Exhibit
      99.1








LACLEDE
                GAS COMPANYSTATEMENTS
                OF INCOME(UNAUDITED)Three
                Months EndedDecember
                31,(Thousands)
            
            2007
            
            2006Operating
                Revenues:Utility
            
            $
            320,892
            
            $
            348,488Other
            
            
            786
            
            
            662Total
                Operating Revenues
            
            
            321,678
            
            
            349,150Operating
                Expenses:UtilityNatural
                and propane gas
            
            
            222,841
            
            
            251,523Other
                operation expenses
            
            
            35,213
            
            
            33,680Maintenance
            
            
            6,235
            
            
            5,598Depreciation
                and amortization
            
            
            8,713
            
            
            8,497Taxes,
                other than income taxes
            
            
            16,681
            
            
            18,759Total
                Utility Operating Expenses
            
            
            289,683
            
            
            318,057Other
            
            
            725
            
            
            651Total
                Operating Expenses
            
            
            290,408
            
            
            318,708Operating
                Income
            
            
            31,270
            
            
            30,442Other
                Income and (Income Deductions) – Net
            
            
            2,032
            
            
            2,743Interest
                Charges:Interest
                on long-term debt
            
            
            5,126
            
            
            5,626Other
                interest charges
            
            
            4,016
            
            
            3,420Total
                Interest Charges
            
            
            9,142
            
            
            9,046Income
                Before Income Taxes
            
            
            24,160
            
            
            24,139Income
                Tax Expense
            
            
            8,365
            
            
            8,464Net
                Income
            
            
            15,795
            
            
            15,675Dividends
                on Redeemable Preferred Stock
            
            
            10
            
            
            12Earnings
                Applicable to Common Stock
            
            $
            15,785
            
            $
            15,663








See
      Notes to Financial Statements.








1







LACLEDE
                GAS COMPANYSTATEMENTS
                OF COMPREHENSIVE INCOME(UNAUDITED)Three
                Months EndedDecember
                31,(Thousands)
            
            2007
            
            2006Net
                Income
            
            $
            15,795
            
            $
            15,675Other
                Comprehensive Income, Before Tax:Amortization
                of actuarial loss included in net periodic pension cost
            
            
            43
            
            
            —Income
                Tax Expense Related to Items of Other Comprehensive Income
            
            
            17
            
            
            —Other
                Comprehensive Income, Net of Tax
            
            
            26
            
            
            —Comprehensive
                Income
            
            $
            15,821
            
            $
            15,675

















See
      Notes to Financial Statements.



































2








LACLEDE
                GAS COMPANYBALANCE
                SHEETS(UNAUDITED)Dec.
                31,
            
            
            
            Sept.
                30,
            
            
            
            Dec.
                31,(Thousands)
            
            2007
            
            
            
            2007
            
            
            
            2006ASSETSUtility
                Plant
            
            $
            1,195,431
            
            
            
            $
            1,187,828
            
            
            
            $
            1,158,480Less:  Accumulated
                depreciation and amortization
            
            
            395,447
            
            
            
            
            394,034
            
            
            
            
            389,433Net
                Utility Plant
            
            
            799,984
            
            
            
            
            793,794
            
            
            
            
            769,047Other
                Property and Investments
            
            
            38,554
            
            
            
            
            36,933
            
            
            
            
            36,482Current
                Assets:Cash
                and cash equivalents
            
            
            4,038
            
            
            
            
            2,454
            
            
            
            
            5,643Accounts
                receivable:Gas
                customers – billed and unbilled
            
            
            199,067
            
            
            
            
            102,224
            
            
            
            
            176,181Associated
                companies
            
            
            325
            
            
            
            
            253
            
            
            
            
            4,648Other
            
            
            18,970
            
            
            
            
            8,973
            
            
            
            
            29,898Allowances
                for doubtful accounts
            
            
            (8,373
            )
            
            
            
            (10,961
            )
            
            
            
            (9,094
            )Inventories:Natural
                gas stored underground at LIFO cost
            
            
            132,006
            
            
            
            
            138,198
            
            
            
            
            135,225Propane
                gas at FIFO cost
            
            
            19,913
            
            
            
            
            19,950
            
            
            
            
            20,325Materials,
                supplies, and merchandise at average cost
            
            
            4,915
            
            
            
            
            4,864
            
            
            
            
            5,902Derivative
                instrument assets
            
            
            13,924
            
            
            
            
            26,296
            
            
            
            
            13,177Unamortized
                purchased gas adjustments
            
            
            8,613
            
            
            
            
            12,813
            
            
            
            
            34,538Deferred
                income taxes
            
            
            392
            
            
            
            
            275
            
            
            
            
            —Prepayments
                and other
            
            
            6,971
            
            
            
            
            6,970
            
            
            
            
            6,853Total
                Current Assets
            
            
            400,761
            
            
            
            
            312,309
            
            
            
            
            423,296Deferred
                Charges:Prepaid
                pension cost
            
            
            —
            
            
            
            
            —
            
            
            
            
            62,472Regulatory
                assets
            
            
            288,868
            
            
            
            
            285,054
            
            
            
            
            178,334Other
            
            
            3,525
            
            
            
            
            3,113
            
            
            
            
            5,237Total
                Deferred Charges
            
            
            292,393
            
            
            
            
            288,167
            
            
            
            
            246,043Total
                Assets
            
            $
            1,531,692
            
            
            
            $
            1,431,203
            
            
            
            $
            1,474,868











3







LACLEDE
                GAS COMPANYBALANCE
                SHEETS (Continued)(UNAUDITED)Dec.
                31,
            
            
            
            Sept.
                30,
            
            
            
            Dec.
                31,(Thousands,
                except share amounts)
            
            2007
            
            
            
            2007
            
            
            
            2006CAPITALIZATION
                AND LIABILITIESCapitalization:Common
                stock and Paid-in capital (10,337, 10,307, and
              10,197
                shares issued, respectively)
            
            $
            153,010
            
            
            
            $
            151,510
            
            
            
            $
            146,218Retained
                earnings
            
            
            203,800
            
            
            
            
            195,728
            
            
            
            
            202,609Accumulated
                other comprehensive loss
            
            
            (1,701
            )
            
            
            
            (1,727
            )
            
            
            
            (834
            )Total
                Common Stock Equity
            
            
            355,109
            
            
            
            
            345,511
            
            
            
            
            347,993Redeemable
                preferred stock (less current sinking fund
              requirements)
            
            
            627
            
            
            
            
            627
            
            
            
            
            787Long-term
                debt (less current portion)
            
            
            309,138
            
            
            
            
            309,122
            
            
            
            
            309,062Total
                Capitalization
            
            
            664,874
            
            
            
            
            655,260
            
            
            
            
            657,842Current
                Liabilities:Notes
                payable
            
            
            294,450
            
            
            
            
            211,400
            
            
            
            
            257,150Accounts
                payable
            
            
            83,575
            
            
            
            
            45,084
            
            
            
            
            86,438Accounts
                payable – associated companies
            
            
            3,341
            
            
            
            
            4,065
            
            
            
            
            3Advance
                customer billings
            
            
            27,382
            
            
            
            
            25,440
            
            
            
            
            19,583Current
                portion of long-term debt and preferred stock
            
            
            160
            
            
            
            
            40,160
            
            
            
            
            40,159Wages
                and compensation accrued
            
            
            13,262
            
            
            
            
            11,532
            
            
            
            
            12,700Dividends
                payable
            
            
            8,280
            
            
            
            
            7,974
            
            
            
            
            7,947Customer
                deposits
            
            
            15,128
            
            
            
            
            15,899
            
            
            
            
            16,600Interest
                accrued
            
            
            6,073
            
            
            
            
            10,806
            
            
            
            
            5,972Taxes
                accrued
            
            
            16,130
            
            
            
            
            19,210
            
            
            
            
            29,812Deferred
                income taxes current
            
            
            —
            
            
            
            
            —
            
            
            
            
            4,413Other
            
            
            5,664
            
            
            
            
            5,342
            
            
            
            
            4,596Total
                Current Liabilities
            
            
            473,445
            
            
            
            
            396,912
            
            
            
            
            485,373Deferred
                Credits and Other Liabilities:Deferred
                income taxes
            
            
            230,840
            
            
            
            
            223,192
            
            
            
            
            224,120Unamortized
                investment tax credits
            
            
            4,143
            
            
            
            
            4,200
            
            
            
            
            4,377Pension
                and postretirement benefit costs
            
            
            67,648
            
            
            
            
            63,678
            
            
            
            
            20,385Asset
                retirement obligations
            
            
            26,445
            
            
            
            
            26,054
            
            
            
            
            26,378Regulatory
                liabilities
            
            
            39,687
            
            
            
            
            39,589
            
            
            
            
            34,137Other
            
            
            24,610
            
            
            
            
            22,318
            
            
            
            
            22,256Total
                Deferred Credits and Other Liabilities
            
            
            393,373
            
            
            
            
            379,031
            
            
            
            
            331,653Total
                Capitalization and Liabilities
            
            $
            1,531,692
            
            
            
            $
            1,431,203
            
            
            
            $
            1,474,868








See
      Notes to Financial Statements.





4








LACLEDE
                GAS COMPANYSTATEMENTS
                OF CASH FLOWS(UNAUDITED)Three
                Months EndedDecember
                31,(Thousands)
            
            2007
            
            
            
            2006Operating
                Activities:Net
                Income
            
            $
            15,795
            
            
            
            $
            15,675Adjustments
                to reconcile net income to net cash
              provided
                by (used in) operating activities:Depreciation
                and amortization
            
            
            8,713
            
            
            
            
            8,497Deferred
                income taxes and investment tax credits
            
            
            1,914
            
            
            
            
            (6,309
            )Other
                – net
            
            
            426
            
            
            
            
            410Changes
                in assets and liabilities:Accounts
                receivable – net
            
            
            (109,500
            )
            
            
            
            (103,411
            )Unamortized
                purchased gas adjustments
            
            
            4,200
            
            
            
            
            9,843Deferred
                purchased gas costs
            
            
            1,943
            
            
            
            
            14,796Accounts
                payable
            
            
            37,767
            
            
            
            
            30,676Advance
                customer billings
            
            
            1,942
            
            
            
            
            (11,860
            )Taxes
                accrued
            
            
            (3,080
            )
            
            
            
            14,267Natural
                gas stored underground
            
            
            6,192
            
            
            
            
            2,192Other
                assets and liabilities
            
            
            13,251
            
            
            
            
            (1,041
            )Net
                cash used in operating activities
            
            
            (20,437
            )
            
            
            
            (26,265
            )Investing
                Activities:Capital
                expenditures
            
            
            (13,012
            )
            
            
            
            (11,758
            )Other
                investments
            
            
            (1,122
            )
            
            
            
            (960
            )Net
                cash used in investing activities
            
            
            (14,134
            )
            
            
            
            (12,718
            )Financing
                Activities:Maturity
                of first mortgage bonds
            
            
            (40,000
            )
            
            
            
            —Issuance
                of short-term debt – net
            
            
            83,050
            
            
            
            
            49,850Dividends
                paid
            
            
            (7,909
            )
            
            
            
            (7,594
            )Issuance
                of common stock to Laclede Group
            
            
            1,006
            
            
            
            
            —Other
            
            
            8
            
            
            
            
            56Net
                cash provided by financing activities
            
            
            36,155
            
            
            
            
            42,312Net
                Increase in Cash and Cash Equivalents
            
            
            1,584
            
            
            
            
            3,329Cash
                and Cash Equivalents at Beginning of Period
            
            
            2,454
            
            
            
            
            2,314Cash
                and Cash Equivalents at End of Period
            
            $
            4,038
            
            
            
            $
            5,643Supplemental
                Disclosure of Cash Paid (Refunded) During the Period for:Interest
            
            $
            14,360
            
            
            
            $
            13,338Income
                taxes
            
            
            4,119
            
            
            
            
            (9,733
            )





See
      Notes to Financial Statements.





5





LACLEDE
      GAS COMPANY


NOTES
      TO FINANCIAL STATEMENTS








1.
            SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES





These
      notes are an integral part of the accompanying financial statements of Laclede
      Gas Company (Laclede Gas or the Utility). In the opinion of Laclede Gas, this
      interim report includes all adjustments (consisting of only normal recurring
      accruals) necessary for the fair presentation of the results of operations
      for
      the periods presented. This Form 10-Q should be read in conjunction with the
      Notes to Financial Statements contained in Laclede Gas’ Fiscal Year 2007
      Form 10-K.


Laclede
      Gas is a regulated natural gas distribution utility having a material seasonal
      cycle. As a result, these interim statements of income for Laclede Gas are
      not
      necessarily indicative of annual results or representative of succeeding
      quarters of the fiscal year. Due to the seasonal nature of the business of
      Laclede Gas, earnings are typically concentrated in the November through April
      period, which generally corresponds with the heating season.


BASIS
      OF PRESENTATION - In
      compliance with generally accepted accounting principles, transactions between
      Laclede Gas and its affiliates as well as intercompany balances on Laclede
      Gas’
Balance Sheet have not been eliminated from the Laclede Gas financial
      statements.


Laclede
      Gas provides administrative and general support to affiliates. All such costs,
      which are not material, are billed to the appropriate affiliates. Also, Laclede
      Group may charge or reimburse Laclede Gas for certain tax-related amounts.
      Unpaid balances relating to these activities are reflected in the Laclede Gas
      Balance Sheets as Accounts Receivable-Associated Companies or as Accounts
      Payable-Associated Companies. Additionally, Laclede Gas may, on occasion, borrow
      funds from or lend funds to affiliated companies. Unpaid balances relating
      to
      these arrangements, if any, are reflected in Notes Receivable-Associated
      Companies or Notes Payable-Associated Companies.


REVENUE
      RECOGNITION - Laclede
      Gas reads meters and bills its customers on monthly cycles. The Utility records
      its utility operating revenues from gas sales and transportation services on
      an
      accrual basis that includes estimated amounts for gas delivered, but not yet
      billed. The accruals for unbilled revenues are reversed in the subsequent
      accounting period when meters are actually read and customers are billed. The
      amounts of accrued unbilled revenues at December 31, 2007 and 2006,
      for the Utility, were $50.7 million and $41.4 million, respectively. The amount
      of accrued unbilled revenue at September 30, 2007 was $11.9
      million.


INCOME
      TAXES - Laclede Gas has
      elected, for tax purposes only, various accelerated depreciation provisions
      of
      the Internal Revenue Code. In addition, certain other costs are expensed
      currently for tax purposes while being deferred for book purposes. Effective
      October 1, 2007, generally accepted accounting principles require that
      tax benefits be recognized in the financial statements as determined by new
      recognition and measurement provisions. These provisions permit the benefit
      from
      a tax position to be recognized only if, and to the extent that, it is more
      likely than not that the tax position will be sustained upon examination by
      the
      taxing authority, based on the technical merits of the position. Unrecognized
      tax benefits and related interest and penalties, if any, are recorded as
      liabilities. Laclede Gas records deferred tax liabilities and assets measured
      by
      enacted tax rates for the net tax effect of all temporary differences between
      the carrying amounts of assets and liabilities in the financial statements,
      and
      the related tax basis. Changes in enacted tax rates, if any, and certain
      property basis differences will be reflected by entries to regulatory asset
      or
      liability accounts.


Laclede
      Gas’ investment tax credits utilized prior to 1986 have been deferred and are
      being amortized in accordance with regulatory treatment over the useful life
      of
      the related property.


Laclede
      Group files a consolidated federal income tax return and allocates income taxes
      to Laclede Gas and its other subsidiaries as if each entity were a separate
      taxpayer.


GROSS
      RECEIPTS TAXES - Gross
      receipts taxes associated with Laclede Gas’ natural gas utility service are
      imposed on the Utility and billed to its customers. These amounts are recorded
      gross in the Statements of Income. Amounts recorded in Utility Operating
      Revenues for the quarters ended December 31, 2007 and 2006 were $13.0
      million, and $14.7 million, respectively. Gross receipts taxes are expensed
      by
      the Utility and included in the Taxes Other Than Income line.


STOCK-BASED
      COMPENSATION –
      Officers and employees of Laclede Gas, as determined by the Compensation
      Committee of Laclede Group’s Board of Directors, are eligible to be selected for
      awards under the Laclede Group 2006 Equity Incentive Plan. For Laclede Group’s
      non-employee directors, shares are awarded under the Restricted Stock Plan
      for
      Non-Employee Directors. Refer to Note 1 of the Financial Statements included
      in
      the Utility’s Form 10-K for the fiscal year ended September 30, 2007
      for descriptions of these plans. For awards made to its employees, the Utility
      records its allocation of compensation cost from Laclede Group with a
      corresponding increase to additional paid-in capital.





6








The
      amounts of compensation cost allocated to the Utility for share-based
      compensation arrangements for the quarters ended December 31, 2007 and
      2006 are presented below:





Three
                Months EndedDecember
                31,(Thousands)
            
            
            2007
            
            
            2006Total
                compensation cost
            
            $
            540
            
            $
            468Compensation
                cost capitalized
            
            
            (135
            )
            
            (118
            )Compensation
                cost recognizedin net income
            
            
            405
            
            
            350Income
                tax benefit recognized in net income
            
            
            (156
            )
            
            (135
            )Compensation
                cost recognized in net income, net of income tax
            
            $
            249
            
            $
            215





As
      of December 31, 2007, there was approximately $4.5 million in
      unrecognized compensation cost related to nonvested share-based compensation
      arrangements (options and restricted stock) that is expected to be allocated
      to
      the Utility over a weighted average period of approximately 2.4
      years.


NEW
      ACCOUNTING STANDARDS –In
      June 2006, the Financial Accounting Standards Board (FASB) issued
      Interpretation Number 48 (FIN 48), “Accounting for Uncertainty in Income Taxes.”
FIN 48 clarifies the accounting for uncertainty in income taxes recognized
      in an
      enterprise’s financial statements in accordance with FASB Statement No. 109,
“Accounting for Income Taxes.” Under FIN 48, Laclede Gas may recognize the tax
      benefit from a tax position only if it is at least more likely than not that
      the
      tax position will be sustained on examination by the taxing authorities, based
      on the technical merits of the position. The tax benefits recognized in the
      financial statements from such a position should be measured based on the
      largest benefit that has a greater than fifty percent likelihood of being
      realized upon settlement with the taxing authorities. FIN 48 also provides
      guidance on derecognition, classification, interest and penalties, accounting
      in
      interim periods, disclosure, and transition. Laclede Gas adopted the provisions
      of FIN 48 as of October 1, 2007. For details regarding the cumulative
      effect of adoption and other pertinent information, see Note 3, Income
      Taxes.


In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      (SFAS) No. 157, “Fair Value Measurements.” This Statement defines fair value,
      establishes a framework for measuring fair value in generally accepted
      accounting principles, and expands disclosures about fair value measurements.
      The Statement applies to fair value measurements required under other accounting
      guidance that require or permit fair value measurements. Accordingly, this
      Statement does not require any new fair value measurements. The guidance in
      this
      Statement does not apply to the Laclede Group’s stock-based compensation plans
      accounted for in accordance with SFAS No. 123(R), “Share-Based Payment.” This
      Statement will be effective for the Utility as of the beginning of fiscal
      year 2009. Laclede Gas is currently evaluating the provisions of this
      Statement.


In
      September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for
      Defined Benefit Pension and Other Postretirement Plans.” As discussed in Note 2
      to the Financial Statements included in the Utility’s Fiscal Year 2007 Form
      10-K, Laclede Gas adopted the recognition and disclosure provisions of this
      Statement effective September 30, 2007. The Statement also requires
      that plan assets and benefit obligations be measured as of the date of the
      employer’s fiscal year-end statement of financial position. This requirement is
      effective for the Utility as of the end of fiscal year 2009. In conjunction
      with adoption of this provision of SFAS No. 158, the Utility will be required
      to
      change its valuation date for its pension and other postretirement plans from
      June 30 to September 30. The Utility is currently evaluating the
      impact of adoption of the change in measurement date on its financial
      statements.


In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities.” The Statement permits entities to
      choose to measure many financial instruments and certain other items at fair
      value that are not currently required to be measured at fair value. SFAS No.
      159
      also establishes presentation and disclosure requirements designed to facilitate
      comparisons between entities that choose different measurement attributes for
      similar types of assets and liabilities. This Statement does not affect any
      existing accounting literature that requires certain assets and liabilities
      to
      be carried at fair value. Upon adoption of SFAS No. 159, entities are permitted
      to choose, at specified election dates, to measure eligible items at fair value
      (fair value option). Unrealized gains and losses on items for which the fair
      value option has been elected are reported in earnings at each reporting date.
      The decision about whether to elect the fair value option is applied instrument
      by instrument with few exceptions. The decision is also irrevocable (unless
      a
      new election date occurs) and must be applied to entire instruments and not
      to
      portions of instruments. SFAS No. 159 requires that cash flows related to items
      measured at fair value be classified in the statement of cash flows according
      to
      their nature and purpose as required by SFAS No. 95, “Statement of Cash Flows”
(as amended). SFAS No. 159 is effective for the Utility as of the beginning
      of
      fiscal year 2009. Laclede Gas is currently evaluating the provisions of this
      Statement.





7





In
      June 2007, the FASB ratified the consensus reached in Emerging Issues Task
      Force (EITF) Issue No. 06-11, “Accounting for Income Tax Benefits of Dividends
      on Share-Based Payment Awards.” This Issue addresses how anentity should recognize
      the
      tax benefit received on dividends that are (a) paid to employees holding
      equity-classified nonvested shares, equity-classified nonvested share units,
      or
      equity-classified outstanding share options and (b) charged to retained earnings
      under SFAS No. 123(R). The Task Force reached a consensus that such tax benefits
      should be recognized as an increase in additional paid-in capital. This EITF
      Issue also addresses how the accounting for these tax benefits is affected
      if an
      entity’s estimate of forfeitures changes in subsequent periods. This EITF Issue
      is effective for Laclede Gas as of the beginning of fiscal year 2009. The
      Utility is currently evaluating the provisions of this EITF Issue.


In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
      Consolidated Financial Statements.” This Statement amends Accounting Research
      Bulletin No. 51, “Consolidated Financial Statements.” A noncontrolling interest,
      sometimes called a minority interest, is the portion of equity in a subsidiary
      not attributable, directly or indirectly, to a parent. SFAS No. 160 clarifies
      that noncontrolling interests should be separately reported as equity in the
      balance sheet. Additionally, SFAS No. 160 requires certain changes in
      presentation to income statements. SFAS No. 160 also addresses accounting for
      changes in the parent’s ownership interest of a subsidiary, accounting for the
      deconsolidation of a subsidiary, and disclosure requirements. This Statement
      is
      effective for Laclede Gas as of the beginning of fiscal year 2010.
      Currently, Laclede Gas does not have any subsidiaries and therefore adoption
      of
      this Statement is not expected to have any effect on the Utility’s financial
      statements.


In
      December 2007, the FASB issued SFAS No. 141 (revised 2007) (141(R)),
“Business Combinations.” This Statement revises SFAS No. 141 but retains the
      fundamental requirements in SFAS No. 141 that the acquisition method
      (formerly known as purchase method) of accounting be used for all business
      combinations. SFAS No. 141(R) requires an acquirer to recognize the assets
      acquired, the liabilities assumed, and any noncontrolling interest in the
      acquiree at the acquisition date, measured at their fair values as of that
      date,
      with limited exceptions specified in the Statement. SFAS 141(R) requires
      acquisition-related costs to be accounted for separately instead of being
      allocated to the assets acquired and liabilities assumed. SFAS No. 141(R) also
      amends the guidance related to the recognition of certain assets acquired and
      liabilities assumed that relate to contingencies, research and development
      assets acquired that have no alternative future use, and negative goodwill
      arising from a bargain purchase. Laclede Gas is required to adopt SFAS No.
      141(R) prospectively to business combinations with acquisition dates on or
      after
      October 1, 2009 (fiscal 2010). Because this Statement is only
      applicable to future business combinations, existing amounts reported on the
      Utility’s financial statements will not be impacted by adoption of this
      Statement.








2.
            PENSION
                PLANS AND OTHER POSTRETIREMENT
                BENEFITS





Laclede
      Gas has non-contributory defined benefit, trusteed forms of pension plans
      covering substantially all employees over the age of twenty-one. Benefits are
      based on years of service and the employee’s compensation during the highest
      three years of the last ten years of employment. Plan assets consist primarily
      of corporate and U.S. government obligations and pooled equity
      funds.


Pension
      costs for the quarters ending December 31, 2007 and 2006 were $1.5
      million and $1.4 million, respectively, including amounts charged to
      construction.


The
      net periodic pension costs include the following components:





Three
                Months EndedDecember
                31,(Thousands)
            
            
            2007
            
            
            2006Service
                cost - benefits earnedduring
                the period
            
            $
            3,242
            
            $
            3,106Interest
                cost on projectedbenefit
                obligation
            
            
            4,670
            
            
            4,482Expected
                return on plan assets
            
            
            (5,162
            )
            
            (5,074
            )Amortization
                of priorservice cost
            
            
            272
            
            
            284Amortization
                of actuarial loss
            
            
            791
            
            
            920Sub-total
            
            
            3,813
            
            
            3,718Regulatory
                adjustment
            
            
            (2,280
            )
            
            (2,364
            )Net
                pension cost
            
            $
            1,533
            
            $
            1,354








8





Pursuant
      to the provisions of the Laclede Gas pension plans, pension obligations may
      be
      satisfied by lump-sum cash payments. Pursuant to a Missouri Public Service
      Commission (MoPSC or Commission) Order, lump-sum payments are recognized as
      settlements (which can result in gains or losses) only if the total of such
      payments exceeds 100% of the sum of service and interest costs. No lump sum
      payments were recognized as settlements during the three months ended
      December 31, 2007 or 2006.


Pursuant
      to a MoPSC Order, the return on plan assets is based on the market-related
      value
      of plan assets implemented prospectively over a four-year period. Gains or
      losses not yet includible in pension cost are amortized only to the extent
      that
      such gain or loss exceeds 10% of the greater of the projected benefit obligation
      or the market-related value of plan assets. Such excess is amortized over the
      average remaining service life of active participants. The recovery in rates
      for
      the Utility’s qualified pension plans is based on an allowance of $4.1 million
      annually effective October 1, 2005 and $4.8 million annually effective
      August 1, 2007. The difference between this amount and pension expense
      as calculated pursuant to the above and that otherwise would be included in
      the
      Statements of Income and Comprehensive Income is deferred as a regulatory asset
      or regulatory liability.


Laclede
      Gas provides certain life insurance benefits at retirement. Medical insurance
      is
      available after early retirement until age 65. The transition obligation not
      yet
      includible in postretirement benefit cost is being amortized over 20 years.
      Postretirement benefit costs for the quarters ended December 31, 2007
      and 2006 were $1.9 million and $2.0 million, respectively, including amounts
      charged to construction.


Net
      periodic postretirement benefit costs consisted of the following
      components:





Three
                Months EndedDecember
                31,(Thousands)
            
            
            2007
            
            
            2006Service
                cost – benefits earned duringthe
                period
            
            $
            1,140
            
            $
            1,016Interest
                cost on accumulatedpostretirement
                benefit obligation
            
            
            977
            
            
            900Expected
                return on plan assets
            
            
            (510
            )
            
            (431
            )Amortization
                of transition obligation
            
            
            34
            
            
            34Amortization
                of prior service cost
            
            
            (582
            )
            
            (582
            )Amortization
                of actuarial loss
            
            
            746
            
            
            811Sub-total
            
            
            1,805
            
            
            1,748Regulatory
                adjustment
            
            
            105
            
            
            223Net
                postretirement benefit cost
            
            $
            1,910
            
            $
            1,971





Missouri
      state law provides for the recovery in rates of SFAS No. 106, “Employers’
Accounting for Postretirement Benefits Other Than Pensions,” accrued costs
      provided that such costs are funded through an independent, external funding
      mechanism. Laclede Gas established Voluntary Employees’ Beneficiary Association
      (VEBA) and Rabbi trusts as its external funding mechanisms. VEBA and Rabbi
      trusts’ assets consist primarily of money market securities and mutual funds
      invested in stocks and bonds.


Pursuant
      to a MoPSC Order, the return on plan assets is based on the market-related
      value
      of plan assets implemented prospectively over a four-year period. Gains and
      losses not yet includible in postretirement benefit cost are amortized only
      to
      the extent that such gain or loss exceeds 10% of the greater of the accumulated
      postretirement benefit obligation or the market-related value of plan assets.
      Such excess is amortized over the average remaining service life of active
      participants. Previously, the recovery in rates for the postretirement benefit
      costs was based on an alternative methodology for amortization of unrecognized
      gains and losses as ordered by the MoPSC. The Commission ordered that the
      recovery in rates be based on an annual allowance of $7.6 million, effective
      August 1, 2007. The difference between this amount and postretirement
      benefit cost based on the above and that otherwise would be included in the
      Statements of Income and Comprehensive Income is deferred as a regulatory asset
      or regulatory liability.








3.
            INCOME
                TAXES





Laclede
      Group files a consolidated federal and state tax return and allocates income
      taxes to Laclede Gas and its other subsidiaries as if each entity were a
      separate taxpayer. Laclede Group and Laclede Gas adopted the provisions of
      FIN
      48, “Accounting for the Uncertainty in Income Taxes,” as of
      October 1, 2007. FIN 48 clarifies the accounting for uncertainty in
      income taxes recognized in an enterprise’s financial statements in accordance
      with FASB Statement No. 109, “Accounting for Income Taxes.” Pursuant to FIN 48,
      the Utility may recognize the tax benefit from a tax position only if it is
      at
      least more likely than not that the tax position will be sustained on
      examination by the taxing authorities, based on the technical merits of the
      position.





9








Upon
      adoption of FIN 48, Laclede Gas recognized an increase to beginning retained
      earnings as a cumulative-effect adjustment totaling $0.4 million and
      reclassified $2.1 million of income tax liabilities from current to non-current
      liabilities. Total unrecognized tax benefits as of October 1, 2007
      were $1.9 million, all of which would favorably impact the effective tax rate,
      if recognized. The Utility recognizes potential accrued interest and penalties
      related to its uncertain tax positions as interest expense and other income
      deductions, respectively. Potential interest and penalties accrued (net of
      income tax benefit) associated with the Utility’s uncertain tax positions were
      $0.2 million at October 1, 2007. Unrecognized tax benefits, accrued
      interest payable, and accrued penalties payable are included in the Other line
      of the Deferred Credits and Other Liabilities section of the Balance Sheets.
      There have been no material changes in the Utility’s unrecognized tax benefits
      since the date of adoption of FIN 48.


Laclede
      Group and/or Laclede Gas are subject to U.S. federal income tax as well as
      income tax of state and city jurisdictions. These companies are no longer
      subject to examination for fiscal years prior to 2004. The Utility cannot
      currently estimate the potential change in its unrecognized tax benefits within
      the next 12-month period because of current audit activity.








4.
            OTHER
                INCOME AND INCOME DEDUCTIONS – NET





Three
                Months EndedDecember
                31,(Thousands)
            
            
            2007
            
            
            2006Allowance
                for funds used during construction
            
            $
            (9
            )
            $
            (14
            )Interest
                income
            
            
            1,155
            
            
            1,386Other
                income
            
            
            537
            
            
            322Other
                income deductions
            
            
            349
            
            
            1,049Other
                income and (income deductions) – net
            
            $
            2,032
            
            $
            2,743





The
      decrease in other income and income deductions – net for the quarter ended
      December 31, 2007, compared with the quarter ended
      December 31, 2006, was due to decreased income associated with changes
      in the cash surrender value of life insurance policies, lower income associated
      with carrying costs applied to under-recoveries of gas costs, and other minor
      variations. Such carrying costs are recovered through the Utility’s Purchased
      Gas Adjustment (PGA) Clause.








5.
            INFORMATION
                BY OPERATING SEGMENT





The
      Regulated Gas Distribution segment consists of the regulated operations of
      Laclede Gas. The Non-Regulated Other segment includes the retail sale of gas
      appliances. There are no material intersegment revenues.





Regulated
            
            Non-
            
            AdjustmentsGas
            
            Regulated
            
            &(Thousands)
            
            Distribution
            
            Other
            
            Eliminations
            
            TotalThree
                Months EndedDecember
                31, 2007Operating
                revenues
            
            $
            320,892
            
            $
            786
            
            $
            —
            
            $
            321,678Net
                income
            
            
            15,757
            
            
            38
            
            
            —
            
            
            15,795Total
                assets
            
            
            1,529,861
            
            
            1,831
            
            
            —
            
            
            1,531,692Three
                Months EndedDecember
                31, 2006Operating
                revenues
            
            $
            348,488
            
            $
            662
            
            $
            —
            
            $
            349,150Net
                income
            
            
            15,669
            
            
            6
            
            
            —
            
            
            15,675Total
                assets
            
            
            1,473,506
            
            
            1,362
            
            
            —
            
            
            1,474,868








10








6.
            COMMITMENTS
                AND CONTINGENCIES





Laclede
      Gas owns and operates natural gas distribution, transmission and storage
      facilities, the operations of which are subject to various environmental laws,
      regulations and interpretations. While environmental issues resulting from
      such
      operations arise in the ordinary course of business, such issues have not
      materially affected Laclede Gas’ financial position and results of
      operations. As environmental laws, regulations, and their interpretations
      change, however, Laclede Gas may be required to incur additional costs. See
      Note
      12 to the Financial Statements included in Laclede Gas’ Fiscal Year 2007
      Form 10-K for information relative to environmental matters generally. There
      have been no significant changes relative to environmental matters in the first
      quarter of 2008.


On
      December 28, 2006, the MoPSC Staff proposed a disallowance
      of $7.2 million related to Laclede Gas’ recovery of its purchased gas costs
      applicable to fiscal 2005. On September 14, 2007, the Staff withdrew
      its pursuit of $5.5 million of the disallowance it had originally proposed.
      Laclede Gas believes that the remaining $1.7 million of the MoPSC Staff’s
      proposed disallowance lacks merit and intends to vigorously oppose the
      adjustment in proceedings before the MoPSC.


On
      December 31, 2007, the MoPSC Staff filed a memorandum with the
      Commission proposing a disallowance of $2.8 million related to the Laclede
      Gas’s recovery of its purchased gas costs applicable to fiscal 2006.
      Laclede Gas believes that the MoPSC Staff’s position lacks merit and intends to
      vigorously oppose the adjustment in proceedings before the MoPSC. In addition,
      the MoPSC’s Staff’s memorandum raised questions regarding whether certain sales
      and capacity release transactions subject to the Federal Energy Regulatory
      Commission (FERC)’s oversight were consistent with the FERC’s regulations and
      policies regarding capacity release. The Utility has commenced an internal
      review of the questions raised by the MoPSC Staff and has notified the FERC
      Staff that it has taken this action.


Laclede
      Gas is involved in other litigation, claims and investigations arising in the
      normal course of business. While the results of such litigation cannot be
      predicted with certainty, management, after discussion with counsel, believes
      that the final outcome will not have a material adverse effect on the financial
      position or results of operations of the Utility.


Laclede
      Gas has several operating leases for the rental of vehicles that contain
      provisions requiring Laclede Gas to guarantee certain amounts related to the
      residual value of the leased property. These leases have various terms, the
      longest of which extends through 2014. At December 31, 2007, the
      maximum guarantees under these leases are $1.8 million. However, the Utility
      estimates that the residual value of the leased vehicles will be adequate to
      satisfy most of the guaranteed amounts. At December 31, 2007, the
      carrying value of the liability recognized for these guarantees was $0.3
      million.


Laclede
      Gas has entered into various contracts, expiring on dates through 2017, for
      the
      storage, transportation, and supply of natural gas. Minimum payments required
      under the contracts in place at December 31, 2007 are estimated at
      approximately $447 million. Additional contracts are generally entered into
      prior to or during the heating season.





11





ITEM
      2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS





LACLEDE
      GAS COMPANY




This
      management’s discussion analyzes the financial condition and results of
      operations of Laclede Gas Company (Laclede Gas or the Utility). It includes
      management’s view of factors that affect its business, explanations of past
      financial results including changes in earnings and costs from the prior year
      periods, and their effects on overall financial condition and
      liquidity.




Certain
      matters discussed in this report, excluding historical information, include
      forward-looking statements. Certain words, such as “may,” “anticipate,”
“believe,” “estimate,” “expect,” “intend,” “plan,” “seek,” and similar words and
      expressions identify forward-looking statements that involve uncertainties
      and
      risks. Future developments may not be in accordance with our expectations or
      beliefs and the effect of future developments may not be those anticipated.
      Among the factors that may cause results to differ materially from those
      contemplated in any forward-looking statement are:





•
            weather
                conditions and catastrophic events, particularly severe weather in
                the
                natural gas producing areas of the country;•
            volatility
                in gas prices, particularly sudden and sustained spikes in natural
                gas
                prices;•
            the
                impact of higher natural gas prices on our competitive position in
                relation to suppliers of alternative heating sources, such as
                electricity;•
            changes
                in gas supply and pipeline availability; particularly those changes
                that
                impact supply for and access to our market area;•
            legislative,
                regulatory and judicial mandates and decisions, some of which may
                be
                retroactive, including those affecting•
            allowed
                rates of return•
            incentive
                regulation•
            industry
                structure•
            purchased
                gas adjustment provisions•
            rate
                design structure and implementation•
            franchise
                renewals•
            environmental
                or safety matters•
            taxes•
            pension
                and other postretirement benefit liabilities and funding
                obligations•
            accounting
                standards;•
            the
                results of litigation;•
            retention
                of, ability to attract, ability to collect from and conservation
                efforts
                of customers;•
            capital
                and energy commodity market conditions, including the ability to
                obtain
                funds for necessary capital expenditures and general operations and
                the
                terms and conditions imposed for obtaining sufficient gas
                supply;•
            discovery
                of material weakness in internal controls; and•
            employee
                workforce issues.




Readers
      are urged to consider the risks, uncertainties and other factors that could
      affect our business as described in this report. All forward-looking statements
      made in this report rely upon the safe harbor protections provided under the
      Private Securities Litigation Reform Act of 1995. We do not, by including this
      statement, assume any obligation to review or revise any particular
      forward-looking statement in light of future events.




The
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations should be read in conjunction with the Utility’s Financial Statements
      and the Notes thereto.





12








LACLEDE
      GAS COMPANY





RESULTS
      OF OPERATIONS





Laclede
      Gas is regulated by the Missouri Public Service Commission (MoPSC or Commission)
      and serves the City of St. Louis and parts of ten other counties in eastern
      Missouri. Laclede Gas delivers natural gas to retail customers at rates, and
      in
      accordance with tariffs, authorized by the MoPSC. The Utility’s earnings are
      primarily generated by the sale of heating energy. The Utility’s innovative
      weather mitigation rate design lessens the impact of weather volatility on
      Laclede Gas customers during cold winters and stabilizes the Utility’s earnings
      by recovering fixed costs more evenly during the heating season. Due to the
      seasonal nature of the business of Laclede Gas, earnings are typically
      concentrated in the November through April period, which generally corresponds
      with the heating season.





Mitigating
      the impact of weather fluctuations on Laclede Gas customers while improving
      the
      ability to recover its authorized distribution costs and return continues to
      be
      a fundamental component of Laclede Gas’ strategy. The Utility’s distribution
      costs are the essential, primarily fixed expenditures it must incur to operate
      and maintain a more than 16,000 mile natural gas distribution system and related
      storage facilities. In addition, Laclede Gas is working to continually improve
      its ability to provide reliable natural gas service at a reasonable cost, while
      maintaining and building a secure and dependable infrastructure. The settlement
      of the Utility’s 2007 rate case resulted in enhancements to the Utility’s
      weather mitigation rate design that better ensure the recovery of its fixed
      costs and margins despite variations in sales volumes due to the impacts of
      weather and other factors that affect customer usage. The Utility’s income from
      off-system sales remains subject to fluctuations in market conditions. In
      conjunction with the settlement of the 2005 rate case, effective
      October 1, 2005, the Utility retained all pre-tax income from
      off-system sales and capacity release revenues up to $12 million annually.
      Pre-tax amounts in excess of $12 million were shared with customers, with the
      Utility retaining 50% of amounts exceeding that threshold. The Stipulation
&
Agreement approved by the MoPSC in the Utility’s 2007 rate case increases the
      portion of pre-tax income from off-system sales and capacity release revenues
      that is shared with customers. Effective October 1, 2007, the Utility
      is allowed to retain 15% to 25% of the first $6 million in annual income earned
      (depending on the level of income earned) and 30% of income exceeding $6 million
      annually. Some of the factors impacting the level of off-system sales include
      the availability and cost of the Utility’s natural gas supply, the weather in
      its service area, and the weather in other markets. When Laclede Gas’ service
      area experiences warmer-than-normal weather while other markets experience
      colder weather or supply constraints, some of the Utility’s natural gas supply
      is available for off-system sales and there may be a demand for such supply
      in
      other markets.





Laclede
      Gas continues to work actively to reduce the impact of higher costs associated
      with wholesale natural gas prices by strategically structuring its natural
      gas
      supply portfolio and through the use of financial instruments. Nevertheless,
      the
      cost of purchased gas remains high, relative to historical levels. The Utility’s
      Purchased Gas Adjustment (PGA) Clause allows Laclede Gas to flow through to
      customers, subject to prudence review, the cost of purchased gas supplies,
      including costs, cost reductions, and related carrying costs associated with
      the
      use of financial instruments to hedge the purchase price of natural gas, as
      well
      as gas inventory carrying costs. The Utility believes it will continue to be
      able to obtain sufficient gas supply. The generally higher price levels may
      continue to affect sales volumes (due to the conservation efforts of customers)
      and cash flows (associated with the timing of collection of gas costs and
      related accounts receivable from customers).





Quarter
      Ended December 31, 2007





Earnings





Laclede
      Gas’ net income for the quarter ended December 31, 2007 was $15.8
      million, slightly better than the quarter ended December 31, 2006. The
      benefit of the general rate increase effective August 1, 2007,
      totaling $10.1 million was largely offset by the following factors, quantified
      on a pre-tax basis:





•
            lower
                income from off-system sales and capacity release, totaling $3.4
                million,
                primarily due to a reduction in the Utility’s share of such income
                (pursuant to the 2007 rate case);•
            the
                net effect of lower system gas sales margins, primarily due to an
                unusually late start to the heating season, and other variations
                totaling
                $3.2 million; and,•
            increases
                in operation and maintenance expenses totaling $2.2
                million.








13








Utility
      Operating Revenues and Operating Expenses





Laclede
      Gas passes on to Utility customers (subject to prudence review) increases and
      decreases in the wholesale cost of natural gas in accordance with its PGA
      Clause. The volatility of the wholesale natural gas market results in
      fluctuations from period to period in the recorded levels of, among other items,
      revenues and natural gas cost expense. Nevertheless, increases and decreases
      in
      the cost of gas associated with system gas sales volumes have no direct effect
      on net revenues and net income.





Utility
      operating revenues for the quarter ended December 31, 2007 were $320.9
      million, or $27.6 million less than the same period last year. Temperatures
      experienced in the Utility’s service area during the quarter were 8.5% warmer
      than normal and essentially the same as the comparable period last year. Total
      system therms sold and transported were 0.27 billion for the quarter ended
      December 31, 2007 compared with 0.28 billion for the same period last
      year. Total off-system therms sold and transported were 0.05 billion for the
      quarter ended December 31, 2007 compared with 0.07 billion for the
      same period last year. The decrease in utility operating revenues was primarily
      attributable to the following factors:





MillionsLower
                wholesale gas costs passed on to Utility customers (subject to prudence
                review by the MoPSC)
            
            $
            (20.8
            )General
                rate increase, effective August 1, 2007
            
            
            10.1Lower
                off-system sales volumes
            
            
            (9.6
            )Lower
                system sales volumes and other variations
            
            
            (8.1
            )Higher
                prices charged for off-system sales
            
            
            1.3Lower
                Infrastructure System Replacement Surcharges (ISRS)
                revenues
            
            
            (0.5
            )Total
                Variation
            
            $
            (27.6
            )





Utility
      operating expenses for the quarter ended December 31, 2007 decreased
      $28.4 million from the same quarter last year. Natural and propane gas expense
      decreased $28.7 million, or 11.4%, from last year’s level, primarily
      attributable to lower rates charged by our suppliers, lower system volumes
      purchased for sendout, and lower off-system gas expense. Other operation and
      maintenance expenses increased $2.2 million, or 5.5%, primarily due to higher
      injuries and damages expense, increased maintenance charges, a higher provision
      for uncollectible accounts, and higher wage rates, partially offset by lower
      group insurance charges. Taxes, other than income, decreased $2.1 million,
      or
      11.1%, primarily due to decreased gross receipts taxes (attributable to the
      decreased revenues) and lower property taxes.





Other
      Income and (Income Deductions) - Net





Other
      income and income deductions – net decreased $0.7 million due to decreased
      income associated with changes in the cash surrender value of life insurance
      policies, lower income associated with carrying costs applied to
      under-recoveries of gas costs, and other minor variations. Such carrying costs
      are recovered through the Utility’s PGA Clause.








REGULATORY
      MATTERS





During
      fiscal 2006, the MoPSC approved permanent modifications to the Cold Weather
      Rule
      affecting the disconnection and reconnection practices of utilities during
      the
      winter heating season. Those modifications included provisions to allow the
      Utility to obtain accounting authorizations and defer for future recovery
      certain costs incurred with the modifications. During fiscal 2007, the
      Utility deferred for future recovery $2.7 million of costs associated with
      the
      fiscal 2007 heating season. On October 31, 2007, the Utility
      filed for determination and subsequent recovery of the deferred amount. On
      November 16, 2007, the MoPSC directed the MoPSC Staff and the Missouri
      Office of Public Counsel to submit their positions regarding the Utility’s
      filing by February 28, 2008.





On
      November 9, 2007, the Utility made an ISRS filing with the Commission
      designed to increase revenues by $1.6 million annually, pending approval by
      the
      Commission. On January 15, 2008, the Commission approved
      implementation of the surcharge to be effective
      January 18, 2008.





On
      December 28, 2006, the MoPSC Staff proposed a disallowance of $7.2
      million related to Laclede Gas’ recovery of its purchased gas costs applicable
      to fiscal 2005. On September 14, 2007, the Staff withdrew its pursuit
      of $5.5 million of the disallowance it had originally proposed. Laclede Gas
      believes that the remaining $1.7 million of the MoPSC Staff’s proposed
      disallowance lacks merit and intends to vigorously oppose the adjustment in
      proceedings before the MoPSC.





14








On
      December 31, 2007, the MoPSC Staff filed a memorandum with the
      Commission proposing a disallowance of $2.8 million related to the Laclede
      Gas'
      recovery of its purchased gas costs applicable to fiscal 2006. Laclede Gas
      believes that the MoPSC Staff’s position lacks merit and intends to vigorously
      oppose the adjustment in proceedings before the MoPSC. In addition, the MoPSC’s
      Staff’s memorandum raised questions regarding whether certain sales and capacity
      release transactions subject to the Federal Energy Regulatory Commission
      (FERC)’s oversight were consistent with the FERC’s regulations and policies
      regarding capacity release. The Utility has commenced an internal review of
      the
      questions raised by the MoPSC Staff and has notified the FERC Staff that it
      has
      taken this action.








CRITICAL
      ACCOUNTING POLICIES





Our
      discussion and analysis of our financial condition, results of operations,
      liquidity, and capital resources is based upon our financial statements, which
      have been prepared in accordance with accounting principles generally accepted
      in the United States of America. Generally accepted accounting principles
      require that we make estimates and judgments that affect the reported amounts
      of
      assets, liabilities, revenues and expenses, and related disclosure of contingent
      assets and liabilities. We evaluate our estimates on an ongoing basis. We base
      our estimates on historical experience and on various other assumptions that
      we
      believe are reasonable under the circumstances, the results of which form the
      basis for making judgments about the carrying values of assets and liabilities
      that are not readily apparent from other sources. Actual results may differ
      from
      these estimates. We believe the following represent the more significant items
      requiring the use of judgment and estimates in preparing our financial
      statements:





Allowances
                for doubtful accounts – Estimates of the collectibility of trade accounts
                receivable are based on historical trends, age of receivables, economic
                conditions, credit risk of specific customers, and other factors.
                The
                Utility’s provision for uncollectible accounts is dependent on the
                regulatory treatment provided for such costs. As approved by the
                MoPSC,
                the Utility is allowed to defer for future recovery certain costs
                associated with amendments to the Cold Weather Rule.Employee
                benefits and postretirement obligations – Pension and postretirement
                obligations are calculated by actuarial consultants that utilize
                several
                statistical factors and other assumptions related to future events,
                such
                as discount rates, returns on plan assets, compensation increases,
                and
                mortality rates. For the Utility, the amount of expense recognized
                and the
                amounts reflected in other comprehensive income are dependent upon
                the
                regulatory treatment provided for such costs, as discussed further
                below.
                Certain liabilities related to group medical benefits and workers’
                compensation claims, portions of which are self-insured and/or contain
                “stop-loss” coverage with third-party insurers to limit exposure, are
                established based on historical
                trends.





Laclede
      Gas accounts for its regulated operations in accordance with Statement of
      Financial Accounting Standards (SFAS) No. 71, “Accounting for the Effects of
      Certain Types of Regulation.” This Statement sets forth the application of
      accounting principles generally accepted in the United States of America for
      those companies whose rates are established by or are subject to approval by
      an
      independent third-party regulator. The provisions of SFAS No. 71 require, among
      other things, that financial statements of a regulated enterprise reflect the
      actions of regulators, where appropriate. These actions may result in the
      recognition of revenues and expenses in time periods that are different than
      non-regulated enterprises. When this occurs, costs are deferred as assets in
      the
      balance sheet (regulatory assets) and recorded as expenses when those amounts
      are reflected in rates. Also, regulators can impose liabilities upon a regulated
      company for amounts previously collected from customers and for recovery of
      costs that are expected to be incurred in the future (regulatory liabilities).
      Management believes that the current regulatory environment supports the
      continued use of SFAS No. 71 and that all regulatory assets and regulatory
      liabilities are recoverable or refundable through the regulatory process.
      Management believes the following represent the more significant items recorded
      through the application of SFAS No. 71:





The
                Utility’s PGA Clause allows Laclede Gas to flow through to customers,
                subject to prudence review, the cost of purchased gas supplies, including
                the costs, cost reductions and related carrying costs associated
                with the
                Utility’s use of natural gas financial instruments to hedge the purchase
                price of natural gas. The difference between actual costs incurred
                and
                costs recovered through the application of the PGA are recorded as
                regulatory assets and regulatory liabilities that are recovered or
                refunded in a subsequent period. The PGA Clause also authorizes the
                Utility to recover costs it incurs to finance its investment in gas
                supplies that are purchased during the storage injection season for
                sale
                during the heating season. The PGA Clause also permits the application
                of
                carrying costs to all over- or under-recoveries of gas costs, including
                costs and cost reductions associated with the use of financial
                instruments. Effective October 1, 2007, the PGA Clause also
                provides for a portion of income from off-system sales and capacity
                release revenues to be flowed through to
                customers.





15








Laclede
                Gas records deferred tax liabilities and assets measured by enacted
                tax
                rates for the net tax effect of all temporary differences between
                the
                carrying amounts of assets and liabilities for financial reporting
                purposes, and the amounts used for income tax purposes. Changes in
                enacted
                tax rates, if any, and certain property basis differences will be
                reflected by entries to regulatory asset or liability accounts. Pursuant
                to the direction of the MoPSC, Laclede Gas’ provision for income tax
                expense for financial reporting purposes reflects an open-ended method
                of
                tax depreciation. Laclede Gas’ provision for income tax expense also
                records the income tax effect associated with the difference between
                overheads capitalized to construction for financial reporting purposes
                and
                those recognized for tax purposes without recording an offsetting
                deferred
                income tax expense. These two methods are consistent with the regulatory
                treatment prescribed by the MoPSC.Asset
                retirement obligations are recorded in accordance with SFAS No. 143,
                “Accounting for Asset Retirement Obligations” and Financial Accounting
                Standards Board Interpretation Number (FIN) 47, “Accounting for
                Conditional Asset Retirement Obligations.” Asset retirement obligations
                are calculated using various assumptions related to the timing, method
                of
                settlement, inflation, and profit margins that third parties would
                demand
                to settle the future obligations. These assumptions require the use
                of
                judgment and estimates and may change in future periods as circumstances
                dictate. As authorized by the MoPSC, Laclede Gas accrues future removal
                costs associated with its property, plant and equipment through its
                depreciation rates, even if a legal obligation does not exist as
                defined
                by SFAS No. 143 and FIN 47. The difference between removal costs
                recognized in depreciation rates and the accretion expense and
                depreciation expense recognizable under SFAS No. 143 and FIN 47 is
                a
                timing difference between the recovery of these costs in rates and
                their
                recognition for financial reporting purposes. Accordingly, consistent
                with
                SFAS No. 71, these differences are deferred as regulatory
                liabilities.The
                amount of net periodic pension and other postretirement benefit cost
                recognized in the financial statements related to the Utility’s qualified
                pension plans and other postretirement benefit plans is based upon
                allowances, as approved by the MoPSC, which have been established
                in the
                rate-making process for the recovery of these costs from customers.
                The
                differences between these amounts and actual pension and other
                postretirement benefit costs incurred for financial reporting purposes
                are
                deferred as regulatory assets or regulatory liabilities. SFAS No.
                158,
                “Employers’ Accounting for Defined Benefit Pension and Other
                Postretirement Plans,” requires that changes that affect the funded status
                of pension and other postretirement benefit plans, but that are not
                yet
                required to be recognized as components of pension and other
                postretirement benefit cost, be reflected in other comprehensive
                income.
                For the Utility’s qualified pension plans and other postretirement benefit
                plans, amounts that would otherwise be reflected in other comprehensive
                income are deferred with entries to regulatory assets or regulatory
                liabilities.





For
      further discussion of significant accounting policies, see Note 1 to
      the Financial Statements included in Exhibit 99.1 of the Laclede Group’s Form
      10-K for the fiscal year ended September 30, 2007.








ACCOUNTING
      PRONOUNCEMENTS





Laclede
      Gas has evaluated or is in the process of evaluating the impact that recently
      issued accounting standards will have on the Utility’s financial position or
      results of operations upon adoption. For disclosures related to the adoption
      of
      new accounting standards, see the New Accounting Standards section of Note
      1 to
      the Financial Statements.








FINANCIAL
      CONDITION





CREDIT
      RATINGS





As
      of December 31, 2007, credit ratings for outstanding securities for Laclede
      Gas
      issues were as follows:





Type
                of Facility
            S&P
            Moody’s
            FitchLaclede
                Gas First Mortgage Bonds
            A
            A3
            A+Laclede
                Gas Commercial Paper
            A-1
            P-2





The
      Utility has investment grade ratings, and believes that it will have adequate
      access to the financial markets to meet its capital requirements. These ratings
      remain subject to review and change by the rating agencies.





16





CASH
      FLOWS





Laclede
      Gas’ short-term borrowing requirements typically peak during colder months when
      Laclede Gas borrows money to cover the lag between when it purchases its natural
      gas and when its customers pay for that gas. Changes in the wholesale cost
      of
      natural gas, variations in the timing of collections of gas cost under the
      Utility’s PGA Clause, the seasonality of accounts receivable balances, and the
      utilization of storage gas inventories cause short-term cash requirements to
      vary during the year, and can cause significant variations in the Utility’s cash
      provided by or used in operating activities.





Net
      cash used in operating activities for the three months ended
      December 31, 2007 was $20.4 million, compared with $26.3 million for
      the same period last year. The variation is primarily attributable to increases
      in advance customer billings and a reduction in net cash payments associated
      with the Utility’s use of natural gas financial instruments. These factors were
      partially offset by an increase in net cash payments to Laclede Group for the
      Utility’s allocation of income taxes and variations associated with the timing
      of the collections of gas cost under the Utility’s PGA Clause.





Net
      cash used in investing activities for the three months ended
      December 31, 2007 was $14.1 million compared with $12.7 million for
      the three months ended December 31, 2006. Cash used in investing
      activities primarily reflected capital expenditures in both
      periods.





Net
      cash provided by financing activities was $36.2 million for the three months
      ended December 31, 2007 compared with $42.3 million for the three
      months ended December 31, 2006. The decrease primarily reflects the
      maturity of long-term debt, partially offset by the issuance of additional
      short-term debt this year.








LIQUIDITY
      AND CAPITAL RESOURCES





As
      indicated above, the Utility’s short-term borrowing requirements typically peak
      during the colder months. These short-term cash requirements have traditionally
      been met through the sale of commercial paper supported by lines of credit
      with
      banks. Laclede Gas has a line of credit in place of $320 million, which expires
      in December 2010. In November 2007, the Utility established a seasonal
      line of credit of $40 million, which will expire in March 2008. The Utility
      had short-term borrowings aggregating to a maximum of $304.5 million at any
      one
      time during the quarter. Short-term borrowings outstanding at
      December 31, 2007 were $294.5 million, including $40 million from the
      seasonal line of credit, at a weighted average interest rate of 5.4% per annum.
      Based on short-term borrowings at December 31, 2007, a change in
      interest rates of 100 basis points would increase or decrease pre-tax earnings
      and cash flows by approximately $2.9 million on an annual basis. Portions of
      such increases or decreases may be offset through the application of PGA
      carrying costs.





Laclede
      Gas’ lines of credit include covenants limiting total debt, including short-term
      debt, to no more than 70% of total capitalization and requiring earnings before
      interest, taxes, depreciation and amortization (EBITDA) to be at least 2.25
      times interest expense. On December 31, 2007, total debt was 63% of
      total capitalization. For the twelve months ended December 31, 2007,
      EBITDA was 3.40 times interest expense.





Laclede
      Gas has on file with the Securities and Exchange Commission an effective shelf
      registration on Form S-3 for issuance of $350 million of securities. The full
      amount of this shelf registration remains available to Laclede Gas at this
      time. The Utility has authority from the MoPSC to issue up to $500 million
      in
      first mortgage bonds, unsecured debt, and equity securities. In
      December 2007, pursuant to this authority, the Utility sold 30 shares of
      its common stock to Laclede Group for $1.0 million, leaving $495.2 million
      remaining under this authorization as of the date of this filing. The amount,
      timing and type of additional financing to be issued will depend on cash
      requirements and market conditions.





On
      November 1, 2007, Laclede Gas paid at maturity $40 million principal
      amount of 7 1/2% First Mortgage Bonds. This maturity was funded through
      short-term borrowings. At December 31, 2007, Laclede Gas had
      fixed-rate long-term debt totaling $310 million. While these long-term debt
      issues are fixed-rate, they are subject to changes in fair value as market
      interest rates change. However, increases or decreases in fair value would
      impact earnings and cash flows only if Laclede Gas were to reacquire any of
      these issues in the open market prior to maturity.





Laclede
      Gas has several operating leases for the rental of vehicles that contain
      provisions requiring Laclede Gas to guarantee certain amounts related to the
      residual value of the leased property. These leases have various terms, the
      longest of which extends through 2014. At December 31, 2007, the
      maximum guarantees under these leases are $1.8 million. However, the Utility
      estimates that the residual value of the leased vehicles will be adequate to
      satisfy most of the guaranteed amounts. At December 31, 2007, the
      carrying value of the liability recognized for these guarantees was $0.3
      million.





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Utility
      capital expenditures were $13.0 million for the three months ended
      December 31, 2007, compared with $11.8 million for the same period
      last year.





Capitalization
      at December 31, 2007, excluding current obligations of preferred
      stock, consisted of 53.4% common stock equity, 0.1% preferred stock, and 46.5%
      long-term debt.





It
      is management’s view that Laclede Gas has adequate access to capital markets and
      will have sufficient capital resources, both internal and external, to meet
      anticipated capital requirements.





The
      seasonal nature of Laclede Gas’ sales affects the comparison of certain balance
      sheet items at December 31, 2007 and at September 30, 2007,
      such as Accounts Receivable – Net, Gas Stored Underground, Notes Payable,
      Accounts Payable, Regulatory Assets and Regulatory Liabilities, and Advance
      Customer Billings. The Balance Sheet at December 31, 2006 is presented
      to facilitate comparison of these items with the corresponding interim period
      of
      the preceding fiscal year.








CONTRACTUAL
      OBLIGATIONS





As
      of December 31, 2007, Laclede Gas had contractual obligations with payments
      due
      as summarized below (in millions):





Payments
                due by periodRemaining
            
            
            
            
            
            Fiscal
                YearsContractual
                Obligations
            
            Total
            
            Fiscal
                Year
              2008
            
            Fiscal
                Years
              2009-2010
            
            Fiscal
                Years
              2011-2012
            
            2013
                and
              thereafterPrincipal
                Payments on Long-Term
                Debt
            
            $
            310.0
            
            $
            —
            
            $
            —
            
            $
            25.0
            
            $
            285.0Interest
                Payments on Long-Term
                Debt
            
            
            392.2
            
            
            10.9
            
            
            39.0
            
            
            36.6
            
            
            305.7Operating
                Leases
                (a)
            
            
            12.1
            
            
            3.7
            
            
            6.6
            
            
            1.7
            
            
            0.1Purchase
                Obligations – Natural Gas
                (b)
            
            
            446.8
            
            
            264.0
            
            
            91.3
            
            
            44.4
            
            
            47.1Purchase
                Obligations – Other
                (c)
            
            
            110.4
            
            
            12.4
            
            
            18.6
            
            
            16.3
            
            
            63.1Total
                (d)
            
            $
            1,271.5
            
            $
            291.0
            
            $
            155.5
            
            $
            124.0
            
            $
            701.0





(a)
            Operating
                lease obligations are primarily for office space, vehicles, and power
                operated equipment. Additional payments will be incurred if renewal
                options are exercised under the provisions of certain
                agreements.(b)
            These
                purchase obligations represent the minimum payments required under
                existing natural gas transportation and storage contracts and natural
                gas
                supply agreements. These amounts reflect fixed obligations as well
                as
                obligations to purchase natural gas at future market prices, calculated
                using December 31, 2007 New York Mercantile Exchange futures
                prices. Laclede Gas recovers the costs related to its purchases,
                transportation, and storage of natural gas through the operation
                of its
                Purchased Gas Adjustment Clause, subject to prudence review; however,
                variations in the timing of collections of gas costs from customers
                affect
                short-term cash requirements. Additional contractual commitments
                are
                generally entered into prior to or during the heating
                season.(c)
            These
                purchase obligations reflect miscellaneous agreements for the purchase
                of
                materials and the procurement of services necessary for normal
                operations.(d)
            The
                categories of Capital Leases and Other Long-Term liabilities have
                been
                excluded from the table above because there are no applicable amounts
                of
                contractual obligations under these categories. Also, commitments
                related
                to pension and postretirement benefit plans have been excluded from
                the
                table above. The Utility expects to make contributions to its qualified,
                trusteed pension plans totaling $0.9 million during the remainder
                of
                fiscal year 2008. Laclede Gas anticipates a $0.3 million contribution
                relative to its non-qualified pension plans during the remainder
                of fiscal
                year 2008. With regard to the postretirement benefits, the Utility
                anticipates it will contribute $8.2 million to the qualified trusts
                and
                $0.3 million directly to participants from Laclede Gas’ funds during the
                remainder of fiscal year 2008. For further discussion of the
                Company’s pension and postretirement benefit plans, refer to Note 2,
                Pension Plans and Other Postretirement Benefits, of the Notes to
                Financial
                Statements.








18








MARKET
      RISK





Laclede
      Gas adopted a risk management policy that provides for the purchase of natural
      gas financial instruments with the goal of managing price risk associated with
      purchasing natural gas on behalf of its customers. This policy prohibits
      speculation. Costs and cost reductions, including carrying costs, associated
      with the Utility’s use of natural gas financial instruments are allowed to be
      passed on to the Utility’s customers through the operation of its PGA Clause,
      through which the MoPSC allows the Utility to recover gas supply costs.
      Accordingly, Laclede Gas does not expect any adverse earnings impact as a result
      of the use of these financial instruments. At December 31, 2007, the
      Utility held 21.5 million MMBtu of futures contracts at an average price of
      $8.36 per MMBtu. These positions have various expiration dates, the longest
      of
      which extends through October 2008.








ENVIRONMENTAL
      MATTERS





Laclede
      Gas owns and operates natural gas distribution, transmission and storage
      facilities, the operations of which are subject to various environmental laws,
      regulations and interpretations. While environmental issues resulting from
      such
      operations arise in the ordinary course of business, such issues have not
      materially affected the Laclede Gas’ financial position and results of
      operations. As environmental laws, regulations, and their interpretations
      change, however, Laclede Gas may be required to incur additional costs. For
      information relative to environmental matters, see Note 12 to the Financial
      Statements included in the Utility’s Form 10-K for the fiscal year ended
      September 30, 2007. There have been no significant changes relative to
      environmental matters in the first quarter of fiscal
      year 2008.








OFF-BALANCE
      SHEET ARRANGEMENTS





Laclede
      Gas has no off-balance sheet arrangements.





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