|FORM 10-Q                         
|----------------------------------
|                                  
|UNITED STATES                     
|SECURITIES AND EXCHANGE COMMISSION
|Washington, D.C.  20549           

|(Mark One)                                   |                                                  
|-------------------------------------------- | -------------------------------------------------
|                                             |                                                  
|[ X ]                                        | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) 
|OF THE SECURITIES EXCHANGE ACT OF 1934      
|                                             |                                                  
|For the Quarterly Period Ended June 30, 2001
|                                             |                                                  
|OR                                          
|                                             |                                                  
|[    ]                                       | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
|OF THE SECURITIES EXCHANGE ACT OF 1934      

|                                                                                                                                                                                                                                                                                                                                                                          | Exact Name of Registrant as            |                      
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------- | ---------------------
|                                                                                                                                                                                                                                                                                                                                                                          | Specified in Charter, State of         |                      
|                                                                                                                                                                                                                                                                                                                                                                          | Incorporation, Address of              |                      
|Commission                                                                                                                                                                                                                                                                                                                                                                | Principal Executive                    | IRS Employer         
|File Number                                                                                                                                                                                                                                                                                                                                                               | Office and Telephone Number            | Identification Number
|1-5540                                                                                                                                                                                                                                                                                                                                                                    | PEOPLES ENERGY CORPORATION             | 36-2642766           
|                                                                                                                                                                                                                                                                                                                                                                          | (an Illinois Corporation)              |                      
|                                                                                                                                                                                                                                                                                                                                                                          | 130 East Randolph Drive, 24th Floor    |                      
|                                                                                                                                                                                                                                                                                                                                                                          | Chicago, Illinois  60601-6207          |                      
|                                                                                                                                                                                                                                                                                                                                                                          | Telephone (312) 240-4000               |                      
|                                                                                                                                                                                                                                                                                                                                                                          |                                        |                      
|2-26983                                                                                                                                                                                                                                                                                                                                                                   | THE PEOPLES GAS LIGHT AND COKE COMPANY | 36-1613900           
|                                                                                                                                                                                                                                                                                                                                                                          | (an Illinois Corporation)              |                      
|                                                                                                                                                                                                                                                                                                                                                                          | 130 East Randolph Drive, 24th Floor    |                      
|                                                                                                                                                                                                                                                                                                                                                                          | Chicago, Illinois  60601-6207          |                      
|                                                                                                                                                                                                                                                                                                                                                                          | Telephone (312) 240-4000               |                      
|                                                                                                                                                                                                                                                                                                                                                                          |                                        |                      
|2-35965                                                                                                                                                                                                                                                                                                                                                                   | NORTH SHORE GAS COMPANY                | 36-1558720           
|                                                                                                                                                                                                                                                                                                                                                                          | (an Illinois Corporation)              |                      
|                                                                                                                                                                                                                                                                                                                                                                          | 130 East Randolph Drive, 24th Floor    |                      
|                                                                                                                                                                                                                                                                                                                                                                          | Chicago, Illinois  60601-6207          |                      
|                                                                                                                                                                                                                                                                                                                                                                          | Telephone (312) 240-4000               |                      
|                                                                                                                                                                                                                                                                                                                                                                          |                                        |                      
|Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.  Yes [x]   No [  ]

|Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date (July 31, 2001):                                                                                                                                                                                                         
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                     
|Peoples Energy Corporation                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                     
|The Peoples Gas Light and Coke Company                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                     
|North Shore Gas Company                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                                                     
|This combined Form 10-Q is separately filed by Peoples Energy Corporation, The Peoples Gas Light and Coke Company, and North Shore Gas Company.  Information contained herein relating to any individual company is filed by such company on its own behalf.  Each company makes no representation as to information relating to the other companies.



Part I - Financial Information

Item I. Financial Statements

The condensed unaudited financial statements of Peoples Energy Corporation (the Company) have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (SEC).

This Quarterly Report on Form 10-Q is a combined report of the Company, The Peoples Gas Light and Coke Company (Peoples Gas) and North Shore Gas Company (North Shore Gas).

Certain footnote disclosures and other information, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted from these interim financial statements, pursuant to SEC rules and regulations.  Therefore, the statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company's, Peoples Gas' and North Shore Gas' Annual Report on Form 10-K, as amended, for the fiscal year ended September 30, 2000.  Certain items previously reported for the prior periods have been reclassified to conform with the presentation in the current period.

The business of the Company's utility subsidiaries (Peoples Gas and North Shore Gas) is influenced by seasonal weather conditions because a large element of the utilities' customer load consists of gas used for space heating.  Weather-related deliveries can, therefore, have a significant positive or negative impact on net income.  Swings in natural gas prices can also impact revenue sensitive items such as customer accounts receivable balances and reserves for uncollectible accounts.  The quarterly results of operations and balances should not be considered indicative of the year as a whole.

The information furnished reflects, in the opinion of management, all adjustments (consisting of only normal recurring adjustments) necessary for a fair statement of the results of operations for the interim periods presented.





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





|Peoples Energy Corporation                                                              
|----------------------------------------------------------------------------------------
|                                                                                        
|CONSOLIDATED BALANCE SHEETS                                                             
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|ASSETS                                                                                  
|                                                                                        
|CAPITAL INVESTMENTS:                                                                    
|Property, plant and equipment, at original cost                                         
|Less - Accumulated depreciation, depletion and amortization                             
|Net property, plant and equipment                                                       
|Investment in equity investees                                                          
|Other investments                                                                       
|Total Capital Investments - Net                                                         
|                                                                                        
|CURRENT ASSETS:                                                                         
|Cash and cash equivalents                                                               
|Temporary investments and special deposits                                              
|Advances to joint venture partnerships                                                  
|Receivables -                                                                           
|Customers, net of allowance for uncollectible accounts                                  
|of $43,798, $24,958, and $26,339, respectively                                          
|Other                                                                                   
|Materials and supplies, at average cost                                                 
|Gas in storage                                                                          
|Gas costs recoverable through rate adjustments                                          
|Regulatory assets of subsidiaries                                                       
|Prepayments                                                                             
|Total Current Assets                                                                    
|                                                                                        
|OTHER ASSETS:                                                                           
|Prepaid pension costs                                                                   
|Non-current regulatory assets of subsidiaries                                           
|Deferred charges                                                                        
|Total Other Assets                                                                      
|                                                                                        
|Total Assets                                                                            
|                                                                                        
|* Unaudited                                                                             
|The Notes to Consolidated Financial Statements are an integral part of these statements.





|Peoples Energy Corporation                                                              
|----------------------------------------------------------------------------------------
|                                                                                        
|CONSOLIDATED BALANCE SHEETS                                                             
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|CAPITALIZATION AND LIABILITIES                                                          
|                                                                                        
|CAPITALIZATION:                                                                         
|Common Stockholders' Equity:                                                            
|Common stock, without par value -                                                       
|Authorized 60,000 shares                                                                
|Outstanding 35,646, 35,544 and                                                          
|35,544 shares, respectively                                                             
|Retained earnings                                                                       
|Treasury stock (247, 248 and 248 shares, respectively, at cost)                         
|Accumulated other comprehensive income                                                  
|Total Common Stockholders' Equity                                                       
|                                                                                        
|Long-term debt                                                                          
|Total Capitalization                                                                    
|                                                                                        
|CURRENT LIABILITIES:                                                                    
|Short-term debt                                                                         
|Accounts payable                                                                        
|Dividends payable on common stock                                                       
|Customer gas service and credit deposits                                                
|Accrued taxes                                                                           
|Gas sales revenue refundable through rate adjustments                                   
|Temporary LIFO liquidation credit                                                       
|Accrued interest                                                                        
|Total Current Liabilities                                                               
|                                                                                        
|DEFERRED CREDITS AND OTHER LIABILITIES:                                                 
|Deferred income taxes                                                                   
|Investment tax credits being amortized over                                             
|the average lives of related property                                                   
|Other                                                                                   
|Total Deferred Credits and Other Liabilities                                            
|                                                                                        
|Total Capitalization and Liabilities                                                    
|                                                                                        
|* Unaudited                                                                             
|The Notes to Consolidated Financial Statements are an integral part of these statements.





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





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





|The Peoples Gas Light and Coke Company                                                  
|----------------------------------------------------------------------------------------
|                                                                                        
|CONSOLIDATED BALANCE SHEETS                                                             
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|ASSETS                                                                                  
|                                                                                        
|CAPITAL INVESTMENTS:                                                                    
|Property, plant and equipment, at original cost                                         
|Less - Accumulated depreciation and amortization                                        
|Net property, plant and equipment                                                       
|Other investments                                                                       
|Total Capital Investments - Net                                                         
|                                                                                        
|CURRENT ASSETS:                                                                         
|Cash and cash equivalents                                                               
|Temporary investments                                                                   
|Receivables -                                                                           
|Customers, net of allowance for uncollectible accounts                                  
|of $41,106, $22,821 and $24,253, respectively                                           
|Other                                                                                   
|Materials and supplies, at average cost                                                 
|Gas in storage, at last-in, first-out cost                                              
|Gas costs recoverable through rate adjustments                                          
|Regulatory assets                                                                       
|Prepayments                                                                             
|Total Current Assets                                                                    
|                                                                                        
|OTHER ASSETS:                                                                           
|Prepaid pension costs                                                                   
|Non-current regulatory assets                                                           
|Deferred charges                                                                        
|Total Other Assets                                                                      
|                                                                                        
|Total Assets                                                                            
|                                                                                        
|* Unaudited                                                                             
|The Notes to Consolidated Financial Statements are an integral part of these statements.





|The Peoples Gas Light and Coke Company                                                  
|----------------------------------------------------------------------------------------
|                                                                                        
|CONSOLIDATED BALANCE SHEETS                                                             
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|CAPITALIZATION AND LIABILITIES                                                          
|                                                                                        
|CAPITALIZATION:                                                                         
|Common Stockholder's Equity:                                                            
|Common stock, without par value -                                                       
|Authorized 40,000 shares                                                                
|Outstanding 24,818 shares                                                               
|Retained earnings                                                                       
|Accumulated other comprehensive income                                                  
|Total Common Stockholder's Equity                                                       
|                                                                                        
|Long-term debt                                                                          
|Total Capitalization                                                                    
|                                                                                        
|CURRENT LIABILITIES:                                                                    
|Short-term debt                                                                         
|Accounts payable                                                                        
|Customer gas service and credit deposits                                                
|Accrued taxes                                                                           
|Gas sales revenue refundable through rate adjustments                                   
|Temporary LIFO liquidation credit                                                       
|Accrued interest                                                                        
|Total Current Liabilities                                                               
|                                                                                        
|DEFERRED CREDITS AND OTHER LIABILITIES:                                                 
|Deferred income taxes                                                                   
|Investment tax credits being amortized over                                             
|the average lives of related property                                                   
|Other                                                                                   
|Total Deferred Credits and Other Liabilities                                            
|                                                                                        
|Total Capitalization and Liabilities                                                    
|                                                                                        
|* Unaudited                                                                             
|The Notes to Consolidated Financial Statements are an integral part of these statements.





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





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





|North Shore Gas Company                                                                 
|----------------------------------------------------------------------------------------
|                                                                                        
|CONSOLIDATED BALANCE SHEETS                                                             
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|ASSETS                                                                                  
|                                                                                        
|CAPITAL INVESTMENTS:                                                                    
|Property, plant and equipment, at original cost                                         
|Less - Accumulated depreciation                                                         
|Net property, plant and equipment                                                       
|Other investments                                                                       
|Total Capital Investments - Net                                                         
|                                                                                        
|CURRENT ASSETS:                                                                         
|Cash and cash equivalents                                                               
|Temporary investments                                                                   
|Receivables -                                                                           
|Customers, net of allowance for uncollectible                                           
|accounts of $1,756, $978, and $1,036, respectively                                      
|Other                                                                                   
|Materials and supplies, at average cost                                                 
|Gas in storage, at last-in, first-out cost                                              
|Gas costs recoverable through rate adjustments                                          
|Regulatory assets                                                                       
|Prepayments                                                                             
|Total Current Assets                                                                    
|                                                                                        
|OTHER ASSETS:                                                                           
|Prepaid pension costs                                                                   
|Non-current regulatory assets                                                           
|Deferred charges                                                                        
|Total Other Assets                                                                      
|                                                                                        
|Total Assets                                                                            
|                                                                                        
|* Unaudited                                                                             
|The Notes to Consolidated Financial Statements are an integral part of these statements.





|North Shore Gas Company                                                                 
|----------------------------------------------------------------------------------------
|                                                                                        
|CONSOLIDATED BALANCE SHEETS                                                             
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|CAPITALIZATION AND LIABILITIES                                                          
|                                                                                        
|CAPITALIZATION:                                                                         
|Common Stockholder's Equity:                                                            
|Common stock, without par value -                                                       
|Authorized 5,000 shares                                                                 
|Outstanding 3,626 shares                                                                
|Retained earnings                                                                       
|Total Common Stockholder's Equity                                                       
|                                                                                        
|Long-term debt                                                                          
|Total Capitalization                                                                    
|                                                                                        
|CURRENT LIABILITIES:                                                                    
|Short-term debt                                                                         
|Accounts payable                                                                        
|Customer gas service and credit deposits                                                
|Accrued taxes                                                                           
|Gas sales revenue refundable through rate adjustments                                   
|Temporary LIFO liquidation credit                                                       
|Accrued interest                                                                        
|Total Current Liabilities                                                               
|                                                                                        
|DEFERRED CREDITS AND OTHER LIABILITIES:                                                 
|Deferred income taxes                                                                   
|Investment tax credits being amortized over                                             
|the average lives of related property                                                   
|Other                                                                                   
|Total Deferred Credits and Other Liabilities                                            
|                                                                                        
|Total Capitalization and Liabilities                                                    
|                                                                                        
|* Unaudited                                                                             
|The Notes to Consolidated Financial Statements are an integral part of these statements.





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





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



1. SIGNIFICANT ACCOUNTING POLICIES

Recovery of Gas Costs

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

For each gas distribution utility, the Illinois Commerce Commission (the "Commission") conducts annual proceedings regarding the reconciliation of revenues from the Gas Charge and related costs incurred for gas.  In such proceedings, costs recovered by a utility through the Gas Charge are subject to challenge.  Such proceedings regarding Peoples Gas and North Shore Gas for the fiscal year 2000 are currently pending before the Commission.

Derivative Instruments and Hedging Activities

In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities", amended by SFAS No. 137 and SFAS No. 138, (collectively "SFAS No. 133").  SFAS No. 133 establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded on the balance sheet as either an asset or liability measured at its fair value.  SFAS No. 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met.  Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results of the hedged item on the income statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting.

The Company hedges forecasted cash flows related to commodities and certain interest rate risks.  The impact on the financial statements of adopting SFAS No. 133 as of October 1, 2000, was to reduce earnings by $34,000, net of tax, reduce accumulated other comprehensive income (AOCI) by $23.6 million, net of tax, record a liability of $40.0 million, record an increase in investment in equity investees of $900,000 and record deferred taxes of $15.5 million.  Based on October 1, 2000 values, the Company estimates that in 2001, it will reclassify from AOCI to the Consolidated Statements of Income deferred losses totaling $17.9 million, net of tax, which are expected to offset gains on the hedged transactions.

The Company has hedged various anticipated cash flow transactions through December 2006.  During the three and nine months ended June 30, 2001, the Company reclassified $2.3 million and $12.2 million net of tax, respectively, of deferred losses from AOCI to the Consolidated Statements of Income to offset gains realized by the hedged transactions.  In the following 12 months, $2.5 million of deferred losses will be reclassified from AOCI into earnings.  The deferred loss is reported in the same income statement line as the gain or loss from the hedged transaction.  As of June 30, 2001, the Company has $4.9 million of derivative liabilities and has cumulative deferred losses in AOCI of $3.0 million, net of tax.  As of June 30, 2001, Peoples Gas and North Shore Gas had no derivative instruments, respectively.

In the nine-month period, the cash flow hedges by the Elwood joint venture were liquidated resulting in recognizing gains of $4.0 million ($2.4 million, net of taxes).  The power sales contracts were renegotiated to essentially eliminate the fuel price risk that the hedges were designed to protect.



Equity Investments

The Company has a number of investments which are accounted for as unconsolidated equity method investments, the larger of which are reported in the Power Generation, Midstream Services and Oil and Gas Production segments.  Individually, the Company's equity investments are not material, however, in aggregate these investments are material at June 30, 2001.  The Company's pro rata share of financial results are listed below.





|                                |  |  | Three Months Ended |  | Nine Months Ended
|------------------------------- |  |  | ------------------ |  | -----------------
|                                |  |  | June 30,           |  | June 30,         
|(In Thousands)                  |  |  | 2001               |  | 2000             
|Total Equity Investments        |  |  |                    |  |                  
|Operating revenues              |  |  | $  63,313          |  | $  18,348        
|Operating income                |  |  | 11,981             |  | 5,116            
|Interest expense                |  |  | 1,228              |  | 1,858            
|Earnings before income taxes    |  |  | 10,890             |  | 3,095            
|                                |  |  |                    |  |                  
|Investments in equity investees |  |  | $ 141,446          |  | $ 130,670        
|                                |  |  |                    |  |                  
|Investment Results by Segment:  |  |  |                    |  |                  
|Power Generation                |  |  |                    |  |                  
|Operating revenues              |  |  | $    7,996         |  | $    7,929       
|Operating income                |  |  | 3,653              |  | 2,809            
|Interest expense                |  |  | 502                |  | -                
|Earnings before income taxes    |  |  | 3,246              |  | 2,915            
|                                |  |  |                    |  |                  
|Investments in equity investees |  |  | $ 100,128          |  | $  99,311        
|                                |  |  |                    |  |                  
|Midstream Services              |  |  |                    |  |                  
|Operating revenues              |  |  | $  44,335          |  | $           -    
|Operating income                |  |  | 3,517              |  | -                
|Interest expense                |  |  | -                  |  | -                
|Earnings before income taxes    |  |  | 3,550              |  | -                
|                                |  |  |                    |  |                  
|Investments in equity investees |  |  | $  10,036          |  | $           -    
|                                |  |  |                    |  |                  
|Oil and Gas Production          |  |  |                    |  |                  
|Operating revenues              |  |  | $    9,598         |  | $    9,355       
|Operating income                |  |  | 4,409              |  | 1,878            
|Interest expense                |  |  | 409                |  | 1,552            
|Earnings before income taxes    |  |  | 4,000              |  | 20               
|                                |  |  |                    |  |                  
|Investments in equity investees |  |  | $  26,690          |  | $  26,095        
|                                |  |  |                    |  |                  
|Other                           |  |  |                    |  |                  
|Operating revenues              |  |  | $    1,384         |  | $    1,064       
|Operating income                |  |  | 402                |  | 429              
|Interest expense                |  |  | 317                |  | 306              
|Earnings before income taxes    |  |  | 94                 |  | 160              
|                                |  |  |                    |  |                  
|Investments in equity investees |  |  | $    4,592         |  | $    5,264       



2. BUSINESS SEGMENTS

Financial data by business segment is presented below:



|                                                     | The Company  
|---------------------------------------------------- | -------------
|                                                     |              
|(In Thousands)                                       | Gas          
|Three Months Ended 06-30-01                          | Distribution 
|Operating Revenues                                   | $    218,994 
|Depreciation, Depletion and Amortization             | 16,920       
|Operating Income (Loss)                              | 23,221       
|Equity Investment Income (Loss)                      | -            
|Operating Income and Equity Investment Income (Loss) | 23,221       
|Segment Assets                                       | 1,515,652    
|Investments in Equity Investees                      | -            
|Capital Spending                                     | $      21,386
|                                                     |              
|                                                     |              
|                                                     | Gas          
|Three Months Ended 06-30-00                          | Distribution 
|Operating Revenues                                   | $    199,715 
|Depreciation, Depletion and Amortization             | 22,222       
|Operating Income (Loss)                              | 25,966       
|Equity Investment Income                             | -            
|Operating Income and Equity Investment Income (Loss) | 25,966       
|Segment Assets                                       | 1,495,661    
|Investments in Equity Investees                      | -            
|Capital Spending                                     | $      24,631
|                                                     |              
|                                                     |              
|                                                     | Gas          
|Nine Months Ended 06-30-01                           | Distribution 
|Operating Revenues                                   | $ 1,708,995  
|Depreciation, Depletion and Amortization             | 51,006       
|Operating Income (Loss)                              | 203,197      
|Equity Investment Income                             | -            
|Operating Income and Equity Investment Income (Loss) | 203,197      
|Segment Assets                                       | 1,515,652    
|Investments in Equity Investees                      | -            
|Capital Spending                                     | $      65,318
|                                                     |              
|                                                     |              
|                                                     | Gas          
|Nine Months Ended 06-30-00                           | Distribution 
|Operating Revenues                                   | $    968,985 
|Depreciation, Depletion and Amortization             | 63,122       
|Operating Income (Loss)                              | 182,272      
|Equity Investment Income                             | -            
|Operating Income and Equity Investment Income (Loss) | 182,272      
|Segment Assets                                       | 1,495,661    
|Investments in Equity Investees                      | -            
|Capital Spending                                     | $      77,211





The following reconciles total segment assets and investments in equity investees to the Company's consolidated total assets at June 30, 2001 and 2000:



|                                  |  | June 30,      
|--------------------------------- |  | --------------
|                                  |  | 2001          
|                                  |  | (In Thousands)
|                                  |  |               
|Capital Investments               |  |               
|Segment assets                    |  | $ 1,747,377   
|Investments in equity investees   |  | 141,446       
|Other investments not included in |  |               
|above categories                  |  | 10,231        
|Total Capital Investments - Net   |  | 1,899,054     
|                                  |  |               
|Assets                            |  |               
|Current Assets                    |  | 829,902       
|Other Assets                      |  | 283,301       
|Total Assets                      |  | $ 3,012,257   
|                                  |  |               



The activities of Peoples Gas are mainly within the Gas Distribution segment with only immaterial amounts of activity in other segments.  North Shore Gas activities are entirely within the Gas Distribution segment.



3.  ACCOUNTS RECEIVABLE



See accounts receivable discussion in Item 2 "Management's Discussion and Analysis of Results of Operations and Financial Condition - Liquidity and Capital Resources - Balance Sheet Variations."



4.  ENVIRONMENTAL MATTERS

Former Manufactured Gas Plant Operations

The Company's utility subsidiaries, their predecessors, and certain former affiliates operated facilities in the past at multiple sites for the purpose of manufacturing gas and storing manufactured gas (Manufactured Gas Sites).  In connection with manufacturing and storing gas, various by-products and waste materials were produced, some of which might have been disposed of rather than sold.  Under certain laws and regulations relating to the protection of the environment, the subsidiaries might be required to undertake remedial action with respect to some of these materials.  Two of the Manufactured Gas Sites are discussed in more detail below.  The subsidiaries, under the supervision of the Illinois Environmental Protection Agency (IEPA), are conducting investigations of an additional 31 Manufactured Gas Sites.  These investigations may require the utility subsidiaries to perform additional investigation and remediation.  The investigations are in a preliminary stage and are expected to occur over approximately three years.

In 1990, North Shore Gas entered into an Administrative Order on Consent (AOC) with the United States Environmental Protection Agency (EPA) and the IEPA to implement and conduct a remedial investigation/feasibility study (RI/FS) of a Manufactured Gas Site located in Waukegan, Illinois, where manufactured gas and coking operations were formerly conducted (Waukegan Site).  The RI/FS was comprised of an investigation to determine the nature and extent of contamination at the Waukegan Site and a feasibility study to develop and evaluate possible remedial actions.  North Shore Gas entered into the AOC after being notified by the EPA that North Shore Gas, General Motors Corporation (GMC), and Outboard Marine Corporation (OMC) were each a potentially responsible party (PRP) under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (CERCLA), with respect to the Waukegan Site.  A PRP is potentially liable for the cost of any investigative and remedial work that the EPA determines is necessary.  Other parties identified as PRPs did not enter into the AOC.

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

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

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

On December 22, 2000, OMC filed a petition in federal bankruptcy court seeking protection under Chapter 11 of the United States Bankruptcy Code.

North Shore Gas and the other parties notified by the EPA have been discussing implementation of the remedy and the allocation of costs associated with the investigation and remediation of the Waukegan Site.  In July 2001, North Shore Gas and the other PRP's entered into an AOC with the EPA to conduct the remedial design for the Waukegan site.

North Shore Gas has entered into a settlement agreement with one of the PRP's and is continuing discussion with the remaining parties.

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

The utility subsidiaries are accruing and deferring the costs they incur in connection with all of the Manufactured Gas Sites, including related legal expenses, pending recovery through rates or from insurance carriers or other entities.  At June 30, 2001, the total of the costs deferred (stated in current year dollars) for Peoples Gas was $41.1 million; for North Shore Gas the total was $20.6 million; and for the Company on a consolidated basis the total deferred was $61.7 million.  This amount includes management's best estimate of the costs of investigating and remediating the Manufactured Gas Sites.  The estimate is based upon a comprehensive review by management and its outside consultants of potential costs associated with conducting investigative and remedial actions at the Manufactured Gas Sites as well as the likelihood of whether such actions will be necessary.  While each subsidiary intends to seek contribution from other entities for the costs incurred at the sites, the full extent of such contributions cannot be determined at this time.

Peoples Gas and North Shore Gas have filed suit against a number of insurance carriers for the recovery of environmental costs relating to the utilities' former manufactured gas operations.  The suit asks the court to declare, among other things, that the insurers are liable under policies in effect between 1937 and 1986 for costs incurred or to be incurred by the utilities in connection with five of their Manufactured Gas Sites in Chicago and Waukegan.  The utilities are also asking the court to award damages stemming from the insurers' breach of their contractual obligation to defend and indemnify the utilities against these costs.  In November 1998, the utilities reached a settlement agreement with one of the insurance carriers.  The costs deferred at June 30, 2001 have been reduced by the proceeds of the settlement.  At this time, management cannot determine the timing and extent of the subsidiaries' recovery of costs from the other insurance carriers.  Accordingly, the costs deferred at June 30, 2001 have not been reduced to reflect recoveries from other insurance carriers.

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

Former Mineral Processing Site in Denver, Colorado

In 1994, North Shore Gas received a demand from the S.W. Shattuck Chemical Company, Inc. (Shattuck), a responsible party under CERCLA, for reimbursement, indemnification, and contribution for response costs incurred at a former mineral processing site in Denver, Colorado.  Shattuck is a wholly owned subsidiary of Salomon, Inc. (Salomon).  The demand alleges that North Shore Gas is a successor to the liability of a former entity that was allegedly responsible during the period 1934-1941 for the disposal of mineral processing wastes containing radium and other hazardous substances at the site.  In 1992, the EPA issued the ROD for the Denver site.  The remedy selected in the ROD consisted of the on-site stabilization, solidification and capping of soils containing radioactive wastes.  In 1997, the remedial action was completed.  The cost of the remedy at the site has been estimated by Shattuck to be approximately $31.0 million.  Salomon has provided financial assurance for the performance of the remediation of the site.

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

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

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

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

Equipment Containing Mercury

Peoples Gas and North Shore Gas are inspecting for mercury contamination in certain of their customers' premises where gas pressure regulators, manometers and other equipment containing mercury may have been used.  The utilities have identified approximately 93,000 locations where gas pressure regulators, manometers and other equipment containing mercury may have been used.  Virtually all of the gas pressure regulators containing mercury that were used for residences and other small volume customers were removed by the utilities in the 1960's, 1970's and 1980's.  The utilities' inspection programs include both a visual check for mercury and a verification with mercury detection equipment.

As of June 30, 2001, Peoples Gas had visually inspected approximately 31,172 premises (including 29,549 small volume customers, primarily residences) and small amounts of mercury were found in 34 of these locations (of which 16 were residences).  North Shore Gas had visually inspected approximately 38,208 premises (including 37,829 small volume customers, primarily residences) and small amounts of mercury were found in 34 of these locations (of which 33 were residences).  All but one of the commercial and industrial locations have been inspected.  The utilities have sent notices to residential locations and will inspect residences when requested by the residents.  Based on responses to date, the utilities do not anticipate that all residents will request inspections; however, at this time, the utilities cannot predict with certainty how many inspections will be made.

In each case where mercury contamination is found, Peoples Gas or North Shore Gas will perform appropriate remediation at the premises to eliminate contamination.  Based on information available at June 30, 2001, it does not appear that mercury contamination discovered by the utilities has had or will have a significant harmful effect on the public.

The Company has incurred and expects to continue to incur costs for inspection and remediation and other costs related to the programs.  The Company charged $16.1 million (of which Peoples Gas and North Shore Gas charged $8.0 million and $8.1 million, respectively) to operating expense in the fourth quarter of fiscal year 2000, including the accrual recorded in accounts payable of $15.0 million (of which Peoples Gas and North Shore Gas recorded $7.0 million and $8.0 million, respectively) to account for the estimated remaining costs related to the programs.  Actual costs incurred as of June 30, 2001 for Peoples Gas and North Shore Gas were $2.6 million and $2.9 million, respectively.  As of June 30, 2001 neither the Company nor either utility has been named as a defendant in any lawsuit.  The Company intends to vigorously pursue the recovery of mercury-related costs from insurance carriers.



5.  COMPREHENSIVE INCOME

SFAS No. 130, "Reporting Comprehensive Income," requires the reporting of comprehensive income in addition to net income.  Comprehensive income is the total of net income and all other nonowner changes in equity (Other Comprehensive Income).   Comprehensive income includes net income, the effect of the additional pension liability not yet recognized as net periodic pension cost and unrealized gains and losses from derivative instruments that qualify as cash flow hedges per SFAS No. 133. The Company and Peoples Gas have reported accumulated other comprehensive income in their respective Consolidated Balance Sheets

Comprehensive income for the Company for the three and nine months ended June 30, 2001 and 2000 is as follows:

|                                           |  | Three Months Ended |  | Nine Months Ended
|------------------------------------------ |  | ------------------ |  | -----------------
|                                           |  | June 30,           |  | June 30,         
|                                           |  | 2001               |  | 2000             
|(In Thousands)                             |  |                    |  |                  
|Net income                                 |  | $11,563            |  | $10,852          
|                                           |  |                    |  |                  
|Other comprehensive income                 |  |                    |  |                  
|Unrealized gain (loss) on cash flow hedges |  | 44,909             |  | -                
|Income tax (expense)/benefit               |  | (17,814)           |  | -                
|Other comprehensive income, net of tax     |  | 27,095             |  | -                
|                                           |  |                    |  |                  
|Total comprehensive income                 |  | $38,658            |  | $10,852          





Item 2.  Management's Discussion and Analysis of Results of Operations and Financial Condition

RESULTS OF OPERATIONS



The following should be read in conjunction with the Management's Discussion and Analysis of Results of Operations and Financial Condition (MD&A) of Peoples Energy Corporation, The Peoples Gas Light and Coke Company and North Shore Gas Company 2000 Annual Report on Form 10-K, as amended.

Summary

Net income for the three months ended June 30, 2001 increased to $11.6 million, compared to $10.9 million in the year ago period.  The $711,000 increase ($1.6 million before taxes) was mainly the result of continued growth by the diversified businesses, primarily the midstream services ($6.1 million) and oil and gas production ($4.6 million) segments, as well as from a decrease in gas distribution depreciation expense ($5.3 million).  Net income was negatively effected by weather that was nine percent warmer than in the previous period ($1.7 million) and by a decrease in income associated with pension benefit accounting in the gas distribution segment ($2.7 million).

Net income for the nine months ended June 30, 2001 increased to $110.4 million, compared to $97.9 million in the year ago period.  The $12.5 million increase ($21.0 million before taxes) was mainly a result of increased gas delivery volumes due to weather that was 19 percent colder than the same period last year and to continued growth in diversified business earnings.  In addition to the positive impact from weather ($22.6 million), the gas distribution segment benefited from reduced depreciation expense ($12.1 million) and from the positive effects of pension benefit accounting ($8.9 million).  Partially offsetting these effects was an increase in the utilities' provision for uncollectible accounts ($13.2 million) due to unseasonably cold weather and significantly higher natural gas prices.

A summary of variations affecting income between years is presented below, followed by explanations of significant differences by segment.



|                                                    |  |  |  | Three Months Ended |  |               |  |              
|--------------------------------------------------- |  |  |  | ------------------ |  | ------------- |  | -------------
|                                                    |  |  |  | June 30,           |  | Increase /    |  |              
|                                                    |  |  |  | 2001               |  | 2000          |  | (Decrease)   
|(In Thousands, Except Percents)                     |  |  |  |                    |  |               |  |              
|Operating Income and Equity Investment Income:      |  |  |  |                    |  |               |  |              
|Gas Distribution                                    |  |  |  | $      23,221      |  | $      25,966 |  | $     (2,745)
|Power Generation                                    |  |  |  | 1,837              |  | 1,286         |  | 551          
|Midstream Services                                  |  |  |  | 5,067              |  | (1,061)       |  | 6,128        
|Retail Energy Services                              |  |  |  | (739)              |  | (902)         |  | 163          
|Oil and Gas Production                              |  |  |  | 7,963              |  | 3,376         |  | 4,587        
|Other                                               |  |  |  | (444)              |  | (107)         |  | (337)        
|Corporate and Adjustments                           |  |  |  | (4,602)            |  | (2,823)       |  | (1,779)      
|Total Operating Income and Equity Investment Income |  |  |  | 32,303             |  | 25,735        |  | 6,568        
|Other Income and (Deductions)                       |  |  |  | 1,821              |  | 1,948         |  | (127)        
|Interest Expense                                    |  |  |  | 18,114             |  | 13,224        |  | 4,890        
|Income Taxes                                        |  |  |  | 4,447              |  | 3,607         |  | 840          
|Net Income                                          |  |  |  | $      11,563      |  | $      10,852 |  | $         711
|                                                    |  |  |  |                    |  |               |  |              



|                                                    |  |  |  | Nine Months Ended |  |               |  |            
|--------------------------------------------------- |  |  |  | ----------------- |  | ------------- |  | -----------
|                                                    |  |  |  | June 30,          |  | Increase /    |  |            
|                                                    |  |  |  | 2001              |  | 2000          |  | (Decrease) 
|(In Thousands, Except Percents)                     |  |  |  |                   |  |               |  |            
|Operating Income and Equity Investment Income:      |  |  |  |                   |  |               |  |            
|Gas Distribution                                    |  |  |  | $    203,197      |  | $    182,272  |  | $    20,925
|Power Generation                                    |  |  |  | 7,841             |  | 5,171         |  | 2,670      
|Midstream Services                                  |  |  |  | 15,658            |  | 7,020         |  | 8,638      
|Retail Energy Services                              |  |  |  | (480)             |  | (2,542)       |  | 2,062      
|Oil and Gas Production                              |  |  |  | 14,555            |  | 6,064         |  | 8,491      
|Other                                               |  |  |  | (676)             |  | (528)         |  | (148)      
|Corporate and Adjustments                           |  |  |  | (18,988)          |  | (9,744)       |  | (9,244)    
|Total Operating Income and Equity Investment Income |  |  |  | 221,107           |  | 187,713       |  | 33,394     
|Other Income and (Deductions)                       |  |  |  | 7,126             |  | 3,491         |  | 3,635      
|Interest Expense                                    |  |  |  | 54,311            |  | 38,303        |  | 16,008     
|Income Taxes                                        |  |  |  | 63,477            |  | 55,051        |  | 8,426      
|Income before Cumulative Effect of Change           |  |  |  |                   |  |               |  |            
|in Accounting Principle                             |  |  |  | 110,445           |  | 97,850        |  | 12,595     
|Cumulative Effect of Accounting Change, net of tax  |  |  |  | (34)              |  | -             |  | (34)       
|Net Income                                          |  |  |  | $    110,411      |  | $      97,850 |  | $    12,561



Gas Distribution Segment

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

Gross revenues of Peoples Gas and North Shore Gas are affected by changes in the unit cost of the utilities' gas purchases and do not include the cost of gas supplies for customers who purchase gas directly from producers and marketers rather than from the utilities.  In general, the unit cost of gas does not have a significant direct effect on operating income because of the utilities' tariffs that provide for dollar-for-dollar recovery of gas costs.  (See Note 1 of the Notes to Consolidated Financial Statements.)  However, unusually higher natural gas costs that continue for an extended period of time affect the accrual for the provision for uncollectible accounts and carrying charges.

Operating revenues for the Company for the three-month period increased $19.3 million to $219.0 million due primarily to the higher unit price of gas ($32.3 million), offset in part by weather that was 14 percent warmer than normal and nine percent warmer than the same period last year.  Increases in revenues are not necessarily indicative of operating results.  Operating income decreased $2.7 million to $23.2 million due mainly to warmer weather ($1.7 million), customer conservation resulting from higher natural gas costs ($3.4 million) and the negative effects of pension benefit accounting ($2.7 million).  Partially offsetting these negative effects was a decrease in depreciation expense ($5.3 million).

Operating revenues for the Company for the nine-month period increased $740.0 million to $1.7 billion due primarily to the higher unit price of gas ($639.3 million) and weather that was four percent colder than normal and 19 percent colder than the same period last year.  Increases in revenues are not necessarily indicative of operating results.  Operating income increased $20.9 million to $203.2 million due mainly to colder weather ($22.6 million), reduced depreciation expense ($12.1 million), to the positive effects of pension benefit accounting ($8.9 million) and to the reduced use of external labor ($4.0 million).  Negatively impacting operating income were customer conservation resulting from higher natural gas costs ($12.1 million) and an increase in the provision for uncollectible accounts ($13.2 million).  Also impacting the year-to-year comparison was the prior years benefit of the weather insurance program ($13.2 million).  (See Liquidity and Capital Resources - "Balance Sheet Variations" for discussion of increased accounts receivables due to high gas prices and the related impact on bad debt reserves.)

Operating revenues for Peoples Gas for the three-month period increased $16.1 million due mainly to the higher unit price of gas ($26.6 million), offset in part by weather that was 14 percent warmer than normal and nine percent warmer than the same period last year.  Increases in revenues are not necessarily indicative of operating results.  Operating income decreased $1.7 million to $21.5 million due primarily to warmer weather ($1.5 million), customer conservation resulting from higher natural gas costs ($2.9 million) and the negative effects of pension benefit accounting ($2.9 million).  Partially offsetting these negative effects was a decrease in depreciation expense ($4.8 million).

Operating revenues for Peoples Gas for the nine-month period increased $633.8 million to $1.5 billion due principally to the higher unit price of gas ($535.8 million) and weather that was four percent colder than normal and 19 percent colder than the same period last year.  Increases in revenues are not necessarily indicative of operating results.  Operating income increased $30.8 million to $180.6 million due mainly to colder weather ($19.4 million), reduced depreciation expense ($10.4 million), the positive effects of pension benefit accounting ($8.3 million) and the reduced use of external labor ($4.1 million).  Negatively impacting operating income were customer conservation resulting from higher natural gas costs ($10.5 million) and an increase in the provision for uncollectible accounts ($12.6 million).  (See Liquidity and Capital Resources - "Balance Sheet Variations" for discussion of increased accounts receivables due to high gas prices and the related impact on bad debt reserves.)

Operating revenues for North Shore Gas for the three-month period increased $3.8 million to $31.8 million due mainly to the higher unit price of gas ($5.7 million), offset in part by weather that was 14 percent warmer than normal and nine percent warmer than the same period last year.  Increases in revenues are not necessarily indicative of operating results.  Operating income decreased $392,000 to $1.9 million due primarily to warmer weather ($233,000) and customer conservation resulting from higher natural gas costs ($520,000).  Partially offsetting these negative effects was a decrease in depreciation expense ($544,000).

Operating revenues for North Shore Gas for the nine-month period increased $119.4 million to $255.8 million due mainly to the higher unit price of gas ($103.5 million) and weather that was four percent colder than normal and 19 percent colder than the same period last year.  Increases in revenues are not necessarily indicative of operating results.  Operating income increased $3.3 million to $26.2 million due principally to colder weather ($3.2 million), reduced depreciation expense ($1.7 million) and the positive effects of pension benefit accounting ($588,000).  Negatively impacting operating income were customer conservation resulting from higher natural gas costs ($1.6 million) and an increase in the provision for uncollectible accounts ($595,000).  (See Liquidity and Capital Resources - "Balance Sheet Variations" for discussion of increased accounts receivables due to high gas prices and the related impact on bad debt reserves.)

The Company's objectives for the Gas Distribution segment center on continuous improvement, technological advancements, safety and customer service.  Operating revenues for the fiscal year are expected to increase from the prior year due to colder weather and increased gas prices.  Segment operating income for fiscal 2001 is expected to improve due to the colder weather, reduced operation and maintenance expense and lower depreciation expense, partially offset by increased customer conservation and increased uncollectible expense due to colder weather and higher gas prices.

Power Generation Segment

The Company is engaged in the development, construction, operation and ownership of natural gas-fired electric generation facilities for sales to electric utilities and marketers.  The Company and Dominion Energy, Inc. are equal investors in Elwood Energy L.L.C., which owns and operates a 600-megawatt peaking facility (Phase I) near Chicago, Illinois.  A 750-megwatt expansion (Phase II) of this facility was completed in early July 2001, with the first three units, totaling 450 megawatts, becoming commercially operable in June.

Revenue recognition for these peaking facilities is based on contract provisions, which assign higher value to summer capacity.  Therefore, quarterly results are not indicative of total year results.

Operating income and equity investment income for the three- and nine-month periods increased $551,000 to $1.8 million and $2.7 million to $7.8 million, respectively.  The current quarter increase was mainly a result of the Phase II expansion of the Elwood facility.  The full impact of all five units, totaling 750 megawatts will bolster earnings in the fourth quarter.  The fiscal year-to-date increase is primarily due to a gain on the liquidation of financial hedges associated with Phase I Elwood's gas supply requirements ($4.0 million) and additional equity investment income from the Phase II expansion ($200,000) offset, in part, by higher gas costs prior to March 1, 2001 ($1.7 million).  Effective March 1, 2001, the power sales contracts on the Phase I Elwood units were restructured to essentially eliminate Elwood's fuel price risk.

In addition to further expansion of the Elwood facility, which is permitted for a total of 3,850 megawatts in generating capacity, including 2,500 megawatts for combined-cycle power development, the Company is pursuing other power generation opportunities.  It will jointly develop and operate, with Exelon Corporation, a 350-megawatt natural gas-fired "peaker" electric plant on Chicago's southeast side.  The plant will provide reliable electricity to the city in times of high electric demand.  It is targeted to begin operations in late spring 2002.

The Company expects fiscal 2001 equity investment income to increase due to operational commencement of the 750-megawatt expansion of the Elwood facility partially offset by increased partnership interest expense resulting from a project financing of the entire 1,350-megawatt facility.  Closing on the project financing is expected to occur in the fourth quarter of fiscal 2001.

Midstream Services Segment

The Company is engaged in wholesale activities that provide value to gas distribution marketers, utilities and pipelines.  The Company, through Peoples Gas, operates a natural gas hub.  It also owns and operates, through Peoples Energy Resources Corp. (PERC), a natural gas liquids peaking facility and is active in other asset-based wholesale activities.  The Company and Enron North America, Inc. ("Enron") are equal partners in enovate, L.L.C. ("enovate"), which is expanding the Peoples Gas hub by offering additional hub services and peaking services, developing new products and pursuing strategic asset acquisitions.

Operating revenues for the three- and nine-month periods increased $15.8 million to $35.9 million and $25.3 million to $123.8 million, respectively.  Success in this segment is dependent upon capturing margin from price movements in the wholesale market.  The size of this margin can vary daily and is small in relation to the market value of the commodity.  Therefore, revenue statistics are not necessarily a good indicator of results.  Operating income and equity investment income for the three- and nine-month periods increased $6.1 million to $5.1 million and $8.6 million to $15.7 million, respectively.  The strong earnings in both current periods were primarily the result of equity investment income from enovate ($3.6 million and $9.7 million, respectively).  Results for the current three-month period also benefited from increased hub activity ($1.0 million) and other wholesale activities ($1.3 million).  Results for the nine-month period were negatively impacted by lower operating income from hub ($682,000) and peaking activities ($485,000) and earnings recognized from a nonrecurring pipeline construction project in the prior period ($1.5 million).

The Company's objective is to become the primary player in the Midwest energy market, developing additional hub services such as storage, transportation and title tracking while pursuing an exchange-traded Chicago contract.  The enovate partnership is anticipated to grow through development of new products and services, development of wholesale business for the Chicago niche marketplace and identification of asset based projects in the Chicago area that have a clear strategic fit.  The Company expects operating income and equity investment income in fiscal 2001 to increase significantly over the prior year.

Retail Energy Services Segment

The Company markets gas and electricity and provides energy management and other services to retail customers.

For the three- and nine-month periods, operating revenues increased $18.0 million to $48.3 million and $133.3 million to $245.0 million, respectively.  These increases were due mainly to increased revenues resulting from higher gas prices and from the start-up of electricity sales.  The third quarter reflected an operating loss of $739,000, an improvement of $163,000 over the prior period loss of $902,000.  The fiscal year-to-date period reflects a loss of $480,000, an improvement of $2.0 million over the prior period loss of $2.5 million.  The current quarter benefited from increased electric margins ($711,000) and lower operating costs ($203,000) over the same period a year ago.  The fiscal year-to-date benefited from a one-time change in inventory accounting methods ($1.5 million) and from higher electric margins ($1.5 million) offset by higher operating expenses ($1.0 million) related to growth.

The Company intends to develop proprietary products as it participates in the electric and gas unbundling process and will continue to build the necessary infrastructure to support its growth.  As a result of growing customer base and volumes, margin enhancement and cost management initiatives, the Company expects that the fiscal year results for this segment will show a smaller loss than last year.

Oil and Gas Production Segment

The Company is active in the acquisition, development and production of oil and gas reserves in selected onshore basins in North America.  The Company also has an equity investment in EnerVest Energy, L.P. (EnerVest) which acquires, develops and manages a portfolio of U.S. and Canadian oil and gas producing properties.  The Company's focus is on natural gas, with growth coming from low risk drilling opportunities and the acquisition of proved reserves with upside potential which can be realized through drilling, production enhancements and reservoir optimization programs.  Certain producing properties owned by the Company qualify for income tax credits as defined in Section 29 of the Internal Revenue Code of 1986.  These credits are computed based on units of production.

Operating revenues for the three- and-nine month periods increased $4.8 million to $17.1 million and $14.5 million to $37.4 million, respectively.  The increases were due to the impact of new reserve acquisitions subsequent to the year ago periods, positive results from drilling programs and higher sales prices on production volumes.  Operating income for the three- and nine-month periods increased $4.6 million to $8.0 million and $8.5 million to $14.6 million, respectively.  The increases were due primarily to higher revenue from production sales and increased equity investment income from the EnerVest partnership primarily due to the sale of developed property ($4.0 million and $5.4 million).  Offsetting these effects, in part, were higher operating expenses ($1.5 million and $3.7 million) and increased depletion expenses ($2.4 million and $5.6 million).

On April 26, 2001, the Company acquired interests in South Texas properties consisting of approximately 11,500 gross acres (8,900 net) of developed and undeveloped oil and gas leasehold, which are operated by Peoples Energy Production, the Company's oil and gas production subsidiary.  The acquired reserves, 91 percent of which are natural gas, were purchased for about $120.0 million.  The transaction increased the Company's total proved reserves to approximately 130 billion cubic feet of gas equivalent, and its net production capability to approximately 55 million cubic feet of gas equivalent per day.

Operating income in fiscal 2001 is expected to increase due to full year impacts of reserves acquired in 2000, development drilling and the impact of the South Texas acquisition.

The Company's objective is to become a top-fifty owner of natural gas reserves.  Existing oil and gas properties will be developed through drilling and operational enhancements.  The Company will continue to hedge a substantial portion of its production in order to mitigate price risk and will pursue oil and gas reserve acquisitions that are consistent with its growth strategy.

Other Segment

The Company is involved in other activities such as district heating and cooling and the development of fueling stations for natural gas vehicles.  The Company has invested in Enertech Capital Partners II, L.P., a venture capital fund specializing in energy-related and telecommunication entities.  These and certain business development activities do not fall under the above segments and are reported in the Other segment.  Results for the three- and nine-month periods were virtually unchanged from the prior year periods.

Corporate and Adjustments

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

The $1.8 million and $9.2 million decreases in operating income for the three- and nine-month periods, respectively, are mainly due to increased operating expenses.  The three- and nine-month periods reflect the mark-to-market pricing of unrealized liabilities for stock appreciation rights granted to certain employees under the Company's long-term incentive compensation plans ($695,000 and $5.3 million).  Also negatively affecting the three- and nine-month periods were increased outside services expenses ($115,000 and $1.7 million).

Other Income and Deductions

Other income and deductions for the Company for the three-month period decreased by $127,000 to $1.8 million.  For the nine-month period, other income and deductions increased by $3.6 million to $7.1 million.  Negatively affecting both periods was a $2.8 million loss due to the withdrawal from the Whitecap Energy System partnership.  Also negatively affecting the fiscal year-to-date was a loss on the disposition of equipment associated with development of the Company's Calumet site ($2.8 million).  Offsetting these impacts in both periods were interest income associated with advances to Elwood Energy ($1.7 million and $4.8 million) and interest income from a note receivable originating from the cancellation of equipment purchases associated with the development of the Company's Calumet site ($863,000 and $2.6 million).  The fiscal year-to-date also benefited from an interest rate swap ($1.5 million) and from an increase in imputed interest on amounts recoverable from customers ($1.4 million).

Other income and deductions for Peoples Gas decreased $395,000 to $768,000 and $473,000 to $1.9 million for the three- and nine-month periods, respectively.  Negatively affecting both periods was a decrease in miscellaneous revenues ($977,000 and $831,000).  Negatively impacting the fiscal year-to-date was the prior period's recognition of the allowance for other funds used during construction ($1.1 million) and a current period loss on the disposition of property ($221,000).  Offsetting these impacts were increased imputed interest on amounts recoverable from customers ($226,000 and $1.2 million) and increased income from securities ($285,000 and $357,000).

Other income and deductions for North Shore Gas decreased $71,000 to $105,000 for the three-month period due mainly to a reduction in miscellaneous interest revenues ($177,000) offset, in part, by increased income from securities ($87,000) and an increase in imputed interest recoverable from customers ($19,000).  Fiscal year-to-date reflected an increase of $51,000 to $316,000, due primarily to an increase in imputed interest recoverable from customers ($203,000) and to an increase in income from securities ($42,000) offset, in part, by a decrease in miscellaneous interest revenues ($242,000).

Interest Expense

For purposes of the following discussion, long-term obligations refer to instruments with maturity dates over one year, including obligations classified as short-term debt in the balance sheet due to tender provisions.

For the three- and nine-month periods, interest expense for the Company increased $4.9 million to $18.1 million and $16.0 million to $54.3 million, respectively.  Short-term interest expense in both periods increased primarily due to increased working capital needs of the utilities ($1.9 million and $7.3 million) partially offset by a decrease in Peoples Energy's corporate short-term interest expense ($3.3 million and $2.6 million).  Peoples Energy's long-term interest expense increased ($6.8 million and $14.9 million) due to the issuances of long-term debt in July 2000 and January 2001.  Partially offsetting these effects was lower interest on Peoples Gas' long-term debt due to prior year refinancing ($935,000 and $4.6 million).

Interest expense for Peoples Gas for the three- and nine-month periods increased $933,000 to $8.8 million and $3.3 million to $28.9 million respectively.  The increase in short-term interest expense is primarily due to additional working capital required to pay for gas supply in advance of collections from customers ($1.9 million and $7.0 million).  Peoples Gas issued $200 million in one-year notes to fund these working capital needs.  Offsetting this impact was a decrease in interest expense on long-term debt due to the prior year refinancing ($935,000 and $4.6 million).

Interest expense for North Shore Gas for the nine-month period increased $296,000 to $4.2 million due mainly to additional working capital required to pay gas supply in advance of collections from customers ($289,000).

Income Taxes

For the three and nine months ended, income taxes for the Company increased $840,000 to $4.4 million and $8.4 million to $63.5 million, respectively, due mainly to higher pre-tax income.  A partial offset for the fiscal year-to-date period was an increase of $733,000 in Section 29 tax credits associated with production from certain oil and gas production properties.

Income taxes for Peoples Gas decreased $568,000 to $5.3 million for the three months ended due mainly to lower pre-tax income.  Income taxes for the nine-month period increased $11.7 million to $61.1 million due primarily to higher pre-tax income.  For the three-month period for North Shore Gas, income taxes decreased $196,000 to $205,000 due primarily to lower pre-tax income.  Income taxes for the nine-month period increased $1.1 million to $8.6 million due mainly to higher pre-tax income.

Other Matters

On August 2, 2001, the Company announced a special early retirement program for its non-union employees.  The program will result in a one time charge (which cannot be estimated at this time) to fiscal 2001 earnings, but produce ongoing labor savings beginning in fiscal 2002.  Assuming 50% of eligible employees participate, the program is estimated to yield annual labor savings of about $7.0 million.  Benefit payments will be borne by the Company's pension plan trust, which will continue to be well funded.

Fiscal 2001 Outlook

The Company expects fiscal 2001 earnings to be consistent with its previously announced range of $3.15 to $3.25 per share.  The diversified business segments are expected to produce approximately 20 percent of the Company's total earnings.  Actual results could vary from the above estimate due to many uncertainties including fourth quarter weather, results of utility collection activities, changes in costs estimates associated with the Company's mercury inspection program and costs associated with an early retirement program.



Accounting Standards

On October 1, 2000 the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and SFAS No. 138.  See Note 1 of the Notes to Consolidated Financial Statements.  The standard involves assessing and recording the effectiveness of a cash flow hedge when incurred and may result in additional volatility in reported earnings.

In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets".  SFAS No. 141 is effective for business combinations completed after June 30, 2001 and SFAS No. 142 is effective for fiscal year 2002.  The Company does not expect the adoption of these standards to have a material effect on its financial condition or results of operations.





LIQUIDITY AND CAPITAL RESOURCES

The following is a summary of cash flows for the Company, Peoples Gas and North Shore Gas for the nine months ended June 30, 2001 and 2000:



|                                                    | The Company |            | Peoples Gas |           | North Shore Gas
|--------------------------------------------------- | ----------- | ---------- | ----------- | --------- | ---------------
|(In Thousands)                                      | 2001        | 2000       |             | 2001      | 2000           
|Net cash provided by operations                     | $102,791    | $  60,576  |             | $80,131   | $86,606        
|Net cash (used in) investing activities             | ($272,284)  | ($209,720) |             | ($79,413) | ($69,247)      
|Net cash provided by (used in) financing activities | $186,336    | $164,959   |             | $17,013   | ($16,735)      

See the consolidated statement of cash flows and the discussion of major balance sheet fluctuations for more detail.

Balance Sheet Variations

In addition to a comparison of the June 30, 2001 balance sheet to the prior fiscal year ended balance sheet, the Company, Peoples Gas and North Shore Gas have included the comparable June 30, 2000 balance sheet.  Many of the fluctuations between the current quarter and the prior fiscal year end are due to weather seasonality and volatility in natural gas prices.

The Company's total assets at June 30, 2001 increased $510.3 million, or 20 percent, from September 30, 2000.  The increase was primarily due to a $272.1 million increase in utility customer accounts receivable resulting from historically high gas prices and an increase of $46.4 million in other receivables.  Also affecting the change in total assets were increases of $87.5 million in advances to Elwood Energy for expansion of the peaking facility and $36.8 million in prepaid pension costs.  These effects were partially offset by a $49.7 million reduction in gas costs recoverable through rate adjustments and a $37.9 million reduction in gas in storage.

The utility accounts receivable balances at June 30, 2001 increased $248.5 million to $399.5 million as compared to June 30, 2000 primarily due to the higher unit cost of natural gas and the effects of colder weather.

During the first nine months of fiscal 2001, record prices for natural gas occurred during the same period as extremely cold weather.  As a consequence, the utilities have experienced an increase in past due amounts.

The utilities have offered, and many of their customers participate in, budget payment programs and other programs designed to assist customers in paying their bills and avoiding shutoff.  At June 30, 2001, over $152.0 million of receivables represented amounts owed by customers who have utilized these programs.  Timing of cash receipts and reduction of accounts receivable have been affected by these programs, making period comparison less meaningful.

Customers of the utilities have received over $39.0 million in Low Income Home Energy Assistance Program funds during this fiscal year, and the Company is actively seeking additional federal energy assistance for its customers.  The utilities have also been working with the State of Illinois and the City of Chicago to develop programs that provide funds for assistance to customers in paying off their balances.  One such program has provided $7.0 million to reduce past due balances of customers who made a required contribution.

The utilities

The Company is continuing its outreach efforts to its customers and taking serious steps to collect past due accounts, including shut offs for nonpayment.  The ultimate outcome of these efforts is uncertain, and further increases to the reserve for uncollectibles may be required in future periods.

As a means of providing stability to customer bills, Peoples Gas and North Shore Gas have begun fixing the prices to be paid to suppliers for a portion of future supply requirements of utility customers.  The program is designed to mitigate the adverse impacts of severe price volatility, our customer bills and the utilities uncollectible expense and working capital costs.  Gas purchases under the program qualify for recovery from customers under the terms of the utilities gas charge.

The Company's current liabilities rose at June 30, 2001 by $112.6 million from September 30, 2000.  The change was mostly a result of a temporary LIFO liquidation credit ($87.2 million) in the current period due to the anticipated replenishment of the lower cost LIFO price layer by fiscal year end.  Also affecting the change were increases in accrued taxes ($51.9 million) and accounts payable ($66.0 million) due to higher gas costs, partially offset by a decrease in short-term debt ($86.2 million).

Variations in the Company's deferred credits and other liabilities and accumulated other comprehensive income are due to the adoption of SFAS No. 133, (See Note 1 of the Notes to Consolidated Financial Statements.)

Total assets of Peoples Gas at June 30, 2001 increased $282.0 million, or 16 percent, from September 30, 2000 primarily due to higher customer accounts receivable ($249.9 million) and prepaid pension costs ($36.2 million).  These increases were partially offset by a decrease in gas in storage ($38.3 million) due to increased demand during colder weather periods and decreased gas costs recoverable ($40.6 million) resulting from higher gas charges and increased volumes due to colder weather.  Current liabilities increased $205.2 million due to increased accrued taxes ($50.0 million) and to a higher level of accounts payable ($43.0 million) resulting from higher gas costs.  Short-term debt was $56.2 million higher to supplement working capital needs.  The estimated LIFO liquidation credit ($70.4 million) anticipates the replenishment of the lower cost LIFO price layer by fiscal year end.  The LIFO adjustment was also greater than in the comparable fiscal year period because of additional withdrawals due to colder weather and higher gas prices.

The accounts receivable at June 30, 2001 for Peoples Gas increased $229.1 million to $364.0 million as compared to June 30, 2000 primarily due to the higher unit cost of natural gas and the effects of colder weather.  The bad debt reserve at June 30, 2001 totaled $41.1 million, an increase of $16.9 million from the June 30, 2000 balance.  The average gas charge for the current nine-month period was 70.58 cents per therm versus 35.83 cents per therm for the prior year period.



Total assets of North Shore Gas at June 30, 2001 increased $18.2 million, or seven percent, from September 30, 2000 primarily due to higher customer accounts receivable ($22.2 million).  Offsetting this effect, in part, was a decrease in gas costs recoverable ($9.1 million) resulting from higher gas charges and increased volumes due to colder weather.  Current liabilities increased $10.4 million due to increases in accrued taxes ($3.0 million) and to the estimated LIFO liquidation credit ($16.9 million) which anticipates the replenishment of the lower cost LIFO price layer by fiscal year end.  The LIFO adjustment was also greater than in the comparable fiscal year period because of additional withdrawals due to colder weather and higher gas prices.

The accounts receivable at June 30, 2001 for North Shore increased $19.4 million to $35.6 million as compared to June 30, 2000 primarily due to the higher unit cost of natural gas and the effects of colder weather.  The bad debt reserve at June 30, 2001 totaled $1.8 million, an increase of $720,000 from the June 30, 2000 balance.  The average gas charge for the current nine-month period was 70.80 cents per therm versus 36.58 cents per therm for the prior year period.

Financial Sources

In the first quarter, Peoples Gas issued short-term debt of $200 million to supplement working capital needs and replace maturing short-term obligations.  The Company, as of June 30, 2001 has lines of credit of $305.0 million and had unused credit available from banks of $221.9 million.  Peoples Gas had $190.0 million of available credit facilities of which $24.0 million was available to North Shore Gas.  At June 30, 2001, Peoples Gas had unused credit available from banks of $190.0 million of which $24.0 million was available to North Shore Gas.

In January 2001, the Company issued $325.0 million 6.9% Notes, due January 15, 2011.  In April 2001, the Company completed an exchange offering of all of its outstanding 6.9% Notes due January 15, 2011, for an equal amount of 6.9% Notes due January 15, 2011, Series A.

Financial Uses

Capital Spending.  In the nine-month period, the Company spent $203.9 million on property, plant and equipment, including partnership investments of $7.0 million.  Peoples Gas and North Shore Gas, which make up the Gas Distribution segment, spent $58.3 million, and $7.0 million, respectively on property, plant and equipment in the same period.  The remaining $138.6 million was spent by the diversified business segments as follows:  Power Generation $1.8 million; Midstream Services $1.9 million; Retail Energy Services $1.9 million, Oil and Gas Production $128.2 million and Corporate and Other $4.8 million.

The Company increased its advances to joint venture partnerships ($87.5 million) to complete the expansion of the Elwood facility.  The funds will be repaid when project financing on the entire facility is completed in the fourth quarter.

Dividends.  On February 7, 2001, the Directors of the Company voted to increase the regular quarterly dividend on the Company's common stock to 51 cents per share from the 50 cents per share previously in effect.  The annualized dividend rate is $2.04 per share.

Contingencies

Environmental Matters.  Peoples Gas and North Shore Gas are conducting environmental investigations and work at certain sites that were the location of former manufactured gas operations.  (See Note 4 of the Notes to Consolidated Financial Statements.)

In 1994, North Shore Gas received a demand from a responsible party under CERCLA for reimbursement, indemnification and contribution for response costs incurred at a former mineral processing site in Denver, Colorado.  North Shore Gas filed a declaratory judgment action in the District Court for the Northern District of Illinois asking the court to declare that North Shore Gas is not liable for response costs relating to the site.  The defendant filed a counterclaim for costs incurred by the defendant with respect to the site.  (See Note 4 of the Notes to Consolidated Financial Statements.)

Peoples Gas and North Shore Gas are conducting a mercury inspection and remediation program.  (See Note 4 of the Notes to Consolidated Financial Statements.)

Market Risk Management

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

Peoples Gas and North Shore Gas are not directly  exposed to market risk caused by changes in commodity prices.  This is due to current Illinois rate regulation, which allows for all reasonably incurred costs of natural gas to be recovered from the utilities' customers through the operation of the utilities' Gas Charges.  (See Liquidity and Capital Resources - "Balance Sheet Variations" for discussion of increased accounts receivables due to high gas prices and the related impact on bad debt reserves.)

Investments by the Company's diversified businesses are subject to a thorough analysis of related market risk and an acceptable plan for each investment formulated to manage this risk.  After a risk management program for the investment is approved, both the operating unit's and the Company's senior management are kept apprised of any remaining market risk through daily MTM reports and established notification policies.

The Company has working interests in natural gas and crude oil producing properties.  Using swaps and options, approximately 62 percent of the production estimated as of June 30, 2001 for the next twelve months is hedged, thereby removing market risk on that portion of the production.  Price movements in natural gas and crude oil swaps and futures are highly correlated to any price changes in the underlying physical commodities.  Therefore, a loss in the market value of the hedged commodity should be substantially offset by an equal gain in value resulting from the financial transaction.  Sensitivity analyses are used to estimate the Company's price exposure to the market risk of its physical natural gas and oil reserves and related financial instruments used to mitigate the price exposure.  As of June 30, 2001, the sensitivity analysis for oil and gas producing properties demonstrated an instantaneous 10 percent adverse movement in the NYMEX forward curve for natural gas and oil would have reduced future Earnings Before Income Taxes (EBIT) by approximately $14.4 million for all proved reserves.

The Company sells fixed price and variable priced products as part of its retail energy services businesses.  Risk is reduced through the use of fixed price supplier contracts and future contracts that hedge the expected price for monthly volume of customer usage.  Variations in monthly actual usage from expected usage can expose the Company to additional price risk.  Risk management trading and optimization of storage assets are utilized to mitigate this intramonth risk.  As of June 30, 2001, the exposure from open financial positions was immaterial.

The Elwood partnership owns a natural gas-fired electric generating peaking facility.  Elwood has agreed to sell all of the facility's current generation capacity and energy produced at fixed demand and commodity charges under multi-year contracts.  The power sales contracts with the customers were renegotiated March 1, 2001 to essentially eliminate fuel price risk.  Therefore, Elwood has no price risk for fuel purchases or power sales during the term of these contracts.

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

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

The Company manages its interest rate risk exposure by maintaining a mix of fixed and variable rate debt.  The Company currently has outstanding a mix of $302.0 million in variable rate bonds and notes (taxable and tax-exempt) and $280.0 million in other short-term borrowings. Assuming interest rates are 10 percent higher than the rates reported at the end of June 30, 2001, the Company's annualized interest expense would increase by approximately $2.4 million before considering the effect of income taxes.

Included in the Company's variable rate debt are its $100.0 million Notes due August 1, 2002.  The Company's interest rate risk has been further reduced due to an interest rate swap effective February 1, 2001, to fix the rate for $75.0 million of the $100.0 million at 6.8 percent.

OPERATING STATISTICS

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





|                                   |  |  |  | Three Months Ended |  | Nine Months Ended
|---------------------------------- |  |  |  | ------------------ |  | -----------------
|                                   |  |  |  | June 30,           |  | June 30,         
|                                   |  |  |  | 2001               |  | 2000             
|Operating Revenues(In Thousands):  |  |  |  |                    |  |                  
|Gas Distribution Sales             |  |  |  |                    |  |                  
|Residential                        |  |  |  |                    |  |                  
|Heating                            |  |  |  | $   154,622        |  | $ 138,904        
|Non-heating                        |  |  |  | 11,618             |  | 10,714           
|Commercial                         |  |  |  | 18,933             |  | 21,599           
|Industrial                         |  |  |  | 2,422              |  | 2,291            
|                                   |  |  |  | 187,595            |  | 173,508          
|                                   |  |  |  |                    |  |                  
|Gas Distribution Transportation    |  |  |  |                    |  |                  
|Residential                        |  |  |  | 5,751              |  | 6,311            
|Commercial                         |  |  |  | 8,116              |  | 8,400            
|Industrial                         |  |  |  | 4,261              |  | 5,283            
|Contract Pooling                   |  |  |  | 6,088              |  | 1,614            
|                                   |  |  |  |                    |  |                  
|                                   |  |  |  | 24,216             |  | 21,608           
|                                   |  |  |  |                    |  |                  
|Other Gas Distribution Revenues    |  |  |  | 7,183              |  | 4,599            
|                                   |  |  |  |                    |  |                  
|Diversified Segment Revenues       |  |  |  | 99,507             |  | 61,533           
|                                   |  |  |  |                    |  |                  
|                                   |  |  |  |                    |  |                  
|Total Operating Revenues           |  |  |  | 318,501            |  | 261,248          
|Less - Cost of Energy Sold         |  |  |  | 183,892            |  | 127,766          
|                                   |  |  |  |                    |  |                  
|Gross Margin                       |  |  |  | $   134,609        |  | $ 133,482        
|                                   |  |  |  |                    |  |                  
|Gas Distribution Deliveries(MDth): |  |  |  |                    |  |                  
|Gas Sales                          |  |  |  |                    |  |                  
|Residential                        |  |  |  |                    |  |                  
|Heating                            |  |  |  | 13,527             |  | 17,480           
|Non-heating                        |  |  |  | 562                |  | 660              
|Commercial                         |  |  |  | 1,824              |  | 3,032            
|Industrial                         |  |  |  | 324                |  | 272              
|                                   |  |  |  | 16,237             |  | 21,444           
|                                   |  |  |  |                    |  |                  
|Transportation                     |  |  |  |                    |  |                  
|Residential                        |  |  |  | 3,284              |  | 3,916            
|Commercial                         |  |  |  | 6,617              |  | 7,562            
|Industrial                         |  |  |  | 5,599              |  | 7,679            
|                                   |  |  |  | 15,500             |  | 19,157           
|                                   |  |  |  |                    |  |                  
|Total Gas Distribution Deliveries  |  |  |  | 31,737             |  | 40,601           





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





|                                  |  |  |  | Three Months Ended |  | Nine Months Ended
|--------------------------------- |  |  |  | ------------------ |  | -----------------
|                                  |  |  |  | June 30,           |  | June 30,         
|                                  |  |  |  | 2001               |  | 2000             
|Operating Revenues(In Thousands): |  |  |  |                    |  |                  
|Gas Sales                         |  |  |  |                    |  |                  
|Residential                       |  |  |  |                    |  |                  
|Heating                           |  |  |  | $ 129,211          |  | $ 117,753        
|Non-heating                       |  |  |  | 11,320             |  | 10,439           
|Commercial                        |  |  |  | 16,147             |  | 18,276           
|Industrial                        |  |  |  | 1,560              |  | 1,648            
|                                  |  |  |  | 158,238            |  | 148,116          
|                                  |  |  |  |                    |  |                  
|Transportation                    |  |  |  |                    |  |                  
|Residential                       |  |  |  | 5,530              |  | 6,048            
|Commercial                        |  |  |  | 7,213              |  | 7,278            
|Industrial                        |  |  |  | 3,636              |  | 4,556            
|Contract Pooling                  |  |  |  | 5,848              |  | 1,428            
|                                  |  |  |  |                    |  |                  
|                                  |  |  |  | 22,227             |  | 19,310           
|                                  |  |  |  |                    |  |                  
|Diversified Segment Revenues      |  |  |  | 1,479              |  | 951              
|                                  |  |  |  |                    |  |                  
|Other                             |  |  |  | 6,718              |  | 3,647            
|                                  |  |  |  |                    |  |                  
|Total Operating Revenues          |  |  |  | 188,662            |  | 172,024          
|Less - Gas Costs                  |  |  |  | 86,245             |  | 66,699           
|                                  |  |  |  |                    |  |                  
|Gross Margin                      |  |  |  | $ 102,417          |  | $ 105,325        
|                                  |  |  |  |                    |  |                  
|Deliveries (MDth):                |  |  |  |                    |  |                  
|Gas Sales                         |  |  |  |                    |  |                  
|Residential                       |  |  |  |                    |  |                  
|Heating                           |  |  |  | 11,032             |  | 14,526           
|Non-heating                       |  |  |  | 539                |  | 630              
|Commercial                        |  |  |  | 1,559              |  | 2,531            
|Industrial                        |  |  |  | 221                |  | 158              
|                                  |  |  |  | 13,351             |  | 17,845           
|                                  |  |  |  |                    |  |                  
|Transportation                    |  |  |  |                    |  |                  
|Residential                       |  |  |  | 3,180              |  | 3,784            
|Commercial                        |  |  |  | 5,859              |  | 6,433            
|Industrial                        |  |  |  | 4,561              |  | 6,462            
|                                  |  |  |  | 13,600             |  | 16,679           
|                                  |  |  |  |                    |  |                  
|Total Deliveries                  |  |  |  |                    |  |                  





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



|                                  |  |  |  | Three Months Ended |  | Nine Months Ended
|--------------------------------- |  |  |  | ------------------ |  | -----------------
|                                  |  |  |  | June 30,           |  | June 30,         
|                                  |  |  |  | 2001               |  | 2000             
|Operating Revenues(In Thousands): |  |  |  |                    |  |                  
|Gas Sales                         |  |  |  |                    |  |                  
|Residential                       |  |  |  |                    |  |                  
|Heating                           |  |  |  | $  25,411          |  | $  21,151        
|Non-heating                       |  |  |  | 298                |  | 275              
|Commercial                        |  |  |  | 2,786              |  | 3,323            
|Industrial                        |  |  |  | 862                |  | 643              
|                                  |  |  |  | 29,357             |  | 25,392           
|                                  |  |  |  |                    |  |                  
|Transportation                    |  |  |  |                    |  |                  
|Residential                       |  |  |  | 221                |  | 263              
|Commercial                        |  |  |  | 903                |  | 1,122            
|Industrial                        |  |  |  | 625                |  | 727              
|Contract Pooling                  |  |  |  | 240                |  | 187              
|                                  |  |  |  |                    |  |                  
|                                  |  |  |  | 1,989              |  | 2,299            
|                                  |  |  |  |                    |  |                  
|Other                             |  |  |  | 465                |  | 272              
|                                  |  |  |  |                    |  |                  
|Total Operating Revenues          |  |  |  | 31,811             |  | 27,963           
|Less - Gas Costs                  |  |  |  | 18,575             |  | 13,623           
|                                  |  |  |  |                    |  |                  
|Gross Margin                      |  |  |  | $  13,236          |  | $  14,340        
|                                  |  |  |  |                    |  |                  
|Deliveries (MDth):                |  |  |  |                    |  |                  
|Gas Sales                         |  |  |  |                    |  |                  
|Residential                       |  |  |  |                    |  |                  
|Heating                           |  |  |  | 2,495              |  | 2,954            
|Non-heating                       |  |  |  | 23                 |  | 30               
|Commercial                        |  |  |  | 265                |  | 501              
|Industrial                        |  |  |  | 103                |  | 114              
|                                  |  |  |  | 2,886              |  | 3,599            
|                                  |  |  |  |                    |  |                  
|Transportation                    |  |  |  |                    |  |                  
|Residential                       |  |  |  | 104                |  | 132              
|Commercial                        |  |  |  | 758                |  | 1,129            
|Industrial                        |  |  |  | 1,038              |  | 1,217            
|                                  |  |  |  | 1,900              |  | 2,478            
|                                  |  |  |  |                    |  |                  
|Total Deliveries                  |  |  |  | 4,786              |  | 6,077            



The following table represents operating statistics for the Oil and Gas Production segment:



|                              |  | Three Months Ended |  | Nine Months Ended
|----------------------------- |  | ------------------ |  | -----------------
|                              |  | June 30,           |  | June 30,         
|                              |  | 2001               |  | 2000             
|                              |  |                    |  |                  
|Average daily production:     |  |                    |  |                  
|Gas (MMCFD)                   |  | 44.6               |  | 38.4             
|Oil (MBOD)                    |  | 1.2                |  | 1.3              
|Gas equivalent (MMCFED)       |  | 51.8               |  | 46.4             
|                              |  |                    |  |                  
|Average daily hedged volumes: |  |                    |  |                  
|Gas (MMCFD)                   |  | 29.5               |  | 26.7             
|Oil (MBOD)                    |  | 0.5                |  | 0.4              
|                              |  |                    |  |                  
|Percentage hedged:            |  |                    |  |                  
|Gas                           |  | 66%                |  | 70%              
|Oil                           |  | 41%                |  | 30%              
|                              |  |                    |  |                  
|Average hedge price:          |  |                    |  |                  
|Gas ($/MCF)                   |  | $        3.26      |  | $        2.40    
|Oil ($/BBL)                   |  | $       20.18      |  | $       18.75    
|                              |  |                    |  |                  
|Net realized price:           |  |                    |  |                  
|Gas ($/MCF)                   |  | $        3.64      |  | $        2.66    
|Oil ($/BBL)                   |  | $       20.91      |  | $       24.31    
|Equivalent ($/MCFE)           |  | $        3.62      |  | $        2.90    





FORWARD LOOKING INFORMATION

The MD&A contains statements that may be considered forward-looking, such as management's expectations, the statements of the Company's business and financial goals regarding its business segments, the effect of weather on net income, cash position, source of funds, financing activities, market risk, the insignificant effect on income arising from changes in revenue from customers' gas purchases from entities other than the gas distribution utility subsidiaries, and environmental matters.  These statements speak of the Company's plans, goals, beliefs, or expectations, refer to estimates or use similar terms.  Actual results could differ materially, because the realization of those results is subject to many uncertainties including:

- the future health of the U.S. and Illinois economies;

- the timing and extent of changes in energy commodity prices, including but not limited to the effect of unusually high gas prices on cost of gas supplies, accounts receivable and the provision for uncollectible accounts, and interest expense;

- litigation concerning North Shore Gas' liability for CERCLA response costs relating to a former mineral processing site in Denver, Colorado;

- developments regarding Peoples Gas' and North Shore Gas' mercury investigation and remediation program;

- regulatory developments in the U.S., or in Illinois and other states where the Company does business;

- changes in the nature of the Company's competition resulting from industry consolidation, legislative change, regulatory change and other factors, as well as action taken by particular competitors;

- the Company's success in identifying diversified business segment projects on financially acceptable terms and generating earnings from projects in a reasonable time;

- drilling risks and the inherent uncertainty of gas and oil reserve estimates;

- weather related energy demand;

- the timing and extent of changes in interest rates; and

- employee participation in the Company's early retirement program and changes in the Company's future labor requirements and costs.



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



ITEM 3.  Quantitative and Qualitative Disclosures about Market Risk

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





PART II.   OTHER INFORMATION

|                                                                                                                  
|------------------------------------------------------------------------------------------------------------------
|Item 1.  Legal Proceedings                                                                                        
|                                                                                                                  
|See Note 4 of the Notes to Consolidated Financial Statements for a discussion pertaining to environmental matters.

|Item 5. Other Information
|-------------------------
|                         
|None.                    

|Item 6.  Exhibits and Reports on Form 8-K
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| |  |  |                                                      
| |  |  | -----------------------------------------------------
| |  |  | Date of Report - June 29, 2001                       
| |  |  | Item 5 - Other Events                                
| |  |  | Item 9 - Financial Statements and Exhibits           
| |  |  | Forward Looking Financial Information - Press Release

| | The Peoples Gas Light and Coke Company:
| | ---------------------------------------
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| | North Shore Gas Company:               
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|Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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|Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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|Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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