UNITED STATES 
                  SECURITIES AND EXCHANGE COMMISSION
                        Washington, D.C. 20549
                               FORM 10-K
    (Mark One)
       [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) 
               OF THE SECURITIES EXCHANGE ACT OF 1934
                       
          For the fiscal year ended September 30, 1998
                                  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 nonaffiliates of the registrant:

     Approximately $1.34 billion computed on the basis of
     the closing market price of $37.6875 for a share of 
     Common Stock on November 30, 1998.

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

   Common Stock, without par value, 35,474,472 shares
   outstanding at November 30, 1998.
                  
          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 28, 1998  Part III


                               CONTENTS

                                                            Page 
Item No.                                                    No .

       Part I

  1.   Business                                              3

  2.   Properties                                            7

  3.   Legal Proceedings                                     8

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

       Executive Officers of the Company                     9

       Part II

  5.   Market for the Company's Common Stock and Related
         Stockholder Matters                                11
  
  6.   Selected Financial Data                              12
  
  7.   Management's Discussion and Analysis of Results
           of Operations and Financial Condition            13

 7A.   Quantitative and Qualitative Disclosures About
                     Market Risk                            23

  8.   Financial Statements and Supplementary Data          23

  9.   Changes in and Disagreements with Accountants on
           Accounting and Financial Disclosure              45

       Part III

 10.   Directors and Executive Officers of the Company      45

 11.   Executive Compensation                               45

 12.   Security Ownership of Certain Beneficial Owners and
           Management                                       45

 13.   Certain Relationships and Related Transactions       45

       Part IV

 14.   Exhibits, Financial Statement Schedules, and Reports
           on Form 8-K                                      46

Signatures                                                  48

Exhibit Index                                               49


                       Peoples Energy Corporation

                       ANNUAL REPORT ON FORM 10-K

                      FISCAL YEAR ENDED SEPTEMBER 30, 1998

                                 PART I

ITEM 1.  BUSINESS

GENERAL

   Peoples Energy Corporation (Company) is solely a holding
Company and does not engage directly in any business of its
own.  Income is derived principally from the Company's
utility subsidiaries, The Peoples Gas Light and Coke Company
(Peoples Gas) and North Shore Gas Company (North Shore Gas).
The Company also derives income from its other subsidiaries,
Peoples District Energy Corporation (Peoples District
Energy), Peoples Energy Services Corporation (Peoples Energy
Services), Peoples Energy Resources Corp.  (Peoples Energy
Resources), Peoples NGV Corp. (Peoples NGV), and Peoples
Energy Ventures Corporation (Peoples Energy Ventures). The
Company and its subsidiaries had 2,834 employees at September
30, 1998.

   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 833,000
residential, commercial, and industrial retail sales and
transportation customers within the City of Chicago (City).

   North Shore Gas, an operating public utility, is engaged
primarily in the purchase, storage, distribution, sale, and
transportation of natural gas.  It has about 143,000
residential, commercial, and industrial retail sales and
transportation customers within its service area of
approximately 275 square miles, located in Northeastern
Illinois.

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

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

   Peoples Energy Resources owns and operates a plant near
Chicago that gasifies liquid propane and ethane to assist
utilities and marketers in meeting peak day demand.  It is
also a 50 percent participant in the development of a gas
fired electric generation plant near Chicago. Peoples Energy
Resources is pursuing new opportunities to expand diversified
energy supply, pipeline and storage services, as well as
electric power generation.

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

   Peoples Energy Ventures, through its subsidiary Peoples
Energy Production, acquires investments in oil and gas
production and exploration properties.  To date Peoples 
Energy Production has purchased interests in properties in 
Texas, Louisiana, Colorado and North Dakota. It is actively 
pursuing additional investments of this kind.  Peoples Energy 
Production has also entered into a partnership with EnerVest 
Management Company to jointly pursue investments in oil and 
gas properties.

COMPETITION AND DEREGULATION

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

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

   Competition in varying degrees exists between natural gas
and other fuels or forms of energy available to consumers in
Peoples Gas' and North Shore Gas' service areas.

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

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

   On October 26, 1998, Peoples Gas and North Shore Gas made
filings with the Commission under which the price for natural
gas would be set at a fixed level for at least the next five 
years.  Under the current system, the utilities make purchases 
in the open, unregulated gas market and pass those costs, as 
incurred, onto customers through a monthly gas charge. While the
utilities make no profit on the gas, the market price and the
price customers pay can fluctuate significantly due to the
effects of supply and demand.  Under the current system, the
customer bears the full risk of the market.  The proposed
fixed-price gas charges would protect the utilities' gas
customers from the market fluctuations and from increases in
gas costs due to inflation and other market forces.  The
proposals reflect a fixed gas price of 32.76 cents per therm
for customers of Peoples Gas and 34.70 cents per therm for
customers of North Shore Gas.  These fixed unit prices are
comparable to the average prices paid by the utilities'
respective customers over the last two years.

   By eliminating the monthly price fluctuations, Peoples Gas
and North Shore Gas could shield customers from price
increases, although gas bills would still reflect customers'
increased usage during colder weather.  As the utilities
would assume and manage this risk, they would have an
opportunity to earn a profit on this initiative.

   The Commission has eight months to review the filings,
during which period the utilities may update their proposals.
At the conclusion of the review, the Commission may modify
the proposals.  However, the utilities have the right to
accept the outcome or reject it and continue under the
current system.

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

   A pipeline may seek to provide transportation service
directly to endusers.  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 Commission which allows the
utilities to renegotiate rates with customers that are
potential bypass candidates. (See Other Matters - Large-
Volume Gas Service Agreements in Item 7.)

SALES AND RATES

   Peoples Gas and North Shore Gas sell natural gas having an
average heating value of approximately 1,000 British thermal
units (Btu's) per cubic foot.*  Sales are made and service
rendered by Peoples Gas and North Shore Gas pursuant to rate
schedules on file with the Commission containing various
service classifications largely reflecting customers'
different uses and levels of consumption.  The Gas Charge is
determined in accordance with the provisions in Rider 2, Gas
Charge, to recover the costs incurred by Peoples Gas and
North Shore Gas to purchase, transport, manufacture, and
store gas supplies.  The level of the Gas Charge under both
subsidiaries' rate schedules is adjusted monthly to reflect
increases or decreases in natural gas supplier charges,
purchased storage service costs, transportation charges, and
liquefied petroleum gas costs. In addition, under the tariffs
of Peoples Gas and North Shore Gas, the difference for any
month between costs recoverable through the Gas Charge and
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).  (See Note 1L 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 gasfueled vehicles, and
natural gas air-conditioning.

STATE LEGISLATION AND REGULATION

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


*  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)

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.

  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 Federal Energy
Regulatory Commission (FERC) under the Natural Gas Act and
the Natural Gas Policy Act of 1978.  (See "Sales and Rates"
and "Current Gas Supply" in Item 1.)

ENVIRONMENTAL MATTERS

   The Company and its subsidiaries are subject to federal and
state environmental laws.  Peoples Gas and North Shore Gas are
conducting environmental investigations and work at certain
sites that were the location of former manufactured gas plant
operations.  (See Note 2A 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 2B 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 2C of the Notes to
Consolidated Financial Statements.)

CURRENT GAS SUPPLY

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

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

   The following tabulation shows the expected design peak-
day availability of gas in thousands of dekatherms (MDth)
during the 19981999 heating season for Peoples Gas and North
Shore Gas:

                                     Peoples Gas               North Shore Gas
                         Design Peak-Day    Year of    Design Peak-Day   Year of
                           Availability     Contract    Availability    Contract
Source                       (MDth)        Expiration     (MDth)      Expiration
Firm direct purchases (1)       551         1999-2001          132     1999-2001
Liquefied petroleum gas          40                             40(2)
Peaking Service:
   Peoples Energy Resources      60            (3)
Storage gas:
   Leased (4)                   563         1999-2003          125     1999-2000
   Peoples-Manlove (5)          993                             63           (6)
Customer-owned (7)              300                             55
Total expected design
   peak-day availability      2,507                            415




(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 11 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)Consists of leased storage services required to meet
   design day requirements with contract lengths varying
   from one to five years.
   
(5)Manlove Field, Peoples Gas' underground storage facility
   located near Champaign, Illinois, has seasonal top-gas
   inventory of approximately 27,000 MDth for system supply,
   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 1998-99 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).
   
(6)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.
   
(7)Consists of gas supplies purchased directly from
   producers and marketers by the utilities' commercial,
   industrial, and larger residential customers.
   
   
   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, 1998, 1997 and
1996, were as follows:
<TABLE>
<CAPTION>
                                             Peoples Gas                              North Shore Gas
                                      1998         1997         1996          1998       1997       1996
 <S>                                <C>          <C>          <C>            <C>        <C>        <C>
 Gas purchases                      120,531      156,097      174,552        21,837     27,226     27,940
 Liquefied petroleum gas produced         8            7          114             3         20        151
 Customer-owned gas-received         93,758       91,476       93,141        12,355     12,618     12,777
 Underground storage-net             (2,939)      (3,786)         228            28       (123)       468
 Exchange gas-net                     4,975          (39)      (4,446)        1,030       (151)      (104)
 Company use, franchise
    requirements, and
    unaccounted-for gas              (3,693)      (2,071)      (3,169)         (383)      (546)      (983)
       Total (a)                    212,640      241,684      260,420        34,870     39,044     40,249


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

</TABLE>

ITEM 2.  PROPERTIES

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

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

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

   Peoples Energy Resources owns and operates a plant in Will
County, Illinois that gasifies natural gas liquids to support
the sale of winter peaking services to area natural gas
utilities and marketers.  The current seasonal capacity of
the plant is approximately 800,000 MMbtu. The plant is fully
paid for and no liens exist on the property.

   During the current fiscal year, Peoples Energy Production
acquired, either directly or through a partnership, working
interests in various producing, proved non-producing, and
probable oil and gas reserves. Currently, these interests are
located in Texas, Louisiana, North Dakota, and Colorado.  The
total investment in these properties is approximately $16
million.  As of September 30, 1998, total proved oil and gas
reserves owned by Peoples Energy Production were 11,421,415
equivalent MMBtus. Reserve information on these properties
was provided by the following engineering firms: Ryder Scott
Company Petroleum Engineers, Miller & Lent, LTD -
International Oil & Gas Consultants, McCartney Engineering,
LLC, and Cawley, Gillespie & Associates, Inc. - Petroleum
Engineers.


ITEM 3.  LEGAL PROCEEDINGS

   See Note 2 of the Notes to Consolidated Financial
Statements.


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

   None.

EXECUTIVE OFFICERS OF THE COMPANY

   The following is a list of the names, ages, and positions
of the executive officers of the Company.  Executive officers
were elected to serve for a term of one year or until their
successors are duly elected and qualified, except for Ms.
Rogers, who was appointed.
<TABLE>
<CAPTION>

                         Age at
       Name             11/30/98                 Position with the Company
<S>                        <C>      <C>
Donald M. Field            49       Executive Vice President (1998) of the
                                    Company.  Mr. Field is also Executive Vice President
                                    and Director (1998) of Peoples Gas and North Shore 
                                    Gas.  Prior to becoming Executive Vice President, 
                                    Mr. Field was Vice President of Gas Operations of 
                                    both subsidiaries. Mr. Field has been an employee 
                                    of the Company and/or its subsidiaries since 1971.

James Hinchliff            58       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 prior 
                                    to that 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.

Peter H. Kauffman          52       Assistant General Counsel and Secretary
                                    (1998) of the Company.  Mr. Kauffman is also 
                                    Assistant General Counsel and Secretary of 
                                    Peoples Gas and North Shore Gas. Mr. Kauffman 
                                    has been an employee of the Company and/or its
                                    subsidiaries since 1972.

James M. Luebbers          52       Vice President and Controller (1998) of
                                    the Company. Mr. Luebbers is also Vice 
                                    President and controller and Director 
                                    (1998) of Peoples Gas and North Shore 
                                    Gas.  Prior to becoming Vice President
                                    and Controller, Mr. Luebbers was Vice
                                    President of Corporate Planning (1997).  
                                    Mr. Luebbers has been an employee 
                                    of the Company and/or its subsidiaries
                                    since 1969.

William E. Morrow          42       Vice President of the Company.  Mr.
                                    Morrow is also Vice President of Peoples Gas
                                    and North Shore Gas.  Mr. Morrow
                                    has been an employee of the Company
                                    and/or its subsidiaries since 1979.

                         Age at
       Name             11/30/98               Position with the Company

Kevin J. O'Connell         52    Vice President of the Company.  Mr. O'Connell
                                 has been an employee of the Company and/or
                                 its subsidiaries since 1997.

Thomas M. Patrick          52    President and Chief Operating Officer (1998) 
                                 and Director (1998) of the Company.  Mr. 
                                 Patrick is also President and Chief Operating
                                 Officer (1998) and Director (1997) of
                                 Peoples Gas and North Shore Gas.  Prior 
                                 to becoming President, Mr. Patrick
                                 was Executive Vice President (1997-
                                 1998) of the Company and its subsidiaries 
                                 and Vice President (1989-1996) of both
                                 subsidiaries.  Mr. Patrick has been an
                                 employee of the Company and/or its    
                                 subsidiaries since 1976.

William W. Reynolds        40    Treasurer of the Company.  Mr. Reynolds
                                 is also Treasurer of Peoples Gas and North 
                                 Shore Gas.  Mr. Reynolds has been
                                 an employee of the Company and/or its 
                                 subsidiaries since 1998.

Desiree G. Rogers          39    Vice President of the Company.  Ms. Rogers
                                 is also Vice President of Peoples Gas
                                 and North Shore Gas.  Ms. Rogers has been
                                 an employee of the Company and/or its
                                 subsidiaries since 1997.

Richard E. Terry           61    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.
</TABLE>




                           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, 1998, there were 26,209 registered
shareholders.

   The common stock price range and dividends declared per
common share by quarters for fiscal 1998 and 1997 were as follows:

Fiscal              Stock Price                     Dividends
Quarter       High          Low         Close         Declared


Fourth       $ 38-5/8     $ 32-1/8     $ 36           $0.48
Third          39           34-5/8       38-5/8        0.48
Second         39-7/8       34-5/8       36-3/8        0.48
First          39-5/8       33-11/16     39-3/8        0.47


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


<TABLE>
<CAPTION>
ITEM 6.  SELECTED FINANCIAL DATA


              For fiscal years ended September 30,     1998          1997         1996         1995        1994
<S>                                               <C>           <C>           <C>          <C>           <C>          
Common Stock Information
Basic and diluted earnings per share              $       2.25  $       2.81  $      2.96  $      1.78  $     2.13
Cash dividends declared per share                 $       1.91  $       1.87  $      1.83  $      1.80  $     1.80
Book value per share at year-end                  $      20.94  $      20.43  $     19.48  $     18.38  $    18.39
Market Price (year-end, closing)                  $         36  $    37 11/16 $        34  $    27 1/2  $   26 1/4
Price-earnings ratio                                      16.0          13.4        11.5         15.4        12.3
Basic average shares outstanding (thousands)            35,257        35,000       34,942       34,901     34,854
Diluted average shares outstanding (thousands)          35,276        35,026       34,967       34,902     34,855
Operating Results (thousands)
Utility Operating Revenues:
  Sales - Residential                             $    780,188  $    941,564  $   883,100  $   752,796  $  951,037
             Commercial                                112,166       146,864      141,594      116,113     160,912
             Industrial                                 20,947        28,969       32,075       24,128      41,979
  Transportation (a)                                   120,790       133,570      128,876      122,814     110,128
  Other                                                 15,734        15,265       13,032       17,550      15,432
Diversified Energy Revenues                             88,232         7,457            -            -           -
  Total Operating Revenues                           1,138,057     1,273,689    1,198,677    1,033,401   1,279,488
Less-Gas costs                                         526,983       615,534      529,875      457,436     669,039
       -Revenue taxes                                  100,846       126,224      121,172      109,720     132,734
       -Other (b)                                        7,917             -            -            -           -
  Net Operating Revenues                          $    502,311  $    531,931  $   547,630  $   466,245  $  477,715
Net Income                                        $     79,423  $     98,404  $   103,438  $    62,154  $   74,399
Assets at Year-end (thousands)
Property, plant and equipment                     $  2,209,957  $  2,117,509  $ 2,046,156  $ 2,088,277  $2,019,379
Less-Accumulated depreciation                          763,296       715,279      665,077      715,208     677,447
 Net Property, Plant and Equipment                $  1,446,661  $  1,402,230  $ 1,381,079  $ 1,373,069  $1,341,932
Total assets                                      $  1,904,500  $  1,820,805  $ 1,783,750  $ 1,822,492  $1,809,286
Capital expenditures of subsidiaries              $    116,192  $     89,404  $    85,620  $    95,941  $   87,218
Capitalization at Year-end (thousands)
Common equity                                     $    741,361  $    716,499  $   681,185  $   641,694  $  641,378
Long-term debt of subsidiaries                         516,604       527,004      527,064      621,874     626,075
 Total Capitalization                             $  1,257,965  $  1,243,503  $ 1,208,249  $ 1,263,568  $1,267,453
Financial Ratios (percent)
Capitalization at Year-end:
 Common equity                                              59            58           56           51          51
 Long-term debt of subsidiaries                             41            42           44           49          49
  Total Capitalization                                     100           100          100          100         100
Return on common equity at year-end                       10.7          13.7         15.2          9.7        11.6
Gas Sold and Transported (million cubic feet)
Utility Gas Deliveries:
  Sales - Residential                                  119,206       142,837      154,128      130,571     142,876
             Commercial                                 19,501        24,994       27,390       22,079      26,206
             Industrial                                  4,114         5,367        6,803        5,059       7,325
  Transportation (a)                                   104,689       107,530      112,348      106,352     102,023
 Total Utility Deliveries                              247,510       280,728      300,669      264,061     278,430
Diversified Energy Sales                                29,732            60            -            -           -
Number of Customers
 Utility Customers (average)
  Sales - Residential                                  908,025       910,657      910,236      906,881     905,461
             Commercial                                 46,639        50,914       50,719       50,872      50,955
             Industrial                                  3,239         3,708        3,696        3,783       3,927
  Transportation (a)                                    17,934        10,959       11,348       10,934      10,247
 Total Utility Customers                               975,837       976,238      975,999      972,470     970,590
Diversified Energy Customers (year-end)                 19,749            52            -            -           -
Degree Days                                              5,564         6,806        7,080        5,897       6,701
Percent of normal (6,536)                                   85           104          108           90         103

(a) Includes commercial, industrial, and larger residential customers.
(b) See Management's Discussion and Analysis of Results of Operations and Financial Condition (MD&A) - Net Operating Revenues.
</TABLE>


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

Net Income

   In 1998, net income decreased $19.0 million, to $79.4
million, principally a result of weather that was 18 percent
warmer than the prior year.  Increases in costs associated 
with outside professional services and advertising expense also
contributed to the decline in net income.  These effects
were offset, in part, by increased earnings from
diversified energy subsidiaries, a reduction in the
provision for uncollectible accounts, and lower group
insurance expense.

   In 1997, net income decreased $5.0 million, to $98.4
million, primarily as a result of decreased gas deliveries
due to weather that was four percent warmer than in 1996
and conservation.  Also hindering 1997's comparative
results were fiscal 1996's gain on the expiration of gas
storage contracts, increased computer support services
associated with the development of a new customer
information system, and increased depreciation and
amortization expense.  Partially offsetting these effects
were a decrease in pension expense (see Note 6A of the
Notes to Consolidated Financial Statements), a full year's
effect of the utilities' November 1995 rate increases,
decreased net interest expense and a tax accrual
adjustment.
<TABLE>
<CAPTION>
 A summary of variations affecting income between years is
presented below, with explanations of significant differences
following:

                                                  Fiscal 1998              Fiscal 1997
                                                   over 1997                over 1996
                                                     Amount                   Amount
                                                    (000's)     Percent      (000's)     Percent
<S>                                               <C>             <C>      <C>            <C>
Net operating revenues (a)                        $(29,620)      (5.6)     $(15,699)      (2.9)
Operation and maintenance expenses                  (3,094)      (1.2)      (17,538)      (6.6)
Depreciation, depletion, and amortization expense    3,121        4.2         3,439        4.9
Income taxes                                        (9,951)     (18.2)       (2,025)      (3.6)
Other income and deductions                            753        2.1        (6,163)     (21.3)
Net income                                         (18,981)     (19.3)       (5,034)      (4.9)

(a) See Management's Discussion and Analysis of Results of Operations and Financial Condition - 
      Net Operating Revenues. (MD&A)
</TABLE>
     
Net Operating Revenues

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

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

   Net operating revenues decreased $29.6 million, to
$502.3 million, in 1998.  Natural gas deliveries decreased
33.2 bcf, to 247.5 bcf, due mainly to the effect of El Nino
which caused weather to be 18 percent warmer than in 1997
and 15 percent warmer than normal.

In 1997, net operating revenues decreased $15.7 million, to
$531.9 million.  Natural gas deliveries decreased 20.0 bcf, to
280.4 bcf, primarily due to weather that was four percent
warmer than in 1996 and conservation.  Net operating
revenues decreased approximately $24.2 million ($14.6
million after income taxes) as a result of customer
conservation measures and warmer weather.  However, a full
year's effect of the utilities' rate increases improved net
operating revenues by approximately $4.5 million ($2.7
million after income taxes).

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

Operation and Maintenance Expenses

   Operation and maintenance expenses decreased $3.1
million, to $245.3 million, in 1998, due principally to
reductions in the provision for uncollectible accounts
($5.1 million), reflecting decreased revenues due to the
warmer weather, group insurance expense ($2.8 million),
environmental costs recovered through rates ($2.2 million)
and pension costs ($2.0 million).  These effects were
offset in part by increases in the costs of outside
professional services ($6.3 million), advertising expenses
($1.6 million), and a prior period adjustment to costs
associated with claim settlements ($1.0 million).

   In 1997, operation and maintenance expenses decreased
$17.5 million, to $248.4 million, due chiefly to an $18.6
million decrease in pension expense caused by changes in
settlement accounting attributed to employees choosing
early retirement and actuarial assumptions (see Note 6A of
the Notes to Consolidated Financial Statements), lower
reengineering expenses ($2.5 million), reductions in costs
associated with liability insurance premiums and claim
settlements ($2.3 million), and group insurance expense
($1.7 million).  These decreases were partially offset by
an increase in payments for outside professional services
($3.7 million) and higher administrative and general
expenses.

Depreciation, Depletion, and Amortization Expense

   Depreciation, depletion, and amortization expense
increased $3.1 million, to $77.2 million, and $3.4 million,
to $74.1 million, in 1998 and 1997, respectively, due
primarily to depreciable property additions.

Income Taxes

   Income taxes, exclusive of the $480,000 included in
other income and deductions, decreased $10.0 million, to
$44.6 million, in 1998, due primarily to lower pre-tax
income.

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

Other Income and Deductions

   In 1998, other income and deductions decreased $753,000
from the prior period, due principally to an increase in
the allowance for funds used during construction, offset,
in part, by decreased miscellaneous interest revenues and
higher interest expense.

   In 1997, other income and deductions increased $6.2
million from the prior year, due primarily to the prior
period's gain associated with the expiration of natural gas
storage contracts.  Partially offsetting this increase were
reductions in interest expense on long-term debt, resulting
from the utility subsidiaries' early redemption of first
mortgage bonds, and on amounts refunded to customers.

Other Matters

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

Accounting Standards.  The Company adopted Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings
per Share," Statement of Position (SOP) 96-1,
"Environmental Remediation Liabilities," and SOP 98-5,
"Reporting on the Costs of Start-Up Activities," in fiscal
1998. (See Notes 1P and 5 of the Notes to Consolidated
Financial Statements.)

   In June 1998, the Financial Accounting Standards Board
(FASB) issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for
derivative financial instruments, including certain
derivative instruments embedded in other contracts and for
hedging activities.  It requires that an entity recognize
all derivatives as either assets or liabilities in the
consolidated balance sheet and measure those instruments at
fair value.  The accounting for changes in the fair value
of a derivative depends on the intended use of the
derivative and resulting designation.

   Changes in the fair value of derivatives must be
recognized in current period earnings, unless specific
hedge accounting criteria are met.  If an entity qualifies
for hedge accounting, gains and losses on derivatives,
generally, will offset the related effects of the hedged
items in the current period's income statement.  SFAS No.
133 requires that formal documentation be maintained and
that the effectiveness of the hedge be assessed quarterly.
The Company expects to designate its derivative instruments
as fair value hedges.  The statement must be adopted no
later then the Company's fiscal year 2000.  The Company
does not expect the adoption of this standard to have a
material effect on its financial condition or results of
operations.

Large-Volume Gas Service Agreements.  Peoples Gas and North
Shore Gas have entered into gas service contracts with
certain large volume customers under specific rate
schedules approved by the Commission. These contracts were
negotiated to overcome the potential threat of bypassing
the utilities' distribution systems.  The impact on the net
income of Peoples Gas and North Shore Gas as a result of
these contracts is not material.

Small-Volume Transportation Service.  On June 25, 1997, the
Commission allowed Riders SVT and AGG to go into effect for
Peoples Gas, thus initiating a two-year pilot program
designed to provide transportation service to certain small-
volume industrial and commercial customers of the utility
as well as to some of its large residential customers.  The
Commission also ordered a concurrent investigation of the
program to ascertain if program adjustments or revisions
are required.  By order dated August 12, 1998, the
Commission found that, with the exception of one minor
modification agreed to by Peoples Gas, no revisions were
required.

Fixed Gas Charge Filing.  On October 26, 1998, Peoples Gas
and North Shore Gas made filings with the Commission under
which the price for natural gas would be set at a fixed
level for at least the next five years.  By eliminating the
monthly price fluctuations, Peoples Gas and North Shore Gas
could shield customers from price increases, although gas
bills would still reflect customers' increased usage during
colder weather.  As Peoples Gas and North Shore Gas would
assume and manage this risk, they would have an opportunity
to earn a profit on this initiative.  (See Item 1 -
Competition and Deregulation.)

Investment  in  Diversified  Energy  Businesses.   The
Company   has   a financial  goal  to  earn  25% of its
earnings  from  diversified  energy businesses by the end of
2002.

  In accordance with this goal, during 1998, Peoples Energy
Production entered into a commitment to invest up to $30 
million in a limited partnership formed by EnerVest Energy 
Partners to acquire, develop, manage, and optimize a portfolio 
of U.S. and Canadian oil and gas properties and invested an
additional $15 million to acquire a portfolio of oil and gas 
properties in the U.S.

   Peoples Energy Resources entered into a commitment with
Dominion Energy to develop and operate a jointly-owned 600
megawatt electric generating peaking facility.  The total
cost of the project is $206 million and the facility is
scheduled to be in operation by June 1999.

 In fiscal 1998, Peoples Energy Services expanded its gas
marketing customer base by buying the contract portfolios of various
marketers, achieving a significant number of customers in
gas utility pilot programs and improving direct sales
efforts.
<TABLE>
<CAPTION>

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

For fiscal years ended September 30,           1998                1997                1996
Net Operating Revenues (thousands):
  <S>                                      <C>                 <C>                 <C>     
  Utility Operating Revenues
    Sales Residential                      $ 780,188           $ 941,564           $ 883,100
          Commercial                         112,166             146,864             141,594
          Industrial                          20,947              28,969              32,075
                                             913,301           1,117,397           1,056,769

    Transportation
       Residential                            35,833              36,806              37,133
       Commercial                             47,557              47,655              51,251
       Industrial                             27,271              30,967              36,059
       Contract Pooling                        9,371              17,742               4,433
       Other                                     758                 400                   -
                                             120,790             133,570             128,876

    Other                                     15,734              15,265              13,032
  Diversified Energy Revenues                 88,232               7,457                   -
Total Operating Revenues                   1,138,057           1,273,689           1,198,677
Less- Gas Costs                              526,983             615,534             529,875
    - Revenue Taxes                          100,846             126,224             121,172
    - Other (a)                                7,917                   -                   -
Net Operating Revenues                     $ 502,311           $ 531,931           $ 547,630

Utility Gas Deliveries (MDth):
  Sales - Residential                        119,206             142,837             154,128
          Commercial                          19,501              24,994              27,390
          Industrial                           4,114               5,367               6,803
                                             142,821             173,198             188,321

  Transportation (b)
          Residential                         24,854              27,909              26,521
          Commercial                          39,798              40,480              42,461
          Industrial                          40,037              38,907              43,366
          Other                                    -                 234                   -
                                             104,689             107,530             112,348

  Total Utility Deliveries                   247,510             280,728             300,669

Diversified Energy Sales (MDth)               29,732                  60                   -



(a) See Management's Discussion and Analysis of Results of
Operations and Financial Condition - Net Operating
Revenues.
(b) Volumes associated with contract pooling service are
included in the respective customer classes.
</TABLE>

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 its 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 the utilities' 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 Company has lines of credit of $170.0
million.  At September 30, 1998, the Company had unused
credit available from banks of $169.3 million.  The utility
subsidiaries have lines of credit of $129.4 million.  At
September 30, 1998, the utility subsidiaries had unused
credit available from banks of $120.4 million.  (See Note
11 of the Notes to Consolidated Financial Statements.)

Cash Flow Activities.  Net cash provided by operating
activities decreased $8.0 million in fiscal 1998, primarily
due to changes in deferred assets and prepayments.  These
items were partially offset by changes in deferred credits
and net receivables.

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

   Net cash used in investing activities for 1998 and 1997
largely represents the level of capital expenditures and
investments for both utility and diversified energy
subsidiaries in the respective years.

   Both in fiscal 1998 and fiscal 1997, net cash used in
financing activities reflects dividends paid to common
stockholders and the issuance of new shares of common stock
through the direct purchase and investment plan.

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, 1998, such restrictions amounted to $11.6 million of
North Shore Gas' total retained earnings of $70.0 million.
(See Note 3 of the Notes to Consolidated Financial
Statements.)

Interest Coverage.  The fixed charges coverage ratios for
both Peoples Gas and North Shore Gas for fiscal 1998, 1997,
and 1996 are as follows:

                    1998    1997    1996
Peoples Gas         4.15    5.01    4.84
North Shore Gas     5.07    5.74    5.62


   The decrease in the ratios for both companies in 1998
reflects lower pre-tax income, primarily due to warmer
weather.  The increase in the ratio for fiscal year 1997
for each Company is due to lower interest expense on
amounts refundable to customers and on long-term debt.  The
ratio for fiscal year 1996 for each Company reflects the
redemption of long-term debt and higher pre-tax income
resulting from colder weather and the Commission-approved
rate increases.

Debt Ratings.  The Company was assigned corporate credit
ratings of A2 by Moody's Investors Service and A+ by
Standard & Poor's Corporation. The commercial paper ratings
are A-1 and P-1, respectively.

   The long-term debt of both utility subsidiaries is rated
Aa2 by Moody's Investors Service and AA- by Standard &
Poor's Corporation. Moody's upgraded its ratings from Aa3
in November 1997.  Standard & Poor's Corporation last
changed its ratings in 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 2A 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 in the District
Court for the Northern District of Illinois asking the
court to declare that North Shore Gas is not liable for
response costs relating to the site.  The defendant filed a
counterclaim for costs incurred by the defendant with
respect to the site.  In 1997, the District Court granted
North Shore Gas' motion for summary judgment, declaring
that North Shore Gas is not liable for any response costs
in connection with the Denver site.  On August 5, 1998, the
U.S. Court of Appeals, Seventh Circuit, reversed the
District Court's decision and remanded the case for
determination of what liability, if any, the former entity
has and therefore North Shore Gas has for activities at the
site.  (See Note 2B 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 of certain
provisions of the Illinois Environmental Protection Act
which prohibit water pollution within the State of
Illinois.  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.  (See Note 2C of
the Notes to Consolidated Financial Statements.)

Year  2000.   The  Company began its efforts to assess  the
Year  2000 compliance  of  its  mainframe computer systems
in  March  1996.   The Company  has  since developed a
comprehensive Year 2000 readiness  plan that  incorporates
all of its information technology systems, including
computer  hardware  and software, and its embedded  systems
equipment, including  telecommunications equipment.   The
plan  also  includes  a review  by the Company of the Year
2000 compliance efforts of  its  key suppliers  and
customers  and  Year 2000  contingency  planning.   The
Company-wide  Year  2000  effort includes the  Company's
wholly  owned subsidiaries, as well as various joint
ventures.

   For all internal information technology systems
developed by the Company, Year 2000 compliance efforts
proceed through the following phases: inventory,
assessment, remediation, testing, and implementation.
Rather than completing each phase for all systems prior to
proceeding to the next phase, the Company progresses
through all phases on a system-by-system basis, gradually
implementing each fully-compliant system.

   The Year 2000 compliance phases utilize a combination of
consultants and employees of the Company's subsidiaries.
Once a fully-tested application has been implemented,
Company employees follow established procedures to maintain
the compliance of the implemented systems.  The Company
also has retained a quality assurance expert to ensure that
any subsequent modifications to the application do not
impact its compliant status.

   As of September 30, 1998, 18 of the Company's 37
mainframe applications have been fully remediated, tested
and implemented, two are in the testing phase, and nine
have been (or are in the process of being) eliminated.  The
eight remaining mainframe applications are scheduled to be
replaced by the Company's new mainframe customer
information system and are not expected to be remediated.
Additionally, 36 mainframe system modules have been
remediated and are now in the testing phase.  Many of the
Company's nonmainframe applications, spreadsheets and
interfaces have also reached the implementation stage; 
and most others are in the remediation phase. The Company 
expects to implement all critical internal systems (other 
than the customer information system to be used by Peoples 
Gas and North Shore Gas) by no later than March 31, 1999; 
complete implementation of all non-critical internal systems 
by April 30, 1999; and complete installation and testing of
the customer information system by the end of fiscal year
1999.

   As part of its Year 2000 Project, the Company has also
contacted the vendors of its licensed or purchased hardware
and software to determine the Year 2000 compliance status
of their products.  As of September 30, 1998, the Company
has received responses from 85% of the vendors and is in
the process of replacing, upgrading or eliminating non-
compliant vendor products as appropriate.  The Company also
plans to have certain products, such as its desktop
computer inventory, compliant-tested in order to minimize
the risks associated with reliance on vendor
representations.

 The Company is in the process of determining whether its
embedded systems equipment is Year 2000 compliant.  It has 
completed an inventory of all equipment containing embedded 
systems, including telecommunications equipment and facilities.  
The Company has also contracted with a consultant that has
significant utility and engineering expertise to assist
with the embedded systems efforts.  The Company is
currently in the process of determining the Year 2000
compliance status of the inventory and expects to complete
this assessment by January 1999.  During the assessment
phase, the Company will also begin testing, repairing or
replacing any critical equipment identified as not Year
2000 compliant.  The Company's timetable for implementing
compliant equipment will depend on the availability of
compliant equipment.

   The Company currently has a written conceptual
contingency plan to address risks to the Company created by
the Company's or third parties' systems and embedded
technology that are not Year 2000 compliant.  It has
engaged the consultant referenced above to assist in
developing detailed and comprehensive business continuity
and contingency plans to address possible failures in the
area of embedded systems equipment. These plans are
scheduled to be completed by December 1998.  The Company
also plans to further develop its contingency plans with
respect to information technology-related failures and
critical supplier failures.

   The Company has contacted key suppliers to determine
their Year 2000 compliance efforts.  It has received
written assurances from many key suppliers that they are
making the necessary Year 2000 efforts, and it is in the
process of following up with other key suppliers that did
not respond to written inquiries.

   Essential elements of the Company's business are
dependent on certain key third parties (for example,
pipeline suppliers, banks, electric utilities and
telecommunication companies).  A material failure by any
such key third party could significantly disrupt the
Company's business.  The Company is in the process of
detailing and finalizing contingency plans to address
potential disruptions that may be caused by third parties.

   The Company currently estimates that it will incur
expenses of approximately $1.6 million through fiscal year
1999 to complete its Year 2000 compliance efforts, in
addition to the $4.0 million already incurred through
September 30, 1998.  This estimate does not include costs
to repair or replace critical embedded systems equipment
that is non-compliant, which has yet to be determined.
Management does not expect the cost of the Company's Year
2000 compliance efforts to have a material adverse impact
on the financial position or results of operations of the
Company.

Market Risk Management.  The Company uses market risk
sensitive financial instruments, including futures, forward
contracts, and derivatives such as swaps and options, to
manage its exposure to certain commodity price risks in its
operations.  These risks occur because of the changing
prices of natural gas, crude oil, ethane, and propane.  The
Company's policy for risk management activities stipulates
that such financial instruments are only to be used for
hedging purposes.  (See Note 1N of the Notes to
Consolidated Financial Statements.)  The Company monitors
and controls derivative positions using a mark-to-market
analysis.  A sensitivity analysis has been prepared to
estimate the Company's price exposure to the market risk of
its natural gas commodity financial instruments.  As of
September 30, 1998, a 10% adverse movement in current
prices would have reduced future earnings before income
taxes by approximately $240,000.

   The Company's utility subsidiaries are not currently
exposed to market risk caused by changes in commodity
prices.  This is due to current Illinois rate regulation
which allows for all reasonably incurred costs of natural
gas to be recovered from the utilities' customers through
the operation of the utilities' Gas Charges.  (See Item 1 -
Competition and Deregulation and Note 1L of the Notes to
Consolidated Financial Statements.)

   In connection with the Company's diversified energy
subsidiaries, investments are subject to a thorough
analysis of related market risk and an acceptable plan for
each investment is formulated to manage this risk.  After a
risk management program for the investment is approved,
both operating unit and senior Company management are kept
apprised of any remaining market risk through daily mark-to-
market reports.

   During fiscal year 1998, Peoples Energy Production
acquired natural gas and crude oil producing properties.
Using swaps and futures, over 50% of the first two years'
production was hedged, thereby removing market risk on that
portion of the output.  Price movements in natural gas and
crude oil swaps and futures are highly correlated to any
price changes in the underlying physical commodities.
Therefore, a loss in the market value of the hedged
commodity would be substantially offset by an equal gain in
value resulting from the financial transaction.  As of
September 30, 1998, the exposure from non-hedged production
was immaterial to the consolidated financial statements.

   Peoples Energy Resources and Peoples Energy Services
sell fixed price and capped price products.  Both companies
reduce risk through the use of fixed price supplier
contracts and storage assets.  As of September 30, 1998,
exposure from these activities was not material.

   The Company is also exposed to credit risk when a
hedging transaction counter party or supplier defaults upon
a contract to pay for or deliver product at an agreed-upon
price.  To mitigate this risk, the Company has established
procedures to determine and monitor the creditworthiness of
counter parties.

   Transactions are executed only with counter parties
having strong credit ratings.  Controls are also in place
to limit dollar exposure and transaction term based upon
creditworthiness.  The Company does not expect any of the
counter parties to fail to meet their contractual
obligations with these controls in place.

 The Company's utility subsidiaries utilize long-term debt
as a primary source of capital.  Both variable and fixed rate
debt instruments are utilized.  The variable interest rate
on the debt adjusts to reflect current market conditions
annually on December 1. Subject to certain restrictions on
optional redemptions, the fixed rate debt instruments can
be refinanced at lower interest rates if the Company deems
it to be economical.  (See Note 12 of the Notes to
Consolidated Financial Statements.)


CAPITAL RESOURCES

Capital Spending.  Capital expenditures and investments in
diversified energy businesses (capital spending) totaled
$142.7 million in 1998, $95.7 million in 1997, and $88.4
million in 1996.

   Capital spending for fiscal 1998 increased $47.0 million
from fiscal 1997.  The change is primarily attributable to
$38.0 million in investments in diversified energy
projects, primarily consisting of $15.5 million for an
electric generating peaking facility and $16.0 million for
oil and gas producing properties.  Another $10.0 million
increase was attributable to Peoples Gas' new customer
information system.

  In fiscal 1997, capital spending increased $7.3 million
from 1996, resulting from an increase of $12.6 million for the new
customer information system.

   Capital spending for fiscal 1999 is expected to be about
$199.0 million, an increase of $56.3 million from the 1998
level.  The estimate of expenditures for 1999 includes
$18.7 million for the new customer information system,
$15.3 million for Peoples Gas' remote automated meter
reading project, and $84.9 million for diversified energy
projects.

   Pursuant to notice given to the trustee of the City of
Joliet 1984 Series C Bonds, due October 1, 1999, which were
secured by Peoples Gas' Adjustable-Rate First and Refunding
Mortgage Bonds, Series W, these bonds were redeemed on
October 1, 1998.  There are no sinking fund requirements
for long-term debt due in fiscal 1999.  (See Notes 12A and
12B of the Notes to Consolidated Financial Statements.)

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

   The capital needs of the Company's diversified energy
subsidiaries have been met with periodic equity infusions.

   The Company intends to increase its commitments to
diversified energy businesses.  Capital needs for future
investments will be met through additional equity
investments by the Company, through loans from the Company
to its diversified energy subsidiaries and through project
financing.  To fund such potential investments, the Company
has established a $150 million commercial paper program.

Forward-Looking Information.  The MD&A contains statements
that may be considered forward-looking, such as the
statement of the Company's financial goal regarding
diversified energy earnings, the effect of weather on net
income, cash position and coverage ratios, the
insignificant effect on income arising from changes in
revenue from customers' gas purchases from entities other
than the utility subsidiaries, environmental matters, and
the discussion concerning Year 2000 compliant systems.
These statements speak of the Company's plans, goals,
beliefs, or expectations, refer to estimates or use similar
terms.  Actual results could differ materially, because the
realization of those results is subject to many
uncertainties including:

"    The future health of the U.S. and Illinois economies.

"     The  timing and extent of changes in energy commodity
      prices and interest rates.

"     Litigation  concerning  North Shore  Gas'  liability
      for  CERCLA response costs relating to a former mineral 
      processing site in Denver, Colorado.
  
"     Regulatory  developments in the U.S., or in  Illinois
      and other states where the Company has investments.

"     Changes in the nature of the Company's competition
      resulting from industry consolidation, legislative 
      change, regulatory change and other factors, as well 
      as action taken by particular competitors.
  
"     The   Company's   success  in  identifying
      diversified energy opportunities on financially 
      acceptable terms and generating earnings from 
      investments in a reasonable time.
  
"     The  ability of various vendors and others with whom
      the Company interacts to complete Year 2000 systems 
      modification efforts on a timely basis and in a manner 
      that allows them to continue normal business transactions 
      with the Company without disruption.
  
 Some of these uncertainties that may affect future results are
discussed in more detail under the captions "Competition and
Deregulation," "Sales and Rates," "State Legislation and
Regulation," "Federal Legislation and Regulation,"
"Environmental Matters," and "Current Gas Supply" in Item 1 -
Business.  All forward-looking statements included in this
MD&A are based upon information presently available, and the
Company assumes no obligation to update any forwardlooking
statements.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK

Quantitative and Qualitative Disclosures About Market risk
are reported under "Management's Discussion and Analysis of
Results of Operations and Financial Condition - Market Risk 
Management," and Note 1N of the Notes to Consolidated Financial
Statements.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
                                                           Page
Statement of Management's Responsibility                   24

Report of Independent Public Accountants                   25

Consolidated Statements of Income for fiscal years ended
  September 30, 1998, 1997, and 1996                       26

Consolidated Statements of Retained Earnings for
fiscal
  years ended September 30, 1998, 1997, and 1996           26

Consolidated Balance Sheets at September 30, 1998
and 1997                                                   27

Consolidated Capitalization Statements at
  September 30, 1998 and 1997                              28
  
Consolidated Statements of Cash Flows for fiscal
  years ended September 30, 1998, 1997, and 1996           29
  
Notes to Consolidated Financial Statements                 30


STATEMENT OF MANAGEMENT'S RESPONSIBILITY

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

   The Company maintains internal accounting systems and
related administrative controls, along with internal audit
programs, that are designed to provide reasonable assurance
that the accounting records are accurate and assets are
safeguarded from loss or unauthorized use. Consequently,
management believes that the accounting records and
controls are adequate to produce reliable financial
statements.
 
  Arthur Andersen LLP, the Company's independent public
accountants approved by the shareholders, as a part of its
audit of the financial statements, selectively reviews and
tests certain aspects of internal accounting controls
solely to determine the nature, timing, and extent of its
audit tests.  Management has made available to Arthur
Andersen LLP all of the Company's financial records and
related data and believes that all representations made to
the independent public accountants during its audit were
valid and appropriate.
 
  The Audit Committee of the Board of Directors, comprised
of five outside directors, meets periodically with
management, the internal auditors, and Arthur Andersen LLP,
jointly and separately, to ensure that appropriate
responsibilities are discharged.  These meetings include
discussion and review of accounting principles and
practices, internal accounting controls, audit results, and
the presentation of financial information in the annual
report.


REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Shareholders of Peoples Energy Corporation:
   We have audited the accompanying consolidated balance
sheets and consolidated capitalization statements of
Peoples Energy Corporation (an Illinois corporation) and
subsidiary companies at September 30, 1998 and 1997, and the 
related consolidated statements of income, retained earnings, 
and cash flows for each of the three years in the period ended 
September 30, 1998.  These financial statements and the schedule 
referred to below are the responsibility of the Company's
management.  Our responsibility is to express an opinion on
these financial statements based on our audits.

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

In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial 
position of Peoples Energy Corporation and subsidiary 
companies at September 30, 1998 and 1997, and the results of 
their operations and their cash flows for each of the three 
years in the period ended September 30, 1998, in conformity 
with generally accepted accounting principles.

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






                                        /s/ Arthur Andersen LLP
                                        ARTHUR ANDERSEN LLP



Chicago, Illinois
October 30, 1998
<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF INCOME
                                                                                    Peoples Energy Corporation
For fiscal years ended September 30,                                                     1998            1997             1996
<S>                                                                                  <C>            <C>              <C>       
                                                                          (Thousands, except per-share amounts)
Operating Revenues:
Gas sales                                                                            $ 999,066      $1,124,831       $1,056,769
Transportation                                                                         120,790         133,570          128,876
Other                                                                                   18,201          15,288           13,032
Total Operating Revenues                                                             1,138,057       1,273,689        1,198,677
Operating Expenses:
Gas costs                                                                              526,983         615,534          529,875
Operation                                                                              201,301         200,796          220,318
Maintenance                                                                             44,027          47,626           45,642
Depreciation, depletion, and amortization (see Note 1G)                                 77,195          74,074           70,635
Taxes- Income                                                                           44,644          54,595           56,620
     - State and local revenue                                                         100,846         126,224          121,172
     - Other                                                                            29,252          21,297           22,001
Total Operating Expenses                                                             1,024,248       1,140,146        1,066,263
Operating Income                                                                       113,809         133,543          132,414
Other Income and (Deductions):
Interest income                                                                          3,724           5,410            5,397
Allowance for funds used during construction                                             1,579             267               23
Interest on long-term debt of subsidiaries                                             (35,757)        (35,722)         (37,826)
Other interest expense                                                                  (3,435)         (2,753)          (5,114)
Income taxes                                                                              (480)         (1,840)          (5,839)
Miscellaneous - net (see Note 9)                                                           (17)           (501)          14,383
Total Other Income and Deductions                                                      (34,386)        (35,139)         (28,976)
Net Income                                                                           $  79,423      $   98,404       $  103,438
Earnings Per Share of Common Stock - Basic and Diluted (see Note 5)                  $    2.25      $     2.81       $     2.96
Average Shares of Common Stock Outstanding                                              35,257          35,000           34,942

</TABLE>
<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
                                                                                    Peoples Energy Corporation
For fiscal years ended September 30,                                                     1998            1997             1996
                                                                                     (Thousands)
<S>                                                                                  <C>            <C>              <C>
Balance at Beginning of Year                                                         $ 434,652      $  403,304       $  364,581
      Add - Net Income                                                                  79,423          98,404          103,438
      Deduct - Dividends declared on common stock of $1.91
         $1.87, and $1.83 per share, respectively                                       67,373          65,460           63,954
   Increase/(decrease) - Additional minimum liability for non-qualified
      pension plan, net of tax                                                             968          (1,596)            (761)
Balance at End of Year                                                               $ 447,670      $  434,652       $  403,304


 The Notes to Consolidated Financial Statements are an integral part of these
statements.
</TABLE>

<TABLE>
<CAPTION>

CONSOLIDATED BALANCE SHEETS

                                                                                            Peoples Energy Corporation
At September 30,                                                                                 1998               1997
                                                                                             (Thousands)
Assets
Capital Investments:
<S>                                                                                         <C>                <C>
Property, plant and equipment, at original cost                                             $2,209,957         $2,117,509
Less - Accumulated depreciation                                                                763,296            715,279
Net property, plant and equipment                                                            1,446,661          1,402,230
Other investments                                                                               43,707             16,305
Total Capital Investments - Net                                                              1,490,368          1,418,535

Current Assets:
Cash and cash equivalents                                                                       10,622             33,298
Temporary cash investments                                                                       4,393             15,900
Special deposit                                                                                  1,443                  -
Receivables -
   Customers, net of allowance for uncollectible
       accounts of $23,395 and $29,895, respectively                                            54,091             72,290
   Other                                                                                        27,662             39,182
Accrued unbilled revenues                                                                       23,477             22,742
Materials and supplies, at average cost                                                         18,246             19,386
Gas in storage (see Note 1J)                                                                    90,790             77,843
Gas costs recoverable through rate adjustments                                                   4,462              5,164
Regulatory assets of subsidiaries (see Note 1H)                                                  7,858             15,460
Prepayments                                                                                     71,114             42,902
Total Current Assets                                                                           314,158            344,167
Other Assets:
Non-current regulatory assets of subsidiaries (see Note 1H)                                     76,564             38,676
Deferred charges                                                                                23,410             19,427
Total Other Assets                                                                              99,974             58,103
Total Assets                                                                                $1,904,500         $1,820,805


Capitalization and Liabilities
Capitalization (see Consolidated Capitalization Statements)                                 $1,257,965         $1,243,503
Current Liabilities:
Interim loans of subsidiaries                                                                    8,900              2,810
Accounts payable                                                                               123,383            134,870
Dividends payable on common stock                                                               16,977             16,479
Customer gas service and credit deposits                                                        48,942             45,386
Sinking fund payments, maturities, and redemptions, due within one year -
   Long-term debt of subsidiaries                                                               10,400                  -
Accrued taxes                                                                                   24,983             20,645
Gas sales revenue refundable through rate adjustments                                           11,028             14,894
Accrued interest                                                                                10,821             10,800
Total Current Liabilities                                                                      255,434            245,884
Deferred Credits and Other Liabilities:
Deferred income taxes - primarily accelerated depreciation (see Note 7C)                       270,730            249,178
Investment tax credits being amortized over
   the average lives of related property                                                        32,387             33,942
Other                                                                                           87,984             48,298
Total Deferred Credits and Other Liabilities                                                   391,101            331,418
Total Capitalization and Liabilities                                                        $1,904,500         $1,820,805

The Notes to Consolidated Financial Statements are an integral part of
these statements.
</TABLE>

<TABLE>
<CAPTION>
   
CONSOLIDATED CAPITALIZATION STATEMENTS


At September 30,                                                                           1998                  1997

                                                                                          (Thousands)
<S>                                                                                   <C>                   <C>
Common Stockholders' Equity:
Common stock, without par value -
   Authorized 60,000,000 shares
   Outstanding 35,401,992 and 35,069,517 shares, respectively                         $  293,691            $  281,847
Retained earnings (see Consolidated Statements
   of Retained Earnings)                                                                 447,670               434,652
Total Common Stockholders' Equity                                                        741,361               716,499

Long-Term Debt:
Exclusive of sinking fund payments and maturities
   due within one year
The Peoples Gas Light and Coke Company
   First and Refunding Mortgage Bonds -
      Adjustable-Rate Series W (3.875% through
         September 30, 1998 and 3.95% through
         September 30, 1997), redeemed October 1, 1998 (see Note 12A)                          -                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 (3.90% and 3.70% through
         November 30, 1998 and November 30, 1997, respectively),
         due December 1, 2023 (see Note 12A)                                              27,000                27,000
      6.10% Series FF, due June 1, 2025                                                   50,000                50,000
North Shore Gas Company
   First Mortgage Bonds -
      8% Series J, due November 1, 2020                                                   24,699                24,699
      6-3/8% Series K, due October 1, 2022                                                24,905                24,905
      6.37% Series L, due May 1, 2003                                                     15,000                15,000
Total Long-Term Debt                                                                     516,604               527,004
Total Capitalization                                                                  $1,257,965            $1,243,503

The Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>

<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF CASH FLOWS


For fiscal years ended September 30,                                      1998          1997           1996
                                                                       (Thousands)
Operating Activities:
<S>                                                                    <C>           <C>            <C>
Net Income                                                             $ 79,423      $ 98,404       $103,438
Adjustments to reconcile net income to net cash:
  Depreciation, depletion, and amortization                              77,195        74,074         70,635
  Deferred income taxes and investment tax credits - net                 24,094        16,449         13,669
  Change in deferred credits and other liabilities                       35,589         6,076         20,324
  Change in deferred charges                                            (47,484)        1,430        (27,131)
  Other                                                                       -             -             85
  Change in current assets and liabilities:
    Receivables - net                                                    29,719       (10,398)       (41,766)
    Accrued unbilled revenues                                              (735)        6,572         (8,147)
    Materials and supplies                                                1,140        (3,258)           338
    Gas in storage                                                      (12,947)      (12,340)        35,044
    Gas costs recoverable                                                   702        14,756        (13,715)
    Regulatory assets                                                     7,601        26,820        (29,722)
    Prepayments                                                         (28,212)      (30,615)        (9,985)
    Accounts payable                                                    (11,487)      (13,102)        45,595
    Customer gas service and credit deposits                              3,556         2,996          1,813
    Accrued taxes                                                         4,338       (12,177)         4,661
    Gas sales revenue refundable                                         (3,866)          973        (65,581)
    Accrued interest                                                         21             4         (2,001)
Net Cash Provided by Operating Activities                               158,647       166,664         97,554

Investing Activities:
Capital expenditures of subsidiaries                                   (116,192)      (89,404)       (85,620)
Other assets                                                                225           584         11,887
Capital investments                                                     (26,479)       (6,344)        (2,827)
Special deposit                                                          (1,443)            -              -
Other temporary cash investments                                         11,507       (15,000)           200
Net Cash Used in Investing Activities                                  (132,382)     (110,164)       (76,360)

Financing Activities:
Interim loans of subsidiaries - net                                       6,090           185          1,725
Trust fubond redemption                                                       -             -            237
Retirement of long-term debt of subsidiaries                                  -           (60)       (98,810)
Dividends paid on common stock                                          (66,875)      (65,063)       (63,583)
Proceeds from issuance of common stock                                   11,844         3,966            768
Net Cash Used in Financing Activities                                   (48,941)      (60,972)      (159,663)

Net Increase (Decrease) in Cash and Cash Equivalents                    (22,676)       (4,472)      (138,469)
Cash and Cash Equivalents at Beginning of Year                           33,298        37,770        176,239
Cash and Cash Equivalents at End of Year                               $ 10,622      $ 33,298       $ 37,770

The Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>

                                

                      Peoples Energy Corporation


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1A     Principles of Consolidation

  All subsidiaries are included in the consolidated financial
statements.  All significant intercompany transactions have been
eliminated in consolidation.  Investments and partnerships for which
the Company's subsidiaries have at least a 20% interest, but less than
a majority ownership are accounted for under the equity method.
Certain items previously reported for years prior to 1998 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 833,000
customers within the City of Chicago.  North Shore Gas provides
natural gas service to about 143,000 customers within approximately
275 square miles in northeastern Illinois.  Peoples Energy Services,
the Company's retail gas marketing subsidiary, sells natural gas to
approximately 20,000 customers in northern Illinois.  Credit risk for
each Company is spread over a diversified base of residential,
commercial, and industrial 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 and transportation revenues are recorded on the accrual
basis for all gas delivered during the month, including an estimate
for gas delivered but unbilled at the end of each month.

1E     Property, Plant and Equipment

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

1F     Accounts Payable

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

1G     Depreciation, Depletion and Amortization

  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.

  In the case of oil and gas producing properties, the Company is
amortizing the capitalized costs on an overall units-of-production
method based on total estimated proved oil and gas reserves.  The
fiscal 1998 rate of depletion was $1.23 per equivalent Mcf unit of
production.

  Other diversified energy depreciable property is amortized over its
estimated useful lives; gains and losses are recognized at the time of
sale or disposition.

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

For fiscal years ended     1998     1997     1996
September 30,
                                             
Peoples Gas                 3.7%     3.7%     3.6%
North Shore Gas             3.1      3.1      3.1
Diversified Energy          9.5      6.2       --
Consolidated                3.6      3.6      3.5

1H Regulated Operations

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

   The following regulatory assets of subsidiaries were reflected in
Current Assets and Other Assets in the Consolidated Balance Sheets at
September 30, 1998 and 1997:

                                                            1998          1997
                                                               (Thousands)

Environmental costs, net of recoveries (see Note 2A)      $60,675       $17,720
Transition costs from pipeline supplier                         -         8,343
Income tax (see Note 1I)                                    9,131         7,146
Discount, premium, expenses, and loss on reacquired bonds   2,660         3,022
SNG plant                                                  11,929        17,543
Other                                                          27           362
Total regulatory assets of subsidiaries                   $84,422       $54,136


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 7C.)

   Each utility subsidiary within the consolidated group nets its
income tax-related regulatory assets and liabilities.  At September
30, 1998 and 1997, net regulatory income tax assets recorded in Other
Assets amounted to $9.1 million and $7.1 million, respectively, while
net regulatory income tax liabilities recorded in Other Liabilities
equaled $5.0 million and $5.2 million, respectively.

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

1J Gas in Storage

   Storage injections are priced at the fiscal-year average of costs
of supply.  Withdrawals from storage for the utilities are priced on
the last-in, first-out (LIFO) cost method.  The estimated current
replacement cost of gas in inventory at September 30, 1998 and 1997
exceeded the LIFO cost by approximately $99.0 million and $112.0
million, respectively.  Certain diversified energy subsidiaries
account for gas in inventory using the first-in, first-out (FIFO)
method.  The volumes of gas and the associated costs involved are not
material.

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      1998      1997      1996
September 30,
                                  (Thousands)  
                                              
Income taxes paid         $19,832    $55,037    $44,187
Interest paid              36,306     36,906     41,386

1L Recovery of Gas Costs

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

   For each gas utility, the Commission conducts annual proceedings
regarding the reconciliation of revenues from the Gas Charge and
related costs incurred for gas.  In such proceedings, costs recovered
by a utility through the Gas Charge are subject to challenge.  Such
proceedings, regarding Peoples Gas and North Shore Gas for fiscal
years 1997 and 1998, are currently pending before the Commission.
(See Item 1 - Competition and Deregulation.)

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

   Peoples Gas and North Shore Gas are recovering the costs of
environmental activities relating to the utilities' former
manufactured gas operations, including carrying charges on the
unrecovered balances, under rate mechanisms approved by the
Commission.  For each utility with such a rate mechanism, the
Commission conducts annual proceedings regarding the reconciliation of
revenues from the rate mechanism and related costs.  In such
proceedings, costs recovered by a utility through the rate mechanism
are subject to challenge.  No such proceedings are currently pending
before the Commission.

1N Hedging Activities

   The Company has a formal risk management policy that monitors and
controls the execution, recording and reporting of derivative
instruments.  The intent of the policy is to utilize risk management
activities solely to minimize risk, and not for any speculative
purpose.  The Company may use interest rate swaps, forward rate
transactions, commodity futures contracts, options and swaps to hedge
the impact of interest rate, price and/or volume fluctuations related
to its business activities, including price risk related to the
geographic location of the commodity (basis risk).

   The Company accounts for all derivative transactions through hedge
accounting.  All derivatives are designated as fair value hedges.
Realized gains or losses from derivative instruments (through maturity
or termination of the hedge) are deferred until the underlying hedged
item is sold or matures.  If the Company determines that any portion
of the underlying hedged item will not be purchased or sold, the
unmatched portion of the instrument is marked to market and any gain
or loss is recognized in the Consolidated Statement of Income.
Recognized gains or losses are recorded on the Consolidated Statement
of Income with the underlying hedged item.  As of September 30, 1998,
the Company had open derivative financial instruments representing
hedges of natural gas production of 1.0 Bcf.  At September 30, 1998,
the Company had deferred gains of $13,000 on the Consolidated Balance
Sheet.

1O Oil and Gas Exploration and Production Properties

   For oil and gas activities, the Company follows the full-cost
method of accounting as prescribed by the Securities and Exchange
Commission.  Under the full-cost method, all costs directly associated
with acquisition, exploration and development activities are
capitalized, with the principal limitation that such amounts not
exceed the present value of estimated future net revenues to be
derived from the production of proved oil and gas reserves (the full-
cost ceiling).  If net capitalized costs exceed the full-cost ceiling
at the end of any quarter, a permanent impairment of the assets is
required to be charged to earnings in that quarter.  Such a charge
would have no effect on the Company's cash flow.  At September 30,
1998, there was no such charge to income.

1P Accounting Standards

   The Company adopted SFAS No. 128, "Earnings per Share" in fiscal
1998.  This statement simplifies the calculation of earnings per share
(EPS) and increases conformity to international standards.  Under SFAS
No. 128, primary EPS is replaced by "basic" EPS, which excludes the
effects of any dilution.  It is calculated by dividing net income
available to common shareholders by the weighted-average number of
common shares outstanding for the period.  "Diluted" EPS reflects the
potential dilution that could occur if securities or other contracts
to issue common stock were exercised or converted into common stock.
Previous periods have been restated to reflect adoption of this
standard.  (See Note 5.)

   The Company also adopted SOP 96-1,  "Environmental Remediation
Liabilities" and SOP 98-5, "Reporting on the Costs of Start-Up
Activities."  The application of the statements did not have a
material effect on the Company's financial condition or results of
operations in fiscal 1998.


2.  ENVIRONMENTAL MATTERS

2A 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 an additional 31 Manufactured Gas Sites.
These investigations may require the utility subsidiaries to perform
additional investigation and remediation.  The investigations are in a
preliminary stage and are expected to occur over an extended period of
time.

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

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

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

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

   The utility subsidiaries are accruing and deferring the costs they
incur in connection with all of the Manufactured Gas Sites, including
related legal expenses, pending recovery through rates or from
insurance carriers or other entities.  At September 30, 1998, the
total of the costs deferred by the subsidiaries, net of recoveries and
amounts billed to other entities, was $60.7 million.  This amount
includes the Company's best estimate of the costs of investigating and
remediating the Manufactured Gas Sites.  The estimate is based upon a
comprehensive review by the Company and its outside consultants of
potential costs associated with conducting investigative and remedial
actions at the Manufactured Gas Sites as well as the likelihood of
whether such actions will be necessary.  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, among other things, that the insurers are liable
under policies in effect between 1937 and 1986 for costs incurred or
to be incurred by the utilities in connection with five of their
Manufactured Gas Sites in Chicago and Waukegan.  The utilities are
also asking the court to award damages stemming from the insurers'
breach of their contractual obligation to defend and indemnify the
utilities against these costs.  At this time, management cannot
determine the timing and extent of the subsidiaries' recovery of costs
from their insurance carriers.  Accordingly, the costs deferred at
September 30, 1998 have not been reduced to reflect recoveries from
insurance carriers.

   The Company believes that the costs incurred by Peoples Gas and by
North Shore Gas for environmental activities relating to former
manufactured gas operations are recoverable from insurance carriers or
other entities or through rates for utility service.  Accordingly,
management believes that the costs incurred by the subsidiaries in
connection with former manufactured gas operations will not have a
material adverse effect on the financial position or results of
operations of the utilities.  Peoples Gas and North Shore Gas are
recovering the costs of environmental activities relating to the
utilities' former manufactured gas operations, including carrying
charges on the unrecovered balances, under rate mechanisms approved by
the Commission.  At September 30, 1998, the subsidiaries had recovered
$13.8 million of such costs through rates.

2B 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 to
the liability of a former entity that was allegedly responsible during
the period 1934-1941 for the disposal of mineral processing wastes
containing radium and other hazardous substances at the site.  The
cost of the remedy at the site has been estimated by Shattuck to be
approximately $31 million.  Salomon has provided financial assurance
for the performance of the remediation at the site.

   North Shore Gas filed a declaratory judgment action against Salomon
in the District Court for the Northern District of Illinois.  The suit
asks the court to declare that North Shore Gas is not liable for
response costs at the Denver site.  Salomon filed a counterclaim for
costs incurred by Salomon and Shattuck with respect to the site.  In
1997, the District Court granted North Shore Gas' motion for summary
judgment, declaring that North Shore Gas is not liable for any
response costs in connection with the Denver site.

   On August 5, 1998, the U.S. Court of Appeals, Seventh Circuit,
reversed the District Court's decision and remanded the case for
determination of what liability, if any, the former entity has and
therefore North Shore Gas has for activities 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.

2C 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.  The
Company believes that a substantial portion of any costs incurred by
North Shore Gas in connection with this matter are recoverable from
its insurance carrier.  Accordingly, management does not believe the
outcome of this matter will have a material adverse effect on
financial position or results of operations of the Company or North
Shore Gas.


3.  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, 1998, such restrictions amounted to $11.6 million of
North Shore Gas' total retained earnings of $70.0 million.

4.  LONG-TERM LEASE

   Peoples Gas has entered into a long-term operating lease for its
headquarters office which expires in 2008.  The rental obligation
consists of a base rent of $2.3 million plus operating expenses and
taxes.  The base rent escalates two percent each year through 2003.
Base rent in 2004 will be approximately $3.6 million with annual 
increases of two percent each year through 2008.

   Rental expenses for the headquarters office were $6.5 million, $6.4
million, and $6.5 million for fiscal years 1998, 1997, and 1996,
respectively.


5.  EARNINGS PER SHARE

   In fiscal 1998 the Company adopted SFAS No. 128, "Earnings Per
Share." The statement simplifies the methodology for computing both
basic and diluted earnings per share.  The only difference in the two
methods for computing the Company's per share amounts is attributable
to stock options outstanding under the Long-Term Incentive
Compensation Plan (LTIC).  The effect of the stock options was
determined using the treasury stock method.  Consolidated net income
as reported was not affected.  Shares used to compute diluted earnings
per share are as follows:
                                   
        
                          Average Common Stock Shares
Fiscal Years                1998       1997       1996
                          (Thousands)

As reported shares         35,257     35,000     34,942
Effects of options             19         26         25
Diluted shares             35,276     35,026     34,967

   Options for which the average stock price is lower than the grant
price are considered antidilutive and, therefore, are not included in
the calculation of diluted earnings per share.

              
6.  RETIREMENT AND POSTEMPLOYMENT BENEFITS

6A 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.  Participating companies make contributions to 
the plans based upon actuarial determinations and in 
consideration of tax regulations and funding requirements 
under federal law.

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

  Net pension cost for all plans for fiscal 1998, 1997, and
1996 included the following components:


                                             1998        1997       1996
                                                  (Millions)

Service cost - benefits earned during year   $ 11.1      $ 11.7      $13.7
Interest cost on projected benefit obligation  27.8        29.4       32.6
Actual return on plan assets (gain)          (111.4)     (110.0)     (68.8)
Net amortization and deferral                  61.5        60.2       22.1
Settlement accounting                         (17.7)      (18.0)      (7.7)
Net pension cost (credit)                    $(28.7)     $(26.7)     $(8.1)



In 1998, 1997, and 1996, the Company recognized net gains of
$17.7 million, $18.0 million, and $7.7 million, respectively, 
from the settlement of portions of pension plan obligations.

     In 1998 a special benefit cost of $1.2 million was
recognized to reflect the cost of an accelerated pension 
payout to certain former employees.

   The calculation of pension cost assumed a long-term rate
of return on assets of 9.0 percent for 1998 and 1997, and
8.5 percent for 1996. The settlement accounting cost for all
years was determined using a discount rate of 7.5 percent
and assumed future compensation increases of 4.5 percent per
year.

The following table shows the estimated funded status of the
Company's pension plans at September 30, 1998 and 1997:


                                                                1998       1997
                                                                  (Millions)

Plan assets at market value                                    $673.2   $579.0
Actuarial present value of plan benefits:
  Vested                                                        284.5    265.1
  Non-vested                                                     43.0     33.6
Accumulated benefit obligation                                  327.5    298.7
Effect of projected future compensation increases                94.5     81.8
Projected benefit obligation                                    422.0    380.5
Excess of plan assets over projected benefit obligation         251.2    198.5
Less:
  Unrecognized transition asset                                  14.7     18.7
  Unrecognized prior service cost                                (5.3)    (5.8)
  Unrecognized net gain                                         176.5    150.8
Non-qualified plan contributions: 7-1-98 to 9-30-98               0.3      1.5
Recognition of non-qualified plan additional minimum liability   (2.9)    (4.6)
Accrued pension asset                                          $ 62.7   $ 31.7


   The projected benefit obligation and plan assets at
September 30, 1998 and 1997, are based on a July 1
measurement date, using a discount rate of 7.0 percent for
1998 and 7.5 percent for 1997 and assumed future
compensation increases of 4.5 percent per year.  Plan assets
consist primarily of marketable equity and fixed-income
securities.

6B 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
1998, 1997, and 1996 included the following components:


                                             1998    1997    1996
                                                (Millions)

Service cost - benefits earned during year   $ 3.5   $ 3.2   $ 3.4
Interest cost on projected benefit obligation  8.6     8.6     7.8
Actual return on plan assets (gain)           (9.5)   (6.7)   (3.1)
Amortization of transition obligation          4.9     4.9     4.9
Net amortization and deferral                  4.8     3.4     1.2
Net postretirement benefit cost              $12.3   $13.4   $14.2



  The calculation of postretirement benefit cost assumed a
long-term rate of return on assets of 9.0 percent for 1998 
and 1997, and 7.5 percent for 1996.

   Of the above total postretirement costs recognized for
fiscal years 1998, 1997, and 1996, $4.4 million, $6.1 million, 
and $6.2 million, respectively, were funded through trust 
funds for future benefit payments.

 In 1998 a special benefit charge of $132,000 was recognized
to reflect the health and life insurance costs associated with
an accelerated retirement program for certain former
employees.

 The following table sets forth the estimated funded status
for the postretirement health care and life insurance plans 
at September 30, 1998 and 1997:



                                                      1998    1997
                                                       (Millions)

Plan assets at market value                           $61.4   $47.7
Accumulated postretirement benefit obligation (APBO):
  Retirees                                             70.6    69.2
  Fully eligible active plan participants               8.3    14.2
  Other active plan participants                       29.8    31.9
Total APBO                                            108.7   115.3
Deficiency of plan assets over the APBO               (47.3)  (67.6)
Less:
  Unrecognized transition obligation
  (being amortized over 20 years)                     (63.0)  (78.9)
  Unrecognized net gain                                22.8    19.7
Contributions: July 1 to September 30                   7.1     7.9
Accrued postretirement benefit liability               $  -   $(0.5)


   The total APBO and plan assets at September 30, 1998 and
1997, are based on a July 1 measurement date using a
discount rate of 7.0 percent for 1998 and 7.5 percent for
1997 and assumed future compensation increases of 4.5
percent per year.  Plan assets consist primarily of
marketable equity and fixed-income securities.

   For measurement purposes, a health care cost trend rate
of 7.9 percent was assumed for fiscal 1998, and that rate
thereafter will decline gradually to 4.75 percent 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, 1998, by $8.7 million
and the aggregate of service and interest cost components of
the net periodic postretirement benefit cost by $1.3 million
annually.


7.  TAX MATTERS

7A Provision for Income Taxes

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


For fiscal years ended September 30,    1998    1997      1996
                                           (Thousands)
Current:
  Federal                             $17,276  $32,720   $40,341
  State                                 3,819    7,266     8,534
  Total current income taxes           21,095   39,986    48,875
Deferred:
  Federal                              20,390   14,162    12,781
  State                                 5,236    3,846     3,551
  Total deferred income taxes          25,626   18,008    16,332
Investment tax credits - net:
  Federal                              (1,648)  (1,713)   (2,824)
  State                                    52      154       161
  Total investment tax credits - net   (1,596)  (1,559)   (2,663)
Total provision for income taxes       45,125   56,435    62,544
Less - Included in operation expense        -        -        85
Net provision for income taxes        $45,125  $56,435   $62,459



7B Tax Rate Reconciliation

   The following is a reconciliation between the computed
federal income tax expense (tax rate of 35 percent times pre-
tax book income) and the total provision for federal income
tax expenses:
<TABLE>
<CAPTION>

For fiscal years ended September 30,  1998                   1997                   1996
                                         Percent                Percent                Percent
                                          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               $40,405      35.00     $50,250      35.00     $53,808      35.00
Amortization of investment
  tax credits                (1,648)     (1.43)     (1,713)     (1.19)     (2,824)     (1.84)
Other, net                   (2,739)     (2.38)     (3,368)     (2.49)       (686)     (0.45)
Total provision for federal
  income taxes              $36,018      31.19     $45,169      31.32     $50,298      32.71
</TABLE>


7C 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):


At September 30,                                      1998           1997
                                                   (Thousands)
Deferred tax liabilities:
  Property - accelerated depreciation and
     other property related items                  $263,860       $250,447
  Other                                              35,721         31,785
  Total deferred income tax liabilities             299,581        282,232
Deferred tax assets:
  Uncollectible accounts                             (9,414)       (12,008)
  Unamortized investment tax credits                (12,847)       (13,476)
  Other                                              (6,590)        (7,570)
  Total deferred income tax assets                  (28,851)       (33,054)
Net deferred income tax liabilities                $270,730       $249,178


8.  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.


9.  OTHER INCOME AND DEDUCTIONS - MISCELLANEOUS


For fiscal years ended September 30,               1998      1997         1996
                                                       (Thousands)

Interest on amounts recoverable from customers     $142      $ 166      $   224
Gain on expiration of gas storage contracts           -          -       14,810
Amortization of gain/loss on reacquired bonds      (256)      (253)        (120)
Gain/loss on disposition of property               (672)      (650)           -
Other                                               769        236         (531)
Total other income and deductions - miscellaneous  $(17)     $(501)     $14,383


10.  CAPITAL COMMITMENTS

   Total contract and purchase order commitments of the
Company and its subsidiaries at September 30, 1998, amounted
to approximately $6.8 million.

11.  SHORT-TERM BORROWINGS AND CREDIT LINES


At September 30,                           1998            1997
                                                    (Thousands)
Bank Loans
Peoples Gas
  8.50% due March 27, 1998              $      -        $    700
Commercial Paper
North Shore Gas
  due October 1, 1997                   $      -        $  2,110
Peoples Gas
  due October 1, 1998                      2,300               -
  due October 23, 1998                     6,600               -
Letters of Credit
  Peoples Energy                        $    677        $     69
  Peoples Gas                                100             100
Available lines of credit
  Unused bank lines                     $289,723        $146,421


   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, 1998, Peoples Energy had combined lines of
credit totaling $170.0 million.  Agreements covering $150.0 
million of the total at September 30, 1998 will expire on 
December 13, 1998; the agreement covering the remaining 
$20.0 million will expire on July 30, 1999.  Such lines of 
credit cover the projected short-term credit needs of the 
Company. Payment for the lines of credit is by fee.

   At September 30, 1998 and 1997, the utility subsidiaries
had combined lines of credit totaling $129.4 million.  Of
this total, North Shore Gas could borrow up to $30.0
million.  Agreements covering $92.0 million of the total at
September 30, 1998, will expire on August 29, 1999; the
agreement covering the remaining $37.4 million will expire
on January 31, 2000.  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 12A.)  Payment for the lines of
credit is by fee.


12.  LONG-TERM DEBT

12A Interest-Rate Adjustments

   The rate of interest on the City of Joliet 1984 Series C
Bonds, which were secured by Peoples Gas' Adjustable-Rate
First and Refunding Mortgage Bonds, Series W, was subject to
adjustment annually on October 1.  Owners of the Series C
Bonds had the right to tender such bonds at par during a
limited period prior to that date.  Peoples Gas was
obligated to purchase any such bonds tendered if they could
not be remarketed.  The interest rate for the Series C Bonds
for fiscal 1998 was 3.875%.  All Series C Bonds were
redeemed on October 1, 1998.

   The rate of interest on the City of Chicago 1993 Series B
Bonds, which are secured by Peoples Gas' Adjustable-Rate
First and Refunding Mortgage Bonds, Series EE, is subject to
adjustment annually on December 1.  Owners of the Series B
Bonds have the right to tender such bonds at par during a
limited period prior to that date.  Peoples Gas is obligated
to purchase any such bonds tendered if they cannot be
remarketed.  All Series B Bonds that were tendered prior to
December 1, 1997, have been remarketed.  The interest rate
on such bonds is 3.90% for the period December 1, 1997,
through November 30, 1998.

   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, 2000.  (See Note 11.)

12B Sinking Fund Requirements and Maturities of Subsidiaries

    At September 30, 1998, long-term debt sinking fund
requirements and maturities for the next five years are:

              Peoples       North
 Fiscal         Gas         Shore       Consolidated
  Year                       Gas
                          (Thousands)
  1999       $10,400      $  --              $10,400
  2000         --            --                   --
  2001         --            --                   --
  2002         --            --                   --
  2003       75,000       15,000              90,000

12C Fair Value of Financial Instruments

At September 30, 1998, the carrying amount of the Company's
long-term debt of $527.0 million had an estimated fair value of
$561.7 million.  At September 30, 1997, the carrying amount
of the Company's long-term debt of $527.0 million had an
estimated fair value of $564.6 million.  The estimated fair
value of the Company's long-term debt is based on yields
for issues with similar terms and remaining maturities.
Since Peoples Gas and North Shore Gas are subject to
regulation, any gains or losses related to the difference
between the carrying amount and the fair value of financial
instruments may not be realized by the Company's
shareholders.  The carrying amount of all other financial
instruments approximates fair value.  The $4.4 million in
temporary cash investments approximates its fair value.

13.  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, 1998.

14.  COMMON STOCK

<TABLE>
<CAPTION>
For fiscal years ended September 30,                                  1998              1997              1996

<S>                                                             <C>                <C>               <C>  
Shares outstanding - beginning of year                           35,069,517        34,960,399        34,913,426
Shares issued:
  Employee Stock Purchase Plan                                       15,381            16,349            21,516
  Long-Term Incentive Compensation (LTIC)                            41,100           106,795           110,700
  Directors Deferred Compensation Plan                                1,692             1,568             1,471
  Direct Purchase and Investment Plan                               301,142            73,898                 -
Shares reacquired under LTIC                                        (26,840)          (89,492)          (86,714)
Shares outstanding - end of year                                 35,401,992        35,069,517        34,960,399
</TABLE>

<TABLE>
<CAPTION>
Shares Reserved                    At September 30,                  1998              1997              1996
<S>                                                               <C>               <C>               <C>
Direct Purchase and Investment Plan                               1,124,960         1,426,102         1,500,000
Employee Stock Purchase Plan                                        966,267           981,648           997,997
Long-Term Incentive Compensation Plan                               594,035           635,135           741,930
Directors Deferred Compensation Plan                                 75,025            76,717            78,285
Total shares reserved                                             2,760,287         3,119,602         3,318,212
</TABLE>

<TABLE>
<CAPTION>



                                               Weighted                           Weighted        Stock           Weighted
                                               Average           Non-Qualified    Average         Appreciation    Average
Long-Term Incentive Compensation Plan          Option Price      Stock Options    SARs Price      Rights (SARs)   Fair Value
<S>                                                <C>               <C>             <C>              <C>           <C>
Outstanding at September 30, 1995                  $  28.53          187,400         $  28.53         187,400
Granted                                               27.50           90,200            27.50          90,200       $2.46
Exercised                                             26.79          (92,500)           26.83         (88,700)
Forfeited                                             27.50           (5,300)           27.50          (5,300)
Outstanding at September 30, 1996                     29.04          179,800            28.87         183,600
Granted                                               34.20           88,200            34.20          88,200        2.90
Exercised                                             28.71          (97,400)           28.39        (101,200)
Forfeited                                             34.19          (14,000)           34.19         (14,000)
Outstanding at September 30, 1997                     31.71          156,600            31.71         156,600
Granted                                               37.84           83,800            37.84          83,800       $6.38
Exercised                                             29.37          (25,300)           29.37         (25,300)
Forfeited                                             37.84           (3,000)           37.84          (3,000)
Outstanding at September 30, 1998                  $  34.33          212,100         $  34.33         212,100

</TABLE>

   Restricted stock awards granted to officers of the
Company during the last three fiscal years are as follows:
1998, 15,800 shares; 1997, 15,100 shares; and 1996, 18,200
shares.  Forfeitures during the same period were as
follows: 1998, 0 shares; 1997, 1,260 shares; and 1996,
2,085 shares.  At September 30, 1998, there were 381,935
shares available for future grant under options or
restricted stock awards. At September 30, 1998, there 
were 509,050 SARs available for future grant.

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

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

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

 The Company may sell up to 966,267 shares of common stock
to its employees under the ESPP.  Under the terms of this plan,
all employees with a minimum of one year of service are
eligible to purchase shares at 90% of the stock's market
price at the date of purchase.  The Company sold 15,381
shares and 16,349 shares to employees in 1998 and 1997,
respectively.

   Under APB Opinion No. 25, no compensation cost has been
recognized for nonqualified stock options and shares
issued under the ESPP.  The compensation cost that has
been charged against net income for restricted stock
awards was $345,000 and $452,000 for the years ended
September 30, 1998 and 1997, respectively.  Had
compensation cost for stock options, SARs and shares
issued under the ESPP been determined consistent with SFAS
No. 123, "Accounting for Stock-Based Compensation," the
Company's net income and earnings per share would have
been reduced to the following pro forma amounts:

For fiscal years ended         1998           1997
September 30,
                            (Thousands, except per-share amounts)
Net income:
As reported                 $79,423          $98,404
Pro forma                    78,525           98,319

Earnings per average
common share:
As reported                   $2.25            $2.81
Pro forma                      2.23             2.81

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

 The fair value of each option grant used to determine pro
forma net income is estimated as of the date of grant using a
variation of the Black-Scholes option-pricing model with
the following weighted-average assumptions used for grants
in the years ended September 30, 1998 and 1997,
respectively: expected volatility of 18.72 and 15.78%;
dividend yield of 5.2 and 5.0%; risk-free interest rates of
5.78 and 6.03%, and expected lives of three and one half
years for 1998 and two years for 1997.  The weighted-
average fair value of options granted was $6.38 and $2.90
for the years ended September 30, 1998 and 1997,
respectively.

15.  QUARTERLY FINANCIAL DATA (UNAUDITED)
 
  All four quarters of fiscal 1998 reflected weather that
was significantly warmer than during the comparable
quarters of fiscal 1997.  The first quarter of fiscal 1998
also reflected decreased pension expense caused by changes
in settlement accounting attributed to employees choosing
early retirement and actuarial assumptions.  (See Note 6A.)
The fourth quarter of fiscal 1998 reflected increased
operating revenues from diversified energy subsidiaries and
decreased operating expenses.


                                                   Earnings
                 Operating  Operating                Per
Fiscal Quarters   Revenues   Income     Net Income  Share
                      (Thousands, except per-share amounts)

1998
  Fourth         $129,087   $(3,671)    $(11,243)   $(0.32)
  Third           199,309    16,425        8,006      0.23
  Second          424,510    56,213       47,116      1.34
  First           385,151    44,842       35,543      1.01

1997
  Fourth         $116,773   $(5,119)    $(14,080)   $(0.40)
  Third           202,444    20,430       11,735      0.34
  Second          567,314    71,480       63,258      1.81
  First           387,158    46,752       37,490      1.07



     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.

16.  EVENT (UNAUDITED) SUBSEQUENT TO THE AUDITORS' REPORT
     DATED OCTOBER 30, 1998
   
Environmental Matters

Former Manufactured Gas Plant Operations

 The Company has filed suit against a number of insurance
carriers for the recovery of environmental costs relating 
to the Company's former manufactured gas operations.  In 
November 1998, the Company entered into a settlement 
agreement with one of its insurance carriers. Given the 
regulatory treatment discussed in Note 2A, the settlement 
will not have an effect on income.


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL DISCLOSURE
      
   Not applicable.


                         PART III
                             
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

   Information relating to the directors of the Company is
set forth under the caption "Information Concerning
Nominees for Election as Directors" of the Company's Proxy
Statement, to be filed with the SEC on or about December
28, 1998, and to be distributed in connection with the
Company's Annual Meeting of Shareholders to be held on
February 26, 1999.  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
28, 1998, and to be distributed in connection with the
Company's Annual Meeting of Shareholders to be held on
February 26, 1999.  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  28, 1998, and
to be distributed in connection with the Company's Annual
Meeting of Shareholders to be held on February 26, 1999.  
Such information is incorporated herein by reference.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   None.
                                PART IV

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

                                                     Page
(a)    1.                                            Financial
Statements:

       See Part II, Item 8.                          23

   2.  Financial Statement Schedules:

       Schedule
        Number

        VIII    Valuation and Qualifying Accounts    47

   3.  Exhibits:

       See Exhibit Index on page 49.

(b)    Reports on Form 8-K filed during the final quarter of fiscal
       year 1998:

     None


<TABLE>
<CAPTION>

Schedule VIII
       
Peoples Energy Corporation and Subsidiary Companies

      VALUATION AND QUALIFYING ACCOUNTS

                 (Thousands)


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

    Fiscal Year Ended September 30, 1998
<S>                                              <C>           <C>            <C>                  <C>             
RESERVES (deducted from assets in balance sheet):
     Uncollectible items                         $   29,857    $ 22,968        $      29,507        $23,318

    Fiscal Year Ended September 30, 1997

RESERVES (deducted from assets in balance sheet):
     Uncollectible items                         $   26,211     $ 27,907        $      24,261        $29,857

    Fiscal Year Ended September 30, 1996

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

</TABLE>


                       SIGNATURES

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

                                 PEOPLES ENERGY CORPORATION

Date:  December 17, 1998         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 17, 1998.

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

 /s/ JAMES M. LUEBBERS      Vice President and Controller
     James M. Luebbers   (Principal Financial and Accounting Officer)

 /s/ THOMAS M. PATRICK         Director
     Thomas M. Patrick

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

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

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

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

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

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

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

Peoples Energy Corporation and Subsidiary Companies

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

   Exhibit
   Number            Description of Document

   10(a)       U.S. Shippers Service Agreement between
          Peoples Gas and Northern Border Pipeline Company,
          dated August 14, 1997.
          
   10(b)       U.S. Shippers Service Agreement between
          Peoples Gas and Northern Border Pipeline Company,
          dated October 27, 1997.
          
   10(c)       Storage Rate Schedule DSS Agreement between
          Peoples Gas and Natural Gas Pipeline Company of
          America, dated January 15, 1998.
          
   10(d)       Storage Rate Schedule NSS Agreement between
          Peoples Gas and Natural Gas Pipeline Company of
          America, dated January 15, 1998.
          
  10(e)        Transportation Rate Schedule FTS Agreement
          between Peoples Gas and Natural Gas Pipeline
          Company of America, dated January 15, 1998
          
  10(f)      Transportation Rate Schedule FTS LN/NB
          Agreement between Peoples Gas and Natural Gas
          Pipeline Company of America, dated January 15,
          1998.

  10(g)        U.S. Shippers Service Agreement between North
          Shore and Northern Border Pipeline Company, dated
          August 14, 1997.

  10(h)        Transportation Rate Schedule FTS Agreement
          between North Shore and Natural Gas Pipeline
          Company of America, dated January 15, 1998.

 10(i)         FTS-1 Service Agreement between North Shore
          and ANR Pipeline Company, dated May 28, 1998.

 10(j)        Severance Agreement Between the Company and
          Thomas M. Patrick dated as of November 1, 1998.

  21      Subsidiaries of the Registrant

  23      Arthur Andersen LLP consent to incorporate by
          reference in Registration Statement Nos. 2-82760, 
          33-6369, 333-17701, 33-63193 and 333-09993.

  27      Financial Data Schedule

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

     Peoples Energy Corporation and Subsidiary Companies
                              
                  EXHIBIT INDEX (Continued)
                              
   Exhibit
   Number              Description of Document

 (b)Exhibits listed below have been filed heretofore with
    the Securities and Exchange Commission pursuant to the
    Securities Act of 1933, as amended, and/or the
    Securities Exchange Act of 1934, as amended, and are
    incorporated herein by reference.  The file number and
    exhibit number of each such exhibit are stated in the
    description of such exhibits.
    
          3(e) Articles of Incorporation of the Registrant,
          as amended on March 3, 1995 (Registrant Form 10-K
          for the fiscal year ended September 30, 1995,
          Exhibit 3(b)).
          
          4(a) The Peoples Gas Light and Coke Company First
          and Refunding Mortgage, dated January 2, 1926,
          from Chicago ByProduct Coke Company to Illinois
          Merchants Trust Company, Trustee, assumed by The
          Peoples Gas Light and Coke Company (Peoples) by
          Indenture dated March 1, 1928 (Peoples - May 17,
          1935, Exhibit B-6a, Exhibit B-6b A-2 File No. 2-
          2151, 1936); Supplemental Indenture dated as of
          May 20, 1936, (Peoples Form 8-K for the year 1936,
          Exhibit B-6f); Supplemental Indenture dated as of
          March 10, 1950 (Peoples - Form 8-K for the month
          of March 1950, Exhibit B-6i); Supplemental
          Indenture dated as of June 1, 1951 (Peoples - File
          No. 2-8989, PostEffective, Exhibit 7-4(b));
          Supplemental Indenture dated as of August 15, 1967
          (Peoples - File No. 2-26983, Post-Effective,
          Exhibit 2-4); Supplemental Indenture dated as of
          September 15, 1970 (Peoples - File No. 2-38168,
          Post-Effective Exhibit 2-2); Supplemental
          Indenture dated as of October 1, 1984 (Peoples -
          Form 10-K for fiscal year ended September 30,
          1984, Exhibit 4-3); Supplemental Indentures dated
          March 1, 1985,  (Peoples - Form 10-K for fiscal
          year ended September 30, 1985, Exhibits 4-1, 4-2,
          and 4-3, respectively); Supplemental Indenture
          dated May 1, 1990 (Peoples - Form 10-K for the
          fiscal year ended September 30, 1990, Exhibit 4);
          Supplemental Indenture dated as of April 1, 1993
          (Peoples Form 8 dated as of May 5, 1993, Exhibit
          1); Supplemental Indentures dated as of December
          1, 1993 (Peoples - Form 10-Q for the quarterly
          period ended December 31, 1993, Exhibits 4(a) and
          4(b)); Supplemental Indenture dated June 1, 1995.
          (Peoples - Form 10-K for fiscal year ended
          September 30, 1995.)  Supplemental Indenture dated
          as of June 1, 1995 (Peoples - Form 10-K for the
          fiscal year ended September 30, 1995.)
          
          4(b) North Shore Gas Company (North Shore)
          Indenture, dated as of April 1, 1955, from North
          Shore to Continental Bank, National Association,
          as Trustee; Third Supplemental Indenture, dated as
          of December 20, 1963 (North Shore - File No. 2-
          35965, Exhibit 4-1); Fifth Supplemental Indenture
          dated as of February 1, 1970 (North Shore - File
          No. 2-35965, Exhibit 4-2); 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); Eleventh Supplemental
          Indenture dated as of October 1, 1992 (North Shore
          - Form 10-K for the fiscal year ended September
          30, 1992, Exhibit 4); and Twelfth Supplemental
          Indenture dated as of April 1, 1993 (North Shore -
          Form 8-K dated April 23, 1993, Exhibit 4).
          
          10(n)Firm Transportation Service Agreement Under
          Rate Schedule FT between Peoples Gas and Trunkline
          Gas Company, dated as of December 1, 1993
          (Registrant Form 10-K for the fiscal year ended
          September 30, 1994, Exhibit 10(d)).  Trust Under
          Executive Deferred Compensation Plan and
          Supplemental Retirement Benefit Plan, Part A and
          Part B, of the Registrant, effective September 25,
          1995. (Registrant Form 10-K for fiscal year ended
          September 30, 1995, Exhibit 10(a));
    

     Peoples Energy Corporation and Subsidiary Companies
                              
                  EXHIBIT INDEX (Continued)
                              
   Exhibit
   Number              Description of Document

   10(n)ETS Service Agreement between Peoples Gas and ANR
        Pipeline Company, dated cont'd) 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));
       Firm Transportation Service Agreement under Rate Schedule FTS1
       between Peoples Gas and ANR Pipeline Company, dated as of
       September 20, 1995.  (Registrant form 10-K for fiscal year
       ended September 30, 1996, Exhibit 10(q)); Firm Transportation
       Service Agreement under Rate Schedule FTS between Peoples Gas
       and Natural Gas Pipeline Company of America, dated as of
       February 21, 1996.  (Registrant form 10-K for fiscal year ended
       September 30, 1996, Exhibit 10(r)); Firm Transportation Service
       Agreement under Rate Schedule FTS between Peoples Gas and
       Natural Gas Pipeline Company of America, dated as of February
       21, 1996.  (Registrant form 10-K for fiscal year ended
       September 30, 1996, Exhibit 10(s)); Firm Transportation Service
       Agreement under Rate Schedule FTS-1 between North Shore Gas and
       ANR Pipeline Company, dated as of October 25, 1995.
       (Registrant form 10-K for fiscal year ended September 30, 1996,
       Exhibit 10(t)); Guaranty by Peoples Energy Corporation to
       Northern Border Pipeline Company, dated July 25, 1997.  
      (Registrant Form 10-K for fiscal year ended September 30, 1997, 
       Exhibit 10(u)); Guaranty by Peoples Energy

          Peoples Energy Corporation and Subsidiary Companies
                                   
                       EXHIBIT INDEX (Continued)
                                   
Exhibit
  Number                     Description of Document

          10(n)Corporation to Northern Border Pipeline Company, dated
          August 1, 1997.  (Registrant Form 10-K for fiscal year ended
          September 30, 1997, Exhibit 10(v)); Firm Transportation Service
          Agreement under Rate Schedule FTS between Peoples Gas and
          Natural Gas Pipeline Company of America, dated November 13,
          1996.  (Registrant Form 10-K for fiscal year ended September
          30, 1997, Exhibit 10(w)); Firm Transportation Service Agreement
          under Rate Schedule FT-A or FT-G between Peoples Gas and
          Midwestern Gas Transmission Company, dated November 1, 1997.
          (Registrant Form 10-K for fiscal year ended September 30, 1997,
          Exhibit 10(x)); Firm Transportation Service Agreement under
          Rate Schedule FT-A between Peoples Gas and Tennessee Gas
          Pipeline Company, dated November 1, 1997. (Registrant Form 10-K
          for fiscal year ended September 30, 1997, Exhibit 10(y)); Firm
          Transportation Service Agreement under Rate Schedule FT-A or FT-
          G between North Shore and Midwestern Gas Transmission Company,
          dated May 1, 1997. (Registrant Form 10-K for fiscal year ended
          September 30, 1997; Exhibit 10(z)); Firm Transportation Service
          Agreement under Rate Schedule FT-A between North Shore and
          Tennessee Gas Pipeline Company, dated May 1, 1997.  (Registrant
          Form 10-K for fiscal year ended September 30, 1997, Exhibit
          10(aa)); Firm Transportation Service Agreement under Rate
          Schedule FT-A or FT-GS between North Shore and Midwestern Gas
          Transmission Company, dated November 1, 1997.  (Registrant Form
          10-K for fiscal year ended September 30, 1997, Exhibit 10(ab));
          Firm Transportation Service Agreement under Rate Schedule FT-A
          between North Shore and Tennessee Gas Pipeline Company, dated
          November 1, 1997.  (Registrant Form 10-K for fiscal year ended
          September 30, 1997, Exhibit 10(ac)); Firm Transportation
          Service Agreement under Rate Schedule FT-A or FT-GS between
          North Shore and Midwestern Gas Transmission Company, dated
          April 1, 1998.  (Registrant Form 10-K for fiscal year ended
          September 30, 1997, Exhibit 10(ad)); Firm Transportation
          Service Agreement under Rate Schedule FT-A between North Shore
          and Tennessee Gas Pipeline Company, dated April 1, 1998.
          (Registrant Form 10-K for fiscal year ended September 30, 1997,
          Exhibit 10(ae)).
          
          10(o)Lease dated October 20, 1993, between Prudential Plaza
          Associates, as Landlord, and Peoples Gas, as Tenant (Registrant
          Form 10-Q for the quarterly period ended December 31, 1993, 
          Exhibit 10(a)). 10(p)Construction Guaranty Agreement dated 
          December 16, 1992, by the Company and Trigen Energy Corporation 
          (Registrant Form 10-Q for the quarterly period ended December 
          31, 1993, Exhibit 10(f)); Service Guaranty Agreement dated 
          December 16, 1992, by the Company and Trigen Energy 
          Corporation (Registrant Form 10Q for the quarterly period 
          ended December 31, 1993, Exhibit 10(g)). 10(q)Short-Term 
          Incentive Compensation Plan of the Registrant, as amended on 
          December 7, 1994 (Registrant Form 10-K for the fiscal year 
          ended September 30, 1994, Exhibit 10(a)); Executive Deferred 
          Compensation Plan of the Registrant, effective October
          1, 1994 (Registrant Form 10-K for the fiscal year ended
          September 30, 1994, Exhibit 10(b)); Supplemental Retirement
          Benefit Plan, Part A, Part B and Part C, of the Registrant,
          effective December 7, 1994 (Registrant Form 10-K for the fiscal
          year ended September 30, 1994, Exhibit 10(c)); Long-Term
          Incentive Compensation Plan (File No. 33-63193, Form S-8 filed
          on October 4, 1995).

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