|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, 2000
|                                             |                                                  
|OR                                          
|                                             |                                                  
|[ ]                                          | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
|OF THE SECURITIES EXCHANGE ACT OF 1934      





|            | Exact Name of Registrant as            |                      
|----------- | -------------------------------------- | ---------------------
|            | Specified in Charter, State of         |                      
|            | Incorporation, Address of              |                      
|Commission  | Principal Executive                    | IRS Employer         
|File Number | Office and Telephone Number            | Identification Number
|1-5540      | PEOPLES ENERGY CORPORATION             | 36-2642766           
|            | (an Illinois Corporation)              |                      
|            | 130 East Randolph Drive, 24th Floor    |                      
|            | Chicago, Illinois 60601-6207           |                      
|            | Telephone (312) 240-4000               |                      
|            |                                        |                      
|2-26983     | THE PEOPLES GAS LIGHT AND COKE COMPANY | 36-1613900           
|            | (an Illinois Corporation)              |                      
|            | 130 East Randolph Drive, 24th Floor    |                      
|            | Chicago, Illinois 60601-6207           |                      
|            | Telephone (312) 240-4000               |                      
|            |                                        |                      
|2-35965     | NORTH SHORE GAS COMPANY                | 36-1558720           
|            | (an Illinois Corporation)              |                      
|            | 130 East Randolph Drive, 24th Floor    |                      
|            | Chicago, Illinois 60601-6207           |                      
|            | Telephone (312) 240-4000               |                      







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





|                                                                                                                                                                                                                                                                                                                                                                      |  | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
|Indicate by check mark whether the registrants (1) have 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 shorter period that the registrant was
required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes [x] No [ ]
|                                                                                                                                                                                                                                                                                                                                                                      |  | 
|Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] 



|State the aggregate market value of the voting stock held by non-affiliates of the registrants:
|-----------------------------------------------------------------------------------------------
|                                                                                               
|Peoples Energy Corporation                                                                     
|                                                                                               
|The Peoples Gas Light and Coke Company                                                         
|                                                                                               
|North Shore Gas Company                                                                        



|Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:                                                                                                                                                                                                                      
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                   
|Peoples Energy Corporation                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                   
|The Peoples Gas Light and Coke Company                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                   
|North Shore Gas Company                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                   
|This combined Form 10-K is separately filed by Peoples Energy Corporation, The Peoples Gas Light and Coke Company, and North Shore Gas Company. Information contained herein relating to any individual company is filed by such company on
its own behalf. Each company makes no representation as to information relating to the other companies.

|Documents Incorporated by Reference   
|--------------------------------------
|                                      
|                                      
|                                      
|Peoples Energy Corporation            
|                                      
|The Peoples Gas Light and Coke Company
|                                      
|North Shore Gas Company               







|CONTENTS     
|-------------
|             
|Item No.     
|             
|1.           
|2.           
|3.           
|4.           
|             
|             
|5.           
|6.           
|             
|             
|             
|7.           
|7A.          
|8.           
|9.           
|             
|10.          
|11.          
|12.          
|13.          
|             
|14.          
|Signatures   
|Exhibit Index





Peoples Energy Corporation

ANNUAL REPORT ON FORM 10-K

FISCAL YEAR ENDED SEPTEMBER 30, 2000

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 NGV Corp. (Peoples NGV), Peoples Energy Resources Corp.
(Peoples Energy Resources), Peoples Energy Services Corporation (Peoples Energy Services), and Peoples Energy Ventures Corporation (Peoples Energy Ventures). The Company and its subsidiaries had 2,694 employees at September 30, 2000.

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). Its business activities are segregated into
six segments as described below.

The Gas Distribution segment is the Company's core business. Its two regulated utilities purchase, distribute, sell and transport natural gas to approximately 1 million retail customers through a 6,000-mile distribution system serving the City of
Chicago and 54 communities in northeastern Illinois. The Company also owns a storage facility in central Illinois and a pipeline which connects the facility and six major interstate pipelines to Chicago.

Peoples Gas, an operating public utility, is engaged primarily in the purchase, storage, distribution, sale, and transportation of natural gas. It has approximately 839,000 residential, commercial, and industrial retail sales and transportation
customers within the City of Chicago (City).

North Shore Gas, an operating public utility, is engaged primarily in the purchase, storage, distribution, sale, and transportation of natural gas. It has approximately 149,000 residential, commercial, and industrial retail sales and
transportation customers within its service area of approximately 275 square miles, located in northeastern Illinois.

The Power Generation segment is engaged in the development, construction, operation, and ownership of natural gas-fired electric generation facilities for sales to electric utilities and marketers. The Company and Dominion Energy, Inc. are equal
investors in Elwood Energy LLC (Elwood), which owns and operates a 600-megawatt peaking facility near Chicago, Illinois. The Elwood facility is currently undergoing expansion that is expected to be completed in 2001.

The Midstream Services segment performs wholesale activities that provide value to gas distribution utilities, marketers and pipelines. The Company, through Peoples Gas, operates a natural gas hub. It also owns and operates a natural gas liquids
peaking facility and is active in other asset-based wholesale activities. The Company and Enron North America Corp. (Enron) are equal partners in enovate, L.L.C. (enovate), which will expand the Peoples Gas hub by offering additional hub services and
peaking services, developing new products and pursuing strategic asset acquisitions. The Company also is an equal partner with The Coastal Corporation in Whitecap Energy System (Whitecap), which is developing a pipeline to deliver natural gas to new and
existing power plants in Indiana, Illinois and Wisconsin. Whitecap will also service growth markets in existing gas utility systems.

The Retail Energy Services segment markets gas and electricity and provides energy management and other services to retail customers. Peoples Energy Services and Peoples Energy Home Services are engaged in providing energy commodities and value
added services to industrial, commercial and residential customers.

The Oil and Gas Production segment is active in the acquisition, development and production of oil and gas reserves in selected onshore basins in North America. The Company's focus is on low risk drilling opportunities and the acquisition of
proved oil and gas reserves with upside potential which can be realized through drilling, production enhancement and reservoir optimization programs. Certain producing properties owned by the Company qualify for income tax credits as defined in Section 29
of the Internal Revenue Code of 1986 (Section 29). These credits are computed based on units of production.

The Company is involved in other activities such as district heating and cooling and the development of fueling stations for natural gas vehicles. These and other activities do not fall under the above segments and are reported in the Other segment.

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, were
able to purchase electric power from the supplier of their choice beginning on October 1, 1999. All non-residential customers will have this choice by December 31, 2000. All residential customers will be given 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 percent of its Illinois jurisdictional capitalization, to be financed by a specific charge to its
customers. An electric utility also may transfer up to 15 percent 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, reduced their residential rates by 15 percent on August 1, 1998. In addition, both utilities must
further reduce their residential rates by five percent, one on October 1, 2001, and the other 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 the effects that restructuring of the electric market will have on the competitive position of the Company's subsidiaries.

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

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

A pipeline may seek to provide transportation service directly to end-users. Such direct service by a pipeline to an end-user would bypass the local distributor's service and reduce the distributor's earnings. However, none of the subsidiaries'
pipeline suppliers has undertaken any service bypassing the subsidiaries. Both utility subsidiaries have a bypass rate approved by the Commission which allows the utilities to renegotiate rates with customers that are potential bypass candidates.

Through its Retail Energy Services segment, the Company is involved in the marketing of gas and electricity to retail customers. The Company has seen substantial growth in its nearly four years of full operation and is now one of the three largest
energy marketing suppliers in the state of Illinois. Competition in this arena is intense and comes from utility affiliates, purchases by some larger marketers, and a number of smaller marketers as the market continues to expand. Through its positive name
recognition, acquisition of customer contracts and strategic marketing efforts, the Company aims to capture major regional market share of this business. The business climate is volatile with many companies entering and exiting the business.

SALES AND RATES

Peoples Gas and North Shore Gas sell natural gas having an average heating value of approximately 1,000 British thermal units (Btus) 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 1M 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. (For discussion of the effects of weather, see Other Matters in
Item 7.) Therefore, weather-related deliveries can 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.)



---

* 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; 1,000 Dekatherms = 1 MDth)



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, microturbines, natural gas-fueled vehicles and natural gas air-conditioning.

STATE LEGISLATION AND REGULATION

Peoples Gas and North Shore Gas are subject to the jurisdiction of and regulation by the Commission, which has general supervisory and regulatory powers over practically all phases of the public utility business in Illinois. These include
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.

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 (SEC), 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".)

Peoples Gas' operation of its natural gas hub is subject to the jurisdiction of and regulation by the FERC, which has authority over the rates, terms and conditions of the hub services.

ENVIRONMENTAL MATTERS

The Company and its subsidiaries are subject to federal and state environmental laws. Peoples Gas and North Shore Gas are conducting environmental investigations and work at certain sites that were the location of former manufactured gas
plant operations. (See Note 3A of the Notes to Consolidated Financial Statements.) In addition, North Shore Gas has received a demand for payment of environmental response costs at a former mineral processing site in Denver, Colorado. (See Note 3B of the
Notes to Consolidated Financial Statements. Also, Peoples Gas and North Shore Gas are conducting a mercury inspection and remediation program. (See Note 3C of the Notes to Consolidated Financial Statements.)

CURRENT GAS SUPPLY

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

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

The following tabulation shows the expected design peak-day availability of gas in thousands of dekatherms (MDth) during the 2000-2001 heating season for Peoples Gas and North Shore Gas:



|                          |                          |        | Peoples Gas     |            | North Shore Gas
|------------------------- | ------------------------ | ------ | --------------- | ---------- | ---------------
|                          |                          |        | Design Peak-Day |            | Year of        
|                          |                          |        | Availability    |            | Contract       
|Source                    |                          | (MDth) |                 | Expiration |                
|Firm direct purchases (1) |                          | 424    |                 | 2000-2008  |                
|Liquefied petroleum gas   |                          | 40     |                 |            |                
|Peaking Service:          |                          |        |                 |            |                
|                          | Peoples Energy Resources |        | 60              |            | (3)            
|Storage gas:              |                          |        |                 |            |                
|                          | Leased (4)               |        | 623             |            | 2001-2003      
|                          | Peoples-Manlove (5)      |        | 993             |            |                
|Customer-owned (7)        |                          | 372    |                 |            |                
|Total expected design     |                          |        |                 |            |                
|                          | peak-day availability    |        | 2,512           |            |                



(1)	Consists of firm gas purchases from various 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 was 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 nine months to five years.

(5)	Manlove Field, Peoples Gas' underground storage facility located near Champaign, Illinois, has seasonal top-gas inventory of approximately 26,400 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 2000-2001 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 years ended September 30, 2000, 1999 and 1998 were as follows:

|                                 |  | Peoples Gas |  | North Shore Gas
|-------------------------------- |  | ----------- |  | ---------------
|                                 |  | 2000        |  | 1999           
|Gas purchases                    |  | 123,774     |  | 120,303        
|Liquefied petroleum gas produced |  | 4           |  | 6              
|Customer-owned gas-received      |  | 86,738      |  | 95,492         
|Underground storage-net          |  | (1,804)     |  | (916)          
|Exchange gas-net                 |  | (455)       |  | (1,255)        
|Company use, franchise           |  |             |  |                
|requirements, and                |  |             |  |                
|unaccounted-for gas              |  | (3,371)     |  | (3,765)        
|Total (a)                        |  | 204,886     |  | 209,865        

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



Peoples Gas and North Shore Gas have entered into Gas Purchase and Agency Agreements with Enron North America Corp. (Enron). Under the terms of the Agreements, Enron agrees to sell and deliver gas to Peoples Gas and North Shore Gas covering
baseload requirements plus incremental quantities as needed. (See Note 1Q of the Notes to Consolidated Financial Statements.)

Peoples Energy Services purchases the majority of the natural gas required to serve its retail customers from a single wholesale supplier, with the remaining requirements met through purchases from a small number of other suppliers. The gas supply
agreement with the major supplier extends through March 31, 2002. The agreement applies to deliveries to serve retail customers in the northern Illinois market area. All gas is delivered to Peoples Energy Services at the Chicago city gates for those local
distribution companies. Peoples Energy Services does not contract for interstate pipeline capacity in connection with purchases from the major supplier.

ITEM 2. Properties

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

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

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

The Company owns and operates, as part of its Midstream Services segment 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.

The Company owns working interests in various oil and gas reserves as part of its Oil and Gas Production segment. Currently, these interests are located in New Mexico,Texas, Louisiana, North Dakota, Oklahoma and Arkansas. The total investment in
these properties is approximately $110.0 million. As of September 30, 2000, total proved oil and gas reserves owned by Peoples Energy Production were 67.0 equivalent Bcf. Reserve information on these properties was provided by the following engineering
firms: Ryder Scott Company, L.P., Petroleum Engineers; Miller & Lents, LTD - International Oil & Gas Consultants; McCartney Engineering, LLC; and Prator Bett, LLC - Petroleum Engineers.

As part of its Power Generation segment, the Company is an equal investor with Dominion Energy, Inc. in the Elwood facility, a 600-megawatt peaking facility near Chicago, Illinois which is undergoing a 750-megawatt expansion expected to be
completed in 2001.

As part of the Other segment, the Company and Trigen Energy Corporation are equal investors in a district energy facility located in Chicago, Illinois.  The facility is subject to a security interest granted to the Prudential Insurance Company of
America in connection with a project-based financing for the facility.



ITEM 3. Legal Proceedings

See Note 3 of the Notes to Consolidated Financial Statements.



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

None.



EXECUTIVE OFFICERS OF THE COMPANY

The following is a list of the names, ages, and positions of the executive officers of the Company. Executive officers were elected to serve for a term of one year or until their successors are duly elected and qualified.

|                  |  | Age at   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|----------------- |  | -------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name              |  | 11/30/00 |  | Position with the Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                  |  |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Donald M. Field   |  | 51       |  | 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
utility subsidiaries. Mr. Field has been an employee of the Company and/or its subsidiaries since 1971.                                                                                                                                                                                                                           
|                  |  |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|James M. Gabel    |  | 44       |  | Treasurer (2000) of the Company. Mr. Gabel is also Treasurer (2000) of Peoples Gas and North Shore Gas. Prior to becoming Treasurer, Mr. Gabel was Director of Financial Operations (1999). Mr. Gabel has been an employee of the Company and/or its
subsidiaries since 1978.                                                                                                                                                                                                                                                                                                           
|                  |  |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|James Hinchliff   |  | 60       |  | 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 utility subsidiaries. Prior to becoming Vice President and General Counsel, Mr. Hinchliff was Assistant General Counsel of the Company (1979-1984) and of both utility subsidiaries (1981-1984). Mr. Hinchliff has been
an employee of the Company and/or its subsidiaries since 1972.
|                  |  |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Peter H. Kauffman |  | 54       |  | 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 |  | 54       |  | Chief Financial Officer and Controller (1999) of the Company. Mr. Luebbers is also Chief Financial Officer and Controller and Director (1998) of Peoples Gas and North Shore Gas. Prior to that, he was Vice President and Controller (1998) of the Company
and both utility subsidiaries. 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.                                                                                          



|                   |  | Age at   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|------------------ |  | -------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name               |  | 11/30/00 |  | Position with the Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                   |  |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|William E. Morrow  |  | 44       |  | Executive Vice President of the Company (2000). Mr. Morrow is also Executive Vice President of Peoples Gas and North Shore Gas (2000) and President of Peoples Energy Resources(2000). Prior to becoming Executive Vice President, Mr. Morrow was Vice
President (1999) of the Company and its utility subsidiaries. Mr. Morrow has been an employee of the Company and/or its subsidiaries since 1979.                                                                                                                                       
|                   |  |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Kevin J. O'Connell |  | 54       |  | Vice President (Corporate Planning and Development) of the Company (2000). Prior to becoming Vice President of the Company Mr. O'Connell was Vice President of Peoples Energy Production Company (1998). Mr. O'Connell has been an employee of the Company
and/or its subsidiaries since 1997. Prior to working at the Company, Mr. O'Connell was an employee of MidCon Corporation.                                                                                                                                                          
|                   |  |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Thomas M. Patrick  |  | 54       |  | 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 utility subsidiaries. Mr. Patrick has been an employee of the Company and/or its subsidiaries since 1976.                                                               
|                   |  |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Desiree G. Rogers  |  | 41       |  | Chief Marketing and Communications Officer of the Company(2000). Ms. Rogers is also Vice President of Peoples Gas and North Shore Gas (1999). Ms. Rogers has been an employee of the Company and/or its subsidiaries since 1997. Prior to working for the
Company, Ms. Rogers was the Director of the Illinois State Lottery (1992).                                                                                                                                                                                                          
|                   |  |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Richard E. Terry   |  | 63       |  | Chairman of the Board and Chief Executive Officer (1990) and Director (1984) of the Company. Mr. Terry is also Chairman of the Board and Chief Executive Officer (1990) and a Director (1982) of Peoples Gas and North Shore Gas. Prior to becoming
Chairman, Mr. Terry was President and Chief Operating Officer (1987-1990), Executive Vice President (1984-1987), and Vice President and General Counsel (1981-1984) of the Company and its subsidiaries. Mr. Terry has been an employee of the Company and/or
its subsidiaries since 1972.





PART II

ITEM 5. Market For The Company's Common Stock And Related Stockholder Matters

The common stock of the Company is listed on the New York, Chicago, and Pacific Stock Exchanges (trading symbol: PGL). At November 30, 2000, there were 23,559 registered shareholders.

The common stock price range and dividends declared per common share by quarters for fiscal 2000 and 1999 were as follows:



|Fiscal   |  | Stock Price |  | Dividends
|-------- |  | ----------- |  | ---------
|Quarters |  | High        |  | Low      
|         |  |             |  |          
|2000     |  |             |  |          
|Fourth   |  | $ 35.38     |  | $ 31.25  
|Third    |  | 35.06       |  | 26.63    
|Second   |  | 33.69       |  | 26.25    
|First    |  | 39.44       |  | 33.25    
|         |  |             |  |          
|1999     |  |             |  |          
|Fourth   |  | $ 39.50     |  | $ 34.00  
|Third    |  | 39.94       |  | 32.13    
|Second   |  | 40.25       |  | 31.75    
|First    |  | 40.13       |  | 35.50    



ITEM 6. Selected Financial Data

|Peoples Energy Corporation                                                                                      
|----------------------------------------------------------------------------------------------------------------
|                                                                                                                
|For fiscal years ended September 30,                                                                            
|Common Stock Information                                                                                        
|Basic and diluted earnings per share                                                                            
|Cash dividends declared per share                                                                               
|Book value per share at year-end                                                                                
|Market Price (year-end, closing)                                                                                
|Price-earnings ratio                                                                                            
|Basic average shares outstanding (thousands)                                                                    
|Diluted average shares outstanding (thousands)                                                                  
|Operating Results (thousands)                                                                                   
|Operating Revenues                                                                                              
|Less - Cost of energy sold                                                                                      
|Gross Margin                                                                                                    
|Net Income                                                                                                      
|Assets at Year-end (thousands)                                                                                  
|Property, plant and equipment                                                                                   
|Less - Accumulated depreciation and depletion                                                                   
|Net Property, Plant and Equipment                                                                               
|Total assets                                                                                                    
|Capital spending                                                                                                
|Capitalization at Year-end (thousands)                                                                          
|Common equity                                                                                                   
|Long-term debt                                                                                                  
|Total Capitalization                                                                                            
|Financial Ratios (percent)                                                                                      
|Capitalization at Year-end:                                                                                     
|Common equity                                                                                                   
|Long-term debt                                                                                                  
|Total Capitalization                                                                                            
|Return on common equity at year-end                                                                             
|Gas Distribution Deliveries: (MDth)                                                                             
|Sales - Residential                                                                                             
|Commercial                                                                                                      
|Industrial                                                                                                      
|Transportation (b)                                                                                              
|Total Gas Distribution Deliveries                                                                               
|Gas Distribution Customers: (average)                                                                           
|Sales - Residential                                                                                             
|Commercial                                                                                                      
|Industrial                                                                                                      
|Transportation (b)                                                                                              
|Total Gas Distribution Customers                                                                                
|Degree Days                                                                                                     
|Percent of normal (6,536)                                                                                       
|                                                                                                                
|(a) Includes a $0.27 nonrecurring charge related to the Company's mercury investigation and remediation program.
|(b) Includes commercial, industrial, and larger residential customers                                           





|The Peoples Gas Light and Coke Company                              
|--------------------------------------------------------------------
|                                                                    
|For fiscal years ended September 30,                                
|Operating Results (thousands)                                       
|Operating Revenues                                                  
|Less - Gas costs                                                    
|Gross Margin                                                        
|Net Income applicable to common stock                               
|Assets at Year-end (thousands)                                      
|Property, plant and equipment                                       
|Less - Accumulated depreciation                                     
|Net Property, Plant and Equipment                                   
|Total assets                                                        
|Capital spending                                                    
|Capitalization at Year-end (thousands)                              
|Common equity                                                       
|Long-term debt                                                      
|Total Capitalization                                                
|Financial Ratios (percent)                                          
|Common equity                                                       
|Long-term debt                                                      
|Total Capitalization                                                
|Gas Distribution Deliveries (MDth)                                  
|Sales                                                               
|Residential                                                         
|Commercial                                                          
|Industrial                                                          
|Transportation (a)                                                  
|Total Gas Distribution Deliveries                                   
|Margin per Dth delivered                                            
|Number of Customers (average)                                       
|Residential                                                         
|Commercial                                                          
|Industrial                                                          
|Transportation (a)                                                  
|Total Customers                                                     
|Degree Days                                                         
|Percent of normal (6,536)                                           
|                                                                    
|(a) Includes commercial, industrial and larger residential customers





|North Shore Gas Company                                             
|--------------------------------------------------------------------
|                                                                    
|For fiscal years ended September 30,                                
|Operating Results (thousands)                                       
|Operating Revenues                                                  
|Less - Gas costs                                                    
|Gross Margin                                                        
|Net Income applicable to common stock                               
|Assets at Year-end (thousands)                                      
|Property, plant and equipment                                       
|Less - Accumulated depreciation                                     
|Net Property, Plant and Equipment                                   
|Total assets                                                        
|Capital spending                                                    
|Capitalization at Year-end (thousands)                              
|Common equity                                                       
|Long-term debt                                                      
|Total Capitalization                                                
|Financial Ratios (percent)                                          
|Common equity                                                       
|Long-term debt                                                      
|Total Capitalization                                                
|Gas Distribution Deliveries (MDth)                                  
|Sales                                                               
|Residential                                                         
|Commercial                                                          
|Industrial                                                          
|Transportation (a)                                                  
|Total Gas Distribution Deliveries                                   
|Margin per Dth delivered                                            
|Number of Customers (average)                                       
|Residential                                                         
|Commercial                                                          
|Industrial                                                          
|Transportation (a)                                                  
|Total Customers                                                     
|Degree Days                                                         
|Percent of normal (6,536)                                           
|                                                                    
|(a) Includes commercial, industrial and larger residential customers



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

RESULTS OF OPERATIONS

The Company is reporting operating income and equity investment income for each of its six business segments: Gas Distribution, Power Generation, Midstream Services, Retail Energy Services, Oil and Gas Production and Other. (See Note 2 of
the Notes to Consolidated Financial Statements.) North Shore Gas is active in the Gas Distribution segment only. Peoples Gas' main activity is in the Gas Distribution segment but is also involved in activity reported in the Midstream and Retail Energy
Services segments.

Operating Revenues

In fiscal 2000, operating revenues increased by $223.1 million (19 percent) to $1.4 billion. The Gas Distribution ($136.0 million), Midstream Services ($25.8 million), Retail Energy Services ($41.0 million) and Oil and Gas Production
($21.9 million, exclusive of equity investment income from the EnerVest partnership) segments all showed improvement over fiscal 1999. Revenues from the Power Generation segment are primarily contractual capacity payments that are reflected in equity
investment income from the Elwood partnership. The company's proportionate share of the Elwood partnership in fiscal 2000 increased by $6.7 million to $15.2 million.

Net Income

In fiscal 2000, net income for the Company decreased $6.2 million to $86.4 million, or $2.44 per share, mainly due to a $16.1 million ($9.7 million net of tax) nonrecurring charge related to the Company's mercury investigation and
remediation program. (See Note 3C of the Notes to Consolidated Financial Statements.) Net income, excluding the mercury-related charge, increased approximately four percent to $2.71 per share. Net income for fiscal 2000 and fiscal 1999 was negatively
impacted by 14 percent warmer-than-normal weather ($16.8 million and $17.1 million, respectively), however, these effects were partially mitigated in 2000 by the Company's net benefit from the weather insurance policy ($5.4 million). Increases in interest
expense ($8.1 million) and depreciation expense ($10.5 million) also had a negative impact. Positive impacts in the current periods resulted from growth in diversified segment earnings ($5.0 million), net periodic benefit costs ($5.9 million) and
settlement accounting ($3.8 million). Also affecting the year-to-year comparison were the elimination of the decommissioning liability associated with Peoples Gas' 1995 retirement of its synthetic natural gas plant ($7.8 million) and a state income tax
refund ($3.3 million).

In 1999, net income for the Company increased $13.2 million to $92.6 million, due primarily to an increase in operating income and equity investment income from diversified segments, the elimination of the decommissioning reserve associated with
the 1995 retirement of Peoples Gas' synthetic natural gas plant and a state income tax refund. These effects were partially offset by lower operating income from the gas distribution segment.

In 2000, net income for Peoples Gas decreased $4.6 million to $73.6 million, due mainly to an $8.0 million nonrecurring charge related to the mercury investigation and remediation program and to a $3.9 million increase in depreciation expense.
Both periods were also affected by 14 percent warmer than normal weather ($14.4 million and $14.8 million, respectively). Positively impacting net income were net periodic benefit costs ($5.7 million), settlement accounting ($3.6 million) and the
provision for uncollectible accounts ($1.3 million). Also affecting the variation between the two periods were the elimination of the decommissioning liability associated with the 1995 retirement of its synthetic natural gas plant ($7.8 million) and a
state income tax refund ($3.0 million).

In 1999, net income for Peoples Gas increased $9.8 million to $78.2 million, primarily as a result of the elimination of the decommissioning reserve associated with the 1995 retirement of its synthetic natural gas plant, a state income tax refund,
and an increase in income from hub activities.

In 2000, net income for North Shore Gas decreased $6.3 million to $6.2 million, primarily to an $8.1 million nonrecurring charge related to the mercury investigation and remediation program. Both periods were also effected by warmer than normal
weather ($2.4 million and 2.2 million, respectively). Positively impacting net income were net periodic benefit costs ($241,000) and settlement accounting ($181,000).

In 1999, net income for North Shore Gas decreased by $493,000 to $12.5 million, primarily as a result of increases in operation and maintenance expenses and depreciation expense, partially offset by a state income tax refund.

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

|                                                    |  | Fiscal 2000 over 1999 | Fiscal 1999 over 1998
|--------------------------------------------------- |  | --------------------- | ---------------------
|(Thousands of Dollars)                              |  | Amount                |                      
|Operating Income and Equity Investment Income       |  |                       |                      
|Gas Distribution                                    |  | $       8,546         |                      
|Power Generation                                    |  | 4,603                 |                      
|Midstream Services                                  |  | 1,377                 |                      
|Retail Energy Services                              |  | (575)                 |                      
|Oil and Gas Production                              |  | 6,892                 |                      
|Other                                               |  | (387)                 |                      
|Corporate and Adjustments                           |  | (8,467)               |                      
|Total Operating Income and Equity Investment Income |  | 11,989                |                      
|Other income and (deductions)                       |  | (14,037)              |                      
|Interest expense                                    |  | 13,408                |                      
|Income taxes                                        |  | (9,235)               |                      
|Net Income Applicable to Common Stock               |  | (6,221)               |                      
|Net Income Excluding Mercury-Related Charge         |  | 3,509                 |                      

Gas Distribution Segment

The Company's core business is the distribution of natural gas. Its two regulated utilities purchase, distribute, sell and transport natural gas to approximately one million retail customers through a 6,000-mile distribution system serving
the City of Chicago and 54 communities in northeastern Illinois. The Company also owns a storage facility in central Illinois and a pipeline which connects the facility and six major interstate pipelines to Chicago.

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. In general, the unit cost of gas does not have a significant direct effect on operating income because of the utilities' tariffs that provide for dollar-for-dollar recovery of gas costs. (See Note 1M of the Notes to Consolidated
Financial Statements.) However, unusually higher gas costs that continue for an extended period of time, could adversely affect the accrual for the provision for uncollectible accounts.

Weather in fiscal years 2000, 1999 and 1998 was warmer than normal by 14 percent, 14 percent and 15 percent, respectively, but the negative impact in 2000 was reduced substantially due to the Company's weather insurance policy. The five-year
weather insurance policy protects earnings when weather falls below 6,000 degree days. In fiscal 2000, the weather insurance accrual, net of the premium, amounted to $8.9 million. The Company will continue to retain all upside revenue potential when
weather is colder than normal.

In 2000, operating revenues for the Company increased compared to 1999 due primarily to the pass-through of higher unit costs of gas ($130.0 million) and the benefits associated with the weather insurance policy ($10.5 million). These effects were
offset, in part, by a decline of $3.6 million in gas deliveries. Operating income for the fiscal year increased $8.5 million to $163.4 million, as a result of net periodic benefit costs ($9.8 million), settlement accounting ($6.3 million), the net
benefits associated with the weather insurance policy ($8.9 million) and a decrease of $2.0 million in the provision for uncollectible accounts. Partially offsetting these positive effects were a $16.1 million nonrecurring charge related to the Company's
mercury investigation and remediation program (see Note 3C of the Notes to Consolidated Financial Statements) and an increase of $6.8 million in depreciation expense.

In 1999, operating revenues for the Company decreased compared to 1998 due mainly to lower unit costs of gas. Operating income decreased $5.4 million to $154.9 million in 1999, due chiefly to a decrease in gas deliveries. Also negatively affecting
operating income were reduced impacts of pension benefit accounting and an increase in depreciation expense due to depreciable property additions. Partially offsetting these effects were reductions in labor, group insurance expense and the provision for
uncollectible accounts.

In August 2000, Peoples Gas and North Shore Gas filed petitions with the Commission requesting approval of revised depreciation rates based on an average service life study. (See Note 1H of the Notes to Consolidated Financial Statements.) In
November 2000, the Commission issued orders approving the filed rates, which are expected to result in a reduction in depreciation expense for fiscal year 2001 and subsequent years..

In 2000, operating income for Peoples Gas increased $9.5 million to $139.9 million, due principally to net periodic benefit costs ($9.5 million), settlement accounting ($5.9 million) and the decrease in the provision for uncollectible accounts
($2.1 million). These positive impacts were offset, in part, by an $8.0 million nonrecurring charge related to the mercury investigation and remediation program and to a $6.4 million increase in depreciation expense.

In 1999, operating income decreased $3.9 million to $130.4 million for Peoples Gas due primarily to increased customer conservation, a prior period accrual adjustment, a decrease in other operating revenues, lower pension benefit costs and an
increase in depreciation expense due to depreciable property additions. Partially offsetting these effects were reductions in labor costs, group insurance expense and the provision for uncollectible accounts.

In 2000, operating income for North Shore Gas decreased $9.8 million to $14.6 million, due primarily to an $8.1 million nonrecurring charge related to the mercury investigation and remediation program. Partially offsetting this effect were the
impacts of net periodic benefit costs ($400,000) and settlement accounting ($300,000).

In 1999, operating revenues for North Shore Gas decreased $1.5 million to $24.4 million, due mainly to a decrease in gas deliveries. Also negatively affecting operating income were lower pension credits and increases in labor costs and
depreciation expense due primarily to depreciable property additions.

The Company's objectives for the Gas Distribution segment center on continuous improvement, technological advancements, safety and customer service. The Company is targeting returns on equity of 13 percent for fiscal 2001 and has no plans to file
rate cases. Operating revenues are expected to increase due to normal weather and increased gas prices. Segment operating income for fiscal 2001 is expected to improve due to anticipated normal weather, reduced operation and maintenance expense and lower
depreciation expense, partially offset by reduced consumption and increased uncollectibles expense due to higher gas prices.

Power Generation Segment

The Company is engaged in the development, construction, operation and ownership of natural gas-fired electric generation facilities for sales to electric utilities and marketers. The Company and Dominion Energy, Inc. are equal investors
in Elwood, which owns and operates a 600-megawatt peaking facility near Chicago, Illinois. Expansion of the Elwood facility has begun which will increase the generating capacity to 1,350 megawatts upon completion of construction in time to meet power
demand for summer 2001.

In 2000, operating income and equity investment income for the Company increased $4.6 million to $11.5 million, as a result of the Company's investment in the Elwood power facility that came on line in July 1999. Equity investment income, totaling
$15.2 million, was partially offset by development expenses related to the expansion of this facility ($1.1 million) and the pursuit of new power projects ($2.1 million).

Operating income and equity investment income for the Company amounted to $6.9 million in 1999, reflecting results from the Company's investment in Elwood. Equity investment income from this partnership, $8.5 million, was partially offset by labor
and other costs associated with activities related to this project and other potential power generation projects.

The Company is pursuing regional opportunities as well as further expansion of the Elwood facility, which is permitted for 3,850 megawatts in generating capacity, including 2,500 megawatts for combined-cycle power development. The Company expects
fiscal 2001 equity investment income to increase due to the 750-megawatt expansion of Elwood.

Midstream Services Segment

The Company performs wholesale activities that provide value to gas distribution marketers, utilities and pipelines. The Company, through Peoples Gas, operates a natural gas hub. It also owns and operates a natural gas liquids (NGL)
peaking facility and is active in other asset-based wholesale activities. The Company and Enron are equal partners in enovate, which will expand the Peoples Gas hub by offering additional hub services and peaking services, developing new products and
pursuing strategic asset acquisitions. The Company is also an equal partner with The Coastal Corporation in Whitecap, which is developing a pipeline to deliver natural gas to new and existing power plants in Indiana, Illinois and Wisconsin. Whitecap will
also service growth markets in existing gas utility systems.

In 2000, operating income and equity investment income for the Company increased $1.4 million to $10.4 million, due principally to a pipeline construction interconnect project ($2.2 million), and activities with Enron ($944,000). Partially
offsetting these positive impacts were increased operating expenses related to new business development ($686,000).

In 1999, operating income for the Company increased $1.6 million to $9.0 million, due primarily to an increase in operating revenues resulting from increased hub activity and additional capacity revenue from the NGL peaking facility. Partially
offsetting these increases was lower operating income from wholesale marketing.

In 2000, operating income for Peoples Gas decreased $309,000 to $5.7 million, due to increased operations ($804,000). Offsetting this effect was increased revenues ($495,000) resulting from increased hub activities.

In 1999, operating income for Peoples Gas, relative to this segment, increased $2.7 million to $6.0 million, resulting from increased hub activity.

The Company's objective is to become the primary player in the Midwest market center, developing additional hub services such as storage, transportation and title tracking while pursuing an exchange-traded Chicago contract. The enovate partnership
with Enron will enable the Company to expand its Chicago hub and gas peaking operations and pursue wholesale marketing opportunities. In early 2001 the Whitecap partners expects to file a certificate application to begin work on the 21.3-mile land-based
portion of the pipeline. The Company expects operating income and equity investment income to increase by at least 10 percent in fiscal 2001.

Retail Energy Services Segment

The Company markets gas and electricity and provides energy management and other services to retail customers through its Peoples Energy Services and Peoples Energy Home Services subsidiaries.

In 2000, operating results for the Company reflected a loss of $4.2 million, slightly more than the $3.6 million loss in 1999. Reflected in this period was a decrease of $661,000 in gross margin from gas sales as well as a nonrecurring revenue
adjustment totaling $1.4 million. Also impacting the fiscal year were positive gross margins from electricity sales ($1.2 million) as well as improved operating margins of $269,000 from Peoples Energy Home Services.

In 1999, the operating loss for the Company of $3.6 million was $408,000 less than 1998, due mainly to an increase in operating revenues from retail gas sales. Partially offsetting this improvement were increases in the cost of energy sold and
higher operating costs due to growth in infrastructure and the development of a retail electric business.

In 2000, operating results for Peoples Gas reflected a loss of $96,000, $269,000 less than the loss reflected in 1999. The variation was due to increased activity at Peoples Energy Home Services.

In 1999, Peoples Gas reflected an operating loss for this segment of $365,000 due to costs associated with Peoples Energy Home Services, a business unit providing home furnace and air conditioning maintenance services. Peoples Gas' involvement in
this segment began in fiscal 1999.

The Company is well positioned to build on it's 2000 growth. It will develop proprietary products as it participates in the electric and gas unbundling process in Illinois and adjoining states and will continue to build the necessary
infrastructure as it grows through acquisitions and direct marketing efforts. Operating income for fiscal 2001 is expected to improve as the result of higher margins from commercial and industrial gas customers and positive results from commercial and
industrial electric sales.

Oil and Gas Production Segment

The Company is active in the acquisition, development and production of reserves in selected onshore basins in North America. The Company's focus is on natural gas, with growth coming from low risk drilling opportunities and the
acquisition of proved reserves with upside potential which can be realized through drilling, production enhancements and reservoir optimization programs. Certain producing properties owned by the Company qualify for income tax credits as defined in
Section 29 of the Internal Revenue Code of 1986 (Section 29). These credits are computed based on units of production.

In 2000, operating income and equity investment income for the Company increased $6.9 million to $9.1 million, primarily as a result of working interest acquisitions and drilling programs. Partially offsetting these increases were higher operating
expenses ($4.6 million) and depletion expenses ($9.8 million). (See Note 1H of the Notes to Consolidated Financial Statements.) Net income was positively impacted by Section 29 income tax credits associated with certain producing properties ($3.8 million).

In fiscal 2000, the Company's base of proved reserves increased by 148 percent to approximately 67 Bcfe, and average daily production grew to 32 MMcfe. The Company has invested over $100.0 million in developing its reserve position and has an
additional $26.0 million investment in EnerVest Energy Investments.

In 1999, the first full year of activity, operating income and equity investment income for the Company increased $2.6 million to $2.2 million, due primarily to new investments in oil and gas properties along with successful drilling of new wells.

The Company's objective is to become a top-fifty owner of U.S. gas reserves. Existing oil and gas properties will be developed through drilling and operational enhancements. The Company will continue to hedge production in order to mitigate price
risk and will pursue oil and gas reserve acquisitions that are consistent with its growth strategy. The Company operates a limited number of its properties and is considering the expansion of its operating capabilities. Operating income in fiscal 2001 is
expected to increase due to full year impacts of reserves acquired in 2000, additional drilling and anticipated oil and gas reserve acquisitions.

Other Segment

The Company is involved in other activities such as district heating and cooling and the development of fueling stations for natural gas vehicles. The Company has invested in a venture capital fund specializing in energy-related and
telecommunication entities, providing the opportunity for attractive financial returns along with information regarding new technology developments. These and certain business development activities do not fall under the above segments and are reported in
the Other segment.

Fiscal 2000 operating revenues increased due to new customers served by the Trigen-Peoples district energy facility. Fiscal 2000 results were negatively impacted by operating expenses related to project development.

Corporate and Adjustments

This category encompasses corporate activities that support the six segments, as well as consolidating adjustments.

The decrease in operating income is mainly the result of reclassifying corporate expenses previously allocated to the business segments ($5.6 million). Also affecting the decrease were higher labor costs ($823,000), an increase in outside
professional services ($813,000) and an increase in the costs associated with the corporate branding campaign ($425,000).

Other Income and Deductions

In 2000, other income and deductions for the Company decreased $14.0 million to $5.8 million, due largely to the 1999 elimination of the decommissioning reserve associated with the 1995 retirement of Peoples Gas' synthetic natural gas
plant ($13.0 million). (See note 6 of the Notes to Consolidated Financial Statements.) Also affecting the decrease was the interest income received in 1999 on a state income tax refund ($1.4 million).

Other income and deductions for the Company increased $15.5 million to $19.8 million in 1999, due mainly to the elimination of the decommissioning reserve associated with the 1995 retirement of Peoples Gas' synthetic natural gas plant and the
interest income on a state income tax refund.

In 2000, other income and deductions for Peoples Gas decreased $15.2 million to $3.7 million, due mainly to the 1999 elimination of the decommissioning reserve associated with the 1995 retirement of Peoples Gas' synthetic natural gas plant ($13.0
million). Also contributing to the decrease was the interest income on a state income tax refund reflected in the prior period ($1.3 million) and to a decrease in the allowance for other funds used during construction ($838,000).

In 1999, other income and deductions for Peoples Gas increased by $16.8 million to $18.9 million, due primarily to the elimination of the decommissioning reserve associated with the 1995 retirement of its synthetic natural gas plant, interest
income arising from a state income tax refund, an increase in the allowance for other funds used during construction and a prior period loss on disposition of property.

In 2000, other income and deductions for North Shore Gas decreased $386,000 to $377,000, due mainly to interest income from a state income tax refund reflected in the prior period ($146,000). Also affecting the variation was a decrease in interest
income on bond proceeds held by the trustee ($140,000) and to a reduction in interest income accrued on the construction fund ($115,000).

In 1999, other income and deductions for North Shore Gas increased by $349,000 to $763,000 , primarily due to interest income arising from a state income tax refund.

Interest Expense

In 2000, interest expense for the Company increased $13.4 million to $52.9 million, due mainly to an increase in interest on short-term borrowings of Peoples Energy ($5.1 million) and Peoples Gas ($2.8 million). Partially offsetting this
effect was a decrease of $2.3 million in interest on utility long-term debt due to refinancing and to a decline in interest paid on customer budget plan accounts ($709,000).

Proceeds from Peoples Energy's short-term borrowings are being used to fund diversified segment operations pending permanent financing. Proceeds from Peoples Gas' and North Shore Gas' short-term borrowings are being used to address seasonal
working capital needs.

Interest expense for the Company increased $966,000 to $39.5 million in 1999 due primarily to increased interest on short-term debt, offset, in part, by increases in capitalized interest and the allowance for borrowed funds used during construction.

In 2000, interest expense for Peoples Gas increased $1.0 million to $33.6 million, due mainly to an increase in interest on short-term borrowings ($2.8 million). Partially offsetting this effect was a decrease in interest on long term debt ($2.1
million) and decline in interest paid on customer budget accounts ($604,000).

In 1999, interest expense for Peoples Gas decreased $522,000 to $32.6 million, primarily due to an increase in the allowance for borrowed funds used during construction and to a decrease in interest on long-term debt, partially offset by increases
in other interest expense, including carrying charges on an environmental insurance recovery.

In 2000, interest expense for North Shore Gas decreased $163,000 to $5.1 million, due primarily to a decrease in interest on long term debt ($156,000) offset, in part, by an increase in interest on short-term borrowings ($42,000).

In 1999, interest expense for North Shore Gas decreased by $88,000 to $5.3 million, primarily due to a decrease in interest expense on promissory notes and interest income on a construction fund, partially offset by an increase in carrying charges
on an environmental insurance recovery and an increase in interest on long-term debt.

Income Taxes

In 2000, income taxes for the Company decreased $9.2 million to $43.3 million, due principally to lower pretax income and to $3.8 million in Section 29 tax credits associated with production from a reserve acquisition in December 1999.
Offsetting these impacts was a $1.9 million state income tax refund reflected in last year's results.

In 1999, income taxes for the Company increased $7.5 million to $52.6 million, due mainly to higher pretax income. Fiscal year 1999 also includes a tax accrual adjustment for a state income tax refund.

In 2000, income taxes for Peoples Gas decreased $2.2 million to $42.0 million, due mainly to lower pretax income. Partially offsetting this effect was the state income tax refund reflected in the prior period ($1.7 million).

In 1999, income taxes increased for Peoples Gas $5.9 million to $44.1 million due primarily to higher pretax income, offset by a state income tax refund.

In 2000, income taxes for North Shore Gas decreased $3.7 million to $3.7 million, due mainly to lower pretax income offset, in part, by the state income tax refund reflected in the prior period ($195,000).

In 1999, income taxes for North Shore Gas decreased $729,000 to $7.4 million, primarily due to lower pretax income and to a state income tax refund.

Fiscal 2001 Earnings Outlook

The Company expects its earnings per share for fiscal 2001 to be in the range of $3.05 and $3.15, assuming normal weather, based on a new normal based on a 30-year O'Hare average. The financial target for the gas distribution segment is to
achieve a 13 percent return on common equity. The target for the diversified business segments is to achieve between 16 percent and 20 percent of the Company's total earnings from such segments, based on an Earnings Before Income Taxes (EBIT) range
between $35 and $40 million.

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 of the Company. As discussed
previously, the Company purchased a weather insurance policy to partially mitigate the effect of warmer than normal weather.

Recent Accounting Pronouncements. In March 2000, the Financial Accounting Standards Board issued interpretation No. 44 (FIN 44) "Accounting for Certain Transactions Involving Stock Compensation (an interpretation of APB Opinion No. 25)." (See
Note 1R of the Notes to Consolidated Financial Statements.)

On December 3, 1999, the SEC staff issued Staff Accounting Bulletin No. 101 Revenue Recognition in Financial Statements (SAB 101). The Company plans to implement SAB 101 in fiscal year 2001. (See Note 1R of the Notes to Consolidated Financial
Statements.)

In October 1999, the Company adopted the Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." (See Note 1R of the Notes to Consolidated Financial Statements.)

In June 1998, as amended in June 1999 by Statement of Financial Accounting Standards (SFAS) No. 137 and further amended in June 2000 by SFAS No. 138, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." (See Note 1R of the Notes to Consolidated Financial Statements.) The Company will adopt the new standard in the first quarter of fiscal 2001. As a result of the adoption of this SFAS No. 133 effective October 1, 2000,
the Company will recognize a hedge liability of $38.7 million, a $57,000 reduction of Retained Earnings, an increase to deferred tax assets of $15.3 million and an increase of $23.3 million to Other Comprehensive Income. The hedged liability offsets the
projected increased cash flows from the hedge transactions.

COMPETITION AND DEREGULATION

Competition in varying degrees exists between natural gas and other fuels or forms of energy available to consumers in the Midwest and the utilities' respective service territories.

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, were
able to purchase electric power from the supplier of their choice beginning on October 1, 1999. All non-residential customers will have this choice by December 31, 2000. All residential customers will be given this 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 percent of its Illinois jurisdictional capitalization, to be financed by a specific charge to its customers. An electric
utility also may transfer up to 15 percent of its assets to an affiliated or unaffiliated entity without approval from the 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, reduced their residential rates by 15 percent on August 1, 1998, and, one must reduce its residential rates by another five percent on October 1, 2001,
and the other must do so 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. At
this time management cannot determine the effects that 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.



Operating Statistics The following table represents gross margin components and delivery statistics for the Company:

|                                    | For fiscal years ended September 30,
|----------------------------------- | ------------------------------------
|                                    | 2000                                
|Revenues (thousands):               |                                     
|Gas Distribution                    |                                     
|Sales                               |                                     
|Residential                         |                                     
|Heating                             | $   788,990                         
|Non-heating                         | 47,771                              
|Commercial                          | 122,350                             
|Industrial                          | 22,676                              
|                                    | 981,787                             
|                                    |                                     
|Transportation                      |                                     
|Residential                         | 33,041                              
|Commercial                          | 43,829                              
|Industrial                          | 24,755                              
|Contract Pooling                    | 7,691                               
|                                    |                                     
|                                    | 109,316                             
|                                    |                                     
|Other Gas Distribution Revenues     | 25,038                              
|                                    |                                     
|Diversified Segment Revenues        | 301,392                             
|                                    |                                     
|Total Operating Revenues            | 1,417,533                           
|Less - Cost of Energy Sold          | 746,619                             
|                                    |                                     
|Gross Margin                        | $   670,914                         
|                                    |                                     
|Gas Distribution Deliveries (MDth): |                                     
|Gas Sales                           |                                     
|Residential                         |                                     
|Heating                             | 114,412                             
|Non-heating                         | 3,402                               
|Commercial                          | 18,974                              
|Industrial                          | 4,003                               
|                                    | 140,791                             
|                                    |                                     
|Transportation (a)                  |                                     
|Residential                         | 23,206                              
|Commercial                          | 40,896                              
|Industrial                          | 34,708                              
|                                    | 98,810                              
|                                    |                                     
|Total Gas Distribution Deliveries   | 239,601                             

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



Operating Statistics The following table represents gross margin components and delivery statistics for Peoples Gas:

|                                    |  | For fiscal years ended September 30,
|----------------------------------- |  | ------------------------------------
|                                    |  | 2000                                
|Net Operating Revenues (thousands): |  |                                     
|Gas Distribution                    |  |                                     
|Sales                               |  |                                     
|Residential                         |  |                                     
|Heating                             |  | $   667,503                         
|Non-heating                         |  | 46,584                              
|Commercial                          |  | 103,195                             
|Industrial                          |  | 18,780                              
|                                    |  | 836,062                             
|                                    |  |                                     
|Transportation                      |  |                                     
|Residential                         |  | 31,751                              
|Commercial                          |  | 38,453                              
|Industrial                          |  | 21,423                              
|Contract Pooling                    |  | 6,877                               
|                                    |  | 98,504                              
|                                    |  |                                     
|Other Gas Distribution Revenues     |  | 13,630                              
|                                    |  |                                     
|Diversified Segment Revenues        |  | 8,373                               
|                                    |  |                                     
|Total Operating Revenues            |  | 956,569                             
|Less - Gas Costs                    |  | 421,777                             
|                                    |  |                                     
|Gross Margin                        |  | $   534,792                         
|                                    |  |                                     
|Gas Distribution Deliveries (MDth): |  |                                     
|Gas Sales                           |  |                                     
|Residential                         |  |                                     
|Heating                             |  | 95,382                              
|Non-heating                         |  | 3,268                               
|Commercial                          |  | 15,766                              
|Industrial                          |  | 3,272                               
|                                    |  | 117,688                             
|                                    |  |                                     
|Transportation (a)                  |  |                                     
|Residential                         |  | 22,469                              
|Commercial                          |  | 35,447                              
|Industrial                          |  | 29,282                              
|                                    |  | 87,198                              
|                                    |  |                                     
|Total Gas Distribution Deliveries   |  | 204,886                             

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



Operating Statistics The following table represents gross margin components and delivery statistics for North Shore Gas:

|                                    |                                 |                  |     | For fiscal years ended September 30,
|----------------------------------- | ------------------------------- | ---------------- | --- | ------------------------------------
|                                    |                                 |                  |     | 2000                                
|Net Operating Revenues (thousands): |                                 |                  |     |                                     
|                                    | Gas Distribution                |                  |     |                                     
|                                    | Sales                           |                  |     |                                     
|                                    |                                 | Residential      |     |                                     
|                                    |                                 | Heating          |     | $ 121,487                           
|                                    |                                 | Non-heating      |     | 1,187                               
|                                    |                                 | Commercial       |     | 19,155                              
|                                    |                                 | Industrial       |     | 3,896                               
|                                    |                                 |                  |     | 145,725                             
|                                    |                                 |                  |     |                                     
|                                    | Transportation                  |                  |     |                                     
|                                    |                                 | Residential      |     | 1,290                               
|                                    |                                 | Commercial       |     | 5,376                               
|                                    |                                 | Industrial       |     | 3,332                               
|                                    |                                 | Contract Pooling |     | 814                                 
|                                    |                                 |                  |     | 10,812                              
|                                    |                                 |                  |     |                                     
|                                    | Other Gas Distribution Revenues |                  | 909 |                                     
|                                    |                                 |                  |     |                                     
|Total Operating Revenues            |                                 | 157,446          |     | 135,720                             
|Less - Gas Costs                    |                                 | 84,384           |     | 63,695                              
|                                    |                                 |                  |     |                                     
|Gross Margin                        |                                 | $   73,062       |     | $   72,025                          
|                                    |                                 |                  |     |                                     
|Deliveries (MDth):                  |                                 |                  |     |                                     
|                                    | Gas Sales                       |                  |     |                                     
|                                    |                                 | Residential      |     |                                     
|                                    |                                 | Heating          |     | 19,030                              
|                                    |                                 | Non-heating      |     | 134                                 
|                                    |                                 | Commercial       |     | 3,208                               
|                                    |                                 | Industrial       |     | 731                                 
|                                    |                                 |                  |     | 23,103                              
|                                    |                                 |                  |     |                                     
|                                    | Transportation (a)              |                  |     |                                     
|                                    |                                 | Residential      |     | 737                                 
|                                    |                                 | Commercial       |     | 5,449                               
|                                    |                                 | Industrial       |     | 5,426                               
|                                    |                                 |                  |     | 11,612                              
|                                    |                                 |                  |     |                                     
|Total Gas Sales and Transportation  |                                 | 34,715           |     | 35,123                              

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



LIQUIDITY AND CAPITAL RESOURCES

Source of Funds

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

Due to the seasonal nature of gas usage, a major portion of 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 from time to time 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 market conditions and
capital structure considerations.

The Company has lines of credit of $270.0 million. At September 30, 2000, the Company had unused credit available from banks of $5.2 million. The utility subsidiaries have aggregate available lines of credit of $190.0 million. At September 30,
2000, the utility subsidiaries had unused credit available from banks of $66.9 million. (See Note 12 of the Notes to Consolidated Financial Statements.)

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

The long-term debt of both gas distribution 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 subsidiaries has the top rating from the major rating agencies.

Capital Spending

Capital spending for the Company totaled $247.7 million in 2000, $234.2 million in 1999, and $143.1 million in 1998.

Capital spending for the Company for fiscal 2000 increased $13.5 million from fiscal 1999, due largely to an increase of $65.1 million associated with the acquisition of oil and gas producing properties. Offsetting factors were the implementation
of the C-first customer information system in February of 2000 and to the completion of the initial phase of the Elwood facility in July 1999.

Capital spending for the Company for fiscal 1999 increased $91.1 million from fiscal 1998, due principally to a $57.6 million increase from the initial phase of the Elwood facility which began supplying electricity to customers in July 1999. Also
contributing was an increase of $11.8 million associated with the oil and gas producing properties, an increase of $4.9 million for the SureRead automated meter reading system and an additional $6.7 million for the C-first customer information system.

Capital spending for Peoples Gas totaled $96.7 million in 2000, $115.5 million in 1999 and $94.4 million in 1998.

In 2000, capital spending for Peoples Gas decreased $18.8 million from fiscal 1999, due to the implementation of the C-first customer information system in February of 2000.

Capital spending for Peoples Gas for fiscal 1999 increased $21.1 million due primarily to an increase of $4.9 million associated with the SureRead remote automated meter reading system and additional spending for the C-first customer information
system of $6.7 million.

Capital spending for North Shore Gas totaled $10.8 million in 2000, $14.6 million in 1999 and $11.1 million in 1998.

In 2000, capital spending for North Shore Gas declined $3.8 million from fiscal 1999, due largely to the implementation of the C-first customer information system in February of 2000.

Capital spending for North Shore Gas increased $3.5 million in 1999. The amount reflects a level that is consistent with the Company's financial goals.

Capital spending in fiscal 2001 is expected to total approximately $110.0 million for the gas distribution segment and approximately $159.0 million for the diversified business segments. This amount is approximately $22.0 million higher than 2000,
due mainly to the 750-megawatts expansion of the Elwood facility. The potential exists for additional spending as opportunities that are consistent with the Company's strategy are pursued.

Cash Flow Activities

Net cash provided by operating activities for the Company declined $138.5 million in fiscal 2000, due principally to changes related to net receivables ($48.1 million), gas costs recoverable ($37.0 million), accrued taxes ($11.4 million)
and other assets ($2.9 million).

Net cash provided by operating activities for the Company increased $26.3 million in fiscal 1999, due chiefly to an increase in net income and changes in other assets and accounts payable. Partially offsetting these items were changes in net
receivables, deferred credits and other liabilities and gas costs recoverable.

Net cash used in investing activities for the Company for 2000 and 1999 largely represents the level of capital expenditures and equity investments (capital spending) for the Company and its subsidiaries in the year. Also contributing to the
change in investing activities were advances to joint venture partnerships.

In 2000, net cash provided by financing activities for the Company increased $212.5 million, reflecting the issuance of variable rate notes and increased short-term debt, partially offset by the repurchase of 249,100 shares of Company common
stock. (See Note 12 of the Notes to Consolidated Financial Statements.)

In 1999, net cash provided by financing activities for the Company increased $98.0 million, due mainly to increased short-term borrowing by the Company to fund activities of its diversified business segments and the issuance of long-term debt by
the utilities, offset by the retirement of long-term debt and the payment of dividends.

In 2000, net cash provided by operating activities for Peoples Gas decreased $90.3 million due primarily to changes in other assets, net receivables, gas costs recoverable and accrued taxes. Partially offsetting these decreases was an increase in
accounts payable.

Net cash provided by operating activities for Peoples Gas increased $33.9 million in fiscal 1999, due primarily to changes in deferred charges, accounts payable, and gas in storage, as well as an increase in net income, partially offset by changes
in other deferred credits and other liabilities, receivables - net, and accrued unbilled revenues.

In 2000, net cash used in investing activities by Peoples Gas declined $9.7 million, due principally to the implementation of the C-first customer information system in February 2000.

In 2000, net cash used in financing activities by Peoples Gas increased $78.8 million, reflecting the new issuance of variable rate notes.

Net cash used in financing activities by Peoples Gas decreased $8.8 million in fiscal 1999, primarily due to a reduction in dividends paid on common stock, partially offset by the retirement of long-term debt.

In 2000, net cash provided by operating activities for North Shore Gas declined $16.7 million, due to changes in gas costs recoverable, accrued taxes and other assets.

Net cash provided by operating activities for North Shore Gas decreased $7.8 million in fiscal 1999, due primarily to changes in other deferred credits and other liabilities, receivables net, deferred income taxes and investment tax credits net,
and gas costs recoverable, partially offset by changes in deferred charges and accrued taxes.

In 2000, net cash used in investing activities by North Shore Gas decreased $19.5 million, due principally to the implementation of the C-first customer information system in February of 2000.

Net cash used in investing activities by North Shore Gas in fiscal 1999 increased $ 11.4 million due to an increase in capital expenditures and to a temporary cash investment.

In 2000, net cash used in financing activities by North Shore Gas declined $1.7 million, due to the increase in short-term debt.

Net cash used in financing activities by North Shore Gas decreased $10.5 million in fiscal 1999, due to the issuance of long-term debt, a reduction in dividends paid on common stock, and the prior year's repayment of short-term debt, partially
offset by the retirement of long-term debt.

Financing Activities

On July 26, 2000, the Company issued $100 million Floating Rate Notes (the "Notes"), due August 1, 2002. The Notes are redeemable at the option of the Company in whole, beginning on February 1, 2001 and quarterly thereafter, at a
redemption price equal to 100 percent of the principal amount. The net proceeds from the sale of the Notes were applied to the reduction of short-term indebtedness.

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 were redeemed on October 1, 1998.

There are no sinking fund requirements for long-term debt due in fiscal 2001. (See Notes 12A and 12B of the Notes to Consolidated Financial Statements.)

The Company anticipates that the gas distribution 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 or the issuance of short-term debt, and periodic long-term financing involving equity or the utilities' first mortgage bonds.

The capital needs of the Company's diversified businesses have been met through equity investments, funded, in part, by the issuance of short-term debt and medium-term notes. The Company has established a $250.0 million commercial paper program
for this purpose. (See Note 12 of the Notes to Consolidated Financial Statements.) Capital needs for future investments will be met through equity contributions, short- and long-term debt financing, project based financing and internally generated funds.

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, 2000, such restrictions amounted
to $11.6 million out of North Shore Gas' total retained earnings of $69.3 million. (See Note 9 of the Notes to Consolidated Financial Statements.)

Interest Coverage

The fixed charges coverage ratios for Peoples Gas and North Shore Gas for fiscal 2000, 1999 and 1998 are as follows:



|Fiscal years    | 2000 | 1999 | 1998
|--------------- | ---- | ---- | ----
|Peoples Gas     | 4.35 | 4.59 | 4.15
|North Shore Gas | 2.92 | 4.77 | 5.07

The decrease in the ratio for Peoples Gas in 2000 reflects lower pretax income and slightly higher interest expense. The decrease in the ratio for North Shore Gas in 2000 is due to lower pretax income offset by slightly lower interest expense.

The increase in the ratio for Peoples Gas in 1999 reflects higher pretax income and slightly higher interest expense. The decrease in the ratio for North Shore Gas in 1999 is due to lower pretax income and higher interest expense.

Commitments

The gas distribution and power generation segments have capital commitments of approximately $5.0 million and $92.7 million, respectively, at September 30, 2000. Peoples Gas and North Shore Gas have commitments of approximately $4.2 million
and $800,000, respectively, at September 30, 2000.

Environmental Matters

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

In 1994, North Shore Gas received a demand from a responsible party under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (CERCLA), for reimbursement, indemnification and contribution for response costs
incurred at a former mineral processing site in Denver, Colorado. North Shore Gas filed a declaratory judgment action asking the court to declare that North Shore Gas is not liable for response costs relating to the site. 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. In 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 3B of the Notes to Consolidated Financial Statements.)

Peoples Gas and North Shore Gas are conducting a mercury inspection and remediation program. (See Note 3C of the Notes to Consolidated Financial Statements.)

Market Risk Management and Trading Activities

Commodity Price Risk. The Company uses forward contracts and financial instruments, including futures, swaps, collars and options, to manage its exposure to certain commodity price risks in its subsidiaries' operations. These risks occur
because of the changing prices of natural gas, power, crude oil, ethane and propane. Except as discussed below for enovate, the Company's policy for risk management activities stipulates that such financial instruments are only to be used for management
of price risk. (See Note 1O of the Notes to Consolidated Financial Statements.) The Company monitors and controls derivative and related physical positions using a mark-to-market (MTM) analysis. This analysis provides information on credit exposure as
well as the current value of the portfolio.

Peoples Gas and North Shore Gas 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 Note 1M of the Notes to Consolidated Financial Statements.)

Investments by the Company's diversified businesses 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 the operating unit's and the Company's senior management are kept apprised of any remaining market risk through daily MTM reports.

The Company has working interests in natural gas and crude oil producing properties. Using swaps and options, approximately 74 percent of the production for the next twelve months is hedged, thereby removing market risk on that portion of the
production. 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 should be substantially offset by
an equal gain in value resulting from the financial transaction. Sensitivity analyses are used to estimate the Company's price exposure to the market risk of its physical natural gas and oil reserves and related financial instruments used to mitigate the
price exposure. As of September 30, 2000, the sensitivity analysis for oil and gas producing properties demonstrated an instantaneous 10 percent adverse movement in the NYMEX forward curve for natural gas and oil would have reduced future EBIT by
approximately $4 million.

The Company sells fixed price and variable priced products as part of its retail energy services. Risk is reduced through the use of fixed price supplier contracts, risk management trading and the use of storage assets. As of September 30, 2000
and 1999, exposure from these activities was not material.

The Elwood partnership owns a natural gas-fired electric generating peaking facility. Elwood has agreed to sell all of the facility's current generation capacity and energy produced at fixed demand and commodity charges under multi-year contracts.
Therefore, Elwood has no price risk on its power sales during the term of these contracts. However, it does bear fuel price risk on a portion of its output when natural gas prices exceed its targeted weighted-average cost of gas. The partnership has
implemented a comprehensive risk management program that is intended to reduce price risk, stabilize cash flow and extract maximum value from its investment. The program includes limits to minimize the threat of loss through market movements, daily review
of price exposure and frequent senior management review. As of September 30, 2000, Elwood had open derivative instruments for hedges of 7.3 Bcf of natural gas purchases.

The Company has an equity investment in enovate. It may participate in trading activities other than for hedging purposes and hold a number of open, uncovered positions. It is subject to position, dollar and Value at Risk loss limits established
by the Company and Enron through the risk management policy of enovate. Management believes that these maximum loss limits are at a level such that any adverse results from such trading activity would not have a material adverse effect on the results of
operations or the financial condition of the Company.

Credit Risk. The Company is also exposed to credit risk in the event a hedging transaction counterparty or supplier defaults on a contract to pay for or deliver product at agreed-upon terms and conditions. To mitigate this risk, the Company has
established procedures to determine and monitor the creditworthiness of counterparties. Transactions are executed only with counterparties 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 counterparties to fail to meet their contractual obligations with these controls in place.

Interest Rate Risk. Interest rate risk generally is related to the Company's and its gas distribution subsidiaries' outstanding debt. A sensitivity analysis methodology is being utilized to determine potential loss of future earnings, fair
values, or cash flows from market risk sensitive instruments over a selected time period due to hypothetical changes in interest rates.

The Company manages its interest rate risk exposure by maintaining a mix of fixed and variable rate debt. Based on the Company's current mix of $302.0 million in variable rate bonds and notes and $368.0 million in other short-term borrowings,
assuming interest rates are 10 percent higher than the rates reported at the end of September 30, 2000, the Company's annualized interest expense would increase by approximately $3.8 million before considering the effect of income taxes.

FORWARD LOOKING INFORMATION

This Management's Discussion and Analysis contains statements that may be considered forward-looking, such as management's expectations, the statement of the Company's financial goal regarding diversified earnings, the effect of weather on
net income, cash position, source of funds, coverage ratios, credit lines and financing activities, market risk, completion of the Elwood facility expansion, and the insignificant effect on income arising from changes in revenue from customers' gas
purchases from entities other than the gas distribution utility subsidiaries, and environmental matters. 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, including but not limited to the effect of unusually high gas prices on accounts receivable and the provision for uncollectible accounts, and interest rates;
- Litigation concerning North Shore Gas' liability for CERCLA response costs relating to a former mineral processing site in Denver, Colorado;
- Developments regarding Peoples Gas' and North Shore Gas' mercury investigation and remediation program;
- Regulatory developments in the U.S., or in Illinois and other states where the Company does business;
- 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; and
- The Company's success in identifying diversified business segment projects on financially acceptable terms and generating earnings from projects in a reasonable time.

Some of these uncertainties that may affect future results are discussed in more detail under the captions "Competition," "Sales and Rates," "State Legislation and Regulation," "Federal Legislation and Regulation," "Environmental Matters," and
"Current Gas Supply" in "Item 1 - Business" of this Annual Report on Form 10-K. All forward-looking statements included in this MD&A are based upon information presently available, and the Company assumes no obligation to update any forward-looking
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 1O of the Notes to Consolidated
Financial Statements.



ITEM 8. Financial Statements and Supplementary Data

|                                                                                                         |  | Page
|-------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                         |  |     
|Statement of Management's Responsibility                                                                 |  | 38  
|                                                                                                         |  |     
|Report of Independent Public Accountants                                                                 |  |     
|Peoples Energy                                                                                           |  | 39  
|Peoples Gas                                                                                              |  | 40  
|North Shore Gas                                                                                          |  | 41  
|                                                                                                         |  |     
|Consolidated Statements of Income for Fiscal Years Ended
September 30, 2000, 1999 and 1998               |  |     
|Peoples Energy                                                                                           |  | 42  
|Peoples Gas                                                                                              |  | 47  
|North Shore Gas                                                                                          |  | 51  
|                                                                                                         |  |     
|Consolidated Statements of Stockholders' Equity for Fiscal
Years Ended September 30, 2000, 1999 and 1998 |  |     
|Peoples Energy                                                                                           |  | 45  
|Peoples Gas                                                                                              |  | 50  
|North Shore Gas                                                                                          |  | 55  
|                                                                                                         |  |     
|Consolidated Balance Sheets at September 30, 2000 and 1999                                               |  |     
|Peoples Energy                                                                                           |  | 43  
|Peoples Gas                                                                                              |  | 48  
|North Shore Gas                                                                                          |  | 53  
|                                                                                                         |  |     
|Consolidated Capitalization Statements at September 30, 2000 and 1999                                    |  |     
|Peoples Energy                                                                                           |  | 44  
|Peoples Gas                                                                                              |  | 49  
|North Shore Gas                                                                                          |  | 54  
|                                                                                                         |  |     
|Consolidated Statements of Cash Flows for Fiscal Years Ended
September 30, 2000, 1999 and 1998           |  |     
|Peoples Energy                                                                                           |  | 46  
|Peoples Gas                                                                                              |  | 51  
|North Shore Gas                                                                                          |  | 56  
|                                                                                                         |  |     
|Notes to Consolidated Financial Statements                                                               |  | 57  





STATEMENT OF MANAGEMENT'S RESPONSIBILITY

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

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

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

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





REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To Shareholders of Peoples Energy Corporation:



We have audited the accompanying consolidated balance sheets and consolidated capitalization statements of Peoples Energy Corporation (an Illinois corporation) and subsidiary companies at September 30, 2000 and 1999, and the related
consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended September 30, 2000. 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 auditing standards generally accepted in the United States. 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, 2000 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended September 30, 2000, in conformity with accounting principles generally accepted in the United States.

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







ARTHUR ANDERSEN LLP







Chicago, Illinois

October 27, 2000





REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To The Peoples Gas Light and Coke Company:

We have audited the accompanying consolidated balance sheets and consolidated capitalization statements of The Peoples Gas Light and Coke Company (an Illinois corporation, hereinafter referred to as the Company and a wholly owned subsidiary of
Peoples Energy Corporation) and subsidiary companies at September 30, 2000 and 1999, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended September 30, 2000. 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 auditing standards generally accepted in the United States. 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 the Company and subsidiary companies at September 30, 2000 and 1999, and the results of their operations and their cash
flows for each of the three years in the period ended September 30, 2000, in conformity with accounting principles generally accepted in the United States.

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







ARTHUR ANDERSEN LLP







Chicago, Illinois

October 27, 2000





REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To North Shore Gas Company:

We have audited the accompanying consolidated balance sheets and consolidated capitalization statements of North Shore Gas Company (an Illinois corporation, hereinafter referred to as the Company and a wholly owned subsidiary of Peoples Energy
Corporation) and subsidiary companies at September 30, 2000 and 1999, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended September 30, 2000. 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 auditing standards generally accepted in the United States. 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 the Company and subsidiary companies at September 30, 2000 and 1999, and the results of their operations and their cash
flows for each of the three years in the period ended September 30, 2000, in conformity with accounting principles generally accepted in the United States.

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







ARTHUR ANDERSEN LLP







Chicago, Illinois

October 27, 2000





|Peoples Energy Corporation                                                              
|----------------------------------------------------------------------------------------
|CONSOLIDATED STATEMENTS OF INCOME                                                       
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Operating Revenues                                                                      
|                                                                                        
|Operating Expenses:                                                                     
|Cost of energy sold                                                                     
|Operation and maintenance                                                               
|Depreciation, depletion and amortization  (see Note 1H)                                 
|Taxes - other than income taxes                                                         
|Total Operating Expenses                                                                
|                                                                                        
|Operating Income                                                                        
|                                                                                        
|Equity Investment Income                                                                
|                                                                                        
|Total Operating Income and Equity Investment Income                                     
|                                                                                        
|Other Income and (Deductions)  (see Note 6)                                             
|                                                                                        
|Interest Expense                                                                        
|                                                                                        
|Earnings Before Income Taxes                                                            
|                                                                                        
|Income Taxes                                                                            
|                                                                                        
|Net Income                                                                              
|                                                                                        
|Average Shares of Common Stock Outstanding                                              
|                                                                                        
|Basic Earnings Per Share of Common Stock                                                
|                                                                                        
|Diluted Earnings Per Share of Common Stock                                              
|                                                                                        
|The Notes to Consolidated Financial Statements are an integral part of these statements.





|Peoples Energy Corporation                                                              
|----------------------------------------------------------------------------------------
|CONSOLIDATED BALANCE SHEETS                                                             
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|ASSETS                                                                                  
|CAPITAL INVESTMENTS:                                                                    
|Property, plant and equipment, at original cost                                         
|Less - Accumulated depreciation and depletion                                           
|Net property, plant and equipment                                                       
|Other investments                                                                       
|Total Capital Investments - Net                                                         
|CURRENT ASSETS:                                                                         
|Cash and cash equivalents                                                               
|Temporary investments and special deposits                                              
|Advances to joint venture partnerships (see Note 16)                                    
|Receivables -                                                                           
|Customers, net of allowance for uncollectible                                           
|accounts of $24,958 and $22,335, respectively                                           
|Other                                                                                   
|Accrued unbilled revenues                                                               
|Materials and supplies, at average cost                                                 
|Gas in storage, last-in, first-out cost                                                 
|Gas costs recoverable through rate adjustments                                          
|Regulatory assets of subsidiaries (see Note 1I)                                         
|Prepayments                                                                             
|Total Current Assets                                                                    
|OTHER ASSETS:                                                                           
|Prepaid pension costs                                                                   
|Non-current regulatory assets of subsidiaries (see Note 1I)                             
|Deferred charges                                                                        
|Total Other Assets                                                                      
|Total Assets                                                                            
|                                                                                        
|                                                                                        
|CAPITALIZATION AND LIABILITIES                                                          
|Capitalization (see Consolidated Capitalization Statements)                             
|                                                                                        
|CURRENT LIABILITIES:                                                                    
|Short-term debt                                                                         
|Accounts payable                                                                        
|Dividends payable on common stock                                                       
|Customer gas service and credit deposits                                                
|Accrued taxes                                                                           
|Gas sales revenue refundable through rate adjustments                                   
|Accrued interest                                                                        
|Total Current Liabilities                                                               
|DEFERRED CREDITS AND OTHER LIABILITIES:                                                 
|Deferred income taxes (see Note 8C)                                                     
|Investment tax credits being amortized over                                             
|the average lives of related property                                                   
|Other                                                                                   
|Total Deferred Credits and Other Liabilities                                            
|Total Capitalization and Liabilities                                                    
|                                                                                        
|The Notes to Consolidated Financial Statements are an integral part of these statements.





|Peoples Energy Corporation                                                              
|----------------------------------------------------------------------------------------
|CONSOLIDATED CAPITALIZATION STATEMENTS                                                  
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Common Stockholders' Equity:                                                            
|Common stock, without par value -                                                       
|Authorized 60,000,000 shares                                                            
|Outstanding 35,544,405 and 35,489,242 shares, respectively                              
|Retained earnings                                                                       
|Treasury stock (248,200 shares, at cost)                                                
|Accumulated other comprehensive income                                                  
|Total Common Stockholders' Equity                                                       
|                                                                                        
|Long-Term Debt:                                                                         
|Exclusive of sinking fund payments and maturities                                       
|due within one year                                                                     
|Peoples Energy Corporation                                                              
|Variable Rate Notes - due August 1, 2002                                                
|The Peoples Gas Light and Coke Company                                                  
|First and Refunding Mortgage Bonds -                                                    
|6.875% Series X, due March 1, 2015                                                      
|7.50% Series Y, due March 1, 2015, redeemed                                             
|April 3, 2000 (see Note 12C)                                                            
|7.50% Series Z, due March 1, 2015                                                       
|April 3, 2000 (see Note 12C)                                                            
|8.10% Series BB, due May 1, 2020                                                        
|April 3, 2000 (see Note 12C)                                                            
|6.37% Series CC, due May 1, 2003                                                        
|5-3/4% Series DD, due December 1, 2023                                                  
|Adjustable Rate Series EE (3.20% through November 30, 1999)                             
|due December 1, 2023 (see Notes 12B and 12E)                                            
|6.10% Series FF, due June 1, 2025                                                       
|North Shore Gas Company                                                                 
|First Mortgage Bonds -                                                                  
|8% Series J, due November 1, 2020                                                       
|6.37% Series L, due May 1, 2003                                                         
|5.00% Series M, due December 1, 2028                                                    
|Total Long-Term Debt                                                                    
|Total Capitalization                                                                    
|                                                                                        
|The Notes to Consolidated Financial Statements are an integral part of these statements.





|Peoples Energy Corporation                                                              
|----------------------------------------------------------------------------------------
|CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY                                          
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|(Thousands)                                                                             
|Beginning Balance, October 1, 1999                                                      
|Comprehensive Income                                                                    
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Total Comprehensive Income                                                              
|Common Stock issued                                                                     
|Treasury Stock                                                                          
|Dividends declared on common stock                                                      
|Ending balance, September 30, 2000                                                      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Beginning Balance, October 1, 1998                                                      
|Comprehensive Income                                                                    
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Total Comprehensive Income                                                              
|Common Stock issued                                                                     
|Dividends declared on common stock                                                      
|Ending balance, September 30, 1999                                                      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Beginning Balance, October 1, 1997                                                      
|Comprehensive Income                                                                    
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Total Comprehensive Income                                                              
|Common Stock issued                                                                     
|Dividends declared on common stock                                                      
|Ending balance, September 30, 1998                                                      
|                                                                                        
|The Notes to Consolidated Financial Statements are an integral part of these statements.





|Peoples Energy Corporation                                                              
|----------------------------------------------------------------------------------------
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                                   
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Operating Activities:                                                                   
|Net Income                                                                              
|Adjustments to reconcile net income to net cash:                                        
|Depreciation, depletion and amortization                                                
|Per statement of income                                                                 
|Charged to other accounts                                                               
|Deferred income taxes and investment tax credits - net                                  
|Change in deferred credits and other liabilities                                        
|Change in other assets                                                                  
|Undistributed earnings from equity investments                                          
|Change in current assets and liabilities:                                               
|Receivables - net                                                                       
|Accrued unbilled revenues                                                               
|Materials and supplies                                                                  
|Gas in storage                                                                          
|Gas costs recoverable                                                                   
|Regulatory assets                                                                       
|Prepayments                                                                             
|Accounts payable                                                                        
|Customer gas service and credit deposits                                                
|Accrued taxes                                                                           
|Gas sales revenue refundable                                                            
|Accrued interest                                                                        
|Net Cash Provided by Operating Activities                                               
|                                                                                        
|Investing Activities:                                                                   
|Capital spending (see Note 2)                                                           
|Temporary investments and special deposits                                              
|Advances to joint venture partnerships                                                  
|Other assets                                                                            
|Net Cash Used in Investing Activities                                                   
|                                                                                        
|Financing Activities:                                                                   
|Short-term debt                                                                         
|Issuance of long-term debt                                                              
|Retirement of long-term debt of subsidiaries                                            
|Dividends paid on common stock                                                          
|Proceeds from issuance of common stock                                                  
|Treasury stock purchases                                                                
|Net Cash Provided by (Used in) Financing Activities                                     
|Net Increase (Decrease) in Cash and Cash Equivalents                                    
|Cash and Cash Equivalents at Beginning of Year                                          
|Cash and Cash Equivalents at End of Year                                                
|                                                                                        
|The Notes to Consolidated Financial Statements are an integral part of these statements.





|The Peoples Gas Light and Coke Company                                                  
|----------------------------------------------------------------------------------------
|CONSOLIDATED STATEMENTS OF INCOME                                                       
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Operating Revenues                                                                      
|                                                                                        
|Operating Expenses:                                                                     
|Gas costs                                                                               
|Operation and maintenance                                                               
|Depreciation and amortization                                                           
|Taxes - other than income taxes                                                         
|Total Operating Expenses                                                                
|                                                                                        
|Operating Income                                                                        
|                                                                                        
|Other Income and (Deductions) (see Note 6)                                              
|                                                                                        
|Interest Expense                                                                        
|                                                                                        
|Earnings Before Income Taxes                                                            
|                                                                                        
|Income Taxes                                                                            
|                                                                                        
|Net Income Applicable to Common Stock                                                   
|                                                                                        
|                                                                                        
|The Notes to Consolidated Financial Statements are an integral part of these statements.





|The Peoples Gas Light and Coke Company                                                  
|----------------------------------------------------------------------------------------
|CONSOLIDATED BALANCE SHEETS                                                             
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|ASSETS                                                                                  
|CAPITAL INVESTMENTS:                                                                    
|Property, plant and equipment, at original cost                                         
|Less - Accumulated depreciation and amortization                                        
|Net property, plant and equipment                                                       
|Other investments                                                                       
|Total Capital Investments - Net                                                         
|                                                                                        
|CURRENT ASSETS:                                                                         
|Cash and cash equivalents                                                               
|Temporary investments                                                                   
|Receivables -                                                                           
|Customers, net of allowance for uncollectible                                           
|accounts of $22,821 and $20,990, respectively                                           
|Other                                                                                   
|Accrued unbilled revenues                                                               
|Materials and supplies, at average cost                                                 
|Gas in storage, at last-in, first-out cost                                              
|Gas costs recoverable through rate adjustments                                          
|Regulatory assets (see Note 1H)                                                         
|Prepayments                                                                             
|Total Current Assets                                                                    
|                                                                                        
|OTHER ASSETS:                                                                           
|Prepaid pension costs                                                                   
|Non-current regulatory assets (see Note 1H)                                             
|Deferred charges                                                                        
|Total Other Assets                                                                      
|                                                                                        
|Total Assets                                                                            
|                                                                                        
|CAPITALIZATION AND LIABILITIES                                                          
|Capitalization (see Consolidated Capitalization Statements)                             
|                                                                                        
|CURRENT LIABILITIES:                                                                    
|Short-term debt                                                                         
|Accounts payable                                                                        
|Dividends payable on common stock                                                       
|Customer gas service and credit deposits                                                
|Accrued taxes                                                                           
|Gas sales revenue refundable through rate adjustments                                   
|Accrued interest                                                                        
|Total Current Liabilities                                                               
|                                                                                        
|DEFERRED CREDITS AND OTHER LIABILITIES:                                                 
|Deferred income taxes (see Note 10C)                                                    
|Investment tax credits being amortized over                                             
|the average lives of related property                                                   
|Other                                                                                   
|Total Deferred Credits and Other Liabilities                                            
|                                                                                        
|Total Capitalization and Liabilities                                                    
|                                                                                        
|The Notes to Consolidated Financial Statements are an integral part of these statements.





|The Peoples Gas Light and Coke Company                                                   |                                     
|---------------------------------------------------------------------------------------- | ------------------------------------
|CONSOLIDATED CAPITALIZATION STATEMENTS                                                   |                                     
|                                                                                         |                                     
|                                                                                         | At September 30,                    
|                                                                                         | 2000                                
|                                                                                         | (Thousands, except number of shares)
|Common Stockholder's Equity:                                                             |                                     
|Common stock, without par value -                                                        |                                     
|Authorized 40,000,000 shares                                                             |                                     
|Outstanding 24,817,566 shares                                                            | $    165,307                        
|Retained earnings (see Consolidated Statements                                           |                                     
|of Stockholders' Equity)                                                                 | 443,105                             
|Accumulated other comprehensive income                                                   | (2,457)                             
|Total Common Stockholder's Equity                                                        | 605,955                             
|                                                                                         |                                     
|Long-Term Debt:                                                                          |                                     
|Exclusive of sinking fund payments and maturities                                        |                                     
|due within one year                                                                      |                                     
|First and Refunding Mortgage Bonds -                                                     |                                     
|6.875% Series X, due March 1, 2015                                                       | 50,000                              
|7.50% Series Y, due March 1, 2015, redeemed                                              |                                     
|April 3, 2000 (see Note 12C)                                                             | -                                   
|7.50% Series Z, due March 1, 2015                                                        |                                     
|April 3, 2000 (see Note 12C)                                                             | -                                   
|8.10% Series BB, due May 1, 2020                                                         |                                     
|April 3, 2000 (see Note 12C)                                                             | -                                   
|6.37% Series CC, due May 1, 2003                                                         | 75,000                              
|5-3/4% Series DD, due December 1, 2023                                                   | 75,000                              
|Adjustable Rate Series EE (3.20% through November 30, 1999                               |                                     
|due December 1, 2023 (see Note 12B and 12E)                                              | -                                   
|6.10% Series FF, due June 1, 2025                                                        | 50,000                              
|Total Long-Term Debt                                                                     | 250,000                             
|                                                                                         |                                     
|Total Capitalization                                                                     | $    855,955                        
|                                                                                         |                                     
|The Notes to Consolidated Financial Statements are an integral part of these statements. |                                     





|The Peoples Gas Light and Coke Company                                                  
|----------------------------------------------------------------------------------------
|CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY                                         
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|(Thousands)                                                                             
|Beginning Balance, October 1, 1999                                                      
|Comprehensive Income                                                                    
|Net Income                                                                              
|Other Comprehensive Income                                                              
|Minimum pension liability adjustment                                                    
|Other Comprehensive Income, net of tax                                                  
|Total Comprehensive Income                                                              
|Dividends declared on common stock                                                      
|Ending balance, September 30, 2000                                                      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|(Thousands)                                                                             
|Beginning Balance, October 1, 1998                                                      
|Comprehensive Income                                                                    
|Net Income                                                                              
|Other Comprehensive Income                                                              
|Minimum pension liability adjustment                                                    
|Other Comprehensive Income, net of tax                                                  
|Total Comprehensive Income                                                              
|Miscellaneous Credits to Surplus                                                        
|Dividends declared on common stock                                                      
|Ending balance, September 30, 1999                                                      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Beginning Balance, October 1, 1997                                                      
|Comprehensive Income                                                                    
|Net Income                                                                              
|Other Comprehensive Income                                                              
|Minimum pension liability adjustment                                                    
|Other Comprehensive Income, net of tax                                                  
|Total Comprehensive Income                                                              
|Dividends declared on common stock                                                      
|Ending balance, September 30, 1998                                                      
|                                                                                        
|The Notes to Consolidated Financial Statements are an integral part of these statements.





|The Peoples Gas Light and Coke Company                                                  
|----------------------------------------------------------------------------------------
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                                   
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|OPERATING ACTIVITIES:                                                                   
|Net Income                                                                              
|Adjustments to reconcile net income to net cash:                                        
|Depreciation and amortization                                                           
|Per statement of income                                                                 
|Charged to other accounts                                                               
|Deferred income taxes and investment tax credits - net                                  
|Change in other deferred credits and other liabilities                                  
|Change in other assets                                                                  
|Change in current assets and liabilities:                                               
|Receivables - net                                                                       
|Accrued unbilled revenues                                                               
|Materials and supplies                                                                  
|Gas in storage                                                                          
|Gas costs recoverable                                                                   
|Regulatory assets                                                                       
|Prepayments                                                                             
|Accounts payable                                                                        
|Customer gas service and credit deposits                                                
|Accrued taxes                                                                           
|Gas sales revenue refundable                                                            
|Accrued interest                                                                        
|Net Cash Provided by Operating Activities                                               
|                                                                                        
|INVESTING ACTIVITIES:                                                                   
|Capital spending                                                                        
|Temporary investments                                                                   
|Other assets                                                                            
|Net Cash Used in Investing Activities                                                   
|                                                                                        
|FINANCING ACTIVITIES:                                                                   
|Short-term debt                                                                         
|Retirement of long-term debt                                                            
|Dividends paid on common stock                                                          
|Net Cash Used in Financing Activities                                                   
|Net Increase (Decrease) in Cash and Cash Equivalents                                    
|Cash and Cash Equivalents at Beginning of Year                                          
|Cash and Cash Equivalents at End of Year                                                
|                                                                                        
|The Notes to Consolidated Financial Statements are an integral part of these statements.





|North Shore Gas Company                                                                 
|----------------------------------------------------------------------------------------
|CONSOLIDATED STATEMENTS OF INCOME                                                       
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Operating Revenues                                                                      
|                                                                                        
|Operating Expenses:                                                                     
|Gas costs                                                                               
|Operation and maintenance                                                               
|Depreciation                                                                            
|Taxes - other than income taxes                                                         
|Total Operating Expenses                                                                
|                                                                                        
|Operating Income                                                                        
|                                                                                        
|Other Income and (Deductions) (see Note 6)                                              
|                                                                                        
|Interest Expense                                                                        
|                                                                                        
|Earnings Before Income Taxes                                                            
|                                                                                        
|Income Taxes                                                                            
|                                                                                        
|Net Income Applicable to Common Stock                                                   
|                                                                                        
|The Notes to Consolidated Financial Statements are an integral part of these statements.





|North Shore Gas Company                                                                 
|----------------------------------------------------------------------------------------
|CONSOLIDATED BALANCE SHEETS                                                             
|                                                                                        
|                                                                                        
|                                                                                        
|ASSETS                                                                                  
|CAPITAL INVESTMENTS:                                                                    
|Property, plant and equipment, at original cost                                         
|Less - Accumulated depreciation                                                         
|Net property, plant and equipment                                                       
|Other investments                                                                       
|Total Capital Investments - Net                                                         
|                                                                                        
|CURRENT ASSETS:                                                                         
|Cash and cash equivalents                                                               
|Temporary investments                                                                   
|Receivables -                                                                           
|Customers, net of allowance for uncollectible                                           
|accounts of $978 and $755, respectively                                                 
|Other                                                                                   
|Accrued unbilled revenues                                                               
|Materials and supplies, at average cost                                                 
|Gas in storage, at last-in, first-out cost                                              
|Gas costs recoverable through rate adjustments                                          
|Regulatory assets (see Note 1H)                                                         
|Prepayments                                                                             
|Total Current Assets                                                                    
|                                                                                        
|OTHER ASSETS:                                                                           
|Prepaid pension costs                                                                   
|Non-current regulatory assets (see Note 1H)                                             
|Deferred charges                                                                        
|Total Other Assets                                                                      
|                                                                                        
|Total Assets                                                                            
|                                                                                        
|CAPITALIZATION AND LIABILITIES                                                          
|Capitalization (see Consolidated Capitalization Statements)                             
|                                                                                        
|CURRENT LIABILITIES:                                                                    
|Short-term debt                                                                         
|Accounts payable                                                                        
|Dividends payable on common stock                                                       
|Customer gas service and credit deposits                                                
|Accrued taxes                                                                           
|Accrued interest                                                                        
|Total Current Liabilities                                                               
|                                                                                        
|DEFERRED CREDITS AND OTHER LIABILITIES:                                                 
|Deferred income taxes (see Note 10C)                                                    
|Investment tax credits being amortized over                                             
|the average lives of related property                                                   
|Other                                                                                   
|Total Deferred Credits and Other Liabilities                                            
|                                                                                        
|Total Capitalization and Liabilities                                                    
|                                                                                        
|The Notes to Consolidated Financial Statements are an integral part of these statements.





|North Shore Gas Company                                                                 
|----------------------------------------------------------------------------------------
|CONSOLIDATED CAPITALIZATION STATEMENTS                                                  
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Common Stockholder's Equity:                                                            
|Common stock, without par value -                                                       
|Authorized 5,000,000 shares                                                             
|Outstanding 3,625,887 shares                                                            
|Retained earnings (see Consolidated Statements                                          
|of Stockholders' Equity)                                                                
|Total Common Stockholder's Equity                                                       
|                                                                                        
|Long-Term Debt:                                                                         
|Exclusive of sinking fund payments and maturities                                       
|due within one year                                                                     
|First and Refunding Mortgage Bonds -                                                    
|8% Series J, due November 1, 2020                                                       
|6.37% Series L, due May 1, 2003                                                         
|5.00% Series M, due December 1, 2028                                                    
|Total Long-Term Debt                                                                    
|                                                                                        
|Total Capitalization                                                                    
|                                                                                        
|The Notes to Consolidated Financial Statements are an integral part of these statements.





|North Shore Gas Company                                                                 
|----------------------------------------------------------------------------------------
|CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY                                         
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|(Thousands)                                                                             
|Beginning Balance, October 1, 1999                                                      
|Net Income                                                                              
|Dividends declared on common stock                                                      
|Ending balance, September 30, 2000                                                      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Beginning Balance, October 1, 1998                                                      
|Net Income                                                                              
|Dividends declared on common stock                                                      
|Ending balance, September 30, 1999                                                      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Beginning Balance, October 1, 1997                                                      
|Net Income                                                                              
|Dividends declared on common stock                                                      
|Ending balance, September 30, 1998                                                      
|                                                                                        
|The Notes to Consolidated Financial Statements are an integral part of these statements.





|North Shore Gas Company                                                                 
|----------------------------------------------------------------------------------------
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                                   
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|OPERATING ACTIVITIES:                                                                   
|Net Income                                                                              
|Adjustments to reconcile net income to net cash:                                        
|Depreciation and amortization                                                           
|Per statement of income                                                                 
|Charged to other accounts                                                               
|Deferred income taxes and investment tax credits - net                                  
|Change in other deferred credits and other liabilities                                  
|Change in other assets                                                                  
|Change in current assets and liabilities:                                               
|Receivables - net                                                                       
|Accrued unbilled revenues                                                               
|Materials and supplies                                                                  
|Gas in storage                                                                          
|Gas costs recoverable                                                                   
|Regulatory assets                                                                       
|Prepayments                                                                             
|Payables                                                                                
|Customer gas service and credit deposits                                                
|Accrued taxes                                                                           
|Gas sales revenue refundable                                                            
|Accrued interest                                                                        
|Net Cash Provided by Operating Activities                                               
|                                                                                        
|INVESTING ACTIVITIES:                                                                   
|Capital spending                                                                        
|Temporary investments                                                                   
|Net Cash Used in Investing Activities                                                   
|                                                                                        
|FINANCING ACTIVITIES:                                                                   
|Short-term debt                                                                         
|Issuance of long-term debt                                                              
|Retirement of long-term debt                                                            
|Dividends paid on common stock                                                          
|Net Cash Used in Financing Activities                                                   
|Net Increase (Decrease) in Cash and Cash Equivalents                                    
|Cash and Cash Equivalents at Beginning of Year                                          
|Cash and Cash Equivalents at End of Year                                                
|                                                                                        
|The Notes to Consolidated Financial Statements are an integral part of these statements.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Principles of Consolidation

All subsidiaries are included in the consolidated financial statements. All significant intercompany transactions have been eliminated in consolidation. Investments for which the Company's subsidiaries have at least a 20 percent interest,
but less than a majority ownership, and partnerships in which the Company has less than a majority interest are accounted for under the equity method. Certain items previously reported for years prior to 2000 have been reclassified to conform with the
current-year presentation.

B. Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) 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.

C. Concentration of Credit Risk

Peoples Gas provides natural gas service to approximately 839,000 customers within the City of Chicago. North Shore Gas provides natural gas service to about 149,000 customers within approximately 275 square miles in northeastern Illinois.
Credit risk for the utility Companies is spread over a diversified base of residential, commercial, and industrial customers. Peoples Energy Services, the Company's retail energy marketing subsidiary, sells natural gas and electricity to approximately
11,000 commercial and industrial customers in northern Illinois. The Company's interests in oil and gas reserves are managed by 48 operators.

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.

The joint partners of Elwood consist of an investor-owned utility and an energy trading company, both of which, directly or through parental credit support, are considered investment grade. The Company minimizes credit risk by dealing with
creditworthy counterparties in accordance with established credit approval practices and limits. The Company and Elwood routinely assess the financial strength of their counterparties and may require letters of credit or parental guaranties when the
financial strength of a counterparty is not considered sufficient.

D. Revenue Recognition

Gas and electricity sales and transportation revenues are recorded on the accrual basis for all gas and electricity delivered during the month, including an estimate for gas and electricity delivered but unbilled at the end of each month.
Oil and gas production revenues are accrued based on estimated monthly production from each property.

The Company has an insurance policy protecting against the effects of unusually mild weather. The policy settlement coincides with the fiscal year. The insurance proceeds are reported as revenue.

E. Weather Insurance

Peoples Energy has purchased a five-year weather insurance policy. The weather insurance program, beginning in fiscal year 2000, protects earnings when weather falls below 6,000 degree days. The Company will continue to retain all upside
revenue potential when weather is colder than normal. On a monthly basis, the Company amortizes the premium based on the normal 30-year average temperature and applies the intrinsic value method to measure the contract at an interim balance sheet date.
The contract settles annually at the fiscal year-end.

F. 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 or
capitalized interest as appropriate.

G. 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.

H. 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, net of the accumulated reserve for depreciation, over the estimated composite remaining 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 August 2000, Peoples Gas and North Shore Gas filed petitions with the Commission requesting approval of revised depreciation rates that, if approved, are expected to result in a reduction in depreciation expense for fiscal year 2001 and
subsequent years. The petitions are supported by engineering studies of the utilities' gas plant in service. The utilities expect the Commission to issue orders regarding the requests early in fiscal year 2001.

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 2000 and 1999 rate of depletion was $1.16
and $.99 per equivalent Mcf unit of production, respectively.

Other diversified businesses' depreciable property is amortized over its estimated useful lives. Gains and losses are recognized at the time of asset sale or disposition.

The consolidated provision for depreciation and amortization, expressed as an annual percentage of the original cost of depreciable property, was 3.6 percent for fiscal years 2000, 1999 and 1998.

I. 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 GAAP 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 on 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, 2000 and 1999:

|                                                          |  |  | For fiscal years ended
|--------------------------------------------------------- |  |  | ----------------------
|                                                          |  |  | September 30,         
|                                                          |  |  | 2000                  
|                                                          |  |  | (Thousands)           
|                                                          |  |  |                       
|Environmental costs, net of recoveries (see Note 3A)      |  |  | $  54,472             
|Income taxes (see Note 1J)                                |  |  | 14,873                
|Discount, premium, expenses, and loss on reacquired bonds |  |  | 6,430                 
|SNG plant                                                 |  |  | 702                   
|Total regulatory assets of subsidiaries                   |  |  | $  76,477             



The following regulatory assets of Peoples Gas were reflected in Current Assets and Other Assets in the Consolidated Balance Sheets at September 30, 2000 and 1999:

|                                                          |  |  | For fiscal years ended
|--------------------------------------------------------- |  |  | ----------------------
|                                                          |  |  | September 30,         
|                                                          |  |  | 2000                  
|                                                          |  |  | (Thousands)           
|                                                          |  |  |                       
|Environmental costs, net of recoveries (see Note 3A)      |  |  | $  34,024             
|Income tax (see Note 1J)                                  |  |  | 14,873                
|Discount, premium, expenses, and loss on reacquired bonds |  |  | 4,727                 
|SNG plant                                                 |  |  | 702                   
|Total regulatory assets of Peoples Gas                    |  |  | $  54,326             



The following regulatory assets of North Shore Gas were reflected in Current Assets and Other Assets in the Consolidated Balance Sheets at September 30, 2000 and 1999:

|                                                          |  |  | For fiscal years ended
|--------------------------------------------------------- |  |  | ----------------------
|                                                          |  |  | September 30,         
|                                                          |  |  | 2000                  
|                                                          |  |  | (Thousands)           
|                                                          |  |  |                       
|Environmental costs, net of recoveries (see Note 3A)      |  |  | $  20,448             
|Discount, premium, expenses, and loss on reacquired bonds |  |  | 1,704                 
|Total regulatory assets of North Shore Gas                |  |  | $  22,152             



If all or a reportable portion of the utility operations becomes no longer subject to the provision of SFAS No. 71, a write-off of related regulatory assets or liabilities would be required, unless some form of transition cost recovery continues
through rates established and collected for the remaining regulated operations.

J. Income Taxes

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

Each utility subsidiary within the consolidated group nets its income tax-related regulatory assets and liabilities. At September 30, 2000 and 1999, net regulatory income tax assets recorded in Other Assets amounted to $14.9 million and $12.0
million, respectively, while net regulatory income tax liabilities recorded in Other Liabilities equaled $4.3 million and $4.7 million, respectively.

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

As a result of qualified oil and gas reserves that were acquired in December 1999, the Company recognized a $3.8 million Section 29 tax credit in fiscal 2000.

K. 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, 2000 and 1999 exceeded the LIFO cost by approximately $101.7 million and $54.0 million, respectively.

L. 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 of $822,000 $2.6 million and $646,000, for the Company and utility subsidiaries for the respective years) were as follows:



|For fiscal years    | Peoples Energy |  | Peoples Gas |  | North Shore Gas
|------------------- | -------------- |  | ----------- |  | ---------------
|Ended September 30, | 2000           |  | 1999        |  | 1998           
|(Thousands)         |                |  |             |  |                
|                    |                |  |             |  |                
|Income taxes paid   | $23,110        |  | $20,502     |  | $19,832        
|Interest paid       | 53,452         |  | 39,778      |  | 37,239         



M. Recovery of Gas Costs

Under the tariffs of Peoples Gas and North Shore Gas, all reasonably incurred gas costs are recoverable from customers. 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 distribution 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 the fiscal year 1999 are currently pending before the Commission.

N. Recovery of Costs of Environmental Activities Relating to Former Manufactured Gas Operations

Peoples Gas and North Shore Gas are recovering the costs of environmental activities relating to the utilities' former manufactured gas operations, including carrying charges on the unrecovered balances, under rate mechanisms approved by
the Commission. For each utility with such a rate mechanism, the Commission conducts annual proceedings regarding the reconciliation of revenues from the rate mechanism and related costs. In such proceedings, costs recovered by a utility through the rate
mechanism are subject to challenge. Such proceedings regarding the Companies for fiscal years 1998 and 1999 are currently pending before the Commission.

O. Derivative Instruments and Hedging Activities

The Company has a formal risk management policy that establishes monitoring and control procedures for the execution, recording and reporting of derivative financial instruments. The intent of the policy is to utilize risk management
trading primarily to manage risk. The Company may use interest rate swaps, forward rate transactions, commodity futures contracts, options, collars and swaps to hedge the impact of interest rate, price and volume fluctuations related to its business
activities.

Except for enovate, the Company is using derivative instruments to manage risk and thus qualifies for hedge accounting. 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 MTM and any gain or loss is recognized on 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, 2000 and 1999, the Company had open derivative financial instruments representing hedges of 26.7 Bcf
and 9.3 Bcf of gas, respectively. As of September 30, 2000, the Company also had open derivative financial instruments representing hedges of oil of 360.8 MBbl and no hedges of oil at September 30, 1999. As of September 30, 
2000 and 1999, the Company had no related deferred gains or losses on the Consolidated Balance Sheet.

Elwood uses derivative instruments to manage its fuel price risk. As of September 30, 2000, Elwood had open derivative instruments for hedges of 7.3 Bcf of natural gas purchases.

The Company has a 50 percent interest in enovate, which is engaged in Midstream Services activities, and may participate in limited trading activities, which are other than for hedging purposes. For enovate, the Company has recorded its share of
the MTM income for trading activities. This amount is immaterial.

In the first quarter 2001, the Company will adopt SFAS 133, "Accounting for Derivative Instruments and Hedging Activities" as amended by SFAS No. 137 and SFAS No. 138 which are discussed below in Note 1Q.

P. Oil and Gas Production Properties

For oil and gas activities, the Company follows the full-cost method of accounting as prescribed by the SEC. 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. For fiscal years 2000, 1999 and 1998 there was no such
charge to income.

Q. Accounting for Gas Supply Contracts

Effective October 1, 1999, Peoples Gas and North Shore Gas entered into gas purchase and agency agreements with Enron. Under the terms of the agreements, Enron agrees to sell and deliver gas to Peoples Gas and North Shore Gas covering
baseload requirements plus incremental quantities as needed. In conjunction with these agreements Enron purchases from Peoples Gas and North Shore Gas specified quantities of the gas that Peoples Gas and North Shore Gas are obligated to buy from their
suppliers under existing contracts. Enron will purchase these gas supplies at the same point and the same time as they are delivered to Peoples Gas and North Shore Gas, at a sales price exactly matching the purchase price from suppliers. Contractually
Peoples Gas and North Shore Gas take title to the gas when it is delivered, at which point title passes to Enron. Although Peoples Gas and North Shore Gas have credit risk if Enron fails to pay the suppliers, the master agreement with Enron allows the
utilities to net the obligations to suppliers with amounts owed to Enron. The Company records the purchases from Enron as gas purchases and nets the applicable purchases from the suppliers with the sales to Enron.

R. Recent Accounting Pronouncements

In March 2000, the Financial Accounting Standards Board issued FIN 44 - "Accounting for Certain Transactions Involving Stock Compensation (an interpretation of APB Opinion No. 25)". This interpretation clarifies the application of Opinion
25 for only certain issues. The effective date for FIN 44 is July 1, 2000. The Company does not expect the adoption of this interpretation to have a material effect on the financial condition or results of operations of the Company.

On December 3, 1999, the SEC staff issued Staff Accounting Bulletin No. 101 (SAB 101) Revenue Recognition. SAB 101 reflects the basic principles of revenue recognition in existing GAAP. The staff has deferred the implementation date of SAB 101
until no later than the fourth quarter of fiscal years beginning after December 15, 1999. The application of this bulletin will not have a material effect on the financial condition or results of operations of the Company.

In October 1999, the Company adopted the SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." This statement provides guidance on accounting for the costs of computer software developed or obtained for
internal use. The application of this standard did not have a material effect on the financial condition or results of operations of the Company.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which was amended in June 1999 by SFAS No. 137, and further amended in June 2000 by SFAS No. 138. These rules require that all derivatives
be recorded as either assets or liabilities on the consolidated balance sheet at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the designation of a type of hedge.

Changes in the fair value of derivatives will be recognized in the current period earnings, unless specific hedge accounting criteria are met. Virtually all of the Company's derivatives are cash flow hedges. For cash flow hedges, the gain or loss
is deferred in other comprehensive income in the Consolidated Statement of Stockholders' Equity until the hedged item is recorded in the Consolidated Statement of Income. At that point, the deferred gain or loss of the hedge is also recorded in the income
statement. If a hedge is found to be ineffective, the ineffective amount is recorded in the income statement when incurred. For fair value hedges, if an entity qualifies for hedge accounting, the derivative's gains and losses will offset the related
results of the hedged item in the same period's income statement. These new standards may result in additional volatility in reported earnings, other comprehensive income and accumulated other comprehensive income.

As a result of the adoption of this statement in the first quarter of 2001, the Company will record hedges that offset increased projected cashflows from the hedged items and, therefore, record a credit to hedge liability of $38.7 million, a debit
to Retained Earnings of $57,000 for the ineffective portion, an increase to deferred tax assets of $15.3 million and a debit of $23.3 million to Other Comprehensive Income net of tax, on October 1, 2000.

2: BUSINESS SEGMENTS

The Company is presenting below information about its operating segments for the fiscal years 2000, 1999 and 1998. The Company has six business segments: Gas Distribution, Power Generation, Midstream Services, Retail Energy Services, Oil
and Gas Production, and Other. Operating income also includes the effect of corporate activities and consolidating adjustments.

The Company has determined its business segments based on regulation plus a delineation based on type of product or services and activity related to those products or services, such as production versus marketing of natural gas. These segments are
consistent with how the Company's senior management develops overall strategy for the Company. The financial performance of each segment is evaluated based on its operating income and equity investment income before interest expense, other income and
deductions, and income taxes. The accounting policies of the six segments are the same as those described in Note 1 of the Notes to Consolidated Financial Statements. No single customer represents more than 10 percent of consolidated revenues. In
addition, all of the reportable segments' revenues are derived from sources within the U.S. and all reportable segments' long-lived assets are located in the U.S.

The Gas Distribution segment is the Company's core business. Its two regulated utilities purchase, distribute, sell and transport natural gas to approximately one million retail customers through a 6,000-mile distribution system serving the City
of Chicago and 54 communities in northeastern Illinois. The Company also owns a storage facility in central Illinois and a pipeline which connects the facility and six major interstate pipelines to Chicago.

The Power Generation segment is engaged in the development, construction, operation and ownership of natural gas-fired electric generation facilities for sales to electric utilities and marketers. The Company and Dominion Energy, Inc. are equal
investors in Elwood, which owns and operates a 600-megawatt peaking facility near Chicago, Illinois. Expansion of the jointly owned facility has begun and will increase the generating capacity upon completion of construction in 2001.

The Midstream Services segment performs wholesale activities that provide value to gas distribution utilities, marketers and pipelines. The Company, through Peoples Gas, operates a natural gas hub. It also owns and operates a natural gas liquids
peaking facility and is active in other asset-based wholesale activities. The Company and Enron are equal partners in enovate, which will expand the Peoples Gas hub by offering additional hub services and peaking services, developing new products and
pursuing strategic asset acquisitions. The Company also is an equal partner with The Coastal Corporation in Whitecap, which is developing a pipeline to deliver natural gas to new and existing power plants in Indiana, Illinois and Wisconsin. Whitecap will
also service growth markets in existing gas utility systems.

The Retail Energy Services segment markets gas and electricity and provides energy management and other services to retail customers. Peoples Energy Services and Peoples Energy Home Services are engaged in providing energy commodities and
value-added services to industrial, commercial and residential customers.

The Oil and Gas Production segment is active in the acquisition, development and production of oil and gas reserves in selected onshore basins in North America. The Company's focus is on low risk drilling opportunities and the acquisition of
proved oil and gas reserves with upside potential which can be realized through drilling, production enhancement and reservoir optimization programs. Certain producing properties owned by the Company qualify for Section 29 income tax credits.

The Company is involved in other activities such as district heating and cooling and the development of fueling stations for natural gas vehicles. These and other activities do not fall under the above segments and are reported in the Other segment.

|                                              | Peoples Energy
|--------------------------------------------- | --------------
|                                              |               
|                                              | Gas           
|(Thousands)                                   | Distribution  
|Fiscal 2000                                   |               
|Operating Revenues                            | $ 1,116,141   
|Depreciation, Depletion and Amortization      | 84,704        
|Operating Income (Loss)                       | 163,397       
|Equity Investment Income                      | -             
|Operating Income and Equity Investment Income | 163,397       
|Segment Assets                                | 1,504,421     
|Investments in Equity Investees               | -             
|Capital Spending                              | $    108,230  
|                                              |               
|Fiscal 1999                                   |               
|Operating Revenues                            | $    980,125  
|Depreciation, Depletion and Amortization      | 77,904        
|Operating Income (Loss)                       | 154,851       
|Equity Investment Income                      | -             
|Operating Income and Equity Investment Income | 154,851       
|Segment Assets                                | 1,481,305     
|Investments in Equity Investees               | -             
|Capital Spending                              | $    130,288  
|                                              |               
|Fiscal 1998                                   |               
|Operating Revenues                            | $ 1,048,403   
|Depreciation, Depletion and Amortization      | 75,804        
|Operating Income (Loss)                       | 160,217       
|Equity Investment Income                      | -             
|Operating Income and Equity Investment Income | 160,217       
|Segment Assets                                | 1,430,660     
|Investments in Equity Investees               | -             
|Capital Spending                              | $    105,776  



The following table reconciles total segment assets and investments in equity investees to the Company's consolidated total assets for the fiscal years ended 2000 and 1999:

|For fiscal years ended September 30, |  | 2000 |  | 1999       
|------------------------------------ |  | ---- |  | -----------
|                                     |  |      |  | (Thousands)
|                                     |  |      |  |            
|Segment Assets                       |  |      |  | $ 1,656,694
|Investments in Equity Investees      |  |      |  | 139,317    
|Other Investments not included in    |  |      |  |            
|above categories                     |  |      |  | 14,081     
|Total Capital Investments - Net      |  |      |  | 1,810,092  
|                                     |  |      |  |            
|Current Assets                       |  |      |  | 463,899    
|Other Assets                         |  |      |  | 227,927    
|Total Assets                         |  |      |  | $ 2,501,918



The following table reconciles total segment operating income and equity investment income to the Company's consolidated net income for the fiscal years ended 2000, 1999 and 1998:

|                                              |  |  | For fiscal years ended September 30,
|--------------------------------------------- |  |  | ------------------------------------
|                                              |  |  | 2000                                
|                                              |  |  | (Thousands)                         
|                                              |  |  |                                     
|Operating income and equity investment income |  |  | $ 176,877                           
|Other income and (deductions)                 |  |  | 5,803                               
|Interest expense                              |  |  | 52,919                              
|Income taxes                                  |  |  | 43,346                              
|Net Income                                    |  |  | $   86,415                          



|                              |  |  |  |  | Peoples Gas     |  |  | North Shore Gas    
|----------------------------- |  |  |  |  | --------------- |  |  | -------------------
|                              |  |  |  |  |                 |  |  |                    
|                              |  |  |  |  | Gas             |  |  | Midstream          
|(Thousands)                   |  |  |  |  | Distribution    |  |  | Services           
|Fiscal 2000                   |  |  |  |  |                 |  |  |                    
|Operating Revenues            |  |  |  |  | $      948,196  |  |  | $         6,477    
|Depreciation and Amortization |  |  |  |  | 75,872          |  |  | -                  
|Operating Income (Loss)       |  |  |  |  | 139,919         |  |  | 5,673              
|Segment Assets                |  |  |  |  | 1,301,572       |  |  | -                  
|Capital Spending              |  |  |  |  | $        97,400 |  |  | $                 -
|                              |  |  |  |  |                 |  |  |                    
|Fiscal 1999                   |  |  |  |  |                 |  |  |                    
|Operating Revenues            |  |  |  |  | $      844,404  |  |  | $         5,982    
|Depreciation and Amortization |  |  |  |  | 69,444          |  |  | -                  
|Operating Income (Loss)       |  |  |  |  | 130,449         |  |  | 5,982              
|Segment Assets                |  |  |  |  | 1,279,079       |  |  | -                  
|Capital Spending              |  |  |  |  | $      115,673  |  |  | $                 -
|                              |  |  |  |  |                 |  |  |                    
|Fiscal 1998                   |  |  |  |  |                 |  |  |                    
|Operating Revenues            |  |  |  |  | $      904,196  |  |  | $         3,324    
|Depreciation and Amortization |  |  |  |  | 67,752          |  |  | -                  
|Operating Income (Loss)       |  |  |  |  | 134,331         |  |  | 3,324              
|Segment Assets                |  |  |  |  | 1,233,763       |  |  | -                  
|Capital Spending              |  |  |  |  | $        94,425 |  |  | $                 -



The following table reconciles total segment assets to Peoples Gas' and North Shore Gas' consolidated total assets for the fiscal years ended 2000 and 1999:

|                                     |  | Peoples Gas |  | North Shore Gas
|------------------------------------ |  | ----------- |  | ---------------
|For fiscal years ended September 30, |  | 2000        |  | 1999           
|(Thousands)                          |  |             |  |                
|                                     |  |             |  |                
|Segment Assets                       |  | $1,301,572  |  | $1,279,079     
|Other Investments not included in    |  |             |  |                
|above Categories                     |  | 10,522      |  | 9,414          
|Total Capital Investments - Net      |  | 1,312,094   |  | 1,288,493      
|                                     |  |             |  |                
|Current Assets                       |  | 287,780     |  | 190,721        
|Other Assets                         |  | 200,822     |  | 151,839        
|Total Assets                         |  | $1,800,696  |  | $1,631,053     



The following table reconciles total segment operating income to Peoples Gas' and North Shore Gas' consolidated net income for the fiscal years ended 2000, 1999 and 1998:

|                                     |  | Peoples Gas |  | North Shore Gas
|------------------------------------ |  | ----------- |  | ---------------
|For fiscal years ended September 30, |  | 2000        |  | 1999           
|(Thousands)                          |  |             |  |                
|                                     |  |             |  |                
|Operating income                     |  | $145,496    |  | $ 136,066      
|Other income and (deductions)        |  | 3,674       |  | 18,885         
|Interest expense                     |  | 33,640      |  | 32,619         
|Income taxes                         |  | 41,954      |  | 44,115         
|Net Income                           |  | $  73,576   |  | $  78,217      



3: ENVIRONMENTAL MATTERS

A. 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. Two of the Manufactured Gas Sites are discussed in more detail below. The subsidiaries, under the supervision of the Illinois Environmental Protection
Agency (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 approximately three years.

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 was 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 (OMC) were each a potentially
responsible party (PRP) under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (CERCLA), with respect to the Waukegan Site. A PRP is potentially liable for the cost of any investigative and 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 shared 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.

On May 14, 1999, the EPA notified GMC, OMC, Elgin Joliet and Eastern Railway Company, and North Shore Gas that they were potentially liable with respect to the Waukegan Site and that the EPA intended to begin discussions regarding the design and
implementation of the remedial action selected for the Waukegan Site.

On September 30, 1999, the EPA issued the Record of Decision (ROD) selecting the remedial action for the Waukegan Site. The remedy consists of on-site treatment of ground water, off-site treatment and disposal of soil containing polynuclear
aeromatic hydrocarbons or creosote, and on-site solidification/stabilization of arsenic contaminated soils. The EPA has estimated the present worth of the remedy to be $26.5 million (representing the present worth of estimated capital costs and of
estimated operation and maintenance costs).

North Shore Gas and the other parties notified by the EPA have entered into discussions regarding implementation of the remedy and the allocation of costs associated with the investigation and remediation of the Waukegan Site.

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, 2000, the total of the costs deferred (stated in current year dollars) for Peoples Gas was $34.0 million; for North Shore Gas the total was $20.5 million; and for the Company on a consolidated basis the total deferred was $54.5 million. This
amount includes management's best estimate of the costs of investigating and remediating the Manufactured Gas Sites. The estimate is based upon a comprehensive review by management 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. In November 1998, the utilities reached a settlement agreement with one of the insurance carriers. The costs
deferred at September 30, 2000 have been reduced by the proceeds of the settlement. At this time, management cannot determine the timing and extent of the subsidiaries' recovery of costs from the other insurance carriers. Accordingly, the costs deferred
at September 30, 2000 have not been reduced to reflect recoveries from other insurance carriers.

Management 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.

B. 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. In 1992, the EPA issued the ROD for the Denver site. The remedy selected in the ROD consisted of the on-site stabilization, solidification and
capping of soils containing radioactive wastes. In 1997, the remedial action was completed. 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 of the site.

North Shore Gas filed a declaratory judgment action against Salomon in the District Court for the Northern District of Illinois. The suit asked 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.

In August 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.

In November 1999, the EPA announced that it was reopening the ROD for the Denver site. The EPA's announcement followed a six-month scientific/technical review by the agency of the remedy's effectiveness. In June 2000, the EPA amended the ROD to
require removal of the radioactive wastes from the site to a licensed off-site disposal facility. The EPA estimates that this action will cost an additional $21.5 million (representing the present worth of estimated capital costs and estimated operation
and maintenance costs).

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.

C. Equipment Containing Mercury

Peoples Gas and North Shore Gas are inspecting for mercury contamination in certain of their customers' premises where gas pressure regulators, manometers and other equipment containing mercury may have been used. The utilities plan to
inspect in total approximately 95,000 locations. Virtually all of the gas pressure regulators containing mercury that were used for residences and other small volume customers were removed by the utilities in the 1960's, 1970's and 1980's. The utilities'
inspection program includes both a visual check for mercury and a check with mercury detection equipment.

As of September 30, 2000, Peoples Gas has visually inspected 24,320 premises (including 23,374 small volume customers, primarily residences) and small amounts of mercury were found in 29 of these locations (of which 15 were residences). North
Shore Gas has visually inspected 7,651 premises (7,460 small volume customers, primarily residences) and small amounts of mercury were found in 8 of these locations (of which 7 were residences).

In each case where mercury contamination is found, Peoples Gas or North Shore Gas will perform appropriate remediation at the premises to eliminate contamination. Peoples Gas and North Shore Gas continue to investigate their historical use of any
mercury-containing equipment. Based on information available at September 30, 2000, it does not appear that mercury contamination discovered by the utilities has had or will have a significant harmful effect on the public.

The Company has incurred and expects to continue to incur costs for inspection and remediation and other costs related to the program. The Company charged $16.1 million (of which Peoples Gas and North Shore Gas charged $8.0 million and $8.1
million, respectively) to operating expense in the fourth quarter, including the accrual recorded in accounts payable of $15 million (of which Peoples Gas and North Shore Gas recorded $7.0 million and $8.0 million, respectively) to account for the
estimated remaining costs related to the program. The accrual represents the Company's best estimate, based on an evaluation of currently available information. Actual costs incurred in the future may vary from this estimate. As of September 30, neither
the Company nor the utilities have been named as a defendant in any lawsuit. The Company intends to vigorously pursue the recovery of mercury-related costs from insurance.

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 by 2 percent each year through 2003. Base rent in 2004 is approximately $3.6 million with annual increases of 2 percent each
year through 2008.

Rental expenses for the headquarters office were $6.5 million, $6.6 million and $6.5 million for fiscal years 2000, 1999 and 1998, respectively.

5: COMPREHENSIVE INCOME

Comprehensive income is the total of net income and all other nonowner changes in equity (other comprehensive income). Comprehensive income includes net income plus the effect of the additional pension liability not yet recognized as net
periodic pension cost. The Company has reported accumulated other comprehensive income in its Consolidated Statement of Stockholders' Equity.

Comprehensive income for the Company for fiscal years 2000, 1999 and 1998 is as follows:



|                                       | Fiscal Years
|-------------------------------------- | ------------
|(Thousands)                            | 2000        
|Net income                             | $86,415     
|                                       |             
|Other comprehensive income             |             
|Minimum pension liability              | (3,303)     
|Income tax (expense)/benefit           | 1,311       
|Other comprehensive income, net of tax | (1,992)     
|                                       |             
|Comprehensive income                   | $84,423     



Comprehensive income for Peoples Gas for fiscal years 2000, 1999 and 1998 is as follows:



|                                       | Fiscal Years
|-------------------------------------- | ------------
|(Thousands)                            | 2000        
|Net income                             | $73,576     
|                                       |             
|Other comprehensive income             |             
|Minimum pension liability              | (3,303)     
|Income tax (expense)/benefit           | 1,311       
|Other comprehensive income, net of tax | (1,992)     
|                                       |             
|Comprehensive income                   | $71,584     



6: OTHER INCOME AND (DEDUCTIONS)

Other income and deductions for Peoples Energy for fiscal 2000, 1999 and 1998 were as follows:

|                                                   |  |  |  | Fiscal Years
|-------------------------------------------------- |  |  |  | ------------
|                                                   |  |  |  | 2000        
|                                                   |  |  |  | (Thousands) 
|                                                   |  |  |  |             
|Elimination of decommissioning reserve             |  |  |  | $          -
|Miscellaneous interest revenues                    |  |  |  | 2,280       
|Income from securities                             |  |  |  | 118         
|Allowance for other funds used during construction |  |  |  | 1,117       
|Interest income on loan to partnership             |  |  |  | 1,100       
|Interest on amounts recovered from customers       |  |  |  | 519         
|Other                                              |  |  |  | 669         
|Total other income and (deductions)                |  |  |  | $    5,803  



Other income and deductions for Peoples Gas for fiscal 2000, 1999 and 1998 were as follows:

|                                                   |  | Fiscal Years
|-------------------------------------------------- |  | ------------
|                                                   |  | 2000        
|                                                   |  | (Thousands) 
|                                                   |  |             
|Elimination of decommissioning reserve             |  | $          -
|Miscellaneous interest revenues                    |  | 1,527       
|Income from securities                             |  | 73          
|Allowance for other funds used during construction |  | 1,117       
|Interest on amounts recovered from customers       |  | 434         
|Other                                              |  | 523         
|Total other income and (deductions)                |  | $   3,674   



Other income and deductions for North Shore Gas for fiscal 2000, 1999 and 1998 were as follows:

|                                             |  |  |  | Fiscal Years
|-------------------------------------------- |  |  |  | ------------
|                                             |  |  |  | 2000        
|                                             |  |  |  | (Thousands) 
|                                             |  |  |  |             
|Miscellaneous interest revenues              |  |  |  | $      302  
|Income from securities                       |  |  |  | 44          
|Interest on amounts recovered from customers |  |  |  | 85          
|Other                                        |  |  |  | (54)        
|Total other income and (deductions)          |  |  |  | $      377  



In January 1999, Peoples Gas eliminated a $13.0 million decommissioning reserve associated with the 1995 retirement of its synthetic natural gas plant. This elimination resulted in the recognition of $13.0 million in other income. Management
determined that it did not expect the plant's decommissioning costs to exceed amounts incurred to date through January 1999.

7: RETIREMENT AND POSTRETIREMENT 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. System 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. Retiring employees have the option of receiving retirement benefits in the form of annuities or a lump sum
payment.

In addition, the Company and its subsidiaries 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 Company. 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.

Reconciliations of the beginning and ending balances of the projected pension benefit obligation and the accumulated postretirement benefit obligation, reconciliations of the beginning and ending balances of the plan assets, and the funded status
of these plans for years 2000 and 1999 are as follows:

|Peoples Energy                                                      |  |  |            |  |                      
|------------------------------------------------------------------- |  |  | ---------- |  | ---------------------
|(Millions)                                         For Fiscal Years |  |  | 2000       |  | 1999                 
|                                                                    |  |  |            |  | Other                
|                                                                    |  |  | Pension    |  | Postretirement       
|                                                                    |  |  | Benefits   |  | Benefits             
|                                                                    |  |  | (millions)
|                                                                    |  |  |            |  |                      
|Change in benefit obligation                                        |  |  |            |  |                      
|Benefit obligation at beginning of measurement period               |  |  | $   372.9  |  | $             108.1  
|Service cost                                                        |  |  | 12.0       |  | 4.1                  
|Interest cost                                                       |  |  | 27.9       |  | 8.0                  
|Actuarial (gain) / loss                                             |  |  | (11.5)     |  | (0.1)                
|Benefits paid                                                       |  |  | (45.3)     |  | (10.7)               
|Benefit obligation at end of measurement period                     |  |  | $   356.0  |  | $             109.4  
|                                                                    |  |  |            |  |                      
|Change in plan assets                                               |  |  |            |  |                      
|Market value of plan assets at beginning of period                  |  |  | $   686.5  |  | $               75.3 
|Actual return on plan assets                                        |  |  | 28.1       |  | 5.8                  
|Employer contributions (including non-qualified plans)              |  |  | 0.2        |  | 9.1                  
|Participant contributions                                           |  |  | -          |  | 3.6                  
|Benefits paid                                                       |  |  | (45.3)     |  | (10.7)               
|Market value of plan assets at end of measurement period            |  |  | $   669.5  |  | $               83.1 
|                                                                    |  |  |            |  |                      
|Funded status                                                       |  |  | $   313.5  |  | $             (26.3) 
|Unrecognized net transition obligation                              |  |  | (8.8)      |  | 54.6                 
|Unrecognized prior service cost                                     |  |  | 4.1        |  | -                    
|Unrecognized net (gain) / loss                                      |  |  | (180.2)    |  | (30.7)               
|Contributions: July 1 to September 30                               |  |  | -          |  | 2.4                  
|Non-qualified plans:                                                |  |  |            |  |                      
|Recognition of additional minimum liability                         |  |  | (4.6)      |  | -                    
|Prepaid (accrued) benefit cost at September 30                      |  |  | $   124.0  |  | $                 0.0
|                                                                    |  |  |            |  |                      
|                                                                    |  |  |            |  |                      
|Amounts recognized in the statement of                              |  |  |            |  |                      
|financial position consist of:                                      |  |  |            |  |                      
|Prepaid pension cost                                                |  |  | $   132.0  |  | $                   -
|Accrued benefit liability                                           |  |  | (8.0)      |  | -                    
|Intangible asset                                                    |  |  | 0.5        |  | -                    
|Accumulated other comprehensive income                              |  |  | 4.1        |  | -                    
|                                                                    |  |  | $   128.6  |  | $                   -



The benefit obligations at September 30, 2000 and 1999 are based on a July 1 measurement date using a discount rate of 8.25 percent for 2000 and 7.75 percent for 1999 and assumed future compensation increases of 4.5 percent per year. Plan assets
consist primarily of marketable equity and fixed-income securities.



|Peoples Gas                                                         |  |  |             |  |                        
|------------------------------------------------------------------- |  |  | ----------- |  | -----------------------
|(Millions)                                         For Fiscal Years |  |  | 2000        |  | 1999                   
|                                                                    |  |  |             |  | Other                  
|                                                                    |  |  | Pension     |  | Postretirement         
|                                                                    |  |  | Benefits    |  | Benefits               
|                                                                    |  |  |            
|                                                                    |  |  |             |  |                        
|Change in benefit obligation                                        |  |  |             |  |                        
|Benefit obligation at beginning of measurement period               |  |  | $     346.0 |  | $                 98.7 
|Service cost                                                        |  |  | 10.8        |  | 3.7                    
|Interest cost                                                       |  |  | 25.6        |  | 7.3                    
|Plan amendment                                                      |  |  | -           |  | -                      
|Special benefits cost                                               |  |  | -           |  | -                      
|Transfers                                                           |  |  | (3.0)       |  | (0.4)                  
|Actuarial (gain) / loss                                             |  |  | (9.5)       |  | 0.2                    
|Benefits paid                                                       |  |  | (43.2)      |  | (9.8)                  
|Benefit obligation at end of measurement period                     |  |  | $     326.7 |  | $                 99.7 
|                                                                    |  |  |             |  |                        
|Change in plan assets                                               |  |  |             |  |                        
|Market value of plan assets at beginning of period                  |  |  | $     651.5 |  | $                 70.2 
|Actual return on plan assets                                        |  |  | 26.4        |  | 5.3                    
|Employer contributions (including non-qualified plans)              |  |  | 0.2         |  | 8.4                    
|Participant contributions                                           |  |  | -           |  | 3.3                    
|Transfers                                                           |  |  | (4.7)       |  | (0.6)                  
|Benefits paid                                                       |  |  | (43.2)      |  | (9.8)                  
|Market value of plan assets at end of measurement period            |  |  | $     630.2 |  | $                 76.8 
|                                                                    |  |  |             |  |                        
|Funded status                                                       |  |  | $     303.5 |  | $               (22.9) 
|Unrecognized net transition obligation                              |  |  | (8.6)       |  | 49.7                   
|Unrecognized prior service cost                                     |  |  | 4.0         |  | -                      
|Unrecognized net (gain) / loss                                      |  |  | (171.0)     |  | (28.9)                 
|Contributions: July 1 to September 30                               |  |  | -           |  | 2.1                    
|Non-qualified plans:                                                |  |  |             |  |                        
|Contributions: July 1 to September 30                               |  |  | -           |  | -                      
|Recognition of additional minimum liability                         |  |  | (4.6)       |  | -                      
|Prepaid (accrued) benefit cost at September 30                      |  |  | $     123.3 |  | $                   0.0
|                                                                    |  |  |             |  |                        
|                                                                    |  |  |             |  |                        
|Amounts recognized in the statement of                              |  |  |             |  |                        
|financial position consist of:                                      |  |  |             |  |                        
|Prepaid pension cost                                                |  |  | $     131.3 |  | $                     -
|Accrued benefit liability                                           |  |  | (8.0)       |  | -                      
|Intangible asset                                                    |  |  | 0.5         |  | -                      
|Accumulated other comprehensive income                              |  |  | 4.1         |  | -                      
|                                                                    |  |  | $     127.9 |  | $                     -



|                                                                    |  |  |               |  |                         |  |                |  |                        
|------------------------------------------------------------------- |  |  | ------------- |  | ----------------------- |  | -------------- |  | -----------------------
|North Shore Gas                                                     |  |  |               |  |                        
|(Millions)                                         For Fiscal Years |  |  | 2000          |  | 1999                   
|                                                                    |  |  |               |  | Other                   |  |                |  | Other                  
|                                                                    |  |  | Pension       |  | Postretirement          |  | Pension        |  | Postretirement         
|                                                                    |  |  | Benefits      |  | Benefits                |  | Benefits       |  | Benefits               
|                                                                    |  |  |              
|                                                                    |  |  |               |  |                         |  |                |  |                        
|Change in benefit obligation                                        |  |  |               |  |                         |  |                |  |                        
|Benefit obligation at beginning of measurement period               |  |  | $       26.9  |  | $                   9.4 |  | $       28.8   |  | $                   9.4
|Service cost                                                        |  |  | 1.0           |  | 0.4                     |  | 1.0            |  | 0.3                    
|Interest cost                                                       |  |  | 2.0           |  | 0.7                     |  | 2.0            |  | 0.7                    
|Plan amendment                                                      |  |  | -             |  | -                       |  | -              |  | -                      
|Special benefits cost                                               |  |  | -             |  | -                       |  | -              |  | -                      
|Transfers                                                           |  |  | -             |  |                         |  | 0.3            |  |                        
|Actuarial (gain) / loss                                             |  |  | (2.1)         |  | (0.3)                   |  | (2.0)          |  | (0.2)                  
|Benefits paid                                                       |  |  | (2.1)         |  | (1.0)                   |  | (3.2)          |  | (0.8)                  
|Benefit obligation at end of measurement period                     |  |  | $       25.7  |  | $                   9.2 |  | $       26.9   |  | $                   9.4
|                                                                    |  |  |               |  |                         |  |                |  |                        
|Change in plan assets                                               |  |  |               |  |                         |  |                |  |                        
|Market value of plan assets at beginning of period                  |  |  | $       35.0  |  | $                   5.1 |  | $       34.9   |  | $                   3.8
|Actual return on plan assets                                        |  |  | 1.5           |  | 0.4                     |  | 2.9            |  | 0.5                    
|Employer contributions (including non-qualified plans)              |  |  | -             |  | 0.8                     |  | 0.1            |  | 1.3                    
|Participant contributions                                           |  |  | -             |  | 0.3                     |  | -              |  | 0.3                    
|Transfers                                                           |  |  | -             |  | -                       |  | 0.3            |  | -                      
|Benefits paid                                                       |  |  | (2.1)         |  | (1.0)                   |  | (3.2)          |  | (0.8)                  
|Market value of plan assets at end of measurement period            |  |  | $       34.4  |  | $                   5.6 |  | $       35.0   |  | $                   5.1
|                                                                    |  |  |               |  |                         |  |                |  |                        
|Funded status                                                       |  |  | $         8.7 |  | $                 (3.6) |  | $         8.1  |  | $                 (4.3)
|Unrecognized net transition obligation                              |  |  | (0.2)         |  | 4.7                     |  | (0.3)          |  | 5.1                    
|Unrecognized prior service cost                                     |  |  | 0.2           |  | -                       |  | 0.2            |  | -                      
|Unrecognized net (gain) / loss                                      |  |  | (8.3)         |  | (1.6)                   |  | (8.4)          |  | (1.1)                  
|Contributions: July 1 to September 30                               |  |  | -             |  | 0.3                     |  | -              |  | 0.2                    
|Non-qualified plans:                                                |  |  |               |  |                         |  |                |  |                        
|Contributions: July 1 to September 30                               |  |  | -             |  | -                       |  | -              |  | -                      
|Recognition of additional minimum liability                         |  |  | -             |  | -                       |  | -              |  | -                      
|Prepaid (accrued) benefit cost at September 30                      |  |  | $         0.4 |  | $                 (0.2) |  | $        (0.4) |  | $                 (0.1)
|                                                                    |  |  |               |  |                         |  |                |  |                        
|                                                                    |  |  |               |  |                         |  |                |  |                        
|Amounts recognized in the statement of                              |  |  |               |  |                         |  |                |  |                        
|financial position consist of:                                      |  |  |               |  |                         |  |                |  |                        
|Prepaid pension cost                                                |  |  | $         0.4 |  | $                     - |  | $        (0.4) |  | $                     -
|Accrued benefit liability                                           |  |  | -             |  | -                       |  | -              |  | -                      
|Intangible asset                                                    |  |  | -             |  | -                       |  | -              |  | -                      
|Accumulated other comprehensive income                              |  |  | -             |  | -                       |  | -              |  | -                      
|                                                                    |  |  | $         0.4 |  | $                     - |  | $        (0.4) |  | $                     -



Net pension benefit cost and net postretirement benefit cost for all plans for the Company for fiscal 2000, 1999 and 1998 included the following components:

|                                      |  |  | For fiscal years ended September 30,
|------------------------------------- |  |  | ------------------------------------
|                                      |  |  | 2000                                
|Pension Benefit Cost                  |  |  | (Millions)                          
|Service cost - benefits earned        |  |  |                                     
|during the year                       |  |  | $      12.0                         
|Interest cost on projected pension    |  |  |                                     
|benefit obligation                    |  |  | 27.9                                
|Expected return on plan assets (gain) |  |  | (54.7)                              
|Amortization of:                      |  |  |                                     
|Net transition (asset) / obligation   |  |  | (2.0)                               
|Prior service cost                    |  |  | 0.6                                 
|Net (gain) / loss                     |  |  | (4.9)                               
|Net periodic benefit cost (credit)    |  |  | (21.1)                              
|                                      |  |  |                                     
|Special benefit cost                  |  |  | -                                   
|Settlement accounting                 |  |  | (16.9)                              
|Net pension cost (credit)             |  |  | $     (38.0)                        



|                                      |  |  | For fiscal years ended September 30,
|------------------------------------- |  |  | ------------------------------------
|                                      |  |  | 2000                                
|Other Postretirement Benefit Cost     |  |  | (Millions)                          
|Service cost - benefits               |  |  |                                     
|earned during the year                |  |  | $        4.1                        
|Interest cost on accumulated          |  |  |                                     
|postretirement benefit obligation     |  |  | 8.0                                 
|Expected return on plan assets (gain) |  |  | (6.0)                               
|Amortization of:                      |  |  |                                     
|Net transition (asset) / obligation   |  |  | 4.2                                 
|Net (gain) / loss                     |  |  | (1.4)                               
|Net periodic postretirement           |  |  |                                     
|benefit cost                          |  |  | 8.9                                 
|                                      |  |  |                                     
|Special benefit cost                  |  |  | -                                   
|Net postretirement benefit cost       |  |  | $        8.9                        



In 2000, 1999 and 1998, the Company recognized net gains of $16.9 million, $10.6 million and $17.7 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.

In fiscal 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.

Net pension benefit cost and net postretirement benefit cost for all plans for Peoples Gas for fiscal 2000, 1999 and 1998 included the following components:

|                                      |  | For fiscal years ended September 30,
|------------------------------------- |  | ------------------------------------
|                                      |  | 2000                                
|                                      |  | (Millions)                          
|Pension Benefit Cost                  |  |                                     
|Service cost - benefits earned        |  |                                     
|during the year                       |  | $     10.8                          
|Interest cost on projected pension    |  |                                     
|benefit obligation                    |  | 25.6                                
|Expected return on plan assets (gain) |  | (51.6)                              
|Amortization of:                      |  |                                     
|Net transition (asset) / obligation   |  | (1.9)                               
|Prior service cost                    |  | 0.5                                 
|Net (gain) / loss                     |  | (4.6)                               
|Net periodic benefit cost (credit)    |  | (21.2)                              
|                                      |  |                                     
|Special benefit cost                  |  | -                                   
|Settlement accounting                 |  | (16.1)                              
|Net pension cost (credit)             |  | $    (37.3)                         



|                                         |  | For fiscal years ended September 30,
|---------------------------------------- |  | ------------------------------------
|                                         |  | 2000                                
|                                         |  | (Millions)                          
|Other Postretirement Benefit Cost        |  |                                     
|Service cost - benefits                  |  |                                     
|earned during the year                   |  | $       3.7                         
|Interest cost on accumulated             |  |                                     
|postretirement benefit obligation        |  | 7.3                                 
|Expected return on plan assets           |  | (5.5)                               
|Amortization of:                         |  |                                     
|Net transition (asset) / obligation      |  | 3.8                                 
|Net (gain) / loss                        |  | (1.3)                               
|Net periodic postretirement benefit cost |  | 8.0                                 
|Special benefit cost                     |  | -                                   
|Net postretirement benefit cost          |  | $       8.0                         



Net pension benefit cost and net postretirement benefit cost for all plans for North Shore Gas for fiscal 2000, 1999 and 1998 included the following components:

|                                      |  |  |  | For fiscal years ended September 30,
|------------------------------------- |  |  |  | ------------------------------------
|                                      |  |  |  | 2000                                
|                                      |  |  |  | (Millions)                          
|Pension Benefit Cost                  |  |  |  |                                     
|Service cost - benefits earned        |  |  |  |                                     
|during the year                       |  |  |  | $       1.0                         
|Interest cost on projected pension    |  |  |  |                                     
|benefit obligation                    |  |  |  | 2.0                                 
|Expected return on plan assets (gain) |  |  |  | (2.8)                               
|Amortization of:                      |  |  |  |                                     
|Net transition (asset) / obligation   |  |  |  | -                                   
|Net (gain) / loss                     |  |  |  | (0.2)                               
|Net periodic benefit cost (credit)    |  |  |  | -                                   
|                                      |  |  |  |                                     
|Settlement accounting                 |  |  |  | (0.7)                               
|Net pension cost (credit)             |  |  |  | $      (0.7)                        



|                                    |  |  |  | For fiscal years ended September 30,
|----------------------------------- |  |  |  | ------------------------------------
|                                    |  |  |  | 2000                                
|                                    |  |  |  | (Millions)                          
|Other Postretirement Benefit Cost   |  |  |  |                                     
|Service cost - benefits             |  |  |  |                                     
|earned during the year              |  |  |  | $       0.3                         
|Interest cost on accumulated        |  |  |  |                                     
|postretirement benefit obligation   |  |  |  | 0.7                                 
|Expected return on plan assets      |  |  |  | (0.4)                               
|Amortization of:                    |  |  |  |                                     
|Net transition (asset) / obligation |  |  |  | 0.4                                 
|Net (gain) / loss                   |  |  |  | (0.1)                               
|Net postretirement benefit cost     |  |  |  | $       0.9                         



In the calculation of the pension benefit cost and the other postretirement benefit cost under the plans, the following actuarial assumptions were used for fiscal years 2000, 1999 and 1998:

|                                      | Fiscal Years
|------------------------------------- | ------------
|                                      | 2000        
|Pension Benefits                      |             
|Discount rate                         | 7.75%       
|Long-term rate of return on assets    | 9.00%       
|Assumed future compensation increases | 4.50%       
|Other Postretirement Benefits         |             
|Discount rate                         | 7.75%       
|Long-term rate of return on assets    | 9.00%       



For measurement purposes, a health care cost trend rate of 5.4 percent was assumed for fiscal 2000, and that rate thereafter will decline gradually to 5.25 percent in 2002 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 accumulated postretirement benefit obligation at September 30, 2000, by $8.9 million and
the aggregate of service and interest cost components of the net periodic postretirement benefit cost by $1.5 million annually. Decreasing the assumed health care cost trend rate by one percentage point for each future year would have decreased the
accumulated postretirement benefit obligation at September 30, 2000, by $7.6 million and the aggregate of service and interest cost components of the net periodic postretirement benefit cost by $1.2 million annually.

8: TAX MATTERS

A. Provision for Income Taxes

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

|                                   |  |  |  | For fiscal years ended September 30,
|---------------------------------- |  |  |  | ------------------------------------
|                                   |  |  |  | 2000                                
|                                   |  |  |  | (Thousands)                         
|Current:                           |  |  |  |                                     
|Federal                            |  |  |  | $      3,825                        
|State                              |  |  |  | 757                                 
|Total current income taxes         |  |  |  | 4,582                               
|Deferred:                          |  |  |  |                                     
|Federal                            |  |  |  | 31,772                              
|State                              |  |  |  | 8,000                               
|Total deferred income taxes        |  |  |  | 39,772                              
|Investment tax credits - net:      |  |  |  |                                     
|Federal                            |  |  |  | (1,190)                             
|State                              |  |  |  | 182                                 
|Total investment tax credits - net |  |  |  | (1,008)                             
|Net provision for income taxes     |  |  |  | $    43,346                         



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

|                                   |  |  |  | For fiscal years ended September 30,
|---------------------------------- |  |  |  | ------------------------------------
|                                   |  |  |  | 2000                                
|                                   |  |  |  | (Thousands)                         
|Current:                           |  |  |  |                                     
|Federal                            |  |  |  | $    2,991                          
|State                              |  |  |  | 265                                 
|Total current income taxes         |  |  |  | 3,256                               
|Deferred:                          |  |  |  |                                     
|Federal                            |  |  |  | 31,722                              
|State                              |  |  |  | 7,900                               
|Total deferred income taxes        |  |  |  | 39,622                              
|Investment tax credits - net:      |  |  |  |                                     
|Federal                            |  |  |  | (1,081)                             
|State                              |  |  |  | 157                                 
|Total investment tax credits - net |  |  |  | (924)                               
|Net provision for income taxes     |  |  |  | $  41,954                           



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

|                                   |  |  | For fiscal years ended September 30,
|---------------------------------- |  |  | ------------------------------------
|                                   |  |  | 2000                                
|                                   |  |  | (Thousands)                         
|Current:                           |  |  |                                     
|Federal                            |  |  | $   2,861                           
|State                              |  |  | 570                                 
|Total current income taxes         |  |  | 3,431                               
|Deferred:                          |  |  |                                     
|Federal                            |  |  | 181                                 
|State                              |  |  | 129                                 
|Total deferred income taxes        |  |  | 310                                 
|Investment tax credits - net:      |  |  |                                     
|Federal                            |  |  | (109)                               
|State                              |  |  | 25                                  
|Total investment tax credits - net |  |  | (84)                                
|Total provision for income taxes   |  |  | $   3,657                           



B. Tax Rate Reconciliation

The following is a reconciliation for the Company between the computed federal income tax expense (tax rate of 35 percent times pretax book income) and the total provision for federal income tax expense:

|                                    |  | For fiscal years ended September 30,
|----------------------------------- |  | ------------------------------------
|                                    |  | 2000                                
|                                    |  |                                     
|                                    |  |                                     
|                                    |  | Amount                              
|                                    |  | (000's)                             
|Computed federal income tax expense |  | $ 42,287                            
|Amortization of deferred taxes      |  | (2,681)                             
|Tax credits                         |  | (3,760)                             
|Other, net                          |  | (1,439)                             
|Total provision for federal         |  |                                     
|income taxes                        |  | $ 34,407                            



The following is a reconciliation for Peoples Gas between the computed federal income tax expense (tax rate of 35 percent times pretax book income) and the total provision for federal income tax expense:

|                                    |  | For fiscal years ended September 30,
|----------------------------------- |  | ------------------------------------
|                                    |  |                                     
|                                    |  |                                     
|                                    |  |                                     
|                                    |  |                                     
|                                    |  |                                     
|Computed federal income tax expense |  |                                     
|Amortization of deferred taxes      |  |                                     
|Other, net                          |  |                                     
|Total provision for federal         |  |                                     
|income taxes                        |  |                                     



The following is a reconciliation for North Shore Gas between the computed federal income tax expense (tax rate of 35 percent times pretax book income) and the total provision for federal income tax expense:

|                                      |  | For fiscal years ended September 30,
|------------------------------------- |  | ------------------------------------
|                                      |  |                                     
|                                      |  |                                     
|                                      |  |                                     
|                                      |  |                                     
|                                      |  |                                     
|Computed federal income tax expense   |  |                                     
|Amortization of deferred income taxes |  |                                     
|Other, net                            |  |                                     
|Total provision for federal           |  |                                     
|income taxes                          |  |                                     



C. Deferred Income Taxes

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

|                                      |  |  |  | For fiscal years ended
|------------------------------------- |  |  |  | ----------------------
|                                      |  |  |  | September 30,         
|                                      |  |  |  | 2000                  
|                                      |  |  |  | (Thousands)           
|Deferred tax liabilities:             |  |  |  |                       
|Property - accelerated depreciation   |  |  |  |                       
|and other property related items      |  |  |  | $296,576              
|Pension                               |  |  |  | 52,229                
|Gas commodity costs                   |  |  |  | 21,217                
|Other                                 |  |  |  | 10,761                
|Total deferred income tax liabilities |  |  |  | 380,783               
|Deferred tax assets:                  |  |  |  |                       
|Other                                 |  |  |  | (37,424)              
|Total deferred income tax assets      |  |  |  | (37,424)              
|Net deferred income tax liabilities   |  |  |  | $343,359              



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

|                                        |  |  |  | For fiscal years ended
|--------------------------------------- |  |  |  | ----------------------
|                                        |  |  |  | September 30,         
|                                        |  |  |  | 2000                  
|                                        |  |  |  | (Thousands)           
|Deferred tax liabilities:               |  |  |  |                       
|Property - accelerated depreciation and |  |  |  |                       
|other property related items            |  |  |  | $ 270,210             
|Other                                   |  |  |  | 81,606                
|Total deferred income tax liabilities   |  |  |  | 351,816               
|Deferred tax assets:                    |  |  |  |                       
|Uncollectible accounts                  |  |  |  | (9,217)               
|Unamortized investment tax credits      |  |  |  | (10,602)              
|Other                                   |  |  |  | (12,093)              
|Total deferred income tax assets        |  |  |  | (31,912)              
|Net deferred income tax liabilities     |  |  |  | $ 319,904             



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

|                                        |  |  |  | For fiscal years ended
|--------------------------------------- |  |  |  | ----------------------
|                                        |  |  |  | September 30,         
|                                        |  |  |  | 2000                  
|                                        |  |  |  | (Thousands)           
|                                        |  |  |  |                       
|Deferred tax liabilities:               |  |  |  |                       
|Property - accelerated depreciation and |  |  |  |                       
|other property related items            |  |  |  | $ 27,836              
|Other                                   |  |  |  | 5,256                 
|Total deferred income tax liabilities   |  |  |  | 33,092                
|Deferred tax assets:                    |  |  |  |                       
|Net regulatory liabilities -            |  |  |  |                       
|income tax amounts                      |  |  |  | (1,721)               
|Unamortized investment credits          |  |  |  | (1,279)               
|Other                                   |  |  |  | (6,559)               
|Total deferred income tax assets        |  |  |  | (9,559)               
|Net deferred income tax liabilities     |  |  |  | $ 23,533              



9: 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, 2000, such restrictions amounted
to $11.6 million out of North Shore Gas' total retained earnings of $69.3 million.

10: 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.

11: CAPITAL COMMITMENTS

Total contract and purchase order commitments of the Company and its subsidiaries at September 30, 2000, amounted to approximately $97.7 million. Total contract and purchase order commitments of Peoples Gas and North Shore Gas at September
30, 2000, amounted to approximately $4.2 million and $800,000, respectively.

12: LONG-TERM DEBT AND SHORT-TERM DEBT

A. Issuance of Bonds

On July 26, 2000, the Company issued $100 million Variable Rate Notes (the "Notes"), due August 1, 2002. The Notes are redeemable at the option of the Company in whole, beginning on February 1, 2001, and quarterly thereafter, at a
redemption price equal to 100 percent of the principal amount. The average rate of this note for fiscal 2000 was 7.11 percent. The net proceeds from the sale of the Notes were applied to the reduction of short-term indebtedness.

On March 1, 2000, the City of Chicago issued $175 million aggregate principal amount of adjustable rate Gas Supply Refunding Revenue Bonds - Series 2000A, Series 2000B, Series 2000C and Series 2000D - which were secured by an equal amount of
Peoples Gas' adjustable rate 30-year First and Refunding Mortgage Bonds - Series GG, Series HH, Series II and Series JJ, respectively. The proceeds were deposited with a trustee and used to redeem $175 million of aggregate principal amount of previously
issued gas supply revenue bonds.

On December 18, 1998, the Illinois Development Finance Authority issued $30,035,000 aggregate principal amount of 5.00% Gas Supply Revenue Bonds, Series 1998, which are secured by an equal amount of North Shore Gas' 30-year first mortgage bonds,
Series M. The net proceeds were deposited with a trustee and used for the redemption of long-term debt, the payment of issuance costs and for the payment of certain construction expenditures.

B. Adjustable Rate and Remarketable Bonds

The rate of interest on the $27 million aggregate principal amount of the City of Chicago 1993 Series B Bonds, which are secured by an equal principal amount of 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.
Therefore, these bonds are classified as short-term debt on the balance sheet. The interest rate on the Series B Bonds will be 4.05% for the period December 1, 1999 through November 30, 2000.

The rates of interest on the $175 million aggregate principal amount of the City of Chicago Bonds, Series 2000A, Series 2000B, Series 2000C and Series 2000D (collectively the "City of Chicago 2000 Bonds"), which are secured by equal aggregate
principal amounts of Peoples Gas' adjustable rate First and Refunding Mortgage Bonds - Series GG, Series HH, Series II and Series JJ, respectively, - are subject to adjustment each week. The average coupon rate on these bonds during fiscal 2000 are as
follows: Series GG 4.27%, Series HH 4.27%, Series II 4.32% and Series JJ 4.34%. Owners of the City of Chicago 2000 Bonds have the right to tender such bonds at par at each weekly interest reset date. Peoples Gas is obligated to purchase any such bonds
tendered that cannot be remarketed, therefore, these bonds are shown as short-term debt on the balance sheet.

C. Sinking Fund Requirements and Maturities and Redemptions

At September 30, 2000, long-term debt sinking fund requirements and maturities for the next five years are:

|(Thousands)
Fiscal Year | Peoples
Energy | Peoples
Gas | North
Shore Gas | Consolidated
|----------------------- | -------------- | ----------- | --------------- | ------------
|2001                    | $ -            | $ -         | $ -             | $ -         
|2002                    | 100,000        | -           | -               | 100,000     
|2003                    | -              | 75,000      | 15,000          | 90,000      
|2004                    | -              | -           | -               | -           
|2005                    | -              | -           | -               | -           



On May 1, 2000, Peoples Gas redeemed $75 million aggregate principal amount of the City of Chicago 1990 Series A Bonds, which were secured by Peoples Gas' First and Refunding Mortgage Bonds, Series BB. Funding for redemption was provided by the
proceeds from the issuance of $75 million aggregate principal amount of the City of Chicago Bonds, Series 2000C and Series 2000D, which are secured by Peoples Gas' adjustable rate First and Refunding Mortgage Bonds, Series II and Series JJ, respectively.

On April 3, 2000, Peoples Gas redeemed $100 million aggregate principal amount of the City of Chicago 1985 Series B Bonds and City of Chicago 1985 Series C Bonds, which were secured by Peoples Gas' First and Refunding Mortgage Bonds, Series Y and
Series Z, respectively. Funding for redemption was provided by the proceeds from the issuance of $100 million aggregate principal amount of the City of Chicago Bonds, Series 2000A and Series 2000B, which are secured by Peoples Gas' adjustable rate First
and Refunding Mortgage Bonds, Series GG and Series HH, respectively.

On January 19, 1999, North Shore Gas redeemed, using a portion of the bond issuance proceeds deposited with the trustee, $24,905,000 aggregate principal amount of the Illinois Development Finance Authority Gas Supply Revenue Bonds, Series 1992,
which were secured by North Shore Gas' First Mortgage Bonds, Series K.

On October 1, 1998, Peoples Gas redeemed, from general corporate funds, $10.4 million aggregate principal amount of the City of Joliet 1984 Series C Bonds, which were secured by Peoples Gas' adjustable rate First and Refunding Mortgage Bonds,
Series W.

D. Fair Value of Financial Instruments

At September 30, 2000, the carrying amount of the Company's long-term debt of $419.7 million had an estimated fair value of $415.9 million. At September 30, 1999, the carrying amount of the Company's long-term debt of $521.7 million had an
estimated fair value of $523.1 million. 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. 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.

E. Short-Term Debt

|(Thousands)      At September 30,            |  |  |  | 2000      |  | 1999     
|-------------------------------------------- |  |  |  | --------- |  | ---------
|Peoples Energy                               |  |  |  |           |  |          
|due within one year                          |  |  |  | $ 243,065 |  | $ 113,010
|Peoples Gas                                  |  |  |  |           |  |          
|due within one year                          |  |  |  | 115,775   |  | 15,990   
|North Shore Gas                              |  |  |  |           |  |          
|due within one year                          |  |  |  | 7,375     |  | -        
|Bonds:                                       |  |  |  |           |  |          
|Peoples Gas:                                 |  |  |  |           |  |          
|Adjustable Rate Series GG, due March 1, 2030 |  |  |  | 50,000    |  | -        
|Adjustable Rate Series HH, due March 1, 2030 |  |  |  | 50,000    |  | -        
|Adjustable Rate Series II, due March 1, 2030 |  |  |  | 37,500    |  | -        
|Adjustable Rate Series JJ, due March 1, 2030 |  |  |  | 37,500    |  | -        
|Adjustable-Rate Series EE (4.05%through      |  |  |  |           |  |          
|November 30, 2000)                           |  |  |  | 27,000    |  | -        
|Total                                        |  |  |  | $ 568,215 |  | $ 129,000



Short-term cash needs of Peoples Energy are met through bank loans or the issuance of short-tem debt. The outstanding total amount of short-term debt cannot at any time exceed total bank credit then in effect.

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

At September 30, 2000 and 1999, Peoples Energy had lines of credit totaling $250.0 million and $150.0 million, respectively, of which available unused credit was $5.2 million and $37.0 million. Agreements covering $150.0 million of the total will
expire in March 2001. Agreements covering $100.0 million will expire in March 2003. Such lines of credit cover the projected short-term credit needs of the Company. Payment for the lines of credit is by fee. In addition, the Company has approximately $7.2
million and $2.2 million, respectively, of letters of credit outstanding for financial and performance guarantees. These letters of credit are supported by a $20.0 million line of credit expiring in August 2001.

At September 30, 2000 and 1999, the utility subsidiaries had aggregate available lines of credit totaling $190.0 million and $119.0 million, respectively, of which available unused credit was $66.9 million and $102.9 million. The agreements
supporting these outstanding lines of credit will expire in August 2001. Such lines of credit cover projected short-term credit needs of the utility subsidiaries. Payment for the lines of credit is by fee.

13: EARNINGS PER SHARE

The table below shows average and diluted shares for computing the Company's per share amounts. The dilution is attributable to stock options outstanding under the Company's Long-Term Incentive Compensation Plan (LTIC). The diluted shares
for the Company for fiscal 2000, 1999 and 1998 is as follows:

|For fiscal years ended September 30, | 2000   | 1999   | 1998  
|------------------------------------ | ------ | ------ | ------
|(thousands)                          |        |        |       
|As reported shares                   | 35,413 | 35,477 | 35,257
|Effects of options                   | 4      | 13     | 19    
|Diluted shares                       | 35,417 | 35,490 | 35,276



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.

14: PREFERRED STOCK

The Company has five million shares of Preferred Stock, no par value, authorized for issuance, of which none was issued and outstanding at September 30, 2000.

15: COMMON STOCK

|For fiscal years ended September 30,                                            |                                       | 2000       |        | 1999       |        | 1998      
|------------------------------------------------------------------------------- | ------------------------------------- | ---------- | ------ | ---------- | ------ | ----------
|Shares outstanding - beginning of year                                          |                                       | 35,489,242 |        | 35,401,992 |        | 35,069,517
|Shares issued:                                                                  |                                       |            |        |            |        |           
|                                                                                | Employee Stock Purchase Plan          |            | 16,685 |            | 13,961 |           
|                                                                                | Long-Term Incentive Compensation Plan |            | 43,455 |            | 42,975 |           
|                                                                                | Deferred Compensation Plan            |            | 7,622  |            | -      |           
|                                                                                | Direct Purchase and Investment Plan   |            | -      |            | 62,656 |           
|Shares reacquired under LTIC                                                    |                                       | (12,599)   |        | (32,342)   |        | (26,840)  
|Shares reaquired held as Treasury Shares                                        |                                       | (248,200)  |        | -          |        | -         
|Shares outstanding - end of year                                                |                                       | 35,296,205 |        | 35,489,242 |        | 35,401,992
|                                                                                |                                       |            |        |            |        |           
|Shares Reserved                                                At September 30, |                                       | 2000       |        | 1999       |        | 1998      
|Direct Purchase and Investment Plan                                             |                                       | 1,062,304  |        | 1,062,304  |        | 1,124,960 
|Employee Stock Purchase Plan                                                    |                                       | 935,621    |        | 952,306    |        | 966,267   
|Long-Term Incentive Compensation Plan                                           |                                       | 3,007,605  |        | 551,060    |        | 594,035   
|Deferred Compensation Plan                                                      |                                       | 67,403     |        | 75,025     |        | 75,025    
|Treasury Stock                                                                  |                                       | 248,200    |        | -          |        | -         
|Total shares reserved                                                           |                                       | 5,321,133  |        | 2,640,695  |        | 2,760,287 



|                                      |  |  | 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
|Outstanding at September 30, 1997     |  |  |              | $   31.71     |            |               | 156,600    |       |         
|Granted                               |  |  |              | 37.84         |            |               | 83,800     |       |         
|Exercised                             |  |  |              | 29.37         |            |               | (25,300)   |       |         
|Forfeited                             |  |  |              | 37.84         |            |               | (3,000)    |       |         
|Outstanding at September 30, 1998     |  |  |              | 34.33         |            |               | 212,100    |       |         
|Granted                               |  |  |              | 36.78         |            |               | 107,575    |       |         
|Exercised                             |  |  |              | 31.99         |            |               | (27,650)   |       |         
|Forfeited                             |  |  |              | 36.78         |            |               | (3,500)    |       |         
|Outstanding at September 30, 1999     |  |  |              | 36.52         |            |               | 288,525    |       |         
|Granted                               |  |  |              | 35.56         |            |               | 188,700    |       |         
|Exercised                             |  |  |              | 29.77         |            |               | (8,400)    |       |         
|Forfeited                             |  |  |              | 35.60         |            |               | (6,200)    |       |         
|Outstanding at September 30, 2000     |  |  |              | $   35.59     |            |               | 462,625    |       |         



Restricted stock awards granted to officers of the Company during the last three fiscal years are as follows: 2000, 40,875 shares; 1999, 17,750 shares; and 1998, 15,800 shares. Forfeitures during the same period were as follows: 2000, 5,820 shares;
 1999, 2,425 shares; and 1998, 0 shares. At September 30, 2000, there were 2,544,980 shares available for future grant under options or restricted stock awards. At September 30, 2000, there were 2,722,475 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 935,621 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 percent of the stock's market price
at the date of purchase. The Company sold 16,685 shares, 13,961 shares and 15,381 shares to employees in 2000, 1999 and 1998, respectively.

On December 1, 1999, the company adopted the Directors Stock and Option Plan ("DSOP"). Under the DSOP, on May 1 of each year that the DSOP is in effect, each non-employee director of the company holding that position receives, as part of his or
her annual retainer, a stock payment of 300 shares of common stock and options to purchase 3,000 shares of common stock. The exercise price for each option equals the mean between the highest and lowest quoted selling price for the company's common stock
in the New York Stock Exchange Composite Transactions on the last day in April for which the New York Stock Exchange is open for trading in the year of the grant. Options granted under the plan are not exercisable until six months after the date of the
grant and have a ten-year term. Stock delivered under the DSOP may be made available from authorized but unissued shares, treasury stock, or shares purchased on the open market.

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 $396,000, $618,000
and $345,000 for the years ended September 30, 2000, 1999 and 1998, 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:



|(Thousands, except per-share amounts) |         |         
|------------------------------------- | ------- | --------
|Fiscal Years                          | 2000    | 1999    
|Net income:                           |         |         
|As reported                           | $86,415 | $ 92,636
|Pro forma                             | 84,256  | 91,513  
|Earnings per average                  |         |         
|common share:                         |         |         
|As reported                           | $ 2.44  | $ 2.61  
|Pro forma                             | 2.38    | 2.58    



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, 2000, 1999 and 1998, respectively: expected volatility of 18.19, 17.48 and 18.39 percent; dividend yield of 6.0, 5.6 and 5.3 percent; risk-free interest rates of 5.97, 4.29 and 5.78 percent, and expected lives of four years for
2000 and three and one-half years for 1999 and 1998. The weighted-average fair value of options, SARs and restricted stock awards granted was $4.11, $3.35 and $4.61 for the years ended September 30, 2000, 1999 and 1998, respectively.

16: LOANS AND ADVANCES TO JOINT VENTURE PARTNERSHIPS

The Company has made loans and advances to Elwood for the purpose of providing construction capital for the current 750-megawatt expansion of the Elwood power facility. The Company accrues interest on the loans and advances at market based
rates. The Company expects Elwood to repay the outstanding loans and advances upon Elwood obtaining a permanent financing facility.

17: QUARTERLY FINANCIAL DATA (UNAUDITED)

All quarterly results were impacted by warmer than normal weather, however, the effects in fiscal 2000 were offset by the impact of a weather insurance policy in effect for that year. Growth in diversified businesses, pension benefit
accounting and tax credits associated with oil and gas production reserve acquisitions also positively effected year-end results.

Quarterly financial data for Peoples Energy was as follows:

|                |  |                                       |  |           |  | Operating Income     |  |               |  | Earnings
|--------------- |  | ------------------------------------- |  | --------- |  | -------------------- |  | ------------- |  | --------
|                |  |                                       |  | Operating |  | and Equity           |  |               |  | Per     
|Fiscal Quarters |  |                                       |  | Revenues  |  | Investment Income    |  | Net Income    |  | Share   
|                |  | (Thousands, except per-share amounts)
|2000            |  |                                       |  |           |  |                      |  |               |  |         
|Fourth          |  |                                       |  | $ 219,138 |  | $          (10,836)  |  | $   (11,435)  |  | $ (0.32)
|Third           |  |                                       |  | 261,248   |  | 25,735               |  | 10,852        |  | 0.31    
|Second          |  |                                       |  | 525,248   |  | 104,164              |  | 57,428        |  | 1.62    
|First           |  |                                       |  | 412,485   |  | 57,814               |  | 29,571        |  | 0.83    
|                |  |                                       |  |           |  |                      |  |               |  |         
|1999            |  |                                       |  |           |  |                      |  |               |  |         
|Fourth          |  |                                       |  | $ 171,129 |  | $                597 |  | $     (3,808) |  | $ (0.11)
|Third           |  |                                       |  | 218,934   |  | 12,561               |  | 6,992         |  | 0.20    
|Second          |  |                                       |  | 494,077   |  | 104,290              |  | 66,082        |  | 1.86    
|First           |  |                                       |  | 310,241   |  | 47,440               |  | 23,370        |  | 0.66    



Quarterly financial data for Peoples Gas was as follows:

|                |  |          |             |        |            |              | Net Income        
|--------------- |  | -------- | ----------- | ------ | ---------- | ------------ | ------------------
|                |  |          | Operating   |        | Operating  |              | Applicable to     
|Fiscal Quarters |  | Revenues |             | Income |            | Common Stock
|                |  |          | (Thousands)
|2000            |  |          |             |        |            |              |                   
|Fourth          |  |          | $  128,644  |        | $  (8,760) |              | $          (9,025)
|Third           |  |          | 172,014     |        | 23,260     |              | 10,720            
|Second          |  |          | 369,383     |        | 82,870     |              | 45,635            
|First           |  |          | 286,528     |        | 48,126     |              | 25,246            
|                |  |          |             |        |            |              |                   
|1999            |  |          |             |        |            |              |                   
|Fourth          |  |          | $  106,519  |        | $  (4,136) |              | $          (5,363)
|Third           |  |          | 147,446     |        | 13,151     |              | 7,453             
|Second          |  |          | 362,259     |        | 87,038     |              | 56,535            
|First           |  |          | 235,290     |        | 40,012     |              | 19,593            



Quarterly financial data for North Shore Gas was as follows:

|                |  |  |             |  |            |  | Net Income        
|--------------- |  |  | ----------- |  | ---------- |  | ------------------
|                |  |  | Operating   |  | Operating  |  | Applicable to     
|Fiscal Quarters |  |  | Revenues    |  | Income     |  | Common Stock      
|                |  |  | (Thousands)
|                |  |  |             |  |            |  |                   
|2000            |  |  |             |  |            |  |                   
|Fourth          |  |  | $ 20,998    |  | $  (8,378) |  | $          (5,694)
|Third           |  |  | 27,963      |  | 2,264      |  | 780               
|Second          |  |  | 61,224      |  | 12,395     |  | 6,787             
|First           |  |  | 47,261      |  | 8,297      |  | 4,311             
|                |  |  |             |  |            |  |                   
|1999            |  |  |             |  |            |  |                   
|Fourth          |  |  | $ 16,060    |  | $    (772) |  | $          (1,076)
|Third           |  |  | 21,847      |  | 2,924      |  | 1,464             
|Second          |  |  | 60,565      |  | 14,858     |  | 8,322             
|First           |  |  | 37,248      |  | 7,393      |  | 3,782             



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



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

Not applicable.



PART III

ITEM 10. Directors and Executive Officers of the Company

Information relating to the directors of the Company is set forth under the caption "Information Concerning Nominees for Election as Directors" of the Company's Proxy Statement, to be filed with the SEC on or about December 22, 2000, and
to be distributed in connection with the Company's Annual Meeting of Shareholders to be held on February 23, 2001. 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."

Identification of Directors

|Name, principal Occupation,                       | Age at   | Directorship
|------------------------------------------------- | -------- | ------------
|And Other Directorships                           | 11-30-00 | Since       
|                                                  |          |             
|Donald M. Field                                   | 51       | 1998        
|Executive Vice President of the Company,          |          |             
|Peoples Gas, and North Shore Gas; Director of     |          |             
|Peoples Gas and North Shore Gas.                  |          |             
|                                                  |          |             
|James Hinchliff                                   | 60       | 1985        
|Senior Vice President and General Counsel         |          |             
|of the Company, Peoples Gas and                   |          |             
|North Shore Gas; Director of Peoples Gas          |          |             
|and North Shore Gas.                              |          |             
|                                                  |          |             
|James M. Luebbers                                 | 54       | 1998        
|Chief Financial Officer and Controller            |          |             
|of the Company, Peoples Gas and                   |          |             
|North Shore Gas; Director of Peoples Gas          |          |             
|and North Shore Gas.                              |          |             
|                                                  |          |             
|William E. Morrow                                 | 44       | 2000        
|Executive Vice President of the Company,          |          |             
|Peoples Gas and North Shore Gas; Director         |          |             
|of Peoples Gas and North Shore Gas.               |          |             
|                                                  |          |             
|Thomas M. Patrick                                 | 54       | 1997        
|President and Chief Operating Officer of          |          |             
|the Company, Peoples Gas and North Shore Gas;     |          |             
|Director of Peoples Gas and North Shore Gas.      |          |             
|                                                  |          |             
|Richard E. Terry                                  | 63       | 1982        
|Chairman of the Board and Chief Executive         |          |             
|Officer of the Company, Peoples Gas and           |          |             
|North Shore Gas: Director of Peoples Gas          |          |             
|and North Shore Gas. Mr. Terry is also a          |          |             
|Director of Amsted Industries, Bankmont           |          |             
|Financial Corp. and its subsidiaries, Harris      |          |             
|Bankcorp, Inc. and Harris Trust and Savings Bank. |          |             



Identification of Executive Officers of Peoples Gas and North Shore Gas

|                      | Position at               | Age at   | Position  
|--------------------- | ------------------------- | -------- | ----------
|Name                  | November 30, 2000         | 11-30-00 | Held Since
|                      |                           |          |           
|Katherine A. Donofrio | Vice President            | 43       | 1997      
|                      |                           |          |           
|Willard S. Evans, Jr. | Vice President            | 45       | 1997      
|                      |                           |          |           
|Donald M. Field       | Executive Vice President  | 51       | 1998      
|                      |                           |          |           
|James M. Gabel        | Treasurer                 | 44       | 2000      
|                      |                           |          |           
|Joan T. Gagen         | Vice President            | 49       | 1994      
|                      |                           |          |           
|James Hinchliff       | Senior Vice President     | 60       | 1989      
|                      | General Counsel           |          |           
|                      |                           |          |           
|John C. Ibach         | Vice President            | 53       | 1992      
|                      |                           |          |           
|Peter H. Kauffman     | Assistant General Counsel | 54       | 1998      
|                      | And Secretary             |          |           
|                      |                           |          |           
|James M. Luebbers     | Chief Financial Officer   | 54       | 1999      
|                      | and Controller            |          |           
|                      |                           |          |           
|William E. Morrow     | Executive Vice President  | 44       | 2000      
|                      |                           |          |           
|Thomas M. Patrick     | President and             | 54       | 1998      
|                      | Chief Operating Officer   |          |           
|                      |                           |          |           
|Desiree G. Rogers     | Vice President            | 41       | 1997      
|                      |                           |          |           
|Richard E. Terry      | Chairman of the Board and | 63       | 1990      
|                      | Chief Executive Officer   |          |           
|                      |                           |          |           
|Charles L. Thompson   | Vice President            | 54       | 1998      



Directors and executive officers of Peoples Gas and North Shore Gas were elected to serve for a term of one year or until their successors are duly elected and qualified.

There are no family relationships among directors and executive officers of Peoples Gas and North Shore Gas.

All of the directors and executive officers of Peoples Gas and North Shore Gas have been continuously employed by the Company and/or its affiliates in various capacities for at least five years, with the exception of Ms. Rogers.
(See Executive Officers of the Company in part 1 for a description of Ms. Rogers past business experience.)



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 22, 2000, and to
be distributed in connection with the Company's Annual Meeting of Shareholders to be held on February 23, 2001. Such information is incorporated herein by reference.

The following tables set forth information for Peoples Gas and North Shore Gas concerning annual and long-term compensation including grants of stock options, stock appreciation rights (SARs) and restricted stock awards under the Company's
Long-Term Incentive Compensation Plan, paid by the Company and its subsidiaries for services in all capacities during the three fiscal years set forth below, to (i) the Chief Executive Officer and (ii) the four most highly compensated executive officers
of Peoples Gas and North Shore Gas other than the Chief Executive Officer. No executive officer's cash compensation paid for services to North Shore Gas exceeded $100,000.

SUMMARY COMPENSATION TABLE

|                         |        |            |          | Long Term Compensation
|------------------------ | ------ | ---------- | -------- | ----------------------
|Annual Compensation      | Awards
|                         |        |            |          | Restricted Stock      
|Name and                 |        |            |          | Award (1)(2)          
|Principal Position       | Year   | Salary ($) | Bonus($) | ($)                   
|                         |        |            |          |                       
|Richard E. Terry         | 2000   | 650,000    | 392,000  | 326,625               
|Chairman and Chief       | 1999   | 618,000    | 328,200  | 204,309               
|Executive Officer        | 1998   | 600,000    | 245,000  | 192,828               
|                         |        |            |          |                       
|Thomas M. Patrick        | 2000   | 400,000    | 249,300  | 209,625               
|President and Chief      | 1999   | 319,150    | 171,400  | 105,836               
|Operating Officer        | 1998   | 254,800    | 75,300   | 55,497                
|                         |        |            |          |                       
|James Hinchliff          | 2000   | 290,400    | 131,600  | 99,938                
|Senior Vice President    | 1999   | 279,200    | 100,900  | 57,980                
|and General Counsel      | 1998   | 271,100    | 75,300   | 55,497                
|                         |        |            |          |                       
|Donald M. Field          | 2000   | 245,300    | 131,600  | 99,938                
|Executive Vice President | 1999   | 217,117    | 97,700   | 57,980                
|                         | 1998   | 156,800    | 67,900   | 27,278                
|                         |        |            |          |                       
|James M. Luebbers        | 2000   | 215,000    | 116,900  | 83,688                
|Chief Financial Officer  | 1999   | 185,067    | 74,700   | 46,936                
|and Controller           | 1998   | 133,000    | 30,200   | 0                     

1. Restricted stock awards are valued at the closing market price as of the date of grant. The total number of restricted shares held by the named executive officers and the aggregate market value of such shares at September 29, 
2000 were as follows: Mr. Terry, 20,390 shares, valued at $680,516; Mr. Patrick, 10,505 shares, valued at $350,604; Mr. Hinchliff, 6,225 shares, valued at $207,756; Mr. Field, 4,770 shares, valued at $160,988; and Mr. Luebbers, 3,595 shares, valued
at $119,983. Dividends are paid on the restricted shares at the same time and at the same rate as dividends paid to all shareholders of common stock. Aggregate market value is based on a per share price of $33.375, the closing price of Peoples Energy's
stock on the New York Stock Exchange on September 29, 2000.
2. Restricted stock awards granted to date vest in equal annual increments over a five-year period. If a recipient's employment with Peoples Gas or North Shore Gas 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. In addition, the Compensation-Nominating Committee (and with respect to the CEO, 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 Long-Term Incentive Compensation Plan. Total restricted stock awarded to the named individuals for 1998 constitutes 8,800 shares,
of which 1,760 shares vested in 1999; 1,760 shares vested in 2000; 1,760 shares will vest in 2001; 1,760 shares will vest in 2002; and the remaining 1,760 shares will vest in 2003. Total restricted stock awarded to the named individuals for 1999
constitutes 12,850 shares, of which 2,570 shares vested in 2000; 2,570 shares will vest in 2001; 2,570 shares will vest in 2002; 2,570 shares will vest in 2003; and the remaining 2,570 shares will vest in 2004. Total restricted stock awarded to the named
individuals for 2000 constitutes 25,225 shares, of which 5,045 shares will vest in 2001; 5,045 shares will vest in 2002; 5,045 shares will vest in 2003; 5,045 shares will vest in 2004; and the remaining 5,045 shares will vest in 2005.
3. Peoples Gas and North Shore Gas contributions to the Capital Accumulation Plan accounts of the named executive officers during the above fiscal years. Employee contributions under the plan are subject to a maximum limitation under the Internal
Revenue Code of 1986, as amended. Peoples Gas and North Shore Gas pays an employee who is subject to this limitation an additional 60 cents for each dollar that the employee is prevented from contributing solely by reason of such limitation. The amounts
shown in the table above reflect, if applicable, this additional payment by Peoples Gas and North Shore Gas.

OPTIONS/SAR GRANTS IN FISCAL 2000



|                         | Individual Grants |                    
|------------------------ | ----------------- | -------------------
|                         |                   | % of Total Options/
|                         | Options/SARs      | SARs Granted to    
|Name and                 | Granted           | Employees in Fiscal
|Principal Position       | (#) (1)           | Year (2)           
|                         |                   |                    
|Richard E. Terry         | 73,200            | 19.4%              
|Chairman and Chief       |                   |                    
|Executive Officer        |                   |                    
|                         |                   |                    
|Thomas M. Patrick        | 46,400            | 12.3               
|President and Chief      |                   |                    
|Operating Officer        |                   |                    
|                         |                   |                    
|James Hinchliff          | 20,000            | 5.3                
|Senior Vice President    |                   |                    
|and General Counsel      |                   |                    
|                         |                   |                    
|Donald M. Field          | 20,000            | 5.3                
|Executive Vice President |                   |                    
|                         |                   |                    
|James M. Luebbers        | 14,200            | 3.8                
|Chief Financial Officer  |                   |                    
|and Controller           |                   |                    



1. The grant of an Option enables the recipient to purchase Peoples Energy common stock at a purchase price equal to the fair market value of the shares on the date the Option is 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 Peoples Energy common stock on the date the SAR is exercised over the fair market value of such common stock on the date the SAR was granted. Options or SARs that
expire unexercised become available for future grants. 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.
2. Based on 188,700 Options and 188,700 SARs granted to all employees under Peoples Energy's Long-Term Incentive Compensation Plan during fiscal 2000.
3. The Present 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: expected volatility of
18.19 percent, dividend yield of 6.0 percent, risk-free interest rate of 5.97 percent, and expected life of four years. The weighted-average fair value of options granted was $4.11 for the year ended September 30, 2000.



AGGREGATED OPTION/SAR EXERCISES IN FISCAL 2000

AND FISCAL YEAR-END OPTION/SAR VALUES



|                         | Shares       |             | Number of Unexercised  | Value of Unexercised     
|------------------------ | ------------ | ----------- | ---------------------- | -------------------------
|                         | Acquired on  |             | Options/SARs at Fiscal | In-the-Money Options/SARs
|Name and                 | (Option/SAR) | Value       | Year-End (#)           | at Fiscal Year-End ($)   
|Principal Position       | Exercise(#)  | Realized($) | Exercisable            | Unexercisable            
|                         |              |             |                        |                          
|Richard E. Terry         | 0            | $0          | 97,400                 | 73,200                   
|Chairman and Chief       |              |             |                        |                          
|Executive Officer        |              |             |                        |                          
|                         |              |             |                        |                          
|Thomas M. Patrick        | 0            | 0           | 24,000                 | 46,400                   
|President and Chief      |              |             |                        |                          
|Operating Officer        |              |             |                        |                          
|                         |              |             |                        |                          
|James Hinchliff          | 0            | 0           | 18,800                 | 20,000                   
|Senior Vice President    |              |             |                        |                          
|and General Counsel      |              |             |                        |                          
|                         |              |             |                        |                          
|Donald M. Field          | 0            | 0           | 25,000                 | 20,000                   
|Executive Vice President |              |             |                        |                          
|                         |              |             |                        |                          
|James M. Luebbers        | 0            | 0           | 12,400                 | 14,200                   
|Chief Financial Officer  |              |             |                        |                          
|and Controller           |              |             |                        |                          



PENSION PLAN TABLE



|               | Years of Service
|-------------- | ----------------
|Average Annual |                 
|Compensation   | 20              
|               |                 
|$200,000       | 73,944          
|250,000        | 93,944          
|300,000        | 113,944         
|350,000        | 133,944         
|400,000        | 153,944         
|450,000        | 173,944         
|500,000        | 193,944         
|550,000        | 213,944         
|600,000        | 233,944         
|650,000        | 253,944         
|700,000        | 273,944         
|750,000        | 293,944         
|800,000        | 313,944         
|850,000        | 333,944         
|900,000        | 353,944         
|950,000        | 373,944         
|1,000,000      | 393,944         
|1,050,000      | 413,944         
|1,100,000      | 433,944         



The above table illustrates various annual straight-life benefits at normal retirement (age 65) for the indicated levels of average annual compensation and various periods of service, assuming no future changes in the Company's pension benefits.
The compensation used in the computation of annual retirement benefits is substantially equivalent to the salary and bonus reported in the Summary Compensation Table. The benefit amounts shown reflect reduction for applicable Social Security benefits.

Average annual compensation is the average 12-month compensation for the highest 60 consecutive months of the last 120 months of service prior to retirement. Compensation is total salary paid to an employee by the Company and/or its affiliates,
including bonuses under Peoples Energy's Short-Term Incentive Compensation Plan, pre-tax contributions under Peoples Energy's Capital Accumulation Plan, pre-tax contributions under Peoples Energy's Health and Dependent Care Spending Accounts Plan, and
pre-tax contributions for life and health care insurance, but excluding moving allowances, exercise of stock options and SARs, and other compensation that has been deferred.

At September 30, 2000, the credited years of retirement benefit service for the individuals listed in the Summary Compensation Table were as follows: Mr. Terry, 36 years; Mr. Patrick, 24 years; Mr. Hinchliff, 28 years; Mr. Field, 29 years;
and Mr. Luebbers, 31 years. The benefits shown in the foregoing table are subject to maximum limitations under the Employee Retirement Income Security Act of 1974, as amended, and the Internal Revenue Code of 1986, as amended. Should these benefits at the
time of retirement exceed the then-permissible limits of the applicable Act, the excess would be paid by the Company as supplemental pensions pursuant to Peoples Energy's Supplemental Retirement Benefit Plan. The benefits shown give effect to these
supplemental pension benefits.



SEVERANCE AGREEMENTS

The Company has entered into separate severance agreements with certain key executives, including each of the executives named in the Summary Compensation Table. The intent of the severance agreements is to assure the continuity of the
Company's administration and operations in the event of a Change in Control of the Company (as described below). The severance agreements were developed in accordance with the advice of outside consultants.

The term of each severance agreement is for the longer of 36 months after the date in which a Change in Control of the Company occurs or 24 months after the completion of the transaction approved by shareholders described in (iii) below of the
description of a Change in Control. A Change in Control is defined as occurring when (i) the Company receives a report on Schedule 13D filed with the SEC pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended, disclosing that any
person, group, corporation, or other entity is the beneficial owner, directly or indirectly, of 20 percent or more of the common stock of the Company; (ii) any person, group, corporation, or other entity (except the Company or a wholly-owned subsidiary),
after purchasing common stock of the Company in a tender offer or exchange offer, becomes the beneficial owner, directly or indirectly, of 20 percent or more of such common stock; (iii) the shareholders of the Company approve (a) any consolidation or
merger of the Company in which the Company is not the continuing or surviving corporation, other than a consolidation or merger in which holders of the Company's common stock prior to the consolidation or merger have substantially the same proportionate
ownership of common stock of the surviving corporation immediately after the consolidation or merger as immediately before; (b) any consolidation or merger in which the Company is the continuing or surviving corporation, but in which the common
shareholders of the Company immediately prior to the consolidation or merger do not hold at least 90 percent of the outstanding common stock of the Company; (c) any sale, lease, exchange or other transfer of all or substantially all of the assets of the
Company, except where the Company owns all of the outstanding stock of the transferee entity or the Company's common shareholders immediately prior to such transaction own at least 90 percent of the transferee entity or group of transferee entities
immediately after such transaction; or (d) any consolidation or merger of the Company where, after the consolidation or merger, one entity or group of entities owns 100 percent of the shares of the Company, except where the Company's common shareholders
immediately prior to such merger or consolation own at least 90 percent of the outstanding stock of such entity or group of entities immediately after such consolidation or merger; or (iv) a change in the majority of the members of the Company's Board of
Directors within a 24-month period, unless approved by two-thirds of the directors then still in office who were in office at the beginning of the 24-month period.

Each severance agreement provides for payment of severance benefits to the executive in the event that, during the term of the severance agreement, (i) the executive's employment is terminated by the Company, Peoples Gas or North Shore Gas except
for "cause" as defined therein; or (ii) the executive's employment is terminated due to a constructive discharge, which includes (a) a material change in the executive's responsibilities, which change would cause the executive's position with the Company
to become of less dignity, responsibility, prestige or scope; (b) reduction, which is more than de minimis, in total compensation; (c) assignment without the executive's consent to a location more than 50 miles from the current place of employment; or (d)
liquidation, dissolution, consolidation, merger, or sale of all or substantially all of the assets of the Company, Peoples Gas or North Shore Gas unless the successor corporation has a net worth at least equal to that of the Company, Peoples Gas or North
Shore Gas and expressly assumes the obligations of the Company under the executive's severance agreement.

The principal severance benefits payable under each severance agreement consist of the following: (i) the executive's base salary and accrued benefits through the date of termination, including a pro rata portion of awards under the Company's STIC
Plan; (ii) three times the sum of the individual's base salary, the average of the STIC Plan awards for the prior three years and the value of the LTIC Plan awards in the prior calendar year; and (iii) the present value of the executive's accrued benefits
under the Company's Supplemental Retirement Benefits Plan (SRBP) that would be payable upon retirement at normal retirement age, computed as if the executive had completed three years of additional service. In addition, the executive will be entitled to
continuation of life insurance and medical benefits for the longer of (a) a period of three years after termination or (b) a period commencing after termination and ending when the executive may receive pension benefits without actuarial reduction,
provided that the Company's obligation for such benefits under the severance agreement shall cease upon the executive's employment with another employer that provides life insurance and medical benefits. Each severance agreement also provides that the
executive's Options and SARs shall become exercisable upon a Change in Control and that all Options and SARs shall remain exercisable for the shorter of (a) three years after termination or (b) the term of such Options and SARs. Any restricted stock
previously awarded to the executive under the LTIC Plan would vest upon a Change in Control if such vesting does not occur due to a Change in Control under the terms of the LTIC Plan. The Company is also obligated under each severance agreement to pay an
additional amount to the executive sufficient on an after-tax basis to satisfy any excise tax liability imposed by Section 4999 of the Internal Revenue Code of 1986, as amended. The benefits received by the executive under each agreement are in lieu of
benefits under the Company's termination allowance plan and the executive's benefits under the SRBP. Each executive would be required to waive certain claims prior to receiving any severance benefits.



ITEM 12. Security Ownership of Certain Beneficial Owners and Management

Information for the Company 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  22, 
2000, and to be distributed in connection with the Company's Annual Meeting of Shareholders to be held on February 23, 2001. Such information is incorporated herein by reference.

At November 30, 2000, voting securities of Peoples Gas were beneficially owned as follows:

|Title of     |  |                              |  | Number of    |  | Percent of
|------------ |  | ---------------------------- |  | ------------ |  | ----------
|Class        |  | Name and Address             |  | Shares Owned |  | Class     
|             |  |                              |  |              |  |           
|Common Stock |  | Peoples Energy Corporation   |  |              |  |           
|without      |  | 130 East Randolph Drive      |  |              |  |           
|par value    |  | Chicago, Illinois 60601-6207 |  | 24,817,566   |  | 100       



At November 30, 2000, voting securities of North Shore Gas were beneficially owned as follows:

|Title of     |  |                              |  | Number of    |  | Percent of
|------------ |  | ---------------------------- |  | ------------ |  | ----------
|Class        |  | Name and Address             |  | Shares Owned |  | Class     
|             |  |                              |  |              |  |           
|Common Stock |  | Peoples Energy Corporation   |  |              |  |           
|without      |  | 130 East Randolph Drive      |  |              |  |           
|par value    |  | Chicago, Illinois 60601-6207 |  | 3,625,887    |  | 100       



No equity securities of Peoples Gas or North Shore Gas are beneficially owned directly or indirectly by any director or officer of Peoples Gas and North Shore Gas.

Shares of common stock, without par value, of Peoples Energy beneficially owned directly or indirectly by all directors and certain executive officers of Peoples Gas and North Shore Gas and all directors and executive officers of Peoples Gas and
North Shore Gas as a group at November 30, 2000, are as follows:

| |                   | Shares of Peoples Energy   | Percent
| | ----------------- | -------------------------- | -------
| |                   | Common Stock Beneficially  | Of     
| | Name              | Owned at November 30, 2000 | Class  
| | Donald M. Field   |                            | 43,346 
| | James Hinchliff   |                            | 54,794 
| | James M. Luebbers |                            | 27,717 
| | William E. Morrow |                            | 13,267 
| | Thomas M. Patrick |                            | 76,776 
| | Richard E. Terry  |                            | 167,988

| | All directors and officers of Peoples Gas and |  |         |  |  |     
| | --------------------------------------------- |  | ------- |  |  | ----
| | North Shore Gas as a group, including those   |  |         |  |  |     
| | named above (15 in number)                    |  | 532,129 |  |  | 1.51

* Percentage of shares beneficially owned does not exceed one percent.



1. Includes shares that the following have a right to acquire within 60 days following November 30, 2000, through the exercise of Options granted under the Long-Term Incentive Compensation Plan of the Company: Messrs. Field, 17,900; Hinchliff,
16,200; Luebbers, 13,300; Morrow, 0; Patrick, 32,000; Terry, 61,900; and all executive officers of the Company as a group, 207,300.
2. Includes shares of restricted stock awarded under the Long-Term Incentive Compensation Plan of the Company, the restrictions on which had not lapsed as of November 30, 2000, as follows: Messrs. Field, 6,920; Hinchliff, 7,535; Luebbers, 5,300; Morrow,
4,975; Patrick, 14,640; Terry, 26,680; and all executive officers as a group, 88,085. Owners of shares of restricted stock have the right to vote such shares and to receive dividends thereon, but have no investment power with respect to such shares until
the restrictions thereon lapse.

ITEM 13. Certain Relationships and Related Transactions

Peoples Gas provides general corporate and support services to the Company pursuant to an Intercompany Service Agreement (Agreement), the terms of which were approved by the Commission. In fiscal 2000, Peoples Gas furnished general corporate
services in the amount of $4,527,335 and support services in the amount of $241,702 to the Company under the Agreement.



PART IV

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

Page

|(a) | 1.                                                                      | Financial Statements:               |                                         |  |    
|--- | ----------------------------------------------------------------------- | ----------------------------------- | --------------------------------------- |  | ---
|    |                                                                         | See Part II, Item 8.                |                                         |  | 36 
|    | 2.                                                                      | Financial Statement Schedules:     
|    |                                                                         | Schedule                           
|    |                                                                         | Number                             
|    |                                                                         | VIII                                | Valuation and Qualifying Accounts       |  | 102
|    | 3.                                                                      | Exhibits:                          
|    |                                                                         | See Exhibit Index on page 108.     
|(b) | Reports on Form 8-K filed during the final quarter of fiscal year 2000:
|    | Peoples Energy Corporation                                             
|    |                                                                         | Date of Report - November 4, 1999  
|    |                                                                         |                                     | Item 5 - Other Event                   
|    |                                                                         |                                     | Forward Looking Financial Information  
|    |                                                                         | Date of Report - February 28, 2000 
|    |                                                                         |                                     | Item 5 - Other Events                  
|    |                                                                         |                                     | Press Release (Repurchase common stock)
|    |                                                                         | Date of Report - May 1, 2000       
|    |                                                                         |                                     | Item 5 - Other Events                  
|    |                                                                         |                                     | Security Analyst Presentation          
|    |                                                                         | Date of Report - September 27, 2000
|    |                                                                         |                                     | Item 5 - Other Events                  
|    |                                                                         |                                     | Mercury Inspection Progress            
|    | Peoples Gas Light                                                      
|    |                                                                         | Date of Report - September 27, 2000
|    |                                                                         |                                     | Item 5 - Other Events                  
|    |                                                                         |                                     | Mercury Inspection Progress            
|    | North Shore Gas                                                        
|    |                                                                         | Date of Report - September 27, 2000
|    |                                                                         |                                     | Item 5 - Other Events                  
|    |                                                                         |                                     | Mercury Inspection Progress            



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, 2000               
|                                                   
|RESERVES (deducted from assets in balance sheet):   |  |              |  |           |  |                       |              |           |  |         
|Uncollectible items                                 |  | $    22,335  |  | $  21,028 |  |                       | $     18,405 |           |  | $ 24,958
|                                                    |  |              |  |           |  |                       |              |           |  |         
|Fiscal Year Ended September 30, 1999               
|                                                   
|RESERVES (deducted from assets in balance sheet):   |  |              |  |           |  |                       |              |           |  |         
|Uncollectible items                                 |  | $    23,395  |  | $  22,268 |  |                       | $     23,328 |           |  | $ 22,335
|                                                    |  |              |  |           |  |                       |              |           |  |         
|Fiscal Year Ended September 30, 1998               
|                                                   
|RESERVES (deducted from assets in balance sheet):   |  |              |  |           |  |                       |              |           |  |         
|Uncollectible items                                 |  | $    29,897  |  | $  23,005 |  |                       | $     29,507 |           |  | $ 23,395



Schedule VIII

|The Peoples Gas Light and Coke Company and Subsidiary Companies
|---------------------------------------------------------------
|                                                               
|VALUATION AND QUALIFYING ACCOUNTS                              
|                                                               
|(Thousands)                                                    
|                                                               
|                                                               
|Column A                                                       
|                                                               
|                                                               
|                                                               
|                                                               
|Description                                                    
|                                                               
|Fiscal Year Ended September 30, 2000                           
|                                                               
|RESERVES (deducted from assets in balance sheet):              
|Uncollectible items                                            
|                                                               
|Fiscal Year Ended September 30, 1999                           
|                                                               
|RESERVES (deducted from assets in balance sheet):              
|Uncollectible items                                            
|                                                               
|Fiscal Year Ended September 30, 1998                           
|                                                               
|RESERVES (deducted from assets in balance sheet):              
|Uncollectible items                                            



Schedule VIII

|                                                  |  |               |  |            |  |                       |               |           |  |           
|------------------------------------------------- |  | ------------- |  | ---------- |  | --------------------- | ------------- | --------- |  | ----------
|North Shore Gas Company 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, 2000             
|                                                 
|RESERVES (deducted from assets in balance sheet): |  |               |  |            |  |                       |               |           |  |           
|Uncollectible items                               |  | $         755 |  | $      783 |  |                       | $         560 |           |  | $      978
|                                                  |  |               |  |            |  |                       |               |           |  |           
|Fiscal Year Ended September 30, 1999             
|                                                 
|RESERVES (deducted from assets in balance sheet): |  |               |  |            |  |                       |               |           |  |           
|Uncollectible items                               |  | $         705 |  | $      674 |  |                       | $         624 |           |  | $      755
|                                                  |  |               |  |            |  |                       |               |           |  |           
|Fiscal Year Ended September 30, 1998             
|                                                 
|RESERVES (deducted from assets in balance sheet): |  |               |  |            |  |                       |               |           |  |           
|Uncollectible items                               |  | $         898 |  | $      717 |  |                       | $         910 |           |  | $      705



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 14, 2000 |  |  | 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 14, 2000.

|/s/ RICHARD E. TERRY          | Chairman of the Board and Chief Executive         
|----------------------------- | --------------------------------------------------
|Richard E. Terry              | Officer and Director (Principal Executive Officer)
|                              |                                                   
|/s/ JAMES M. LUEBBERS         | Chief Financial Officer and Controller            
|James M. Luebbers             | (Principal Financial and Accounting Officer)      
|                              |                                                   
|/s/ THOMAS M. PATRICK         | Director                                          
|Thomas M. Patrick             |                                                   
|                              |                                                   
|/s/ JAMES R. BORIS            | Director                                          
|James R. Boris                |                                                   
|                              |                                                   
|/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/ LESTER H. MCKEEVER        | Director                                          
|Lester H. McKeever, Jr.       |                                                   
|                              |                                                   
|/s/ WILLIAM G. MITCHELL       | Director                                          
|William G. Mitchell           |                                                   
|                              |                                                   
|/s/ RICHARD P. TOFT           | Director                                          
|Richard P. Toft               |                                                   
|                              |                                                   
|/s/ ARTHUR R. VELASQUEZ       | Director                                          
|Arthur R. Velasquez           |                                                   



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.

|                        |  | THE PEOPLES GAS LIGHT AND COKE COMPANY
|----------------------- |  | --------------------------------------
|                        |  |                                       
|Date: December 14, 2000 |  | 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 14, 2000.

|/s/ RICHARD E. TERRY  | Chairman of the Board and Chief Executive                
|--------------------- | ---------------------------------------------------------
|Richard E. Terry      | Officer and Director (Principal Executive Officer)       
|                      |                                                          
|/s/ JAMES M. LUEBBERS | Chief Financial Officer and Controller                   
|James M. Luebbers     | (Principal Financial and Accounting Officer and Director)
|                      |                                                          
|/s/ DONALD M. FIELD   | Director                                                 
|Donald M. Field       |                                                          
|                      |                                                          
|/s/ JAMES HINCHLIFF   | Director                                                 
|James Hinchliff       |                                                          
|                      |                                                          
|/s/ WILLIAM E. MORROW | Director                                                 
|William E. Morrow     |                                                          
|                      |                                                          
|/s/ THOMAS M. PATRICK | Director                                                 
|Thomas M. Patrick     |                                                          



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.

|                        |  |  | NORTH SHORE GAS COMPANY        
|----------------------- |  |  | -------------------------------
|                        |  |  |                                
|Date: December 14, 2000 |  |  | 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 14, 2000.

|/s/ RICHARD E. TERRY  | Chairman of the Board and Chief Executive                
|--------------------- | ---------------------------------------------------------
|Richard E. Terry      | Officer and Director (Principal Executive Officer)       
|                      |                                                          
|/s/ JAMES M. LUEBBERS | Chief Financial Officer and Controller                   
|James M. Luebbers     | (Principal Financial and Accounting Officer and Director)
|                      |                                                          
|/s/ DONALD M. FIELD   | Director                                                 
|Donald M. Field       |                                                          
|                      |                                                          
|/s/ JAMES HINCHLIFF   | Director                                                 
|James Hinchliff       |                                                          
|                      |                                                          
|/s/ WILLIAM E. MORROW | Director                                                 
|William E. Morrow     |                                                          
|                      |                                                          
|/s/ THOMAS M. PATRICK | Director                                                 
|Thomas M. Patrick     |                                                          



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

4(a)	Supplemental Indenture, First and Refunding Mortgage Multi-Modal Bonds, Series GG of Peoples Gas, effective March 1, 2000

4(b)	Supplemental Indenture, First and Refunding Mortgage Multi-Modal Bonds, Series HH of Peoples Gas, effective March 1, 2000

4(c)	Supplemental Indenture, First and Refunding Mortgage Multi-Modal Bonds, Series II of Peoples Gas, effective March 1, 2000

4(d)	Supplemental Indenture, First and Refunding Mortgage Multi-Modal Bonds, Series JJ of Peoples Gas, effective March 1, 2000

10(a)	Guaranty by Peoples Energy Corporation to Engage Energy US, L.P., dated October 1, 1999

10(b)	Amendment to QNT Agreement between Peoples Gas and Trunkline Gas Company, dated April 1, 2000.

10(c)	Amendment to ETS Agreement between Peoples Gas and ANR Pipeline Company, dated March 9, 2000.

10(d)	Amendment to FTS-1 Agreement between Peoples Gas and ANR Pipeline Company, dated March 9, 2000.

10(e)	Amendment to FSS Agreement between Peoples Gas and ANR Pipeline Company, dated March 9, 2000.

10(f)	NNS Service Agreement between Peoples Gas and ANR Pipeline Company, dated March 9, 2000.

10(g)	FTS-1 Service Agreement between Peoples Gas and ANR Pipeline Company, dated March 9, 2000.

10(h)	Credit Agreement between Peoples Gas and ABN Amro Bank N.V., dated September 29, 2000.

10(i)	Amendment to ETS Agreement between North Shore Gas and ANR Pipeline Company, dated March 9, 2000.

10(j)	Amendment to FTS-1 Agreement between North Shore Gas and ANR Pipeline Company, dated March 9, 2000.

10(k)	Amendment to FSS Agreement between North Shore Gas and ANR Pipeline Company, dated March 9, 2000.

10(l)	Amendment to FTS-1 Agreement between North Shore Gas and ANR Pipeline Company, dated March 9, 2000.

10(m)	Amendment to ETS Agreement between North Shore Gas and ANR Pipeline Company, dated March 9, 2000.

10(n)	Amendment to FTS-1 Agreement between North Shore Gas and ANR Pipeline Company, dated March 9, 2000.

10(o)	ETS Service Agreement between North Shore Gas and ANR Pipeline Company, dated March 9, 2000.

10(p)	Directors Stock and Option Plan effective December 1, 1999.

12	Statement re: Computation of Ratio of Earnings to Fixed charges for Peoples Gas and North Shore Gas.

23(a)	Arthur Andersen LLP consent to incorporate report by reference in Registration Statement Nos. 2-82760, 33-6369, 333-17701, 33-63193 and 333-09993 for the Company.

23(b)	Arthur Andersen LLP consent to incorporate report by reference in Registration Statement No. 33-60256 for North Shore Gas.

23(c)	McCartney Engineering, LLC consent to incorporate by reference in Registration Statement File Nos. 2-82760, 33-6369, 333-17701, 33-63193 and 333-09993

23(d)	Miller and Lents, Ltd. consent to incorporate by reference in Registration Statement File Nos. 2-82760, 33-6369, 333-17701, 33-63193 and 333-09993

23(e)	Prator Bett, L.L.C. consent to incorporate by reference in Registration Statement File Nos. 2-82760, 33-6369, 333-17701, 33-63193 and 333-09993

23(f)	Ryder Scott Company, L.P. consent to incorporate by reference in Registration Statement File Nos. 2-82760, 33-6369, 333-17701, 33-63193 and 333-09993

27	Financial Data Schedules for all Registrants (The Company, Peoples Gas, and North Shore Gas).

99	Form 11-K for the Employee Stock Purchase Plan of the Company for the fiscal year ended September 30, 2000.

(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 Company, as amended on March 3, 1995 (The Company - Form 10-K for the fiscal year ended September 30, 1995, Exhibit 3(b)); Articles of Incorporation of Peoples Gas, as amended on April 24, 1995 (Peoples Gas
- Form 10-K for fiscal year 1995, Exhibit 3(b)); Articles of Incorporation of North Shore Gas, as amended on April 24, 1995 (North Shore Gas - Form 10-K for fiscal year 1995, Exhibit 3(b)); Amendment to the By-Laws of the Company dated February 26, 1999
(The Company - Form 10-Q for the quarter ended March 31, 1999, Exhibit 3(b)); Amendment to the By-Laws of Peoples Gas dated April 15, 1999 (Peoples Gas - Form 10-Q for the quarter ended June 30, 1999, Exhibit 3(b)); Amendment to the By-Laws of North Shore
Gas dated August 31, 1997 (North Shore Gas - Form 10-K for the fiscal year ended September 30, 1997, Exhibit 3(b)). Amendment to the By-Laws of the Company dated November 3, 1999 (The Company - Form 10-K for the fiscal year ended September 30, 1999,
Exhibit 3(a)). By-Laws of the Company, as amended, dated November 3, 1999 (The Company - Form 10-K for the fiscal year ended September 30, 1999, Exhibit 3(b)).

4(a)	The Peoples Gas Light and Coke Company First and Refunding Mortgage, dated January 2, 1926, from Chicago By-Product Coke Company to Illinois Merchants Trust Company, Trustee, assumed by The Peoples Gas Light and Coke Company (Peoples) by
Indenture dated March 1, 1928 (Peoples - May 17, 1935, Exhibit B-6a, Exhibit B-6b A-2 File No. 2-2151, 1936); Supplemental Indenture dated as of May 20, 1936, (Peoples - Form 8-K for the year 1936, Exhibit B-6f); Supplemental Indenture dated as of
March 10, 1950 (Peoples - Form 8-K for the month of March 1950, Exhibit B-6i); Supplemental Indenture dated as of June 1, 1951 (Peoples - File No. 2-8989, Post-Effective, Exhibit 7-4(b)); Supplemental Indenture dated as of August 15, 1967 (Peoples - File
No. 2-26983, Post-Effective, Exhibit 2-4); Supplemental Indenture dated as of September 15, 1970 (Peoples - File No. 2-38168, Post-Effective Exhibit 2-2); Supplemental Indenture dated as of October 1, 1984 (Peoples - Form 10-K for fiscal year
ended September 30, 1984, Exhibit 4-3); Supplemental Indentures dated March 1, 1985, (Peoples - Form 10-K for fiscal year ended September 30, 1985, Exhibits 4-1, 4-2, and 4-3, respectively); Supplemental Indenture dated May 1, 1990 (Peoples - Form
10-K for the fiscal year ended September 30, 1990, Exhibit 4); Supplemental Indenture dated as of April 1, 1993 (Peoples - Form 8 dated as of May 5, 1993, Exhibit 1); Supplemental 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); Supplemental Indenture dated December 1, 1998 (North Shore Gas - Form
10-Q for the quarter ended March 31, 1999, Exhibit 4).

10(f)	Trust Under Executive Deferred Compensation Plan and Supplemental Retirement Benefit Plan, Part A and Part B, of the Company, effective September 25, 1995. (The Company - Form 10-K for fiscal year ended September 30, 1995,
Exhibit 10(a)); ETS Service Agreement between Peoples Gas and ANR Pipeline Company, dated September 21, 1994. (The Company and Peoples Gas - 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. (The Company and Peoples Gas - Form 10-K for fiscal year ended September 30, 1995, Exhibit 10(c)); Firm Transportation Service Agreement Under Rate Schedule FT between Peoples Gas and
Trunkline Gas Company, dated as of April 1, 1995. (The Company and Peoples Gas - 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. (The Company and Peoples Gas - 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. (The Company and Peoples Gas - 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. (The
Company and North Shore Gas - 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. (The Company and North Shore Gas - Form 10-K for
fiscal year ended September 30, 1995, Exhibit 10(l)); Firm Transportation Service Agreement under Rate Schedule FTS-1 between Peoples Gas and ANR Pipeline Company, dated as of September 20, 1995. (The Company and Peoples Gas - Form 10-K for
fiscal year ended Firm Transportation Service Agreement under Rate Schedule FTS-1 between North Shore Gas and ANR Pipeline Company, dated as of October 25, 1995. (The Company and North Shore Gas - 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. (The Company - Form 10-K for fiscal year ended September 30, 1997, Exhibit 10(u)); Guaranty by Peoples Energy Corporation to
Northern Border Pipeline Company, dated August 1, 1997. (The Company - Form 10-K for fiscal year ended September 30, 1997, Exhibit 10(v)); Firm Gas Transportation Agreement Under Rate Schedule FT-A or FT-G between Peoples Gas and Midwestern Gas
Transmission Company, dated November 1, 1998. (The Company and Peoples Gas - Form 10-Q for the quarterly period ended December 31, 1998, Exhibit 10(af)); Firm Gas Transportation Agreement Under Rate Schedule FT-A or FT-G between North Shore Gas and
Midwestern Gas Transmission Company, dated November 1, 1998. (The Company and North Shore Gas - Form 10-Q for the quarterly period ended December 31, 1998, Exhibit 10(ag)); Rate Schedule QNT Quick Notice Transportation Service Agreement between Peoples
Gas and Trunkline Gas Company, dated November 1, 1998. (The Company and Peoples Gas - Form 10-Q for the quarterly period ended December 31, 1998, Exhibit 10(ah));.U.S. Shippers Service Agreement between Peoples Gas and Northern Border Pipeline Company,
dated August 14, 1997. (The Company and Peoples Gas - Form 10-K for fiscal year ended September 30, 1998, Exhibit (ai)); U.S. Shippers Service Agreement between Peoples Gas and Northern Border Pipeline Company, dated October 27, 1997. (The Company and
Peoples Gas - Form 10-K for fiscal year ended September 30, 1998, Exhibit (aj)); Storage Rate Schedule DSS Agreement between Peoples Gas and Natural Gas Pipeline Company of America, dated January 15, 1998. (The Company and Peoples Gas - Form 10-K for
fiscal year ended September 30, 1998, Exhibit (ak)); Storage Rate Schedule NSS Agreement between Peoples Gas and Natural Gas Pipeline Company of America, dated January 15, 1998. (The Company and Peoples Gas - Form 10-K for fiscal year ended September 30,
1998, Exhibit (al)); Transportation Rate Schedule FTS Agreement between Peoples Gas and Natural Gas Pipeline Company of America, dated January 15, 1998. (The Company and Peoples Gas - Form 10-K for fiscal year ended September 30, 1998, Exhibit (am));
Transportation Rate Schedule FTS LN/NB Agreement between Peoples Gas and Natural Gas Pipeline Company of America, dated January 15, 1998. (The Company and Peoples Gas - Form 10-K for fiscal year ended September 30, 1998, Exhibit (an)); U.S. Shippers
Service Agreement between North Shore Gas and Northern Border Pipeline Company, dated August 14, 1997. (The Company and North Shore Gas - Form 10-K for fiscal year ended September 30, 1998, Exhibit (ao)); Transportation Rate Schedule FTS Agreement between
North Shore Gas and Natural Gas Pipeline Company of America, dated January 15, 1998. (The Company and North Shore Gas - Form 10-K for fiscal year ended September 30, 1998, Exhibit (ap)); FTS-1 Service Agreement between North Shore Gas and ANR Pipeline
Company, dated May 28, 1998. (The Company and North Shore Gas - Form 10-K for fiscal year ended September 30, 1998, Exhibit (aq)). ETS Service Agreement between Peoples Gas and ANR Pipeline Company, dated July 16, 1999. (The Company - Form 10-K for fiscal
year ended September 30, 1999, Exhibit (ar)); Firm Gas Transportation Agreement Under Rate Schedule FT-A or FT-G between Peoples Gas and Midwestern Gas Transmission Company, dated November 1, 1999. (The Company - Form 10-K for fiscal year ended September
30, 1999, Exhibit (as)); NNS Service Agreement between North Shore Gas and ANR Pipeline Company, dated July 16, 1999. (The Company - Form 10-K for fiscal year ended September 30, 1999, Exhibit (at)); ETS Service Agreement between North Shore Gas and ANR
Pipeline Company, dated July 16, 1999. (The Company - Form 10-K for fiscal year ended September 30, 1999, Exhibit (au)); FTS-1 Service Agreement between North Shore Gas and ANR Pipeline Company, dated July 16, 1999. (The Company - Form 10-K for fiscal
year ended September 30, 1999, Exhibit (av)); Gas Purchase and Agency Agreement By and Between Peoples Gas and Enron North America Corp., dated September 16, 1999. (The Company and Peoples Gas - Form 10-Q for the quarterly period ended December 31, 1999,
Exhibit (aw)); Transportation Rate Schedule FTS Agreement between Natural Gas Pipeline Company of America and Peoples Gas Amendment No. 2 dated September 9, 1999. (The Company and Peoples Gas - Form 10-Q for the quarterly period ended December 31, 1999,
Exhibit (ax)); Gas Purchase and Agency Agreement By and Between North Shore Gas and Enron North America Corp., dated September 16, 1999. (The Company and North Shore Gas - Form 10-Q for the quarterly period ended December 31, 1999, Exhibit (ay));
Transportation Rate Schedule FTS Agreement between Natural Gas Pipeline Company of America and North Shore Gas Amendment No. 2 dated September 9, 1999. (The Company and North Shore Gas - Form 10-Q for the quarterly period ended December 31, 1999, Exhibit
(az)); Amendment to Transportation Agreement between Trunkline Gas Company and Peoples Gas dated March 31, 2000. (The Company and Peoples Gas - Form 10-Q for the quarterly period ended March 31, 2000, Exhibit (ba)); Rate Schedule FS Flexible Storage
Service Agreement By and Between Panhandle Eastern Pipe Line Company and Peoples Gas dated April 1, 2000. (The Company and Peoples Gas - Form 10-Q for the quarterly period ended March 31, 2000, Exhibit (bb)); Transportation Rate Schedule EFT Agreement By
and Between Panhandle Eastern Pipe Line Company and Peoples Gas, dated April 1, 2000. (The Company and Peoples Gas - Form 10-Q for the quarterly period ended March 31, 2000, (Exhibit (bc)); Transportation Rate Schedule EFT Agreement By and Between
Panhandle Eastern Pipe Line Company and Peoples Gas dated April 1, 2000. (The Company and Peoples Gas - Form 10-Q for the quarterly period ended March 31, 2000, (Exhibit (bd)); Transportation Rate Schedule FTS Agreement By and Between Natural Gas Pipeline Company of America and Peoples Gas, dated February 25, 2000. (The Company and Peoples Gas - Form 10-Q
for the quarterly period ended June 30, 2000, (Exhibit (be)); Storage Rate Schedule NSS Agreement By and Between Natural Gas Pipeline Company of America and Peoples Gas, dated March 7, 2000. (The Company and Peoples Gas - Form 10-Q for the quarterly
period ended June 30, 2000, (Exhibit (bf)); Transportation Rate Schedule FTS Agreement By and Between Natural Gas Pipeline Company of America and Peoples Gas, dated March 16, 2000. (The Company and Peoples Gas - Form 10-Q for the quarterly period ended
June 30, 2000, (Exhibit (bg)); Amendment to Transportation Rate Schedule FTS Agreement By and Between Natural Gas Pipeline Company of America and Peoples Gas, dated March 27, 2000. (The Company and Peoples Gas - Form 10-Q for the quarterly period ended
June 30, 2000, (Exhibit (bh)); Amendment to Transportation Rate Schedule FTS Agreement By and Between Natural Gas Pipeline Company of America and Peoples Gas, dated March 31, 2000. (The Company and Peoples Gas - Form 10-Q for the quarterly period ended
June 30, 2000, (Exhibit (bi)); Amendment to Transportation Rate Schedule FTS Agreement By and Between Natural Gas Pipeline Company of America and Peoples Gas, dated April 5, 2000. (The Company and Peoples Gas - Form 10-Q for the quarterly period ended
June 30, 2000, (Exhibit (bj)); Amendment to Transportation Rate Schedule FTS Agreement By and Between Natural Gas Pipeline Company of America and Peoples Gas, dated April 5, 2000. (The Company and Peoples Gas - Form 10-Q for the quarterly period ended
June 30, 2000, (Exhibit (bk)); Amendment to Transportation Rate Schedule DSS Agreement By and Between Natural Gas Pipeline Company of America and Peoples Gas, dated April 17, 2000. (The Company and Peoples Gas - Form 10-Q for the quarterly period ended
June 30, 2000, (Exhibit (bl)); Amendment to Transportation Rate Schedule FTS Agreement By and Between Natural Gas Pipeline Company of America and Peoples Gas, dated April 28, 2000. (The Company and Peoples Gas - Form 10-Q for the quarterly period ended
June 30, 2000, (Exhibit (bm)); Amendment to Transportation Rate Schedule FTS Agreement By and Between Natural Gas Pipeline Company of America and Peoples Gas, dated May 4, 2000. (The Company and Peoples Gas - Form 10-Q for the quarterly period ended June
30, 2000, (Exhibit (bn)); Amendment to Transportation Rate Schedule FTS Agreement By and Between Natural Gas Pipeline Company of America and Peoples Gas, dated May 4, 2000. (The Company and Peoples Gas - Form 10-Q for the quarterly period ended June 30,
2000, (Exhibit (bo)); Exchange Agreement By and Between CoEnergy Trading Company and Peoples Gas, dated June 28, 2000. (The Company and Peoples Gas - Form 10-Q for the quarterly period ended June 30, 2000, (Exhibit (bp)); Delivery and Redelivery Services
Contract By and Between Engage Energy US, LP. And Peoples Gas, dated July 1, 2000. (The Company and Peoples Gas - Form 10-Q for the quarterly period ended June 30, 2000, Exhibit (bq)); Transportation Rate Schedule FTS Agreement By and Between Natural Gas
Pipeline Company of America and North Shore Gas, dated February 25, 2000. (The Company and North Shore Gas - Form 10-Q for the quarterly period ended June 30, 2000, Exhibit (br)); Transportation Rate Schedule FTS Agreement By and Between Natural Gas
Pipeline Company of America and North Shore Gas, dated February 25, 2000. (The Company and North Shore Gas - Form 10-Q for the quarterly period ended June 30, 2000, Exhibit (bs)); Storage Rate Schedule DSS Agreement By and Between Natural Gas Pipeline
Company of America and North Shore Gas, dated March 9, 2000. (The Company and North Shore Gas - Form 10-Q for the quarterly period ended June 30, 2000, Exhibit (bt)); Transportation Rate Schedule FTS Agreement By and Between Natural Gas Pipeline Company
of America and North Shore Gas, dated March 16, 2000. (The Company and North Shore Gas - Form 10-Q for the quarterly period ended June 30, 2000, Exhibit (bu)); Amendment to Transportation Rate Schedule FTS Agreement by and Between Natural Gas Pipeline
Company of America and North Shore Gas, dated May 1, 2000. (The Company and North Shore Gas - Form 10-Q for the quarterly period ended June 30, 2000, Exhibit (bv)).

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

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

10(i)	Short-Term Incentive Compensation Plan of the Company, as amended on December 7, 1994 (Company - Form 10-K for the fiscal year ended September 30, 1994, Exhibit 10(a)); Executive Deferred Compensation Plan of the Company,
effective October 1, 1994 (Company - 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 Company, effective December 7, 1994 (Company - 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, Exhibit 10(d)); Long-Term Incentive Compensation Plan, dated December 1, 1999 (The Company - Form
10-Q for the quarterly period ended December 31, 1999, Exhibit (e)); Long-Term Incentive Compensation Plan, dated December 1, 1999 (The Company - Form 10-Q for the quarterly period ended March 31, 2000, Exhibit (f)).

Subsidiaries of the Company, Peoples Gas and North Shore Gas (The Company, Peoples Gas and North Shore Gas - Form 10-K for the fiscal year ended September 30, 1998, Exhibit 21).