      1996      1995
                                    
         Basic EPS       $2.81     $2.96     $1.78
         Diluted EPS     $2.80     $2.95     $1.78

FERC Order 636 Costs.  The Commission entered orders providing for full
recovery by Peoples Gas and North Shore Gas of FERC Order 636
transition costs from the utilities' respective gas service customers.
The Commission's orders have been appealed to the Illinois Supreme
Court.  (See Notes 1L, 2A, and 2B of the Notes to Consolidated
Financial Statements.)

Large Volume Gas Service Agreements.  Peoples Gas and North Shore Gas
have entered into gas service contracts with certain large volume
customers under specific rate schedules approved by the Commission.
These contracts were negotiated to overcome the potential threat of
bypassing the utilities' distribution systems.  The contracts will not
have a material adverse effect on the financial position or results of
operations of Peoples Gas or North Shore Gas.

Small-Volume Transportation Service.  On June 25, 1997, the Commission
allowed Riders SVT and AGG to go into effect for Peoples Gas, which
will initiate a two year pilot program designed to provide
transportation service to certain small-volume industrial and
commercial customers of the utility as well as to some of its large
residential customers.  The Commission also ordered a concurrent
investigation of the program to ascertain if program adjustments or
revisions are required.

Operating Statistics.  The following table represents gas distribution
margin components:

For fiscal years ended September 30,   1997       1996           1995
Operating Revenues (thousands):
  Gas sales
    Residential                   $   941,557  $  883,100  $   752,796
    Commercial                        146,412     141,594      116,113
    Industrial                         28,918      32,075       24,128
                                    1,116,887   1,056,769      893,037

  Transportation
    Residential                        36,812      37,133       37,850
    Commercial                         48,108      51,251       50,318
    Industrial                         31,018      36,059       34,646
    Contract Pooling                   17,742       4,433            -
    Other                                 406           -            -
                                      134,086     128,876      122,814

  Other                                23,397      13,032       17,550

Total Operating Revenues            1,274,370   1,198,677    1,033,401
Less- Gas Costs                       615,602     529,875      457,436
    - Revenues Taxes                  126,224     121,172      109,720
Net Operating Revenues            $   532,544 $   547,630  $   466,245

Deliveries (MDth):
  Gas Sales
    Residential                      142,836      154,128      130,571
    Commercial                        24,910       27,390       22,079
    Industrial                         5,361        6,803        5,059
                                     173,107      188,321      157,709

  Transportation (a)
    Residential                       27,910       26,521       24,811
    Commercial                        40,564       42,461       41,648
    Industrial                        38,913       43,366       39,893
    Other                                234            -            -
                                     107,621      112,348      106,352

  Total Gas Sales and Transportation 280,728      300,669      264,061

  Margin per Dth delivered       $      1.90  $      1.82  $      1.77


(a)  Volumes associated with contract pooling service are included in
the respective customer classes.

INVESTMENT IN NON-UTILITY SUBSIDIARIES

The Company intends to increase its investment in nonregulated energy
businesses through investments in its non-utility subsidiaries (see Liquidity-
Credit Lines and Debt Ratings; Capital Resources - Capital Spending).



LIQUIDITY

Source of Funds.  The Company has access to outside capital markets and
to internal sources of funds that together provide sufficient resources
to meet capital requirements.  It does not anticipate any changes that
would materially alter its current liquidity position.

   Due to the seasonal nature of gas usage, a major portion of cash
collections occurs between December and May.  Because of timing
differences in the receipt and disbursement of cash and the level of
construction requirements, the utility subsidiaries may borrow on a
short-term basis.  Short-term borrowings are repaid with cash from
operations, other short-term borrowings, or refinanced on a permanent
basis with debt or equity, depending on capital market conditions and
capital structure considerations.

Credit Lines.  At September 30, 1997, the Company had in place a bank
line of credit of $20 million, of which $19.9 million was available.
In connection with plans to make equity investments in one or more of
its non-utility subsidiaries, the Company is in the process of establishing
a $150 million commercial paper program.  If this financing vehicle is 
utilized, the Company will enter into credit agreements with commercial
banks to provide 100% back-up lines of credit to support this commercial
paper program.

   The utility subsidiaries have lines of credit of $129.4 million.  At
September 30, 1997, the utility subsidiaries had unused credit
available from banks of $126.5 million.  (See Note 12 of the Notes to
Consolidated Financial Statements.)

Cash Flow Activities.  Net cash provided by operating activities in
1997 increased by $69.1 million, due chiefly to changes in other
assets, gas costs refundable, and net receivables.  Partially
offsetting these items were changes in accounts payable and gas in
storage.

   In 1996, net cash provided by operating activities declined by
$128.0 million, due principally to changes related to gas sales revenue
refundable, net receivables, and other assets.  Such items were
partially offset by increases from net income, due mainly to colder
weather and the rate increases, and from accounts payable.  In 1995,
net cash provided by operating activities increased by $22.9 million,
due primarily to changes related to gas in storage, other assets, and
deferred income taxes.  These items were offset, in part, by changes in
gas costs recoverable and net receivables.

   Net cash used in investing activities for 1997, 1996, and 1995
largely represents the level of capital expenditures in the respective
years.

   Net cash used in financing activities in 1997 reflects dividends
paid to common stockholders and the issuance of new shares of common
stock through the direct purchase and investment plan.

   In 1996, net cash used in financing activities reflects the
redemption of previously issued debt.  (See Note 13B of the Notes to
Consolidated Financial Statements.)  Net cash used in financing
activities in 1995 includes drawdowns from the trust fund associated
with prior financing for utility construction activities.

Indenture Restrictions.  North Shore Gas' indenture relating to its
first mortgage bonds contains provisions and covenants restricting the
payment of cash dividends and the purchase or redemption of capital
stock.  At September 30, 1997, such restrictions amounted to $11.6
million out of North Shore Gas' total retained earnings of $67.9
million.  (See Note 4 of the Notes to Consolidated Financial
Statements.)

District Energy.  Peoples District Energy is a 50 per cent participant
in a partnership, Trigen-Peoples District Energy Company, that provides
district energy services to the McCormick Place exposition and
convention center in Chicago, Illinois.  In May 1998 the partnership
will begin providing district energy services to the adjacent Hyatt
Regency McCormick Place Hotel.  Neither the partnership nor its
partners are regulated as a public utility.  The Company and Trigen
Energy Corporation have each provided a joint and several limited
guarantee to the owner and operator of McCormick Place and also have
certain limited obligations to the partnership's lender under a
Sponsors Support and Equity Contribution Agreement.

Interest Coverage.  The fixed charges coverage ratios for Peoples Gas
for fiscal 1997, 1996, and 1995 were 5.01, 4.84, and 2.76,
respectively.  The corresponding coverage ratios for North Shore Gas
for the same periods were 5.74, 5.62, and 2.93, respectively.  The
increase in the ratio in the current fiscal year for each Company is
due to lower interest expense on amounts refundable to customers and on
long-term debt.  The increase in the ratio for fiscal year 1996 for
each Company reflects the redemption of long-term debt and higher pre-
tax income resulting from colder weather and the Commission-approved
rate increases.  (See Results of Operations - Net Income.)  The ratios
for fiscal year 1995 for both utility subsidiaries include the
recording of an IRS settlement in income.  (See Note 8D of the Notes to
Consolidated Financial Statements.)

Debt Ratings.  In connection with its proposed $150 million commercial
paper program, the Company requested Moody's Investors Service and
Standard and Poor's Ratings Group to establish credit ratings on the
Company's securities.  On November 25, 1997, Moody's Investors Service
assigned the Company a long-term debt rating of A2 and a short-term
debt rating of P-1.  On the same date Standard and Poor's assigned the
Company a long-term debt rating of A+ and a short-term rating of A-1.

   The long-term debt of Peoples Gas and North Shore Gas had been rated
Aa3 by Moody's Investors Service and AA- by Standard & Poor's since
fiscal 1985.  On November 25, 1997, Moody's raised the long-term debt
rating of both utilities to Aa2.  The commercial paper of both
utilities has the top rating from both agencies.

Environmental Matters.  The Company's utility subsidiaries are
conducting environmental investigations and work at certain sites that
were the location of former manufactured gas operations.  (See Note 3A
of the Notes to Consolidated Financial Statements.)

   In 1994, North Shore Gas received a demand from a responsible party
under the Comprehensive Environ-mental Response, Compensation and
Liability Act of 1980, as amended (CERCLA), for reimbursement,
indemnification, and contribution for response costs incurred at a
former mineral processing site in Denver, Colorado.  North Shore Gas
filed a declaratory judgment action asking the court to declare that
North Shore Gas is not liable for response costs relating to the site.
Salomon filed a counterclaim for costs to be incurred by Salomon and
Shattuck with respect to the site.  On March 7, 1997, the District
Court granted North Shore Gas' motion for summary judgment, declaring
that North Shore Gas is not liable for any response costs in connection
with the Denver site.  Salomon has appealed the ruling of the District
Court to the United States Court of Appeals, Seventh Circuit.  (See
Note 3B of the Notes to Consolidated Financial Statements.)

   On November 14, 1995, the Illinois Attorney General filed a
complaint in the Circuit Court of Cook County naming North Shore Gas
and four other parties as defendants.  The complaint alleges violations
arising out of a gasoline release that occurred in Wheeling, Illinois,
in June 1992, when a contractor who was installing a pipeline for North
Shore Gas accidentally struck a gasoline pipeline owned by West Shore
Pipeline Company.  North Shore Gas is contesting this suit.  (See Note
3C of the Notes to Consolidated Financial Statements.)

Regulatory Actions.  On November 8, 1995, the Commission issued orders
approving changes in rates of Peoples Gas and North Shore Gas.  (See
Note 2A of the Notes to Consolidated Financial Statements.)

Year 2000.  The Company is modifying all of its computer programs to be
year 2000 compatible.  The Company does not believe that the amount of
expenditures it will incur in connection with its year 2000
modification will have a material adverse effect on the financial
position or results of operations of the Company.

CAPITAL RESOURCES

Capital Spending.  Capital expenditures for additions, replacements,
and improvements to the utility plant were $89.4 million in 1997, $85.6
million in 1996, and $95.9 million in 1995.

   Expenditures in fiscal 1997 increased $3.8 million from 1996,
resulting from an increase of $12.5 million for a new customer
information system, partially offset by the continuation of a cost
containment program.

   In fiscal 1996, expenditures decreased $10.3 million from 1995,
reflecting the continuation of a cost containment program.

   Capital expenditures for fiscal 1998 are expected to be about $115.6
million, an increase of $26.2 million from the 1997 level.  The
estimate of expenditures for 1998 includes $26.0 million for Peoples
Gas' customer information system and $13.5 million for its remote
automatic meter reading project.

   There are no sinking fund requirements for long-term debt due in
fiscal 1998.  (See Note 13C of the Notes to Consolidated Financial
Statements.)

   The Company anticipates that the utilities' future cash needs for
capital expenditures and sinking fund requirements and maturities will
be met through internally generated funds, intercompany loans from the
Company, borrowing arrangements with banks and/or the issuance of
commercial paper on an interim basis, and periodic long-term financing
involving equity or the utilities' first mortgage bonds.

   The capital needs of the Company's non-utility subsidiaries have
been met with periodic equity infusions.  The Company intends to
increase its investment in nonregulated energy businesses.  It is
anticipated that future capital needs for such investments will be met
through additional equity investments by the Company in or through
loans from the Company to its non-utility subsidiaries.  To fund such
potential investments, the Company currently is in the process of
establishing a $150 million commercial paper program.

Bonds Redeemed.  On December 29, 1995, Peoples Gas redeemed, from
general corporate funds, approximately $87 million aggregate principal
amount of the City of Joliet's 1984 Gas Supply Revenue Bonds, Series A
and B, which were secured by Peoples Gas' Series U and V First and
Refunding Mortgage Bonds.  (See Note 13B of the Notes to Consolidated
Financial Statements.)

   On February 1, 1996, North Shore Gas redeemed $8 million aggregate
principal amount of its Series I First Mortgage Bonds, using the
proceeds of a short-term bank loan as well as other monies of North
Shore Gas.  (See Note 13B of the Notes to Consolidated Financial
Statements.)

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                                            Page

Statement of Management's Responsibility                      20

Report of Independent Public Accountants                      21

Consolidated Statements of Income for fiscal years ended
  September 30, 1997, 1996, and 1995                          22

Consolidated Statements of Retained Earnings for fiscal
  years ended September 30, 1997, 1996, and 1995              22

Consolidated Balance Sheets at September 30, 1997 and 1996    23

Consolidated Capitalization Statements at September 30, 1997
  and 1996                                                    24

Consolidated Statements of Cash Flows for fiscal years ended
  September 30, 1997, 1996, and 1995                          25

Notes to Consolidated Financial Statements                    26


STATEMENT OF MANAGEMENT'S RESPONSIBILITY


   The financial statements and other financial information included in
this report were prepared by management, who is responsible for the
integrity and objectivity of presented data.  The consolidated
financial statements of the Company and its subsidiaries were prepared
in conformity with generally accepted accounting principles and
necessarily include some amounts that are based on the best estimates
and judgments of management.

   The Company maintains internal accounting systems and related
administrative controls, along with internal audit programs, that are
designed to provide reasonable assurance that the accounting records
are accurate and assets are safeguarded from loss or unauthorized use.
Consequently, management believes that the accounting records and
controls are adequate to produce reliable financial statements.

   Arthur Andersen LLP, the Company's independent public accountants
approved by the shareholders, as a part of its audit of the financial
statements, selectively reviews and tests certain aspects of internal
accounting controls solely to determine the nature, timing, and extent
of its audit tests.  Management has made available to Arthur Andersen
LLP all of the Company's financial records and related data and
believes that all representations made to the independent public
accountants during its audit were valid and appropriate.

   The Audit Committee of the Board of Directors, comprised of six
outside directors, meets periodically with management, the internal
auditors, and Arthur Andersen LLP, jointly and separately, to ensure
that appropriate responsibilities are discharged.  These meetings
include discussion and review of accounting principles and practices,
internal accounting controls, audit results, and the presentation of
financial information in the annual report.




REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To Shareholders of Peoples Energy Corporation:


   We have audited the accompanying consolidated balance sheets and
consolidated capitalization statements of Peoples Energy Corporation
(an Illinois corporation) and subsidiary companies at
September 30, 1997 and 1996, and the related consolidated statements of
income, retained earnings, and cash flows for each of the three years
in the period ended September 30, 1997.  These financial statements 
and the schedule referred to below are the responsibility of the Company's 
management.  Our responsibility is to express an opinion on these financial 
statements based on our audits.

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

   In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Peoples
Energy Corporation and subsidiary companies at September 30, 1997 and
1996, and the results of their operations and their cash flows for each
of the three years in the period ended September 30, 1997, in
conformity with generally accepted accounting principles.

   Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole.  The financial statement
schedule listed in Item 14(a)2 is presented for purposes of complying
with the Securities and Exchange Commission's rules and is not part of
the basic financial statements.  The financial statement schedule has
been subjected to the auditing procedures applied in the audit of the
basic financial statements and, in our opinion, fairly states, in all
material respects, the financial data required to be set forth therein
in relation to the basic financial statements taken as a whole.




                                    /s/ ARTHUR ANDERSEN LLP


                                        ARTHUR ANDERSEN LLP







Chicago, Illinois
October 31, 1997





CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>

                                                       Peoples Energy Corporation
For fiscal years ended September 30,               1997            1996            1995
                                               (Thousands, except per-share amounts)
<S>                                            <C>            <C>            <C> <C>
Operating Revenues:
Gas sales                                      $ 1,116,887    $ 1,056,769    $   893,037
Transportation                                     134,086        128,876        122,814
Other                                               23,397         13,032         17,550
Total Operating Revenues                         1,274,370      1,198,677      1,033,401
Operating Expenss:
Gas costs                                          615,602        529,875        457,436
Operation                                          201,409        220,318        199,095
Maintenance                                         47,626         45,642         41,731
Depreciation and amortization                       74,074         70,635         66,408
Taxes- Income                                       54,595         56,620         28,725
     - State and local revenue                     126,224        121,172        109,720
     - Other                                        21,297         22,001         21,700
Total Operating Expenses                         1,140,827      1,066,263        924,815
Operating Income                                   133,543        132,414        108,586
Other Income and (Deductions): 
Interest income                                      5,410          5,397         10,066
Allowance for funds used during construction           267             23              -
Interest on long-term debt of subsidiaries         (35,722)       (37,826)       (46,413)
Other interest expense                              (2,753)        (5,114)        (7,457)
Income taxes                                        (1,840)        (5,839)        (3,831)
Miscellaneous - net (see Note 10)                     (501)        14,383          1,203
Total Other Income and Deductions                  (35,139)       (28,976)       (46,432)
Net Income                                       $  98,404    $   103,438    $    62,154
Average Shares of Common Stock Outstanding          35,000         34,942         34,901
Earnings Per Share of Common Stock               $    2.81    $      2.96    $      1.78

</TABLE>

<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

                                                         Peoples Energy Corporation
For fiscal years ended September 30,                     1997        1996        1995
                                                                  (Thousands)
<S>                                                      <C>         <C>         <C>
Balance at Beginning of Year                             $ 403,304   $ 364,581   $ 365,258
 Add - Net Income                                           98,404     103,438      62,154
 Deduct- Dividends declared on common stock of $1.87
            $1.83, and $1.80 per share, respectively        65,460      63,954      62,831
       - Additional minimum liability for
             non-qualified pension plan, net of tax          1,596         761           -
Balance at End of Year                                   $ 434,652   $ 403,304   $ 364,581



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

</TABLE>

<TABLE>
<CAPTION>

CONSOLIDATED BALANCE SHEETS
                                                                     Peoples Energy Corporation
At September 30,                                                          1997            1996
                                                                               (Thousands)
<S>                                                                   <C>            <C>
Properties and Other Assets
Capital Investments:
Property, plant and equipment, at original cost                       $2,117,509     $2,046,156
Less - Accumulated depreciation                                          715,279        665,077
Net property, plant and equipment                                      1,402,230      1,381,079
Other investments                                                         16,305         12,348
Total Capital Investments - Net                                        1,418,535      1,393,427

Current Assets:
Cash and cash equivalents                                                 33,298         37,770
Temporary cash investments                                                15,900            900
Receivables -
   Customers, net of allowance for uncollectible
       accounts of $29,895 and $26,211, respectively                      72,290         68,675
   Other                                                                  39,182         32,399
Accrued unbilled revenues                                                 22,742         29,314
Materials and supplies, at average cost                                   19,386         16,128
Gas in storage, at last-in, first-out cost                                77,843         65,502
Gas costs recoverable through rate adjustments                             5,164         19,920
Prepayments                                                               42,902         12,287
Total Current Assets                                                     328,707        282,895
Other Assets:
Regulatory assets of subsidiaries (see Note 1H)                           54,136         91,498
Deferred charges                                                          19,427         15,930
Total Other Assets                                                        73,563        107,428
Total Properties and Other Assets                                     $1,820,805     $1,783,750


Capitalization and Liabilities
Capitalization (see Consolidated Capitalization Statements)           $1,243,503     $1,208,249
Current Liabilities:
Interim loans of subsidiaries                                              2,810          2,625
Accounts payable                                                         134,813        147,972
Dividends payable on common stock                                         16,479         16,082
Customer gas service and credit deposits                                  45,386         42,390
Accrued taxes                                                             20,645         32,821
Gas sales revenue refundable through rate adjustments                     14,951         13,921
Accrued interest                                                          10,800         10,796
Total Current Liabilities                                                245,884        266,607
Deferred Credits and Other Liabilities:
Deferred income taxes - primarily accelerated depreciation (see Note 8C) 249,178        230,948
Investment tax credits being amortized over
   the average lives of related property                                  33,942         35,439
Other                                                                                    48,298             42,507
Total Deferred Credits and Other Liabilities                             331,418        308,894
Total Capitalization and Liabilities                                  $1,820,805     $1,783,750



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

</TABLE>

<TABLE>
<CAPTION>
   
CONSOLIDATED CAPITALIZATION STATEMENTS
                                                               Peoples Energy Corporation
At September 30,                                                 1997                   1996
                                                           (Thousands, except number of shares)
<S>                                                          <C>                  <C>
Common Stockholders' Equity:
Common stock, without par value -
   Authorized 60,000,000 shares
   Outstanding 35,069,517 and 34,960,399 shares,respectively $    281,847          $   277,881
Retained earnings (see Consolidated Statements
   of Retained Earnings)                                          434,652              403,304
Total Common Stockholders' Equity                                 716,499              681,185

Long-Term Debt:
Exclusive of sinking fund payments and maturities
   due within one year
The Peoples Gas Light and Coke Company
   First and Refunding Mortgage Bonds -
      Adjustable-Rate Series W (3.95% and 4% through
         September 30, 1997 and September 30, 1996, respectively),
         due October 1, 1999 (see Note 13A)                        10,400               10,400
      6.875% Series X, due March 1, 2015                           50,000               50,000
      7.50% Series Y, due March 1, 2015                            50,000               50,000
      7.50% Series Z, due March 1, 2015                            50,000               50,000
      8.10% Series BB, due May 1, 2020                             75,000               75,000
      6.37% Series CC, due May 1, 2003                             75,000               75,000
      5-3/4% Series DD, due December 1, 2023                       75,000               75,000
      Adjustable-Rate Series EE (3.70% and 3.85% through
         November 30, 1997 and November 30, 1996, respectively),
         due December 1, 2023 (see Note 13A)                       27,000               27,000
      6.10% Series FF, due June 1, 2025                            50,000               50,000
North Shore Gas Company
   First Mortgage Bonds -
      8% Series J, due November 1, 2020                            24,699               24,734
      6-3/8% Series K, due October 1, 2022                         24,905               24,930
      6.37% Series L, due May 1, 2003                              15,000               15,000
Total Long-Term Debt                                              527,004              527,064
Total Capitalization                                         $  1,243,503         $  1,208,249


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

</TABLE>

<TABLE>
<CAPTION>

 CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                              Peoples Energy Corporation
For fiscal years ended September 30,                      1997           1996            1995
                                                                      (Thousands)
<S>                                                   <C>           <C>             <C>    
Operating Activities:
Net Income                                            $   98,404    $   103,438     $   62,154
Adjustments to reconcile net income to net cash:
  Depreciation and amortization                           74,074         70,635         66,408
  Deferred income taxes and investment tax credits - net  16,463         13,669         10,556
  Change in deferred credits and other liabilities         6,061         20,324         (9,522)
  Change in other assets                                  28,251        (56,853)        (1,607)
  Other                                                        -             85             63
  Change in current assets and liabilities:
    Receivables - net                                    (10,398)       (41,766)        16,875
    Accrued unbilled revenues                              6,572         (8,147)        (1,245)
    Materials and supplies                                (3,258)           338          7,389
    Gas in storage                                       (12,341)        35,044         50,458
    Gas costs recoverable                                 14,756        (13,715)         8,221
    Prepayments                                          (30,615)        (9,985)          (251)
    Accounts payable                                     (13,159)        45,595         (6,758)
    Customer gas service and credit deposits               2,996          1,813         (4,843)
    Accrued taxes                                        (12,176)         4,661           (776)
    Gas sales revenue refundable                           1,030        (65,581)        28,559
    Accrued interest                                           4         (2,001)          (146)

Net Cash Provided by Operating Activities                 166,664        97,554        225,535

Investing Activities:
Capital expenditures of subsidiaries - construction       (89,404)      (85,620)       (95,941)
Other assets                                                  584        11,887         (1,603)
Other capital investments                                  (6,344)       (2,827)          (123)
Other temporary cash investments                          (15,000)          200           (100)
Other long-term cash investments                                -             -          5,982

Net Cash Used in Investing Activities                    (110,164)      (76,360)       (91,785)

Financing Activities:
Interim loans of subsidiaries - net                           185         1,725              -
Issuance of long-term debt of subsidiaries                      -             -         50,000
Trust fuutility construction                                    -             -         31,493
      - bond redemption                                         -           237           (237)
Retirement of long-term debt of subsidiaries                  (60)      (98,810)       (54,201)
Dividends paid on common stock                            (65,063)      (63,583)       (62,810)
Proceeds from issuance of common stock                      3,966           768            993

Net Cash Used in Financing Activities                     (60,972)     (159,663)       (34,762)

Net Increase (Decrease) in Cash and Cash Equivalents       (4,472)     (138,469)        98,988
Cash and Cash Equivalents at Beginning of Year             37,770       176,239         77,251

Cash and Cash Equivalents at End of Year               $   33,298   $    37,770     $  176,239



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

</TABLE>

		Peoples Energy Corporation


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1A     Principles of Consolidation

  All subsidiaries are included in the consolidated
financial statements.  All significant intercompany
transactions have been eliminated in consolidation.  Certain
items previously reported for years prior to 1997 have been
reclassified to conform with the current-year presentation.

1B     Use of Estimates

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

1C     Concentration of Credit Risk

  Peoples Gas provides natural gas service to approximately
836,000 customers within the City of Chicago.  North Shore
Gas provides natural gas service to about 140,000 customers
within approximately 275 square miles in Northeastern
Illinois.  Credit risk for each utility is spread over a
diversified base of residential, commercial, and industrial
retail sales and transportation customers.

  Peoples Gas and North Shore Gas encourage customers to
participate in their long-standing budget payment programs,
which allow the cost of higher gas consumption levels
associated with the heating season to be spread over a 12-
month billing cycle.  Customers' payment records are
continually monitored and credit deposits are required, when
appropriate, to minimize uncollectible write-offs.

1D     Revenue Recognition

  Gas sales revenues are recorded on the accrual basis for
all gas delivered during the month, including an estimate
for gas delivered but unbilled at the end of each month.

1E     Property, Plant and Equipment

  Property, plant and equipment is stated at original cost
and includes appropriate amounts of capitalized labor costs,
payroll taxes, employee benefit costs, administrative costs,
and an allowance for funds used during construction.

1F     Accounts Payable

  The Company utilizes controlled disbursement banking
arrangements under which certain bank accounts have negative
book balances due to checks in transit.  The negative
balances are classified as Accounts Payable.

1G     Maintenance and Depreciation

  The Company's utility subsidiaries charge the cost of
maintenance and repairs of property and minor renewals and
improvements of property to maintenance expense.  When
depreciable property is retired, its original cost is
charged to the accumulated provision for depreciation.


  The provision for depreciation substantially reflects the
systematic amortization of the original cost of depreciable
property over estimated useful lives on the straight-line
method.  Additionally, actual dismantling cost, net of
salvage, is included in the provision for depreciation in
the month incurred.  The amounts provided are designed to
cover not only losses due to wear and tear that are not
restored by maintenance, but also losses due to obsolescence
and inadequacy.

  The provision for depreciation, expressed as an annual
percentage of original cost of depreciable property, is as
follows:

For fiscal years ended     1997     1996     1995
September 30,
                                             
Peoples Gas                 3.7%     3.6%     3.6%
North Shore Gas             3.1      3.1      3.1
Consolidated                3.6      3.5      3.5

1H Regulated Operations

   Peoples Gas' and North Shore Gas' utility operations are
subject to regulation by the Commission.  Regulated
operations are accounted for in accordance with SFAS No. 71,
"Accounting for the Effects of Certain Types of Regulation."
This standard controls the application of generally accepted
accounting principles for companies whose rates are
determined by an independent regulator such as the
Commission.  Regulatory assets represent certain costs that
are expected to be recovered from customers through the
ratemaking process.  When incurred, such costs are deferred
as assets in the balance sheet and subsequently recorded as
expenses when those same amounts are reflected in rates.


   The following regulatory assets of subsidiaries were
reflected in Other Assets in the Consolidated Balance Sheets
at September 30, 1997 and 1996:

<TABLE>
<CAPTION>
                                                                       1997        1996
                                                                         (Thousands)
<S>                                                                <C>         <C>
Environmental costs, net of recoveries (see Note 3A)               $  17,720   $  19,384
Transition costs from pipeline supplier (see Note 2B)                  8,343      40,438
Regulatory income tax assets (see Note 1I)                             7,146       4,339
Discount, premium, expenses, and loss on reacquired bonds              3,022       3,483
SNG plant - decommissioning                                           17,543      23,156
Other                                                                    362         698
Total regulatory assets of subsidiaries                            $  54,136   $  91,498

</TABLE>
    
1I Income Taxes

   The Company follows the liability method of accounting
for deferred income taxes.  Under the liability method,
deferred income taxes have been recorded using currently
enacted tax rates for the differences between the tax basis
of assets and liabilities and the basis reported in the
financial statements.  Due to the effects of regulation on
Peoples Gas and North Shore Gas, certain adjustments made to
deferred income taxes are, in turn, debited or credited to
regulatory assets or liabilities.  (See Note 8C.)

   Each utility subsidiary within the consolidated group
nets its income tax-related regulatory assets and
liabilities.  At September 30, 1997 and 1996, net regulatory
income tax assets recorded in Other Assets amounted to $7.1
million and $4.3 million, respectively, while net regulatory
income tax liabilities recorded in Other Liabilities equaled
$5.2 million and $5.5 million, respectively.


   Investment tax credits have been deferred and are being
amortized through credits to income over the book lives of
related property.

   The preceding deferred-tax and tax-credit accounting
conforms with regulations of the Commission.

1J Gas in Storage

   Storage injections are priced at the fiscal-year average
of costs of supply.  Withdrawals from storage are priced on
the last-in, first-out (LIFO) cost method.  The estimated
current replacement cost of gas in inventory at September
30, 1997 and 1996 exceeded the LIFO cost by approximately
$104 million and $91 million, respectively.

1K Statement of Cash Flows

   For purposes of the balance sheet and the statement of
cash flows, the Company considers all short-term liquid
investments with maturities of three months or less to be
cash equivalents.

   Income taxes and interest paid (excluding capitalized
interest) were as follows:

For fiscal years ended     1997      1996      1995
September 30,
                                  (Thousands)   
                                              
Income taxes paid        $55,037   $44,187   $16,448                          
Interest paid             36,906    41,386    47,732

1L Recovery of Gas Costs, Including Charges for Transition
Costs

   Under the tariffs of Peoples Gas and North Shore Gas, the
difference for any month between costs recoverable through
the Gas Charge and revenues billed to customers under the
Gas Charge is refunded to or recovered from customers.
Consistent with these tariff provisions, such difference for
any month is recorded either as a current liability or as a
current asset (with a contra entry to Gas Costs).

   For each gas utility, the Commission conducts annual
proceedings regarding the reconciliation of revenues from
the Gas Charge and related costs incurred for gas.  In such
proceedings, costs recovered by a utility through the Gas
Charge are subject to challenge.  Such proceedings,
regarding Peoples Gas and North Shore Gas for fiscal years
1996 and 1997, are currently pending before the Commission.

   Pursuant to FERC Order No. 636 and successor orders,
pipelines are allowed to recover transition costs from their
customers.  These costs arise from the restructuring of
pipeline service obligations required by the 636 Orders.
The utilities are currently recovering pipeline charges for
transition costs through the Gas Charge.  (See Notes 2A and 2B.)

1M Recovery of Costs of Environmental Activities Relating to
Former Manufactured Gas Operations

   Peoples Gas and North Shore Gas are recovering the costs
of environmental activities relating to the utilities'
former manufactured gas operations, including carrying
charges on the unrecovered balances, under rate mechanisms
approved by the Commission.  For each utility with such a
rate mechanism, the Commission conducts annual proceedings
regarding the reconciliation of revenues from the rate
mechanism and related costs.  In such proceedings, costs
recovered by a utility through the rate mechanism are
subject to challenge.  Such proceedings, regarding Peoples
Gas and North Shore Gas for fiscal years 1994 through 1996
are currently pending before the Commission.  (See Note 3A.)

2.  RATES AND REGULATION

2A Utility Rate Proceedings

Peoples Gas' Rate Order.  On November 8, 1995, the
Commission issued an order approving changes in rates of
Peoples Gas that were designed to increase annual revenues
by approximately $30.8 million, exclusive of additional
charges for revenue taxes.  Peoples Gas was allowed a rate
of return on original-cost rate base of 9.19 per cent, which
reflected an 11.10 per cent cost of common equity.  The new
rates were implemented on November 14, 1995.

North Shore Gas' Rate Order.  On November 8, 1995, the
Commission issued an order approving changes in rates of
North Shore Gas that were designed to increase annual
revenues by approximately $5.6 million, exclusive of
additional charges for revenue taxes.  North Shore Gas was
allowed a rate of return on original-cost rate base of 9.75
per cent, which reflected an 11.30 per cent cost of common
equity.  The new rates were implemented on November 14,
1995.

FERC Order 636 Cost Recovery.  In 1994, the Commission
issued orders concluding its investigation into the
appropriate means of recovery by Illinois gas utilities of
pipeline charges for FERC Order 636 transition costs.  The
orders provided for the full recovery of transition costs
from Peoples Gas' and North Shore Gas' gas service
customers.  The Commission directed that gas supply
realignment (GSR) costs (one of the four categories of
transition costs) be recovered on a uniform volumetric basis
from all transportation and sales customers.  A group of
industrial transportation customers has filed a petition
with the Illinois Supreme Court appealing the Commission's
orders.  If the Illinois Supreme Court accepts the appeal,
any changes made by it to the Commission's orders would have
a prospective effect only.  (See Notes 1L and 2B.)

2B FERC Orders 636, 636-A, and 636-B

   FERC Order 636 and successor orders require pipelines to
make separate rate filings to recover transition costs.
Under a Stipulation and Agreement filed by Natural Gas
Pipeline Company of America (Natural) and approved by FERC,
Natural's charges to the utilities for GSR transition costs
(the largest category of such costs for Peoples Gas and
North Shore Gas) are subject to a cap of approximately $103
million for Peoples Gas and $25 million for North Shore Gas.
Peoples Gas and North Shore Gas are currently recovering
transition costs through the Gas Charge.  At September 30,
1997, Peoples Gas and North Shore Gas had made payments of
$96.1 million and $23.6 million, respectively, and had
accrued an additional $6.9 million and $1.4 million,
respectively, toward the caps.

   The 636 Orders are not expected to have a material effect
on financial position or results of operations of the
Company or its subsidiaries.  (See Notes 1L and 2A.)


3.  ENVIRONMENTAL MATTERS

3A Former Manufactured Gas Plant Operations

   The Company's utility subsidiaries, their predecessors,
and certain former affiliates operated facilities in the
past at multiple sites for the purpose of manufacturing gas
and storing manufactured gas (Manufactured Gas Sites).  In
connection with manufacturing and storing gas, various by-
products and waste materials were produced, some of which
might have been disposed of rather than sold.  Under certain
laws and regulations relating to the protection of the
environment, the subsidiaries might be required to undertake
remedial action with respect to some of these materials.
Three of the Manufactured Gas Sites are discussed in more
detail below.  Peoples Gas and North Shore Gas, under the
supervision of the Illinois Environmental Protection Agency
(IEPA), are conducting investigations of an additional 29
Manufactured Gas Sites.  These investigations may require
the utility subsidiaries to perform additional investigation
and remediation.  The investigations are in a preliminary
stage and are expected to occur over an extended period of
time.

   In 1990, North Shore Gas entered into an Administrative
Order on Consent (AOC) with the United States Environmental
Protection Agency (EPA) and the IEPA to implement and
conduct a remedial investigation/feasibility study (RI/FS)
of a Manufactured Gas Site located in Waukegan, Illinois,
where manufactured gas and coking operations were formerly
conducted (Waukegan Site).  The RI/FS is comprised of an
investigation to determine the nature and extent of
contamination at the Waukegan Site and a feasibility study
to develop and evaluate possible remedial actions.  North
Shore Gas entered into the AOC after being notified by the
EPA that North Shore Gas, General Motors Corporation (GMC),
and Outboard Marine Corporation were each a potentially
responsible party (PRP) under CERCLA with respect to the
Waukegan Site.  A PRP is potentially liable for the cost of
any investigative and/or remedial work that the EPA
determines is necessary.  Other parties identified as PRPs
did not enter into the AOC.

   Under the terms of the AOC, North Shore Gas is
responsible for the cost of the RI/FS.  North Shore Gas
believes, however, that it will recover a significant
portion of the costs of the RI/FS from other entities.  GMC
has agreed to share equally with North Shore Gas in funding
of the RI/FS cost, without prejudice to GMC's or North Shore
Gas' right to seek a lesser cost responsibility at a later
date.

   Peoples Gas has observed what appear to be gas
purification wastes on a Manufactured Gas Site in Chicago,
formerly called the 110th Street Station, and property
contiguous thereto (110th Street Station Site).  Peoples Gas
has fenced the 110th Street Station Site and is conducting a
study under the supervision of the IEPA to determine the
feasibility of a limited removal action.

   The current owner of a site in Chicago, formerly called
Pitney Court Station, filed suit against Peoples Gas in
federal district court under CERCLA.  The suit seeks
recovery of the past and future costs of investigating and
remediating the site.  Peoples Gas is contesting this suit.

   The utility subsidiaries are accruing and deferring the
costs they incur in connection with all of the Manufactured
Gas Sites, including related legal expenses, pending
recovery through rates or from insurance carriers or other
entities.  At September 30, 1997, the total of the costs
deferred by the subsidiaries, net of recoveries and amounts
billed to other entities, was $17.7 million.  This amount
includes an estimate of the costs of completing the studies
required by the EPA at the Waukegan Site and the
investigations being conducted under the supervision of the
IEPA referred to above.  The amount also includes an
estimate of the costs of remediation at the Waukegan Site
and at the 110th Street Station Site in Chicago, at the
minimum amount of the current estimated range of such costs.
The costs of remediation at the other sites cannot be
determined at this time.  While each subsidiary intends to
seek contribution from other entities for the costs incurred
at the sites, the full extent of such contributions cannot
be determined at this time.

   Peoples Gas and North Shore Gas have filed suit against a
number of insurance carriers for the recovery of
environmental costs relating to the utilities' former
manufactured gas operations.  The suit asks the court to
declare that the insurers are liable under policies in
effect between 1937 and 1986 for costs incurred or to be
incurred by the utilities in connection with five of their
Manufactured Gas Sites in Chicago and Waukegan.  The
utilities are also asking the court to award damages
stemming from the insurers' breach of their contractual
obligation to defend and indemnify the utilities against
these costs.  At this time, management cannot determine the
timing and extent of the subsidiaries' recovery of costs
from their insurance carriers.  Accordingly, the costs
deferred at September 30, 1997 have not been reduced to
reflect recoveries from insurance carriers.

   The Company believes that the costs incurred by Peoples
Gas and by North Shore Gas for environmental activities
relating to former manufactured gas operations are
recoverable from insurance carriers or other entities or
through rates for utility service.  Accordingly, management
believes that the costs incurred by the subsidiaries in
connection with former manufactured gas operations will not
have a material adverse effect on the financial position or
results of operations of the utilities.  Peoples Gas and
North Shore Gas are recovering the costs of environmental
activities relating to the utilities' former manufactured
gas operations, including carrying charges on the
unrecovered balances, under rate mechanisms approved by the
Commission.  At September 30, 1997, the subsidiaries had
recovered $12.0 million of such costs through rates.

3B Former Mineral Processing Site in Denver, Colorado

   In 1994, North Shore Gas received a demand from the S.W.
Shattuck Chemical Company, Inc. (Shattuck), a responsible
party under CERCLA, for reimbursement, indemnification, and
contribution for response costs incurred at a former mineral
processing site in Denver, Colorado.  Shattuck is a wholly
owned subsidiary of Salomon, Inc. (Salomon).  The demand
alleges that North Shore Gas is a successor-in-interest to
certain companies that were allegedly responsible during the
period 1934-1941 for the disposal of mineral processing
wastes containing radium and other hazardous substances at
the site.  The cost of the remedy at the site has been
estimated by Shattuck to be approximately $31 million.
Salomon has provided financial assurance for the performance
of the remediation at the site.

   North Shore Gas filed a declaratory judgment action
against Salomon in the District Court for the Northern
District of Illinois.  The suit asks the court to declare
that North Shore Gas is not liable for response costs
incurred or to be incurred at the Denver site.  Salomon
filed a counterclaim for costs to be incurred by Salomon and
Shattuck with respect to the site.  On March 7, 1997, the
District Court granted North Shore Gas' motion for summary
judgment, declaring that North Shore Gas is not liable for
any response costs in connection with the Denver site.
Salomon has appealed the ruling of the District Court to the
United States Court of Appeals, Seventh Circuit.

   North Shore Gas does not believe that it has liability
for the response costs, but cannot determine the matter with
certainty.  At this time, North Shore Gas cannot reasonably
estimate what range of loss, if any, may occur.  In the
event that North Shore Gas incurred liability, it would
pursue reimbursement from insurance carriers, other
responsible parties, if any, and through its rates for
utility service.

3C Gasoline Release in Wheeling, Illinois

   In June 1995, North Shore Gas received a letter from the
IEPA informing North Shore Gas that it was not in compliance
with certain provisions of the Illinois Environmental
Protection Act which prohibit water pollution within the
State of Illinois.  On November 14, 1995, the Illinois
Attorney General filed a complaint in the Circuit Court of
Cook County naming North Shore Gas and four other parties as
defendants.  The complaint alleges that the violations are
the result of a gasoline release that occurred in Wheeling,
Illinois, in June 1992, when a contractor who was installing
a pipeline for North Shore Gas accidentally struck a
gasoline pipeline owned by West Shore Pipeline Company.
North Shore Gas is contesting this suit.  Management does
not believe the outcome of this suit will have a material
adverse effect on financial position or results of
operations of the Company or North Shore Gas.


4.  COVENANTS REGARDING RETAINED EARNINGS

   North Shore Gas' indenture relating to its first mortgage
bonds contains provisions and covenants restricting the
payment of cash dividends and the purchase or redemption of
capital stock.  At September 30, 1997, such restrictions
amounted to $11.6 million out of North Shore Gas' total
retained earnings of $67.9 million.


5.  LONG-TERM LEASE

   In October 1993, Peoples Gas entered into a 15-year
operating lease for its headquarters office.

   The rental obligation consists of a base rent of $2.3
million plus operating expenses and taxes.  The base rent
escalates by 2 per cent each year through the 10th year.
Base rent in the 11th year is approximately $3.6 million
with annual increases of 2 per cent each year through the
15th year.

   Rental expenses for the headquarters office were $6.4
million, $6.5 million, and $6.4 million for fiscal years
1997, 1996, and 1995, respectively.


6.  EXPIRATION OF STORAGE CONTRACTS
                                
   Peoples Gas and North Shore Gas had certain natural gas storage
contracts with Natural that expired on or before December 1, 1995.
Associated with the expiration of the contracts, the utilities
realized a gain of approximately $14.8 million ($8.9 million after
income taxes) during fiscal year 1996.


7.  RETIREMENT AND POSTEMPLOYMENT BENEFITS

7A Pension Benefits

   The Company and certain of its subsidiaries participate in two
defined benefit pension plans covering substantially all employees.
These plans provide pension benefits that generally are based on an
employee's length of service, compensation during the five years
preceding retirement, and social security benefits.  The Company and
its participating subsidiaries make annual contributions to the plans
based upon actuarial determinations and in consideration of tax
regulations and funding requirements under federal law.

   The Company also has non-qualified pension plans that provide
certain employees with pension benefits in excess of qualified plan
limits imposed by federal tax law.

<TABLE>
<CAPTION>
   Net pension cost for all plans for fiscal 1997, 1996, and 1995
included the following components:


                                                              1997         1996        1995
                                                                      (Millions)
<S>                                                         <C>          <C>         <C>
Service cost - benefits earned during year                  $   11.7     $  13.7     $  14.4
Interest cost on projected benefit obligations                  29.4        32.6        29.9
Actual return on plan assets (gain)                           (110.0)      (68.8)      (85.0)
Net amortization and deferral                                   60.2        22.1        45.5
Settlement accounting                                          (18.0)       (7.7)          -
Net pension cost (credit)                                   $  (26.7)    $  (8.1)    $   4.8

</TABLE>

    
   In 1997 and 1996, the Company recognized net gains of $18.0 million
and $7.7 million, respectively, from the settlement of portions of
pension plan obligations.

   The calculation of pension cost assumed a long-term rate of return
on assets of 9.0 per cent for 1997, 8.5 per cent for 1996, and 7.5 per
cent for 1995.  The settlement accounting cost for 1997 and 1996 was
determined using a discount rate of 7.5 per cent and assumed future
compensation increases of 4.5 per cent per year.

<TABLE>
<CAPTION>

   The following table shows the estimated funded status of the
Company's pension plans at September 30, 1997 and 1996:

                                                                   1997           1996
                                                                        (Millions)
<S>                                                             <C>            <C>
Plan assets at market value                                     $  579.0       $  577.5
Actuarial present value of plan benefits:
  Vested                                                           265.1          298.4
  Non-vested                                                        33.6           33.4
Accumulated benefit obligation                                     298.7          331.8
Effect of projected future compensation increases                   81.8           75.8
Projected benefit obligation                                       380.5          407.6
Excess of plan assets over projected benefit obligation            198.5          169.9
Less:
  Unrecognized transition asset                                     18.7           23.7
  Unrecognized prior service cost                                   (5.8)          (4.6)
  Unrecognized net gain                                            150.8          144.0
Non-qualified plan contributions: 7-1-97 to 9-30-97                  1.5             -
Recognition of non-qualified plan additional minimum liability      (4.6)          (1.9)
Accrued pension asset                                           $   31.7       $    4.9

</TABLE>
  
   The projected benefit obligation and plan assets at September 30,
1997 and 1996, are based on a July 1 measurement date, using a
discount rate of 7.5 per cent and assumed future compensation
increases of 4.5 per cent per year.  Plan assets consist primarily of
marketable equity and fixed-income securities.

7B Other Postretirement Benefits

   The Company and its subsidiaries also provide certain health care
and life insurance benefits for retired employees.  Substantially all
employees may become eligible for such benefit coverage if they reach
retirement age while working for the companies.  The plans are funded
based upon actuarial determinations and in consideration of tax
regulations.  The Company accrues the expected costs of such benefits
during the employees' years of service.

<TABLE>
<CAPTION>
   Net postretirement benefit cost for all plans for fiscal 1997,
1996, and 1995 included the following components:


                                                         1997         1996         1995
                                                                   (Millions)
<S>                                                   <C>          <C>          <C>    
Service cost - benefits earned during year            $   3.2      $   3.4      $   2.7
Interest cost on projected benefit obligation             8.6          7.8          7.9
Actual return on plan assets (gain)                      (6.7)        (3.1)        (3.7)
Amortization of transition obligation                     4.9          4.9          4.9
Net amortization and deferral                             3.4          1.2          2.5
Net postretirement benefit cost                       $  13.4      $  14.2      $  14.3

</TABLE>
      

   The calculation of postretirement benefit cost assumed a long-term
rate of return on assets of 9.0 per cent for 1997 and 7.5 per cent for
1996 and 1995.

   Of the above total postretirement costs recognized for fiscal years
1997, 1996, and 1995, $6.1 million, $6.2 million, and $6.4 million,
respectively, were funded through trust funds for future benefit
payments.

<TABLE>
<CAPTION>

   The following table sets forth the estimated funded status for the
postretirement health care and life insurance plans at September 30,
1997 and 1996:


                                                                  1997          1996
                                                                       (Millions)
<S>                                                             <C>           <C>   
Plan assets at market value                                     $  47.7       $   35.6
Accumulated postretirement benefit obligation (APBO):
  Retirees                                                         69.2           65.6
  Fully eligible active plan participants                          14.2           18.7
  Other active plan participants                                   31.9           31.8
Total APBO                                                         15.3          116.1
Deficiency of plan assets over the APBO                           (67.6)         (80.5)
Less: 
  Unrecognized transition obligation
  (being amortized over 20 years)                                 (78.9)         (83.8)
  Unrecognized net gain                                            19.7           11.9
Contributions: July 1 to September 30                               7.9            8.1
Accrued postretirement benefit liability                        $  (0.5)      $   (0.5)

</TABLE>
   
   The total APBO and plan assets at September 30, 1997 and 1996, are
based on a July 1 measurement date using a discount rate of 7.5 per
cent and assumed future compensation increases of 4.5 per cent per
year.  Plan assets consist primarily of marketable equity and fixed-
income securities.

   For measurement purposes, a health care cost trend rate of 7.9 per
cent was assumed for fiscal 1998, and that rate thereafter will
decline gradually to 4.75 per cent in 2003 and subsequent years.  The
health care cost trend rate assumption has a significant effect on the
amounts reported.  Increasing the assumed health care cost trend rate
by one percentage point for each future year would have increased the
APBO at September 30, 1997, by $8.5 million and the aggregate of
service and interest cost components of the net periodic
postretirement benefit cost by $1.3 million annually.


8.  TAX MATTERS

8A Provision for Income Taxes

<TABLE>
<CAPTION>

  Total income tax expense as shown on the Consolidated Statements of
Income is composed of the following:

For fiscal years ended September 30,            1997         1996         1995
                                                (Millions)
<S>                                             <C>          <C>          <C>
Current:
  Federal                                       $ 32,720     $ 40,341     $ 18,328
  State                                            7,266        8,534        3,323
  Total current income taxes                      39,986       48,875       21,651
Deferred:
  Federal                                         14,162       12,781        9,847
  State                                            3,846        3,551        2,917
  Total deferred income taxes                     18,008       16,332       12,764
Investment tax credits - net:
  Federal                                         (1,713)      (2,824)      (1,975)
  State                                              154          161          213
  Total investment tax credits - net              (1,559)      (2,663)      (1,762)
Total provision for income taxes                  56,435       62,544       32,653
Less - Included in operation expense                   -           85           97
Net provision for income taxes                  $ 56,435     $ 62,459     $ 32,556

</TABLE>
   

8B Tax Rate Reconciliation

<TABLE>
<CAPTION>

   The following is a reconciliation between the computed federal
income tax expense (tax rate of 35 per cent times pre-tax book income)
and the total provision for federal income tax expenses:

For fiscal years ended September 30, 1997                1996                1995
                                        Per Cent            Per Cent           Per Cent
                                           of                  of                 of
                               Amount   Pre-tax    Amount   Pre-tax    Amount  Pre-tax
                              (000's)   Income    (000's)    Income   (000's)   Income
<S>                          <C>          <C>     <C>         <C>     <C>        <C>
Computed federal income
  tax expense                $50,250      35.00   $53,808     35.00   $30,924    35.00
Amortization of investment
  tax credits                 (1,713)     (1.19)   (2,824)    (1.84)   (1,975)   (2.24)
Amortization of deferred taxes(1,195)     (0.83)     (823)    (0.54)     (932)   (1.05)
Nontaxable-tax settlement          -         -          -        -     (1,965)   (2.22)
Accrual adjustment            (2,000)     (1.39)        -        -          -       -
Other, net                      (173)     (0.27)      137      0.09       148     0.17
Total provision for federal
  income taxes               $45,169      31.32   $50,298     32.71   $26,200    29.66

</TABLE>

8C Deferred Income Taxes

<TABLE>
<CAPTION>

   Set forth in the table below are the temporary differences which
gave rise to the net deferred income tax liabilities (see Note 1I):


At September 30,                                       1997           1996
                                                            (Thousands)
<S>                                                 <C>            <C>
Deferred tax liabilities:
  Property - accelerated depreciation and
     other property related items                    $ 250,447      $  236,919
  Other                                                 31,785          25,129
  Total deferred income tax liabilities                282,232         262,048
Deferred tax assets:
  Uncollectible accounts                               (13,476)       (14,056)
  Unamortized investment tax credits                   (12,008)       (10,562)
  Other                                                 (7,570)        (6,482)
  Total deferred income tax assets                     (33,054)       (31,100)
Net deferred income tax liabilities                  $ 249,178      $ 230,948
    
</TABLE>

8D Income Tax Settlement

   On September 30, 1993, the Company received notification from the
IRS that settlement of past income tax returns had been reached for
fiscal years 1978 through 1990.  The IRS settlement resulted in
payments of principal and interest to the Company in 1994 in total
amount of approximately $28 million, or $21.6 million after income
taxes.  Both Peoples Gas and North Shore Gas received regulatory
authorization to defer the recognition of the settlement amount in
income for fiscal year 1993, and to recognize its portion of the
settlement amount in income for fiscal years 1994 and 1995.  Each
utility represented to the Commission that, having received this
accounting authorization, it would not file a request for an increase
in base rates before December 1994.

   As a result of the Commission's accounting authorization, the
fiscal year 1995 portion of the settlement amount for Peoples Gas and
North Shore Gas was amortized (credited) to operation expense.  The
effect was to offset increases in costs that the utilities would incur
during the year.  In fiscal 1995, the utilities together amortized
approximately $14 million, or $10.8 million after income taxes.


9.  ASSETS SUBJECT TO LIEN

   The Indenture of Mortgage, dated January 2, 1926, as supplemented,
securing the first and refunding mortgage bonds issued by Peoples Gas,
constitutes a direct, first-mortgage lien on substantially all
property owned by Peoples Gas.  The Indenture of Mortgage, dated April
1, 1955, as supplemented, securing the first mortgage bonds issued by
North Shore Gas, constitutes a direct, first-mortgage lien on
substantially all property owned by North Shore Gas.


10.  OTHER INCOME AND DEDUCTIONS - MISCELLANEOUS

<TABLE>
<CAPTION>

For fiscal years ended September 30,                            1997      1996       1995
                                                                        (Thousands)
<S>                                                          <C>       <C>        <C>  
Amortization of net gain on sale of Peoples Gas Building     $    -    $      -    $   576
Interest on amounts recoverable from customers                  166         224        119
Gain on expiration of gas storage contracts (see Note 6)          -      14,810          -
Amortization of gain (loss) on reacquired bonds                (253)       (120)       240
Loss on donation of property                                   (650)          -          -
Other                                                           236        (531)       268
Total other income and deductions - miscellaneous            $ (501)   $  14,383   $ 1,203

</TABLE>

11.  CAPITAL COMMITMENTS

   Total contract and purchase order commitments of the Company and
its subsidiaries at September 30, 1997, amounted to approximately $3.8
million.


12.  SHORT-TERM BORROWINGS AND CREDIT LINES


At September 30,                            1997            1996
                                             (Thousands)
Bank Loans
Peoples Gas
  8.50% due March 27, 1998             $     700       $       -
  8.25% due February 11, 1997                  -             700
Commercial Paper
North Shore Gas
  due October 1, 1997                  $   2,110       $       -
  due October 1, 1996                          -           1,925
Letters of Credit
  Peoples Energy                       $      69       $       -
  Peoples Gas                                100               -
Available lines of credit
  Unused bank lines                    $ 146,421       $ 126,775

         
   At September 30, 1997, the Company had in place a bank line of
credit of $20 million, which will expire on July 31, 1998.  This line
of credit covers the projected short-term credit needs of the Company.
In connection with its tentative plans to significantly increase its
investment in one or more of its unregulated subsidiaries, the Company
is in the process of establishing a $150 million Section 4(2)
commercial paper program.  If this commercial paper program is
utilized, the Company will establish bank lines of credit in amounts
sufficient to provide 100% back-up for the program.  Payment for all
lines of credit is by fee.

   Short-term cash needs of Peoples Gas and North Shore Gas are met
through intercompany loans from the Company, bank loans, and/or the
issuance of commercial paper.  The outstanding total amount of bank
loans and commercial paper issuances cannot at any time exceed total
bank credit then in effect.


   At September 30, 1997 and 1996, the utility subsidiaries had
combined lines of credit totaling $129.4 million.  Of this total,
North Shore Gas could borrow up to $30 million.  Agreements covering
$92 million of the total at September 30, 1997, will expire on August
30, 1998; the agreement covering the remaining $37.4 million will
expire on January 31, 1999.  Such lines of credit cover projected
short-term credit needs of the subsidiaries and support the long-term
debt treatment of Peoples Gas' adjustable-rate mortgage bonds.  (See
Note 13A.)  Payment for the lines of credit is by fee.


13.  LONG-TERM DEBT

13A Interest-Rate Adjustments

   The rate of interest on the City of Joliet 1984 Series C Bonds,
which are secured by Peoples Gas' Adjustable-Rate First and Refunding
Mortgage Bonds, Series W, is subject to adjustment annually on October
1.  Owners of the Series C Bonds have the right to tender such bonds
at par during a limited period prior to that date.  Peoples Gas is
obligated to purchase any such bonds tendered if they cannot be
remarketed.  All Series C Bonds that were tendered prior to October 1,
1997, have been remarketed.  The interest rate on such bonds is 3.875
per cent for the period October 1, 1997, through September 30, 1998.

   The rate of interest on the City of Chicago 1993 Series B Bonds,
which are secured by Peoples Gas' Adjustable-Rate First and Refunding
Mortgage Bonds, Series EE, is subject to adjustment annually on
December 1.  Owners of the Series B Bonds have the right to tender
such bonds at par during a limited period prior to that date.  Peoples
Gas is obligated to purchase any such bonds tendered if they cannot be
remarketed.  All Series B Bonds that were tendered prior to December
1, 1996, have been remarketed.  The interest rate on such bonds is
3.70 per cent for the period December 1, 1996, through November 30,
1997.

   Peoples Gas classifies these adjustable-rate bonds as long-term
liabilities since it would refinance them on a long-term basis if they
could not be remarketed.  In order to ensure its ability to do so, on
February 1, 1994, Peoples Gas established a $37.4 million three year
line of credit with The Northern Trust Company which has since been
extended to January 31, 1999.  (See Note 12.)

13B Bonds Redeemed

   On December 29, 1995, Peoples Gas redeemed, from general corporate
funds, approximately $87 million aggregate principal amount of the
City of Joliet's 1984 Gas Supply Revenue Bonds, Series A and B, which
were secured by Peoples Gas' Series U and V First and Refunding
Mortgage Bonds.

   On February 1, 1996, North Shore Gas redeemed $8 million aggregate
principal amount of its Series I First Mortgage Bonds using the
proceeds of a short-term bank loan as well as other monies of North
Shore Gas.  The final payment on the short-term bank loan was made by
North Shore Gas on August 1, 1996.

13C Sinking Fund Requirements and Maturities of Subsidiaries

   At September 30, 1997, long-term debt sinking fund requirements and
maturities for the next five years are:

              
		              North           
 Fiscal      Peoples      Shore       
  Year         Gas        Gas        Consolidated
                     (Thousands)
                                        
  1998       $ --        $   --        $   --
  1999         --            --            --
  2000       10,400          --         10,400
  2001         --            --            --
  2002         --            --            --

13D Fair Value of Financial Instruments

   At September 30, 1997, the carrying amount of the Company's long-term
debt of $527.0 million had an estimated fair value of $564.6 million.  At
September 30, 1996, the carrying amount of the Company's long-term debt of
$527.1 million had an estimated fair value of $561.9 million.  The
estimated fair value of the Company's long-term debt is based on yields
for issues with similar terms and remaining maturities.  Since Peoples Gas
and North Shore Gas are subject to regulation, any gains or losses related
to the difference between the carrying amount and the fair value of
financial instruments may not be realized by the Company's shareholders.
The carrying amount of all other financial instruments approximates fair
value.  The $15.9 million in temporary cash investments approximates its
fair market value.

14.  PREFERRED STOCK

   The Company has five million shares of Preferred Stock, no par value,
authorized for issuance, of which none was issued and outstanding at
September 30, 1997.

15.  COMMON STOCK
  
<TABLE>
<CAPTION>

For fiscal years ended September 30,            1997          1996          1995

<S>                                         <C>           <C>          <C>
Shares outstanding - beginning of year      34,960,399    34,913,426   34,868,069
Shares issued:
  Employee Stock Purchase Plan                  16,349        21,516       32,221
  Long-Term Incentive Compensation (LTIC)      106,795       110,700       16,650
  Directors Deferred Compensation Plan           1,568         1,471        1,367
  Direct Purchase and Investment Plan           73,898             -            -
Shares reacquired under LTIC                   (89,492)      (86,714)      (4,881)
Shares outstanding - end of year            35,069,517    34,960,399    34,913,426

</TABLE>

<TABLE>
<CAPTION>

Shares Reserved      At September 30,           1997          1996           1995
<S>                                          <C>           <C>           <C>
Direct Purchase and Investment Plan          1,426,102     1,500,000     1,036,891
Employee Stock Purchase Plan                   981,648       997,997     1,019,513
Long-Term Incentive Compensation Plan          635,135       741,930       852,630
Directors Deferred Compensation Plan            76,717        78,285        79,756
Total shares reserved                        3,119,602     3,318,212     2,988,790

</TABLE>

<TABLE>
<CAPTION>

                                                   Weighted                         Weighted     Stock            Weighted
                                                  Average          Non-Qualified   Average      Appreciation     Average
Long-Term Incentive Compensation Plan              Option Price     Stock Options   SARs Price   Rights (SARs)    Fair Value
<S>                                                   <C>             <C>            <C>           <C>               <C>
Outstanding at September 30, 1994                      $30.28          115,900        $30.28        115,900
Granted                                                 25.69           71,500         25.69         71,500
Exercised                                                     -                 -            -               -
Outstanding at September 30, 1995                       28.53          187,400         28.53        187,400
Granted                                                 27.50           90,200         27.50         90,200         $2.46
Exercised                                               26.79          (92,500)        26.83        (88,700)
Forfeited                                               27.50           (5,300)        27.50         (5,300)
Outstanding at September 30, 1996                       29.04          179,800         28.87        183,600
Granted                                                 34.20           88,200         34.20         88,200         $2.90
Exercised                                               28.71          (97,400)        28.39       (101,200)
Forfeited                                               34.19          (14,000)        34.19        (14,000)
Outstanding at September 30, 1997                      $31.71          156,600        $31.71        156,600


</TABLE>

   Restricted stock awards granted to officers of the Company during
the last three fiscal years are as follows: 1997, 15,100 shares; 1996,
18,200 shares; and 1995, 16,650 shares.  Also, during fiscal 1997,
there were 5,705 shares forfeited.  At September 30, 1997, there were
478,535 shares available for future grant under options or restricted
stock awards.  At September 30, 1997, there were 589,850 SARs
available for future grant.

   The grant of a restricted stock award entitles the recipient to
vote the shares of Company common stock covered by such award and to
receive dividends thereon.  Restricted stock awards are valued at the
closing market price of the stock as of the date of the grant.  The
recipient may not transfer or otherwise dispose of such shares until
the restrictions thereon lapse.  Restricted stock awards granted to
date vest in equal annual increments over a five-year period from the
date of grant.  If a recipient's employment with the Company
terminates, other than by reason of death, disability, or retirement
after attaining age 65, the recipient forfeits all rights to the
unvested portion of the restricted stock award.  The Compensation-
Nominating Committee of the Company's Board of Directors (and with
respect to the Chief Executive Officer, the Compensation-Nominating
Committee, subject to the approval of the non-employee directors) may,
in its sole discretion, accelerate the vesting of any restricted stock
awards granted under the LTIC.

   The grant of an option enables the recipient to purchase Company
common stock at a purchase price equal to the fair market value of the
shares on the date the option was granted.  The grant of an SAR
enables the recipient to receive, for each SAR granted, cash in an
amount equal to the excess of the fair market value of one share of
Company common stock on the date the SAR is exercised over the fair
market value of one share on the date the SAR was granted.  Before an
option or SAR may be exercised, the recipient must complete 12 months
of continuous employment subsequent to the grant of the option or SAR.
Options and SARs may be exercised within 10 years from the date of
grant, subject to earlier termination in case of death, retirement, or
termination of employment for other reasons.

   The Company grants stock options, SARs, and restricted stock awards
under its LTIC.  The Company also offers employees periodic
opportunities to purchase shares of its common stock at a discount
from the then current market price under its Employee Stock Purchase
Plan (ESPP).  The Company applies Accounting Principles Board (APB)
Opinion No. 25 and related Interpretations in accounting for these
plans.

   The Company may sell up to 981,648 shares of common stock to its
employees under the ESPP.  Under the terms of this plan, all employees
with a minimum of one year of service are eligible to purchase shares
at 90 per cent of the stock's market price at the date of purchase.
The Company sold 16,349 shares and 21,516 shares to employees in 1997
and 1996, respectively.

   Under APB Opinion No. 25, no compensation cost has been recognized
for nonqualified stock options and shares issued under the ESPP.  The
compensation cost that has been charged against net income for
restricted stock awards was $452,000 and $382,000 for the years ended
September 30, 1997 and 1996, respectively.  Had compensation cost for
stock options, SARs and shares issued under the ESPP been determined
consistent with SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's net income and earnings per share would
have changed to the following pro forma amounts:

For fiscal years ended      1997         1996
September 30,

             (Thousands, except per-share amounts)

Net income:                            
As reported              $98,404      $103,438
Pro forma                 98,367       103,484
Earnings per average                   
common share:
As reported                 $2.81        $2.96
Pro forma                    2.81         2.96

   Since the SFAS No. 123 method of accounting has not been applied to
options granted prior to October 1, 1995, the resulting pro forma
compensation costs may not be representative of those to be expected
in future years.

   The fair value of each option grant used to determine pro forma net
income is estimated as of the date of grant using a variation of the 
Black-Scholes option-pricing model with the following weighted-average 
assumptions used for grants in the years ended September 30, 1997 and 1996,
respectively: expected volatility of 15.78 and 19.69 per cent;
dividend yield of 5.0 and 5.4 per cent; risk-free interest rates of
6.03 and 5.75 per cent, and expected lives of two years for both
years.  The weighted-average fair value of options granted was $2.90
and $2.46 for the years ended September 30, 1997 and 1996,
respectively.


16.  QUARTERLY FINANCIAL DATA (UNAUDITED)

   The first quarter of fiscal 1997 included a full quarter's impact
of the Commission-approved rate orders.  (See Note 2A of the Notes to
Consolidated Financial Statements.)  All four quarters reflected the
decrease in gas deliveries due primarily to warmer weather and
conservation.  However, this was offset in all four quarters by
reduced pension expense.  The last three quarters of fiscal 1996
reflected the gain from the expiration of gas storage contracts.  (See
Note 6 of the Notes to Consolidated Financial Statements.)
    
                                                                     Earnings
                 Operating        Operating                            Per
Fiscal Quarters  Revenues           Income         Net Income         Share
                              			(Thousands, except per-share amounts)

1997
  Fourth        $116,773          $(5,119)         $(14,080)         $(0.40)
  Third          202,444           20,429            11,735            0.34
  Second         567,995           71,480            63,258            1.81
  First          387,158           46,752            37,490            1.07

1996
  Fourth        $134,005          $(1,877)         $ (8,940)         $(0.26)
  Third          248,511           19,474            14,247            0.41
  Second         498,556           68,271            62,015            1.77
  First          317,605           46,545            36,116            1.03

  Quarterly earnings-per-share amounts are based on the weighted
average common shares outstanding for each quarter and, therefore,
might not equal the amount computed for the total year.


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

   Not applicable.


                               PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

   Information relating to the directors of the Company is set forth
under the caption "Information Concerning Nominees for Election as
Directors" of the Company's Proxy Statement, to be filed with the SEC
on or about December 29, 1997, and to be distributed in connection
with the Company's Annual Meeting of Shareholders to be held on
February 27, 1998.  Such information is incorporated herein by
reference.

   Information relating to the executive officers of the Company is
set forth in Part I of this report under the caption "Executive
Officers of the Company."



ITEM 11.  EXECUTIVE COMPENSATION

   Information relating to executive compensation is set forth under
the captions "Executive Compensation" and "Report on Executive
Compensation" of the Company's Proxy Statement, to be filed with the
SEC on or about December 29, 1997, and to be distributed in
connection with the Company's Annual Meeting of Shareholders to be
held on February 27, 1998.  Such information is incorporated herein by
reference.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

   Information relating to this item is set forth under the caption
"Share Ownership of Director Nominees, and Executive Officers" of the
Company's Proxy Statement, to be filed with the SEC on or about
December 29, 1997, and to be distributed in connection with the
Company's Annual Meeting of Shareholders to be held on February 27,
1998.  Such information is incorporated herein by reference.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   None.




                                PART IV


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

                                                     Page
(a)    1. Financial Statements:

       See Part II, Item 8.                          19

   2.  Financial Statement Schedules:

       Schedule
        Number

        VIII    Valuation and Qualifying Accounts    44

   3.  Exhibits:

       See Exhibit Index on page 47.

(b) Reports on Form 8-K filed during the final quarter of fiscal year 1997:

     None


                                                        Schedule VIII
<TABLE>
<CAPTION>

							Peoples Energy Corporation and Subsidiary Companies

      							VALUATION AND QUALIFYING ACCOUNTS

                 								(Thousands)


                  Column A                        Column B       Column C         Column D                    Column E
                                                                 Additions        Deductions
                                                                    Charged       Charges for the
                                                   Balance         to costs       purpose for which the        Balance
                                                at beginning          and         reserves or deferred        at end of
                 Description                      of period        expenses       credits were created         period

    							Fiscal Year Ended September 30, 1997
<S>                                              <C>              <C>                  <C>                   <C>

RESERVES (deducted from assets in balance sheet):
     Uncollectible items                         $ 26,211         $ 27,946             $ 24,262              $ 29,895

    Fiscal Year Ended September 30, 1996

RESERVES (deducted from assets in balance sheet):
     Uncollectible items                         $ 19,013         $ 28,146             $ 20,948              $ 26,211

    Fiscal Year Ended September 30, 1995

RESERVES (deducted from assets in balance sheet):
     Uncollectible items                         $ 24,289         $ 22,740             $ 28,016              $ 19,013


</TABLE>


                              SIGNATURES

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

                                            PEOPLES ENERGY CORPORATION

Date:  December 22, 1997                    By:   /s/  RICHARD E. TERRY

                                                       Richard E. Terry
                                             Chairman of the Board and Chief
                                                     Executive Officer

   Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this report has been signed below by the following
persons on behalf of the registrant and in the capacities indicated on
December 22, 1997.

 /s/  RICHARD E. TERRY          Chairman of the Board and Chief
Executive
Richard E. Terry                    Officer and Director (Principal
Executive Officer)

 /s/  KENNETH S. BALASKOVITS    Vice President and Controller
Kenneth S. Balaskovits              (Principal Financial and Accounting Officer)

 /s/  J. BRUCE HASCH            Director
J. Bruce Hasch

 /s/  WILLIAM J. BRODSKY        Director
William J. Brodsky

/s/ PASTORA SAN JUAN CAFFERTY   Director
Pastora San Juan Cafferty

 /s/  FREDERICK C. LANGENBERG   Director
Frederick C. Langenberg

 /s/  HOMER J. LIVINGSTON, JR.  Director
Homer J. Livingston, Jr.

 /s/  WILLIAM G. MITCHELL       Director
William G. Mitchell

 /s/  EARL L. NEAL              Director
Earl L. Neal

 /s/  RICHARD P. TOFT           Director
Richard P. Toft

 /s/  ARTHUR R. VELASQUEZ       Director
Arthur R. Velasquez

           Peoples Energy Corporation and Subsidiary Companies

                              EXHIBIT INDEX


(a) The exhibits listed below are filed herewith and made a part hereof:

   Exhibit
   Number                          Description of Document

   3(a)      Amendment to the By-Laws of the Registrant, dated August 31,1997.

   3(b)      By-Laws of the Registrant, as amended, dated August 31,1997.

   3(c)      Amendment to the Employee Stock Purchase Plan, dated August 6,
             1997.

   3(d)      Employee Stock Purchase Plan, as amended, dated August 6,1997.

  10(a)      Guaranty by Peoples Energy Corporation to Northern Border Pipeline
             Company, dated July 25, 1997.

  10(b)      Guaranty by Peoples Energy Corporation to Northern Border Pipeline 
             Company, dated August 1, 1997.

  10(c)      Firm Transportation Service Agreement under Rate Schedule FTS 
             between Peoples Gas and Natural Gas Pipeline Company of America, 
             dated November 13, 1996.

  10(d)      Firm Transportation Service Agreement under Rate Schedule FT-A or 
             FT-G between Peoples Gas and Midwestern Gas Transmission Company, 
             dated November 1, 1997.

  10(e)      Firm Transportation Service Agreement under Rate Schedule FT-A 
             between Peoples Gas and Tennessee Gas Pipeline Company, dated 
             November 1,1997.

  10(f)      Firm Transportation Service Agreement under Rate Schedule FT-A or 
             FT-G between North Shore and Midwestern Gas Transmission Company, 
             dated May 1, 1997.

  10(g)      Firm Transportation Service Agreement under Rate Schedule FT-A 
             between North Shore and Tennessee Gas Pipeline Company, dated May 
             1,1997.

  10(h)      Firm Transportation Service Agreement under Rate Schedule FT-A or 
             FT-GS between North Shore and Midwestern Gas Transmission Company, 
             dated November 1, 1997.

  10(i)      Firm Transportation Service Agreement under Rate Schedule FT-A 
             between North Shore and Tennessee Gas Pipeline Company, dated 
             November 1,1997.

  10(j)      Firm Transportation Service Agreement under Rate Schedule FT-A or 
             FT-GS between North Shore and Midwestern Gas Transmission Company, 
             dated April 1, 1998.

  10(k)      Firm Transportation Service Agreement under Rate Schedule FT-A 
             between North Shore and Tennessee Gas Pipeline Company, dated April
             1,1998.

                            Peoples Energy Corporation and Subsidiary Companies

                        EXHIBIT INDEX (Continued)

   Exhibit
   Number                            Description of Document

  10(l)      Severance Agreement Between the Company and Thomas M. Patrick
             dated as of December 4, 1996.

  10(m)      Severance Agreement Between the Company and Kenneth S. Balaskovits
             dated as of December 4, 1996.   

   21        Subsidiaries of the Registrant

   23        Arthur Andersen LLP consent to incorporate by reference in 
             Registration Statement Nos. 2-82760, 2-88307, 33-6369, and 
             33-63193.

   27        Financial Data Schedule

   99        Form 11-K for the Employee Stock Purchase Plan of the Registrant 
             for the fiscal year ended September 30, 1997.

(b) Exhibits listed below have been filed heretofore with the Securities
    and Exchange Commission pursuant to the Securities Act of 1933, as
    amended, and/or the Securities Exchange Act of 1934, as amended, and
    are incorporated herein by reference.  The file number and exhibit
    number of each such exhibit are stated in the description of such
    exhibits.

    3(e)  	Articles of Incorporation of the Registrant, as amended
          	on March 3, 1995 (Registrant Form 10-K for the fiscal year
          	ended September 30, 1995, Exhibit 3(b)).

    4(a)  	The Peoples Gas Light and Coke Company First and
          	Refunding Mortgage, dated January 2, 1926, from Chicago By-
          	Product Coke Company to Illinois Merchants Trust Company,
          	Trustee, assumed by The Peoples Gas Light and Coke Company
          	(Peoples) by Indenture dated March 1, 1928 (Peoples - May 17,
          	1935, Exhibit B-6a, Exhibit B-6b A-2 File No. 2-2151, 1936);
          	Supplemental Indenture dated as of May 20, 1936, (Peoples -
          	Form 8-K for the year 1936, Exhibit B-6f); Supplemental
          	Indenture dated as of March 10, 1950 (Peoples - Form 8-K for
          	the month of March 1950, Exhibit B-6i); Supplemental Indenture
          	dated as of June 1, 1951 (Peoples - File No. 2-8989, Post-
          	Effective, Exhibit 7-4(b)); Supplemental Indenture dated as of 
           August 15, 1967 (Peoples - File No. 2-26983, Post-Effective, 
           Exhibit 2-4); Supplemental Indenture dated as of September 15, 
           1970 (Peoples - File No. 2-38168, Post-Effective Exhibit 2-2); 
          	Supplemental Indenture dated as of October 1, 1984 (Peoples -
          	Form 10-K for fiscal year ended September 30, 1984, Exhibit
          	4-3); Supplemental Indentures dated March 1, 1985,  (Peoples - 
           Form 10-K for fiscal year ended September 30, 1985, Exhibits 4-1,
           4-2, and 4-3, respectively); Supplemental Indenture dated May 1, 
           1990 (Peoples - Form 10-K for the fiscal year ended September 30,
          	1990, Exhibit 4); Supplemental Indenture dated as of
          	April 1, 1993 (Peoples - Form 8 dated as of May 5, 1993,
          	Exhibit 1); Supplemental Indenture dated as of December 1,
          	1993 (Peoples - Form 10-Q for the quarterly period ended
          	December 31, 1993, Exhibits 4(a) and 4(b)). Supplemental
            Indenture dated June 1, 1995. (Peoples - Form 10-K for 
            the fiscal year ended September 30, 1995.)  

    4(b)  	North Shore Gas Company (North Shore) Indenture, dated as
          	of April 1, 1955, from North Shore to Continental Bank,
          	National Association, as Trustee; Third Supplemental
          	Indenture, dated as of December 20, 1963 (North Shore - File
          	No. 2-35965, Exhibit 4-1); Fifth Supplemental Indenture dated
          	as of February 1, 1970 (North Shore - File No. 2-35965,
          	Exhibit 4-2); 

          	Peoples Energy Corporation and Subsidiary Companies

                        EXHIBIT INDEX (Continued)

   Exhibit
   Number                     Description of Document

   4(b)   	Ninth Supplemental Indenture dated as of December 1, 1987
   Cont'd  (North Shore - Form 10-K for the fiscal year ended September
          	30, 1987, Exhibit 4); Tenth Supplemental Indenture dated as of
          	November 1, 1990 (North Shore - Form S-3 Registration
          	Statement No. 33-37332, Exhibit 4b); Eleventh Supplemental
          	Indenture dated as of October 1, 1992 (North Shore - Form 10-K
          	for the fiscal year ended September 30, 1992, Exhibit 4):
          	and Twelfth Supplemental Indenture dated as of April 1, 1993
    	      (North Shore - Form 8-K dated April 23, 1993, Exhibit 4).

  10(n)     Firm Transportation Service Agreement Under Rate Schedule
          	FT between Peoples Gas and Trunkline Gas Company, dated as of
          	December 1, 1993 (Registrant Form 10-K for the fiscal year
          	ended September 30, 1994, Exhibit 10(d)).  Trust Under
          	Executive Deferred Compensation Plan and Supplemental
          	Retirement Benefit Plan, Part A and Part B, of the Registrant,
          	effective September 25, 1995. (Registrant Form 10-K for fiscal
          	year ended September 30, 1995, Exhibit 10(a)); ETS Service
          	Agreement between Peoples Gas and ANR Pipeline Company, dated
          	September 21, 1994.  (Registrant Form 10-K for fiscal year
          	ended September 30, 1995, Exhibit 10(b)); FSS Service
          	Agreement between Peoples Gas and ANR Pipeline Company, dated
          	September 21, 1994.  (Registrant Form 10-K for fiscal year
          	ended September 30, 1995, Exhibit 10(c)); Storage Rate
          	Schedule NSS Agreement between Peoples Gas and Natural Gas
          	Pipeline Company of America, dated October 19, 1995.
          	(Registrant Form 10-K for fiscal year ended September 30,
          	1995, Exhibit 10(d)); Transportation Rate Schedule FTS
          	Agreement between Peoples Gas and Natural Gas Pipeline Company
          	of America, dated October 19, 1995.  (Registrant Form 10-K for
          	fiscal year ended September 30, 1995, Exhibit 10(e)); Storage
          	Rate Schedule DSS Agreement between Peoples Gas and Natural
          	Gas Pipeline Company of America, dated December 1, 1995.
          	(Registrant Form 10-K for fiscal year ended
          	September 30, 1995, Exhibit 10(f)); Transportation Rate
          	Schedule FTS Agreement between Peoples Gas and Natural Gas
          	Pipeline Company of America, dated December 1, 1995.
          	(Registrant Form 10-K for fiscal year ended
          	September 30, 1995, Exhibit 10(g)); Firm Transportation
          	Service Agreement Under Rate Schedule FT between Peoples Gas
          	and Trunkline Gas Company, dated as of April 1, 1995.
          	(Registrant Form 10-K for fiscal year ended
          	September 30, 1995, Exhibit 10(h)); Quick Notice
          	Transportation Service Agreement Under Rate Schedule QNT
          	between Peoples Gas and Trunkline Gas Company, dated as of
          	December 1, 1995.  (Registrant Form 10-K for fiscal year ended
          	September 30, 1995, Exhibit 10(i)); Quick Notice
          	Transportation Service Agreement Under Rate Schedule QNT
          	between Peoples Gas and Trunkline Gas Company, dated as of
          	December 1, 1995.  (Registrant Form 10-K for fiscal year ended
          	September 30, 1995, Exhibit 10(j)); ETS Service Agreement
          	between North Shore Gas and ANR Pipeline Company, dated
          	September 21, 1994.  (Registrant Form 10-K for fiscal year
          	ended September 30, 1995, Exhibit 10(k)); FSS Service
          	Agreement between North Shore Gas and ANR Pipeline Company,
          	dated September 21, 1994.  (Registrant Form 10-K for fiscal
          	year ended September 30, 1995, Exhibit 10(l)); Transportation
          	Rate Schedule FTS Agreement between North Shore Gas and
          	Natural Gas Pipeline Company of America, dated
          	September 22, 1995.  (Registrant Form 10-K for fiscal year
          	ended September 30, 1995, Exhibit 10(m)); Storage Rate
          	Schedule NSS Agreement between North Shore Gas and Natural Gas
          	Pipeline Company of America, dated October 19, 1995.
          	(Registrant Form 10-K for fiscal year ended
          	September 30, 1995, Exhibit 10(n)); Transportation Rate
          	Schedule FTS Agreement between

 		        Peoples Energy Corporation and Subsidiary Companies

                        EXHIBIT INDEX (Continued)

   Exhibit
   Number                           Description of Document

   10(n)    North Shore Gas and Natural Gas Pipeline Company
   cont.    of America, dated October 19, 1995.	(Registrant Form 10-K for 
            fiscal year ended September 30, 1995, Exhibit 10(o));
            Storage Rate Schedule DSS Agreement between North Shore Gas
            and Natural Gas Pipeline Company of America, dated December
            1, 1995.  (Registrant Form 10-K for fiscal year ended
            September 30, 1995, Exhibit 10(p)); Firm Transportation
            Service Agreement under Rate Schedule FTS-1 between Peoples
            Gas and ANR Pipeline Company, dated as of September 20,
            1995.  (Registrant form 10-K for fiscal year ended
            September 30, 1996, Exhibit 10(q)); Firm Transportation
            Service Agreement under Rate Schedule FTS between Peoples
            Gas and Natural Gas Pipeline Company of America, dated as
            of February 21, 1996.  (Registrant form 10-K for fiscal
            year ended September 30, 1996, Exhibit 10(r)); Firm
            Transportation Service Agreement under Rate Schedule FTS
            between Peoples Gas and Natural Gas Pipeline Company of
            America, dated as of February 21, 1996.  (Registrant form
            10-K for fiscal year ended September 30, 1996, Exhibit
            10(s)); Firm Transportation Service Agreement under Rate
            Schedule FTS-1 between North Shore Gas and ANR Pipeline
            Company, dated as of October 25, 1995.  (Registrant form 10-
            K for fiscal year ended September 30, 1996, Exhibit 10(t)).

  10(o)     Lease dated October 20, 1993, between Prudential Plaza
            Associates, as Landlord, and Peoples Gas, as Tenant
            (Registrant Form 10-Q for the quarterly period ended
            December 31, 1993, Exhibit 10(a)).

  10(p)    	Construction Guaranty Agreement dated December 16, 1992,
           	by the Company and Trigen Energy Corporation (Registrant Form
            10-Q for the quarterly period ended December 31, 1993, Exhibit
            10(f)); Service Guaranty Agreement dated December 16, 1992, by
            the Company and Trigen Energy Corporation (Registrant Form 10-
            Q for the quarterly period ended December 31, 1993, Exhibit
            10(g)).

  10(q)    	Short-Term Incentive Compensation Plan of the Registrant,
            as amended on December 7, 1994 (Registrant Form 10-K for the
            fiscal year ended September 30, 1994, Exhibit 10(a));
            Executive Deferred Compensation Plan of the Registrant,
            effective October 1, 1994 (Registrant Form 10-K for the fiscal
            year ended September 30, 1994, Exhibit 10(b)); Supplemental
            Retirement Benefit Plan, Part A, Part B and Part C, of the
            Registrant, effective December 7, 1994 (Registrant Form 10-K
            for the fiscal year ended September 30, 1994, Exhibit 10(c));
            Long-Term Incentive Compensation Plan (File No. 33-63193, Form
            S-8 filed on October 4, 1995).

   10(r)    Severance Agreement Between the Company and Richard E. Terry dated
            as of December 4, 1996. (Registration Form 10-Q for the quarterly 
            period ended December 31, 1996, Exhibit 10(a)); Severance Agreement 
            Between the Company and J. Bruce Hasch dated as of December 4, 1996.
           (Registrant From 10-Q for the quarterly period ended December 31, 
            1996, Exhibit 10(b)); Severance Agreement Between the Company and 
            Michael S. Reeves dated as of December 4, 1996. (Registrant Form 
            10-Q for the quarterly period ended December 31, 1996, Exhibit 
            10(c)); Severance Agreement Between the Company and James Hinchliff
            dated as of December 4,1996. (Registrant Form 10-Q for the 
            quarterly period ended December 31, 1996, Exhibit 10(d)).
            

   21      	Subsidiaries of the Registrant (Registrant Form 10-K for the fiscal
           	year ended September 30, 1982, Exhibit 22).