<PAGE>

                                    FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C.  20549
    (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, 1996

                                       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 $ 1.27 billion computed on the basis of the closing market
     price of $36.25 for a share of Common Stock on November 30, 1996.

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, 34,979,807 shares outstanding at
                               November 30, 1996.

                       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 27, 1996        Part III

<PAGE>

                                    CONTENTS
                                                                            Page
Item No.                                                                     No.
--------                                                                    ----

          PART I
          ------

    1.    Business                                                             3

    2.    Properties                                                           8

    3.    Legal Proceedings                                                    9

    4.    Submission of Matters to a Vote of Security Holders                  9

 Executive Officers of the Company                                            10

          PART II
          -------

     5.   Market for the Company's Common Stock and Related
            Stockholder Matters                                               12

     6.   Selected Financial Data                                             13

     7.   Management's Discussion and Analysis of Results
            of Operations and Financial Condition                             14

     8.   Financial Statements and Supplementary Data                         20

     9.   Changes in and Disagreements with Accountants on
            Accounting and Financial Disclosure                               43

          PART III
          --------

    10.   Directors and Executive Officers of the Company                     44

    11.   Executive Compensation                                              44

    12.   Security Ownership of Certain Beneficial Owners and
            Management                                                        44

    13.   Certain Relationships and Related Transactions                      44

          PART IV
          -------

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

 Signatures                                                                   47

 Exhibit Index                                                                48


                                       -2-
<PAGE>


                           PEOPLES ENERGY CORPORATION

                           ANNUAL REPORT ON FORM 10-K

                      FISCAL  YEAR ENDED SEPTEMBER 30, 1996

                                     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 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 839,000 residential, commercial, and industrial retail sales
and transportation customers within the City of Chicago (City).  Peoples Gas had
2,804 employees at September 30, 1996.

     North Shore Gas, an operating public utility, is engaged primarily in the
purchase, storage, distribution, sale, and transportation of natural gas.  It
has about 137,000 residential, commercial, and industrial retail sales and
transportation customers within its service area of approximately 275 square
miles, located in Northeastern Illinois.  North Shore Gas had 245 employees at
September 30, 1996.

     Peoples District Energy Corporation (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.  (See Note 6 of
the Notes to Consolidated Financial Statements.)  Neither the partnership nor
its partners are regulated as a public utility.

     Three other wholly owned subsidiaries of the Company are Peoples Energy
Services Corporation (Peoples Energy Services), Peoples NGV Corp., and Peoples
Energy Resources Corp. (Peoples Energy Resources).  Peoples Energy Services
offers natural gas and energy management related services.  Peoples NGV Corp. is
a participant in a partnership that was formed to develop on-site fueling
services for natural gas-powered fleet vehicles.  Peoples Energy Resources
pursues energy-related ventures.  Neither the three subsidiaries nor any of
their partners are regulated as a public utility.

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.


                                       -3-
<PAGE>

     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 stagnant high-rise construction activity, has adversely affected
the ability of Peoples Gas to attach commercial high-rise buildings.

     State and federal regulators are currently evaluating ways in which the
generation and distribution of electricity may be deregulated so that end users
may purchase electricity from producers other than their local electric utility
and require such local utility to transport the electricity so purchased, a
concept commonly referred to as "retail wheeling."   In the event retail
wheeling were permitted in the service territories of Peoples Gas and North
Shore Gas, the cost of electricity would be expected to decline, thereby
reducing the advantage of lower costs that natural gas currently enjoys over
electricity.

     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.  The direct customer purchases have no 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.)

     Peoples District Energy competes in the heating and cooling market 
through a partnership that provides unregulated district energy services.  
(See Note 6 of the Notes to Consolidated Financial Statements.)

     Peoples Energy Services competes in the offering of natural gas and energy
management related services.  Peoples NGV Corp. competes, through a partnership,
in the development of unregulated on-site fueling services for natural gas-
powered fleet vehicles.  Peoples Energy Resources competes in the pursuit of
energy-related ventures.

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 and Refund Adjustments, to recover


--------------------------------------------------------------------------------
*  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)


                                       -4-
<PAGE>


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 space
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.)

     In August 1996, the Commission denied petitions of Peoples Gas and North
Shore Gas for approval of performance-based rate programs for gas costs.  (See
Liquidity - Regulatory Actions in Item 7.)

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.


                                       -5-
<PAGE>


     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.)

     In 1992, the FERC issued Order No. 636 and successor orders that required
substantial restructuring of the service obligations of interstate pipelines.
(See Notes 1L, 2A, and 2B of the Notes to Consolidated Financial Statements.)

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.


                                       -6-
<PAGE>


     The following tabulation shows the expected design peak-day availability of
gas in thousands of dekatherms (MDth) during the 1996-1997 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
                                  (MDth)        Expiration       (MDth)        Expiration
                              ---------------   ----------   ---------------   ----------
<S>                           <C>               <C>          <C>               <C>
Firm direct purchases (1)           640          1997-2000          96          1997-2000
Liquefied petroleum                  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)                  225                             45
                                  -----                            ---
Total expected design
peak-day availability             2,531                            409
                                  -----                            ---
                                  -----                            ---
</TABLE>


(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 is for an initial term ending
     September 30, 1997; 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 1996-97
     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.


                                       -7-
<PAGE>


     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, 1996, 1995 and 1994, were as follows:

<TABLE>
<CAPTION>
                                                   Peoples Gas                 North Shore Gas
                                           ---------------------------   ---------------------------
                                            1996      1995      1994      1996      1995      1994
                                           -------   -------   -------   -------   -------   -------
<S>                                        <C>       <C>       <C>       <C>       <C>       <C>
Natural Gas Pipeline Co. (Natural) (a)          --        --    14,378        --        --     2,384
Other suppliers (b)                        174,552   103,476   133,191    27,940    20,250    23,328
Synthetic natural gas (SNG) (c)                 --     7,622     8,350        --        --        --
Liquefied petroleum gas produced               114        14        30       151         9        79
Customer-owned gas-received                 93,141    93,225    91,187    12,777    12,379    12,017
Underground storage-net                        228    28,352    (1,283)      468     3,103      (631)
Exchange gas-net                            (4,446)       --        --      (104)       --        --
Company use, franchise
  requirements, and
  unaccounted-for gas                       (3,169)   (3,733)   (4,261)     (983)     (636)     (339)
                                           -------   -------   -------    ------    ------    ------
     Total (d)                             260,420   228,956   241,592    40,249    35,105    36,838
                                           -------   -------   -------    ------    ------    ------
                                           -------   -------   -------    ------    ------    ------
</TABLE>

(a)  The DMQ-1 supply contract terminated on November 30, 1993.

(b)  The utility subsidiaries purchase significant quantities of gas directly
     from various suppliers.  Commencing December 1, 1993, Natural unbundled its
     rates and all purchases are from non-pipeline suppliers, including
     purchases under a peaking service contract.

(c)  The SNG facility terminated production during fiscal 1995.  (See Note 4 of
     the Notes to Consolidated Financial Statements.)

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

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.  (See Note 4 of the Notes to
Consolidated Financial Statements.)


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.


                                       -8-
<PAGE>


     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 of Illinois, National
Association, as Trustee, to secure the principal amount of each company's
outstanding first mortgage bonds, respectively, 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.


                                       -9-
<PAGE>


                        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.

                          Age at
         Name            11-30-96             Position with the Company
----------------------   --------   --------------------------------------------

Kenneth S. Balaskovits      54      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            63      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              58      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             56      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.

                                      -10-
<PAGE>


                          Age at
         Name            11-30-96             Position with the Company
----------------------   --------   --------------------------------------------

Thomas M. Patrick           50      Executive Vice President (1996) of the
                                    Company.  
                                    Mr. Patrick is also Executive Vice 
                                    President 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.

Michael S. Reeves           61      Executive Vice President (1987) and Director
                                    (1991) of the Company.   
                                    Mr. Reeves is also Executive Vice 
                                    President (1987) and Director (1988) of 
                                    Peoples Gas and North Shore Gas. Prior to 
                                    becoming Executive Vice President, Mr. 
                                    Reeves was Vice President (1977-1987) of 
                                    both subsidiaries.  Mr. Reeves has been 
                                    an employee of the Company and/or its 
                                    subsidiaries since 1956.

Richard E. Terry            59      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.

                                      -11-
<PAGE>


                                    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, 1996, there were
27,756 registered shareholders.

     The common stock price range and dividends declared per common share by
quarters for fiscal 1996 and 1995 are as follows:


                                         Stock Price
           Fiscal           -------------------------------------      Dividends
          Quarters           High            Low           Close        Declared
          --------          -------        -------        -------      ---------

          1996
          ----
            Fourth          $36-1/8        $30-7/8        $34             $.46
            Third            33-1/2         29-5/8         33-1/2          .46
            Second           33-1/4         29-7/8         32-3/8          .46
            First            32             27-1/8         31-3/4          .45

          1995
          ----
            Fourth          $28-3/8        $25-3/8        $27-1/2         $.45
            Third            27-1/8         24-3/4         25-7/8          .45
            Second           27-7/8         24-1/4         25              .45
            First            28-3/4         23-5/8         26-1/8          .45


                                      -12-
<PAGE>


ITEM 6.  SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
For fiscal years ended September 30,            1996           1995           1994           1993           1992
-------------------------------------------------------------------------------------------------------------------
<S>                                          <C>            <C>            <C>            <C>            <C>
COMMON STOCK INFORMATION
Earnings per share                           $     2.96     $     1.78     $     2.13     $     2.11     $     2.06
Cash dividends declared per share            $     1.83     $     1.80     $    1.795     $    1.775     $     1.75
Book value per share at year-end             $    19.48     $    18.38     $    18.39     $    18.05     $    17.72
Average shares outstanding (thousands)           34,942         34,901         34,854         34,809         34,151
-------------------------------------------------------------------------------------------------------------------
OPERATING RESULTS (thousands)
Operating Revenues:
   Residential                               $  883,100     $  752,796     $  951,037     $  929,407     $  784,677
   Commercial                                   141,594        116,113        160,912        156,377        132,456
   Industrial                                    32,075         24,128         41,979         41,354         34,595
   Transportation of customer-owned gas (a)     128,876        122,814        110,128        117,949        132,745
   Other                                         13,012         17,550         15,432         13,854         12,279
-------------------------------------------------------------------------------------------------------------------
       Total Operating Revenues               1,198,657      1,033,401      1,279,488      1,258,941      1,096,752
Less - Gas costs                                529,875        457,436        669,039        646,351        531,845
     - Revenue taxes                            121,172        109,720        132,734        131,673        118,265
-------------------------------------------------------------------------------------------------------------------
   Net Operating Revenues                    $  547,610     $  466,245     $  477,715     $  480,917     $  446,642
Net Income                                   $  103,438     $   62,154     $   74,399     $   73,375     $   70,384
-------------------------------------------------------------------------------------------------------------------
ASSETS AT YEAR-END (thousands)
Property, plant and equipment                $2,046,156     $2,088,277     $2,019,379     $1,950,981     $1,843,603
Less - Accumulated depreciation                 665,077        715,208        677,447        632,965        599,965
-------------------------------------------------------------------------------------------------------------------
   Net Property, Plant and Equipment         $1,381,079     $1,373,069     $1,341,932     $1,318,016     $1,243,638
Total assets                                 $1,783,750     $1,822,492     $1,809,286     $1,765,870     $1,615,758
Capital expenditures - construction          $   85,620     $   95,941     $   87,218     $  131,669     $  118,084
-------------------------------------------------------------------------------------------------------------------
CAPITALIZATION AT YEAR-END (thousands)
Common equity                                $  681,185     $  641,694     $  641,378     $  628,451     $  616,271
Preferred stock of subsidiaries                      --             --             --             --         12,850
Long-term debt of subsidiaries                  527,064        621,874        626,075        528,075        489,553
-------------------------------------------------------------------------------------------------------------------
   Total Capitalization                      $1,208,249     $1,263,568     $1,267,453     $1,156,526     $1,118,674
-------------------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS (per cent)
Capitalization at Year-end:
   Common equity                                     56             51             51             54             55
   Preferred stock of subsidiaries                   --             --             --             --              1
   Long-term debt of subsidiaries                    44             49             49             46             44
-------------------------------------------------------------------------------------------------------------------
       Total Capitalization                         100            100            100            100            100
Return on common equity at year-end                15.2            9.7           11.6           11.7           11.4
-------------------------------------------------------------------------------------------------------------------
GAS SOLD AND TRANSPORTED (MDth)
Gas Sales:
   Residential                                  154,128        130,571        142,876        144,199        142,759
   Commercial                                    27,390         22,079         26,206         26,185         26,239
   Industrial                                     6,803          5,059          7,325          7,623          7,330
Transportation of customer-owned gas (a)        112,348        106,352        102,023         99,607         99,185
-------------------------------------------------------------------------------------------------------------------
   Total Gas Sales and Transportation           300,669        264,061        278,430        277,614        275,513
Margin per Dth delivered                     $     1.82     $     1.77     $     1.72     $     1.73     $     1.62
-------------------------------------------------------------------------------------------------------------------
NUMBER OF CUSTOMERS (average)
Residential                                     910,236        906,881        905,461        904,316        904,374
Commercial                                       50,719         50,872         50,955         50,736         50,567
Industrial                                        3,696          3,783          3,927          4,069          3,938
Transportation (a)                               11,348         10,934         10,247          9,734          9,500
-------------------------------------------------------------------------------------------------------------------
   Total Customers                              975,999        972,470        970,590        968,855        968,379
-------------------------------------------------------------------------------------------------------------------
DEGREE DAYS                                       7,080          5,897          6,701          6,679          6,320
Per cent of normal (6,536)                          108             90            103            102             97
-------------------------------------------------------------------------------------------------------------------
</TABLE>

(a) Includes commercial, industrial, and larger residential customers.


                                      -13-
<PAGE>


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

RESULTS OF OPERATIONS

NET INCOME

     Net income increased $41.3 million, to $103.4 million, in fiscal 1996 from
1995, due chiefly to weather that was 20 per cent colder than in 1995 and to
rate increases that went into effect on November 14, 1995 for Peoples Gas and
North Shore Gas (see Note 2A of the Notes to Consolidated Financial Statements).
In addition, net income benefited from a one-time gain associated with the
expiration of certain natural gas storage contracts (see Note 8 of the Notes to
Consolidated Financial Statements) and a net credit in pension expense.  These
increases were partly offset by last year's recognition of the federal income
tax settlement (see Note 10D of the Notes to Consolidated Financial Statements)
and the current year's higher operating costs.

     In 1995, net income decreased $12.2 million, to $62.2 million, due
principally to weather that was 12 per cent warmer than in 1994, decreasing net
income by $11.9 million.  Also contributing to the year-to-year earnings decline
were increases in interest expense and certain operation and maintenance
expenses, together with an adjustment to income tax expense in the prior period.
Partially offsetting these items was a decrease in the provision for
uncollectible accounts, due mainly to lower revenues.  In addition, fiscal 1995
benefited from the sale of certain oil and gas rights.

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

                                              Fiscal 1996         Fiscal 1995
                                               over 1995           over 1994
                                           -----------------   -----------------
                                           Amount              Amount
                                           (000's)  Per Cent   (000's)  Per Cent
--------------------------------------------------------------------------------
Net operating revenues (a)                 $81,365    17.5    $(11,470)   (2.4)
Operation and maintenance expenses          25,114    10.4     (17,886)   (6.9)
Depreciation  and amortization expense       4,227     6.4       1,724     2.7
Income taxes                                27,895    97.1        (266)   (0.9)
Other income and deductions                 17,456    37.6     (15,953)  (52.3)
Net income                                  41,284    66.4     (12,245)  (16.5)
--------------------------------------------------------------------------------
(a) Operating revenues, net of gas costs and revenue taxes.


NET OPERATING REVENUES

     Gross revenues of Peoples Gas and North Shore Gas are affected by changes
in the unit cost of the subsidiaries' 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 subsidiaries.  The direct customer purchases have
no 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.  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.


                                      -14-
<PAGE>


     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, 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 increased $81.4 million, to $547.6 million, in 1996.
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 8 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).

     In 1995, net operating revenues decreased $11.5 million, to $466.2 million,
due primarily to a decline in natural gas deliveries of 14.4 Bcf, to 264.1 Bcf,
reflecting weather that was 12 per cent warmer than in 1994 and 10 per cent
warmer than normal.

     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 increased $25.1 million, to $265.9
million, in 1996, due principally to the reduction of expense from the prior
year's recognition of about $14 million for an IRS settlement.  (See Note 10D 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).  (See Note 9A
of the Notes to Consolidated Financial Statements.)

     In 1995, operation and maintenance expenses decreased $17.9 million, to
$240.8 million, due chiefly to recognizing the fiscal 1995 portion of an IRS
settlement as a reduction in expense and a decrease in the provision for
uncollectible accounts of $9.3 million, reflecting reduced sales revenue from
lower gas costs and warmer weather.  These items were partially offset by
increased expenses for reengineering activities ($2.8 million) and the
distribution system ($2.6 million).

DEPRECIATION AND AMORTIZATION EXPENSE

     Depreciation and amortization expense increased $4.2 million, to $70.6
million, in 1996, due mainly to depreciable property additions and the
amortization of costs associated with the closing of the SNG Plant (see Note 4
of the Notes to Consolidated Financial Statements).

     In  1995, depreciation and amortization increased $1.7 million, to $66.4
million, due chiefly to depreciable property additions.

INCOME TAXES

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

     In 1995, income taxes, exclusive of the $3.8 million included in other
income and deductions, declined $266,000, to $28.7 million, due primarily to
decreased pre-tax income.  This decrease was mostly offset by


                                      -15-
<PAGE>

the recording of the deferred tax effects of the income tax settlement in
operating expenses in 1995 together with an adjustment made in 1994 to reduce
taxes accrued.  Also, the amortization of deferred tax credits was lower in
1995.

OTHER INCOME AND DEDUCTIONS

     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.  (See Note 8 of the Notes
to Consolidated Financial Statements.)  Additionally, the current year includes
lower interest on long-term debt resulting from the utility subsidiaries' early
redemption of first mortgage bonds.  (See Note 15B of the Notes to Consolidated
Financial Statements.)  These decreases were offset, in part, by decreased
interest income reflecting lower cash balances due mainly to the above mentioned
bond redemptions.

     In 1995, other income and deductions increased $16 million, due principally
to the prior year's recognition in other income of $10.8 million, after income
taxes, for an IRS settlement.  (See Notes 10D and 12 of the Notes to
Consolidated Financial Statements.)  In addition, increased interest expense
resulted from the following items: amounts refundable to customers, long-term
debt, and budget accounts.  These increases were partially offset by greater
interest income due primarily to larger cash balances and higher interest rates.

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 and coverage ratios.

ACCOUNTING STANDARDS.  In March 1995, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of ".  This statement requires recognition of impairment losses on
long-lived assets when an asset's book value may not be recoverable.  For
regulated companies, the statement requires that regulatory assets be probable
of recovery at every balance sheet date.  This statement requires adoption no
later than the Company's 1997 fiscal year.  The Company does not expect the
adoption of SFAS No. 121 to have a material effect on its financial position or
results of operations.

     In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation".  This statement requires companies to either recognize
compensation costs measured at fair value attributable to employee stock options
or similar equity instruments at the grant date in net income, or, in the
alternative, provide pro forma footnote disclosure on net income and earnings
per share.  This statement requires adoption no later than the Company's 1997
fiscal year.  The Company anticipates electing the pro forma footnote disclosure
provisions of this statement in 1997.  Implementation is not expected to have a
material effect on pro forma net income or earnings per share.

FERC ORDER 636 COSTS.  In 1992, the FERC issued Order No. 636 and successor
orders that required substantial restructuring of the service obligations of
interstate pipelines.  (See Notes 1L, 2A, and 2B of the Notes to Consolidated
Financial Statements.)

     In 1994, the Commission entered orders providing for full recovery by
Peoples Gas and North Shore Gas of FERC Order 636 transition costs from the
Companys' 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.)


                                      -16-
<PAGE>


REENGINEERING PROJECT.  Peoples Gas and North Shore Gas are reengineering their
business processes with the goal of increasing efficiency, responsiveness to
customer needs, and cost effectiveness.

LARGE  VOLUME GAS SERVICE AGREEMENTS.  Peoples Gas has entered into gas service
contracts with certain large volume customers under a specific rate schedule
approved by the Commission.  These contracts were negotiated to overcome the
potential threat of bypassing the utility's distribution system.  The impact on
the net income of Peoples Gas as a result of these contracts is not material.

OPERATING STATISTICS.  The following table represents gas distribution margin
components:

                                        For fiscal years ended September 30,
                                   ---------------------------------------------
                                      1996             1995              1994
                                   ----------       ----------        ----------
Operating Revenues (thousands):
   Gas sales
      Residential                  $  883,100       $  752,796        $  951,037
      Commercial                      141,594          116,113           160,912
      Industrial                       32,075           24,128            41,979
                                   ----------       ----------        ----------
                                    1,056,769          893,037         1,153,928
                                   ----------       ----------        ----------
   Transportation
      Residential                      37,133           37,850            35,487
      Commercial                       51,251           50,318            45,819
      Industrial                       36,059           34,646            28,822
      Contract Pooling                  4,433               --                --
                                   ----------       ----------        ----------
                                      128,876          122,814           110,128
                                   ----------       ----------        ----------

   Other                               13,012           17,550            15,432
                                   ----------       ----------        ----------

Total Operating Revenues            1,198,657        1,033,401         1,279,488
Less - Gas Costs                      529,875          457,436           669,039
     - Revenues Taxes                 121,172          109,720           132,734
                                   ----------       ----------        ----------
Net Operating Revenues             $  547,610       $  466,245        $  477,715
                                   ----------       ----------        ----------
                                   ----------       ----------        ----------
Deliveries (MDth):
   Gas Sales
      Residential                     154,128          130,571           142,876
      Commercial                       27,390           22,079            26,206
      Industrial                        6,803            5,059             7,325
                                   ----------       ----------        ----------
                                      188,321          157,709           176,407
                                   ----------       ----------        ----------
   Transportation (a)
      Residential                      26,521           24,811            25,066
      Commercial                       42,461           41,648            41,607
      Industrial                       43,366           39,893            35,350
                                   ----------       ----------        ----------

                                      112,348          106,352           102,023
                                   ----------       ----------        ----------
Total Gas Sales
 and Transportation                   300,669          264,061           278,430
                                   ----------       ----------        ----------
                                   ----------       ----------        ----------

Margin per Dth delivered           $     1.82       $     1.77        $     1.72

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


                                      -17-
<PAGE>


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.  The utility subsidiaries have lines of credit of $129.4 million.
At September 30, 1996, the utility subsidiaries had unused credit available from
banks of $126.8 million.  (See Note 14 of the Notes to Consolidated Financial
Statements.)

CASH FLOW ACTIVITIES.  Net cash provided by operating activities in 1996
declined by $118.2 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.
In 1994, net cash provided by operating activities increased by approximately
$83.5 million, due principally to changes related to net receivables, gas costs
recoverable, and gas sales revenue refundable.  Such items were partially offset
by decreases associated with deferred credits and accounts payable.

     Net cash used in investing activities for 1996, 1995, and 1994 largely
represents the level of capital expenditures in the respective years.

     Net cash used in financing activities in 1996 reflects the redemption of
previously issued debt.  (See Note 15B of the Notes to Consolidated Financial
Statements.)  In 1995, net cash used in financing activities includes drawdowns
from the trust fund associated with prior financing for utility construction
activities.  Net cash used in financing activities in 1994 reflects the new debt
issues during the year for construction projects.

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,
1996, such restrictions amounted to $11.6 million out of North Shore Gas' total
retained earnings of $66.6 million; accordingly, $55 million are available for
dividends.  (See Note 5 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.  The partnership also intends to offer district energy
services to other large buildings in Chicago.  The other partner is a subsidiary
of Trigen Energy Corporation (Trigen), a company whose primary business is
constructing and operating district energy facilities.  Neither the partnership
nor its partners are regulated as a public utility.  The Company and Trigen have
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.  (See Note 6
of the Notes to Consolidated Financial Statements.)


                                      -18-
<PAGE>


INTEREST COVERAGE.  The fixed charges coverage ratios for Peoples Gas for fiscal
1996, 1995, and 1994 were 4.84, 2.76, and 3.28, respectively.  The corresponding
coverage ratios for North Shore Gas for the same periods were 5.62, 2.93, and
3.33, respectively.  The increase in the ratio for the current fiscal year 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 years 1995 and 1994
for both utility subsidiaries include the recording of an IRS settlement in
income.  (See Note 10D of the Notes to Consolidated Financial Statements.)

DEBT RATINGS.  The long-term debt of both utility subsidiaries is rated Aa3 by
Moody's Investors Service and AA- by Standard & Poor's Corporation.  There has
been no change in these ratings since fiscal 1985.  The commercial paper of both
utilities has the top rating from the major rating 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 Environmental 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.  (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.)

     In 1995, Peoples Gas and North Shore Gas filed petitions with the
Commission for approval of performance-based rate programs (PBR Programs) for
gas costs.  The objectives of the PBR Programs were to provide incentives to
minimize gas supply and capacity costs in a changing market and to pursue
innovative gas supply-related opportunities.  Under specified conditions and up
to certain limits, Peoples Gas and North Shore Gas proposed to share equally
with gas sales customers the savings or costs from the PBR Programs.  In August
1996, the utilities' petitions were denied by the Commission.  Peoples Gas and
North Shore Gas are evaluating alternatives to the proposed PBR Programs.


CAPITAL RESOURCES

CAPITAL SPENDING.  Capital expenditures for additions, replacements, and
improvements to the utility plant were $85.6 million in 1996, $95.9 million in
1995, and $87.2 million in 1994.

     Expenditures in fiscal 1996 decreased $10.3 million from 1995 reflecting
the continuation of a cost containment program.


                                      -19-
<PAGE>


     In fiscal 1995, expenditures increased $8.7 million over 1994 and included
$11.2 million for computer and office equipment.

     Capital expenditures for fiscal 1997 are expected to be about $89.1
million, an increase of $3.5 million from the 1996 level.  The estimate of
expenditures for 1997 includes $11.4 million for Peoples Gas' remote automatic
meter reading project.

     There are no sinking fund requirements for long-term debt included in
fiscal 1997.  (See Note 15C of the Notes to Consolidated Financial Statements.)

     The Company anticipates that the subsidiaries' 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
subsidiaries' first mortgage bonds.

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 15B 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 15B
of the Notes to Consolidated Financial Statements.)

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                                                   Page
                                                                   ----

Statement of Management's Responsibility                            21

Report  of Independent Public Accountants                           22

Consolidated Statements of Income for fiscal years ended
     September 30, 1996, 1995, and 1994                             23

Consolidated Statements of Retained Earnings for fiscal
     years ended September 30, 1996, 1995, and 1994                 23

Consolidated Balance Sheets at September 30, 1996 and 1995          24

Consolidated Capitalization Statements at September 30, 1996
     and 1995                                                       25

Consolidated Statements of Cash Flows for fiscal years ended
     September 30, 1996, 1995, and 1994                             26

Notes to Consolidated Financial Statements                          27


                                      -20-
<PAGE>


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 their audit of the financial statements,
selectively reviews and tests certain aspects of internal accounting controls
solely to determine the nature, timing, and extent of their 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 their 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 assure 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.


                                      -21-
<PAGE>


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, 1996 and 1995,
and the related consolidated statements of income, retained earnings, and cash
flows for each of the three years in the period ended September 30, 1996.  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 and schedule 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, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1996, 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.






                                                   ARTHUR ANDERSEN LLP






Chicago, Illinois
November 1, 1996


                                      -22-
<PAGE>

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                  Peoples Energy Corporation
------------------------------------------------------------------------------------------------------
For fiscal years ended September 30,                          1996            1995           1994
------------------------------------------------------------------------------------------------------
                                                             (Thousands, except per-share amounts)
<S>                                                         <C>           <C>             <C>
Operating Revenues:
Gas sales                                                   $1,056,769    $   893,037     $1,153,928
Transportation of customer-owned gas                           128,876        122,814        110,128
Other                                                           13,012         17,550         15,432
------------------------------------------------------------------------------------------------------
Total Operating Revenues                                     1,198,657      1,033,401      1,279,488
------------------------------------------------------------------------------------------------------
Operating Expenses:
Gas costs                                                      529,875        457,436        669,039
Operation (see Note 10D)                                       220,298        199,095        220,765
Maintenance                                                     45,642         41,731         37,947
Depreciation and amortization                                   70,635         66,408         64,684
Taxes - Income                                                  56,620         28,725         28,991
      - State and local revenue                                121,172        109,720        132,734
      - Other                                                   22,001         21,700         20,450
------------------------------------------------------------------------------------------------------
Total Operating Expenses                                     1,066,243        924,815      1,174,610
------------------------------------------------------------------------------------------------------
Operating Income                                               132,414        108,586        104,878
------------------------------------------------------------------------------------------------------
Other Income and (Deductions):
Interest income                                                  5,420         10,066          6,167
Interest on long-term debt of subsidiaries                     (37,826)       (46,413)       (45,044)
Other interest expense                                          (5,114)        (7,457)        (3,012)
Income taxes                                                    (5,839)        (3,831)        (6,434)
Miscellaneous - net (see Note 12)                               14,383         1,2031          7,844
------------------------------------------------------------------------------------------------------
Total Other Income and Deductions                              (28,976)       (46,432)       (30,479)
------------------------------------------------------------------------------------------------------
Net Income                                                  $  103,438     $   62,154     $   74,399
------------------------------------------------------------------------------------------------------
Average Shares of Common Stock Outstanding                      34,942         34,901         34,854
Earnings Per Share of Common Stock                          $     2.96     $     1.78     $     2.13
------------------------------------------------------------------------------------------------------
</TABLE>



CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

<TABLE>
<CAPTION>
                                                                   Peoples Energy Corporation
------------------------------------------------------------------------------------------------------
For fiscal years ended September 30,                          1996            1995           1994
------------------------------------------------------------------------------------------------------
                                                                           (Thousands)
<S>                                                         <C>           <C>             <C>
Balance at Beginning of Year                                $  364,581     $  365,258     $  353,432
  Add - Net Income                                             103,438         62,154         74,399
  Deduct - Dividends declared on common stock of $1.83,
             $1.80, and $1.795 per share, respectively          63,954         62,831         62,573
         - Additional minimum liability for
             non-qualified pension plan, net of tax                761             --             --
------------------------------------------------------------------------------------------------------
Balance at End of Year                                      $  403,304     $  364,581     $  365,258
------------------------------------------------------------------------------------------------------
</TABLE>

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


                                      -23-
<PAGE>

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                          Peoples Energy Corporation
------------------------------------------------------------------------------------------------------
At September 30,                                                             1996           1995
------------------------------------------------------------------------------------------------------
                                                                                 (Thousands)
<S>                                                                        <C>            <C>
PROPERTIES AND OTHER ASSETS
------------------------------------------------------------------------------------------------------
Capital Investments:
Property, plant and equipment, at original cost                            $2,046,156     $2,088,277
Less - Accumulated depreciation                                               665,077        715,208
------------------------------------------------------------------------------------------------------
Net property, plant and equipment                                           1,381,079      1,373,069
Other investments                                                              12,348         10,367
------------------------------------------------------------------------------------------------------
Total Capital Investments - Net                                             1,393,427      1,383,436
------------------------------------------------------------------------------------------------------

Current Assets:
Cash                                                                            4,684          3,328
Cash equivalents                                                               33,086        172,911
Receivables -
     Customers, net of allowance for uncollectible
        accounts of $26,211 and $19,013, respectively                          68,675         56,715
     Other                                                                     32,399          1,897
Accrued unbilled revenues                                                      29,314         21,167
Materials and supplies, at average cost                                        16,128         16,466
Gas in storage, at last-in, first-out cost                                     65,502        100,547
Gas costs recoverable through rate adjustments                                 19,920          6,205
Prepayments                                                                    12,287          2,302
Other                                                                             900          1,337
------------------------------------------------------------------------------------------------------
Total Current Assets                                                          282,895        382,875
------------------------------------------------------------------------------------------------------
Other Assets:
Regulatory assets of subsidiaries (see Note 1H)                                91,498         39,706
Deferred charges                                                               15,930         16,475
------------------------------------------------------------------------------------------------------
Total Other Assets                                                            107,428         56,181
------------------------------------------------------------------------------------------------------
Total Properties and Other Assets                                          $1,783,750     $1,822,492
------------------------------------------------------------------------------------------------------

CAPITALIZATION AND LIABILITIES
------------------------------------------------------------------------------------------------------
Capitalization (see Consolidated Capitalization Statements)                $1,208,249     $1,263,568
------------------------------------------------------------------------------------------------------
Current Liabilities:
Interim loans of subsidiaries                                                   2,625            900
Accounts payable                                                              147,972        102,377
Dividends payable on common stock                                              16,082         15,711
Customer gas service and credit deposits                                       42,390         40,577
Sinking fund payments and maturities, due within one year -
     Long-term debt of subsidiaries                                                --          4,000
Accrued taxes                                                                  32,821         28,160
Gas sales revenue refundable through rate adjustments                          13,921         79,502
Accrued interest                                                               10,796         12,796
------------------------------------------------------------------------------------------------------
Total Current Liabilities                                                     266,607        284,023
------------------------------------------------------------------------------------------------------

Deferred Credits and Other Liabilities:
Deferred income taxes - primarily accelerated depreciation (see Note 10C)     230,948        208,424
Investment tax credits being amortized over
     the average lives of related property                                     35,439         38,132
Other                                                                          42,507         28,345
------------------------------------------------------------------------------------------------------
Total Deferred Credits and Other Liabilities                                  308,894        274,901
------------------------------------------------------------------------------------------------------
Total Capitalization and Liabilities                                       $1,783,750     $1,822,492
------------------------------------------------------------------------------------------------------
</TABLE>

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


                                      -24-
<PAGE>


CONSOLIDATED CAPITALIZATION STATEMENTS

<TABLE>
<CAPTION>
                                                                            Peoples Energy Corporation
------------------------------------------------------------------------------------------------------------
At September 30,                                                             1996                 1995
------------------------------------------------------------------------------------------------------------
                                                                        (Thousands, except number of shares)
<S>                                                                        <C>                 <C>
Common Stockholders' Equity:
Common stock, without par value -
     Authorized 60,000,000 shares
     Outstanding 34,960,399 and 34,913,426 shares, respectively            $  277,881          $  277,113
Retained earnings (see Consolidated Statements
     of Retained Earnings)                                                    403,304             364,581
------------------------------------------------------------------------------------------------------------
Total Common Stockholders' Equity                                             681,185             641,694
------------------------------------------------------------------------------------------------------------


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 -
        8% Series U, due June 1, 1999                                              --              43,375
           (redeemed on December 29, 1995 - See Note 15B)
        8% Series V, due June 1, 1999                                              --              43,375
           (redeemed on December 29, 1995 - See Note 15B)
        Adjustable-Rate Series W (4% and 4.2% through
           September  30, 1996 and September 30, 1995, respectively),
           due October 1, 1999 (see Note 15A)                                  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 (3.85% and 4.95% through
           November 30, 1996 and November 30, 1995, respectively),
           due December 1, 2023 (see Note 15A)                                 27,000              27,000
        6.10% Series FF, due June 1, 2025                                      50,000              50,000
North Shore Gas Company
     First Mortgage Bonds -
        10.20% Series I, due October 27, 1997                                      --               8,000
           (redeemed on February 1, 1996 - See Note 15B)
        8% Series J due November 1, 2020                                       24,734              24,774
        6-3/8% Series K, due October 1, 2022                                   24,930              24,950
        6.37% Series L, due May 1, 2003                                        15,000              15,000
------------------------------------------------------------------------------------------------------------
Total Long-Term Debt                                                          527,064             621,874
------------------------------------------------------------------------------------------------------------
Total Capitalization                                                       $1,208,249          $1,263,568
------------------------------------------------------------------------------------------------------------
</TABLE>

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


                                      -25-
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                               Peoples Energy Corporation
-------------------------------------------------------------------------------------------------
For fiscal years ended September 30,                       1996           1995           1994
-------------------------------------------------------------------------------------------------
                                                                       (Thousands)
<S>                                                    <C>            <C>            <C>
OPERATING ACTIVITIES:
Net Income                                              $ 103,438      $  62,154      $  74,399
Adjustments to reconcile net income to net cash:
   Depreciation and amortization                           70,635         66,408         64,684
   Deferred income taxes and investment tax
      credits - net                                        13,669         10,556        (11,334)
   Change in deferred credits and other liabilities        20,324         (9,522)       (24,846)
   Change in other assets                                 (47,029)        (1,607)       (19,753)
   Other                                                       85             63             41
   Change in current assets and liabilities:
      Receivables - net                                   (41,766)        16,875         36,427
      Accrued unbilled revenues                            (8,147)        (1,245)        10,116
      Materials and supplies                                  338          7,389          1,797
      Gas in storage                                       35,044         50,458         (6,000)
      Gas costs recoverable                               (13,715)         8,221         37,100
      Prepayments                                          (9,985)          (251)           390
      Accounts payable                                     45,595         (6,758)        (9,085)
      Customer gas service and credit deposits              1,813         (4,843)         2,344
      Accrued taxes                                         4,661           (776)         1,022
      Gas sales revenue refundable                        (65,581)        28,559         42,723
      Accrued interest                                     (2,001)          (146)         2,571
-------------------------------------------------------------------------------------------------

Net Cash Provided by Operating Activities                 107,378        225,535        202,596
-------------------------------------------------------------------------------------------------

INVESTING ACTIVITIES:
Capital expenditures of subsidiaries - construction       (85,620)       (95,941)       (87,218)
Other assets                                                2,063         (1,603)        (1,382)
Other capital investments                                  (2,827)          (123)           633
Other temporary cash investments                              200           (100)           100
Other long-term cash investments                               --          5,982           (601)
-------------------------------------------------------------------------------------------------

Net Cash Used in Investing Activities                     (86,184)       (91,785)       (88,468)
-------------------------------------------------------------------------------------------------

FINANCING ACTIVITIES:
Interim loans of subsidiaries - net                         1,725             --        (67,700)
Issuance of long-term debt of subsidiaries                     --         50,000        102,000
Trust fund - utility construction                              --         31,493        (27,250)
           - bond redemption                                  237           (237)            --
Retirement of long-term debt of subsidiaries              (98,810)       (54,201)        (4,000)
Redemption of preferred stock of subsidiaries                  --             --         (3,400)
Dividends paid on common stock                            (63,583)       (62,810)       (62,378)
Proceeds from issuance of common stock                        768            993          1,100
-------------------------------------------------------------------------------------------------

Net Cash Used in Financing Activities                    (159,663)       (34,762)       (61,628)
-------------------------------------------------------------------------------------------------

Net Increase (Decrease) in Cash and Cash Equivalents     (138,469)        98,988         52,500
Cash and Cash Equivalents at Beginning of Year            176,239         77,251         24,751
-------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year                $  37,770      $ 176,239      $  77,251
-------------------------------------------------------------------------------------------------
</TABLE>

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

                                      -26-
<PAGE>

                           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 1996 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 839,000 customers
within the City.  North Shore Gas provides natural gas service to about 137,000
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 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.

                                      -27-
<PAGE>

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 September 30,    1996      1995      1994
          ------------------------------------    ----      ----      ----

          Peoples Gas                             3.6%      3.6%      3.6%
          North Shore Gas                         3.1       3.1       3.2
          Consolidated                            3.5       3.5       3.6

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, 1996 and 1995:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
                                                                  1996           1995
-------------------------------------------------------------------------------------
                                                                      (Thousands)
<S>                                                           <C>            <C>
Environmental costs, net of recoveries (see Note 3A)           $19,384        $18,349
Transition costs from pipeline supplier (see Note 2B)           40,438          8,000
Deferred interest on customer refunds                               --          2,512
Regulatory income tax assets (see Note 1I)                       4,339          3,680
Energy conservation plan expenses                                   --          1,136
Discount, premium, expenses, and loss on reacquired bonds        3,483          3,089
SNG plant - decommissioning                                     23,156          1,982
Other                                                              698            958
-------------------------------------------------------------------------------------
Total regulatory assets of subsidiaries                        $91,498        $39,706
-------------------------------------------------------------------------------------
</TABLE>

                                      -28-
<PAGE>

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 10C.)

     Each Company within the consolidated group nets its income tax related
regulatory assets and liabilities.  At September 30, 1996 and 1995, net
regulatory income tax assets recorded in Other Assets amounted to $4.3 million
and $3.7 million, while net regulatory income tax liabilities recorded in Other
Liabilities equaled $5.5 million and $5.9 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
natural gas purchased and produced.  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, 1996 and 1995 exceeded the LIFO cost by
approximately $91 million and $134 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 September 30,    1996      1995      1994
          ------------------------------------    ----      ----      ----
                                                       (Thousands)

          Income taxes paid                     $44,187   $16,448   $50,160
          Interest paid                          41,386    47,732    44,970

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).

     The Commission conducts annual proceedings regarding, for each gas utility,
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 1993 through 1996, are currently pending before
the Commission.

                                      -29-
<PAGE>

     Pursuant to FERC Order No. 636 and successor orders, pipelines are allowed
to recover from their customers so-called transition costs.  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.)


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 are 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 reflects an 11.10 per cent 
cost of common equity.  The new rates were implemented on November 14, 1995.  
A group of industrial transportation customers has appealed the Commission's 
order to the Illinois Appellate Court.  Any change made by the Appellate 
Court would have a prospective effect only.

NORTH SHORE GAS' RATE ORDER.  On November 8, 1995, the Commission issued an 
order approving changes in rates of North Shore Gas that are 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 reflects an 11.30 
per cent cost of common equity.  The new rates were implemented on November 
14, 1995.  A group of industrial transportation customers has appealed the 
Commission's order to the Illinois Appellate Court.  Any change made by the 
Appellate Court would have a prospective effect only.

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, effective November 1, 1994, 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.  In 1995, the 
Illinois Appellate Court affirmed the Commission's order.  A group of 
industrial transportation customers has filed a petition with the Illinois 
Supreme Court for leave to appeal the Appellate Court's decision.  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.  There are four categories of such costs,
the largest of which for Peoples Gas and North Shore Gas is GSR costs.  The
utilities are subject to charges for transition cost recovery by Natural.
Charges by Natural for transition costs commenced on January 1, 1994.  On
September 29, 1994, the FERC approved a Stipulation and Agreement (Agreement)
filed by Natural.  The Agreement placed a cap on the amount of GSR costs
recoverable by Natural from Peoples Gas and North Shore Gas.  For Peoples Gas,
that cap is approximately $103 million and for North Shore Gas, that cap is
approximately $25 million.  At the conclusion of the billing period under the
Agreement (November 30, 1997), Natural

                                      -30-
<PAGE>

must reconcile amounts collected under the Agreement with GSR costs it incurred.
Peoples Gas and North Shore Gas are currently recovering transition costs
through the Gas Charge.  At September 30, 1996, Peoples Gas and North Shore Gas
have made payments of $70.3 million and $17.3 million, and have accrued an
additional $32.7 million and $7.7 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 IEPA, are conducting investigations of 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 and an order directing Peoples Gas to remediate the site.
Peoples Gas is contesting this suit.

                                      -31-
<PAGE>

     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, 1996, the total of the costs deferred by the
subsidiaries, net of recoveries and amounts billed to other entities, was $19.4
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 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, 1996 have not been reduced to reflect recoveries
from insurance carriers.

     Costs incurred by Peoples Gas or North Shore Gas for environmental
activities relating to former manufactured gas operations will be recovered 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 financial position or results of operations of the
subsidiaries.  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, 1996, the subsidiaries
had recovered $8 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 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.

     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 has filed a counterclaim for costs
incurred and to be incurred by Salomon and Shattuck with respect to the site.

                                      -32-
<PAGE>

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.  SNG PLANT CLOSING

     Peoples Gas has closed its synthetic gas-making plant located near Joliet,
Illinois.  The decision was made after a cost-benefit analysis was performed,
which showed that, as of December 1, 1995, it would not be cost-effective to use
the plant as a source of gas, given new, more economical supply arrangements to
become effective on that date.  Those supply arrangements were the result of
initiatives undertaken by the utilities to restructure their gas supply
portfolios in response to FERC Order 636.  The rates approved by the Commission
in Peoples Gas' most recent rate case reflect the annual effect of a five-year
amortization of the undepreciated investment in the plant and decommissioning
expenses.  The plant closing did not have a material effect on financial
position or results of operations of the Company or Peoples Gas.


5.  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, 1996, such
restrictions amounted to $11.6 million out of North Shore Gas' total retained
earnings of $66.6 million; accordingly, $55 million are available for dividends.


6.  DISTRICT ENERGY

     Peoples District Energy is a 50 per cent participant in a partnership,
Trigen-Peoples District Energy Company, that provides heating and cooling
services to McCormick Place under a long-term contract (Agreement) with the
Metropolitan Pier and Exposition Authority (MPEA).

     The  Company and Trigen Energy Corporation (Trigen) have provided a joint
and several guarantee to the MPEA of the partnership's performance of its
obligations under the Agreement.  The guarantee covers all obligations of the
partnership, including liabilities arising from an interruption of service to
McCormick Place, insolvency of the partnership, or other partnership default.
The guarantee is limited in the aggregate to $11 million, except for an
additional $4 million to $8 million in the event of insolvency of the
partnership or the installation (pursuant to enforcement of lender or MPEA
remedies) of any other operator of the district energy plant in lieu of the
partnership, and except for the partnership's obligations relating to the

                                      -33-
<PAGE>

letter of credit in favor of the MPEA described in the following sentence and
costs to the extent incurred by the MPEA in connection with the enforcement of
obligations of the partnership or the guarantors.  To secure its obligations
under the Agreement, the partnership is obligated to provide, maintain, and
reinstate a letter of credit upon which the MPEA can draw to pay its costs,
expenses, and damages, up to $4 million per incident, principally in the event
of the partnership's failure to cure timely an interruption of service.

     The partnership has obtained a $28 million construction and term loan to
finance construction of a major portion of the project.  After completion of
construction of the project (expected in January 1997) and prior to January
1998, the construction loans will be converted to a term loan with a 20-year
maturity.  In connection with the financing, the Company, Trigen, and the
partnership executed a Sponsors Support and Equity Contribution Agreement
(Sponsors Support Agreement).

     Under the Sponsors Support Agreement, the Company and Trigen have certain
contractual obligations to the lender that could require payment by each of the
Company and Trigen of 50 per cent of the outstanding loan obligations upon the
occurrence of certain events relating to material destruction of the project,
condemnation of the project, purchase of the project by the MPEA pursuant to
provisions of the Agreement and default by the partnership, the Company or
Trigen of certain of their respective obligations to the MPEA.


7.  LONG-TERM LEASE

     In October 1993, Peoples Gas entered into a 15-year operating lease to
relocate its headquarters office.  The relocation was substantially completed in
February 1995 prior to the expiration of the old lease.

     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
expense is comparable with the former lease at Peoples Gas' previous
headquarters location.

     Rental expenses under the lease arrangements were $6.5 million, $6.4
million, and $6.1 million for fiscal years 1996, 1995, and 1994, respectively.


8.  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 in fiscal 1996, the utilities realized a gain, after
income taxes, of approximately $8.9 million.


9.  RETIREMENT AND POSTEMPLOYMENT BENEFITS

9A   Pension Benefits

     The Company and 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.

                                      -34-
<PAGE>

Peoples Gas and North Shore Gas 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 employees
with pension benefits in excess of qualified plan limits imposed by federal tax
law.

     Net pension cost for all plans for fiscal 1996, 1995, and 1994 included the
following components:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
                                                                  1996           1995           1994
----------------------------------------------------------------------------------------------------
                                                                            (Millions)
<S>                                                             <C>            <C>            <C>
Service cost - benefits earned during year                       $13.7          $14.4          $15.8
Interest cost on projected benefit obligations                    32.6           29.9           30.0
Actual return on plan assets (gain) loss                         (68.8)         (85.0)         (15.0)
Net amortization and deferral                                     22.1           45.5          (25.5)
Settlement accounting                                             (7.7)            --             --
----------------------------------------------------------------------------------------------------
Net pension cost (credit)                                        $(8.1)         $ 4.8          $ 5.3
----------------------------------------------------------------------------------------------------
</TABLE>

     In 1996, the Company recognized a net gain of $7.7 million from the
settlement of portions of pension plan obligations.

     The calculation of pension cost assumed a long-term rate of return on
assets of  8.5 per cent for 1996 and 7.5 per cent for 1995 and 1994.  The
settlement accounting cost was determined using a discount rate of 7.5 per cent
and assumed future compensation increases of 4.5 per cent per year.

     The following table shows the estimated funded status of the Company's
pension plans at September 30, 1996 and 1995:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
                                                                  1996           1995
-------------------------------------------------------------------------------------
                                                                       (Millions)
<S>                                                            <C>            <C>
Plan assets at market value                                     $577.5         $578.0
-------------------------------------------------------------------------------------
Actuarial present value of plan benefits:
   Vested                                                        298.4          307.2
   Non-vested                                                     33.4           45.7
-------------------------------------------------------------------------------------
Accumulated benefit obligation                                   331.8          352.9
Effect of projected future compensation increases                 75.8          100.0
-------------------------------------------------------------------------------------
Projected benefit obligation                                     407.6          452.9
-------------------------------------------------------------------------------------
Excess of plan assets over projected benefit obligation          169.9          125.1
Less:
   Unrecognized transition asset                                  23.7           27.2
   Unrecognized prior service cost                                (4.6)          (5.1)
   Unrecognized net gain                                         144.0          105.8
Recognition of non-qualified plan additional minimum liability    (1.9)            --
-------------------------------------------------------------------------------------
Accrued pension asset (liability)                               $  4.9         $ (2.8)
-------------------------------------------------------------------------------------
</TABLE>

                                      -35-
<PAGE>

     The projected benefit obligation and plan assets at September 30, 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.  The projected
benefit obligation and plan assets at September 30, 1995 are based on an October
1 measurement date using a discount rate of 7 per cent, and assumed future
compensation increases of 5 per cent per year.  Plan assets consist primarily of
marketable equity and fixed-income securities.

9B   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.

     Net postretirement benefit cost for all plans for fiscal 1996, 1995, and
1994 included the following components:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
                                                                  1996           1995           1994
----------------------------------------------------------------------------------------------------
                                                                            (Millions)
<S>                                                            <C>            <C>            <C>
Service cost - benefits earned during year                      $  3.4         $  2.7         $  3.1
Interest cost on projected benefit obligation                      7.8            7.9            7.7
Actual return on plan assets (gain) loss                          (3.1)          (3.7)          (0.3)
Amortization of transition obligation                              4.9            4.9            4.9
Net amortization and deferral                                      1.2            2.5           (0.2)
----------------------------------------------------------------------------------------------------
Net postretirement benefit cost                                 $ 14.2         $ 14.3         $ 15.2
----------------------------------------------------------------------------------------------------
</TABLE>

     The calculation of postretirement benefit cost assumed a long-term rate of
return on assets of 7.5 per cent for 1994 through 1996.

     Of the above total postretirement costs recognized for fiscal years 1996,
1995, and 1994, $6.2 million, $6.4 million, and $8.5 million, respectively, was
funded through trust funds for future benefit payments.

                                      -36-
<PAGE>

     The following table sets forth the estimated funded status for the
postretirement health care and life insurance plans at September 30, 1996 and
1995:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
                                                                  1996           1995
-------------------------------------------------------------------------------------
                                                                      (Millions)
<S>                                                            <C>           <C>
Plan assets at market value                                     $ 35.6        $  32.6
-------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation (APBO):
   Retirees                                                       65.6           71.6
   Fully eligible active plan participants                        18.7           14.5
   Other active plan participants                                 31.8           26.9
-------------------------------------------------------------------------------------
Total APBO                                                       116.1          113.0
-------------------------------------------------------------------------------------
Excess (deficiency) of plan assets over the APBO                 (80.5)         (80.4)
Less:
   Unrecognized transition obligation
   (being amortized over 20 years)                               (83.8)         (88.8)
   Unrecognized net gain                                          11.9            7.6
Contributions: 7-1-96 to 9-30-96                                   8.1             --
-------------------------------------------------------------------------------------
Accrued postretirement benefit asset (liability)                $ (0.5)       $   0.8
-------------------------------------------------------------------------------------
</TABLE>

     The total APBO and plan assets at September 30, 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.  The September 30, 1995 total
APBO and plan assets are based on an October 1 measurement date using a discount
rate of 6.5 per cent and assumed future compensation increases of 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 9.6 per cent was
assumed for fiscal 1997, and that rate thereafter will decline 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, 1996, by $8.9 million and the aggregate of
service and interest cost components of the net periodic postretirement benefit
cost by $1.2 million annually.

                                      -37-
<PAGE>

10.  TAX MATTERS

10A  Provision  for Income Taxes

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

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
For fiscal years ended September 30,               1996           1995           1994
-------------------------------------------------------------------------------------
                                                            (Thousands)
<S>                                            <C>            <C>            <C>
Current:
   Federal                                      $40,341        $18,328        $38,438
   State                                          8,534          3,323          8,419
-------------------------------------------------------------------------------------
   Total current income taxes                    48,875         21,651         46,857
-------------------------------------------------------------------------------------
Deferred:
   Federal                                       12,781          9,847         (8,582)
   State                                          3,551          2,917           (987)
-------------------------------------------------------------------------------------
   Total deferred income taxes                   16,332         12,764         (9,569)
-------------------------------------------------------------------------------------
Investment tax credits - net:
   Federal                                       (2,824)        (1,975)        (2,017)
   State                                            161            213            252
-------------------------------------------------------------------------------------
   Total investment tax credits - net            (2,663)        (1,762)        (1,765)
-------------------------------------------------------------------------------------
Total provision for income taxes                 62,544         32,653         35,523
Less - Included in operation expense                 85             97             98
-------------------------------------------------------------------------------------
Net provision for income taxes                  $62,459        $32,556        $35,425
-------------------------------------------------------------------------------------
</TABLE>


10B  Tax Rate Reconciliation

     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:

<TABLE>
<CAPTION>
For fiscal years ended September 30,             1996                          1995                          1994
-------------------------------------------------------------------------------------------------------------------
                                               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                   $53,808          35.00        $30,924          35.00        $35,783          35.00
Amortization of investment
   tax credits                    (2,824)         (1.84)        (1,975)         (2.24)        (2,017)         (1.97)
Amortization of deferred taxes      (823)         (0.54)          (932)         (1.05)        (1,951)         (1.91)
Nontaxable-tax settlement             --             --         (1,965)         (2.22)        (1,965)         (1.92)
Other, net                           137           0.09            148           0.17         (2,011)         (1.97)
-------------------------------------------------------------------------------------------------------------------
Total provision for federal
   income taxes                  $50,298          32.71        $26,200          29.66        $27,839          27.23
-------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      -38-
<PAGE>

10C  Deferred Income Taxes

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

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
At September 30,                                                  1996           1995
-------------------------------------------------------------------------------------
                                                                      (Thousands)
<S>                                                          <C>            <C>
Deferred tax liabilities:
   Property - accelerated depreciation and
     other property related items                             $236,919       $230,542
   Other                                                        25,129          8,745
-------------------------------------------------------------------------------------
   Total deferred income tax liabilities                       262,048        239,287
-------------------------------------------------------------------------------------
Deferred tax assets:
   Unamortized investment tax credits                          (14,056)       (15,124)
   Uncollectible accounts                                      (10,562)        (7,706)
   Other                                                        (6,482)        (8,033)
-------------------------------------------------------------------------------------
   Total deferred income tax assets                            (31,100)       (30,863)
-------------------------------------------------------------------------------------
Net deferred income tax liabilities                           $230,948       $208,424
-------------------------------------------------------------------------------------
</TABLE>

10D  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 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.  The
regulatory treatment of the IRS settlement having been resolved in November
1993, Peoples Gas and North Shore Gas together included $14 million, or $10.8
million after income taxes, in income in 1994.  The amount after income taxes
was included in Other Income - Miscellaneous.  At September 30, 1994,
approximately $14 million was included in Deferred Credits and Other
Liabilities - Other.

     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.


11.  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.

                                      -39-
<PAGE>

12.  OTHER INCOME AND DEDUCTIONS - MISCELLANEOUS

<TABLE>
<CAPTION>
For fiscal years ended September 30,                              1996           1995           1994
----------------------------------------------------------------------------------------------------
                                                                           (Thousands)
<S>                                                           <C>             <C>           <C>
Amortization of net gain on sale of Peoples Gas Building       $    --         $  576        $ 1,151
Interest on amounts recoverable from customers                     224            119          2,495
Income tax settlement (see Note 10D)                                --             --         14,164
Gain on expiration of gas storage contracts (see Note 8)        14,810             --             --
Amortization of gain (loss) on reacquired bonds                   (120)           240            273
Other                                                             (531)           268           (239)
----------------------------------------------------------------------------------------------------
Total other income and deductions - miscellaneous              $14,383         $1,203        $17,844
----------------------------------------------------------------------------------------------------
</TABLE>


13.  CAPITAL COMMITMENTS

     Total contract and purchase order commitments of the Company and its
subsidiaries at September 30, 1996, amounted to approximately $4.1 million.


14.  SHORT-TERM BORROWINGS AND CREDIT LINES

<TABLE>
<CAPTION>
At September 30,                                                  1996           1995
-------------------------------------------------------------------------------------
                                                                      (Thousands)
<S>                                                        <C>            <C>
Bank Loans
Peoples Gas
   8.75% due November 6, 1995                               $       --     $      900
   8.25% due February 11, 1997                                     700             --
-------------------------------------------------------------------------------------
Commercial Paper
North Shore Gas
   due October 1, 1996                                      $    1,925     $       --
-------------------------------------------------------------------------------------
Available lines of credit
   Unused bank lines                                        $  126,775     $  130,150
-------------------------------------------------------------------------------------
</TABLE>


     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, 1996 and 1995, the utility subsidiaries had combined lines
of credit totaling $129.4 million and $131.1 million, respectively.  Of these
totals, North Shore Gas could borrow up to $30 million.  Agreements covering $92
million of the total at September 30, 1996 will expire on June 25, 1997; the
agreement covering the remaining $37.4 million will expire on January 31, 1998.
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 15A.)  Payment for the lines of credit is by fee.

                                      -40-
<PAGE>

15.  LONG-TERM DEBT

15A  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 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,
1996, have been remarketed.  The interest rate on such bonds is 3.95 per cent
for the period October 1, 1996, through September 30, 1997.

     The rate of interest on the City of Chicago 1993 Series B Bonds, which are
secured by Peoples Gas' Adjustable-Rate First 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.  The interest rate on such bonds is 3.85 per cent for the
period December 1, 1995, through November 30, 1996.

     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, 1998.  (See
Note 14.)

15B  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.

15C  Sinking Fund Requirements and Maturities of Subsidiaries

     At September 30, 1996, long-term debt sinking fund requirements and
maturities for the next five years are:

<TABLE>
<CAPTION>
                                      Peoples             North
Fiscal Year                             Gas             Shore Gas        Consolidated
-------------------------------------------------------------------------------------
                                                       (Thousands)
<S>                                 <C>                  <C>                <C>
  1997                               $     --             $    --            $     --
  1998                                     --                  --                  --
  1999                                     --                  --                  --
  2000                                 10,400                  --              10,400
  2001                                     --                  --                  --
</TABLE>

                                      -41-
<PAGE>

15D  Fair Value of Financial Instruments

     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.  At September
30, 1995, the carrying amount of the Company's long-term debt of $621.9 million
had an estimated fair value of $660.4 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 would not be realized by the
Company's shareholders.  The carrying amount of all other financial instruments
approximates fair value.


16.  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, 1996.


17.  COMMON STOCK

<TABLE>
<CAPTION>
For fiscal years ended September 30,                            1996           1995           1994
----------------------------------------------------------------------------------------------------
<S>                                                        <C>            <C>            <C>
Shares outstanding - beginning of year                      34,913,426     34,868,069     34,822,842
Shares issued:
   Employee Stock Purchase Plan                                 21,516         32,221         35,570
   Long-Term Incentive Compensation Plan                       110,700         16,650         13,345
   Other Deferred Compensation Plans                             1,471          1,367          1,278
Shares reacquired                                              (86,714)        (4,881)        (4,966)
----------------------------------------------------------------------------------------------------
Shares outstanding - end of year                            34,960,399     34,913,426     34,868,069
----------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
Shares Reserved               At September 30,                  1996           1995           1994
----------------------------------------------------------------------------------------------------
<S>                                                        <C>            <C>            <C>
Direct Purchase and Investment Plan                          1,500,000      1,036,891      1,036,891
Employee Stock Purchase Plan                                   997,997       1,019,51     31,051,734
Long-Term Incentive Compensation Plan                          741,930        852,630        469,280
----------------------------------------------------------------------------------------------------
Total shares reserved                                        3,239,927      2,909,034      2,557,905
----------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                                                                            Stock
                                                                        Non-Qualified   Appreciation
Long-Term Incentive Compensation Plan                      Price Range  Stock Options   Rights (SARs)
-----------------------------------------------------------------------------------------------------
<S>                                                        <C>            <C>            <C>
Outstanding at September 30, 1993                         $25.69-30.38         64,400         64,400
----------------------------------------------------------------------------------------------------
Granted                                                   $      30.88         52,700         52,700
Exercised                                                        30.38         (1,200)        (1,200)
----------------------------------------------------------------------------------------------------
Outstanding at September 30, 1994                         $25.69-30.88        115,900        115,900
----------------------------------------------------------------------------------------------------
Granted                                                   $      25.69         71,500         71,500
Exercised                                                           --             --             --
----------------------------------------------------------------------------------------------------
Outstanding at September 30, 1995                         $25.69-30.88        187,400        187,400
----------------------------------------------------------------------------------------------------
Granted                                                   $      27.50         90,200         90,200
Exercised                                                  25.69-30.88        (92,500)       (88,700)
Forfeited                                                        27.50         (5,300)        (5,300)
----------------------------------------------------------------------------------------------------
Outstanding at September 30, 1996                         $25.69-30.88        179,800        183,600
----------------------------------------------------------------------------------------------------
</TABLE>

                                      -42-
<PAGE>

     Restricted stock awards granted to officers of the company during the last
three fiscal years are as follows: 1996, 18,200 shares; 1995, 16,650 shares; and
1994, 12,625 shares.  At September 30, 1996, there were 562,130 shares available
for future grant under options or restricted stock awards.  At September 30,
1996, there were 664,050 SARs available for future grant.


18.  QUARTERLY FINANCIAL DATA (UNAUDITED)

     The fluctuation in quarterly results is primarily due to the seasonal
nature of the gas distribution business.  The first three quarters of fiscal
1996 include weather that was 34 per cent, 12 per cent, and 26 per cent colder
than the respective similar prior quarters.  Also, results for all four quarters
of fiscal 1996 reflect the positive impact of the Commission approved rate
orders.  (See Note 2A.)  The fiscal 1995 portion of an IRS settlement was
amortized to operation expense over that entire year.  (See Note 10D.)

<TABLE>
<CAPTION>
                                                                             Earnings
                               Operating      Operating                      Per
Fiscal Quarters                Revenues       Income        Net Income       Share
-------------------------------------------------------------------------------------
                                  (Thousands, except per-share amounts)
<S>                            <C>             <C>           <C>             <C>
1996
   Fourth                       $133,996        $(1,877)      $ (8,940)       $  (.26)
   Third                         248,500         19,474         14,247            .41
   Second                        498,556         69,663         62,015           1.77
   First                         317,605         45,154         36,116           1.03

-------------------------------------------------------------------------------------
1995
   Fourth                       $114,705        $(1,918)      $(13,355)       $ (0.38)
   Third                         187,187         16,330          4,563           0.13
   Second                        424,386         57,953         45,819           1.31
   First                         307,123         36,221         25,127           0.72
</TABLE>

     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.

                                      -43-
<PAGE>

                                    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 27,
1996, and to be distributed in connection with the Company's Annual Meeting of
Shareholders to be held on February 28, 1997.  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 27,
1996, and to be distributed in connection with the Company's Annual Meeting of
Shareholders to be held on February 28, 1997.  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 27, 1996, and to be
distributed in connection with the Company's Annual Meeting of Shareholders to
be held on February 28, 1997.  Such information is incorporated herein by
reference.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     None.

                                      -44-
<PAGE>

                                     PART IV


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


(a)  1.   Financial Statements:                                             Page
                                                                            ----

          See Part II, Item 8.                                               20

     2.   Financial Statement Schedules:

          Schedule
          Number
          --------
            VIII    Valuation and Qualifying Accounts                        46

     3.   Exhibits:

          See Exhibit Index on page 48.

(b)  Reports on Form 8-K filed during the final quarter of fiscal year 1996:

          None.


                                      -45-
<PAGE>

                                                                  SCHEDULE  VIII

               PEOPLES ENERGY CORPORATION AND SUBSIDIARY COMPANIES

                        VALUATION AND QUALIFYING ACCOUNTS

                                   (Thousands)

<TABLE>
<CAPTION>
                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, 1996
                                          ------------------------------------
<S>                                                     <C>                 <C>                 <C>                 <C>
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


                                          Fiscal Year Ended September 30, 1994
                                          ------------------------------------

RESERVES (deducted from assets in
     balance sheet):
   Uncollectible items                                   $19,789             $32,016             $27,516             $24,289
</TABLE>

                                      -46-
<PAGE>

                                   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 19, 1996                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 19, 1996.

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

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

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

 /s/  MICHAEL S. REEVES                 Director
-----------------------
Michael S. Reeves

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

 /s/  FRANKLIN A. COLE                  Director
----------------------
Franklin A. Cole

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

 /s/  H. J. LIVINGSTON, JR.             Director
---------------------------
H. 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

                                      -47-
<PAGE>

               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 May 1, 1996.

     3(b)        Amendment to the By-Laws of the Registrant, dated August 7,
                 1996.

     3(c)        By-Laws of the Registrant, as amended, dated August 7, 1996.

     10(a)       Firm Transportation Service Agreement under Rate Schedule FTS-1
                 between Peoples Gas and ANR Pipeline Company, dated as of
                 September 20, 1995.

     10(b)       Firm Transportation Service Agreement under Rate Schedule FTS
                 between Peoples Gas and Natural Gas Pipeline Company of
                 America, dated as of February 21, 1996.

     10(c)       Firm Transportation Service Agreement under Rate Schedule FTS
                 between Peoples Gas and Natural Gas Pipeline Company of
                 America, dated as of February 21, 1996.

     10(d)       Firm Transportation Service Agreement under Rate Schedule FTS-1
                 between North Shore Gas and ANR Pipeline Company, dated as of
                 October 25, 1995.

     23          Arthur  Andersen LLP consent to incorporation 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, 1996.

(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(d)        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


                                      -48-
<PAGE>

               PEOPLES ENERGY CORPORATION AND SUBSIDIARY COMPANIES

                            EXHIBIT INDEX (Continued)

     4(a)        Indenture dated as of March 10, 1950 (Peoples - Form 8-K for
     cont.       the month of March cont.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 July 15, 1966 (Peoples - Form 8-K for the month of July
                 1966, Exhibit 2); 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 April 1, 1972 (Peoples - File No. 2-
                 43367,  Post-Effective Exhibit 2-2); Supplemental Indenture
                 dated as of July 15, 1973 (Peoples - File No. 2-48430, Exhibit
                 4-2); Supplemental Indenture dated as of June 1, 1984, and
                 Supplemental Indenture dated as of October 1, 1984 (Peoples -
                 Form 10-K for fiscal year ended September 30, 1984, Exhibits 4-
                 1, 4-2 and 4-3, respectively); Supplemental Indentures dated
                 March 1, 1985,  (Peoples - Form 10-K for fiscal year ended
                 September 30, 1985, Exhibits 4-1, 4-2, 4-3, 4-4, 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)).

     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); Sixth
                 Supplemental Indenture dated as of October 1, 1973 (North
                 Shore) - Form 10-K for the fiscal year ended September 30,
                 1980, Exhibit 4-3); Seventh Supplemental Indenture dated as of
                 February 15, 1977 (North Shore - Form 10-K for the fiscal year
                 ended September 30, 1980, Exhibit 4-4; Eighth Supplemental
                 Indenture dated as of September 15, 1980 (North Shore - Form
                 10-K for the fiscal year ended September 30, 1980, Exhibit 4-
                 5); Ninth Supplemental Indenture dated as of December 1, 1987
                 (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); and Eleventh Supplemental Indenture
                 dated as of October 1, 1992 (North Shore - Form 10-K for the
                 fiscal year ended September 30, 1992, Exhibit 4): Twelfth
                 Supplemental Indenture dated as of April 1, 1993 (North Shore -
                 Form 8-K dated April 23, 1993, Exhibit 4).

     10(e)       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.

                                      -49-
<PAGE>

               PEOPLES ENERGY CORPORATION AND SUBSIDIARY COMPANIES

                            EXHIBIT INDEX (Continued)

     10(e)       (Registrant Form 10-K for fiscal year ended September 30, 1995,
     cont.       Exhibit 10(a)); cont. 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 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(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)).

                                      -50-
<PAGE>

               PEOPLES ENERGY CORPORATION AND SUBSIDIARY COMPANIES

                            EXHIBIT INDEX (Continued)

     10(f)       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(g)       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(h)       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).

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


                                      -51-